State regains guarantee on 'middle mile' network

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An arbitrator's ruling was expected to be the last word on the state's legal fight over a high-tech asset that cost taxpayers $90 million.

After all, that finding was termed "final, binding and non-appealable."

But in a ruling Tuesday, a U.S. District Court judge pushed back, giving the quasi-public Massachusetts Technology Park Corp. a legal victory it called essential to preserving the fiber-optic "middle mile" internet network for hundreds of municipal customers in the western counties.

The decision by Judge Timothy S. Hillman granted a motion by MassTech to undo the arbitrator's decision to free the middle-mile operator from having to guarantee the network's performance.

In December, a month after arbitrator Philip D. O'Neill Jr.'s decision, the vaporized guarantee brought alarms from MassTech's lawyer, Robert J. Kaler. He said tossing the guarantee exceeded O'Neill's authority and would force the state to rely upon "a shell company with virtually no substantial assets of its own."

Tuesday's ruling has no immediate effect on internet connections to libraries, town halls and public safety departments that use the MassBroadband 123 network in over 120 communities. But from the state's view, it secures that system from future service failures by putting the operator back on the hook for up to $4 million in payments to ensure the system's functioning.

Though the state contracted with Axia to run the middle mile, the network is now managed by a related company, KCST USA Inc.

In a 15-page ruling awaited for months by MassTech and its legal foe, Axia Netmedia Corp., Hillman said that while courts set a high standard to overturn binding arbitration, this case called for him to act.

Without naming O'Neill, Hillman faulted the arbitrator for appearing to go beyond an assignment to interpret and apply law to something more — in producing a decision seen as out of step with the contract Axia had signed in 2011 with MassTech.

"An arbitrator exceeds his powers when he reforms material terms of a contract so that the agreement conforms with his own sense of equity or justice," Hillman wrote.

The judge quoted from a 2018 case that overturned an arbitration award in which a court determined that "the arbitrator was prescribing his own brand of industrial justice in violation of the plain terms of the contract."

"I find that the arbitrator exceeded his authority here," Hillman wrote. "[T]he arbitrator fundamentally altered the relationship between the parties to adhere to his own conception of fairness."

After O'Neill reached his decision late last fall, in a case that saw one million pages of material entered into evidence, MassTech was forced to pay millions to Axia and KCST.

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O'Neill's 30-page decision found that MassTech had breached its agreement with Axia, while citing missteps by both sides. Still, he came down hard on "wrongful behavior" by MassTech and said Axia should not have had to honor a performance guarantee in the contract.

Eventually, the state paid $4.3 million to Axia and $4.09 million to KCST as a result of O'Neill's decision. The money paid to Axia compensated the company for fulfilling its obligation to provide guarantees for the money-losing network.

In his request to have Hillman's court restore the guarantee, Kaler noted those payments, but did not explicitly ask for the financial settlement to be overturned — and Hillman's ruling Tuesday did not appear to order it.

Kaler wrote that since the arbitrator unilaterally imposed new contract terms, removing the guarantee made no sense and is "the focus of this motion This action was not only beyond the arbitrator's powers, it is irrational under [Massachusetts] law, and threatens MTC with irreparable harm going forward."

Kaler's motion asked Hillman to void the part of the arbitrator's award concerning the guarantee "to confirm the continuing validity and enforceability" of the guarantee.

A request for comment MassTech about the ruling was not returned Tuesday.

Earlier battles

The middle mile was constructed using both state and federal grants. MassTech signed a contract with Axia to operate the system in 2011. But by 2014 the parties were already engaged in a dispute, with Axia claiming the state had failed to deliver as many network customers known as "community anchor institutions" as it promised — 944 instead of 1,392.

In his ruling's summary of the case, Hillman appears to express sympathy for the network's users, writing, "The 123 Network is used by numerous agencies serving critical public safety functions, including police and emergency services, as well as thousands of other users and customers in Central and Western Massachusetts."

Hillman had earlier granted MassTech's motion for a preliminary injunction forcing Axia to keep a guarantee in place.

After losing an early lawsuit filed by MassTech in a state court, Axia changed the name of the unit holding the MassTech contract, then filed for bankruptcy protection in March 2017.

It claimed at the same time that the $4 million guarantee should be termed unenforceable because MassTech had misrepresented the middle mile customer base.

O'Neill's arbitration ruling sided with Axia on that point, even going so far as to rewrite the terms of a future contract and offering it to KCST to accept, which it did.

Larry Parnass can be reached at lparnass@berkshireeagle.com, at @larryparnass on Twitter and 413-496-6214.


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