United States District Court, D. New Hampshire
Tera Xtal Technology Corp.
GT Advanced Technologies, Inc., et al. Opinion No. 2017 DNH 024
William S. Gannon, Esq. Daniel W. Sklar, Esq. G. Alexander
Bongartz, Esq. James T. Grogan, Esq. Luc A. Despins, Esq.
Geraldine L. Karonis, Esq.
Barbadoro United States District Judge
Advanced Technologies Limited (“GTAT”) and
affiliated entities are the debtors-in-possession (the
“Debtors”) in a jointly administered Chapter 11
proceeding before the United States Bankruptcy Court for the
District of New Hampshire. Tera Xtal Technology Corp.
(“TXT”), a creditor in the case, filed an
administrative expense claim that it argued was entitled to
priority pursuant to § 503 of the Bankruptcy Code. The
Debtors challenged TXT's claim, a discovery schedule was
established, and a deadline for the filing of dispositive
motions was set. After discovery closed, the Debtors filed a
motion for summary judgment. The bankruptcy court granted the
motion and this appeal followed.
TXT was in bankruptcy court, it initially argued that its
damages were caused by GTAT's postpetition breaches of
certain prepetition obligations. In responding to the
Debtors' summary judgment motion, TXT later also claimed
that its damages were caused by GTAT's postpetition
negligence. The bankruptcy court rejected both claims. On
appeal, TXT challenges only the disposition of its
postpetition negligence claim. The bankruptcy court
determined that TXT lost its right to pursue the negligence
claim because it failed to assert the claim until after
discovery had concluded and the Debtors had filed their
summary judgment motion. The court alternatively rejected the
claim on its merits. I affirm the bankruptcy court's
ordered a total of 98 advanced sapphire furnaces from GTAT
through a series of purchase agreements in 2011. The furnaces
are used to produce sapphire crystal in the form of cylinders
called “boules.” Portions of the boules can be of
sufficient quality to be used in commercial applications. The
furnaces themselves are controlled by computers, which in
turn run software pre-installed by GTAT. The furnaces do not
function without the software, and the software does not
function without license codes provided by GTAT.
GTAT delivered thirty furnaces through early 2012, TXT
declined to buy the remaining furnaces because it claimed
that the delivered furnaces did not meet contractually
established performance standards. In response, GTAT remotely
deactivated the license codes for the delivered furnaces.
Arbitration ensued. In August 2014, the arbitral tribunal
rendered its award, finding that ten of the delivered
furnaces did not conform to contract standards. Accordingly,
TXT did not have to pay for the ten nonconforming furnaces or
buy any of the furnaces that had not yet been delivered. Per
the terms of the award, GTAT also had to “disassemble
and remove the 10 non-compliant [furnaces] from TXT's
facility” and “deliver software licenses to TXT
with respect to the 20 [furnaces]” remaining with TXT.
Doc. No. 24-4 at 407.
in August 2014, GTAT and TXT supplemented the arbitral award
with a separate settlement agreement. In pertinent part, the
agreement required GTAT to make two payments to TXT and
“provide TXT with software licenses for the 20
[furnaces] that the Tribunal determined were accepted by
TXT.” Doc. No. 24-3 at 290-91. GTAT agreed to
renew each software license annually and, “[i]n the
event the software ceases to function, . . . provide whatever
service is necessary to render the software
operational.” Id. at 291. To the extent the
agreement and the arbitral award conflicted, the agreement
controlled. Id. at 295.
made the first payment under the settlement agreement. It
also delivered a USB drive on September 30, 2014, containing
license codes for the twenty conforming furnaces. It did not,
however, make the second payment or remove the ten
nonconforming furnaces from TXT's property. Instead, GTAT
and affiliated entities filed for Chapter 11 bankruptcy on
October 6, 2014.
GTAT filed for bankruptcy protection, TXT asked for
GTAT's assistance in installing the license codes onto
the twenty conforming furnaces. On November 13, 2014, GTAT
installed codes on two furnaces and TXT installed codes on
the rest. After the parties completed this process, TXT
“tried to power on those 20 machines, but the [control
boards] of . . . three machines [were] damaged.” Doc.
No. 24-6 at 551 (deposition of TXT director Peggy
Hsu). TXT did not go any further in the furnace
“initiation process” with respect to the other
seventeen furnaces at that time because it feared damaging
them. Id. In February 2015, though, TXT did
“tr[y] to turn on one machine, but there was . . . no
oil in the air pressure machine.” Id. at 555.
provided TXT with perpetual software licenses codes on August
20, 2015, TXT filed a motion asking the bankruptcy court to
approve an administrative expense claim for $3, 789, 963, the
bulk of which was for lost profits. Doc. No. 24-2 at
5-6. The motion drew on the language of the settlement
agreement and explained that TXT's losses resulted from
GTAT's “continuing failure to provide current and
compatible software licenses for the 20 [furnaces] and
provide the service necessary to render the software
operational.” See Id. at 10.
Debtors and the Official Committee of Unsecured Creditors
objected to the claim in part on factual grounds. See
Id. at 146. Accordingly, the bankruptcy court issued
a case management order establishing a discovery schedule and
setting a deadline for the filing of dispositive motions.
Id. at 146-47. After discovery closed, the Debtors
challenged the claim in a motion for summary judgment. See
Id. at 255-56. In response, TXT again contended that
its expenses were entitled to priority because they were
caused by GTAT's postpetition breaches of its ...