Boeing Wins U.S. Court Judgment Against Russian, Ukrainian Sea Launch Partners

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PARIS — A U.S. District Court has ruled in favor of Boeing and against its Russian and Ukrainian partners in the Sea Launch commercial-launch company, saying the partners breached their contract obligations by not reimbursing Boeing their share of Sea Launch expenses.

The court’s decision sets up what is likely to be a brief non-jury trial, scheduled for Nov. 10, during which Boeing appears all but certain to be awarded the $356 million it has long sought. But collecting the money from entities owned by the Russian and Ukrainian governments will be another matter.

In a ruling dated Sept. 28, the U.S. District Court for the Central District of California said the ties that bound the Sea Launch partners were clearly written into the company’s founding documents.

The claims of RSC Energia of Russia and Yuzhnoye of Ukraine that Boeing gave unwritten assurances about their future liability for Sea Launch debt were not supported by any evidence admissible in U.S., Swedish or British law, the court said, referring to the various jurisdictions applicable to Sea Launch’s dispute resolution.

Energia and Yuzhnoye had argued that while the written trail of Sea Launch documentation supported Boeing, the U.S. company had given unwritten assurances to its Sea Launch partners that they would not be asked to pay Sea Launch debts.

As Sea Launch’s general contractor and largest shareholder, Boeing paid third-party creditors on behalf of Sea Launch and then asked the partners to reimburse Boeing their pro rata share. The Norwegian company that provided the Sea Launch floating launch platform did so; Energia and Yuzhnoye refused.

Boeing’s attempts to get the Stockholm Chamber of Commerce to take the case, as was foreseen by Sea Launch in the event of a dispute among shareholders, were stymied when Swedish authorities claimed they had no standing to make the ruling.

Boeing turned to the California district court in February 2013.

In documents sent to the court since then, Yuzhnoye and Sea Launch portrayed Boeing as having gouged Sea Launch to the point where the company collapsed under the weight of its debt, and having duped them into thinking they would have no cash liability in the event of a Sea Launch bankruptcy.

The court, relying on Swedish law, accepted the possibility that the Energia and Yuzhnoye arguments were true, but said no evidence of that could be found in the behavior of any of the parties.

The two companies also alleged that Boeing used its better understanding of commercial law essentially to sucker its partners into signing documents they did not fully understand.

The court rejected this, too.

“There is no evidence in the record that Energia or Yuzhnoye were ‘unsophisticated parties’ during the execution of the Sea Launch Creation agreement,” the court said. “Energia even conceded that it had a legal department. Whether that legal department was well versed in commercial negotiations misses the mark. The point is that, in having a legal department one presumes Energia was aware of the risk in going into a negotiation without legal representation.”

Yuzhnoye argued that, insofar as it violates Ukrainian law for state-owned enterprises to accept liability risks such as this, Yuzhnoye should not be obliged to reimburse Boeing. Here, too, the court said Yuzhnoye’s signature to multiple documents saying otherwise undermined that argument.

The court said the two defendants’ reasoning that Boeing should have urged them to secure legal counsel to protect their rights before signing the Sea Launch commitments “is as ineffective as it is unsubstantiated under Swedish law.”

A Yuzhnoye legal representative said Sept. 30 the company was disappointed by the court’s decision and was weighing whether to appeal it.