United States District Court, D. Massachusetts
AXIA NETMEDIA CORPORATION Plaintiff, KCST, USA, INC. Plaintiff Intervenor
MASSACHUSETTS TECHNOLOGY PARK CORPORATION d/b/a MASSACHUSETTS TECHNOLOGY COLLABORATIVE Defendant.
MEMORANDUM AND ORDER ON DEFENDANT MASSACHUSETTS
TECHNOLOGY PARK CORPORATION'S MOTION FOR PRELIMINARY
INJUNCTION (DOCKET NO. 11) AND MOTION TO COMPEL ARBITRATION
(DOCKET NO. 10)
TIMOTHY S. HILLMAN, DISTRICT JUDGE
Massachusetts Technology Park Corporation d/b/a Massachusetts
Technology Collaborative (“MTC”) filed this
motion seeking to compel Plaintiff Axia NetMedia Corporation
(“Axia NetMedia”) to arbitrate the contractual
disputes that form the basis of the present action (Docket
No. 10), and seeking a preliminary injunction requiring Axia
NetMedia to perform its obligations under the parties'
Guaranty Agreement while the parties resolve their various
contractual disputes. For the reasons outlined below,
MTC's motion to compel arbitration is denied,
without prejudice, and MTC's motion for preliminary
injunction is granted.
an independent public instrumentality of the Commonwealth of
Massachusetts. Through state and federal grants, MTC built
and owns the MassBroadband 123 network (“123
Network”). The 123 Network is comprised of over 1200
miles of fiber optic cable infrastructure, which connects
more than 120 communities in Central and Western
Massachusetts. The 123 Network is used by numerous agencies
serving critical public safety functions, including police
and emergency services, as well as thousands of other users
and customers in Central and Western Massachusetts.
February 25, 2011, MTC entered into an Agreement for Network
Operator Services (“Network Operator Agreement”)
with Axia NGNetworks USA, Inc. (“Axia U.S.”), a
wholly-owned subsidiary of Axia NetMedia. The Network
Operator Agreement is a 10-year public services contract,
under which MTC agreed to build and install the 123 Network,
and Axia U.S. agreed to market, maintain, service, and
operate the network, as well as collect revenues, pay its
expenses, and make fixed payments to MTC. On the same date,
MTC also entered into a Guaranty Agreement with Axia
NetMedia, whereby Axia NetMedia guaranteed the performance
and payment obligations of Axia U.S., up to $4 Million. The
same individual, Art Price, executed both the Network
Operator Agreement and the Guaranty Agreement on behalf of
Axia U.S. and Axia NetMedia, respectively.
2.1 of the Guaranty provides, in the event of a default by
Axia U.S. in any of its payment and performance obligations
under the Network Operator Agreement, Axia NetMedia
(a) shall make all such payments and perform all such
obligations of the Network Operator, as described in and in
accordance with the terms of the Network Operator Agreement,
and as such obligations may be changed in accordance with the
terms of the Network Operator Agreement (the
“Guaranteed Obligations”); and
(b) shall fully and punctually pay and discharge, as the same
become due and payable, any and all costs, expenses and
liabilities for or in connection with the Guaranteed
Obligations, including, but not limited to, the costs of
causing the substituted performance of the Guaranteed
Obligations. This guaranty is limited to and capped at the
amount of Four Million ($4, 000, 000) U.S. Dollars, and
should Guarantor advance to MTC funds up to said amount,
Guarantor shall have no further obligation or liability under
2014, after indications from Axia U.S. that it intended to
stop making payments to, or on behalf of, MTC, until certain
disputes between the parties were resolved, MTC commenced
litigation in Massachusetts Superior Court and obtained a TRO
and preliminary injunction requiring Axia U.S. to perform its
obligations pursuant to the “Continuing
Performance” provision of the Network Operator
Agreement. This provision required the parties to continue
performing all obligations under the Network Operator
Agreement while their dispute, which centered on Axia
U.S.'s complaint that MTC delivered only 944 of 1392
operational “Community Anchor Institutions” it
alleges were promised under the Network Operator Agreement,
was being resolved.
