SMP Ltd. v. SunEdison, Inc. (In re SunEdison, Inc.)

• Decision Date: 13 October 2017
• Docket Number: Case No. 16–10992 (SMB) (Jointly Administered),Adv. Proc. No. 17–01057 (SMB)
• Citation: 577 B.R. 120
• Parties: IN RE: SUNEDISON, INC., et al., Debtors. SMP Ltd., Plaintiff, v. SunEdison, Inc., Defendant, and GCL–Poly Energy Holdings Limited Defendant–Intervenor.
• Court: U.S. Bankruptcy Court — Southern District of New York

577 B.R. 120

IN RE: SUNEDISON, INC., et al., Debtors.SMP Ltd., Plaintiff,

v. SunEdison, Inc., Defendant,andGCL–Poly Energy Holdings Limited Defendant–Intervenor.

Case No. 16–10992 (SMB) (Jointly Administered)

Adv. Proc. No. 17–01057 (SMB)

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

Signed October 13, 2017

CLEARLY GOTTLIEB STEEN & HAMILTON LLP, One Liberty Plaza, New York, NY 10006, Lisa M. Schweitzer, Esq., Jane VanLare, Esq., Of Counsel, Attorneys for SMP Ltd.

SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, Four Times Square New York, NY 10036, Jay M. Goffman, Esq., J. Eric Ivester, Esq., James J. Mazza, Jr., Esq., (admitted pro hac vice ), Louis S. Chiappetta, Esq. (admitted pro hac vice ), Robert A. Weber, Esq. (admitted pro hac vice ), Of Counsel, Attorneys for SunEdison, Inc.

GIBSON, DUNN & CRUTCHER LLP, 200 Park Avenue, New York, NY 10166, Michael A. Rosenthal, Esq., Marshall R. King, Esq., Matthew G. Bouslog, Esq. (admitted pro hac vice ), Of Counsel, Attorneys for GCL–Poly Energy Holdings Limited

MEMORANDUM DECISION GRANTING GCL–POLY ENERGY HOLDINGS LIMITED'S MOTION FOR PARTIAL SUMMARY JUDGMENT AND DENYING SMP LTD.'S CROSS–MOTION FOR PARTIAL SUMMARY JUDGMENT

STUART M. BERNSTEIN, United States Bankruptcy Court

The plaintiff, SMP Ltd. ("SMP")—a debtor under Korean bankruptcy law—sued the defendant SunEdison, Inc. ("SunEdison")—a U.S. debtor—seeking a declaratory judgment under Count I of its Complaint , dated May 1, 2017 ("Complaint ") (ECF Doc. # 1)¹ that SunEdison's termination of a September 28, 2011 supply and license agreement (the "SLA") was invalid because the termination violated Korean insolvency law. The defendant-intervenor GCL–Poly Energy Holdings Limited ("GCL") purchased certain of SunEdison's assets in bankruptcy and is the ultimate party in interest concerning the validity of the termination. GCL moved for partial judgment on the pleadings or, alternatively, partial summary judgment validating SunEdison's termination of the SLA, (see Defendant–Intervenor GCL Poly Energy Holdings Limited's Brief in Support of its Motion for Partial Judgment on the Pleadings or, in the Alternative, for Partial Summary Judgment , dated July 31, 2017 ("GCL Motion ") (ECF Doc. # 18)), and SMP cross-moved for partial summary judgment urging the opposite result. (See Memorandum of Law (I) in Opposition to Defendant–Intervenor GCL–Poly Energy Holdings Limited's Motion for Partial Judgment on the Pleadings or, in the Alternative, for Partial Summary Judgment, and (II) in Support of SMP Ltd.'s Cross Motion for Partial Summary Judgment , dated Aug. 14, 2017 ("SMP Motion ") (ECF Doc. # 28).)

The impetus driving the parties' disagreement revolves around the difference between the termination and the rejection of the SLA. SunEdison licensed certain intellectual property to SMP under the SLA. If SunEdison's termination was valid, SMP can no longer use the intellectual property. If, however, SunEdison is limited to rejecting the SLA, SMP can continue to use SunEdison's intellectual property without its consent. See 11 U.S.C. § 365(n)(1)(B). For the reasons that follow, the Court concludes that the termination of the SLA was valid. Accordingly, GCL's motion for partial summary judgment is granted, and SMP's cross-motion is denied.

BACKGROUND

The parties have stipulated to the pertinent facts, (see Stipulation of Undisputed Facts Pursuant to Local Bankruptcy Rule 7056–1 , dated July 31, 2017 (the "Fact Stipulation")² (ECF Doc. # 21)), relevant to Count I.

A. Formation of SMP and the SLA

This litigation concerns a plant built in Ulsan, Korea (the "Plant") to manufacture polycrystalline silicon, also known as "polysilicon," a vital material used in the production of solar wafers for solar cells. (¶ 1.) In 2011, SunEdison Products Singapore Pte. Ltd. ("SunEdison Singapore") and Samsung Fine Chemicals Ltd. ("SFC," and collectively with its affiliates, "Samsung") formed SMP as a joint venture under the laws of the Republic of Korea to ensure a supply of polysilicon in Korea.³ (¶ 4.) The parties' Joint Venture Agreement, dated Feb. 15, 2011, contemplated, inter alia , that (a) SunEdison Singapore or its affiliate would license to SMP the technology necessary for SMP to build and operate a polysilicon manufacturing plant, and (b) polysilicon products manufactured by SMP would be sold only to SunEdison Singapore and SFC. (¶ 7.) SunEdison relied on SFC to contribute employees to the joint venture, secure financing, provide land within an existing Samsung industrial complex on which to build the Plant, and provide supplies (e.g. , electricity, argon, nitrogen, water, etc.) to the extent available to SFC at favorable rates. (¶ 10.) SunEdison contributed the technology, equipment, Plant design, and certain knowledge, and provided training to SMP's employees so they could manufacture polysilicon at the Plant. (¶ 11.) The manufacture of polysilicon at the Plant is SMP's sole business, the Plant is not presently operating, (¶ 5), and SMP does not have any other business or operations. (¶ 12.)

