Intelsat, SES Joust in Closing Arguments at C-Band Alliance Trial
Intelsat and SES Tuesday painted diametrically opposed portraits of their defunct C-Band Alliance agreement to clear C-band spectrum. U.S. Bankruptcy Judge Keith Phillips heard the closing arguments that lasted more than four hours. SES is asking $421 million in damages due to Intelsat leaving the CBA, which would give the two companies a 50-50 split of proceeds for accelerated clearing of the C band. The seven-day trial was in February (see 2202070031). A lawyer familiar with the case told us Phillips, who also presided over Intelsat's Chapter 11 proceeding, could rule within a month.
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An internal Intelsat email and texts from a company executive to SES' CEO are "damning" evidence that establishes the two agreed to a 50-50 proceeds split, Intelsat misled SES to believe that split would be honored, and after getting what it wanted and there was no more leverage to be had partnering with SES, Intelsat reneged to try to snag a bigger share, said Gibson Dunn's Orin Snyder, representing SES. "Only now do the lawyers, as we are paid to do, come up with after-the-fact justifications," he said. He also said Intelsat's 158-page proposed findings of fact "doesn't square with the evidence."
SES recognizes that by any metric, Intelsat gets more from the C-band clearing because it had larger market share and more to do, said Intelsat outside counsel John O'Quinn of Kirkland and Ellis. He said SES offered no evidence to quantify its unjust enrichment claims in any amount, and nothing is in the record or law to show why a 50-50 split is justified under its unjust enrichment claims. “SES came out ahead of where it would have been” if the companies went their separate ways while the FCC was forging its C-band clearing plans, he said: “Now it wants even more.”
Intelsat's defense hinges on the argument that the CBA agreement didn't apply once the FCC opted in 2020 to go with a public auction, Snyder said, but the 12 subsequent weeks the two companies collaborated in advocacy at the FCC "aren't just inconvenient for Intelsat; they're devastating." The FCC's auction announcement "should have been game over" for the CBA, he said. He said Intelsat's assertion it worked with SES to salvage parts of the private auction framework runs into the problem that Intelsat then arbitrarily picked which parts were essential and which weren't.
"There was no 'slip out the back, Jack' provision" for exiting the CBA agreement, Snyder said. The agreement's termination section spelled out limited termination triggers, and mutual intent is needed to terminate, he said. If the sides wanted the agreement to self-terminate, especially if the FCC goes with a public auction route, they would have said so in the contract, he said.
Intelsat leans hard on one agreement clause about focusing on a private auction approach, but the parties knew the FCC might read the CBA agreement, and they didn't want to undercut their advocacy by offering other approaches, Snyder said. Worst-case scenario, with the FCC taking away the satellite operators' C-band spectrum without any compensation, the plan wasn't self-termination of the CBA agreement but joint litigation, he said. That litigation provision in the CBA agreement wouldn't make sense if the partnership lasted only if they got everything they wanted because there would be no reason to litigate together, he said.
O’Quinn said SES was repeatedly clear to its board, employees and third parties that its CBA effort was about the private auction approach. He said it never suggested to anyone that it and Intelsat “were tied at the hip no matter what the outcome.” He said contrary to SES assertions, it was clear within Intelsat that even a 50-50 proceeds split wouldn't head off what became its Chapter 11 bankruptcy.
SES' breach of contract claim hinges on the CBA agreement, and its text and structure makes clear the parties were pursuing specifically the private-auction, O'Quinn said. Since the FCC order rejects that approach and the approach it took isn't covered by the CBA agreement, "that should be the end of this case," he said. He said all the extrinsic evidence, such as the parties’ negotiations with the FCC and treatment of third-party vendors, confirms the agreement doesn't cover the FCC order or accelerated relocation payments.
O’Quinn spent a lot of time walking through the agreement's language. Every aspect "makes clear what the project was and what it was not” and the parties agreed to split proceeds from that project, O'Quinn said. He said the project agreement, if it covered anything the FCC might order, "would have been much shorter," he said. The parties recognized details of how the FCC order could vary, and there was a route of amending the project details if they agreed, he said: “May be amended. Not will. Not shall." The FCC's rejection of the private auction approach made the CBA agreement expressly terminated, he said.
SES was repeatedly clear to its board, employees and third parties that its consortium effort was about the private auction approach, O'Quinn said. He said it never suggested to anyone the two “were tied at the hip no matter what the outcome." He said lobbying before the FCC was solely about the market-based approach up to the point the agency went a different way. Before the FCC announced the public auction route in 2020, the companies considered amending their agreement, but that came to nothing, he said. Internal SES emails show company executives thought the FCC plan wouldn't have 50-50 sharing and a CBA agreement amendment was needed.