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Axia NetMedia Corp. v. Massachusetts Technology Park Corp.

United States District Court, D. Massachusetts

October 31, 2018

AXIA NETMEDIA CORPORATION Plaintiff,
v.
MASSACHUSETTS TECHNOLOGY PARK CORPORATION d/b/a MASSACHUSETTS TECHNOLOGY COLLABORATIVE Defendant. KCST, USA, INC. Plaintiff Intervenor

          MEMORANDUM AND ORDER ON PLAINTIFF AXIA'S MOTION TO DISSOLVE AND NULLIFTY THE PRELIMINARY INJUNCTION ORDER AND EXECUTE THE $4 MILLION BOND (DOCKET NO. 220)

          TIMOTHY S. HILLMAN DISTRICT JUDGE.

         Plaintiff Axia NetMedia Corporation (“Axia”) filed this motion seeking to dissolve the preliminary injunction previously issued by this Court requiring Axia to perform its obligations under the parties' Guaranty Agreement while their various contractual disputes were in arbitration. Axia also requests that the Court execute the $4 million bond posted by MTC. For the reasons below, Axia's motion (Docket No. 220) is granted in part and denied in part.

         Background

         MTC is 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.

         On February 25, 2011, MTC entered into an Agreement for Network Operator Services (“NOA”) with Axia NGNetworks USA, Inc. (“Axia U.S.”), a wholly-owned subsidiary of Axia. The NOA 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, whereby Axia guaranteed the performance and payment obligations of Axia U.S., up to $4 Million. The same individual, Art Price, executed both the NOA and the Guaranty Agreement on behalf of Axia U.S. and Axia, respectively.

         Section 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 NOA, that Axia

(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 this Agreement.

Docket No. 23-3.

         In July 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 the 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 NOA. This provision required the parties to continue performing all obligations under the NOA while their dispute was resolved. That dispute centered on Axia U.S.'s complaint that MTC delivered only 944 of 1392 operational “Community Anchor Institutions”, which it alleges were promised under the NOA. A “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 NOA 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, § 2.7.

         In 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, Axia filed a lawsuit seeking declaratory judgment that the Guaranty was unenforceable because of MTC materially breached the NOA by failing to build sufficient CAIs and, because of that breach, that Axia had no responsibilities under the Guaranty. The First Circuit called this “the underlying dispute.” Axia NetMedia Corp. v. MA Tech. Park Corp., 889 F.3d 1, 6 (1st Cir. 2018).

         On March 23, 2017, triggered by KCST's bankruptcy petition, MTC provided written notice of an Event of Default to Axia and made a demand under the Guaranty. Section 4.6 of the Guaranty Agreement provides:

If the parties fail to resolve any dispute between them through mediation, or are unable to convene mediation within 60 days of first attempting to do so, then, at MTC's sole discretion, MTC may file a demand for arbitration by the American Arbitration Association in its office serving Boston, Massachusetts, in accordance with the rules for Commercial Arbitration in effect on the date of the Agreement providing the most expedited procedures available, and any such arbitration may be consolidated with an arbitration proceeding between MTC and the Network Operator. Except to the extent MTC elects arbitration as the method of dispute resolution for a given dispute, all disputes shall be resolved by litigation in a court serving Middlesex County, Massachusetts, except that, if suit is filed in state court and is not removed to federal court, the parties shall use all reasonable efforts to obtain acceptance of such law suit in the Business Law Session of the Massachusetts Superior Courts. All other provisions relating to dispute resolution or arbitration contained in the Network Operator Agreement are incorporated herein by reference.

Compl. Ex. B, at § 4.6. The relevant section of the NOA is Section 11.2, entitled “Continued Performance, ” which provides:

The Parties agree to continue performing their respective obligations under the Agreement (including the Wholesale Customer contracts and SLAs) while the dispute is being resolved unless and until such obligations are terminated or expire in accordance with the ...

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