Bloomberg News

Verizon Must Face Claims Over Idearc Spinoff, Judge Rules

September 20, 2011

(Updates with Verizon spokesman’s response in fifth paragraph.)

Sept. 20 (Bloomberg) -- Verizon Communications Inc. lost a bid to throw out claims in a lawsuit accusing it of defrauding creditors of Idearc Inc. when it spun off the directory business in 2006, a judge ruled.

U.S. District Judge A. Joe Fish in Dallas denied Verizon’s request to dismiss claims that the telecommunications company intended to “hinder, delay or defraud” creditors and that it aided and abetted breach of fiduciary duty, according to a decision filed yesterday.

“These detailed and particularized allegations show that Verizon had a motive and opportunity to commit the alleged actual fraudulent transfers, and they permit the court to draw a reasonable inference of Verizon’s intent,” Fish wrote.

As a result of the spinoff, Verizon received $9.5 billion in assets from Idearc and Idearc was left insolvent, U.S. Bank NA, the trustee for a litigation trust for Idearc creditors, said in a lawsuit last year. Idearc filed for bankruptcy in 2009.

Robert Varettoni, a Verizon spokesman, declined to comment on the ruling. The company didn’t ask the judge to dismiss the whole complaint, he said in an e-mail.

Fish ruled that U.S. Bank can’t sue for punitive damages against Verizon on the claim of aiding and abetting breach of fiduciary duty, according to the decision.

The case is U.S. Bank National Association v. Verizon Communications Inc., 10-01842, U.S. District Court, Northern District of Texas (Dallas).

--Editors: Charles Carter, John Pickering

To contact the reporter on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.


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