Opinion
Case No. 07-52890-ASW Adversary No. 09-5074
10-31-2011
In re: OLD T.B.R., INCORPORATED, f/k/a/ THE BILLING RESOURCE, dba INTEGRETEL, a California corporation, Debtor. OLD T.B.R., INCORPORATED, f/k/a/ THE BILLING RESOURCE dba INTEGRETEL, Plaintiff, v. THE BILLING RESOURCE, LLC, a Delaware limited liability company, Defendants. THE BILLING RESOURCE, LLC, a Delaware limited liability company, Counterclaimant, v. OLD T.B.R., INCORPORATED, f/k/a/ THE BILLING RESOURCE dba INTEGRETEL, Counterdefendant.
MEMORANDUM DECISION RE
THREE MOTIONS FOR SUMMARY ADJUDICATION
Before the Court are three motions for summary adjudication -- two filed by plaintiff Kerry Krisher, Liquidating Trustee as successor to Debtor ("Liquidating Trustee") and one filed by defendant The Billing Resource, LLC ("New TBR"). The three motions seek summary adjudication as follows:
First, Liquidating Trustee and New TBR both seek partial summary adjudication as to the ability of New TBR to charge Debtor for accelerated dilutions -- the so-called "910 Account" -- related to billing transactions submitted prior to the sale of Debtor's operating assets to New TBR and which were still in "the pipeline" at of the time of the sale. The parties essentially have filed cross-motions for summary adjudication relating to the approximately $1.3 million charged by New TBR to Liquidating Trustee relating to the "910 Account."
Second, Liquidating Trustee seeks partial summary adjudication relating to New TBR's assertion that Debtor failed to turn over control of certain 800 numbers in breach of the Asset Purchase Agreement between New TBR and Debtor.
Third, New TBR seeks partial summary adjudication that the amount which Liquidating Trustee does not contest is owed to New TBR -- approximately $868,000 -- should be paid to New TBR now.
Fourth, New TBR asserts Debtor is required to reimburse New TBR approximately $65,500 for a shortfall in the minimum amount paid to Qwest Corporation ("Qwest") under two agreements with Qwest which New TBR assumed as part of the sale of Debtor's operating assets to New TBR.
Fifth, New TBR asserts Debtor is liable for "trailing dilution" and "true-up charges" related to PaymentOne Corporation ("PaymentOne") in the approximate amount of $96,500 because PaymentOne is a non-Nelson Gross entity.
Sixth, New TBR requests interest on the amounts awarded to New TBR as well as a determination that New TBR is the prevailing party and is entitled to reimbursement of attorney fees and costs.
A lengthy hearing was held on June 28, 2011. The motions were submitted for decision after supplemental papers were filed with the Court. Liquidating Trustee is represented by Gail S. Greenwood, Esq. of Pachulski Stang Ziehl & Jones LLP. New TBR is represented by Kathryn S. Diemer, Esq. of Diemer, Whitman & Cardosi, LLP and John Greene, Esq. of Klein Zelman Rothermel LLP.
This Memorandum Decision constitutes the Court's findings of fact and conclusions of law, pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure.
I.
FACTUAL BACKGROUND
Debtor filed a chapter 11 bankruptcy petition on September 16, 2007 as a result of litigation filed by the Federal Trade Commission against Debtor, two prior corporate customers of Debtor, and other defendants in the United States District Court for the Southern District of Florida. As part of Debtor's chapter 11 case, Debtor sold Debtor's assets and confirmed a liquidating chapter 11 plan. Liquidating Trustee succeeded to Debtor's rights in this litigation under Debtor's confirmed plan.
A. Debtor's Business Structure
Debtor was a billing aggregator and provided billing-related and other services for smaller private telecommunications companies that compete with local exchange carriers ("LECs") in niche areas such as public pay phones, hotels and prisons ("Alternative Operator Services"). Private telecommunications companies that, provide Alternative Operator Services have difficulty billing for "collect" and other types of calls, since most individuals do not pay invoices from these unknown companies and those companies cannot bill the individuals through the individual's normal telephone bill. Debtor was created in 1988 to address this void in the marketplace. Debtor had billing and collection agreements with an estimated 1,400 LECs -- both major local exchange companies and numerous independents. Debtor's infrastructure permitted private telecommunications providers to incorporate such providers' charges into the phone bills of more than 90% of business and residential consumers throughout the United States and Canada.
An individual or entity who used the telecommunications services of an Alternative Operator Service ("End-User") provided information that would permit the Alternative Operator Service to charge the End-User's telephone bill for those telecommunication services. The Alternative Operator Service -- a customer of Debtor -- provided the End-User billing transaction information to Debtor in a data format acceptable to Debtor, as required by the typical service contract between Debtor and Debtor's customers.
Debtor bundled the End-User billing transaction information from Debtor's various customers by LEC as a Purchase of Accounts Receivable ("PAR"). Debtor submitted the various PARs to different LECs for processing. The LEC then included the Alternative Operator Service's charge on the End-User's bill. The End-User either paid or disputed the Alternative Operator Service charge. If the End-User paid the charge, the LEC would pay Debtor as part of the PAR in which the End-User's billing transaction information was included. On a daily basis and throughout each day, the LECs made payments into Debtor's "wire in" account based on the PARs Debtor previously submitted to the LECs.
The service contracts with Debtor's customers provided that each week Debtor transfer by wire to Debtor's customers' bank accounts the net proceeds identified in the prior week as defined by the service contracts. The service contracts provided detailed formulas for computing the amounts Debtor owed to Debtor's customers. Both the LECs and Debtor withheld certain funds, including fees, unbillables (receivables that the LECs could not bill), uncollectibles, dilutions, adjustments and taxes, from the full amount of the customer's billing transaction.
Debtor's individual customers were identified by unique client numbers. Debtor captured the weekly customer settlement data in Settlement Statement History Reports ("Settlement Reports"), which were created for Debtor's individual customers and provided to the respective customer. Liquidating Trustee contends for the first time in Liquidating Trustee's Response to the Court's written comments ("Trustee's Response") filed on June 15, 2011 that under the service contracts, Debtor paid Debtor's customers for submitted call traffic approximately 90 days after the submission of the billing transaction, and generally before the LECs paid Debtor. Although there is no evidence in the record on the motions that such is the case, this contention is consistent with the service contracts between Debtor and Debtor's customers as well as the Court's understanding of Debtor's business operations. It is unclear whether New TBR contests this contention.
Final reconciliation of the PARs submitted to the LECs could take as long as 20 months to complete. Debtor maintained certain reserves for disputes, fees and other adjustments which Debtor recorded as bookkeeping entries only. One of the general ledger accounts was the 910 Account.
