## Facts

- Lucre, Inc., a telecommunications carrier, filed Chapter 11 in October 2005 and later confirmed a plan, continuing operations as a reorganized debtor.
- Michigan Bell Telephone Company d/b/a AT&T Michigan provided Lucre access to network facilities under an interconnection agreement and applicable telecommunications regulation.
- Under the arrangement, Lucre routed Verizon-customer calls through AT&T’s network using a dedicated Direct End Office Trunk (the “Verizon DEOT”).
- Before the bankruptcy filing, AT&T billed approximately $3,185.78 per month for the Verizon DEOT; postpetition, AT&T asserted the rate increased to roughly $17,974.80 per month.
- Lucre continued using the Verizon DEOT for about three and a half years after filing but allegedly did not pay the increased postpetition charges.
- AT&T asserted an administrative-expense claim of about $1.1 million for unpaid postpetition Verizon DEOT charges.
- The reorganized debtor (through the estate representative) objected, arguing the claim was not properly administrative and, alternatively, that the requested amount exceeded any postpetition benefit to the estate.
- The estate asserted counterclaims seeking recovery from AT&T for certain postpetition obligations and late charges, including theories of offset.
- The dispute came before the bankruptcy court on cross-motions for summary judgment in a contested claims matter.

## Issues

1. Whether AT&T’s postpetition Verizon DEOT charges qualify, in whole or in part, as an administrative expense under 11 U.S.C. § 503(b)(1)(A).
2. How the Verizon DEOT arrangement should be characterized (e.g., executory contract, lease, or license/regulated usage right) for purposes of analyzing postpetition obligations and potential § 365 implications.
3. Whether the filed rate doctrine and telecommunications regulation control the amount payable as an administrative expense, or whether the court must still determine reasonable value and estate benefit.
4. Whether the estate could obtain summary judgment on its counterclaims for amounts allegedly owed by AT&T, including late charges and related relief.

## Decision

- The court denied AT&T’s motion for summary judgment seeking allowance of its administrative-expense claim.
- The court denied the reorganized debtor/estate’s motion for summary judgment seeking disallowance or major reduction of AT&T’s claim and summary judgment on the estate’s counterclaims.
- The court held that genuine disputes of material fact required further proceedings before determining administrative priority, amount, and any counter-recovery.

## Legal Principles

- Administrative expenses under 11 U.S.C. § 503(b)(1)(A) are construed narrowly and require proof of an actual, necessary expense that benefitted the estate.
- Postpetition use of property or services does not automatically entitle a counterparty to administrative priority at the contract or tariff rate; the court must determine reasonable value in light of estate benefit and the operative legal relationship.
- Characterization of an ongoing telecommunications access arrangement (including whether it functions more like a license/usage right than a traditional executory contract or lease) can affect analysis of postpetition obligations and remedies.
- The filed rate doctrine may limit deviations from regulator-filed rates as a matter of carrier billing authority, but it does not eliminate factual and legal questions in bankruptcy over whether and to what extent the asserted charges are allowable as administrative expenses.
- Summary judgment is inappropriate where material facts remain disputed regarding termination or modification rights, waiver or estoppel based on billing and communications, and the extent of postpetition benefit to the estate.

## Conclusion

The bankruptcy court declined to resolve, on summary judgment, whether and in what amount AT&T was entitled to administrative priority for postpetition Verizon DEOT charges and whether the estate could recover on counterclaims, because disputed facts about the nature of the arrangement, termination and waiver/estoppel, and the estate’s benefit and reasonable value required evidentiary development.


In re Lucre, Inc., 434 B.R. 807 (Bankr. W.D. Mich. 2010)