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February 12, 2010

Court Order Could Force Burlington Telecom to Default on Lease

IMG_0757 It was another day, another court appearance for Burlington Telecom as the utility struggles to stay alive while responding to regulatory, legal and political inquiries.

Today BT agreed explicitly to a court order barring it from making a key $386,000 interest payment to CitiLeasing on Feb. 17 unless it receives explicit approval from the Vermont Public Service Board.

The court order will be moot if the PSB rules in BT's favor, allowing the utility to use some of what is known as pooled cash.

If the city fails to make the CitiLeasing payment, it will be in technical default of its $32 million lease. There is a $1 million reserve clause in the lease that could be accessed by CitiLeasing.

If the court order stands, BT will also be unable to access pooled cash and "other city monies" going forward to pay any other bills it owes unless the funds are repaid in 60 days. To enforce that aspect of the order, BT agreed to give several key financial reports to the plaintiffs every 30 days, including reports of accounts payable and receivables, the daily statements of city accounts, all money due to and from BT, all money owed by BT to the city, and financial projections.

"This order does nothing but provide further evidence of the commitment the city has made to comply with Condition 60," said the city's attorney, Pietro Lynn, who has been hired as outside counsel.

Robert Hemley, arguing for the plaintiffs, said this order was the only way to ensure the city would not pay its bills with pooled cash, putting taxpayers at further risk. Though, he noted several times, allowing BT to expend any further money without repaying $17 million continues to put taxpayers at risk.

BT argued before the PSB on Thursday that it wants the option of dipping into the so-called cash pool to make the February payment with the stipulation that it would repay the money in 60 days. Of course, not abiding by a similar condition is what put BT in its current financial predicament.

On Friday, several attorneys and BT officials spent the day in and out of Chittenden Superior Court before Judge Helen Toor in response to motions related to a citizen lawsuit against BT that seeks to halt any further spending by the utility until it repays $17 million owed to the city's checkbook.

This week, the plaintiffs in the case — former Republican City Councilors Fred Osier and Gene Shaver — asked Toor to impose an injunction on BT from making a Feb. 17 payment of $386,000 to CitiLeasing. Also named separately in the court case is Chief Administrative Officer Jonathan Leopold. He is being held personally liable for any of the $17 million that goes unpaid to the cash pool. He has yet to hire an attorney.

The lawsuit's argument is simple: BT should not spend another dime on anything, period, until it repays the $17 million to the city coffers. And Leopold should be on the hook for any shortfall, because he authorized BT's access to the cash pool without repayment.

The motion comes at a time when BT is asking the Public Service Board — a three-member quasi-judicial panel that regulates utilities — to OK its ability to continue to spend money without adding to the $17 million debt owed to the city.

The PSB gave no indication yesterday if or when it will rule. If it does not rule, today's court order will prevail and remain in effect until the PSB takes action. Burlington Telecom filed a notice with the PSB late today alerting it to the Superior Court order.

Today's court order keeps the case against BT alive — for now. The judge still has yet to rule on BT's motion to dismiss the case entirely.

If Toor denies that motion, it is expected that the case will move into the discovery process, which could take months.

It's clear from today's proceedings that the case is likely to chew up considerable time and effort. The plaintiffs were prepared to call to the stand expert witnesses, including economist Art Wolff.

At the start of today's proceedings, Toor tried to get both sides to hammer out a mutual agreement that was more narrowly crafted to address the February payment rather than the whole $17 million. Lawyers spent several hours in the morning trying to work out mutually agreed on wording, to no avail. At one point, Toor called the attorneys for both sides into her chambers. Afterward, the court broke for lunch, but several lawyers stayed behind to work on a deal. That resulted in today's agreement.

Hey somebody changed the title of this post from "Burlington Telecom Agrees to Court Order Barring Use of Cash Pool" to "Court Order Could Force Burlington Telecom to Default on Lease."

Do you have a disclaimer like mine now?

You're correct, Haik. In my haste I neglected to fix the headline before handing it off to the editor.

It went live, and I realized within 15 minutes or so the title was wrong. So, I had it fixed.

And, as you correctly point out I screwed up by also not making the necessary notation - per our rules - that the post had been altered.

It's so much easier with the disclaimer.

But it's not really fixed! I don't think you mean "lease." I think you mean "loan," right? :)

Technically, the financial arrangement with CitiLeasing is a municipal lease purchase.

Wouldn't everything be easier with a disclaimer?


When you read the actual court order, it's pretty clear that BT is not forbidden from making the payment with its own money; it's just that it doesn't have any. I'd say it's incompetence and malfeasance that could force a default, the court order is just enforcing the CPG and City Charter.

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