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“One Nortel” Inches Closer to Final Adjudication of the Allocation Decision—Direct Certification to the Third Circuit Granted

In re Nortel Networks Inc., No. 15-624 (LPS), 2016 WL 2899225 (D. Del. May 17, 2016)

After the Court of Appeal for Ontario denied any further appeal of the Allocation Decision in the Canadian proceeding as a “barrier to progress”, the Delaware District Court, acting sua sponte, directed the parties to submit letter briefs on the issue of whether the District Court should grant direct certification to the Third Circuit.  Having both the benefit of the Ontario Court’s denial of further appeals, and the appeals themselves, Chief Judge Stark granted certification of an appeal of the Allocation Decision to the Third Circuit because the case involves a matter of public importance and certification will materially advance the case.

As general background to the case, on May 12, 2015, the Bankruptcy Court and Canadian Court both held that a modified pro rata allocation of funds was required to allocate the approximate $7.3 billion to creditors of Nortel Networks Corporation, and its various subsidiaries.  An analysis of the Bankruptcy Court’s decision can be found here.  The Bankruptcy Court later denied reargument and granted minor clarifications to the Allocation Decision.  On July 30, 2015, Judge Gross denied certification because the Court could not tell at that time (without the benefit of statements of issues on appeal) what unresolved question of law would be on appeal and held that certification would not materially advance the case.

The District Court noted that it “shall” certify a direct appeal if the Court determines, inter alia, that (i) an order involves a matter of public importance; or (ii) a direct appeal of such order will materially advance the progress of the case.  See 28 U.S.C. §§ 158(d)(2)(A)(i), (iii), 158(d)(2)(B).  On the public importance issue, the Court first noted that the enormous size of the escrow funds alone could render the issue on appeal a matter of vital public importance.  Op. at *7-8.  The District Court further emphasized the cross-border nature of the dispute and the decision to preclude distribution of funds until final adjudication in both the U.S. and Canada as reasons that the issue on appeal is, in fact, a matter of public importance.

Alternatively, the District Court also held that an immediate appeal will materially advance the case.  Chief Judge Stark principally relied on: (i) the near-certainty that the matter will be appealed to the Third Circuit regardless of any ruling at the District Court level; (ii) the estimated additional delay to the case of upwards of one year; and (iii) the possibility of interim distributions to pensioners, employees, trade creditors, and others who have yet to receive any recovery.  Op at *9-11.  Opponents to certification argued that there is no urgency to certify the appeal because separate claims resolution still needs to occur before any distributions are made.  Chief Judge Stark disagreed, finding that the ongoing nature of the claims resolution process actually favors certification.

In the wake of Chief Judge Stark’s ruling, it will now fall on the Third Circuit to decide whether or not to authorize the direct appeal.  See, e.g., In re Millennium Lab Holdings, No. 16-8017 (3d Cir. Feb. 24, 2016).