United States District Court, D. Massachusetts
MEMORANDUM AND ORDER ON DEFENDANT'S MOTION TO
VACATE IN PART AND MODIFY ARBITRATION AWARD AND
PLAINITFF'S MOTION TO CONFIRM ARBITRATION AWARD (Docket
Nos. 241 & 243)
TIMOTHY S. HILLMAN DISTRICT JUDGE.
Defendant
Massachusetts Technology Park Corporation (“MTC”)
and Plaintiff Axia NetMedia Corporation (“Axia”)
submitted their claims to final arbitration. On November 8,
2018, the arbitrator issued his final award. MTC now moves to
vacate in part and modify that award and Axia moves to
confirm it. For the reasons stated below, MTC's motion
(Docket No. 243) is granted and
Axia's motion (Docket No. 241) is
denied.
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 1, 200
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, § 2.1).
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 1, 392 operational Community Anchor Institutions
(“CAI”), which it promised under the NOA. A CAI
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 a CAI 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).[1]
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 the requisite number of 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.
(Docket No. 1-19, § 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 provisions of this Agreement,
or unless otherwise directed by MTC.
(Docket No. 23-2, § 11.2).
MTC
successfully demanded arbitration of the underlying dispute
in accordance with the dispute resolution terms of the
Guaranty Agreement. MTC also filed a motion for a preliminary
injunction requiring Axia as guarantor to perform KCST's
obligations under the NOA while the underlying dispute was in
arbitration. The First Circuit called this dispute “the
continued performance dispute.” Axia, 889 F.3d
at 6. This Court granted MTC's motion for a preliminary
injunction for the continued performance dispute while the
underlying dispute was in arbitration conditioned on MTC
posting a bond of $4 million for the duration of the
injunction.
Thereafter,
the underlying dispute was resolved in arbitration. The
Arbitrator found that MTC breached the agreement and that the
appropriate remedy was “reformation of the NOA fixed
nunc pro tunc to the date of breach . . . when MTC
decided not to make good on adjusting the NOA to meet its
failed Network delivery obligations.” (Docket No.
242-1, at 27).[2] Accordingly, the arbitrator reformed the
NOA and left the re-written contract “open to KCST to
accept or reject.” (Docket No. 242-1, at
30).[3]
In addition, the arbitrator held “[t]he Axia Guarantee
is no longer valid, nor does it remain in force.”
(Docket No. 242-2 ¶ 20E). The arbitrator held that the
Guaranty was void as a result of MTC's breach of the NOA
and because MTC failed to honor its obligation under section
5.2.7 to adjust the NOA terms in a commercially reasonable
fashion. (Docket No. 242-1, at 18, 27).
Standard
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