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Brechner v. Phoenix Network Solutions LLC

Superior Court of Delaware

December 1, 2017

CRAIG BRECHNER, Plaintiff,
v.
PHOENIX NETWORK SOLUTIONS LLC, a Delaware limited liability company, and PHOENIX TELECOM NC, LLC, a North Carolina limited liability company, Defendants.

          Submitted: August 17, 2017

         Upon Consideration of Defendants' Motion for Summary Judgment. DENIED.

          Neil R. Lapinski, Esquire, GORDON FOURNARIS & MAMMARELLA, P.A., Wilmington, Delaware. Attorney for Plaintiff.

          Richard M. Beck, Esquire and Sean M. Brennecke, Esquire, KLEHR HARRISON HARVEY BRANZBURG, LLP, Wilmington, Delaware. Attorneys for Defendants Phoenix Network Solutions LLC and Phoenix Telecom NC, LLC.

          MEMORANDUM OPINION

          CHARLES E. BUTLER JUDGE.

         INTRODUCTION

         The Court has before it a Motion for Summary Judgment filed by the Defendants. For the reasons set forth below, Defendants' Motion is DENIED.

         FACTUAL BACKGROUND

         As this controversy is somewhat convoluted, we will begin by introducing the parties, such as we know them at this early stage of the litigation.

         A. The Parties

         Plaintiff Craig Brechner ("Brechner") is the founder of Defendant Phoenix Telecom NC, LLC, ("Telecom"). He undertook a sale of the company for which he received consideration that included a Subordinated Note payable by the buyers to him. This Subordinated Note and accompanying Subordination Agreement figure heavily into this dispute.

         Defendant Phoenix Network Solutions, LLC ("Network") is the entity that purchased Telecom from Brechner. Counsel has characterized Network as a group of "private equity" investors formed for the purpose of purchasing Telecom from Brechner. Counsel were unclear, but believe that Brechner also became a member of Network as part of the purchase and sale consideration.

         The only other entity of note in this dispute is Scout Partners II LLC ("Scout Partners II"). While the papers before the Court describe this group only as "agent for the lenders, " counsel have advised that this entity is made up of some or all of the investors in Network.

         B. The Documents

         When Telecom was sold to Network, there were two sets of loan documents that matter to this dispute. There was a "Term Loan and Security Agreement" ("Credit Agreement") that secured the loan made by "Lenders" to Network and Telecom with Scout Partners II acting as "a Lender and as Agent." We have been told this loan was in the principal amount of $6 million and was intended to provide working capital for the business. For want of a better description, we can call this the senior debt.[1]

         The second set of documents secured a loan by Brechner to Network and Telecom. While not terribly important, we understand this loan was the method by which the parties agreed to pay Brechner at least part of the consideration for the sale of Telecom. Thus, in this sense Brechner became a "lender" to Network and Telecom. The papers supporting this "loan" were 1) a Subordination Agreement and 2) a Subordinated Note. These documents were intended to set out the rights and responsibilities of Network and Telecom to make periodic payments to Brechner in the principal amount of $1.8 million. Scout Partners II was to act as "agent" for the Brechner ...


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