In Re: Nortel Networks, Inc. v.
737 F.3d 265
3rd Cir.2013Background
- Nortel declared bankruptcy in 2009 and debtors worldwide auctioned assets, raising about $7.5 billion.
- Interim Funding Agreement created escrow for sale proceeds and a framework to reach a consensual allocation or a binding protocol.
- Section 12 of the Interim Funding Agreement states that sales are not conditioned on allocation and that allocation is to be determined via a protocol.
- Section 12 outlines a process to negotiate a Protocol for resolving allocation disputes, but does not itself provide a binding arbitration mechanism.
- Section 16 sets governing law as New York and allows non-exclusive jurisdiction of U.S. and Canadian courts; no arbitration clause is present.
- After nine auctions, escrowed proceeds remained undistributed as the Protocol was not finalized; Bankruptcy Court denied arbitration; Joint Administrators sought appellate relief, which this court granted on the arbitration issue.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Interim Funding Agreement contains an arbitration obligation for allocation disputes. | Joint Administrators: agreement to arbitrate implied by arbitration-like language. | Nortel debtors: no arbitration clause; negotiated protocol intended, not arbitration. | No arbitration requirement; text shows no arbitration obligation. |
| What is the meaning of the term 'dispute resolver(s)' in Section 12(b)? | Dispute resolvers equate to arbitrators. | Dispute resolvers are broad and include courts or arbitrators. | Does not compel arbitration; term is broad and non-exclusive. |
| Whether extrinsic evidence or ambiguity is needed to interpret the contract. | Ambiguity could permit extrinsic evidence. | Agreement is plain and unambiguous; extrinsic evidence not needed. | No ambiguity; extrinsic evidence not used to alter text. |
| Whether the appeal should review the joint hearing issue before the allocation merits. | Should review the cross-border hearing procedures. | Issue premature; proper challenge follows the hearing record. | Declined to review the joint hearing issue at this stage. |
Key Cases Cited
- Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468 (U.S. 1989) (arbitration requires contractual consent.)
- Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (U.S. 2010) (class arbitration requires contractual basis.)
- Century Indem. Co. v. Certain Underwriters at Lloyd’s, London, 584 F.3d 513 (3d Cir. 2009) (contractual interpretation under state law; focus on plain meaning.)
- Greenfield v. Philles Records, Inc., 780 N.E.2d 166 (N.Y. 2002) (interpretation of contracts using plain meaning under New York law.)
- Chris O’Connell, Inc. v. Beacon Looms, Inc., 652 N.Y.S.2d 24 (N.Y. App. Div. 1997) ('mediate' may imply arbitration; context matters.)
- Penn Central Corp. v. Consol. Rail Corp., 441 N.Y.S.2d 266 (N.Y. App. Div. 1981) (appraisal/arbitration-like interpretation under New York law.)
- Lewis v. Sullivan, 279 F.3d 526 (7th Cir. 2002) (courts can act as dispute resolvers under certain contexts.)