1. The 910 Account
Pre-petition, Debtor "accelerated" dilution by charging dilution to Debtor's customers as soon as a LEC advised Debtor that a dilution could be expected. A LEC would inform Debtor that the LEC would dilute a certain batch of submitted PARs by a certain amount of money. Because the PARs related to several customers and Debtor did not know to which customer(s) the dilution related, Debtor used a formula to dilute the weekly settlement amounts to be paid to Debtor's customers whose accounts receivable were part of the PAR which the LEC was going to dilute. In order to keep track of the dilutions which Debtor had already charged to Debtor's customers, Debtor made an offsetting entry in the 910 Account. Thus, the 910 Account was essentially a general ledger account that reflects Debtor's financial position vis-a-vis the overall LEC transactions. In other words, the 910 Account captures the variance between (a) dilution that Debtor has billed to customers and (b) dilution that Debtor has been charged by LECs.
As a result of accelerated dilution, Debtor often withheld amounts from settlements with Debtor's customers on account of the accelerated dilution even though the corresponding charge from the LECs had not yet passed through to Debtor. The practical effect of taking the accelerated dilution for Debtor was that Debtor essentially had a one-time cash flow benefit at the inception of acceleration by paying customers less than the customers were otherwise due on a given settlement. Once the LEC actually charged the dilution, Debtor attempted to true-up the prior projected customer dilution with the actual dilution using the information provided by the LECs' reconciliation of the PARs. Debtor would perform the client settlement true-up according to the service contract and would "zero out" the "910 Account" journal entry.
2. The 800 Numbers
LECs require that billing aggregators -- such as Debtor --provide toll-free numbers with live customer service to End-Users to facilitate billing and other inquires from End-Users. LECs typically charge fees to billing aggregators in order to change the toll-free numbers that are printed on the End-Users' bills.
Debtor formed PaymentOne in 2000 as a wholly-owned subsidiary to address the specialized billing and support requirements of the internet. Debtor owned 97% of PaymentOne at the time Debtor filed Debtor's chapter 11 bankruptcy petition. In March 2006, Debtor contracted with PaymentOne for data processing and support services ("Data Processing Agreement"). The Data Processing Agreement included Debtor's use of certain 800 Numbers ("800 Numbers") for customer services and inquiry support. The 800 Numbers were provided to the LECs and printed on the telephone bills sent out by the LECs to the End-Users. There is no dispute that Debtor had been using the 800 Numbers for many years before March 2006.
Liquidating Trustee asserts that in January 2006, Debtor transferred all rights and interest in the 800 numbers to PaymentOne, shortly before Debtor entered into the Data Processing Agreement with PaymentOne. New TBR disputes this contention and asserts that, as of the petition date, Debtor had control over the 800 Numbers, not PaymentOne.
B. The Sale of the Operating Assets to New TBR
Post-petition, New TBR acquired the assets that made up Debtor's billing services business ("Operating Assets") on a going concern basis as part of a sale under Bankruptcy Code section 363 ("Sale"). The Sale was approved by the Court pursuant to an order entered on October 16, 2008 ("Order"). As part of the Sale, Debtor and New TBR entered into an Asset Purchase Agreement ("APA") and a Master Services Agreement ("MSA"). These documents govern the obligations between the parties with respect to, inter alia, customer accounts, reserves and the billing pipeline.
1. Post-Sale Relationships
Debtor's business structure essentially had two separate, but interrelated, accounting processes. First, there was the settlement process between Debtor and Debtor's customers. To the extent Debtor paid Debtor's customers before the LECs paid Debtor on a respective PAR, Debtor "advanced" funds to Debtor's customers which Debtor then reconciled when Debtor received the funds from the LECs. The "Debtor-customer" accounting also included reconciliation of any "accelerated" dilutions from the 910 Account. The second accounting process was between Debtor and the LECs. Since each PAR typically involved billing transactions for more than one customer, Debtor accounted for funds paid by the LECs on account of the PARs, and then included that information in the settlement process with Debtor's customers. As noted above, the "Debtor-LEC" accounting could take up to 20 months to reconcile in full.
The Sale interrupted both of these processes. Under Section 7.3 of the APA, Debtor was to receive all proceeds from billing transactions submitted to the LECs prior to the close of the Sale ("Retained Billing Transactions"). New TBR was to receive all proceeds from billing transactions submitted to LECs after the close of the Sale. Because the LECs had established procedures to transfer funds through Debtor's "wire-in" account, Debtor's "wire-in" account was transferred to New TBR upon the close of the Sale and Debtor no longer had access to the proceeds from the billing transactions. New TBR and Debtor entered into the MSA whereby New TBR agreed to service the Retained Billing Transactions for Debtor. Under the MSA, all amounts in the "wire-in" account were to be transferred to Debtor without deduction or offset for the first 32 days after the Effective Date of the Sale. Thereafter, New TBR was to forward to Debtor on a weekly basis all monies received by New TBR on account of the Retained Billing Transactions, less certain charges.
Also as part of the Sale, PaymentOne and New TBR entered into a Shared Support and Services Agreement as of October 31, 2008 ("SSSA"). PaymentOne and New TBR also entered into an amended Data Processing Agreement, as the Data Processing Agreement was assigned to New TBR under the APA.
2. Post-Sale Litigation
Disputes between New TBR and Debtor as well as between New TBR and PaymentOne arose post-Sale. Both New TBR and PaymentOne initiated lawsuits relating to both New TBR's assertion that the 800 Numbers belonged to New TBR as well as disputes regarding the amounts due under the SSSA and the amended Data Processing Agreement. New TBR and PaymentOne settled all of their disputes as of January 27, 2011.
Prior to New TBR and PaymentOne filing the litigation referenced above, Debtor filed this lawsuit on March 18, 2009, asserting that New TBR's failure to make payments to PaymentOne as required under the MSA was impacting a proposed sale of Debtor's interest in PaymentOne. On August 31, 2009, Debtor filed an amended complaint seeking a determination that Debtor did not need to turn the 800 Numbers over to New TBR under the APA as well as disputing the amounts New TBR charged Debtor under the MSA. Debtor also asserted claims for breach of contract and breach of the implied covenant of good faith and fair dealing. Liquidating Trustee substituted in as plaintiff on September 18, 2009. New TBR filed an answer and counterclaim on September 30, 2009. Liquidating Trustee filed an answer to New TBR's counterclaim on October 20, 2009. The parties subsequently filed the motions for summary adjudication described above, which are currently pending before this Court.
II.
