UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF MICHIGAN. Honorable John T. Gregg

Transcription

1 Case: jtg Doc #:159 Filed: 02/26/16 Page 1 of 7 UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF MICHIGAN In re: Chapter 11 GREAT LAKES COMNET, INC., et al. 1 Debtors. Case No (JTG) Jointly Administered Honorable John T. Gregg / LIMITED OBJECTION OF TK COMMUNICATIONS, L.L.C. TO DEBTORS MOTION FOR SALE AND AUCTION PROCEDURES [DKT NO. 72] TK Communications, L.L.C., f/k/a Spectrum Lightwave, LLC ( TK Communications ), hereby submits this Limited Objection to the Debtors Motion for Sale and Auction Procedures [Dkt. No. 72] and states as follows: Preliminary Statement Prepetition, TK Communications sold certain fiber optic network assets and assigned related contracts to Comlink, L.L.C., one of the Debtors herein. The sale agreement is an executory contract and includes, among other obligations, ongoing purchase price payment obligations to TK Communications. Schedules recently filed by the Debtors appear to reflect the intent of the Debtor and the stalking-horse bidder to seek to assume and assign the sale agreement with TK Communications 1 The Debtors are Great Lakes Comnet, Inc. (Case No ) and Comlink, L.L.C. (Case No ).

2 Case: jtg Doc #:159 Filed: 02/26/16 Page 2 of 7 (or portions thereof), but bifurcate and reject the payment obligations thereunder. The attempt to assume the benefits of the sale agreement without assuming the payment obligations is simply impermissible and contrary to the clear weight of legal authority. In addition, TK Communications submits that the proposed sale procedures that contemplate an auction before the hearing to determine the cure amounts with respect to the various executory contracts of the Debtors appear to be somewhat illogical and imprudent; indeed, the very issue just raised as to the payment and cure obligations with respect to TK Communications executory contract highlights the dangers of proceeding to an auction without clarity regarding assumption, assignment, and cure issues as to the numerous executory contracts involved in the Debtors businesses. Background 1. Effective as of December 31, 2012, TK Communications and Debtor Comlink, L.L.C. ( Comlink ), entered into a certain Fiber Optic Network Purchase Agreement (the Network Purchase Agreement ). A copy of the Network Purchase Agreement is attached hereto as Exhibit A. 2. Pursuant to the Network Purchase Agreement, TK Communications sold certain fiber optic network assets and assigned related contract rights to Comlink according to the terms thereof. In particular, the Network Purchase 2

3 Case: jtg Doc #:159 Filed: 02/26/16 Page 3 of 7 Agreement provides for payment of the purchase price by Comlink over a period of years. See paragraph 2.1 of Network Purchase Agreement. 3. On January 25, 2016, Comlink and its affiliate Great Lakes Comnet, Inc. (collectively, the Debtors ) filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code, commencing these jointly-administered bankruptcy cases. 4. On February 1, 2016, the Debtors filed a motion for sale and auction procedures and related relief [Dkt. No. 72] (the Sale Motion ). The Sale Motion contemplates an auction of the Debtors assets, with a stalking-horse bid by Everstream GLC Holding Company LLC (or an affiliate thereof) ( Everstream ). However, the Purchase and Sale Agreement attached to the Sale Motion (the APA ) did not include any of the schedules referenced in the APA, including schedules which would identify executory contracts which Everstream would seek to have assumed and assigned to it as part of the sale. 5. On February 20, 2016, the Debtors filed a Notice of Filing of Schedules to Purchase and Sale Agreement [Dkt. No. 141] (the Schedules ), which provide as attachments the omitted schedules to the APA. 6. In particular, at page 64 of 187 of the Schedules, there is an indication that the Debtors and Everstream will seek to assume and assign to Everstream the Network Purchase Agreement, or at least the wide area network agreements 3

