Freeland v. Iridium World Communications Ltd.
| Decision Date | 03 April 2008 |
| Docket Number | Civil Action No. 99-1002. |
| Citation | 545 F.Supp.2d 59 |
| Parties | Parker FREELAND, individually and on behalf of all others similarly situated, Plaintiffs, v. IRIDIUM WORLD COMMUNICATIONS, LTD., et al., Defendants. |
| Court | U.S. District Court — District of Columbia |
Donald J. Enright, Douglas Graham Thompson, Jr., Finkelstein Thompson LLP, Washington, DC, Fred T. Isquith, Gregory M. Nespole, Gustavo Bruckner, Scott J. Farrell, Wolf Haldenstein Adler Freeman & Herz LLP, William W. Wickersham, Entwistle & Wickersham, Benjamin Y. Kaufman, January L. Kerr, Robert A. Wallner, Susan M. Greenwood, Milberg Weiss Bershad & Schulman LLP, Marvin L. Frank, Eric J. Belfi, Murray, Frank & Sailer LLP, New York, NY, for Plaintiffs.
Jeffrey L. Willian, Amy C. Andrews, Jennifer M. Rhodes, John E. Tangren, Katheleen A. Ehrhart, Kirkland & Ellis LLP, Chicago, IL, David R. Dempsey, Kirkland & Ellis, LLP, Paul Lamont McDonald, Paul, Hastings, Janofsky & Walker LLP, Daryl Andrew Libow, Thomas Russell Leuba, Sullivan & Cromwell, LLP, Litigation, Jon R. Roelike, Clifford Chance US, LLP, Washington, DC, Gandolfo V. Diblasi, Elizabeth K. Ehrlich, Jordan Tourney Razza, Sullivan & Cromwell LLP, James F. Moyle, Jeff E. Butler, Kelso L. Anderson, Lai Lee Chau, Mark A. Weissman, Scott J, Splittgerber, Clifford Chance US LLP, New York, NY, for Defendants.
Jeffrey L. Willian, Amy C. Andrews, Jennifer M. Rhodes, John E. Tangren, Katheleen A. Ehrhart, Kirkland & Ellis LLP, Chicago, IL, David R. Dempsey, Kirkland & Ellis, LLP, Paul Lamont McDonald, Paul, Hastings, Janofsky & Walker LLP, Daryl Andrew Libow, Thomas Russell Leuba, Sullivan & Cromwell, LLP, Litigation, Jon R. Roelike, Clifford Chance US, LLP, Washington, DC, Gandolfo V. Diblasi, Elizabeth K. Ehrlich, Jordan Toumey Razza, Sullivan & Cromwell LLP, James F. Moyle, Jeff E. butler, Kelso L. Anderson, Lai Lee Chau, Mark A. Weissman, Scott J. Splittgerber, Clifford Chance US LLP, New York, NY, for Defendants.
Plaintiffs class, as holders of various securities of Iridium World Communications, Ltd. (IWCL), sued Defendant Motorola, Inc. (Motorola), the lone-remaining defendant, for securities fraud under Sections 10(b) and 20 of the Securities Act of 1934 and Section 15 of the Securities Act of 1933, as well as SEC Rule 10b-5. The following motions are before the Court: (1) Plaintiffs' Renewed Motion for Partial Summary Judgment under the Doctrine of Collateral Estoppel [Doc. # 203]; (2) Motorola's Motion for Summary Judgment on All Claims [Doc. #204]; (3) Motorola's Motion for Summary Judgment on Claims Directed Against Motorola [Doc. #205]; (4) Plaintiff Richard Mandelbaum's Motion for Partial Summary Judgment on Section 15 Claim [Doc. # 207]; and (5) Motorola's Motion to Exclude the Damages Testimony of Anthony Saunders [Doc. # 206]. The Court grants, in part, and denies, in part, Motorola's Motion for Summary Judgment on All Claims. The Court denies the remaining motions.
Approximately twenty years ago, Motorola began developing a global wireless communications system called "Iridium" that would connect low-orbiting satellites, earthbound relay stations, and customer handsets, allowing customers to make and receive phone calls anywhere in the world, all with the convenience of one phone number and one bill. The system was designed for customers who needed to make or receive phone calls in areas where cellular phones could not. It was not, however, intended to be a replacement for cellular service; instead, Iridium expected its customers to use satellite services only where cell service was unavailable because the satellite-based system did not work well in urban areas and air-time charges were considerably more expensive. Iridium was originally a subsidiary of Motorola but was later spun off into IWCL, Iridium Operating, and Iridium LLC. Under this structure, IWCL was the vehicle for public investment in Iridium LLC, owning approximately 13% of that company by January 1999. Iridium LLC was formed for the purpose of acquiring, owning and managing the Iridium system itself. Motorola originally had the right to appoint five of the 28 members of the Iridium LLC Board of Directors until early 1999. Both IWCL and Iridium LLC will be referred to collectively as "Iridium" throughout this Order.
