Aug. 10, 2004 – In the latest legal filing by Innovative Communication Corp. in response to a half-billion-dollar lawsuit brought by its prime lender, Rural Telephone Finance Cooperative, ICC argues that a "mutual mistake" in the drafting of a 2001 loan agreement is at the crux of the conflict between the two.
ICC holds that it was "understood" and "acknowledged" by both parties that any subsequent agreements would have to conform to one entered into in 1989 by the telephone company, its then corporate owner and the Public Services Commission. That is not an issue addressed in the 2001 loan agreement (as subsequently amended in 2003) between the cooperative and ICC that is the basis for RTFC's suit.
The latest ICC brief was filed late last week in federal District Court in Alexandria, Va.
RTFC sued ICC on June 1, alleging, among other things, that ICC's subsidiary Vitelco, the V.I .Telephone Corp. (now Innovative Telephone), had broken the 2001 loan agreement when it sold more than $81 million worth of preferred stock then failed to forward that money to RTFC in connection with more than $500 million in loans made by the cooperative to ICC.
The position of RTFC, a not-for-profit cooperative bank based in Herndon, Va., in effect, is that its loans to ICC mean that it has a lien on all of ICC's assets, including the proceeds of the Vitelco stock offering.
ICC in its initial response to the RTFC suit said that the 1989 settlement agreement among ICC's predecessor (Atlantic Tele-Network, now a separate and unrelated company), Vitelco and the Public Services Commission provided for Vitelco to have access to financial markets, and thus the floating of the preferred stock earlier this year was appropriate and that the money need not be turned over to RTFC.
RTFC amended its complaint two weeks ago, saying ICC owes it not $530 million-plus but $550 million-plus, and citing 11 alleged breaches of the loan agreement, including ICC's having lent money to a telephone company in Belize and having undisclosed federal tax liens against ICC subsidiaries. RTFC argued that the actions constitute "events of default" which should trigger rapid repayment of the outstanding funds.
The most recent filing was ICC's answer to RTFC's amended complaint. (See "Suit Seeks More from ICC; Loan Details Made Known".) In it ICC's lawyers view the discrepancy between the 2001 loan agreement and the 1989 settlement agreement in this way:
"The agreements on which the amended complaint are based are subject to reformation on grounds of mutual mistake, in that the intent of the parties was that all agreements to be entered into by [RTFC and ICC] were to be subject to the terms of the April 19, 1989, settlement agreement" (from page 28 of the filing).
Further, according to the filing, "Both parties knew, understood, acknowledged and intended that any agreement into which they entered could not and in no way would impact Vitelco's access to financial markets, operate to render Vitelco a guarantor of ICC's loans, or function, directly or indirectly, to utilize Vitelco's assets as collateral for ICC's loans" (from page 32).
The ICC brief asks the court to rewrite the 2003 loan agreement to make it confirm to the 1989 settlement agreement.
Later this year, during the trial phase, RTFC's lawyers will respond to these statements. The lending institution's lawyers refuse to discuss the case except in the courtroom.
The latest ICC brief also:
– Points out that the 1989 settlement agreement had been taken into the federal court system and was upheld by the 3rd Circuit Court of Appeal.
– Agrees that RTFC had lent ICC in excess of $550 million.
– Sheds no light on how much money, if any, ICC currently owes to RTFC. (RTFC's annual financial report, which would become available later this month, is likely to show how much was owed by ICC as of May 31, the close of the cooperative's fiscal year.)
– Agrees that ICC had made a loan of $28.5 million to Belize Telecommunications Ltd. and had purchased stock in that company.
– Argues that RTFC's claims "have been released, in whole or in part, by the Jan. 13, 2004, release of mortgage executed by RTFC, which states, in relevant part, that: 'Vitelco, doing business as Innovative Telephone, has made payments in full to the RTFC of any and all sums dues and owing from it to RTFC.' Said release further provides that: 'As a result of such payment … RTFC hereby releases any and all liens that it has or may have on the real and personal property of Vitelco of any kind or nature whatsoever, in whatever form and wherever located.'"
By that release, ICC states, RTFC "relinquished all claim it might ever have had to any legal right or interest, direct or indirect, in Vitelco's property or in disposition of Vitelco's assets."
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