4 Case: jtg Doc #:159 Filed: 02/26/16 Page 4 of 7 assigned to Comlink as part of the Network Purchase Agreement. However, at page 70 of 187 of the Schedules, it is also indicated that the Debtors will seek to reject their payment obligations under the Network Purchase Agreement, as well as the Network Purchase Agreement itself. Limited Objection 7. It appears from the Schedules, as described above, that the Debtors and Everstream are intending to seek to assume and assign the benefits of the Network Purchase Agreement while rejecting the payment obligations that are a part of that Network Purchase Agreement. This violates the well-settled point of law that a debtor may not assume only discrete portions of an executory contract while rejecting other portions thereof, and that a debtor may only assume an executory contract in its entirety, cum onere. See, e.g., In re Holly s, Inc., 140 BR 643, 681 (Bankr. W.D. Mich. 1992) ( Generally, an executory contract must be assumed or rejected in its entirety; a trustee or debtor-in-possession may not pick and choose terms or clauses in a contract to assume or reject ); GTP Structures I, LLC v. Wisper II, LLC, 2015 U.S. Dist. LEXIS (W.D. Tenn. Dec. 22, 2015) ( Indeed, the law is well established that executory contracts assumed in bankruptcy must be taken in their entirety ); In re Ashley, 41 BR 67, 71 (Bankr. E.D. Mich. 1984) ( The assumption of an executory contract requires the 4

5 Case: jtg Doc #:159 Filed: 02/26/16 Page 5 of 7 trustee to perform the debtor s obligation under that contract, as a contract is assumed cum onere ). 8. Accordingly, TK Communications objects to the Schedules insofar as they manifest an intention to assume and assign only certain portions of the Network Purchase Agreement, in violation of established law under section 365 of the Bankruptcy Code. 9. Notwithstanding the foregoing, TK Communications also reserves its rights with respect to a determination of the amount of any cure payment due under the Network Purchase Agreement, the financial and operational wherewithal of any proposed assignee of the Network Purchase Agreement pursuant to the Debtors auction, and all other issues related to any proposed assumption and assignment of the Network Purchase Agreement. 10. TK Communications also wishes to note that the sales procedures proposed by the Debtors envision an auction before any hearings to determine the cure amounts with respect to executory contracts that are proposed to be assumed and assigned pursuant to the winning bid at the auction. Particularly in a case such as this, where a substantial portion of the assets pertain to executory contracts, TK Communications submits that it appears somewhat illogical and imprudent to embark on an auction without having determined in advance what the universe of cure-payment obligations of the winning bidder are likely to be. Indeed, the very 5

6 Case: jtg Doc #:159 Filed: 02/26/16 Page 6 of 7 issue raised above as to the payment and cure obligations with respect to TK Communications executory contract highlights the dangers of proceeding to an auction with potentially material misperceptions as to the ability to assume and assign contracts and the costs of doing so. CLARK HILL PLC Dated: February 26, 2016 /s/ Robert D. Gordon Robert D. Gordon (P48627) Kristen M. Howard (P79398) 151 S. Old Woodward Ave., Suite 200 Birmingham, Michigan P. (248) F. (248) rgordon@clarkhill.com khoward@clarkhill.com Counsel to TK Communications, L.L.C. 6

7 Case: jtg Doc #:159 Filed: 02/26/16 Page 7 of 7 CERTIFICATE OF SERVICE The undersigned certifies that on February 26, 2016, the Limited Objection of TK Communications, L.L.C. to Debtors Motion for Sale and Auction Procedures [Dkt No. 72] was filed using Court s CM/ECF system, which CM/ECF system will send notification of such filing to all parties of record. CLARK HILL PLC Dated: February 26, 2016 /s/ Robert D. Gordon Robert D. Gordon (P48627) Kristen M. Howard (P79398) 151 S. Old Woodward Ave., Suite 200 Birmingham, Michigan P. (248) F. (248) rgordon@clarkhill.com khoward@clarkhill.com Counsel to TK Communications, L.L.C. 7