Litigator of the Week: After 10-Year Global Fight, Kirkland’s Slade Scores $500M Win for Boeing

Litigator of the Week honors go to Kirkland & Ellis partner Mike Slade, who for 10 years has led a team battling on Boeing’s behalf to recoup $500 million after a joint venture with Russian, Ukrainian and Norwegian partners went bust.
 
It was an around-the-world fight, with litigation in a Delaware bankruptcy court, a Swedish arbitration tribunal, a Swedish appeals court, the Swedish Supreme Court, a Russian trial court, an English court and the Central District of California. On Nov. 12, the U.S. Court of Appeals for the Ninth Circuit finally put the matter to rest, upholding a decision that allows Boeing to collect what it is owed.
 
Slade discussed the case with Lit Daily
 
Lit Daily: Who is your client and what was at stake?
 
Mike Slade: We represented Boeing and about $500 million was at stake.
 
Boeing made massive investments in a joint venture, and its partners had promised to reimburse Boeing for a portion of those losses if the venture failed (which it did). The Russian and Ukrainian partners to the venture refused to do so, and Boeing retained us to pursue the $500 million that it was owed.
 
Tell us about the origins of the dispute—in some ways, it seems like a straightforward breach of contract case.
 
In the early 1990s, there was widespread belief that cell phones and the internet were going to operate largely through satellites—that there would be scores of satellites launched every year which would “dot the sky.”
 
That mantra led to the creation of a number of satellite launch companies, one of which was the company at the heart of this litigation: Sea Launch. If you go to Long Beach harbor, you can still see the Sea Launch platform and ship—sitting there completely idle since 2014.
 
Sea Launch was a joint venture between Boeing and four other companies: Energia (whose largest shareholder was the Russian government, has a board filled with senior Russian government officials, and is strongly tied to the Russian Space Agency), Yuzhnoye and Yuzhmash (wholly state-owned Ukrainian companies that designed and built, among other things, rocket engines), and Kvaerner (a Norwegian shipbuilding conglomerate, n/k/a Aker).
 
The concept was to create a sea-based satellite launch company to take advantage of this market opportunity. The technology did not exist when the company was formed in 1995 and massive investments were required.
 
Ownership was split 40% (Boeing), 25% (Energia), 20% (Kvaerner) and 15% (the Ukrainian entities, which I’ll jointly call “Yuzhnoye”). Boeing and Kvaerner made direct loans to the venture to help finance its early stages, guaranteed in part (in the portion of their ownership percentages) by Energia and Yuzhnoye.
 
The contract creating the venture, the “Creation Agreement,” provided that if Sea Launch borrowed money guaranteed by one of the partners or its affiliates, and the guarantees were ultimately called, each party would reimburse the guarantor for the percentage of the amount paid equal to their ownership percentage.
 
Between 1995 and 1999, the parties worked well together. Sea Launch began launching in 1999 and had about 30 successful launches. But ultimately, the market for this product and service did not emerge—the internet and cell phones did not end up using massive numbers of satellites and there was little demand. Sea Launch also had three, highly publicized, launch failures—including a fiery explosion that was all over the internet in 2007. In 2009, Sea Launch filed for bankruptcy in Delaware.
 
Sea Launch had borrowed about $450 million from third party banks, with guarantees from Boeing and Kvaerner. When the bankruptcy was filed, the banks simply turned to Boeing and demanded that it pay the $450 million, which it had to do (and did).
 
Boeing then turned to its partners to pay their share. At first, they all said “no.”
 
Separately, Boeing’s loan to Sea Launch was in arrears, and Sea Launch owed $583 million—which it could not and did not pay. Under the guarantees, Energia owed Boeing 25% of that sum, and Yuzhnoye 15%. They refused to pay. At the time, Energia and Yuzhnoye owed Boeing a combined approximately $500 million, and Boeing had to file suit.
 
In court papers, you wrote that the defendants “instead of paying claims to which they have no defense on the merits … have decided to stall and evade, forcing plaintiffs to chase them around the world.” What has that entailed?
 
We have litigated in the Delaware bankruptcy court, three levels of the Swedish judicial system, Russian trial and appellate courts, an English court, the Central District of California and the Ninth Circuit. We had depositions all over the U.S. as well as in London and Stockholm. We mediated the case in Munich. This has been a worldwide effort.
 
Initially, we initiated an arbitration in Sweden as the contract required. After a year of litigation, the Swedish arbitrator ruled that he did not have jurisdiction. The issue eventually went to the Sweden Supreme Court, which ruled in our favor, but only on the fact that we had the right to appeal jurisdiction. We litigated in Sweden for five years, but nothing substantively happened.
 
