Boeing Co. v. Yuzhnoye
| Decision Date | 13 May 2016 |
| Docket Number | Case No. CV 13-00730-AB (AJWx) |
| Court | U.S. District Court — Central District of California |
| Parties | THE BOEING COMPANY and BOEING COMMERCIAL SPACE COMPANY, Plaintiffs, v. KB YUZHNOYE; PO YUZHNOYE MASHINOSTROITELNY ZAVOD; S.P. KOROLEV ROCKET AND SPACE CORPORATION, ENERGIA D/B/A ROCKET AND SPACE CORPORATION ENERGIA AFTER S.P. KOROLEV; ENERGIA OVERSEAS LLC; and ENERGIA LOGISTICS LTD., Defendants. |
Following the bench trial of the above-captioned matter that started on November 10, 2015 and ended on November 23, 2015, the Court makes the following Findings of Fact and Conclusions of Law1:
I. FINDINGS OF FACT
1. The Boeing Company is a leading manufacturer of commercial jetliners and defense, space, and security systems. See, e.g., Defendants' Exhibit ("DX") 2203-0074.
2. Boeing Commercial Space Company ("BCSC") is a wholly owned subsidiary of Boeing (collectively, Boeing and BCSC are referred to as "Plaintiffs"). See, e.g., Dkt. No. 8682, Ira Schey3 10/30/2013 Deposition ("Schey 10/30/2013 Depo."), 42:14-15.
3. S.P. Korolev Rocket and Space Corporation, Energia (referred to as "Energia" or "RSC Energia") is a Russian company. Vasiliev Vyacheslav4 1/19/2015 Deposition ("Vasiliev 1/19/2015 Depo."), 22:6-23. The Russian Federation is Energia's largest shareholder. See DX2272-0006.
4. Energia owns Defendants Energia Logistics Ltd. (referred to "ELUS" or "Logistics") and Energia Overseas LLC (referred to as "Energia Overseas" or"Overseas") (together, the "Energia Subsidiaries" or the "Subsidiaries"). See Dkt. No. 836 ("Final Pretrial Conference Order"), Admitted Fact No. 9, p. 3.
5. ELUS is a Delaware corporation that was formed in February 2010 in connection with the reorganization of Sea Launch Company LLC. DX2430-1; Trial Transcript ("Tr.") 664:8-16 (Brett Carman5 ("Carman")).
6. Energia Overseas LLC is a non-operating Delaware limited liability company that was formed in January 2010, also in connection with the reorganization of Sea Launch Company LLC. Plaintiffs' Exhibit ("PX") 1244 (Overseas's State of Delaware Renewal and Revival of Charter Application), pp. 1-2.
7. There are also three other noteworthy Energia subsidiaries: Energia Logistics LLC RU ("ELRF"), a Russian company which owns Logistics; LLC Energia Overseas Russia ("EORu"), a Russian Federation Limited Liability Company which serves as the parent company of Energia Overseas; Razvitiye, a Russian company, that is the 99.95% owner of EORu. Dennis Shomko6 11/18/2014 Deposition ("Shomko 11/18/2014 Depo.") 57:9-20; DX2681-207 ("Proposed Ownership Structure of Sea Launch").
8. RSC Energia ultimately owns Razvitiye which explains its overall ownership of the Energia Subsidiaries. See Proposed Ownership Structure of Sea Launch.
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9. Because both Parties are familiar with this case's procedural posture, there is no need to extensively detail this action's procedural history. But there are several relevant procedural events to note.
10. The trial's principal issue focuses on enforcing the contractual terms of the Creation Agreement—a 1995 agreement that created Sea Launch. Dkt. No. 1, ¶ 4(a).
11. Plaintiffs filed this suit on February 1, 2013. Dkt. No. 1. Plaintiffs alleged that Energia and KB Yuzhnoye and PO Yuzhnoye Mashinostroitelny Zavod (together, "Yuzhnoye") who were also owners of the Sea Launch7 venture breached: (a) the Creation Agreement; and (b) two separate Partner Loan Guaranties. See id. at ¶¶ 4, 68-86, 91-102.
12. As a result of these breaches, Plaintiffs alleged that Energia and Yuzhnoye owed Plaintiffs over $350 million. Id. at ¶ 5. Plaintiffs also alleged that the Energia Subsidiaries were alter ego corporations of Energia. Id. at ¶¶ 12, 49-55, 103-105.
13. Each defendant filed a motion to dismiss. The Energia Subsidiaries made two substantive arguments in their motion. See Dkt. Nos. 24-25. First, they argued that they were created as a result of Sea Launch's bankruptcy proceedings, and Plaintiffs were precluded from bringing alter ego claims against them. Dkt. No. 24, pp. 9-10. Second, they argued that Plaintiffs had not pleaded (and could not plead) an alter ego claim against them because doing so was a form of "reverse veilpiercing" which they contended was prohibited under both Delaware and California law. Id. at pp. 14-15.
