NorthPoint Communications is seeking $1 billion in damages against Verizon Communications in a suit filed Friday.
The lawsuit, filed in the City and County of San Francisco, is the data competitive local exchange carrier’s response to Verizon’s decision to cancel a proposed merger of its two digital subscriber line operations worth $800 million.
Liz Fetter, NorthPoint chief executive officer, said she is delivering on a promise she made earlier this week to seek all possible solutions in what she calls Verizon’s breach of contract.
“We have carefully considered our response to Verizon’s actions, and we intend to pursue this matter completely to ensure that Verizon either closes the deal with NorthPoint or that NorthPoint receives the full compensation and benefits to which it is entitled under law and the merger agreement,” Fetter said. “We believe we have a strong case and a good probability of success.”
But the lawsuit’s effectiveness is uncertain after Verizon’s pre-emptive strike Nov. 29 to file for claratory relief in the State of Delaware. That, Verizon officials point out, puts all legal discussion in regards to the failed merger in its home state.
Dave Frail, Verizon spokesperson, said the motion was filed to seek assurance from the courts that its decision to end its deal with NorthPoint for a material adverse change was legitimate. Frail said the motion was faxed to NorthPoint the same day as the courts.
“Our decision to terminate the merger was based on material adverse changes, not to increase our stock value,” Frail said. “The next step in the process is up to NorthPoint. Because of our filing, they need to file (their lawsuit) in Delaware, not California. The legal issues will have to be determined in Delaware, not California.”
Verizon contends an erosion of its customer base, along with an increase in expenses and losses gave the company grounds to drop its merger plans one week after NorthPoint revised its third quarter financial results. The revision showed an erosion of its customer base, along with an increase in its expenses and losses, to the tune of approximately $10 million.
The lawsuit contends Verizon was only looking to bolster the short-term value of its stock for shareholders, and was looking for an excuse to drop NorthPoint. The savings from the nixed merger raised Verizon’s stock about 12 cents a share.
Verizon, which made an initial down payment of $150 million in the form of convertible preferred common stock, but doesn’t plan to pony up the remaining $650 million left to honor the contract.
NorthPoint is seeking financial sanctuary in the courts after watching Wall Street and its investors flee from its stocks, dropping per share value 73 percent hours after Verizon’s defection.
Making the issue worse, one of its major Internet service providers, Flashcom, could not come to financial terms to address past due payments, delaying any hope of a quick infusion of revenue. NorthPoint plans to shut down Flashcom’s customers at the end of the month, and has made plans with another broadband ISP to transition the residential customers.
That, in turn, prompted the data CLEC to fire 248 of its employees Thursday, an across-the-board cost-cutting measure to extend its operational life.