In re Iridium Operating LLC

• Citation: 285 B.R. 822
• Decision Date: 23 September 2002
• Docket Number: No. 01 Civ. 9270(WHP).,Bankruptcy No. 99-45005 (CB).,Adversary No. 01-02952.,01 Civ. 9270(WHP).
• Parties: In re IRIDIUM OPERATING LLC, Iridium Capital Corp., Iridium IP LLC, Iridium LLC, Iridium Roaming LLC, Iridium (Potomac) LLC, and Iridium Promotions, Inc. Statutory Committee of Unsecured Creditors on behalf of Iridium Operating LLC, Iridium Capital Corp., Iridium IP LLC, Iridium LLC, Iridium Roaming LLC, Iridium (Potomac) LLC, Plaintiff, v. Motorola, Inc., Defendant.
• Court: U.S. District Court — Southern District of New York

Page 822

285 B.R. 822

In re IRIDIUM OPERATING LLC, Iridium Capital Corp., Iridium IP LLC, Iridium LLC, Iridium Roaming LLC, Iridium (Potomac) LLC, and Iridium Promotions, Inc.

Statutory Committee of Unsecured Creditors on behalf of Iridium Operating LLC, Iridium Capital Corp., Iridium IP LLC, Iridium LLC, Iridium Roaming LLC, Iridium (Potomac) LLC, Plaintiff, v. Motorola, Inc., Defendant.

Bankruptcy No. 99-45005 (CB).

Adversary No. 01-02952.

No. 01 Civ. 9270(WHP).

United States District Court, S.D. New York.

September 23, 2002.

COPYRIGHT MATERIAL OMITTED

Diane Harvey, Weil, Gotshal & Manges, LLP, New York City, for Plaintiffs.

Douglas K. Mayer, Wachtell, Lipton, Rosen & Katz, New York City, for Defendants.

MEMORANDUM AND ORDER

PAULEY, District Judge.

This adversary proceeding arises from the bankruptcy proceedings of Iridium Operating LLC, Iridium Capital Corp., Iridium IP LLC, Iridium LLC, Iridium Roaming LLC, and Iridium (Potomac) LLC, (collectively "Iridium" or the "Iridium Companies"). Plaintiff, the Statutory Committee of Unsecured Creditors for the bankruptcy estates of the Iridium Companies (the "Committee"), filed this adversary proceeding on behalf of the Iridium Companies' estates against Motorola, Inc. ("Motorola"), a creditor of the Iridium Companies, alleging various state and federal bankruptcy law claims. Motorola moves to withdraw the reference of this adversary proceeding from the bankruptcy court to this Court, and transfer venue of this case to the District of Arizona. For the following reasons, Motorola's motions are denied.

Background

Iridium was initially created as a subsidiary of Motorola to develop a global satellite telephone communication system known as the Iridium System. The Iridium System utilized a constellation of sixty-six low-Earth orbit satellites and a network of "gateway" surface facilities in various countries. (Complaint ¶¶ 17-18; Declaration of Mark Borota dated Sept. 24, 2001, ("Borota Decl.") ¶¶ 4-5, 7.) Motorola eventually spun Iridium off into a separate business entity owned by key investors and the public in 1993. (Memorandum of Law in Support of Motorola, Inc.'s Motion to Withdraw the Reference and Transfer to the United States District Court for the District of Arizona ("Motorola Br.") at 3.) Prior to spinning Iridium off, however, Motorola signed a series of contracts with Iridium concerning the design, construction and launch of the Iridium System. (Borota Decl. ¶ 5; Compl. ¶ 3.)

One such contract that Iridium and Motorola entered into was the "Space System Contract," which provided the basis for the design, construction and launch of the Iridium System's space-based components. (Borota Decl. ¶ 7 & Ex. A Space System Contract ("Space System Contract"); Compl. ¶ 39.) The Space System Contract contemplates Iridium paying Motorola approximately $3.45 billion in exchange for Motorola's design, development, production and delivery of the space segment of the Iridium System into orbit. (Compl. ¶ 39; Motorola Br. at 4.) The Committee makes several allegations concerning Motorola's dual role in negotiating the contract as Iridium's parent corporation and signatory to the contract, and the resulting unfairness of the terms of the Space System Contract to Iridium. These include, inter alia, provisions in the Space System Contract that Motorola would retain title to key components of the Iridium System, that severely limit Iridium's right to inspect Motorola's work in progress, and that limit Motorola's liability in the event the Iridium System was not operational to $100 million. (Compl.¶¶ 37-45.) The Committee also alleges that Motorola breached a non-compete clause in the Space System Contract by producing and making another global satellite system without Iridium's written permission. (Compl.¶¶ 43-44.)

Further, the Space System Contract contained a choice of law and forum selection clause. That clause provided that any dispute arising under or in connection with the Space System Contract shall be construed in accordance with Arizona law, and venue for any dispute shall be in Arizona. (Space System Contract at 31.) Motorola contends that the work for the Space System Contract was almost exclusively performed in Arizona, including the system design, hardware and software development, and construction of the satellite constellation and gateway infrastructure. (Borota Decl. ¶¶ 12-15.)

