In re Norvergence, Inc.

Page 315

384 B.R. 315

In re NORVERGENCE, INC., Debtor Wanland and Associates Inc., Individually and on behalf of all others similarly situated, Plaintiff, v. Nortel Networks Limited, Nortel Networks Inc., Qwest Communications International Inc., Thomas N. Salzano, Alexander L. Wolf and Robert J. Fine, Defendants.

Bankruptcy No. 04-32079 (RG).

Adversary No. 05-2439 (RG).

United States Bankruptcy Court, D. New Jersey.

February 28, 2008.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Trujillo Rodriguez and Richard LLP, by Lisa J. Rodriguez, Esq., Haddonfield, NJ, Miller Faucher & Cafferty LLP, by William R. Kane, Esq., Philadelphia, PA, for Plaintiff, Wanland & Associates, Inc.

Riker Danzig Scherer Hyland & Perretti LLP, by Anne M. Patterson, Esq., Morristown, NJ, Crowell & Moring, LLP, by Scott L. Winkelman, Esq., Jennifer R. Devery, Esq., Washington, DC, for Defendants Nortel Networks, Ltd. and Nortel Networks, Inc.

Sills Cummis Epstein & Gross P.C., by Jeffrey J. Greenbaum, Esq., Newark, NJ, for Defendant Qwest Communications International, Inc.

Sokol Behot & Fiorenzo, by Jospeh B. Fiorenzo, Esq., Hackensack, NJ, for Defendant Robert J. Fine.

OPINION

ROSEMARY GAMBARDELLA, Bankruptcy Judge.

Before the Court is a motion brought on behalf of Nortel Networks, Limited and Nortel Networks, Inc. ("Nortel Defendants" or "Nortel") to dismiss all claims against Nortel contained in an amended class action complaint pursuant to Fed. R.Civ.P. 12(b)(6) and 9(b) as made applicable by Fed R. Bankr.P. 7012(b) and 7009.

The amended class action complaint ("Amended Complaint" or "Complaint") was filed by Wanland & Associates, Inc. ("Wanland"), a party to an equipment lease with NorVergence, Inc., the above-captioned debtor (the "Debtor"), and contains allegations that the defendants committed violations of the New Jersey Consumer Fraud Act, N.J. Stat. Ann. 56:8-1, et seq. ("NJCFA"), and other state consumer fraud protection statutes, as well as negligent misrepresentation and unjust enrichment. The defendants named in the complaint are the Debtor's alleged corporate business partners, as well as individual defendants. The Debtor is not a direct party to the adversary proceeding.

Also before this Court is a motion filed by Qwest Communications International, Inc. ("Qwest") to dismiss all claims against Qwest in the Amended Complaint pursuant to Fed.R.Civ.P. 12(b)(6) and 9(b) made applicable by Fed. R. Bankr.P. 7012(b) and 7009. The Amended Complaint contains allegations that Qwest, similar to Nortel, violated the NJCFA, and engaged in negligent misrepresentation and unjust enrichment.

Finally, before this Court is also a motion for summary judgment filed on behalf of Defendant Robert J. Fine to dismiss all claims against Fine pursuant to Fed. R.Civ.P. 56(c) made applicable by Fed. R. Bank. P. 7056.

The Motions have been opposed by Wanland. A hearing on the matter was conducted on September 13, 2006, at which time the Court reserved its decision. The following constitutes this Court's findings of fact and conclusions of law.

STATEMENT OF FACTS

NorVergence, Inc. (the "Debtor"), a reseller of telecommunications services, allegedly induced its customers to enter leases for equipment, also known as equipment rental agreements ("ERAs"), by promising low cost telecommunication services. Specifically, the Debtor's customers entered leases for a device called a "Matrix box." In addition to the ERAs, each customer entered into a separate agreement with the Debtor for the actual provision of telecommunication service. After the Debtor entered these ERAs, the Debtor would sell the agreements to a variety of equipment leasing companies. Ultimately, the Debtor defaulted on its obligation to provide service to its customers. However, because the ERAs had been sold to separate entities and were not contingent on the provision of telecommunication service, the customers remained liable for the payments due under their equipment leases.

On June 30, 2004, an involuntary petition was filed against the Debtor under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code").¹ See Docket Entry No. 1, Involuntary Petition for Relief. At a hearing held on July 14, 2004, the Debtor consented to the entry of an order for relief under Chapter 11 and the immediate conversion of the case to a Chapter 7 bankruptcy proceeding. On the same day, the Court entered an Order Granting (I) Entry of an Order for Relief Under Chapter 11 of the Bankruptcy Code and (ii) Converting the Case to a Chapter 7 Liquidation Proceeding Pursuant to 11 U.S.C. § 1112(b). The Office of the United States Trustee for Region Three then appointed Charles M. Forman, Esq. to serve as Trustee for the Debtor's Chapter 7 Estate on July 14, 2004.

