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Motorola, Inc. v. Official Comm. of Unsecured Creditors (In re Iridium Operating LLC) - 478 F.3d 452 (2d Cir. 2007)


Courts have set forth factors for approval of settlements based on the original framework announced in TMT Trailer Ferry: (1) the balance between the litigation's possibility of success and the settlement's future benefits; (2) the likelihood of complex and protracted litigation, with its attendant expense, inconvenience, and delay, including the difficulty in collecting on the judgment; (3) the paramount interests of the creditors, including each affected class's relative benefits and the degree to which creditors either do not object to or affirmatively support the proposed settlement; (4) whether other parties in interest support the settlement; (5) the competency and experience of counsel supporting, and the experience and knowledge of the bankruptcy court judge reviewing, the settlement; (6) the nature and breadth of releases to be obtained by officers and directors; and (7) the extent to which the settlement is the product of arm's length bargaining.


Motorola envisioned that the Iridium system would be the first network to provide voice and data communication anywhere on the globe using a complex scheme that linked handheld wireless devices to a network of low orbit satellites and ground stations. From 1987 until 1993, Motorola oversaw the system's development, with the project first taking form in 1991 as a subsidiary of Motorola. See In re Iridium Operating LLC, 285 B.R. 822, 824-25 (S.D.N.Y. 2002)In 1993, Motorola spun off Iridium after entering into a "series of contracts with Iridium concerning the design, construction and launch of the Iridium System." By 1997, all of the assets of the Iridium System had been shifted into Iridium Operating LLC, a company wholly owned by Iridium LLC, Chase Manhattan Bank v. Motorola, Inc., 136 F. Supp. 2d 265, 266 (S.D.N.Y. 2001), although Iridium continued to pay Motorola for maintaining and operating the Iridium System. Iridium's commercial services were launched on November 1, 1998. Iridium Operating LLC ("Iridium") is currently in Chapter 11 proceedings. A consortium of lenders represented by JPMorgan Chase Bank, N.A. (the "Lenders"), asserted liens over much of what is left of Iridium. The Official Committee of Unsecured Creditors (the "Committee") vigorously contested those liens; in particular, the Committee objected to the Lenders' claim to Iridium's remaining cash held in accounts at Chase. The Committee also sought to pursue claims against Motorola, Inc. ("Motorola"), Iridium's former parent company, but lacked money to fund the litigation. The Committee and the Lenders ultimately decided to settle their dispute and sought court approval of their settlement (the "Settlement") under Bankruptcy Rule 9019. The Settlement concedes the liens and distributes the Estate's cash to the Lenders and to a litigation vehicle set up to sue Motorola. Motorola, also an administrative - and, therefore, priority - creditor, objects to the Settlement on the grounds that it takes a portion of estate property and distributes it to lower priority creditors (the litigation vehicle and the Committee) before any payments are made to Motorola.


Did the bankruptcy court err in concluding that the settlement of the dispute of the liens and other property had a proper business justification?




The district court's order was vacated and the case was remanded to the district court with instructions to remand the case to the bankruptcy court for further review of the settlement and consideration of that aspect of the settlement that might have deviated from the rule of priorities.  The remand was not a repudiation of the support of almost all of the parties--it sought only clarification of why the settlement need required a possible deviation from the rule in one regard. The bankruptcy court did not err in concluding that the settlement of the dispute of the liens and other property had a proper business justification and was a step toward possible confirmation of a plan of reorganization and not an evasion of the plan confirmation process.

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