APPLICABLE LAW
A motion for summary adjudication should be granted if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). The moving party bears the initial burden of informing the court of the basis for the motion, and identifying portions of the pleadings, depositions, answers to interrogatories, admissions, or affidavits which demonstrate the absence of a triable issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
If the moving party meets its initial burden, the burden shifts to the non-moving party to present specific facts showing that there is a genuine issue of material fact for trial. Celotex, 477 U.S. at 324. The evidence and all reasonable inferences therefrom must be viewed in the light most favorable to the non-moving party. T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 630-31 (9th Cir. 1987). The nonmoving party has a duty to present affirmative evidence in order to defeat a properly supported motion for summary adjudication. Anderson, 477 U.S. at 257. Summary adjudication is not appropriate if the non-moving party presents evidence from which a reasonable jury could resolve the disputed issue of material fact in his or her favor. Anderson, 477 U.S. at 248; Barlow v. Ground, 943 F.2d 1132, 1136 (9th Cir. 1991).
III.
ANALYSIS
A. 910 Account
Regarding the cross-motions for summary adjudication relating to the 910 Account, New TBR and Liquidating Trustee have different interpretations of the APA and MSA. The Court can resolve this dispute based on the language of these documents for three reasons, First, the parties do not believe that either the APA or MSA is ambiguous. Second, Section 8.5 of the APA contains an express integration clause which provides in relevant part that the terms of the APA "supersede and cancel all prior agreements, negotiations, correspondence, undertakings, understandings and communications of the parties, oral and written, with respect to the subject matter hereof or thereof." APA, Section 8.5. Third, the parties have uniformly testified that there were no discussions regarding the 910 Account, or the concept of "balancing out" the ledger account prior to the Sale.
In analyzing the parties' papers, the Court has discovered a factual premise on which the parties disagree, and for which the Court finds no evidentiary support in the papers filed with these motions. Specifically, Liquidating Trustee asserts in Trustee's Response that:
Generally speaking, TBR [Debtor] paid its clients for the submitted call traffic before the LECs had paid TBR. When the LECs did pay, they did so based on a PAR ("Purchase of Accounts Receivable"). TBR would then reconcile the PAR with what they expected to receive from the LEC.Trustee's Response at 5:9-12. This assertion is consistent with the service contracts between Debtor and Debtor's customers as well as the Court's understanding of how Debtor conducted Debtor's business. However, there is no evidentiary support in the record in these motion papers for Liquidating Trustee's statement.
New TBR's argument assumes that any accelerated dilution is a windfall for Debtor and that Debtor would be unable to charge Debtor's customer subsequently for the alleged one-time cash flow benefit Debtor received at the inception of the acceleration. However, that may not be the case. If Debtor generally paid Debtor's customers before the LECs paid Debtor, then an accelerated dilution is not necessarily the windfall for Debtor that New TBR asserts. Rather, the accelerated dilution would be a credit to Debtor for the monies Debtor already advanced to Debtor's customer, and for which the customer would subsequently be liable when Debtor subsequently reconciled the PAR payment. To the extent that Debtor's customer is ultimately liable for an accelerated dilution rather than Debtor, under this Court's interpretation of the APA and the MSA, New TBR should not charge Debtor. In an effort to further this litigation, the Court will explain how the Court construes the APA and MSA and let the parties analyze further whether New TBR's charges for the 910 Account comport with the Court's interpretation.
Liquidating Trustee asserts that under Section 1.7 of the APA, New TBR acknowledged that the Sale was "as is" and without any representations. Section 1.7 provides:
PURCHASER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS OTHERWISE MAY BE EXPRESSLY PROVIDED HEREIN, SELLER MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, WITH RESPECT TO THE OPERATING ASSETS OR ANY OTHER MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, INCOME TO BE DERIVED OR EXPENSES TO BE INCURRED IN CONNECTION WITH THE OPERATING ASSETS, THE PHYSICAL CONDITION OF THE OPERATING ASSETS, THE VALUE OF THE OPERATING ASSETS, THE TERMS, AMOUNT, VALIDITY OR ENFORCEABILITY OF ANY ASSUMED LIABILITIES, THE MERCHANTABILITY OR FITNESS OF THE OPERATING ASSETS FOR ANY PARTICULAR PURPOSE, OR ANY OTHER MATTER OR THING RELATING TO THE OPERATING ASSETS. WITHOUT IN ANY WAY LIMITING THE FOREGOING, SELLER HEREBY DISCLAIMS ANY WARRANTY, EXPRESS OR IMPLIED, OF MERCHANTABILITY OR FITNESS OF THE OPERATING ASSETS FOR ANY PARTICULAR PURPOSE. PURCHASER FURTHER ACKNOWLEDGES THAT PURCHASER HAS CONDUCTED AN INDEPENDENT INSPECTION AND INVESTIGATION OF THE OPERATING ASSETS AND ALL SUCH OTHER MATTERS RELATING TO OR AFFECTING THE OPERATING ASSETS AS PURCHASER DEEMED NECESSARY OR APPROPRIATE AND THAT IN PROCEEDING WITH ITS ACQUISITION OF THE OPERATING ASSETS, EXCEPT FOR ANY REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH HEREIN, PURCHASER IS DOING SO BASED SOLELY UPON SUCH INDEPENDENT INSPECTIONS AND INVESTIGATIONS. ACCORDINGLY, EXCEPT AS EXPRESSLY SET FORTH ELSEWHEREAPA, Section 1.7. New TBR counters that Section 1.7 of the APA is not applicable because the "AS IS" clause is qualified by the phrase "EXCEPT AS OTHERWISE MAY BE EXPRESSLY PROVIDED HEREIN" in two respects. First, Section 1.2 of the APA provides that Debtor shall be responsible to New TBR for liabilities and obligations under the LEC Agreements prior to the Effective Time. Section 1.2 of the APA provides in relevant part:
HEREIN, PURCHASER WILL ACCEPT THE OPERATING ASSETS AT THE CLOSING "AS IS," "WHERE IS," AND "WITH ALL FAULTS."
Seller [Debtor] shall be responsible to Purchaser [New TBR] as provided in the LEC Servicing Agreement [the MSA] entered into by the parties and attached hereto as Exhibit E for liabilities and obligations arising under the LEC Agreements prior to the Effective Time.APA, Section 1.2. Second, Section 7.3 of the APA provides that Debtor's rights to the funds received on account of the Retained Billing Transactions are subject to New TBR's rights under the MSA. Section 7.3 of the APA provides in relevant part:
The parties agree that all funds received on account of Billing Transactions submitted to Telcos [LECs], as those terms are defined in the LEC Servicing Agreement [the MSA], prior to the Effective Time ("Seller's Pipeline Funds") belong to Seller [Debtor], subject to Purchaser's [New TBR's] rights set forth in the LEC Servicing Agreement.APA, Section 7.3. The Court agrees with New TBR that the "AS IS" clause of Section 1.7 of the APA is qualified by Sections 1.2 and 7.3 of the APA. Thus, the issue to be analyzed is what are New TBR's rights under the MSA in the Retained Billing Transactions.
