Best Payphones, Inc.

UNITED STATES BANKRUPTCY COURT 	NOT FOR PUBLICATION
SOUTHERN DISTRICT OF NEW YORK
------------------------------X
In re: 	:
: 	Chapter 11
BEST PAYPHONES, INC., 	: 	Case No. 01-15472(SMB)
:
Debtor. 	:
------------------------------X
OPINION RESOLVING DEBTOR’S
OBJECTION TO CLAIM NO. 12
FILED BY VERIZON NEW YORK INC.
A P P E A R A N C E S:
MAYNE MILLER, ESQ.
Attorney for Debtor
57 Chrystie Street, Suite 8
P.O. Box 8050, GPO
New York, New York 10116
ARNALL, GOLDEN GREGORY LLP
Attorneys for Verizon New York Inc.
171 17 th Street
Suite 2100
Atlanta, Georgia 30363
Darryl S. Laddin, Esq.
Heath J. Vicente, Esq.
Of Counsel
STUART M. BERNSTEIN
Chief United States Bankruptcy Judge
The 	purpose 	of 	this 	opinion 	is 	to 	explain, 	in 	light 	of 	the
debtor’s 	different 	view, 	why 	the 	long 	and 	litigious 	history
surrounding the objection to the claim filed by Verizon New York,
Inc. (“Verizon”) has come to an end.
The debtor was engaged in the business of owning and operating
01-15472-dsj Doc 456 Filed 11/04/05 Entered 11/04/05 14:07:14 Main Document
Pg 1 of 6

2
public 	pay 	telephones. 	It 	filed 	this 	chapter 	11 	case 	on 	October
23, 2001, sold all of its assets to a third party, and confirmed a
100% plan (the “Plan”) by order dated, December 26, 2002 (ECF Doc.
# 219.) 	A copy of the Plan can be found at ECF Doc. # 155.
On or about February 12, 2002, Verizon filed claim no. 12 in
the 	sum 	of 	$75,962.14. 	The 	debtor 	filed 	an 	objection. 	(See
Objection to Proof of Claim of Verizon Communications, Inc., dated
Dec. 6, 2002)(the “Objection”)(ECF Doc. # 201.) 	The substance of
the Objection was that Verizon had injured the debtor in a variety
of ways, and as a result, owed the debtor more than the debtor owed
Verizon. 	The 	debtor 	did 	not 	seek 	affirmative 	relief 	beyond 	the
expungement of Verizon’s claim. 	If the debtor prevailed, Verizon
would 	not 	receive 	a 	distribution 	under 	the 	Plan, 	but 	the 	debtor
would 	not 	receive 	any 	further 	relief, 	such 	as 	a 	payment, 	from
Verizon.
In 	the 	meantime, 	the 	debtor 	and 	Verizon 	were 	involved 	in
proceedings 	before 	the 	New 	York 	State 	Public 	Service 	Commission.
The 	dispute 	concerned 	municipal 	surcharge 	payments 	incorrectly
billed 	to 	and 	paid 	by 	the 	debtor. 	The 	parties 	entered 	into 	a
stipulation (the “PSC Stipulation”) acknowledging that the debtor
01-15472-dsj Doc 456 Filed 11/04/05 Entered 11/04/05 14:07:14 Main Document
Pg 2 of 6

1 A copy of the stipulation is attached as Exhibit 2 to the July 18, 2005 letter from
Charles H. Ryans, Esq. to the Court. (ECF Doc. # 414.)
3
was 	entitled 	to 	a 	$25,285.08 	refund. 1 	The 	operative 	paragraph
stated:
2. 	By this stipulation, Verizon agrees that Best
Payphones’ 	escrow 	agent 	in 	its 	bankruptcy 	case 	... 	may
release to Best Payphones $25,285.08 from amounts being
held in escrow on Verizon’s behalf. 	If it is determined
at some later date by the Bankruptcy Court that the total
amount 	of 	Verizon’s 	prepetition 	charges 	owed 	by 	Best
Payphones to Verizon for any period prior to October 23,
2001 	(the 	“Verizon 	Prepetition 	Charges”) 	is 	less 	than
$25,285.08, Verizon will pay directly to Best Payphones
the difference between (x) $25,285.08, less (y) the total
amount 	of 	the 	Verizon 	Prepetition 	Charges, 	plus 	4%
interest per annum accruing from the date that is 10 days
from the date of this Stipulation, within 10 days of the
entry 	of 	a 	final, 	non-appealable 	Order 	determining 	the
amount of the Verizon Prepetition Charges.
On 	April 	20, 	2005, 	the 	Court 	conducted 	a 	trial 	to 	determine
the allowed amount of Verizon’s claim. 	After hearing the witnesses
and 	considering 	the 	documentary 	evidence, 	the 	Court 	dictated 	a
decision into the record allowing the Verizon claim in the amount
of $35,307.76. 	The ensuing order memorialized this result, allowed
the 	debtor 	to 	set 	off 	the 	$25,285.08, 	and 	determined 	that 	the
remaining 	unpaid 	amount 	of 	Verizon’s 	claim 	was 	$10,022.68.
However, any further distribution had to await the determination of
the debtor’s counterclaims. 	(See Order on First Part of Debtor’s
Objection 	to 	the 	Claim 	of 	Verizon 	New 	York, 	Inc., 	dated 	May 	4,
2005)(ECF Doc. # 405.) 	The debtor filed an appeal from this order,
and the appeal is currently pending before District Judge Gerard E.
01-15472-dsj Doc 456 Filed 11/04/05 Entered 11/04/05 14:07:14 Main Document
Pg 3 of 6

