Lucent Technologies Inc. says it plans to appeal a U.S. bankruptcy court ruling ordering the telecommunications equipment giant to pay $244 million plus interest and other costs to Winstar Communications for allegedly violating the terms of a network supply and buildout contract between the two companies.
Lucent said the verdict will result in a $300 million charge to its first-quarter earnings.
U.S. Bankruptcy Judge Joel Rosenthal ordered Lucent to pay $55 million for the contract violation along with $188 million that Winstar gave Lucent to pay for a credit line.
Winstar filed a $10 billion lawsuit in April 2001, accusing Lucent of forcing the broadband provider to file for Chapter 11 bankruptcy after Lucent didn’t hold up its end of a deal to provide and install a global communications network. According to reports, Lucent opened a $2 billion credit line for Winstar in 1998 and agreed to build a broadband network for Winstar. In March 1999, Lucent hired a subsidiary to build the network, with Lucent making quarterly installment payments to the subsidiary. In early 2001, Lucent allegedly refused to make a $62 million quarterly payment, forcing Winstar to file for bankruptcy protection.
Judge Rosenthal noted in his decision that Lucent tried to boost its sales revenues by pressuring Winstar into purchasing $135 million of software that the company did not need. The judge said Lucent withheld payments to the network buildout subsidiary until Winstar agreed to purchase the software and renegotiate its financing and supply contract with Lucent.
“We have made strong arguments supporting our view that this suit was without merit,” said Bill Carapezzi, general counsel for Lucent. “We are examining the judge’s ruling very carefully and will vigorously appeal the decision.”
News of the ruling didn’t seem to impact Lucent’s stock; the company’s shares were trading at $2.74 after the news.
In late October, former Winstar Communications Inc. executive David Ackerman agreed to pay $50,000 to settle civil charges he faced for allegedly aiding and abetting in an accounting-fraud scheme with employees of Lucent.
Ackerman admitted no wrongdoing in the settlement after the Securities and Exchange Commission accused Ackerman in May 2004 of signing postdated documents that allowed Lucent to post a $125 million software sale in the fourth fiscal quarter of 2000, even though the sale was worth about $25 million to Winstar.
The SEC’s case against six former Lucent employees charged in connection with the accounting-fraud scheme is ongoing.
Last year, the SEC revoked Winstar’s stock registration.
