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Boeing Wins Judgment In $355M Suit Over Satellite JV

30 September 2015

A California federal judge on Monday awarded Boeing summary judgment on its claims that its Russian and Ukrainian partners skipped out on $355 million owed to the aerospace giant after a joint satellite-launching company went bankrupt, ruling the venture's founding agreement requires the partners to pay.

The Boeing Co. alleged Ukrainian state-owned KB Yuzhnoye and PO Yuzhnoye Mashinostroitelny Zavod and Russia-based SP Korolev Rocket and Space Corp. Energia had broken contracts by leaving Boeing holding the bag for hundreds of millions of dollars of loan guarantees related to the Sea Launch joint venture after Sea Launch declared bankruptcy and defaulted on the loans.

On Monday, U.S. District Judge Andre Birotte granted Boeing's motion for summary judgment against the defendants, ruling that before Boeing issued the roughly $450 million in loan guarantees to get commercial banks to issue loans to Sea Launch, the defendants had expressly affirmed their obligations to share the costs of any guarantees issued by the venture in Article 9.4.2 of the venture’s creation agreement.

Judge Birotte rejected the defendants' argument that Boeing representatives had orally told them it would not seek to enforce Article 9.4.2., thus modifying the deal under Swedish law, which controls the creation agreement.

“Each Sea Launch partner agreed — and reaffirmed this agreement — to reimburse Boeing for their share of the loan obligations if Boeing was required to pay on the guarantees. Second, plaintiffs focus on the fact that nothing plaintiffs said before or after this agreement was signed could be interpreted as an oral modification under Swedish law,” Judge Birotte wrote. “Considering these arguments in conjunction with both the undisputed and additional facts, the record is devoid of any facts that meet the oral modification standard under Swedish law.”

The suit stems from a 1995 joint venture between RSC Energia and Boeing called Sea Launch that aimed to provide sea- and land-based launch sites for satellites. The JV filed for Chapter 11 protection in June 2009, listing more than $1 billion in debt and citing credit constrictions, a weakened commercial satellite industry, the effects of a failed launch and the global economy for its failure.

Boeing sued in February 2013, claiming the defendants failed to reimburse it after Sea Launch defaulted on its loans and went bankrupt. Boeing had both directly funded the joint venture and guaranteed $450 million in third-party loans, according to the complaint.

Then-U.S. District Judge Audrey B. Collins previously nixed Energia's attempt to escape from the Boeing suit in 2013, before she was appointed a justice of the California Court of Appeal.

In that motion to dismiss, Energia challenged the federal court’s jurisdiction under the Foreign Sovereign Immunities Act. But Judge Collins found that Yuzhnoye had waived its sovereign immunity as a state-owned company in the Sea Launch contract and that the Ukrainian companies' failure to reimburse Boeing had a “direct effect” in the U.S.

In its motion for summary judgment, Boeing cited several contract agreements and said all three companies repeatedly reaffirmed their promises to pay their shares if guarantees were called.

On Monday, Judge Birotte agreed, noting that even accepting the defendants' assertion that Boeing told them they would not have to pay for the loan guarantees, it is not enough to create a triable issue of fact, granting Boeing summary judgment on its breach-of-contract claims.

“Even assuming that plaintiffs made a handful of oral representations expressing plaintiffs’ intent not to hold Energia and Yuzhnoye responsible for Article 9.4.2, Energia and Yuzhnoye offer no evidence to suggest that any of those oral representations were supported by the sort of consistent conduct required under Swedish law to give those oral representations any legal force,” Judge Birotte wrote.

The judge ruled that in light of the ruling, a jury trial is no longer necessary, but held the court will proceed with a bench trial instead of a jury trial on the currently set Nov. 10 trial date.

Representatives for Energia and Boeing declined to comment on Tuesday. Representatives for Yuzhnoye did not immediately respond to a request for comment on Tuesday.

Boeing is represented by Xanath McKeever, Michael B. Slade and Christopher J. Esbrook of Kirkland & Ellis LLP.

Energia is represented by Rita M. Haeusler, Alex E. Spjute, Gaurav Reddy and John M. Townsend of Hughes Hubbard & Reed LLP. The Yuzhnoye companies are represented by Steven A. Velkei of Dentons.

The case is The Boeing Co. et al. v. KB Yuzhnoye et al., case number 2:13-cv-00730, in the U.S. District Court for the Central District of California.

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