Courts’ adoption of pro rata allocation theory advocated by Willkie on behalf of the firm’s pensioner clients is a significant victory in Nortel’s cross-border insolvency cases.
On May 12, Judge Gross of the Delaware Bankruptcy Court and Justice Newbould of the Supreme Court of Ontario issued decisions concerning the allocation of $7.3 billion of proceeds from the joint asset sales of the Nortel Networks multi-national enterprise, which included a $4.5 billion patent portfolio. Both judges adopted the arguments made by Willkie’s clients, the Trustee of Nortel’s UK Pension Plan and the UK Pension Protection Fund (the “UK Pension Claimants”), that the sale proceeds should be divided on a pro rata basis based on creditor claims given the highly integrated nature of the Nortel enterprise and its assets.
The result, which comes after several contentious years of litigation and three failed mediations, stands to benefit the UK Pension Claimants, who represent approximately 33,000 ex-Nortel UK pensioners whose defined benefit pension plan was left severely underfunded when Nortel entered into bankruptcy in 2009.
In an unprecedented proceeding that could radically advance cooperation in future cross-border insolvencies, the courts in the U.S. and Canada jointly conducted a cross-border trial – connected through videolink – involving estate representatives from the Nortel insolvency cases in the U.S., Canada and EMEA, as well as key creditor and employee groups. Willkie, together with Canadian co-counsel, argued before both courts in the joint trial, which took place over the course of 21 days in May and June 2014 and followed an intensive discovery process involving approximately 140 depositions around the world and the production of 3 million documents.
The litigants advanced four principal allocation theories, predicated on competing interpretations of legal and factual issues related to complex contract interpretation, the business organization of the global Nortel enterprise, the ownership and development of Nortel’s intellectual property and transfer pricing arrangements, among other issues. After rejecting the “self-serving allocation positions” of the other parties, both courts generally adopted the pro rata allocation theory advocated by the UK Pension Claimants, concluding that such allocation “is the only outcome that reflects uncontroverted evidence and leads to a just result.”
The Willkie team included: Litigation partners Brian O’Connor and Sameer Advani, associates Andrew Hanrahan, Nicholas Chiuchiolo, and Elizabeth Roache; Business Reorganization and Restructuring partner Marc Abrams and associate Weston Eguchi; and Intellectual Property partner Eugene Chang and associates Heather Schneider and Robert Kofsky.
Hogan Lovells UK and Wilberforce Chambers acted as U.K. co-counsel and Thornton Grout & Finnigan acted as Canadian co-counsel.