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In re Worldcom

July 13, 2007

IN RE: WORLDCOM, INC., ET AL., DEBTORS.
BEEPWEAR PAGING PRODUCTS, LLC, APPELLANT,
v.
SKYTEL CORP., APPELLEE.



The opinion of the court was delivered by: Kimba M. Wood, U.S.D.J.

OPINION AND ORDER

Beepwear Paging Products, LLC ("Beepwear") appeals from a decision of the United States Bankruptcy Court for the Southern District of New York (Arthur J. Gonzalez, Bankruptcy Judge) granting summary judgment to Debtor SkyTel Corp. ("SkyTel") and denying partial summary judgment to Beepwear on one of Beepwear's proofs of claims against SkyTel. For the reasons stated below, the decision of the Bankruptcy Court is affirmed.

BACKGROUND

In 1998, Beepwear and SkyTel entered into a Joint Marketing Agreement to promote SkyTel's wireless messaging service to owners of Beepwear's pager watch. (Binder, Ex. 13, Ex. A.) The Joint Marketing Agreement was amended in 1999 and in 2000. (Id., Ex. 13, Exs. B-C.) After disputes arose between Beepwear and SkyTel, they signed a Settlement Agreement, Release and Covenant Not To Sue ("Settlement") in 2001. (Id., Ex. 13, Ex. D [hereinafter Settlement].) SkyTel agreed to pay Beepwear $2,026,000 in four equal installments; in return, the parties agreed that the Settlement would be "a full and final compromise and settlement of all such claims, differences and alleged causes of action." (Settlement 1.) SkyTel paid $1,013,000 of the Settlement sum before this action arose.

On November 20, 2002, SkyTel rejected both the Joint Marketing Agreement and the Settlement, pursuant to 11 U.S.C. § 365(a). (See Binder, Ex. 13, Ex. E.) Beepwear then filed two proofs of claim based on those rejections. SkyTel does not contest the first proof of claim (number 10335), for $1,013,000, the sum still owed under the Settlement. It does contest the second proof of claim (number 10345), for $4,825,658.12, based on alleged damages from the rejection of the Joint Marketing Agreement.

The parties each moved for summary judgment on claim number 10345. The Bankruptcy Court granted summary judgment to SkyTel. In re WorldCom, Inc., No. 02-13533 (AJG), 2006 WL 2400326 (Bankr. S.D.N.Y. May 31, 2006) [hereinafter Opinion].

DISCUSSION

I. Legal Standards

On appeal, a district court reviews a bankruptcy court's conclusions of law de novo. United States ex rel. Grynberg v. Enron Corp. (In re Enron Corp.), No. 06 Civ. 2684 (RJH) (AJG), 2007 WL 646129, at *2 (S.D.N.Y. Mar. 2, 2007).

Summary judgment is proper if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Fed. R. Bankr. P. 7056. In considering the parties' summary judgment motions, the Court must resolve all ambiguities and credit all factual inferences in favor of the nonmoving party. McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 202 (2d Cir. 2007).

Under Delaware law,*fn1 a settlement agreement is construed using the principles of contract interpretation. W.L. Gore & Assocs., Inc. v. Wu, No. Civ.A. 263-N, 2006 WL 2692584, at *15 (Del. Ch. Sept. 15, 2006). The interpretation of contract language is a question of law for the Court. GB Biosciences Corp. v. Ishihara Sangyo Kaisha, Ltd., 270 F. Supp. 2d 476, 481 (D. Del. 2003). If the language of a contract is clear and unambiguous, the Court may not look to extrinsic evidence, and should resolve the dispute on summary judgment. Id.

II. The Settlement Is a Novation

The opinion of the Bankruptcy Court should be affirmed because the Settlement operates as a novation of the Joint Marketing Agreement, rather than as an accord, as Beepwear claims.

A novation (also known as a substituted contract) "occurs when the parties intend the new contract to replace all of the provisions of the earlier contract." China Res. Prods. (U.S.A.) Ltd. v. Fayda Int'l, Inc., 747 F. Supp. 1101, 1106 (D. Del. 1990) (internal quotation marks omitted). A novation "discharges the obligations arising out of the old contract without regard to performance by the parties to the new contract." Shore Builders, Inc. v. Dogwood, Inc., 616 F. Supp. 1004, 1020 (D. Del. 1985). By contrast, an accord occurs when "one party to an existing contract may agree with the other party to accept from him in the future a stated performance in satisfaction of the subsisting contractual duty." Jefferson Island Salt Mining Co. v. Empire Box ...


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