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Close to four years after filing for bankruptcy in Delaware, the Winstar Communications Inc. case drags on. Litigation with Lucent Technologies Inc. is the cause for the delay, says debtor counsel Michael G. Menkowitz of Fox Rothschild. Although the New York broadband services provider filed its suit against the Murray Hill, N.J.-based telecom gear maker concurrent with its Chapter 11 petition on April 18, 2001, the trial has been slowed by shifting judges and the conversion of Winstar’s case to Chapter 7, according to David R. King of Herrick, Feinstein, the attorney for Chapter 7 trustee Christina C. Shubert. But on Monday, Visiting Judge Joel B. Rosenthal of the U.S. Bankruptcy Court for the District of Delaware in Wilmington finally began hearing the trial in Worcester, Mass., his home court. At stake is more than $390 million Winstar is seeking in compensatory damages from its onetime strategic partner. The company claims in court documents that Lucent unfairly terminated a $2 billion financing agreement and a supply agreement, forcing Winstar into bankruptcy. The competitive local exchange carrier is also asking for $2 billion in punitive damages related to the wrongful termination of the supply agreement, which involves the build-out of Winstar’s wireless broadband network. That punitive damage request also covers Winstar’s assertion that Lucent breached its duty to deal fairly and in good faith, court documents show. Lucent in its June 30, 2003, counterclaim said it has four claims against Winstar — secured claims of $799.06 million for the financing agreement and $138.96 million for equipment in the supply agreement, as well as unsecured claims of $957.39 million, mostly for alleged breach of contract, fraudulent inducement and fraud, and $900 million for the rejection of contracts and licenses. Lucent seeks compensatory and punitive damages of an unspecified amount for what it calls fraud and negligent misrepresentation. Winstar, Lucent claims in court documents, hid its insolvency in late 2000 while drawing down the credit agreement. Winstar is alleging that new senior management at Lucent disliked funding Winstar while they dealt with a cash crunch. Management then made “draconian demands” for changes to the financing agreement even though it had no intention of supplying the funding, Winstar has charged. Rosenthal in December denied Lucent’s motion for summary judgment, court documents show. If successful, the motion would have dismissed Winstar’s charge of a breach in a subcontracting agreement, the company’s requests for the return of a $195 million preferential payment and the equitable subordination of Lucent’s claims. Owing to the slow-moving trial, the debtor itself is no stranger to the carousel of jurists. Since Winstar filed for bankruptcy, its case has wound through the courtrooms of “five or six” visiting judges, Menkowitz said, the latest of which is Donal D. Sullivan, who’s handling bankruptcy-related issues while Rosenthal presides over the Lucent litigation. Sullivan inherits 42 pending adversary proceedings. Time will tell if he can settle the matters before his term expires. Copyright �2005 TDD, LLC. All rights reserved.

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