4
Lynch (see Best Payphones, Inc. v. Verizon New York, Inc., 05 Civ.
6531 (S.D.N.Y. filed May 16, 2005)).
Following the trial, the debtor identified two principal set
off claims. 	The first related to “dial around compensation.” 	The
second charged that Verizon had mishandled the debtor’s “migration”
orders 	that 	were 	issued 	when 	the 	debtor 	changed 	local 	exchange
carriers. 	(See Letter from Mayne Miller, Esq. to the Court, dated
Sept. 	23, 	2005)(ECF 	Doc. 	# 	425.) 	Verizon 	generally 	took 	the
position that these issues should be litigated, if at all, in some
other forum.
The 	“migration” 	claim, 	in 	particular, 	forebode 	protracted
litigation 	with 	concomitant 	costs 	and 	delay. 	Concluding 	that 	it
was 	not 	worth 	the 	time 	and 	money, 	Verizon’s 	counsel 	informed 	the
Court 	that 	Verizon 	would 	consent 	to 	an 	additional 	set 	off 	of
$10,022.68, thereby zeroing out the remaining unpaid portion of its
claim. 	(See Letter from Darryl S. Laddin, Esq. to the Court, dated
Oct. 3, 2005)(ECF Doc. # 432.)
Verizon’s 	proposed 	order, 	which 	purported 	to 	dispose 	of 	the
Objection, 	met 	with 	stiff 	resistance 	from 	the 	debtor. 	In 	brief,
the debtor had two concerns. 	First, if the debtor prevailed on its
01-15472-dsj Doc 456 Filed 11/04/05 Entered 11/04/05 14:07:14 Main Document
Pg 4 of 6

2 A debtor may seek affirmative relief in a claim objection. See FED . R. BANKR . P.
3007 (“If an objection to a claim is joined with a demand for relief of the kind specified in Rule
7001, it becomes an adversary proceeding.”)
5
appeal, the allowed amount of Verizon’s claim could turn out to be
less 	than 	$25,285.08, 	the 	amount 	set 	off 	by 	Verizon 	under 	the
Court’s 	May 	4 th 	order. 	Second, 	the 	debtor 	might 	be 	prejudiced 	if
it was forced to pursue its counterclaims in another forum. 	(See,
e.g., Letter from Mayne Miller, Esq. to the Court, dated Oct. 27,
2005)(ECF Doc. # 450.)
The 	answer 	to 	the 	first 	concern 	is 	a 	simple 	one. 	If 	the
Verizon 	claim 	is 	ultimately 	allowed 	in 	an 	amount 	less 	than
$25,285.08, 	Verizon 	will 	pay 	the 	debtor 	pursuant 	to 	the 	PSC
Stipulation. 	If the allowed amount of the claim ultimately falls
between $25,285.08 and $35,307.76, the amount of the stipulated set
off ($10,022.68) will be reduced accordingly. 	For example, if the
allowed claim is $30,000, Verizon will be deemed to have stipulated
to a set off in the sum of $4,714.92 ($30,000 minus $25,285.08).
The 	debtor’s 	second 	concern 	is 	based 	on 	an 	erroneous
assumption, to wit, that the Objection gave the debtor the right to
fully 	liquidate 	all 	of 	its 	counterclaims 	in 	this 	Court. 	The
debtor, 	however, 	never 	sought 	affirmative 	relief 	from 	Verizon 	in
this Court, either through its objection 2 or by way of a separate
01-15472-dsj Doc 456 Filed 11/04/05 Entered 11/04/05 14:07:14 Main Document
Pg 5 of 6

6
adversary proceeding. 	Verizon has consented to or acknowledged set
offs in the full amount of its allowed claim. 	Absent a reversal or
remand of the order allowing the Verizon claim, the Objection has
been 	completely 	resolved, 	and 	Verizon 	is 	not 	entitled 	to 	any
distribution on account of its claim. 	If the debtor thinks it has
the 	right 	to 	affirmative 	relief 	beyond 	the 	set 	off, 	it 	must
initiate 	and 	pursue 	those 	claims 	elsewhere. 	Under 	the 	debtor’s
Plan, 	the 	Court 	retained 	jurisdiction 	“to 	determine 	all
applications 	and 	adversary 	proceedings 	pending 	on 	the 	Effective
Date 	or 	filed 	or 	commenced 	within 	60 	days 	thereafter.” 	The
deadline passed long ago.
The Court will enter an order consistent with this opinion.
Dated: 	New York, New York
November 4, 2005
/s/ Stuart M. Bernstein
STUART M. BERNSTEIN
Chief United States Bankruptcy Judge
01-15472-dsj Doc 456 Filed 11/04/05 Entered 11/04/05 14:07:14 Main Document
Pg 6 of 6