|Metromedia Fiber Sues 360networks For Cut Cable |
WASHINGTON -(Dow Jones)- Metromedia Fiber Network Services Inc. (MFNX) filed a lawsuit against 360networks Inc. (TSIXQ) contending that the bankrupt optical network service provider cut some of Metromedia's fiber optic cables after Metromedia failed to make payments of more than $3.4 million.
In its defense, 360networks said it cut the cable only after notifying Metromedia Fiber that the agreement to provide a conduit to house the cable had terminated as a result of Metromedia Fiber's failure to cure payment default.
Under a February 1999 agreement, 360networks built an 80-mile conduit to house Metromedia Fiber's fiber optic cables around Seattle. The cable system is used for transmitting voice, data and video services for Metromedia Fiber's customers.
360networks sent a June 20 default notice to Metromedia Fiber after it allegedly failed to pay Nov. 20, 2000, invoices of more than $3.4 million. Metromedia Fiber has paid only about $3.9 million of the $7.3 million purchase price under the agreement.
While not disputing that it owes 360networks some money under the agreement, Metromedia Fiber said that it's likewise owed "substantial amounts" by the bankrupt company under various other agreements. 360networks has failed to reflect these offsets in its default letter, Metromedia Fiber asserted in its lawsuit filed Friday with the U.S. Bankruptcy Court in Manhattan.
The lawsuit seeks a preliminary and permanent injunction blocking 360networks from further damaging or compromising the fiber optic cable, and enjoining the company from interfering with Metromedia Fiber's customer relationships.
360networks contacted certain Metromedia Fiber customers directly, including Verizon Communications (VZ) and Allegiance Telecom Inc. (ALGX), and said it was reclaiming the fiber optic cable and cutting off services to Metromedia Fiber customers, according to the lawsuit. Metromedia Fiber said that the agreement doesn't give the company the right to contact its clients or interfere with its business relationships. "Defendant's willful actions are unlawful, malicious and calculated to destroy Plaintiff's ongoing business relationships and reputation, and potentially place in jeopardy the lives and property of members of the public," Metromedia Fiber asserted. It added that the cable may conceivably be used for 911 emergency service, local government and national security services, or other essential public services that, if terminated, could result in the loss of life and property.
At least one of Metromedia Fiber's customers, Allegiance, has the line traffic of its customers operating on the cable. And other Metromedia Fiber customers, including Verizon and Global 1, have ordered fiber and might be testing it. Microsoft Corp. (MSFT) has also ordered fiber that includes the Seattle site for use in connection with services provided to its customers.
Instead of destroying the fiber optic cable, 360networks should have brought a lawsuit for payment, Metromedia Fiber said.
Metromedia Fiber wants the court to force 360networks to immediately repair and replace any damaged cable and to block the company from contacting any of its customers.
Responding to the suit, 360networks said revenue from contracts with Metromedia Fiber and similarly situated customers are "vital" to its reorganization. The company accused Metromedia Fiber of ignoring its payment demands for the last eight months - until it exercised its contractual right to remove Metromedia Fiber's property from its system.
As it advised the court at a July 25 cash collateral hearing, 360networks noted that it will need to renegotiate a minimum cash balance requirement with its pre-petition lenders in September. "The key factor the pre-petition lenders will focus on during that negotiation is the Debtors' ability to demonstrate between now and then that the Debtors will be able to collect revenue after their chapter 11 filings," the company said in court papers obtained Wednesday by Dow Jones Newswires.
The court must appreciate the "devastating consequences" the company will face if Metromedia Fiber succeeds in thwarting its necessary and appropriate revenue collection efforts, 360networks added.
The company called Metromedia Fiber's setoff assertion a "frivolous" theory and asserted that none of the requisite elements for a temporary restraining order have been demonstrated. Metromedia Fiber hasn't shown irreparable harm, likelihood of success on the merits, and a balancing of the hardships tipping decidedly in its favor, the company said.
The court hasn't yet scheduled a hearing on the matter, according to the most recent court docket.
360networks filed for Chapter 11 bankruptcy protection on June 28. Metromedia Fiber is facing its own liquidity problems. As reported, Metromedia Fiber struggled to find parties willing to commit $180 million to extend a bank credit line to Aug. 15. Some question whether Metromedia Fiber will be able to find further financing. Metromedia Co. (X.MMM) is Metromedia Fiber's majority shareholder.
-Carol McCleary, Dow Jones Newswires; 202-628-8916; carol.mccleary@ dowjones.com
(This story was originally published by Dow Jones Newswires)