According to New TBR, under Section 2 of the MSA, Debtor or Debtor's customers remain responsible for all costs and expenses directly or indirectly related to the Retained Billing Transactions. Section 2 of the MSA provides in full:
2. NEWCO SERVICES. NEWCO [New TBR] shall provide the following services (each a "Service Order") as more fully described on the referenced Schedules, attached hereto and made a part hereof.MSA, Section 2. New TBR asserts that the "accelerated" dilutions referenced in the 910 Account are indirect costs related to the Retained Billing Transactions and are the responsibility of Debtor or Debtor's customers. Liquidating Trustee asserts that any accelerated dilutions referenced in the 910 Account are already accounted for in the client settlement system and the 910 Account is simply a reminder of how much unreconciled dilution has already been passed down to Debtor's customers.
Sched # Service Order Options Included
II PhoneBill Services (Telco [LEC] Billing) (X)
VI End-User Inquiry (X)
(required with Service Order II or III)
Client [Debtor] and/or Integretel [Debtor] Clients shall remain responsible for any and all costs and expenses directly or indirectly related to Billing Transactions submitted to the LECs prior to the Effective Date of this Agreement, including, but not limited to Unbillables, Adjustments, Uncollectibles and Other Deductions.
New TBR asserts that Sections 5 and 6 of Schedule II of the MSA allow New TBR to recover amounts attributable to the deceleration of dilution based on Debtor's prior "accelerated" dilution. Sections 5 and 6 provide in full:
5. OTHER DEDUCTIONS.MSA, Schedule II, Sections 5 and 6. Liquidating Trustee asserts that the amount New TBR can charge the bankruptcy estate is limited to those charges allowed under MSA, Schedule II, Section 6(b) (quoted above) only.
a) Telco TLECI Fees. NEWCO [New TBR] shall be entitled to recover all Telco-imposed processing and other charges associated with Integretel [Debtor] Clients' Billing Transactions ("Telco Fees").
b) Client Reserve. Client [Debtor] may withhold and maintain, from amounts otherwise due to Integretel Clients, reasonable reserves to protect Client from credit losses with respect to such Integretel Clients provided that, if NEWCO and Client mutually agree in
writing, Client shall reduce such reserve amounts for those Integretel Clients with which NEWCO has entered into a new services contract effective on or after the Effective Date hereof, and Client may withdraw the amount of the reduction from the Disbursement Reserve.
6. SETTLEMENT OF AMOUNTS DUE. (a) Client shall be entitled to all amounts collected from the TELCOs on Integretel Clients' Billing Transactions submitted to the TELCOs prior to the Effective Date ("Settled Amounts"), less any amounts due and owing to NEWCO, or which NEWCO is entitled to withhold, hereunder including, without limitation, Unbillables, Adjustments, Telco Holdbacks, excess Uncollectibles (pursuant to any True-Up), Taxes, Fees and Telco Fees (such difference being the "Net Proceeds"). For the first 32 days after the Effective Date, all Settled Amounts shall be transferred without deduction or offset to Client's designated account, as provided in the APA. Thereafter, all Settled Amounts shall be paid to NEWCO and NEWCO shall transfer each week, by wire to Client's, or at Client's written request, to Integretel's Client's bank accounts, the Net Proceeds identified the prior week.
(b) In the event that the calculation of Net Proceeds yields a negative amount for an Integretel Client, NEWCO shall invoice Client for such negative amount and Client shall, within five (5) business days, reimburse such negative amount to NEWCO out of the funds held in the Disbursement Reserve or other Client funds. However, in the event that no funds remain in the Disbursement Reserve attributable to a particular Integretel Client and either (i) NEWCO has notified Client not to withhold reserve amounts with respect to such Integretel Client or (ii) the Integretel Client is an Affiliate (as defined in the APA) of NEWCO, then NEWCO shall offset such negative amounts from amounts otherwise due directly from NEWCO to such Integretel Client or collect such negative amount from such Integretel Client and not from Client.
(c) The parties shall work in good faith to inform each other and reconcile the amounts due to/from each Integretel Client. Client may reduce the amount held in the Disbursement Reserve by any amounts withheld from Settled Amounts by NEWCO for Telco True-ups and by any amounts paid to NEWCO under this Section 6 from the Disbursement Reserve.
Under Section 7.3 of the APA, Debtor is to receive all proceeds from the billing transactions submitted to the LECs prior to the close of the Sale and New TBR is to receive all proceeds from billing transactions submitted to the LECs after the close of the Sale. If prior to the Sale, Debtor had withheld settlement funds from a customer based on an indication from a LEC that there would be a future dilution to a Retained Billing Transaction, Debtor would have allocated the future dilution to the weekly settlement for that customer and reduced the settlement proceeds accordingly. To the extent that Debtor had previously "advanced" settlement funds to that customer, the accelerated dilution merely "repaid" Debtor for those advances, for which the customer would have been responsible in any event. Debtor would have accounted for the accelerated dilution in the 910 Account.
Assume for a moment that the Sale had not taken place. If there had been no Sale, when the LEC eventually paid the PAR, Debtor would have reconciled the accelerated dilution with the actual dilution, made an appropriate adjustment to the customer's weekly Settlement Report, and made an appropriate adjustment to the 910 Account. Now assume that the PAR had not yet been paid on the date of the Sale. As of the Sale, there would have been an entry for the accelerated dilution in the 910 Account and an accelerated dilution withheld from the customer. When the LEC paid the PAR post-Sale, the LEC would have withheld monies on account of the dilution from the monies paid to New TBR. According to New TBR, because the withheld funds relate to a Retained Billing Transaction, either Debtor or Debtor's customer is responsible for the monies withheld by the LEC, not New TBR. This is consistent with the language of Section 7.3 of the APA. New TBR then asserts that under Section 2 of the MSA, and because Debtor had previously withheld monies on account of the accelerated dilution, Debtor --not Debtor's customer -- should be responsible for paying the monies previously withheld on account of the accelerated dilution. According to New TBR, New TBR has withheld the amounts diluted by the LEC from monies to be paid to Debtor as a reduction from the "910 Account" on New TBR's invoice.
