Iridium creditors lose four claims against Motorola, judge rules

By Reshmi Basu

New York, Sept. 4 - A federal judge ruled against secured creditors of Iridium LLC, saying that Motorola Inc. did not deceive investors about the financial viability of its failed satellite phone system, according to a Friday ruling with the U.S. Bankruptcy Court for the Southern District of New York.

Judge James M. Peck dismissed four of the eight claims brought by Iridium's statutory committee of unsecured creditors against Motorola, saying that the creditors had failed to prove that Iridium was "insolvent or had unreasonably small capital" during the four-year period leading up to company's bankruptcy case, according to the 114-page ruling.

The Motorola-backed venture set out to develop and deploy a global telecommunications constellation of 66 low earth orbit satellites, according to court documents. Under the contract, Motorola received $3.7 billion in transfers from Iridium.

In November 1998, Iridium activated the ambitious service plan accompanied with a fair amount of market and press buzz, observed Peck. However, the start-up declared bankruptcy nine months later, in what Peck described as a "business failure of epic proportions."

The creditors argued that Motorola was liable for the company's meltdown because it unloaded a poor business plan and enormous debt on the start-up. And therefore they were entitled to billions of dollars in recouped losses.

The creditors also contended that Wall Street had not fully understood the valuation of the new technology.

However, Peck said that the creditors never presented evidence to back those allegations. In addition, the judge wrote that "when it came to valuation, market participants had not been misled about the expected performance of the Iridium system and were reasonably well-versed regarding its capabilities."

In siding with Motorola, Peck said the committee did not carry its burden of proof in establishing that Iridium was insolvent or had unreasonably small capital.

"The fact that Iridium failed in such a spectacular fashion stands out as a disturbing counterpoint to the market's optimistic predictions of present and future value for Iridium, but in the end, the market evidence could not be denied," Peck wrote.

"The capital markets synthesized and distilled what all the smart people of the era knew or believed to be true about Iridium."

Iridium owned and operated a global telecommunications system. The company filed for bankruptcy on Aug. 13, 1999. Its Chapter 11 case number is 99-45005.

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