Verizon duped FairPoint, suit charges

A group of former FairPoint Communications creditors has filed suit against Verizon Communications, charging that the giant telecom is to blame for FairPoint’s bankruptcy and continued financial troubles.The creditors have formed a litigation trust and filed a $2 billion fraudulent transfer suit that alleges the $2.7 billion purchase of Verizon’s landlines in 2008 was “disastrous,” leading to FairPoint’s bankruptcy filing only a year and a half later.In a statement, Verizon called the lawsuit “meritless.”The suit claims FairPoint went bankrupt because of its “disastrous” $2.7 billion purchase of Verizon’s landline and Internet operations in Maine, New Hampshire and Vermont in 2008. FairPoint filed for bankruptcy 18 months after the acquisition.According to the Courthouse News Service website, the suit alleges that Verizon lured FairPoint into acquiring what were “antiquated landlines and DSL technology that was already disfavored by customers and expensive to maintain.”As a result, it adds, FairPoint “paid a princely sum for a collection of inferior assets that had no future.”The suit was filed in Mecklenburg County Court in North Carolina.Charlotte, N.C.-based FairPoint provides telephone and Internet services in 18 states, mostly in rural areas. Its acquisition of Verizon’s northern New England landlines resulted at the time in a sevenfold increase in the size of the company, from 330,000 customers to nearly 2 million.But almost from the start, the acquisition was troubled. Due in part to service and billing problems, not to mention a public relations fiasco, the company began hemorrhaging customers.Some 18 months after the deal closed in March 2008, FairPoint filed for bankruptcy protection and reorganized.The suit alleges that “a key part of Verizon’s strategy in luring (FairPoint) into this transaction was not at all apparent until it was too late … Verizon structured the transaction so that it could not only continue to compete with the combined entity in the relevant states after the transaction, but also so that it could crush the new competition created by the transaction. Essentially, Verizon did not sell a stand-alone business … It sold a collection of low-margin assets in Maine, Vermont and New Hampshire. … “The suit also claims that the deal left FairPoint undercapitalized and unable to pay its debt.According to the suit, “Verizon took advantage of delays in gaining regulatory approval for the deal to cannibalize business customers. It stopped performing even routine maintenance and upkeep on the assets” that FairPoint was to acquire.The suit also alleges that Verizon failed to disclose, “whether because of Verizon’s functional abandonment of the assets or otherwise,” that the landlines FairPoint had committed to buying were losing customers “at a much faster rate” than the numbers on which FairPoint had based its projections.In its statement, Verizon said the 2008 deal “occurred after thorough due diligence on the part of FairPoint and its lenders and lawyers, as well as extensive review and approvals from telecommunications regulators in Maine, Vermont and New Hampshire.”Verizon also said the plaintiffs “wrongly blame” Verizon for “financial losses suffered by sophisticated lenders that resulted from operational, financial and other difficulties encountered by FairPoint after the closing of the acquisition, and not from actions by Verizon.”Verizon added that it will “contest the suit vigorously.” — JEFF FEINGOLD/NEW HAMPSHIRE BUSINESS REVIEW