However, New TBR's analysis does not account for Debtor's alleged general practice of advancing payments on billing transactions to Debtor's customers before Debtor received funds from the LECs. For example, assume Debtor advanced funds on a Retained Billing Transaction submitted by one of Debtor's customers and the PAR, which included that Retained Billing Transaction, remained unpaid as of the Sale. When the PAR is paid post-Sale by the LEC, and if the LEC payment includes a dilution on which Debtor had taken a pre-Sale accelerated dilution, it should be the customer -- not Debtor -- who is responsible for any and all costs and expenses related to that Retained Billing Transaction up to the point of any unpaid advance. This is because when Debtor advanced funds to the customer pre-Sale and then subsequently applied a dilution, the dilution offset the amount the customer owed Debtor for the advanced funds. New TBR's analysis assumes that all accelerated dilutions were gains to Debtor and that there were no amounts which a customer owed to Debtor at the time of an accelerated dilution to which Debtor could apply an offset. This assumption is likely not correct.
It is not readily apparent that New TBR's invoicing for the 910 Account takes into account Debtor's alleged general practice of advancing funds to Debtor's customers. Accordingly, at this time, the Court will not determine whether the bankruptcy estate is liable for the 910 Account charges and, if so, in what amount.
B. 800 Numbers
Liquidating Trustee seeks a determination that Liquidating Trustee had no obligation to transfer the 800 Numbers to New TBR as part of the Sale and, therefore, Liquidating Trustee is not liable for any alleged damages based on Debtor's alleged failure to transfer the 800 Numbers to New TBR. Through the briefing on this matter, both parties now agree that 800 numbers are tariffed numbers which cannot be owned by an entity under rulings of the Federal Communications Commission. As explained by New TBR, 800 numbers are managed by responsible organizations ("resporgs"). If an entity seeks to re-provision an 800 number -- i.e., transfer the 800 number from one billing organization to another under the portability doctrine -- the resporg is the entity to which such a request is made. Qwest, with which Debtor had an existing relationship, was the resporg for the 800 Numbers published on the LEC bill pages with whom Debtor had the right to place charges.
This 800 Number dispute arose when Nelson Gross -- on behalf of New TBR -- sent a provisioning request to Qwest to transfer the 800 Numbers to Global Crossing -- a different resporg -- and that request was blocked because PaymentOne claimed to control the 800 Numbers. Ultimately, PaymentOne permitted the transfer of the 800 Numbers under the settlement agreement between New TBR and PaymentOne, and the 800 Numbers have been transferred to New TBR.
The central issue is what -- if any -- rights to the 800 Numbers Debtor had at the time that Debtor sold the Operating Assets to New TBR. According to Liquidating Trustee, in January 2006 -- prior to filing for bankruptcy, Debtor transferred all of Debtor's rights and interest in the 800 Numbers to PaymentOne, shortly before Debtor entered into the Data Processing Agreement with PaymentOne in March 2006. Liquidating Trustee relies on the following evidence to support Liquidating Trustee's interpretation that the 800 Numbers were controlled by PaymentOne. First, the Data Processing Agreement which provides that "800 toll free numbers shall be supplied by PAYONE [PaymentOne] at it's (sic) own expense." Data Processing Agreement, Schedule 2.1, Section B-1, Paragraph 8.
Second, Ken Dawson, one of the co-founders of Debtor and former president as well as a member of the board of directors for nearly 20 years, testified in deposition that at some point pre-petition, Debtor outsourced Debtor's customer inquiry responsibilities to PaymentOne. At the time of the outsourcing, PaymentOne was Debtor's wholly-owned subsidiary. Debtor transferred control and/or responsibility of the 800 Numbers to PaymentOne because the underlying vender who provided the inquiry services to PaymentOne needed control over the 800 Numbers. According to Mr. Dawson's deposition testimony, when Debtor transferred control, Debtor transferred to PaymentOne the management, billing, payment, service ordering, and ability to change carriers -- essentially, whatever was needed to keep the 800 Numbers alive and operating became the responsibility of PaymentOne.
Third, in the declaration of Brad Singer, Vice President of PaymentOne, filed on June 29, 2009 in relation to the disputes between New TBR and PaymentOne, Mr. Singer declares that Debtor did not own the 800 Numbers. Mr. Singer states that it was PaymentOne who owned the 800 Numbers and PaymentOne made the 8 00 Numbers available to Debtor under the Data Processing Agreement. According to Mr. Singer, New TBR did not purchase the 800 Numbers as part of the Sale and PaymentOne did not consent to the transfer of the 800 Numbers to either Debtor or New TBR.
New TBR disputes that the 800 Numbers were actually controlled by PaymentOne and that Debtor merely subcontracted for the use of the 800 Numbers and asserts that there is a triable issue of fact in this regard based on several grounds. However, as explained below, except in one possible instance, the Court finds there are no genuine issues of material fact that would preclude granting Liquidating Trustee's motion for summary adjudication regarding the 800 Numbers.
First, New TBR asserts that New TBR assumed two contracts between Qwest and Debtor ("Qwest Agreements") as part of the APA. Qwest is the provisioner for the 800 Numbers, so it is the Qwest Agreements that affect the right to maintain the 800 Numbers in question, not the Data Processing Agreement. On June 1, 2011, New TBR filed with the Court copies of the two Qwest Agreements New TBR assumed as part of the Sale. However, neither agreement addresses the right to maintain the 800 Numbers in question. The assumed Qwest Agreements are: (1) an agreement for the provision of billing and collection services for enhanced telecommunications service between the Debtor and Qwest; and (2) an agreement for the provision of billing and collection services for message telephone service and 900 service between Debtor and Qwest. Neither agreement addresses the provision and payment of the 800 Numbers and so does not contradict Liquidating Trustee's evidence.
Second, New TBR does not dispute that the 800 Numbers are not listed on either Debtor's bankruptcy schedules or in the APA. New TBR asserts that because an entity cannot "own" an 800 number, it makes sense that Debtor would not list the 800 Numbers as an asset on Debtor's bankruptcy schedules and would not list the 800 Numbers in the APA. New TBR contends that Debtor's listing of the. two Qwest Agreements shows that Debtor controlled the 800 Numbers; however, as noted above, the record does not support that contention.
Third, New TBR cites to various portions of Mr. Dawson's deposition testimony to counter Liquidating Trustee's alleged undisputed facts. Specifically, New TBR asserts that in Mr. Dawson's deposition, Mr. Dawson acknowledged that the 800 Numbers had existed since as early as 1988 and that PaymentOne was not formed until 2000. However, such a fact does not create a dispute of material fact since Debtor transferred control over the 800 Numbers to PaymentOne in January 2006. New TBR further asserts that Mr. Dawson acknowledged that it is the carriers who own 800 numbers. As noted above, this is the case. The central issue here is what -- if any -- rights to the 800 Numbers Debtor had at the time that Debtor sold the Operating Assets to New TBR. New TBR asserts that because Debtor held a 97% interest in PaymentOne on the petition date, Debtor controlled PaymentOne and could have directed PaymentOne to transfer the 800 Numbers to New TBR. However, even if that were the case, Debtor's 97% interest in PaymentOne does not prove that Debtor controlled the 800 Numbers at the time of the Sale and that the 800 Numbers were part of the Sale.
