Motorola Inc.’s miserable journey into the realm of mobile satellite communications with Iridium L.L.C. worsened last week when a U.S. Bankruptcy Court judge in New York ruled that creditors of Iridium could proceed with plans to sue Motorola for $2 billion in damages.
Creditors contend that Motorola kept control of Iridium even after the company went public, and it operated Iridium to its detriment. Iridium filed for bankruptcy in August 1999 and shut its network down in March 2000, leaving approximately 63,000 subscribers without service.
At a hearing in Manhattan last Tuesday, U.S. Bankruptcy Judge Cornelius Blackshear approved a settlement of a dispute between Iridium’s bank lenders and its other creditors over who could sue Motorola, The New York Times reported. The settlement provides for the creation of a $47 million fund, deemed the Iridium Litigation Corp., to manage litigation against Motorola.
Creditors of Iridium contended in court filings made last year that its money was funneled to Motorola and should be returned. The creditors said Motorola structured its relationship with Iridium so that it owned the software necessary for the operation of the satellite network, and that contracts for the software were especially lucrative for Motorola.
Finally, creditors claimed that because Motorola sat on Iridium’s board, it effectively had control of Iridium.
Motorola is arguing that the settlement is circumventing bankruptcy court procedures, and that some of the potential lawsuits make claims on behalf of individual creditors rather than on behalf of Iridium, said the NYT.
Motorola told RCR Wireless News it denies any validity to the allegations.
“We do not have any liability to these creditors whatsoever, and it’s unfortunate that this $47 million that could have been used to pay off creditors and shareholders appears now will be used to pay attorneys,” said Scott Wyman, spokesman for Motorola.
Wyman noted that if Motorola had not funded the maintenance of the Iridium satellite network, it wouldn’t have been available to sell to another party.
The failed company was bought by former Pan American Worldways President Dan Colussy and several other investors in December for $25 million after months of failed buyout attempts by various other parties, including New York merchant bank Castle Harlan Inc. Now called Iridium Satellite L.L.C., the company is focused on offering service to commercial and government customers worldwide.
This latest litigation is yet another knife in the back for Motorola, which announced plans to lay off around 4,000 employees from its semiconductor products sector, just a few weeks before it announced its first-quarter earnings will probably fall short of expectations.
In related news, Iridium Satellite unveiled a new Internet address and a customer response center to enable Iridium to register former Iridium users, new customers and service providers, and provide information to those interested in the company and its services
“Since the new company was formed last December, we have received significant interest from former Iridium customers who still have equipment, as well as new potential users,” said Colussy, chairman and chief executive officer of Iridium Satellite, in a statement. “The www.iridium.com site and response center will allow us to capture that interest and ensure we bring these customers on board when we launch commercial service.”
The company also said it signed agreements with 13 service providers, giving them worldwide distribution capabilities. The nonexclusive agreements will enable the providers to sell Iridium services to industrial and government customers.
Among the service providers are Geolink Global Satellite Services in Paris, Marconi Marine in the United Kingdom and Rent Express in Toronto.