The Iridium system as designed had four principal components: (1) the space segment that included 66 low-earth-orbit satellites and related control facilities; (2) ground stations or "gateways" that linked the satellites to terrestrial communications systems; (3) phones, pagers and SIM cards that provided mobile access to the satellite system and terrestrial cellular systems; and (4) the land-based wireless roaming infrastructure that facilitated roaming among the land-based cellular systems and the Iridium system. The gateways were twelve earth stations which provided the call-processing services by connecting calls made through the Iridium system to and from local land lines through an international switching center. Many of Iridium's gateway owners-separate companies controlling gateways in specific geographic regions-were strategic investors in IWCL.
Dr. Edward F. Statiano was Vece-Chairman and Chief Executive Officer of Iridium LLC and Iridium Operating, as well as CEO of IWCL, from before September 8, 1998, until April 22, 1999. Prior to his position at Iridium, he was employed at Motorola for 23 years, where he was part of senior management, holding a position he described as one "of the three operating vice presidents of the corporation" reporting directly to the CEO. Roy T. Grant was Chief Financial Officer and a vice president of Iridium LLC. and IWCL until March 29, 1999.
There were contracts between Motorola and Iridium, wherein Motorola assumed responsibility for designing, building and launching the satellite communications system and developing the handset technology. As a result, Motorola was a contract creditor of Iridium. Beginning in 1996, Motorola agreed to guarantee the unsecured portion of Iridium's credit facility up to $750 million. In late 1997, Motorola agreed to allow its guarantee exposure to increase to more than $1 billion. As part of its terms, however, it gained the right to appoint a sixth director on the Iridium LLC board once the guaranteed borrowing by Iridium exceeded $750 million. By March 1999, Motorola designated six of the 29 directors as a result of this agreement. As part of the guaranty's terms, Iridium could not take certain actions without Motorola's consent, including acquisitions and recapitalizations, additional borrowing, and payment of dividends except as expressly authorized. Motorola contends that these terms in connection with guarantees were common, but Plaintiffs assert there is no precedent in which a guarantor receives the right to appoint an additional director.
On November 1, 1998, Iridium launched "full" commercial service, over a month after its originally scheduled September launch. Iridium delayed the commercial launch in an effort to "refine system performance and quality" and "improve operational stability of the network." On December 23, 1998, Iridium closed on "new bank credit facilities providing for an aggregate amount of up to approximately $1.55 billion of borrowings." This included a senior secured credit facility for $800 million. As part of this secured bank facility, Iridium newly covenanted that it would satisfy certain minimum revenue and subscriber levels, including:
(a) by March 31, 1999, it would have at least 27,000 Iridium World Satellite Service subscribers and at least 52,000 total subscribers;
(b) by ten business days after March 31, 1999, it would have cumulative cash revenues of at least $4 million and cumulative accrued revenues of at least $30 million;
(c) by June 30, 1999, it would have at least 88,000 Iridium World Satellite Service subscribers and at least 213,000 total subscribers;
(d) by July 15, 1999, it would have cumulative cash revenues of at least $50 million and cumulative accrued revenues of at least $150 million;
(e) by September 30,1999, it would have at least 173,000 Iridium World Satellite Service subscribers and at least 454,000 total subscribers; and
(f) by October 14, 1999, it would have cumulative cash revenues of at least $220 million and cumulative accrued revenues of at least $470 million.
Between September 8, 1998 and May 13, 1999 (the class period), Iridium and Motorola made a number of statements regarding the status of the Iridium service and technology, as well as their expectations about the market and the number of customers they would attract. These statements include press releases issued by Iridium and Motorola; and SEC registration statement filed on October 13, 1998, by IWCL, made in connection with a planned secondary offering (an amended registration statement was filed November 13); a January 21,1999, prospectus by IWCL; as well as statements reported by various third-party publishers, such as newspapers and analysts. Many of these statements related to whether Iridium would be able to satisfy the bank covenants regarding minimum number of subscribers and revenues. Iridium and Motorola's statements were often positive, suggesting that they expected to meet the bank covenants, although many of the statements carried cautionary language indicating that these were based on certain assumptions. Plaintiffs contend that internal records and memoranda reveal that at the time these statements were made, both Iridium and Motorola knew that it would actually be almost impossible for Iridium to meet the required covenants. Motorola disputes this and responds that, in any event, the cautionary language, or "forward-looking statements," make their knowledge of whether Iridium would meet the bank covenants irrelevant.
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..."[G]eneralized statements of optimism that are not capable of objective verification are not actionable." Freeland v. Iridium World Commc'ns , 545 F. Supp. 2d 59, 76 (D.D.C. 2008) (internal quotations omitted); see also Jacobson v. Hofgard , 168 F. Supp. 3d 187, 196 (D.D.C. 2016) ("[D]efend......
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...notes that other judges sitting in this district have reached conflicting conclusions. Compare Freeland v. Iridium World Commc'ns, Ltd., 545 F.Supp.2d 59, 72 (D.D.C.2008) (Laughrey, J., visiting) (“In this case, the Court does not believe that the [subsection (A)(i) ] safe-harbor provision ......
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