“Community Anchor Institution” is defined by the
National Telecommunications and Information Administration to
include, inter alia, public safety entities,
libraries, schools, state offices, and healthcare facilities.
The Network Operator Agreement defined “Community
Anchor Institution” to be “any one of the
organizations and agencies identified in Exhibit A hereto,
as the same may be revised from time to time in
MTC's sole discretion up until the Commencement
Date.” Docket No. 1-1, Section 2.7 (emphasis
of a telecommunications network requires authorization from
the Federal Communications Commission (“FCC”)
pursuant to Section 214 of the Communications Act of 1934.
Once a network operator has obtained Section 214
Authorization, it may not terminate or transfer the
Authorization without FCC approval.
early 2016, Axia NetMedia announced that it was being
acquired by Partners Group AG, a Swiss investment firm. To
facilitate this acquisition, Axia NetMedia sought to transfer
the Section 214 Authorization from its subsidiary, Axia U.S.,
into the Axia NGNetworks Trust (“the Trust”).
This avoided the added federal government scrutiny that would
otherwise have been triggered by the acquisition of the
Section 214 Authorization by a foreign corporation. Axia
NetMedia is, nevertheless, the sole beneficiary of the Trust.
22, 2016, Axia NetMedia, Axia U.S. and the Trust filed a
joint application with the FCC for approval of an agreement
whereby the Trust would acquire all issued and outstanding
stock of Axia U.S., and its trustee, FSM Capital Management,
would assume control of the day-to-day operation of Axia U.S.
After a period of public notice, the FCC granted transfer of
the Section 214 Authorization from Axia U.S. to the Trust on
July 29, 2016. MTC alleges that the Network Operator
Agreement required MTC's written consent prior to any
such transfer, which was never sought. Because MTC's
consent was not sought, MTC did not learn of the application
to transfer Section 214 Authorization until after it had been
approved by the FCC, and therefore did not file a petition
with the FCC to deny the transaction, or otherwise oppose the
application for transfer, during the public notice period.
MTC filed a petition with the FCC in November 2016 to
transfer the Section 214 Authorization from the Trust back to
Axia U.S., however, that petition was denied because,
inter alia, MTC failed to “to demonstrate that
the Trust plans to default on Axia U.S.'s obligations,
liquidate the company, or otherwise jeopardize the continued
operation of MTC's network by Axia U.S.” Docket No.
of the transfer of its Section 214 Authorization to the
Trust, Axia U.S. entered into a Transitional Services
Agreement with Axia SuperNet Ltd. and Axia Connect Ltd.,
wholly-owned subsidiaries of Axia NetMedia, which was
approved by the FCC. Under the Transitional Services
Agreement, Axia SuperNet Ltd. and Axia Connect Ltd. provide
the Trust with technical, administrative, and operational
support services required to operate the network.
February 2017, Axia U.S. changed its name to KCST USA, Inc.
(“KCST”), and on March 22, 2017, filed for
Chapter 11 bankruptcy protection. On the same date, March 22,
2017, Axia NetMedia filed the instant lawsuit seeking
declaratory judgment that the Guaranty is unenforceable as a
result of MTC's breach of the Network Operator Agreement
with KCST, and MTC's breach of the implied covenant of
good faith and fair dealing in the Network Operator Agreement
with KCST and in the Guaranty Agreement with Axia NetMedia.
Axia NetMedia further seeks declaratory judgment that the
Guaranty is void because Axia NetMedia's performance of
obligations under the Guaranty would violate federal law and
FCC regulations, as it would require Axia NetMedia to
“operate” the 123 Network without the requisite
Section 214 Authorization.
March 23, 2017, triggered by KCST's bankruptcy petition,
MTC provided written notice of an Event of Default to Axia