While the matter was proceeding in Sweden, Energia’s shareholders initiated a proceeding in a Russian trial court. The argument was that Energia did not have authority to make the promises to Boeing that it had made. We intervened in the case. Ultimately, the Russian court rejected the plaintiffs’ claims and refused to “void” Energia’s obligations under Russian law. This was appealed, too, but the appeal was dismissed.
 
In 2013, we filed suit in the Central District of California. We were able to invoke federal jurisdiction under the Foreign Sovereign Immunities Act because Yuzhnoye was wholly owned by a foreign sovereign. We sued Energia and Yuzhnoye for breach of the two agreements that they had signed.
 
We also sued two of Energia’s affiliates—the entities that bought Sea Launch’s assets and business out of bankruptcy—on an alter ego theory. To do that, we had to actually go to England, to take discovery from the investment banker who led Energia’s effort to buy Sea Launch out of bankruptcy—and my London colleagues achieved that over fierce objections from Energia and the new Energia affiliates.
 
We won summary judgment against Energia and Yuzhnoye in 2015. We then went to trial against the two Energia affiliates in the U.S. against whom we had asserted an alter ego theory.
 
In 2016, Judge [André ] Birotte ruled in our favor, finding the Energia affiliates to be alter egos of Energia equally liable for that part of the judgment (which was for approximately $300 million). We later settled with the Russian parties and their affiliates, but the case went on further, as Yuzhnoye had appealed the $200 million judgment against it.
 
The Ninth Circuit affirmed our summary judgment decision earlier this week.
 
When and how did you get involved in the case? Who were the key members of your team over the years?
 
I got involved in 2009, during Sea Launch’s bankruptcy case. Kirkland’s restructuring group took the lead in those efforts, including Jamie Sprayregen, David Seligman and Chad Husnick. We mediated the disputes with the creditors and ultimately got a deal done, which averted the need to litigate. The bankruptcy court’s confirmation order explicitly preserved our ability to pursue our claims against Energia and Yuzhnoye.
 
Many of my litigation colleagues at Kirkland contributed to this 10-year effort and—as you’d expect given that this case has gone on for 10 years—some of them have gone on to other pursuits.
 
My partners Mike Baumann and Austin Norris joined the team for the alter ego trial and were critical to our trial win. Chris Colbridge and others in Kirkland’s London office helped with English law issues and with the Swedish arbitration. My former colleagues Sasha Danna and Xanath McKeever (both of whom are now in-house at the University of California) did phenomenal work on the case for years, handling many of the hearings and a number of depositions, as well as a lot of the briefing. Chris Esbrook (who now has his own firm) led the team working with foreign counsel in Sweden, England, Russia and Ukraine on foreign law issues, and he second-chaired the Swedish arbitration. Casey Fronk has been critical to Ninth Circuit appeal.
 
The Kirkland team was led throughout by the amazing lawyers in Boeing’s legal department. Mark Light led the day-to-day effort for a decade-plus but many others helped over the years, including Jake Phillips, Padraic Fennelly, Lynda Simpson, Darrin Hostetler and Tom Roberts. We could not have achieved everything we achieved without a great client with whom we partnered very well.
 
Who were the primary opposing counsel?
 
Energia was represented by Rita Haeusler from Hughes Hubbard in the U.S. and by Kaj Hober in Sweden; Dentons (Claude Montgomery and Lee Whidden) also represented Energia in the Sea Launch bankruptcy. Yuzhnoye was represented by Vic Pino and John Socolow of the Fitzpatrick Hunt firm.
 
Dentons ultimately moved over to represent Energia’s subsidiaries in the California litigation and in our alter ego trial—Claude and Lee worked on the California case too, and Steve Velkei led the Dentons team in the California case and was their lead trial lawyer. All of them fought very hard and did an excellent job representing their clients.
 
I’m assuming at the outset you had no great expertise in say, Swedish or Russian law. What was your overriding strategic approach to managing such a global dispute? Any tips?
 
That’s a fair assumption! And our briefs had to make arguments under U.S. law and also under Swedish law, English law, Russian law, and Ukrainian law. We also led the Swedish arbitration, which meant that we primarily handled the trial in Stockholm.
 
I’d offer two items. First, when you have foreign law issues in your case, go and find foreign law experts as soon as possible. Depending on the country and the issue, the supply may be limited. The supply of foreign law experts who know the subject area of your case, speak good enough English to communicate well with you, and write well enough to prepare reports for the court, may be extremely limited.
 
