MCI calls Sylvan deadbeat
Baltimore Business Journal - by Roger Hughlett Staff
A former partner of Sylvan Learning Systems Inc. was an hour away from shutting off telephone and Internet service to the company's Baltimore headquarters last month because of an unpaid bill.
MCI Worldcom Communications Inc. -- which formed Caliber Learning Network Inc. with Sylvan in 1997 -- claims Sylvan owes nearly $900,000 in telephone charges. MCI tried to cut off service to Sylvan, but was stopped at the last minute by a U.S. District Court judge.
The current dispute shines light on the ongoing tensions and debts surrounding Caliber's recent bankruptcy. It also shows how Sylvan is having problems distancing itself from its troubled investment.
Sylvan officials told the judge that if its service were terminated by MCI, the company would "suffer a massive business disruption, which could have far-reaching consequences" for the company.
All long-distance telephone lines at Sylvan's local offices, the company's toll-free number and the firm's data network between here and California would have been affected.
The restraining order issued by the U.S. District Court in Baltimore City on July 24 kept MCI from cutting off service. Sylvan had already told MCI Worldcom that it was switching service providers on Aug. 1. The restraining order was merely to keep service up until the switch could take place.
The current situation between the former partners stems from a telephone bill that MCI Worldcom claims is $842,887.99 and Sylvan claims is $406,627.86. Regardless of the total, officials with Sylvan said that $234,000 of the debt is owed by Caliber and not Sylvan (http://www.sylvan.net).
"MCI knew that Caliber was responsible for its own expenses and operations, as it served on Caliber's board until February 2001," Sylvan's lawyers said in court documents.
MCI Worldcom (http://www.worldcom.com) officials could not be reached for comment.
In their response to Sylvan's request for a restraining order, lawyers for MCI Worldcom claim Sylvan simply refused to pay its bill.
"After four weeks of negotiation, it became clear to the MCI Worldcom executives that Sylvan had no intention of making payment on a number of its accounts," wrote MCI Worldcom lawyers.
But Sylvan officials said the situation is over.
Robert Zentz, general counsel at Sylvan, said the company made arrangements to pay roughly $200,000 to MCI. Sylvan rings up about $40,000 a week in phone and Internet charges, according to officials.
Sylvan now uses another long-distance telephone carrier -- Global Crossing -- and all ties with MCI Worldcom are severed.
But the two firms are still at least partly tied because of their relationship with Caliber, which filed for Chapter 11 under the U.S. Bankruptcy Code in June. At that time, Sylvan owned 34.1 percent of Caliber and MCI Worldcom owned 6.8 percent of the company. Both firms also are listed as secured creditors in the bankruptcy documents.
When Caliber went public in May 1998, MCI Worldcom and Sylvan each owned 50 percent of the company. MCI Worldcom gradually sold off most of its stake in the firm and was not active in the company's management decisions in the end.
But Sylvan remained an active part of management in Caliber.
Caliber's situation also caused pain to Sylvan's bottom line. Sylvan, which loaned Caliber $750,000 in short-term financing a month before the bankruptcy filing, took a $14.23 million charge in the second quarter because of its investments in Caliber.
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