In re Worldcom, Inc.

492 B.R. 696, 2013 WL 3199294, 2013 Bankr. LEXIS 2574, 58 Bankr. Ct. Dec. (CRR) 25
CourtUnited States Bankruptcy Court, S.D. New York
DecidedJune 26, 2013
DocketCase No. 02-13533
StatusPublished

This text of 492 B.R. 696 (In re Worldcom, Inc.) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, S.D. New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Worldcom, Inc., 492 B.R. 696, 2013 WL 3199294, 2013 Bankr. LEXIS 2574, 58 Bankr. Ct. Dec. (CRR) 25 (N.Y. 2013).

Opinion

Chapter 11

MEMORANDUM OPINION AND ORDER GRANTING DEBTORS’ SECOND MOTION FOR PARTIAL SUMMARY JUDGMENT

MARTIN GLENN, UNITED STATES BANKRUPTCY JUDGE

Pending before the Court is the Debtors’ Second Motion for Partial Summary Judgment with Respect to Claim No. 28170 Filed by Kennedy & Associates (“WorldCom Motion,” ECF Doc. # 19734). Kennedy & Associates (“K & A”) filed a response (“K & A Response,” ECF Doc. # 19737), and WorldCom filed a reply (‘WorldCom Reply,” ECF Doc. # 19742). A hearing was held on June 19, 2013.

By its latest estimate, K & A seeks approximately $25 million in damages based on its assertion that WorldCom breached an agreement between the parties by failing to pursue potential insurance overpayment claims identified by K & A, even though nothing in the agreement required WorldCom to pursue any or every potential recovery identified by K & A. For reasons explained below, the Court GRANTS the motion for partial summary judgment in favor of the Debtors, limiting any recovery by K & A, in the event it succeeds in establishing the existence of a binding contract with WorldCom, to a percentage of the actual cost or expense savings or reimbursement achieved by WorldCom as a result of K & A’s recommendations.

I. BACKGROUND

WorldCom, Inc. (“WorldCom”) and certain of its subsidiaries filed petitions for chapter 11 relief on July 21, 2002 and November 8, 2002. K & A filed its proof of claim on January 23, 2003, asserting an unliquidated claim “pending audit of pre-petition and postpetition recoveries.” See WorldCom Mot., Ex. A at 1. WorldCom filed its confirmed plan of reorganization on October 21, 2003, and the Court confirmed the plan on October 31, 2003.

K & A, headed by David Kennedy, is a Social Security disability claim advocacy firm. K & A and WorldCom began working together after Dona Miller, Vice President of Corporate Employee Benefits at WorldCom, invited Kennedy to a World-Com strategic partners meeting in 1999. According to K & A, several months later, Kennedy visited Miller’s office in Florida, where they discussed the services K & A would provide WorldCom and the compensation K & A would receive in return.

In December 2000, according to K & A, Kennedy drafted a Benefit Plans Consulting Agreement (“Agreement”) and sent it to Miller. The two-page Agreement stated that K & A was “to perform various claim analysis services; to evaluate such benefit programs ... and to perform similar benefit plan review activities as requested by WorldCom, Inc.” See World-Com Mot., Ex. A at 3. The Agreement also provided that K & A would be compensated as follows: “(1) a monthly retainer billing plus expenses, and (2) billings for one-half (50%) of the gross cost or expense reduction (savings) in the benefit plans of WorldCom, Inc. including reimbursements of overpayments under the various benefit plans.” Id. Nothing in the draft agree[700]*700ment required WorldCom to follow any or all of the advice or suggestions made by K & A. Other than the monthly retainer, any additional compensation was based only on “cost or expense reduction” and reimbursements.

The Agreement also contained an integration clause (“This agreement represents the entire Agreement between the parties and supersedes any and all previously written or oral agreements or understandings between the parties respecting the subject matter hereof.”), and a choice of law clause (“The validity and construction of this Agreement, and the rights and obligations of the parties under this agreement, shall be governed by the law of the State of Illinois without regard to conflict of law rules.”). Id. at 4.

K & A has alleged that WorldCom breached the Agreement by failing to compensate K & A for 50% of all potential savings identified by K & A. The dispute between WorldCom and Kennedy has evolved over time. Several months after the plan was confirmed, WorldCom objected to K & A’s proof of claim. (ECF Doc. # 12229.) K & A replied that its claim included an executory contract that the confirmed plan did not explicitly reject and, therefore, assumed. (ECF Doc. # 12569.) WorldCom sought a nunc pro tunc order retroactively rejecting the alleged executory contract in the confirmed plan, which then Chief Judge Gonzalez denied. (ECF Doc. # 17998.)

The parties conducted extensive discovery regarding K & A’s proof of claim, took depositions from K & A’s David Kennedy and Patrick Kennedy, and obtained affidavits from WorldCom’s Dona Miller and Julie Petersen. WorldCom then moved for partial summary judgment, arguing that the Agreement was non-executory in nature. Finding that WorldCom had not shown that the undisputed facts proved its legal claim that the parties’ actions after the petition date rendered the Agreement non-executory, Chief Judge Gonzalez denied WorldCom’s motion in an opinion and order dated June 11, 2010 (ECF Doc. # # 19530 and 19531).1

Mediation efforts to resolve this dispute have seemingly foundered over the very large claim asserted by K & A. WorldCom now moves for partial summary judgment that would vastly reduce WorldCom’s potential damages from the approximate $25 million that K & A seeks2 to the approximate $750,000 that K & A might be entitled to receive (half of the $1.4 million in actual recoveries obtained by WorldCom), less whatever compensation K & A has received to date, if the Agreement is binding on both parties.

II. DISCUSSION

A. Summary Judgment Standard

A court should only grant summary judgment under Fed.R.Civ.P. 56, made applicable in bankruptcy proceedings by Fed. R. Bankr.P. 7056, where “the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” Beyer v. Cnty. of Nassau, 524 F.3d 160, 163 (2d Cir.2008) (quoting Fed.R.Civ.P. 56(c)) (internal quotation marks omitted).

[701]*701Neither K & A nor WorldCom has ever located a signed copy of the written agreement. WorldCom disputes the validity of the Agreement, and has argued throughout this matter that, even if there is a binding agreement, the dispute should be governed by Florida law, where the bulk of the work was performed. K & A, on the contrary, argues that the Agreement was validly executed between the parties and that, pursuant to the choice-of-law provision in the Agreement, Illinois law applies. Nonetheless, for purposes of the partial summary judgment motion now before the Court, both WorldCom and K & A assume for purposes of argument that the Agreement was executed between the parties. Moreover, the parties appear to agree that Illinois and Florida law do not differ with respect to the legal principles applied in resolving the issues in this Motion.

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Bluebook (online)
492 B.R. 696, 2013 WL 3199294, 2013 Bankr. LEXIS 2574, 58 Bankr. Ct. Dec. (CRR) 25, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-worldcom-inc-nysb-2013.