Telecom Decision Makers Inc. (TDM) has won the first step in its years-long legal fight against Birch Communications.
TDM, of Louisville, Ken., first filed suit against Atlanta-based Birch more than five years ago, after Birch bought assets from Navigator Telecommunications LLC. Once that deal closed, TDM said it stopped receiving commissions payments from Birch. TDM contended that Birch owes it more than $5.5 million in back commissions because it should have honored TDM’s agreement with Navigator. Birch declined last week to comment on the matter. In previous court proceedings, however, the company argued it has no obligation to TDM, because it bought Navigator after Navigator terminated its agreement with TDM, and because of the way the Birch-Navigator purchase was structured.
The case went to trial Jan. 8 and ended Jan. 10, with the jury deliberating for about an hour before ruling in TDM’s favor, said Robert Bowling, president of TDM.
“It was a very quick decision,” he said.
The jury was asked to decide whether Birch indeed assumed obligation to pay TDM recurring commissions when taking over certain Navigator phone lines and customers in 2008. Birch has made almost 20 acquisitions since 2005 and constructed those deals as asset purchases. Unlike mergers and stock transactions, asset agreements do not include the assumption of liabilities, which contracts are considered to be.
As a result, last week’s arguments concentrated on whether the Navigator-TDM contract automatically was assigned to Birch when Birch bought parts of Navigator. Birch argued that it had put language in its asset purchase agreement with Navigator that meant that the contract could not have been assigned. TDM, meanwhile, argued that when Birch bought Navigator, “the words in the contract had been triggered and the contract had been assigned,” Bowling said, adding, “It doesn’t matter what somebody else says, it matters what the contract says.”
The jury agreed.
Now, TDM awaits a ruling on how much money it can receive from Birch. TDM is seeking the unpaid commissions as well as punitive damages. If a judge were to approve the full amount for which TDM believes it is eligible, the figure could total more than $20 million.
When the judge will act remains unknown. It’s also not clear whether Birch plans to appeal the jury’s ruling; the company did not immediately respond to a Channel Partners inquiry.
On the whole, the TDM victory sets a precedent for indirect channel partners, Bowling said.
“It establishes court-tested words that agents can include in their contracts to ensure that they are not the victim of being left out of an acquisition,” said Bowling. “Agents are linked to carriers by our contracts, and if a carrier chooses to sell, whether it’s their assets or whatever, we are still linked to that sale, and it is critical that that link remains. If a customer is generating revenue and there is commission being paid on that customer’s revenue, it stays regardless of what happens in the sale.”
If that precedent became undermined, the agent channel would not have incentive to exist, Bowling noted.
“The agent channel isn’t there unless there is some form of good faith trust with us and the carriers,” he said. “If agreements are going to be structured so they can eliminate the agent, why does any agent ever want to be doing that?”