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Axia Netmedia Corp. v. Massachusetts Technology Park Corp.

United States Court of Appeals, First Circuit

April 25, 2018

AXIA NETMEDIA CORPORATION, Plaintiff, Appellant,
v.
MASSACHUSETTS TECHNOLOGY PARK CORPORATION, d/b/a Massachusetts Technology Collaborative, Defendant, Appellee.

          APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS [Hon. Timothy S. Hillman, U.S. District Judge]

          Brian P. Voke, with whom Adam A. Larson and Campbell Campbell Edwards & Conroy PC were on brief, for appellant.

          Robert J. Kaler, with whom Edwin L. Hall and Holland & Knight LLP were on brief, for appellee.

          Before Lynch, Circuit Judge, Souter, Associate Justice, [*] and Kayatta, Circuit Judge.

          KAYATTA, Circuit Judge.

         This appeal arises out of the efforts of the Massachusetts Technology Park Corporation ("MTC") to provide broadband network access in western and north central Massachusetts. An independent public instrumentality of the Commonwealth of Massachusetts, MTC entered into two contracts relevant to this appeal. Under one contract, Axia NGNetworks U.S.A., which later changed its name to KCST, Inc. ("KCST"), agreed to operate the network that MTC would build. Under a second contract, KCST's parent company, Axia NetMedia Corporation ("Axia"), guaranteed KCST's performance. With the network now constructed and operating, MTC on the one hand and KCST and Axia on the other hand have lodged claims against each other, and KCST has filed for bankruptcy. By the parties' agreement, those claims will be resolved, perhaps in the coming months, by arbitration. In the meantime, MTC secured from the United States District Court a preliminary injunction ordering Axia, as guarantor of KCST, to perform various obligations of KCST while the parties' substantive disputes remain unresolved. Axia appeals and, for the following reasons, we affirm on all but one narrow issue, for which we remand.

         I.

         We begin with the contract between MTC and KCST pursuant to which MTC agreed to build and KCST agreed to operate the new network. We call this contract the "NOA" (for "network operator agreement").

         Under the NOA, KCST agreed to be "responsible for all aspects of the management, sales, monitoring, operations, support, and maintenance of the MTC network." KCST also agreed to pay all costs of operating the network and an annual oversight fee to MTC. In return, KCST retained the network's revenue up to a defined threshold, above which it agreed to share the revenue with MTC.

         Article 11 of the NOA calls for binding arbitration of any disputes that the parties are unable to resolve on their own. Key to this appeal is the final provision of this article. Titled "Continued Performance, " Article 11.2 states:

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.

         On February 25, 2011, the same day that KCST and MTC inked the NOA, Axia and MTC entered into an agreement under which Axia guaranteed KCST's obligations in the NOA (we call this contract the "Guaranty"). In the Guaranty, Axia promised that, "should Network Operator default in any of its payment or performance obligations under the Network Operator Agreement, " then Axia would "make all such payments and perform all such obligations of the Network Operator, " and "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." That promise, though, is limited: "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."

         The Guaranty also addresses dispute resolution. Under the heading "Governing Law, Jurisdiction, Venue and Forum, " the Guaranty allows MTC, at its sole election, to file a demand for arbitration to resolve any dispute that the parties fail to resolve through mediation. The Guaranty contains no express statement about what, if anything, Axia must do pending the resolution of any dispute. It does, though, state: "All other provisions relating to dispute resolution or arbitration contained in the Network Operator Agreement are herein incorporated by reference."

         MTC and KCST's relationship soured by the time MTC began turning over the network to KCST in late 2013. KCST claimed that the network MTC delivered was not the one it had been promised. KCST's specific grievance was that the number of "Community Anchor Institutions, " dubbed "CAIs, " that had been built was too small. CAIs are facilities such as schools and municipal buildings that, according to Axia, are directly connected to the network, serve as hubs of connectivity for extending the network to other customers, and are critical to the network's financial viability (and thus to KCST's net revenues). As the dispute sharpened in July of 2014, KCST notified MTC that, pending the resolution of the dispute, KCST would be "withholding all fees and payments to or on behalf of MTC." This notification led MTC to obtain an injunction from a Massachusetts state court requiring KCST, in accord with the NOA's continued performance provision, to continue performing its obligations (including making payments) during the dispute. During the following two years, the dispute simmered, but neither party pushed it toward resolution by arbitration.

         In 2016, a Swiss investment firm acquired a controlling position in Axia. Because the Federal Communications Commission had granted authorization to KCST to operate the network, and this authorization could not be transferred without FCC approval, KCST's operation of the network, as a wholly-owned subsidiary of Axia, apparently would have added a hurdle to the acquisition's regulatory approval. Therefore, to facilitate the acquisition, Axia transferred the stock of KCST into a trust. The FCC approved this transaction. MTC, which had not participated in the FCC proceeding, filed for reconsideration, which the FCC denied.

         According to MTC, KCST then made a number of changes to the website KCST maintained for the broadband network. Claiming the website changes to be a breach of the NOA's continued performance provision, MTC went to Massachusetts state court to enforce the previously issued preliminary injunction. The next day, KCST declared bankruptcy. Under section 362(a) of the Bankruptcy Code, the filing of Chapter 11 bankruptcy stayed MTC's state court action. See 11 U.S.C. § 362(a).

         KCST apparently continued to perform what it viewed as its operational obligations, but ceased to make many of the payments that it was obligated to make under the NOA. Anticipating a claim against it as guarantor, Axia preemptively filed suit in federal district court, seeking a declaratory judgment that MTC had materially breached the NOA by failing to build sufficient CAIs, and that, because of that breach, Axia had no responsibility under the Guaranty. We will refer to this disagreement between MTC and Axia as "the underlying dispute." MTC has since successfully demanded arbitration of the underlying dispute, to be held in the coming months. MTC also filed in this lawsuit commenced by Axia a motion for a temporary restraining order and preliminary injunction requiring Axia as guarantor to perform KCST's obligations under the NOA while the arbitration of the underlying dispute is pending. We will call this disagreement and its ancillary issues the "continued performance dispute."

         After conducting evidentiary hearings and hearing argument concerning the continued performance dispute, the district court issued a preliminary injunction. In its order implementing the preliminary injunction, the district court imposed a series of requirements on Axia. It required Axia both to pay KCST's unmet payment obligations and to continue to provide, through Axia's affiliates, the "same level" of services to the network that those affiliates were currently providing. The order also required Axia to provide assistance in transferring the services provided by Axia's affiliates to a new network operator, should MTC so request. As part of this transfer assistance, the order ...


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