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Arbitration Awards $12.2 Million to State Broadband Network Operators

October 5, 2018

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By Michael P. Norton

STATE HOUSE NEWS SERVICE

BOSTON -- An arbitrator this week awarded $12.2 million to the operators of the state’s $90 million broadband network in western and north central Massachusetts, following a long and costly legal battle with a state agency.

KCST on Tuesday was awarded $7.47 million, with another $4.74 million awarded to Axia NetMedia Corp.

In March 2017, KCST said the broadband network was “not sustainable for KCST USA or any operator” because the Massachusetts Technology Collaborative did not construct and deliver the network in accordance with rollout plans. KCST filed for bankruptcy, saying it had been losing money operating the network.

KCST attorneys said the 1,200-mile network was intended to bring high-speed internet access to more than 1,300 facilities in 124 communities and its anchor customers included hospitals, schools, and police and fire stations. The company said the collaborative connected with fewer than 1,000 anchor institutions.

The arbitrator, Philip O’Neil Jr. of the American Arbitration Association, wrote in a lengthy decision Tuesday that KCST and Axia prevailed “on the claim of material breach by MTC in failing to deliver a Network in accordance with the goals and objectives of both parties and failing to honor its obligations ... in that it did not behave in a commercially reasonable fashion ... ”

A Massachusetts Technology Collaborative spokesman issued a statement to the News Service but was unable to discuss the award and associated legal costs.

“While we are reviewing Tuesday’s ruling, the operation of the middle mile network is our focus and top priority and we will work with the network operator to ensure it continues as planned,” said Brian Noyes, the spokesman.

A KCST spokeswoman said the company plans to continue operating the network, under a revised contract, while it reorganizes during bankruptcy proceedings.

“KCST USA has consistently endeavored to serve the people of western and north central Massachusetts by providing high quality network operating services, notwithstanding MTC’s repeated failure to meet its contractual obligations,” said Murphy & King attorney Daniel Lyne, who is representing KCST in the arbitration case and its bankruptcy proceedings. “Now that these claims have been resolved, KCST intends to move forward to complete its Chapter 11 reorganization in an orderly way as a result of the arbitrator’s decision, which not only awarded KCST $7.47 million, but just as importantly, reformed the contract going forward in a manner consistent with KCST’s request.”

Noyes, of the tech collaborative, last year described the KCST’s financial problems as “solely its responsibility” and said the company’s obligation to continue operating the network had been guaranteed by Axia NetMedia, a Canadian network operator.

Brian Voke, who represented Axia in the arbitration case, said in a statement that the “well-reasoned decision fully vindicates Axia NetMedia Corp. and KCST USA Inc. after years of litigation.”

He continued, “The arbitrator found that MTC unlawfully failed to build and deliver the network it contracted to provide, and that as a result Axia NetMedia Corp. had no legal obligation to guarantee the performance of its former subsidiary KCST USA Inc. or the continued operation of the middle mile network. We are thankful that, after all of these years of litigation, justice prevailed and that this decision provides appropriate grounds for the dissolution of the prior injunctions issued in the state and federal courts.”

According to Murphy & King, the arbitrator rejected a $30 million claim by the technology collaborative, and the decision came after months of testimony “where more than one million pages of documents were produced in the three months preceding and during the hearing.”

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