US court dismisses Yuzhnoye's motion to dismiss Sea Launch case
MOSCOW, August 14 (RAPSI) - KB Yuzhnoye and PO Yuzhnoye Mashinostroitelny Zavod (Yuzhnoye) have failed in their efforts to dismiss a claim filed against them in US federal court by Boeing and Boeing Commercial Space Company (BCSC) over the Sea Launch project, according to court documents obtained by RAPSI.
Yuzhnoye had moved to stay or dismiss, alleging insufficient service of process, breach of an agreement under the Colorado River doctrine, and forum non conveniens.
In February, the Boeing plaintiffs had filed a complaint alleging that it had loaned a substantial amount of money to fund Sea Launch, a joint venture created to facilitate the sea-based launch of commercial satellites.
According to the order denying the Yuzhnoye motions, the Sea Launch Creation Agreement, which was signed in May 1995, stipulated that BCSC owned 40% of Sea Launch, Norway’s Kvaerner (now known as Aker) owned 20%, Russia’s Energia owned 25%, and Yuzhnoye owned 15%.
An article of the Creation Agreement stated: “If any Party or its Affiliate provides a Guarantee to a Third Party in response to a request from a Venture Company, then all Venture Companies will be obligated to reimburse the guarantor for any money that the Guarantor has to pay to the Third Party.”
Citing the complaint, the order explained that Boeing had guaranteed about $450 million in third party loans. According to the order, “The guarantees were made with the full knowledge and agreement of the partners, who agreed to reimburse Boeing for their share of the obligations if Boeing was required to pay on the guarantees.”
In February 1996, BCSC agreed to lend $183 million to Sea Launch based on the agreements by Yuzhnoye and Energia to guarantee repayment in the amount of their percentage of ownership if Sea Launch were to default on the loan, according to the order. The amount was later increased by $1 million.
Sea Launch filed for bankruptcy in 2009. At that point, Boeing paid the guarantees and billed Yuzhnoye and Energia for their shares, which they in turn allegedly refused to reimburse.
First, Boeing launched arbitration proceedings against Yuzhnoye and Energia in Sweden, but the arbitration tribunal found that it lacked jurisdiction.
According to the order, citing the complaint: “As of Sea Launch’s bankruptcy filing, a total of over $500 million was owed to BCSC under the loan agreement, and Yuzhnoye and Energia have failed to pay their percentage of the amount owed, which exceeds $200 million.”
Accordingly, Boeing launched the present breach of action claim in US federal court.
Energia had previously moved unsuccessfully to dismiss the case on the grounds of the Colorado River doctrine and forum non conveniens. In addition to asserting claims based on the same two legal theories, Yuzhnoye contested the propriety of its service of process.
With regard to its service of process claim, Yuzhnoye asserted that Boeing’s claim should be dismissed because its guarantee for the $183 million loan (Yuzhnoye Guarantee) had not qualified as a “special arrangement” under the Foreign Sovereign Immunities Act (FSIA), and that Boeing hadn’t properly served Yuzhnoye under the Hague Convention.
The court found these arguments less than compelling.
According to the order, “the Yuzhnoye Guarantee, which includes a waiver of personal service coupled with a consent to service by mail, is exactly the type of ‘special arrangement’ contemplated by” the relevant FSIA section.
Furthermore, the court held that “Yuzhnoye does not dispute that it received service of the Summons and Complaint, which suggests that its insistence on service via the Hague Convention is being advanced to further a strategy of delay in this case.”
Yuzhnoye had further argued that Boeing should have filed its claims separately from BCSC. The court disagreed, finding, “[i]n this case, for Boeing to have brought its claims separately would have multiplied the proceedings and may have even resulted in unnecessary motions to consolidate.”
Yuzhnoye had further appealed to the court to dismiss or stay claims relating to the Creation Agreement based on the Colorado River Doctrine, the US legal theory that a federal court has discretion to stay its proceedings pending a parallel foreign proceeding.
The court disagreed with this argument, finding that if plaintiffs are unsuccessful in their appeal in Sweden, they will have no pending action. And even if the Swedish arbitration action were to move forward, it would only pertain to certain of the claims raised by Boeing. Furthermore, the court held that “Yuzhnoye is estopped from seeking a stay given the position it has taken in the Swedish arbitration – that the arbitrator does not have jurisdiction to hear Boeing’s claims.”
The court further found no compelling reason to dismiss or stay the case on forum non conveniens grounds. After considering whether an adequate alternative forum exists and whether the balance of private and public interests would militate in favor of a dismissal, the court found that the plaintiffs’ forum choice did not rise to the level of “oppressiveness or vexation” to Yuzhnoye, disproportionate to the plaintiffs’ convenience.