12-1517-bk
XO Commc'ns, LLC v. Davis


                       UNITED STATES COURT OF APPEALS
                           FOR THE SECOND CIRCUIT
                                   SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER
FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF
APPELLATE PROCEDURE 32.1 AND THIS COURT'S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER
IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN
ELECTRONIC DATABASE (WITH THE NOTATION "SUMMARY ORDER"). A PARTY CITING A SUMMARY ORDER
MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

            At a stated term of the United States Court of Appeals for the Second
Circuit, held at the Daniel Patrick Moynihan United States Courthouse, 500 Pearl
Street, in the City of New York, on the 12 th day of December, two thousand twelve.

PRESENT:     DENNY CHIN,
             CHRISTOPHER F. DRONEY,
                       Circuit Judges,
             JOHN GLEESON,
                       District Judge.*
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IN RE:    ALLEGIANCE TELECOM, INC., et al.
                       Debtors.

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XO COMMUNICATIONS, LLC,
                     Creditor-Appellant,

             -v.-                                          12-1517-bk

EUGENE I. DAVIS, Plan Administrator
of Allegiance Telecom Liquidating Trust,
                     Appellee.**
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FOR APPELLANT:            MARTIN S. SIEGEL (Emilio A. Galván, on the
                          brief), Brown Rudnick, LLP, New York, NY.

FOR APPELLEE:                    ABID QURESHI (Ira S. Dizengoff, Kenneth A.
                                 Davis, Sunish Gulati, on the brief), Akin
                                 Gump Strauss Hauer & Feld LLP, New York,
                                 NY.




           *
                 The Honorable John Gleeson, United States District Judge for the Eastern
    District of New York, sitting by designation.
           **
                 The Clerk of the Court is directed to amend the official caption to
    conform to the above.
          Appeal from the United States District Court for the

Southern District of New York (Castel, J.).
          UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED,

AND DECREED that the district court's March 28, 2012 memorandum and

order is AFFIRMED.

          Creditor-Appellant XO Communications, LLC ("XO") appeals

from the district court's order directing the release of escrow

funds to appellee Eugene L. Davis, the Plan Administrator for the

Allegiance Telecom Liquidating Trust ("ATLT"), pursuant to the terms

of an asset purchase agreement (the "APA") executed between XO and

ATLT's predecessors, Allegiance Telecom, Inc. and Allegiance Telecom

Company Worldwide (collectively "Allegiance"), by which XO purchased

Allegiance's assets.   We assume the parties' familiarity with the

facts, procedural history, and specification of issues for review.

          The APA called for a portion of the purchase price to be

placed in escrow, in the event that Allegiance's actual working

capital after XO assumed control differed from an earlier estimate
and an adjustment to the purchase price became necessary.   Disputes

arose between ATLT and XO as to, inter alia, the amount of any
adjustment based on the working capital.   On November 5, 2008, the

bankruptcy court approved a global settlement of all disagreements

between ATLT and XO, including the price adjustment dispute.   The

settlement included broad mutual releases of any claims related to

the APA, but was silent as to the disposition of the escrow account.

Neither XO nor ATLT sought to recover the escrow funds before the

bankruptcy closed on October 5, 2010.   Finally, in June 2011, the


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bankruptcy case was reopened and ATLT sought an order releasing the

escrow funds.   In light of the mutual releases in the settlement,

the bankruptcy court (Drain, Bankr. J.) held that both parties had

released any claim they had to the escrow account under the APA and

thus the escrow account "revert[ed] to XO as the . . . depositor of

such funds."    On appeal, the district court reversed, holding that

ATLT was entitled to the escrow funds under the APA.   XO appeals.

          "An order of a district court issued in its capacity as an

appellate court is subject to plenary review."   Liona Corp. v. PCH
Assocs. (In re PCH Assocs.), 

, 597 (2d Cir. 1991).

Accordingly, we independently review the bankruptcy court's findings

of fact for clear error and its legal conclusions de novo.    

a contract in bankruptcy is governed by state law

principles and also reviewed de novo.   See Nw. Mut. Life Ins. Co. v.

Delta Air Lines, Inc. (In re Delta Air Lines, Inc.), 

,

145-46 (2d Cir. 2010).

          We agree with the district court and conclude that

Allegiance was entitled to the escrow funds after the price

adjustment dispute was settled because the funds were part of the

original purchase price.   Section 3.2(a) defines the "Purchase

Price" as consisting of, inter alia, $311.2 million.    Subsection (b)

carves out an "Adjustment Escrow Amount" from the cash payment XO

was supposed to make directly to Allegiance and directs XO to

transfer this amount to an escrow account.    Section 3.2(b)(iii)

explains the purpose of the escrow account:

          Any payment [Allegiance is] obligated to make
          to [XO] pursuant to Sections 3.4 and/or 3.6

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          [related to working capital adjustments] shall
          be paid from the Adjustment Escrow Amount plus
          accrued interest thereon. After payment of
          any required amounts pursuant to Sections 3.4
          and 3.6, the Adjustment Escrow Agent shall
          release the residual amounts of the Adjustment
          Escrow Amount remaining in the Adjustment
          Escrow Account to [Allegiance].


APA § 3.2(b)(iii) (emphasis added).     These provisions make clear the

parties' intent that (1) XO was paying the funds to Allegiance to

purchase the latter's assets, and (2) some portion of the funds that

would otherwise belong to Allegiance would be held in escrow to

account for any working capital adjustment.    The plain terms

demonstrate that the funds were to go to Allegiance, subject only to
any working capital adjustment.

          Subsections (g)-(i), which provide for the disposal of the

escrow account under various scenarios, reinforce this

understanding.   In every possible resolution of the working capital

adjustment, Allegiance would receive the balance so long as any

working capital adjustment was first paid to XO.    Thus, while XO had

an interest in the escrow funds, it was contingent on a voluntary

agreement or a "final determination" that the actual working capital

was less than the estimate.   APA § 3.2(i).   On the other hand,

Allegiance's right was contingent only on a balance remaining in the

escrow account after the adjustment dispute was resolved.

          We conclude that once the parties settled their disputes

and resolved, inter alia, the issue of a working capital adjustment,

Allegiance became entitled to all the escrow funds, as these were

part of the purchase price and no adjustment was necessary.


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Moreover, ATLT, as Allegiance's successor, did not waive its right

to the escrow funds in the settlement agreement.    Although the

mutual releases are broad, we cannot construe them as releasing

ATLT's right to the purchase price, just as we cannot construe them

as releasing XO's right to the assets it acquired under the APA.

Cf. Cahill v. Regan, 

, 354 (1959) (holding that the

"meaning and coverage [of a general release] necessarily depend

 . . . upon the controversy being settled" and that "a release may

not be read to cover matters which the parties did not desire or

intend to dispose of").    ATLT only "discharge[d] [XO] . . . from any

and all claims . . . now arising or which hereafter may arise . . .

from or in any way related to the APA."    Settlement Agreement & Mut.

Release art. II, ¶ C(2).    Thus, ATLT could no longer force XO to

perform any obligation it had under the APA, such as paying

additional amounts into the escrow account.   See APA § 3.2(h).
Likewise, XO could not force ATLT to perform any of its obligations

under the APA, including "[a]ny payment [Allegiance was] obligated

to make to [XO] pursuant to" the working capital adjustment
provisions in the APA.    See 

          We have considered XO's remaining arguments and find them

to be without merit.   Accordingly, we AFFIRM the order of the

district court.


                              FOR THE COURT:

                              Catherine O’Hagan Wolfe, Clerk




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