$3 Billion Claims for Verizon’s Idearc Spinoff

MANHATTAN (CN) - Verizon Communications owes $3 billion for its botched spinoff of Idearc, which was never properly incorporated, the U.S. Bank National Association claims in court.

Verizon spun off Idearc in 2006 as a phone book company: a dying telecom segment.

The spinoff led to numerous lawsuits, which claimed that Verizon was knowingly giving birth to a dead baby: loading Idearc with debt and insufficiently capitalizing it, so Verizon could wash its hands of its own debt.

Now the U.S. Bank National Association, solely in its capacity as indenture trustee, sued Verizon Communications and Andrew Coticchio, who "signed the indenture and created the indebtedness without the authority to do so on behalf of Idearc," the bank association says in its Notice of complaint in New York County Supreme Court.

"The nature of this action is as follows," the 1¼ page notice states: "This action arises out of the nonpayment of the indebtedness ('Indebtedness') evidenced by 8$ Senior Notes due 2016 (the 'Notes') issued pursuant to that certain Indenture entered between nonparty Idearc Inc. ('Idearc'), as issuer, and U.S. Bank National Association, as Indenture Trustee, dated as of Nov. 17, 2006. ... The Notes and Indenture were executed in the name of Idearc, a company formed, but never properly incorporated, by defendant Verizon Communications, Inc. ... Idearc and its subsidiaries filed for bankruptcy on March 31, 2009, resulting in an acceleration of the Indebtedness, which was never paid. Because Verizon never properly incorporated Idearc (for which it acted as promoter in arranging the Indebtedness and was a direct beneficiary thereof) Verizon is liable for the Indebtedness at this time (which included $2.85 billion in principal, and any accrued interest."

The notice claims that Coticchio "signed the indenture and created the indebtedness without the authority to do so on behalf of Idearc. He acted at the instruction of Verizon. Coticchio is liable for the Indebtedness because he lacked authority to obligate Idearc at the time the Indebtedness was issued. In the alternative, Verizon is liable as the true, undisclosed principal directing Coticchio to sign the Indenture, in connection with the issuance of the Indebtedness. Defendant Verizon deliberately concealed the foregoing defects and relationships in connection with the Indebtedness."

The bank associated demands $2.85 billion plus interest and costs.

It is represented by Franklin Ciaccio with Carter Ledyard & Milburn.

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