12-1517-bk
XO Commc'ns, LLC v. Davis
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER
FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF
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IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN
ELECTRONIC DATABASE (WITH THE NOTATION "SUMMARY ORDER"). A PARTY CITING A SUMMARY ORDER
MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second
Circuit, held at the Daniel Patrick Moynihan United States Courthouse, 500 Pearl
Street, in the City of New York, on the 12 th day of December, two thousand twelve.
PRESENT: DENNY CHIN,
CHRISTOPHER F. DRONEY,
Circuit Judges,
JOHN GLEESON,
District Judge.*
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IN RE: ALLEGIANCE TELECOM, INC., et al.
Debtors.
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XO COMMUNICATIONS, LLC,
Creditor-Appellant,
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EUGENE I. DAVIS, Plan Administrator
of Allegiance Telecom Liquidating Trust,
Appellee.**
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FOR APPELLANT: MARTIN S. SIEGEL (Emilio A. Galván, on the
brief), Brown Rudnick, LLP, New York, NY.
FOR APPELLEE: ABID QURESHI (Ira S. Dizengoff, Kenneth A.
Davis, Sunish Gulati, on the brief), Akin
Gump Strauss Hauer & Feld LLP, New York,
NY.
*
The Honorable John Gleeson, United States District Judge for the Eastern
District of New York, sitting by designation.
**
The Clerk of the Court is directed to amend the official caption to
conform to the above.
Appeal from the United States District Court for the
Southern District of New York (Castel, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED,
AND DECREED that the district court's March 28, 2012 memorandum and
order is AFFIRMED.
Creditor-Appellant XO Communications, LLC ("XO") appeals
from the district court's order directing the release of escrow
funds to appellee Eugene L. Davis, the Plan Administrator for the
Allegiance Telecom Liquidating Trust ("ATLT"), pursuant to the terms
of an asset purchase agreement (the "APA") executed between XO and
ATLT's predecessors, Allegiance Telecom, Inc. and Allegiance Telecom
Company Worldwide (collectively "Allegiance"), by which XO purchased
Allegiance's assets. We assume the parties' familiarity with the
facts, procedural history, and specification of issues for review.
The APA called for a portion of the purchase price to be
placed in escrow, in the event that Allegiance's actual working
capital after XO assumed control differed from an earlier estimate
and an adjustment to the purchase price became necessary. Disputes
arose between ATLT and XO as to, inter alia, the amount of any
adjustment based on the working capital. On November 5, 2008, the
bankruptcy court approved a global settlement of all disagreements
between ATLT and XO, including the price adjustment dispute. The
settlement included broad mutual releases of any claims related to
the APA, but was silent as to the disposition of the escrow account.
Neither XO nor ATLT sought to recover the escrow funds before the
bankruptcy closed on October 5, 2010. Finally, in June 2011, the
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bankruptcy case was reopened and ATLT sought an order releasing the
escrow funds. In light of the mutual releases in the settlement,
the bankruptcy court (Drain, Bankr. J.) held that both parties had
released any claim they had to the escrow account under the APA and
thus the escrow account "revert[ed] to XO as the . . . depositor of
such funds." On appeal, the district court reversed, holding that
ATLT was entitled to the escrow funds under the APA. XO appeals.
"An order of a district court issued in its capacity as an
appellate court is subject to plenary review." Liona Corp. v. PCH
Assocs. (In re PCH Assocs.), 949 F.2d 585, 597 (2d Cir. 1991).
Accordingly, we independently review the bankruptcy court's findings
of fact for clear error and its legal conclusions de novo. Id. The
interpretation of a contract in bankruptcy is governed by state law
principles and also reviewed de novo. See Nw. Mut. Life Ins. Co. v.
Delta Air Lines, Inc. (In re Delta Air Lines, Inc.), 608 F.3d 139,
145-46 (2d Cir. 2010).
We agree with the district court and conclude that
Allegiance was entitled to the escrow funds after the price
adjustment dispute was settled because the funds were part of the
original purchase price. Section 3.2(a) defines the "Purchase
Price" as consisting of, inter alia, $311.2 million. Subsection (b)
carves out an "Adjustment Escrow Amount" from the cash payment XO
was supposed to make directly to Allegiance and directs XO to
transfer this amount to an escrow account. Section 3.2(b)(iii)
explains the purpose of the escrow account:
Any payment [Allegiance is] obligated to make
to [XO] pursuant to Sections 3.4 and/or 3.6
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[related to working capital adjustments] shall
be paid from the Adjustment Escrow Amount plus
accrued interest thereon. After payment of
any required amounts pursuant to Sections 3.4
and 3.6, the Adjustment Escrow Agent shall
release the residual amounts of the Adjustment
Escrow Amount remaining in the Adjustment
Escrow Account to [Allegiance].
APA § 3.2(b)(iii) (emphasis added). These provisions make clear the
parties' intent that (1) XO was paying the funds to Allegiance to
purchase the latter's assets, and (2) some portion of the funds that
would otherwise belong to Allegiance would be held in escrow to
account for any working capital adjustment. The plain terms
demonstrate that the funds were to go to Allegiance, subject only to
any working capital adjustment.
Subsections (g)-(i), which provide for the disposal of the
escrow account under various scenarios, reinforce this
understanding. In every possible resolution of the working capital
adjustment, Allegiance would receive the balance so long as any
working capital adjustment was first paid to XO. Thus, while XO had
an interest in the escrow funds, it was contingent on a voluntary
agreement or a "final determination" that the actual working capital
was less than the estimate. APA § 3.2(i). On the other hand,
Allegiance's right was contingent only on a balance remaining in the
escrow account after the adjustment dispute was resolved.
We conclude that once the parties settled their disputes
and resolved, inter alia, the issue of a working capital adjustment,
Allegiance became entitled to all the escrow funds, as these were
part of the purchase price and no adjustment was necessary.
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Moreover, ATLT, as Allegiance's successor, did not waive its right
to the escrow funds in the settlement agreement. Although the
mutual releases are broad, we cannot construe them as releasing
ATLT's right to the purchase price, just as we cannot construe them
as releasing XO's right to the assets it acquired under the APA.
Cf. Cahill v. Regan, 184 N.Y.S.2d 348, 354 (1959) (holding that the
"meaning and coverage [of a general release] necessarily depend
. . . upon the controversy being settled" and that "a release may
not be read to cover matters which the parties did not desire or
intend to dispose of"). ATLT only "discharge[d] [XO] . . . from any
and all claims . . . now arising or which hereafter may arise . . .
from or in any way related to the APA." Settlement Agreement & Mut.
Release art. II, ¶ C(2). Thus, ATLT could no longer force XO to
perform any obligation it had under the APA, such as paying
additional amounts into the escrow account. See APA § 3.2(h).
Likewise, XO could not force ATLT to perform any of its obligations
under the APA, including "[a]ny payment [Allegiance was] obligated
to make to [XO] pursuant to" the working capital adjustment
provisions in the APA. See id. § 3.2(b)(iii).
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We have considered XO's remaining arguments and find them
to be without merit. Accordingly, we AFFIRM the order of the
district court.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk
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