Fourth, New TBR asserts that through Debtor's use of the 800 Numbers on the bill pages over time, the 800 Numbers acquired an "inherent intellectual property value" and all intellectual property needed to operate the Operating Assets subject to the Sale was transferred to New TBR under Section 1.1(c) of the APA. Section 1.1(c) of the APA provides:
On the terms and subject to the conditions set forth in this Agreement, at the Closing (but effective as of the Effective Time) Seller [Debtor] shall sell, convey, assign, transfer and deliver to Purchaser [New TBR], and Purchaser shall purchase, acquire and accept from Seller, free and clear of all liens, claims and encumbrances (except for the Assumed Liabilities), all of Seller's right, title and interest in and to all of the assets, properties and business of every kind and description, wherever located, real, personal or mixed, tangible or intangible, owned or held by Seller as the same existed immediately prior to the Closing other than the Excluded Assets, including without limitation all rights, title and interest of Seller as of the Closing Date, in, to and under the following (the "Operating Assets"):APA, Section 1.1(c). Section 9.1 of the APA provides certain definitions for the APA. Relevant to this dispute are:
. . .
(c) the Owned Intellectual Property, subject to rights set forth in the P1 Support Services Agreement (as defined in Section 2.2) to be delivered at Closing;
For all purposes of this Agreement, except as otherwise expressly provided or unless the context clearly requires otherwise:APA, Section 9.1(m) and (o). Nothing in the plain language of the definitions of Intellectual Property or Owned Intellectual Property covers the 800 Numbers.
. . .
(m) "Intellectual Property" means (a) Copyrights, Patents, Software, Trademarks, and Internet domain names, (b) confidential or proprietary information that derives economic value (actual or potential) from not being generally known to other persons who can obtain economic value from its disclosure, but excluding any Copyrights or Patents that cover or protect any of the foregoing, including but not limited to customer information, market research information, and the like, and (c) all other proprietary rights recognized under the laws of any jurisdiction in the world in concepts, ideas, designs, plans, schematics, drawings, specifications, research and development information, technology and product roadmaps, technology, know-how, proprietary technology, processes, formulae, algorithms, models, inventions, discoveries, improvements, methodologies, architecture, structure, layouts, and inventions.
. . .
(o) "Owned Intellectual Property" means all Intellectual Property owned by Seller [Debtor].
Fifth, New TBR contends that Debtor had control over, or responsibility for, the 800 Numbers at the time of the Sale. New TBR asserts that the Data Processing Agreement was merely a contract with PaymentOne for inquiry support services and did not affect Debtor's right to maintain the 800 Numbers, which had been used by the LECs for Debtor's billing since Debtor's inception. As evidence in support for New TBR's assertions that Debtor always controlled the rights to the 800 Numbers, New TBR cites to the declaration of Jennifer Truitt ("Truitt Declaration") filed on October 18, 2010 in one of the adversary proceedings between New TBR and PaymentOne. New TBR cites the Truitt Declaration for the first time in New TBR's response to the Court's written comments ("New TBR's Response") filed on June 15, 2011. According to the Truitt Declaration, Ms. Truitt worked at PaymentOne from 2003 through December 2008 in various operational and management capacities. Prior to working for PaymentOne, Ms. Truitt worked for Debtor since 1998 in capacities similar to those in which Ms. Truitt worked for PaymentOne. Ms. Truitt's last position with PaymentOne was as Vice President of Operations.
Ms. Truitt was responsible for call center relations at Debtor throughout Ms. Truitt's tenure at Debtor (1998-2003) and PaymentOne (2003-2008). Ms. Truitt then provides various testimony based in large part on information and belief. On November 1, 2010, PaymentOne filed an objection to paragraphs 8 through 14 of the Truitt Declaration ("Objection"). The Objection is based in large part on the lack of foundation, relevance and inadmissible lay opinion. The Objection was not. ruled upon in the litigation between New TBR and PaymentOne because the parties settled that dispute before the motion for which the Truitt Declaration was filed was decided.
At the June 28 hearing, Liquidating Trustee noted that the Truitt Declaration is subject to the Objection and that Ms. Truitt: is offering lay opinion; does not have personal knowledge of the legal issues before this Court; and does not know the legal details between the parties. To the extent the Truitt Declaration is based on information and belief, the evidentiary objection to the Truitt Declaration should be sustained.
The Court has reviewed paragraphs 8 through 14 of the Truitt Declaration. Ignoring all testimony based on information and belief in those paragraphs, Ms. Truitt's resulting testimony is as follows:
Part of Ms. Truitt's duties involved arranging the routing of toll-free numbers that were required to be included in the telephone bills sent to End-Users so the End-Users had a knowledgeable party in addition to the LEC to call for inquiries or complaints about the charges. When Ms. Truitt first moved from Debtor to PaymentOne, PaymentOne was using the call center of ICT Group ("ICT") in Lakeland, Florida. Thereafter, Ms. Truitt arranged to change PaymentOne's call center to KM Solutions, LLC ("KM"). The KM call centers used by PaymentOne to answer customer inquiry calls were located in the Caribbean -- first in St. Lucia and then in Grenada.
required PaymentOne to make KM
the responsible party controlling the toll-free numbers for KM
's own internal purposes because of KM
When PaymentOne made the change from ICT to KM, Ms. Truitt managed the long distance contract -- apparently between Debtor and MCI, although the declaration is not clear on this point -- that included the toll-free numbers for Debtor, even though Ms. Truitt was employed by PaymentOne. When PaymentOne retained KM, KM
's location in the Caribbean.
since January 1, 2010. On March 10, 2011, Liquidating Trustee filed an objection and motion to strike the Meyer Declaration. Liquidating Trustee asserts that the Meyers Declaration is a late submission of irrelevant factual evidence. The Court agrees. The Meyers Declaration has no bearing on the issue regarding control of the 800 Numbers and Liquidating Trustee's evidentiary objection is sustained, although the Court will not strike the Meyers Declaration.
Ms. Truitt was still an employee of PaymentOne at the time that the Operating Assets were sold to New TBR. Based on Ms. Truitt's experience with Debtor and PaymentOne as well as Ms. Truitt's involvement in the industry in general, Ms. Truitt is experienced in the operational aspects of customer service and call center operations and the use and transfer of toll-free customer service numbers. Based on that experience, Ms. Truitt cannot identify an operational or logistical reason for a party in PaymentOne's position to avoid redirecting toll-free numbers that appear on Debtor's bill pages to a call center designated by the purchaser of the LEC contracts of Debtor.
