STS vs. Covad Communications: "Everyone loves arbitration. At least until arbitration goes badly," said the Judge in Confirming the Arbitration Award to STS

Business Wire, June 11, 2008

Score one for the "little guy" in what the behemoth would consider an "upset" decision . . . U.S. District Court upholds $7.3 million arbitration award to South Florida telecom company over fraudulent business practices by Covad Communications

COOPER CITY, Fla. -- Privately held Saturn Telecommunications Services, Inc. ("STS" or "Saturn") announced today that the United States District Court, Southern District of Florida, has issued an Order confirming an award to STS in excess of $7.3 million in damages, attorneys' fees, costs and expenses and denying Covad's motion to vacate the award in an arbitration against Covad Communications Company, a subsidiary of Covad Communications Group, Inc. (San Jose, Calif.). Covad, now privately held, was recently purchased by an affiliate of Platinum Equity, LLC (Beverly Hills, Calif.) in a transaction valued at $477 million. The arbitration upon which the contested award was based had determined that STS had been fraudulently induced to enter into a BIA (Broadband Internet Access) Agreement with Covad in 2005, whereby Covad was to provide voice over internet protocol ("VoIP") services to Saturn and Saturn's retail customers. Legal representation in the appellate hearing was provided by Alan C. Gold, PA (Florida) for STS and Jerome B. Falk, Jr. of Howard Rice Nemerovski Canady Falk & Rabkin (California) for Covad.

In issuing the 13-page order, Hon. Adalberto Jordan, U.S. District Judge, led with the observation, "Everyone loves arbitration. At least until the arbitration goes badly." Apparently, he was referring to the propensity of defendants to count on an arbitration to go their way. Settlement of disputes by arbitration is often a proviso of large companies' agreements with small businesses and individuals.

"We are delighted with the affirmation handed down by the U.S. District Court in what had become a rather protracted legal battle," said Mark Amarant, CEO of STS. "While so many people have been conditioned to believe that bigger is better in our justice system, it is refreshing that in this case the truth obviously weighed heavily," he said.

As provided in the BIA, both parties had submitted their dispute to arbitration. A December 5, 2007 determination of fraud and the arbitration award followed a 10-day arbitration hearing in compliance with the commercial rules of the American Arbitration Association held in San Francisco, Calif., September 17-28, 2007, with Hon. Chris Cottle, Ret. as Arbitrator. Among other things, the arbitrator specifically found that Covad "knew the access products provided under the BIA Agreement would not support [Saturn's] effort to provide VoIP services when the agreement was signed and when Covad later recommended" other solutions. Full text of that decision and the most recent Court Order is available on the Internet at http://www.ststelecom.com/arbitration.html.> While STS moved for confirmation of the award, Covad had sought to vacate the award on the basis of the arbitrator having exceeded his authority. Judge Jordan, in pronouncing the Order upholding the award, termed Covad's argument "unpersuasive." The Order emphasized a need to play by the rules set forth at the outset of a business relationship for the resolution of disputes, even when the decision may be considered adverse to those who would presume to prevail. Judge Jordan went on to say, "For a district court to second-guess an arbitrator's conclusions of law whenever a party disagrees with the outcome--on the asserted basis that an error of law necessarily means that the arbitrator exceeded his powers--would make arbitration nothing but a costly yet meaningless exercise."

In denying both parties' cross-claims under Rule 11, which provides for sanctions for improper and abusive use of legal motions, Judge Jordan opined, " . . . I cannot say that Covad's motion to vacate was frivolous or presented for an improper purpose. Furthermore, I cannot say that Saturn's motion for sanctions was improper or frivolous considering the lengthy and protracted battle this case has become, much to the fault of Covad, which first insisted upon arbitration only to move to vacate the award after losing in that forum."

"The District Court's Order is not only a victory for STS and for 'little guys' everywhere, but also a vote of confidence for arbitration, which when administered even-handedly and with due consideration to the facts of the matter, can help unclog our court system," said Amarant.

ABOUT STS TELECOM:

Established in 1994, STS TELECOM is a privately held provider of voice, data, and VoIP (Voice over Internet Protocol) services for business. The company is one of approximately 400 companies worldwide to be awarded the "Cisco Powered Network" status from Cisco Systems, Inc. (San Jose, Calif.). Visit www.ststelecom.com for more information about service offerings.