Also, a lot of foreign law experts (and foreign lawyers) in my experience seem to rely on secondary sources such as treatises to express their opinions. Our judges in California did not find the secondary sources all that compelling and it is easy to see why.
 
Judge Birotte in particular was much more persuaded by discussions of actual cases in the foreign jurisdictions—what facts have been presented to the foreign courts in analogous cases and what did the courts do.
 
So I would focus as much as possible on the actual cases from the foreign courts and would rely less on treatises, articles, and other secondary sources.
 
You litigated and won against a Russian state-owned company in the Russian courts. Tell us a bit about how that played out.
 
I’ll admit that we had some significant concerns when this lawsuit was filed—it appeared to be a collusive suit engineered by the Russian parties in an effort to create litigation arguments for them in the U.S. My colleague Chris Esbrook went to Russia multiple times along with one of our clients at Boeing. As an aside, I learned that when lawyers in Moscow go from their offices to court for a hearing, they often hitchhike to get there. Really.
 
We worked extremely hard on the briefs along with excellent Russian counsel, a firm called MZS. We demonstrated that the arguments being advanced by the Russian parties simply made no sense under any law—Russian or otherwise. And we made sure that everything was out in the open and as public as possible. We did not assume that the fix was in and did everything possible to expose the flaws in the Russians’ arguments—and ultimately the Russian judge ruled in our favor.
 
We litigate in forums all the time that don’t appear to be favorable. From this experience, I definitely learned that your initial gut reaction about the fairness of what appears to be an unfavorable forum may be wrong—assume that the merits matter and will win the day regardless of where you are litigating, because they usually do.
 
In 2015, Boeing won summary judgment against the Russian and Ukrainian state-owned parties. What did that fight entail?
 
Our breach of contract claims (under Swedish and English law) were not complex, as the contract language was in English and was clear. The hard part was defeating the 63 combined affirmative defenses pled by Energia and Yuzhnoye on a summary judgment standard.
 
That entailed hundreds of pages of “statements of undisputed facts” (with exhibits) and detailed arguments under Swedish, English, Russian and Ukrainian law. We were able to distill thousands of pages of deposition testimony and exhibits into straightforward and commonsense reasons that Energia and Yuzhnoye could not avoid their clear contract obligations—under any law.
 
One thing I would say is that we were able to do all of this within the page limits (25 pages) for summary judgment briefs in the C.D. Cal. That’s hard to do given the number of arguments raised. It takes tremendous discipline to jam all of your arguments into a modest page limit—and it is worth it, creating far more compelling briefs that don’t simply raise every argument that could possibly be raised. Deciding not to raise arguments that are “just OK” because you don’t have the space to include them in your briefs is a tough decision.
 
What paved the way to reach a settlement with the Russian parties? What can you tell us about the terms of the deal?
 
I cannot say much about the terms of the settlement with the Russian parties other than it is very complex, involves a number of items, was negotiated (for the most part) directly between Boeing and the Russian parties, and we are very happy with it.
 
The Ukrainians kept fighting. What was the key issue before the U.S. Court of Appeals for the Ninth Circuit?
 
Yuzhnoye disputed the $200 million summary judgment against it on many grounds, including the assertion that they should get out of their promise because it was illegal under Ukrainian law for the promise to be made in the first place.
 
Yuzhnoye also argued that Boeing had been awarded too much money—that the judgment was too high—because it failed to account for a settlement Boeing had made with Kvaerner, where Kvaerner had paid Boeing more than it owed. Yuzhnoye was trying to take credit for the overpayment, and the Ninth Circuit (like Judge Birotte below) rejected that argument and held that the $200 million calculation was correct.
 
What comes next? Is it likely Boeing will have to fight to collect the judgment?
 
Boeing believes the judgment against Yuzhnoye is collectable and I agree, although it may well have to fight as you predict. I am not going to reveal the strategy on that, though—so stay tuned!
 
Looking back over the last 10 years of litigation, what are some of the lessons learned? And what message do you hope the litigation sends?
 
Boeing was clearly owed a large sum of money and, at the end of the day, that’s what the courts awarded it, and that’s what I expect will ultimately be collected. Boeing needed to make large investments in time and in attorneys’ fees (some of which Boeing was also awarded in post-judgment motions) to do this—but it stuck to its guns and was awarded what it was owed. The litigation proved to me an old adage—you can run, but you cannot hide.