FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
MASSACHUSETTS [Hon. Timothy S. Hillman, U.S. District Judge]
P. Voke, with whom Adam A. Larson and Campbell Campbell
Edwards & Conroy PC were on brief, for appellant.
J. Kaler, with whom Edwin L. Hall and Holland & Knight
LLP were on brief, for appellee.
Lynch, Circuit Judge, Souter, Associate Justice,
and Kayatta, Circuit Judge.
KAYATTA, Circuit Judge.
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.
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").
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.
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.
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
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."
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.
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.
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.
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."
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 ...