CCT Communications, Inc. v. Zone Telecom, Inc.
172 A.3d 1228
Conn.2017Background
- CCT (plaintiff) sold a circuit and agreed to resell Global Crossing long‑distance services to Zone Telecom (defendant) under a November 1, 2006 purchase agreement with a minimum monthly "take or pay" usage guarantee through Dec. 2009.
- Disputes arose in Jan. 2007 between CCT and Global over routing, high call volumes and unpaid invoices; Global throttled and then terminated service on Jan. 26, 2007, which affected Zone’s service quality.
- CCT filed chapter 11 on Jan. 29, 2007; automatic stays prompted Global to restore service briefly. Zone sent a Feb. 5, 2007 letter purporting to terminate under §7(b) (an ipso facto clause allowing termination after a voluntary bankruptcy filing).
- The circuit later became inoperable (Mar. 15, 2007). CCT’s bankruptcy was dismissed Nov. 25, 2009 without confirmation of a reorganization plan; the bankruptcy court declined to retain jurisdiction over CCT’s adversary claim against Zone.
- CCT sued Zone in state court for breach (Zone counterclaimed for breach and declaratory relief, seeking a judgment that its Feb. 5, 2007 termination was effective). The trial court ruled for Zone based largely on the bankruptcy issue; trial judge awarded damages and attorneys’ fees.
- Connecticut Supreme Court reversed: it held the trial court erred in treating CCT’s filing as a contract breach and in validating Zone’s termination under federal bankruptcy principles; remanded for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether CCT’s filing for chapter 11 constituted a material breach of the purchase agreement | Filing bankruptcy is not per se a breach; §7(b) gives the other party an option to terminate, not an automatic material breach | §7(b) allowed Zone to terminate upon a voluntary bankruptcy filing | Court: Filing bankruptcy alone was not a breach; trial court erred to the extent it rested its ruling on that premise |
| Whether the ipso facto clause (§7(b)) was enforceable despite 11 U.S.C. §365(e) | §365(e) bars enforcing ipso facto clauses during bankruptcy; protections apply without formal assumption | Zone: ride‑through doctrine or other exceptions make §7(b) enforceable | Court: §365(e) barred enforcement; trial court wrongly validated Zone’s termination based on ipso facto clause |
| Whether the ride‑through doctrine applies so as to validate a termination initiated during bankruptcy that was later dismissed before plan confirmation | CCT: ride‑through does not apply to dismissals pre‑confirmation and cannot retroactively validate a termination | Zone: ride‑through keeps the contract "unaffected," so termination can be effective after dismissal | Court: Ride‑through does not operate where petition was dismissed pre‑confirmation and cannot retroactively validate a termination during the bankruptcy; trial court’s reliance on ride‑through was incorrect |
| Whether the purchase agreement fell within the §556 forward‑contract/commodity safe harbor (allowing ipso facto enforcement) | CCT: The agreement is not a forward commodity contract; services and equipment were not traded like commodities; §556 does not apply | Zone: Long‑distance services are fungible/ traded; agreement had future delivery and Zone is a forward contract merchant | Court: §556 inapplicable — services here were not shown to be traded in forward contract markets, contract included noncommodity elements (equipment, minimum fees), and parties did not show forward‑contract market characteristics |
Key Cases Cited
- Central Trust Co. v. Chicago Auditorium Assn., 240 U.S. 581 (early recognition that bankruptcy once was treated as breach under common law)
- Central States, Southeast & Southwest Areas Pension Fund v. Basic American Industries, Inc., 252 F.3d 911 (modern rule that filing bankruptcy is not per se repudiation)
- In re Boston Post Road Ltd. Partnership, 21 F.3d 477 (Second Circuit discussion of ride‑through doctrine)
- National Labor Relations Board v. Bildisco & Bildisco, 465 U.S. 513 (chapter 11 debtors need flexibility; assumption/rejection rules and policy favoring debtor breathing room)
- In re Cochise College Park, Inc., 703 F.2d 1339 (policy rationale for protecting debtor’s contractual assets during reorganization)