Aimtree Co. v. AT & T Corp. (In re Aimtree Co.)

202 B.R. 154, 1996 U.S. Dist. LEXIS 16643, 1996 WL 648526
CourtDistrict Court, D. Kansas
DecidedOctober 7, 1996
DocketCivil Action No. 96-MC-208-GTV; Bankruptcy No. 94-22154-11-JTF; Adversary No. 96-6002
StatusPublished
Cited by3 cases

This text of 202 B.R. 154 (Aimtree Co. v. AT & T Corp. (In re Aimtree Co.)) is published on Counsel Stack Legal Research, covering District Court, D. Kansas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Aimtree Co. v. AT & T Corp. (In re Aimtree Co.), 202 B.R. 154, 1996 U.S. Dist. LEXIS 16643, 1996 WL 648526 (D. Kan. 1996).

Opinion

MEMORANDUM AND ORDER

VAN BEBBER, Chief Judge.

This matter comes before the court on defendant’s objections to the Proposed Findings of Fact and Conclusions of Law submitted to the court by Bankruptcy Judge Flan-nagan, pursuant to 28 U.S.C. § 157(c)(1) and Bankruptcy Rule 9033. Plaintiff opposes defendant’s objections and moves for adoption of the proposed findings. For the reasons set forth below, the proposed findings are adopted.

I. Factual Background

Plaintiff filed a voluntary Petition for Relief under Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 1101 et seq., on November 18, 1994, in the United States Bankruptcy Court for the District of Kansas. On January 4, 1996, plaintiff then commenced an adversary proceeding in which it sought an injunction restraining defendant from refusing to provide technical and maintenance services on certain telecommunications equipment in plaintiff’s possession.

After holding a series of hearings on plaintiffs adversary complaint, the bankruptcy court determined that a preliminary injunction was in order. Because it did not have statutory authority to enter an injunction in this “non-core” proceeding, however, the bankruptcy court, pursuant to 28 U.S.C. § 157(e)(1), submitted “Proposed Findings of Fact and Conclusions of Law” for review in the district court.1 In its proposed findings, the bankruptcy court suggested that a preliminary injunction be entered requiring defendant to provide plaintiff with both parts and technical services for the telephone switch and software through which plaintiff provides telecommunication services. Specifically, the court recommended ordering defendant “to replace worn tapes and a tone board and to perform any other services needed to insure [that] the computer involved will not crash.”

II. Standard of Review

In reviewing a bankruptcy court’s proposed findings of fact and conclusions of law in a non-core proceeding, the district court must examine de novo “those matters to which any party has timely and specifically objected.” Bankruptcy Rule 9033.

III.Discussion

Preliminary injunctive relief may be granted only if the moving party can establish that: (1) the movant party will suffer irreparable injury unless the injunction issues; (2) the threatened injury to the movant outweighs whatever damage the proposed in[157]*157junction may cause the opposing party; (3) the injunction, if issued, would not be adverse to the public interest; and (4) there is a substantial likelihood that the movant will eventually prevail on the merits.2 Kansas Health Care Ass’n, Inc. v. Kansas Dep’t of Social and Rehabilitation Servs., 31 F.3d 1536, 1542 (10th Cir.1994). The court will analyze each element in turn.

A.Irreparable Injury

A party seeking injunctive relief first must demonstrate that it will suffer irreparable injury unless an injunction is issued. The bankruptcy court found that plaintiff had satisfied this element by showing that its reorganization efforts would “be irreparably harmed by the revenue loss that would result from a crash of the AT & T switch.” Defendant objects to the court’s conclusion on the ground that it improperly assumes the switch is in immediate danger of crashing.

This court finds that plaintiff has satisfied the “irreparable injury” requirement. John Liehtenauer, AT & T’s own field engineer, testified that both the backup tapes and the tone board on plaintiffs switch need to be replaced. While the switch can function without backup tapes, operating the system in such a manner creates the potential for total loss of translation data if the system crashes. It is impossible to determine whether plaintiffs operating system might crash. Indeed, while Mr. Liehtenauer opined that the switch was not “in imminent danger of crashing,” he conceded under cross-examination that there is no way to anticipate such an occurrence. What is certain, however, is that without the backup tapes, plaintiff has no safeguards to protect its investment in the telecommunications equipment.

Moreover, plaintiff can not purchase replacement tapes or obtain necessary repairs from secondary market technicians. The switch’s components consist almost entirely of unpublished AT & T proprietary software. Because the software is password protected, only an AT & T technician can perform sophisticated repairs. AT & T, however, has refused to provide plaintiff with any equipment or technical assistance. Without purchasing an entirely new system — at a cost of several hundred thousand dollars — plaintiff is, therefore, forced to walk a narrow financial tightrope. The court concludes that such a scenario is sufficient to satisfy the “irreparable injury” element of the preliminary injunction test.

B. Balancing of Injuries

Plaintiff also must establish that its threatened injury outweighs whatever damage the injunction may cause the defendant. If the injunction is not issued, and plaintiffs operating system fails, plaintiff would be unable to provide long distance service to its more than 500 customers. These customers would most likely take their business elsewhere, and the resulting loss in revenue would thwart a successful reorganization.

Defendant, meanwhile, would suffer little, if any, prejudice from the issuance of an injunction. Plaintiff has agreed to pay defendant, in advance if necessary, for all services performed. Moreover, the proposed injunction embraces a very limited duration; the bankruptcy court recommended that it run only until plaintiffs reorganization plan is confirmed. After balancing the interests of the parties, this court concludes that plaintiff has met its burden of establishing that its threatened injury outweighs the potential damage to defendant.

C. Public Interest

Next, the court must address defendant’s claim that the injunction would undermine the strong public interest in permitting citizens to contract vel non with whomever they choose. Defendant argues that the proposed injunction “essentially im[158]*158poses a new contract upon AT & T” and that “AT & T wants no part of this contract.” Although the court agrees that “it is a matter of great public concern that the freedom of contract be not lightly interfered with,” Steele v. Drummond, 275 U.S. 199, 205, 48 S.Ct. 53, 54, 72 L.Ed. 238 (1927), the court disputes the contention that the injunction imposes any new obligations upon defendant. Indeed, under the product agreement that defendant entered into with plaintiff on March 31, 1992, defendant is already obligated to provide the necessary parts and services for plaintiffs switch.

Defendant argues that the warranties covering both the hardware and software associated with the AT & T switch have expired. The court concurs. Defendant’s duties, however, do not arise from the warranties, but from the implicit terms and conditions of the contract. Although the warranties are no longer operative, the contract remains in effect.

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Bluebook (online)
202 B.R. 154, 1996 U.S. Dist. LEXIS 16643, 1996 WL 648526, Counsel Stack Legal Research, https://law.counselstack.com/opinion/aimtree-co-v-at-t-corp-in-re-aimtree-co-ksd-1996.