14. This Court denied Defendants' motions to dismiss. Dkt. No. 74. With respect to the Subsidiaries' bankruptcy-related defenses, the Court held that "the fact that the Energia Subsidiaries were created as a result of Sea Launch's bankruptcy does not preclude Plaintiffs from bringing their claims against them" and confirmed that "the Confirmation Order [in Sea Launch's bankruptcy] has no impact on the claims raised by Plaintiffs against the Energia Subsidiaries." Id. at pp. 6-7. The Court stated that "nothing in the Confirmation Order collaterally estops Plaintiffs' claims because the same issues were not previously litigated in the Bankruptcy Court." Id. at p. 7. Lastly, the Court confirmed that Plaintiffs had "sufficiently alleged alter ego liability against the Energia Subsidiaries." Id.
15. The Subsidiaries also filed a motion for summary judgment. Dkt. No. 209. The Subsidiaries made two primary arguments in this motion. First, the Subsidiaries claimed that Plaintiffs could not show a "fraud" or "injustice" because Plaintiffs had benefitted from Sea Launch's reorganization. Dkt. No. 209, p. 16. Second, the Subsidiaries again claimed that Plaintiffs' claims were "reverse veil piercing" claims that were not permitted under Delaware and California law. Dkt. No. 209 at 22.
16. This Court denied the Subsidiaries' summary judgment motion. The Court held that the testimony of Plaintiffs' Rule 30(b)(6) witness did not decide the issue of "injustice," see Dkt. No. 273, p. 3, noting the lack of discovery from the Energia Subsidiaries and Energia at that point in the case. The Court also held that "Plaintiffs' Alter Ego Theory is Not Tantamount to Reverse Veil Piercing." Dkt. No. 273, p. 3 (emphasis in original). Rather, the Court noted that Plaintiffs' claim against the Energia Subsidiaries "appears to be a conventional application of the alter ego doctrine." Id. at p. 4.
17. After discovery, Plaintiffs moved for summary judgment against Energia and Yuzhnoye under their breach of contract claims. Dkt. No. 552. In their Oppositions, Energia and Yuzhnoye argued that, inter alia, their obligation to repay the Sea Launch loan debt and the BCSC loan guaranty was relieved based on Plaintiffs' oral modifications.8 E.g., Dkt. No. 574 ("Energia MSJ Opp."), pp. 10-13; Dkt. No. 648 ("Yuzhnoye MSJ Opp."), pp. 10-12; Dkt. No. 143, Energia Am. Answer, Affirmative Defenses, and Counterclaims, ¶ 179.
18. The Court rejected Energia's and Yuzhnoye's arguments and granted Plaintiffs' motion for summary judgment on their claims against Energia and Yuzhnoye. Dkt. No. 750. The Court found that BCSC had lent Sea Launch more than $183 million and that Energia and Yuzhnoye had guaranteed 25% and 15%, respectively, of all amounts outstanding under that loan. Id. at pp. 8-9. The Court also found that "Boeing guaranteed around $450 million in third party loans to Sea Launch," subject to provisions in the Creation Agreement calling for Energia to reimburse Boeing for 25%, and Yuzhnoye 15%, of all sums Boeing paid. Id. at pp. 6, 11, 13.
19. In the Summary Judgment Order, the Court also addressed the Defendants' contention that the Confirmation Order (that was finalized in Sea Launch's bankruptcy) barred Plaintiffs' claims. Id. at pp. 47-48. Reaffirming the Court's prior decision denying the motions to dismiss, the Court again held that Sea Launch's bankruptcy did not have an impact on Plaintiffs' claims, given that "Section 38 of the Confirmation Order, the bankruptcy order formulated during SeaLaunch's reorganization, specifically preserves claims of Boeing and BCSC 'against entities other than the Debtors' with 'Debtors referring to the six legal entities that constituted the original Sea Launch enterprise.'" Id. at p. 47 (citing Dkt. No. 74, pp. 6-7).
20. Plaintiffs also moved for summary judgment on the Subsidiaries' nearly 50 affirmative defenses. Dkt. No. 559. Prior to the Court's summary judgment decision, the Subsidiaries' decided not to use forty-four affirmative defenses, and pursued only four defenses at the alter-ego bench trial.9 Dkt. No. 763. With respect to the four remaining defenses, the Court determined that "the more practical approach is to resolve the disputes at trial." Dkt. No. 831, p. 4.
21. Beginning on November 10, 2015, the Court held a bench trial on whether the Energia Subsidiaries are alter ego corporations of Energia and, if so, whether the Subsidiaries can avoid the consequences of such a finding through one of their four remaining affirmative defenses.10 The Court limited each side to ten hours to present evidence. See Final Pretrial Conference Order, p. 2.
22. Following trial, the Court ordered the Plaintiffs and the Energia Subsidiaries to provide proposed findings of fact and conclusions of law within fourteen days following closing arguments to which the Parties timely complied. See Dkt. Nos. 869, 886, 889.
23. For the reasons described in the findings of fact and conclusions of law below, the Court holds that the Energia Subsidiaries are the alter ego corporations of Energia and that the remaining affirmative defenses do not prevail.
II. FINDINGS OF FACT REGARDING ALTER EGO LIABILITY
24. This case is about whether the Energia Subsidiaries are the alter ego corporations of Energia.
25. On May 3, 1995, BCSC, Energia, Yuzhnoye and Kvaerner, entered into the Creation Agreement which set forth the parameters of the Sea Launch venture. See Final Pretrial Conference Order, Admitted Fact No. 1, p. 3.
26. Sea Launch is a complex launching system that cost over $1 billion to construct. See, e.g., PX130-0007 (...
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