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Judge Gross Dismisses the U.S. Debtors’ Third-Party Complaint Against the Joint Administrators for Nortel Entities Located in Europe, the Middle East, and Africa

By Gregory J. Flasser

On May 2, 2016, Judge Kevin Gross of the United States Bankruptcy Court for the District of Delaware (the “Court”) issued a memorandum opinion in SNMP Research International, Inc. v. Nortel Networks Inc., et al., Adv. No. 11-53454 (KG) dismissing the U.S. Debtors’ Third-Party Complaint against the court-appointed administrators and authorized foreign representatives for nineteen Nortel entities located in Europe, the Middle East, and Africa (the “EMEA Debtors”).  The EMEA Debtors had moved for judgment on the pleadings and to dismiss with prejudice the U.S. Debtors’ Third-Party Complaint.  In their motion, the EMEA Debtors asserted that the U.S. Debtors were barred by a settlement agreement from bringing their contribution claim.

On January 14, 2009, the U.S. Debtors filed voluntary petitions under chapter 11 of the Bankruptcy Code.  On the same day, Nortel Networks Limited and Canadian affiliates (the “Canadian Debtors”) commenced CCAA proceedings in Canada.  The EMEA Debtors were placed into administration by the High Court of England and Wales, and on June 26, 2009, the Court entered orders recognizing the English administration proceedings as foreign main proceedings under Chapter 15 of the Bankruptcy Code.

In the bankruptcy cases, the U.S., Canadian, and EMEA Debtors (collectively, the “Nortel Debtors”) sold their assets, earning over $7 billion.  The Nortel Debtors dispute the allocation of the sale proceeds and the Court and the Canadian Court conducted a 21-day cross-border trial, issuing an Opinion and Order on the allocation on May 12, 2015.  The Court’s decision is on appeal.

Prior to the trial, the U.S. Debtors and the EMEA Debtors entered into a settlement agreement (the “Settlement Agreement”), which included certain releases of the EMEA Debtors and provided that the U.S. Debtors would pay $75 million to the EMEA Debtors.

On November 2, 2011, SNMP Research International, Inc. and SNMP Research Inc. (collectively, “SNMP”) filed a complaint against the U.S. Debtors and the Canadian Debtors claiming, among other things, copyright infringement and breach of contract.  In a Second Amended Complaint, SNMP added a claim alleging that the U.S. Debtors are liable for sales proceeds received by other Nortel entities.  As a result of the Second Amended Complaint, the U.S. Debtors filed their Third-Party Complaint asserting a claim for contribution against the EMEA Debtors.

In dismissing the U.S. Debtors Third-Party Complaint with prejudice, the Court found that the Settlement Agreement released the EMEA Debtors from the liability for contribution sought by the U.S. Debtors.  The U.S. Debtors argued that: (i) the release language in the Settlement Agreement did not release their claim for contribution; and (ii) the disagreement between the U.S. Debtors and the EMEA Debtors meant that the release language is ambiguous and therefore presented a genuine issue of material fact.  The Court disagreed with the Debtors’ arguments noting that the release of the EMEA Debtors included claims “known or unknown, past or present” and that the SNMP claim fits squarely within those categories.

A copy of the Court’s opinion is available here.

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