In connection with the joint venture, and among other things, SunEdison and SMP entered into the SLA. (¶ 14.) Among other things, SunEdison granted SMP a license to use certain polysilicon production technology to install, operate and maintain the equipment at the Plant and to design, construct, operate and maintain the Plant. The SLA contains two provisions crucial to the current dispute. (¶ 15.) First, section 8.2(a)(ii) includes an ipso facto clause (the "Ipso Facto Clause") that permits either party to terminate the SLA if the other, inter alia , files bankruptcy or is unable to pay its debts as they become due.⁴ (¶ 21.) Second, section 11.9 selects New York and U.S. federal law as the governing law, without regard to their conflict of laws principles.⁵ (¶ 22.)

B. The Bankruptcy Proceedings

SMP began a shut-down process for the Plant in March 2016 and completed the shut-down in April 2016. (¶ 30.) On April 21, 2016, SunEdison, SunEdison Singapore, and certain affiliates (the "SunEdison Debtors") each commenced bankruptcy cases under chapter 11 of the Bankruptcy Code. (¶ 30.) Two weeks later, on May 3, 2016, SMP filed an application for rehabilitation under the Republic of Korea's Debtor Rehabilitation and Bankruptcy Act ("DRBA") with the 21st Civil Division of the Ulsan District Court (the "Korean Bankruptcy Court"). On June 13, 2016, the Korean Bankruptcy Court issued an order (the "Commencement Order")⁶ commencing the proceeding (the "Korean Bankruptcy Proceeding"), which remains pending in the Korean Bankruptcy Court. (¶ 31.) The Commencement Order appointed SMP's representative director to act as the "custodian," and fixed certain schedules relating to the filing and inspection of claims and the filing of a rehabilitation plan, but did not expressly grant any relief to SMP such as a stay of creditor actions. As of the date of the commencement of the Korean Bankruptcy Proceeding, the SLA was an executory contract in full force and effect. (See ¶¶ 32, 34.) SunEdison, SunEdison Singapore and MEMC Pasadena, Inc., another SunEdison Debtor, each filed a proof of claim against SMP in the Korean Bankruptcy Proceeding. (¶ 33.)

On August 26, 2016, the SunEdison Debtors filed a motion (the "Sale Motion") for an order approving, inter alia , the sale of their solar materials business,⁷ which included their assets pertaining to SMP. GCL acted as the stalking horse bidder for the sale, and the Sale Motion sought approval of an agreement between SunEdison and GCL (the "Stalking Horse Agreement") to sell the assets to GCL. Under the Stalking Horse Agreement, SunEdison was required to reject the SLA and "take such actions in Korea or the United States as [GCL] may reasonably request to terminate the [SLA] (including exercising their contractual rights, pursuant to and in accordance with the terms and conditions of such agreement), and in connection with such termination, exercise any rights under the [SLA] to require SMP to promptly return all proprietary information, technology, equipment and other licensed assets to Sellers and take no actions inconsistent with the exercise of such termination...." (¶ 35.)

SMP received proper notice of the Sale Motion, (¶ 35), and in fact, filed a reservation of rights objecting to the proposed sale ("SMP Sale Objection"). (¶ 36.) On October 25, 2016, the Court entered an order that approved the Sale Motion and Stalking Horse Agreement, and adjourned the SMP Sale Objection. (See Order (I) Authorizing the Sale of Solar Materials Business Free and Clear of all Liens, Claims, Encumbrances, and Interests; (II) Approving the Assumption and Assignment of Certain Executory Contracts and Unexpired Leases; and (III) Granting Related Relief , signed Oct. 24, 2016 (ECF Main Case Doc. # 1466).)

Following Court-ordered mediation, the Court signed an order approving a settlement agreement that resolved the SMP Sale Objection (the "Settlement Agreement"). (See Stipulated Order Approving Settlement Agreement , signed March 27, 2017⁸ (ECF Main Case Doc. # 2657).) The Settlement Agreement permitted the sale to go forward while preserving the issue now before the Court. Among other things, the Settlement Agreement required SunEdison to send a notice terminating the SLA in accordance with the terms of the SLA. SunEdison, GCL and SMP "acknowledge and agree that SMP's rights to contest and challenge [SunEdison's] rights to terminate [the SLA] are hereby fully preserved." (Settlement Agreement at ¶ 7.) SMP could challenge the termination either in this Court or pursuant to arbitration under the SLA. (Id. ) In consideration for these and other agreements contained in the Settlement Agreement, SunEdison agreed to pay SMP $5 million. (Id. at ¶ 3.) On March 22, 2017, the Korean Bankruptcy Court also approved the Settlement Agreement. (¶ 37.)

C. The Termination and this Adversary Proceeding

SunEdison transmitted the termination notice to SMP in accordance with the...