In the early days, Raymond Ackley, like so many others, believed he could count on receiving his severance payment. That was back in 2010 when he got swept up in one of the many rounds of layoffs instituted by Nortel Networks, his employer for 27 years.
Today the 62-year-old Cary resident is among legions of ex-Nortel workers – along with contractors, consultants and vendors – in North Carolina and around the globe who are still waiting. They are owed severance, health benefits, retirement money and business payments that were frozen in 2009 when the global telecom equipment maker filed for Chapter 11 bankruptcy.
As the years have passed, some former Nortel workers and clients have run out of patience and sold their financial interest to Wall Street speculators for a fraction of what they were owed. But Ackley, a former Nortel technician, said he refuses to sell out to “bloodsuckers” and is holding tight to his severance claim of $32,386.90, or what’s left of it.
Nortel’s transnational bankruptcy proceeding – spanning the United States, Canada and Europe – has turned into one of the longest-running corporate bankruptcies in history, a war of attrition with no end in sight.
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Now, almost a year after judges in Canada and the United States issued rulings to distribute the assets, the legal quagmire is creeping toward federal appellate arguments in April in Delaware, the first of what could be several levels of appeals in this country.
“There are so many dogs after the same piece of meat,” Ackley said. “I don’t know if I’m going to get anything from it now, the way they’re going.”
Bankruptcy lawyers, many billing over $1,000 an hour, have already been awarded $1.7 billion out of the original $9 billion in Nortel assets, leaving $7.3 billion in a shrinking “lockbox” set aside for former employees, businesses, bondholders, hedge funds and others awaiting their share. In North Carolina the waiting list includes Cary software company SAS, the N.C. Department of Revenue and Jesse Joel Hackney, once the highest-ranking Nortel executive at the company’s Research Triangle Park site.
The ballooning legal costs are now within striking distance of the $2.2 billion record set by the collapse of the investment bank Lehman Brothers, a financial empire vastly exceeding Nortel’s holdings and involving more than $600 billion in assets.
“Now we’re getting into the absurdity,” said UNC-Chapel Hill law professor Melissa Jacoby, currently a resident scholar at the American Bankruptcy Institute near Washington. “To litigate this to the fullest might not take another 7 years – it might take 70.”
U.S. Bankruptcy Judge Kevin Gross, in a 113-page ruling in May 2015 that is the subject of the appeal, put it this way: “It is sufficient to note that even a writer of fiction would would not dare to compose the story of the death of this multinational enterprise and the harm it inflicted on tens of thousands of employees and creditors.”
Nortel, which helped build the backbone of North America’s telephone system, sold telecommunications equipment as well as network management and data services to phone companies, businesses and government clients.
Once venerated as Canada’s national export to the world, Nortel ranked at one time among the world’s most valuable companies, accounting for about one-third of the value of the Toronto Stock Exchange. At its peak it employed some 100,000 people worldwide, including about 10,000 in RTP.
Nortel’s RTP campus, now home to the mutual fund company Fidelity Investments, was once Nortel’s third-largest site in the world. It employed people in all aspects of the company’s operations, and featured a round-the-clock disaster recovery center for telephone operating companies.
The company’s final decade was as spectacular as its rise – a technology juggernaut done in by a corporate ethics scandal, the bursting of the Internet bubble and the Great Recession.
The bankruptcy case has been remarkable as well, dragging on for years and featuring a 21-day video-linked trial simultaneously held in the United States and Canada in 2014, with testimony and depositions from 170 witnesses before two judges presiding in courtrooms about 500 miles apart. Distributing the assets will require sorting through 130 subsidiaries located in more than 100 countries and dating back to the founding of Bell Telephone company at the close of the 19th century, the germ of Northern Telecom, or Nortel.
Jacoby said the Nortel case is mired in international law and complicated by cultural differences. The stakes rose for all involved, she said, when Nortel’s intellectual property assets, initially valued at $900 million, were put out to bid and sold for $4.5 billion in 2011.
‘No middle ground’
The various parties, which include some 56,000 Canadian and European pensioners and creditors, were forced into three mediation sessions starting in 2010 and ending in January, all of them failing to produce a compromise. Judge Gross said the parties’ legal theories left “no middle ground.”
The impasse is due to the way the parties propose to distribute the spoils. The Canadians say the assets should be distributed on the basis of legal ownership of Nortel assets, which would give Canadian pensioners 83 percent of the pot. The Americans say the assets should be divvied up based on their value, rewarding U.S. creditors with 73 percent. The contingent representing Europe, Middle East and Africa would claim 18 percent, using a formula based on how much the parties invested in R&D to create asset value.
“The parties complex arguments for their positions and against others supported by the enormous volume of supporting papers go around and around without end and without a definitive answer,” Judge Gross wrote. “The Court compares the Allocation Dispute to three people trying to reach the top of a mountain by pulling the others down. In other words, no one gets to the top.”
Justice Frank Newbould of the Ontario Superior Court of Justice was no less exasperated: “In this case, the insolvency practitioners, academics, international bodies, and others have watched as Nortel’s early success in maximizing the value of its global assets through cooperation has disintegrated into value-erosive adversarial and territorial litigation described by many as scorched earth litigation.”
Lawyers for the U.S. debtors, creditors and bondholders declined comment.
The pensions of some 22,000-plus U.S. retirees from Nortel are largely protected by the U.S. Pension Benefit Guaranty Corp., but higher-ranking Nortel managers and executives received “excess” benefits that are caught up in the bankruptcy case.
For example, Hackney, Nortel’s highest-ranking RTP executive who reported directly to Nortel CEO Mike Zafirovski, is claiming $55,388.55 from his 401k long-term investment restoration plan.
‘I’m stubborn now’
Dennis Couture, a 35-year Nortel veteran who left in 2008 as director of rural markets, is seeking $159,519.33 in severance, non-qualified pension and lost health benefits. Couture, 67, who lives in Raleigh, said he expects to see maybe a third of the money, eventually.
Trailblazer Studios in Raleigh is pursuing a claim for $20,360 for a 4-minute client testimonial video, filmed for Nortel in Toronto, and featuring a charity that was using Nortel technology. Trailblazer CEO Tom Waring said he has since turned down offers to be paid as little as 10.5 percent and as much as 91 percent of the owed amount from financial firms.
“I’m stubborn now,” he said. “I’m hanging in there regardless of the offers.”
Sunrise Contracting Services in Durham regularly provided services for Nortel, most recently a 6-month office renovation job for which the company is still waiting to be paid $38,414.17, said company owner Stanley Hutchins.
“They kept putting me off and putting me off, and it went on and on and on,” Hutchins said. “And the next thing you know they declared bankruptcy.
“It’s been so long I guess I can keep on waiting.”