On September 27, 2004, Wanland & Associates, Inc. ("Plaintiff or `Wanland'") filed a putative class action suit in the New Jersey Superior Court, Ocean County against Nortel Networks Corporation ("NNC") and several executives and/or employees of NorVergence including Thomas N. Salzano, Alexander L. Wolf and Robert J. Fine ("Fine"). Notably, NorVergence was never named as a party to this suit.

On February 28, 2005, NNC removed the putative class action suit to the United States District Court for the District of New Jersey pursuant to 28 U.S.C. §§ 1332, 1334, 1441 and 1451. Shortly thereafter, on or about March 7, 2005, NNC moved to dismiss the Plaintiff's complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6).

On March 24, 2005, Wanland amended its class action complaint by substituting Nortel Networks Limited and Nortel Networks, Inc. (collectively, "Nortel" or the "Nortel Defendants") for NNC and adding Qwest Communications International, Inc. ("Qwest") as a defendant. On or about March 28, 2005, the Honorable Mary L. Cooper, United States District Judge for the District of New Jersey issued an Order to Show Cause as to why the Wanland class action suit should not be remanded to the New Jersey Superior Court for lack of subject matter jurisdiction.

On or about April 22, 2005, the Nortel Defendants moved to dismiss the amended complaint. Qwest similarly moved to dismiss the amended complaint pursuant to Fed. R. Civ. Pro. 12(b)(6) on June 9, 2005.

By Order and Judgment dated June 20, 2005, Judge Cooper determined that the Court had subject matter jurisdiction pursuant to 28 U.S.C. § 1334(b) as the class action was "related to" the NorVergence bankruptcy proceeding. The District Court subsequently vacated its Order to Show Cause and referred the action to this Court pursuant to 28 U.S.C. § 157. The District Court further denied the pending motions to dismiss "without prejudice to either (I) address the issue presented therein in the Bankruptcy Court, or (ii) move to reinstate if the action is returned to this Court."

On September 8, 2005, Qwest moved to withdraw the reference. Shortly thereafter, the Nortel Defendants and Fine joined in Qwest's motion to withdraw the reference. On or about March 17, 2006, the District Court denied the motion and referred the Wanland class action suit to this court.

Allegations in the Amended Complaint

The amended complaint alleges that the Debtor through its former executives, Thomas N. Salzano, Alexander L. Wolf, and Robert J. Fine and in conjunction with its "business partners", Nortel and Qwest "defrauded thousands of small and medium sized businesses of millions of dollars by inducing them to purchase telecommunication service packages which required them to sign documents purporting to be `equipment leases.' Those `equipment leases' required the `lessees,' including Plaintiff, to pay thousands of dollars to lease equipment which was ... worth very little." Amended Class Action Complaint, ¶ 2 (March 24, 2005). As sophisticated telecommunications providers, the complaint maintains that Nortel and Qwest knew or should have known of the Debtor's scheme and that Nortel and Qwest "profited from the scheme by supplying products and services to NorVergence, and by permitting NorVergence to use their well-known names and trademarked logos to induce target businesses to become NorVergence customers." Id. ¶ 3.

By way of background, in 2001, several Nortel executives including Alexander Wolf, NorVergence's Chief Operating Officer, left Nortel to form the Debtor. Id. ¶ 15. After NorVergence was launched, Nortel apparently formed "a co-marketing partnership with NorVergence." Id. ¶ 16. It is alleged that Nortel engineers "collaborated with NorVergence in the development and marketing of MATRIX technology" and that both parties entered a Purchase and License Agreement ("PLA") in furtherance of this partnership. Id. ¶¶ 16, 17. Pursuant to the PLA, "Nortel supplied products and services to NorVergence and Nortel enrolled NorVergence in, its Services Partner Initiative Co-Marketing Program for the purpose of `promoting joint sales of Nortel Networks/[NorVergence] solutions by NorVergence.'" Id. ¶ 18. By the terms of the PLA, Nortel Networks Limited granted the Debtor "the right to use its' Solutions by Nortel Networks' trademark along with the logo referred to as the `globemark,' in the United States." Id. ¶ 20. Although this partnership ended on December 31, 2003, it is further alleged that Nortel continued to conduct business with the Debtor. Id. ¶ 21.

The amended complaint similarly alleges that Qwest itself, and through its subsidiaries, formed a partnership with the Debtor. Id. ¶ 22. Qwest agreed to "provide wholesale telecommunication services to NorVergence [and] included NorVergence it its Business Partner Program." Id. As a member of the Business Partner Program, the Debtor was authorized to use the Qwest logo in connection with the NorVergence logo on promotional material. Id. ¶ 23.

The amended complaint alleges that the Debtor prominently displayed the Nortel...