Submitted: August 17, 2017
Consideration of Defendants' Motion for Summary Judgment.
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.
CHARLES E. BUTLER JUDGE.
Court has before it a Motion for Summary Judgment filed by
the Defendants. For the reasons set forth below,
Defendants' Motion is DENIED.
controversy is somewhat convoluted, we will begin by
introducing the parties, such as we know them at this early
stage of the litigation.
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.
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.
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.
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.
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 ...