The limited resulting testimony of Ms. Truitt does not provide a sufficient basis upon which this Court can find that there is a genuine issue of material fact as to PaymentOne's and Debtor's respective rights to the 800 Numbers at the time of the Sale that would preclude summary adjudication. New TBR first relied on the Truitt Declaration in New TBR's Response filed on June 15, 2011, and Liquidating Trustee first raised the issue of the evidentiary objection at the June 28, 2011 hearing. Thus, this Memorandum Decision is the first indication to New TBR that large portions of the Truitt Declaration on which New TBR relies will not be considered by the Court.
Finally, New TBR relies on the declaration of Evan Meyer filed on March 9, 2011 ("Meyer Declaration"). The Meyer Declaration purports to authenticate over 1700 pages of documents representing a detailed call history for all inbound 8XX number calls received by KM
Based on Liquidating Trustee's evidence, Debtor did not control the 800 Numbers at the time of the Sale, PaymentOne controlled the 800 Numbers. Accordingly, the 800 Numbers were not part of the APA and Debtor had no obligation to turn the 800 Numbers over to New TBR under the APA. New TBR has presented insufficient evidence to show that there is a genuine dispute of material fact regarding this issue.
However, as noted above, this Memorandum Decision is the first indication to New TBR that large portions of the Truitt Declaration on which New TBR relies will not be considered by the Court and that all other evidence provided by New TBR fails to show that there is a genuine issue of material fact requiring a trial. Because New TBR might be able to provide a declaration of Ms. Truitt that does not raise valid evidentiary objections and which demonstrates that there is a genuine issue of material fact requiring a trial, the Court will give New TBR until November 28, 2011 to file such a declaration. If New TBR files such a declaration, Liquidating Trustee will have until December 9, 2011 to respond to that declaration and to the issue of whether that declaration raises a genuine issue of material fact requiring a trial. The Court will hold a continued hearing on the motion for summary adjudication regarding the 800 Numbers on December 15, 2011 at 3:00 p.m. If no such declaration is filed, Liquidating Trustee may submit a proposed order after review by counsel for New TBR and the Court will grant partial summary adjudication in favor of Liquidating Trustee regarding the 800 Numbers without a further hearing.
C. New TBR's Counterclaims
1. Paying Uncontested Amounts Now
New TBR seeks partial summary adjudication for $868,031.00, the amount which Liquidating Trustee's expert, Ian Ratner, concludes that the bankruptcy estate owes New TBR. New TBR also seeks interest and attorneys fees on this amount. In Mr. Ratner's expert report dated May 7, 2010, Mr. Ratner states that Mr. Ratner reviewed New TBR's invoices for January 2009 through February 2010. Based on those invoices, Mr. Ratner calculates that the bankruptcy estate owes New TBR: $35,354.01 for service inquiry fees for customers no longer billing with New TBR; $180,000 in monthly service fees due under the MSA; $637,403.88 in dilution and LEC true-up charges for customers no longer billing with New TBR; and $15,272.77 for dilution and LEC true-up charges for non-Nelson Gross entities billing with New TBR.
Liquidating Trustee opposes partial summary adjudication on the two grounds. First, Liquidating Trustee contends that New TBR should be required to produce the actual invoices before relief is granted. However, Liquidating Trustee consents to New TBR's claim being liquidated at $868,031.00 as of February 28, 2010, if New TBR agrees that New TBR's claim -- which seeks a judgment for $2,354,314 -- is $868,031.00 as to all amounts that may be invoiced by New TBR to the bankruptcy estate through February 28, 2010. Second, Liquidating Trustee asserts that the bankruptcy estate has no obligation to pay New TBR now because there can be only one judgment in this case.
New TBR's Response states that "summary judgment should be entered in favor of New TBR for at least $868,031.00." New TBR's Response at 20:2-3 (emphasis added). It is unclear to what extent New TBR still disagrees with the calculations of Mr. Ratner. As part of New TBR's motion for summary adjudication, New TBR has not submitted or authenticated the invoices for January 2009 through February 2010. Rather, New TBR is relying on Mr. Ratner's review of those invoices to adjudicate the amounts owed. It is unclear whether New TBR's reservation of rights is for the remaining disputed claims -- namely, the 910 Account charges, the Qwest reimbursement, and the PaymentOne trailing dilution and true-up charges -- or whether New TBR reserves the right to adjust New TBR's invoices to the bankruptcy estate for January 2009 through February 2010. If New TBR chooses to rely solely on Mr. Ratner's expert report for the bankruptcy estate's liability for $868,031.00, then New TBR needs to limit New TBR's claims to the invoices reviewed by Mr. Ratner in preparing Mr. Ratner's report. If New TBR is going to seek (or reserves the right to seek) more than the $868,031.00 at a later time, then New TBR needs to present evidence, namely the actual invoices, that would support New TBR's complete claim. Because it is unclear whether New TBR consents to have the amounts owed between the parties as of February 28, 2010 limited to the invoices reviewed by Mr. Ratner, New TBR's motion is denied without prejudice on this issue.
Because the Court is denying this part of New TBR's motion without prejudice, the Court does not reach the issue of whether this Court can or should issue a partial judgment requiring these funds to be paid to New TBR under Federal Rule of Civil Procedure 54(b).
2. Qwest Reimbursement
New TBR also asserts that Debtor is required to reimburse New TBR for $65,511.48 representing a shortfall charge New TBR received from Qwest for Debtor's failure to meet Debtor's required minimum payments under the two Qwest Aqreements New TBR assumed as part of the Sale. The dispute involves the legal interpretation of Paragraph 14 of the Order which provides in relevant part:
As to Qwest Corporation ("QC"), notwithstanding any other provision of this Order or the APA,Order at 8:24 - 9:4. Liquidating Trustee contends that New TBR's request for reimbursement is for unpaid pre-Sale annual service commitments under the two assumed Qwest Agreements and, under the express language of Paragraph 14(a) of the Order, New TBR is solely liable for that obligation.
