NorthPoint To Sue Verizon For $1 Billion

But a motion filed late in November puts the legal ball in Verizon's home court, which is Delaware and not California ... Breaking-up is hard to do.

by Jim Wagner of internetnews.com [December 11, 2000]

NorthPoint Communications is seeking $1 billion in damages against Verizon Communications in a suit filed late last week.

The lawsuit, filed in the City and County of San Francisco, is the NorthPoint's response to Verizon toasting its proposed worth $800 million.

Liz Fetter, NorthPoint chief executive officer, said she is delivering on a promise she made earlier this week to seek all possible solutions in what she calls Verizon's breach of contract.

"We have carefully considered our response to Verizon's actions, and we intend to pursue this matter completely to ensure that Verizon either closes the deal with NorthPoint or that NorthPoint receives the full compensation and benefits to which it is entitled under law and the merger agreement," Fetter said. "We believe we have a strong case and a good probability of success."

But the lawsuit's courtroom debut is uncertain after Verizon's legal team received declatory relief in the State of Delaware on Nov. 29. As a result, all legal action in regard to the failed merger must take place in Verizon's home state.

Dave Frail, Verizon spokesperson, said the motion was filed to gain assurance from the courts before terminating the NorthPoint merger and that it was a legitimate decision. Frail said a copy of the motion was faxed to NorthPoint on the same day it was viewed by the court.

"Our decision to terminate the merger was based on material adverse changes, not to increase our stock value," Frail said. "The next step in the process is up to NorthPoint. Because of our filing, they need to file (their lawsuit) in Delaware, not California. The legal issues will have to be determined in Delaware, not California."

Verizon dropped its plans to acquired NorthPoint one week after the data CLEC revised its third quarter financial performance. Verizon executives believe that the business revision showed an erosion of NorthPoint's customer base, along with an increase in its expenses and losses—to the tune of about $10 million.

The lawsuit alleges that Verizon was only looking to bolster the short-term value of its stock for shareholders, and was used NorthPoint's poor third quarter as an excuse to drop the deal. Verizon has benefited from a 12-cents a share stock price increase since it nixed the merger.

Verizon, which made an initial down payment of $150 million in the form of convertible preferred common stock, but doesn't plan to pony-up the remaining $650 million that remains to honor the contract.

NorthPoint is seeking financial sanctuary in the courts after watching Wall Street and its investors flee from its stocks, dropping another 73 percent just hours after Verizon's moved to quash the merger.

Making the matters worse for NorthPoint, one of its major ISP clients, could find the financial resources to pay for services past-due. NorthPoint had hoped that a quick infusion of revenue from Flashcom could save the day. But that never happened—NorthPoint plans to shut down Flashcom's customers at the end of the month and has made arrangements with another broadband ISP to transition its residential customers.

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