Dec 6 (Reuters) - The fight over defunct Nortel Networks' $7.5 billion in cash will be decided in joint U.S.-Canadian court hearings and not in arbitration, a U.S. appeals court ruled on Friday.
The U.S. Court of Appeals for the Third Circuit in Philadelphia upheld a bankruptcy court ruling in March that there was never an agreement to use arbitration to divide the pile of cash among various Nortel estates around the world.
Nortel sought protection from creditors in courts around the world in 2009 and its businesses were quickly sold, reducing a once-global corporate giant to little more than a pile of cash. But it was never decided how to allocate the money raised between different insolvency and bankruptcy proceedings in different countries.
An agreement governing the money refers to undefined "dispute resolvers" that Nortel's European estates argued was arbitration. The U.S. Bankruptcy Court in Wilmington, Delaware disagreed, and the Court of Appeals affirmed that ruling.
"In context, the words 'dispute resolver(s)' indicate that the parties allowed themselves latitude to select courts or arbitrators or others to adjudicate the parties' disputes," wrote Judge Julio Fuentes in a 17-page opinion. "To respect that contractual latitude, we reject the idea that the parties must arbitrate disputes over asset allocation."
He was joined by Judges Maryanne Trump Barry and Morton Greenberg.
Derek Adler, an attorney with Hughes Hubbard & Reed in New York, who represents Nortel's European estates, did not immediately respond to a request for comment.
Creditors of Nortel, once a telecoms giant with a $250 billion market value and 93,000 employees, cannot be paid until the estates in Canada, the United States and Europe know how much money they will have to distribute.
Kevin Gross, a bankruptcy judge in Wilmington, and Ontario Superior Court Justice Geoffrey Morawetz in Toronto have scheduled a joint trial for next year to decide the dispute. The two have been holding joint hearings linked by video since Nortel sought creditor protection four years ago.
An administrator for the European estates has said the unusual trial arrangement would lead to "chaos" in part because there is no appeals court that binds both courts.
The European estates also wanted the appeals court to weigh in on whether the joint trial was appropriate, but Fuentes said that challenge should be taken after the trial.
The case is In re Nortel Networks Inc, U.S. Court of Appeals for the Third Circuit, No. 13-2739. The bankruptcy case is In re Nortel Networks Inc, U.S. Bankruptcy Court for the District of Delaware, No. 09-10138.