(a) the Purchaser [New TBR] will be liable for any failure to satisfy annual service commitments under the (a) Agreement for the Provision of Billing and Collection Services for Enhanced Telecommunications Service (the "ETS B&C Agreement") between the Debtor and QC and
(b) Agreement for the Provision of Billing and Collection Services for Message Telephone Service and 900 Service (the "MTS B&C Agreement" and together with the ETS B&C Agreement, the "B&C Agreements"), regardless of whether the shortfall relates to periods commencing before, but ending after, the Closing of the Sale;
(b) the Purchaser will pay any shortfall owed to QC under the B&C Agreements, regardless of when the shortfall accrued;
According to New TBR, Paragraph 14(b) of the Order governs this dispute and, while New TBR is obligated to pay the shortfall, New TBR has a right to invoice the bankruptcy estate for all Qwest fees under Section 1.2 of the APA and Paragraph 13 of the Order. Section 1.2 of the APA provides in relevant part:
Seller [Debtor] shall be responsible to Purchaser [New TBR] as provided in the LEC Servicing Agreement [the MSA] entered into by the parties and attached hereto as Exhibit E for liabilities and obligations arising under the LEC Agreements prior to the Effective Time.APA, Section 1.2. Paragraph 13 of the Order provides in relevant
part:
The payment of the Cure Amount to a non-debtor party to an Assigned Contract which is assumed and assigned pursuant to the APA or this Order shall forever bar and discharge any claim of the non-debtor party to such Assigned Contract as to the Debtor, and the sole and exclusive remedy as to the Debtor of a non-debtor party to an Assigned Contract with respect to claims arising prior to the Closing of the Sale shall be to receive the Cure Amount with respect to such Assigned Contract. . . . Purchaser shall be entitled to recover from the Debtor any amounts paid or withheld on account of obligations under the LEC Agreements arising prior to the Effective Time of the Sale upon the terms set forth in the APA.Order at 8:14-23 (emphasis added).
The Court has reviewed the two Qwest Agreements provided by New TBR. The two Qwest Agreements only provide for minimal annual amounts at paragraph 6 of each agreement. Accordingly, the charges for which New TBR seeks reimbursement from the bankruptcy estate properly fall under Paragraph 14(a) of the Order and only New TBR -- not the bankruptcy estate -- is liable for these fees. New TBR's motion for partial summary adjudication on this issue is denied.
3. PaymentOne Trailing Dilution and True-Up Charges
New TBR asserts that Debtor is liable for trailing dilutions and true-up charges related to PaymentOne in the amount of $96,568.76 because PaymentOne is a non-Nelson Gross entity. As explained at the June 28, 2011 hearing, due to the settlement agreement between New TBR and PaymentOne, PaymentOne assigned to New TBR PaymentOne's administrative claim of approximately $107,000. Liquidating Trustee agreed that under the settlement between New TBR and PaymentOne, New TBR would receive the amounts currently held by Liquidating Trustee in the disbursement reserve -- whether as based on the assignment under the settlement or based on New TBR's claim under the MSA. Accordingly, it appears that there is no need for this Court to resolve whose interpretation of the MSA is correct: (a) New TBR's assertion that there is no provision in the APA or MSA that mandates that New TBR first charge trailing dilutions or true-ups to the current client traffic of New TBR's clients -- and New TBR can choose whether to charge Debtor's customers or Debtor; or (b) Liquidating Trustee's interpretation of Schedule II, Paragraphs 2-4 of the MSA which requires that all Unbillables, Adjustment and Uncollectibles be applied in accordance with the standard methodology in effect immediately prior to the Effective Date -- namely that dilution events first be applied to the client's current traffic.
New TBR's motion for partial summary adjudication is denied as moot.
4. Interest: and Attorneys Fees
Finally, New TBR requests interest on the amounts awarded as well as a determination that New TBR is the prevailing party and is entitled to reimbursement of attorneys' fees and costs. However, the Court is not awarding any amounts to New TBR at this time, so there is no need to decide these issues now. New TBR's request is denied without prejudice as being premature.
IV.
CONCLUSION
For the foregoing reasons, it is not readily apparent that New TBR's invoicing for the 910 Account takes into account Debtor's alleged general practice of advancing funds to Debtor's customers. Accordingly, at this time, the Court will not determine whether the bankruptcy estate is liable for the 910 Account charges and, if so, in what amount.
Based on Liquidating Trustee's evidence, Debtor did not control the 800 Numbers at the time of the Sale, PaymentOne controlled the 800 Numbers. Accordingly, the 800 Numbers were not part of the APA and Debtor had no obligation to turn the 800 Numbers over to New TBR under the APA. New TBR has presented insufficient evidence to show that there is a genuine issue of material fact regarding this issue. However, because New TBR might be able to provide a declaration of Ms. Truitt that does not raise valid evidentiary objections and which demonstrates that there is a genuine issue of material fact requiring a trial, the Court will give New TBR until November 28, 2011 to file such a declaration. If New TBR files such a declaration, Liquidating Trustee will have until December 9, 2011 to respond to that declaration and to the issue of whether that declaration raises a genuine issue of material fact requiring a trial. The Court will hold a continued hearing on the motion for summary adjudication regarding the 800 Numbers on December 15, 2011 at 3:00 p.m. If no such declaration is filed, Liquidating Trustee may submit a proposed order after review by counsel for New TBR and the Court will grant partial summary adjudication in favor of Liquidating Trustee regarding the 800 Numbers without a further hearing.
Regarding New TBR's motion for summary adjudication on the counterclaims, because it is unclear whether New TBR consents to have the amounts owed between the parties as of February 28, 2010 limited to the invoices reviewed by Mr. Ratner, New TBR's motion for an award of $868,031.00 is denied without prejudice. Because the Qwest reimbursement charges properly fall under Paragraph 14(a) of the Order, only New TBR -- not the bankruptcy estate -- is liable for these fees and New TBR's motion for partial summary adjudication on this issue is denied. Because under the settlement between New TBR and PaymentOne, New TBR would receive the amounts currently held by Liquidating Trustee in the disbursement reserve -- whether as based on the assignment under the settlement or based on New TBR's claim under the MSA, New TBR's motion for partial summary adjudication is denied as moot.
Finally, because the Court is not awarding any amounts to New TBR at this time, New TBR's request for interest on the amounts awarded as well as a determination that New TBR is the prevailing party and is entitled to reimbursement of attorneys' fees and costs, is denied without prejudice as being premature.
Counsel for Liquidating Trustee shall submit a form of order consistent with this decision as to Liquidating Trustee's motions after review by New TBR as to form. Counsel for New TBR shall submit a form of order consistent with this decision as to New TBR's motion after review by Liquidating Trustee as to form.
ARTHUR S. WEISSBRODT
UNITED STATES BANKRUPTCY JUDGE
Court Service List
Kathryn S. Diemer, Esq.
Diemer, Whitman & Cardosi, LLP
75 East Santa Clara Street, Suite 290
San Jose, CA 95113-1806
Sean Moynihan, Esq.
John Greene, Esq.
Klein Zelman Rothermel LLP
485 Madison Avenue
New York, New York 10022
Gail S. Greenwood, Esq.
Pachulski Stang Ziehl Young & Jones
150 California Street, 15th Floor
San Francisco, CA 94111-4500
Steven H. Warren, Esq.
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, Ca 90071-2899
(courtesy copy)
John S. Wesolowski, Esq.
Office of the U.S. Trustee
U.S. Federal Bldg.
280 S 1st St. #268
San Jose, CA 95113-3004