Boeing told to pay at least $370M for breach of contract

Wednesday, October 22, 2008 | 12:25 a.m. CDT

LOS ANGELES — A jury on Tuesday ordered Boeing Co.'s satellite division to pay at least $370 million for breaching a contract to build and launch satellites for a communications company headed by cellular phone pioneer Craig McCaw.

The decision caps a four-week trial in which ICO Global Communications Holdings Ltd. accused the aerospace giant of trying to hinder its proposed satellite network by fraudulently raising prices for the project. The award does not include punitive damages, which the jury will address next week.

"We are pleased that this case has reached a verdict after years of litigation," said John Flynn, ICO's executive vice president.

J. Michael Luttig, Chicago-based Boeing's senior vice president, said his company will appeal the decision. He said there were "fundamental errors in the conduct of the trial," including jury instructions and the judge's interaction with the jury during deliberations.

The lawsuit, filed in 2004 in Los Angeles County Superior Court, stems from ICO's decade-old plan to launch a fleet of satellites that would provide mobile telephone and Internet service.

ICO, based in Reston, Va., contracted with El Segundo-based Hughes Electronics Corp. in the mid-1990s to build and launch 12 satellites. Boeing acquired Hughes in 2000 and inherited the contract with ICO, but only two satellites were finished - one of which was lost due to a failure aboard a Boeing Sea Launch rocket the same year.

ICO sued Boeing and its satellite division four years later over breach of contract after Boeing allegedly demanded ICO pay another $400 million to finish the job.

Boeing spokeswoman Diana Ball would not confirm how much Boeing raised the price, but acknowledged that costs of producing the satellites increased as ICO tried to delay the project during a major slump in the telecommunications sector.

"There are costs associated with those delays and we repeatedly tried to accommodate them during a period of difficult market conditions and increased competition," Ball told The Associated Press.

ICO sought unspecified punitive damages and around $1.5 billion in actual damages, plus interest.

ICO attorneys argued during trial that once Boeing got into the satellite communications business, its former customer became a competitor. Boeing's attorneys argued Boeing attempted to keep the deal alive and accused ICO of canceling the contract for convenience.

The jury, after weeks of deliberation, ordered the satellite subsidiary to pay $370.6 million to ICO, while the parent company was ordered to pay $91.6 million. After the award was announced, attorneys for both sides argued whether the smaller amount was included in the award. The jury will reconvene next Tuesday to determine punitive damages.

ICO, which McCaw and other investors rescued from bankruptcy in 2000, said the money from Boeing will help pay for its international expansion plans and to put its 10 warehoused satellites into space.

ICO, under a different contractor, put a satellite into orbit this year but still has no revenue.

McCaw said the jury's decision would not "get us back to being whole again" but provided redemption.

"We feel particularly so, given that it went beyond a mere dispute over contract," McCaw told the Los Angeles Times. "It isn't about getting even. I feel very strongly what they did was wrong."



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