Nortel Networks talks aim to end $7 bln legal fight

By Tom Hals
Jan 14 (Reuters) - Parties seeking a chunk of the $7 billion
raised from the liquidation of former telecommunications giant
Nortel Networks started talks on Thursday aimed at ending one of
the most complex and costly legal disputes in history.
The money has been sitting in a New York bank account since
Nortel Networks global businesses were sold piecemeal after the
Ontario-based company filed for bankruptcy exactly seven years
ago.
Nortel ranked among the world's most valuable companies
during the Internet bubble at the end of the 1990s, but missteps
and an accounting scandal left the company bankrupt and unable
to turn itself around.
The talks on Thursday in New York include representatives
from former Nortel operations in the United States, Canada and
Europe, according to two sources who declined to be identified
because the mediation was confidential.
The parties had presented dramatically differing proposals
to a judge in Ontario and a U.S. Bankruptcy judge in Delaware
during a novel, joint trial in 2014 aimed at dividing the cash.
The court rooms were linked by cross-border video.
The judges issued coordinated opinions in May that rejected
the proposals from the various Nortel estates and ruled that
every creditor would receive roughly 71 cents on the dollar, a
position backed by some creditors.
That sparked appeals. If the current talks can reach a
settlement to divide the cash, it would end the appeals process.
One of the big fears among the parties is that parallel appeals
in the United States and Canada could result in conflicting
rulings that further complicate the dispute.
"It's a Charles Dickens novel," said Melissa Jacoby, a law
professor and resident scholar at the American Bankruptcy
Institute.
Suppliers, former employees and government agencies cannot
be paid until each particular Nortel unit that owes them money
knows how much cash will be available to distribute.
Creditors also include sophisticated investment funds such
as George Soros's Quantum Partners and two funds that have been
waging a legal war over defaulted Argentine bonds, Elliott
Management and Aurelius Capital Management.
The parties have held several previous mediation sessions,
without success. A Canadian judge, Warren Winkler, who mediated
a 2013 session called it "one of the most complex transnational
legal proceedings in history."
The case ranks among the longest for one of its size, and
while Nortel has been in bankruptcy General Motors (N:GM), film pioneer
Eastman Kodak and American Airlines have all gone into and come
out of Chapter 11.
It has also been among the most expensive legal proceedings.
Through September, the bankruptcy has cost an estimated $1.6
billion in fees for lawyers, accountants and other professionals
working on behalf of former Nortel businesses in North America
and Europe, according to Diane Urquhart, a financial analyst who
compiles the data from court records.
In all, fees have gobbled up 15 percent of Nortel's global
asset value, according to Urquhart.
Those involved say the case might have been resolved if not
for Nortel's patent auction in 2011, when Apple Inc (O:AAPL), Microsoft (O:MSFT)
Corp and four others paid $4.5 billion for Nortel's patents,
well above the initial bid of $900 million.
"Sometimes success creates a lot of conflict in these
cases," said Rafael Zahralddin, an Elliott Greenleaf attorney
who represented U.S. long-term disabled employees in the case.