Prior to Motorola's spin-off of Iridium, Motorola and Iridium also executed an Operations and Maintenance Contract ("O & M Contract") dated July 29, 1993. The O & M Contract provided that Motorola would perform certain services in connection with the operation and maintenance of the Iridium System's space segment, including upgrading hardware and software necessary to maintain certain performance levels, in exchange for Iridium's payment of what Iridium claims was $2.89 billion over the five year period contemplated by the contract. (Compl. ¶ 46; Declaration of Amy R. Wolf dated Dec. 20, 2001, ("Wolf.Decl.") Ex A. Motorola's Proof of Claim ("Motorola's Proof of Claim") at 3-4.) Notably, the O & M Contract's term began immediately following the completion of the Iridium Space System Contract. (Compl. ¶ 46; Motorola's Proof of Claim at 3-4.)

In 1999 Iridium was highly leveraged and struggling to make interest payments and meet certain financial covenants to senior note holders. (Declaration of Douglas K. Mayer dated Oct. 8, 2001, Ex. A Affidavit of F. Thomas Tuttle dated August 16, 1999, ("Tuttle Decl.") at 3-5.) By early August 1999, after having received several waivers on the financial covenants and interests payments, Iridium was in default of its commitments. (Tuttle Decl. at 4-6.) On August 13, 1999, certain Iridium bondholders filed an involuntary Chapter 11 petition against the Iridium Companies in the Southern District of New York. (Harvey Decl. Ex. D Involuntary Petition of Iridium; Tuttle Decl. at 5-6.) The bondholders chose the Southern District of New York as venue for the petition because Iridium had assets of $240 million in cash and various securities on deposit at The Chase Manhattan Bank in New York. (Harvey Decl. Ex. E Declaration of Valerie Dunbar dated Nov. 7, 2001.) The involuntary petition was filed after Iridium disclosed to these creditors its intent to file a voluntary Chapter 11 petition in the District of Delaware; where Iridium was incorporated. (Tuttle Decl. at 5-6.) As they previously planned, the Iridium Companies filed their voluntary petitions in Delaware later in the day on August 13, 1999. (Tuttle Decl. at 5-6.)

As a result of the dueling sets of bankruptcy petitions, an issue arose about the proper venue of the bankruptcy petition, but the parties consented to transferring the District of Delaware proceedings to the Southern District of New York. (Motorola Br. at 7; Statutory Committee of Unsecured Creditors' Opposition ("Comm.Op.") at 6-7.) Thereafter, Bankruptcy Judge Cornelius Blackshear of the Bankruptcy Court for the Southern District of New York, determined that venue was proper in the Southern District under 28 U.S.C. §§ 1408 and 1409, and ordered the Delaware cases transferred to New York. (Harvey Decl. Ex. F Order for Relief Under Chapter 11 and Transferring Delaware Cases to this Court dated Sept. 13, 1999.)

Subsequent to the filing of the bankruptcy petitions, the Committee conducted an investigation into potential claims that Iridium may have had against Motorola. (Comm. Op. at 7.) In that regard, on December 17, 1999, Judge Blackshear granted the Committee's motion authorizing it to conduct discovery of Motorola and former Iridium employees, pursuant Rule 2004 of the Bankruptcy Rules, including depositions and certain production of documents. (Harvey Decl. Ex. G Order Authorizing the Official Committee of Unsecured Creditors to Proceed with Discovery of Motorola and Certain Others Under Bankruptcy Rule 2004 dated Dec. 17, 1999.)

On February 11, 2000, Motorola filed several Proofs of Claim against Iridium in the bankruptcy proceeding. (Harvey Decl. Ex. J; Wolf Decl. Ex. A (collectively "Proofs of Claim").) Motorola's claims against Iridium included, (1) indemnification and contribution pursuant to Article 20 of the Space System Contract and Article 17 of the O & M Contract, for losses not yet ascertainable from various lawsuits; and (2) amounts due under certain contracts between Motorola and Iridium, including the O & M Contract. (Proofs of Claim Annex at 2-12.) Further, Motorola reserved its rights to file administrative claims against the estates of the Iridium Companies. (Proofs of Claim Annex at 13.)

On March 15, 2000, Judge Blackshear permitted the Committee to file an adversary proceeding against Motorola on behalf of the Iridium Companies' bankruptcy estates. (Harvey Decl. Ex. I & Mayer Decl. Ex. B Order Authorizing the Official Committee of Unsecured Creditors to File an Adversary Proceeding against Motorola, Inc. on behalf of the Chapter 11 Estates ("Adv.Proc.Order").) Judge Blackshear found that the Committee was "authorized to have standing and empowered to act as the representative of the Debtors for the purpose of pursuing all claims and causes of action on behalf of the Debtors as identified in the Motion ... against Motorola." (Adv. Proc. Order at 1-2.) In its motion, the Committee identified several causes of action against Motorola, including breach of contract, breach of fiduciary duty, and avoidance of fraudulent transfers/conveyances. (Harvey Decl. Ex. H Committee's Motion for Standing to Sue Motorola at 7-13 ("Comm.Mot.").) The Committee summarized these claims as follows:

Motorola and its executives used Iridium as a vehicle to (i) fund the development and creation of the IRIDIUM System, (ii) generate billions of dollars of revenue for Motorola derived from non-arm's length contracts made with the subsidiary to build and maintain the IRIDIUM System and supply phone and paging products for customers...