A 2015 Judicial Scolding for “Self-Serving” and “Narcissistic” Mediation Positions (the Nortel Networks Bankruptcy, Part Two)

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A Judicial Scolding

By: Donald L. Swanson

The primary issue in the Nortel Networks bankruptcy is this: How should the remainder of a $7.3 billion fund be allocated among creditors?  $2 billion or-so of this fund has already been used to pay professional fees in the fight.

The U.S. portion of the Nortel Networks case is in the Delaware Bankruptcy Court.  Such Court, in its Opinion dated May 12, 2015 on this primary issue, makes these findings (bold face is added for emphasis):

–The parties “have submitted widely varying approaches” for deciding the allocation issue, “leaving virtually no middle ground.” Both sides have “strong criticism” of the other’s allocation methodology.

–The “self-serving allocation positions” of various U.S. and Canada parties “are not determinative or helpful” and “suffer from fatal, substantive flaws.”

[Editorial note:  Aren’t all negotiating positions “self-serving”?]

–Allocation positions of various interests “are nothing short of narcissistic.”

[Editorial note:  Ouch!]

Allocation positions of the U.K. Pension Claimants are for a pro rata distribution to all claims, “irrespective of the entity against which they may have a claim,” because Nortel operated as “a highly integrated multinational” that “derived significant benefits” from operating as “one Nortel.”

Final Conclusion of the Court:

–It adopts the U.K. Pension Claimants position and rules that a “pro rata distribution model is the most appropriate and just.”

How could these disputes have failed to settle?  How could the parties fail to find middle ground on this?

The Bankruptcy Court’s ruling is now a major problem for the losing interests:

–The U.S. and Canada interests are now totally dependent upon a reversal on appeal.

–And the loss is problematic for the U.S. and Canada interests because the Bankruptcy Court says it’s allocation ruling should be a model for how future multinational cases are to be handled.  Here’s what the Court says on this:

–“The Courts have an opportunity to set a precedent that will avoid the time and expense” that has plagued the Nortel proceedings and prevent such delays and costs “from occurring again” in the future.

–“Territorial wrangling significantly diminishes value for stakeholders” and “ought not be condoned or rewarded.”

Appeal prospects aren’t looking very promising right now.  A Canadian appellate court, for example, has already approved the ruling.  Here is the  opinion of the “Court of Appeal for Ontario” on the matter.

And the following comments don’t help much, either: on appeal from the Delaware Bankruptcy Court’s allocation ruling, the U.S. Official Creditors’ Committee argues in its opening brief that:

–The Delaware Bankruptcy Court’s decision “is entirely inequitable” and “completely untethered from” any provision of the Bankruptcy Code; and

–In making this decision, the Bankruptcy Court “abdicated its responsibility,” it “acted well outside any” legal authority, and its actions are an “abuse of its equitable authority.”

Hmmmm . . . such arguments are going to go over well when everyone ends up back in the Delaware Bankruptcy Court.

It seems like the appealing parties are in a bit of a bind on this?

 

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