Judge freezes lawsuit by AT&T against WorldCom

Proceeding seen harming bankruptcy reorganization

October 30, 2003|By BLOOMBERG NEWS

NEW YORK - A federal bankruptcy judge in Manhattan halted AT&T Corp.'s lawsuit against WorldCom Inc. yesterday, ruling that allowing the suit to proceed would interfere with WorldCom's reorganization.

U.S. Bankruptcy Judge Arthur J. Gonzalez froze the racketeering lawsuit that AT&T, the biggest U.S. long-distance phone company, filed against WorldCom last month in U.S. District Court in Alexandria, Va. The suit accused WorldCom of fraudulently routing calls to avoid paying network-access fees.

"The court will immediately stay the Virginia action," Gonzalez said.

WorldCom argued that AT&T's suit violated the automatic freeze on civil lawsuits and debt-collection efforts against companies operating under bankruptcy protection. It asked Gonzalez to hold AT&T in contempt of court and liable for sanctions for suing without bankruptcy court permission.

Gonzalez said he would decide on those requests later.

The judge said he might decide this week whether to approve WorldCom's plan to emerge from the biggest U.S. bankruptcy measured by assets about the end of this year. Allowing AT&T's suit to advance could have interfered with the plan. The case was scheduled for trial in February.

Ashburn, Va.-based WorldCom, the No. 2 long-distance company, is changing its name to MCI after an $11 billion accounting scandal that led it into bankruptcy in July last year.

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