Preference Actions Filed in Open Range Bankruptcy

Last week, Charles M. Forman, acting as Chapter 7 Trustee (the “Trustee”) for Open Range Communications (“Open Range”) began filing complaints to recover what the Trustee contends are avoidable preferences. The Trustee filed the preference actions in the Delaware Bankruptcy Court and argues that the transfers, or payments, received by various defendants are avoidable and subject to recovery under 11 U.S.C. § 547 and 548 of the United States Bankruptcy Code. This post will look at the Open Range bankruptcy proceeding, why the company filed for bankruptcy as well as key developments during the course of the bankruptcy proceeding.

Open Range is a Delaware corporation based out of Colorado. The company was founded in 2004 in order to provide broadband access to areas of the country that are underserved. See Open Range’s Declaration in Support of First Day Motions (the “Decl”) at *2. In 2009, Open Range executed a $267 million Loan and Security Agreement which it intended to use over a five year period to build broadband networks in over 500 communities in 17 states. Decl. at *3.

In order to obtain wireless spectrum, in 2007 Open Range entered into a Spectrum Manager Lease with Globalstar Licensee LLC (“Globalstar”). After entering into the Spectrum Manager Lease, Globalstar experienced problems retaining the spectrum which Open Range intended to use for its services. Spectrum availability was critical to Open Range’s success as its loan agreement to fund operations was contingent on the continued availability of the wireless spectrum. Decl. at *3.

In September of 2010, the FCC suspended Globalstar’s authority to lease wireless spectrum to Open Range. The FCC also limited the expansion of Open Range’s markets until a different spectrum provider became available. These setbacks created uncertainty with Open Range’s vendors and suppliers, causing some to reduce their efforts or exit projects. Decl. at *4. Open Range also had to enter into amended loan agreements which reduced the amount of its operating funding.

Open Range filed for bankruptcy on October 6, 2011. Prior to bankruptcy, Open Range failed to achieve revenue and earnings targets due to continued network issues, an inability to add and service customers and increased bad debt and poor collections. Decl. at *8. During the course of its bankruptcy, Open Range liquidated substantially all of its assets and then converted its bankruptcy proceeding into a chapter 7 liquidation. Once the case was converted, Charles Forman was selected as the Chapter 7 Trustee.

The Open Range bankruptcy is before the Honorable Kevin J. Carey under case no. 11-13188(KJC). As the plaintiff in the preference actions, the Trustee is represented by the law firm Polsinelli PC. According to court filings, the court has scheduled a pretrial conference in the Open Range preference actions on January 9, 2014 at 1:30 p.m.. Parties should check the court docket as the date and time for the pretrial conference may change.

Defenses to a Preference Action

The Bankruptcy Code provides creditors with many defenses to preference actions. Included among these are the “ordinary course of business defense” and the “new value defense.” For reader’s looking for more information concerning claims and defenses in preference litigation, attached is a booklet I prepared on the subject: “A Preference Reference: Common Issues that Arise in Delaware Preference Litigation.”

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Jason Cornell is an equity partner with the law firm Fox Rothschild LLP. Jason is a creditors’ rights attorney who is admitted and practices before the United States Bankruptcy Court for the District of Delaware and the United States Bankruptcy Court for the Southern District of Florida. You can reach Jason at 302 427 5512 or [email protected].

Below are some additional posts Jason has written concerning Delaware bankruptcy litigation:

Ten Things Every Commercial Landlord Should Know About a Tenant in Bankruptcy.

Seeking Relief from the Automatic Stay in Delaware.

A Tale of Two Bankruptcy Auctions.

What Information is Required in a Chapter 11 Disclosure Statement?