BUSINESS

Allocation of Nortel's $7.3B of assets still divisive issue; 2 judges to decide

09/24/2014 08:31 EDT | Updated 11/24/2014 05:59 EST
TORONTO - A months-long court battle over Nortel's remaining assets remains divisive, with judges in Canada and the United States given the task of navigating what has been described as a "tsunami" of legal arguments, dry facts and, occasionally, stormy lawyer summations.

A lawyer for Nortel's Canadian pensioners and former employees said Wednesday in the final day of summations that it was wrong to suggest that his clients are asking for special treatment when it comes time to split up about $7.3 billion among various creditors of the collapsed technology company.

"My clients ask for nothing else than that this case be determined on the facts and the law," said Mark Zigler of Koskie Minsky LLP, which represents more than 20,000 former and retired Nortel employees in Canada.

"My clients don't want special treatment," Zigler said in court. "It is, in fact, disrespectful to say my clients want this case decided on the basis of who they are. That is not what they're saying."

On Tuesday, a lawyer for what's left of the U.S. arm of Nortel said that it was a "fallacy" to think of Nortel Networks as just a Canadian company, that its intellectual property was created solely in Canada, or that Nortel's business was run from Canada since its largest and most profitable business units were operated out of the United States.

James Bromley said from the U.S. courtroom in Wilmington, Del., that the United States had "more Nortel employees, therefore more Nortel retirees, more Nortel disabled, than anywhere else."

However, the main thrust of Bromley's legal argument was that the U.S. arm of Nortel had a greater claim on the patents and intellectual property than proposed by lawyers for the Canadian court-appointed monitor or the Canadian creditors. He also said the U.S. arm's creditors should be paid in full before money goes to the Canadian parent's creditors.

The cross-border video-linked hearings in Toronto and Delaware were originally to wrap up on Tuesday but the two judges hearing the case simultaneously decided to extend the sitting into Wednesday to provide all the parties a chance to summarize their positions following testimony and evidence given over six weeks in May and June.

The decision rests with Justice Frank Newbould of Ontario Superior Court in Toronto and Judge Kevin Gross of the U.S. Bankruptcy Court in Delaware. It wasn't clear when they'll come to their conclusions but several lawyers have said privately that an appeal is likely whatever the outcome.

Janis Sarra, a law professor at University of British Columbia and coeditor of an annual Canadian insolvency journal, said in an email exchange on Wednesday that the Nortel case could have a significant impact on this area of the law because of the multiple jurisdictions and the significant court costs that have been a drain on the assets that will be distributed.

"I would hope that having heard the same submissions and considered the same evidence that the judges will be aligned in the substance of their rulings," Sarra wrote. "If the judgments are not aligned, parties may go back to the bargaining table once again or they may appeal in one or both jurisdictions."

An appeal would be complicated because Canada and the United States have different thresholds for appeal and different standards of review of lower court judgments.

"A further question is whether the appellate courts would try to co-operate in any way, an issue that has never been tested in Canada or elsewhere in the world," Sarra wrote.

One of the main sticking points for the trial that began in May has been how to divide about $4.5 billion from the sale of patents and intellectual property to a consortium of technology companies after Nortel sought creditor protection in 2009. The rest of the money came primarily from the sale of Nortel's business units, but the division of those assets has been resolved.

Three main conflicting approaches about Nortel's intellectual property have been put forward by the different arms of Nortel in Canada, the United States and United Kingdom, complicated by a number of alternative positions and shared jurisdiction over Nortel in Canada — where it was founded and had its head office — and the United States, which was its largest market.

Lawyers for the monitor, as well as a group representing its Canadian pensioners and former employees, have argued the Canadian company Nortel Networks Ltd. (NNL) had legal title to the patents and ownership of the subsidiaries, including Nortel Networks Inc. (NNI) in the United States and its European subsidiaries, including in the United Kingdom.

Lawyers for NNI and U.S. bondholders have argued that the American arm of Nortel should get a bigger proportion of the money than the monitor or Canadian creditors advocate, due to its size and importance within the overall Nortel group of companies and due to the guarantees that NNI provided on bonds issued to the parent company NNL.