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May 5th, 2016

US Space LLC Files Suit Against Orbital ATK & ATK Space Systems For Breach Of Contract

The Law360 news site has published a report that satellite company US Space LLC has blasted Orbital ATK Inc. and ATK Space Systems Inc. with a breach of contract lawsuit in New York state court, alleging they were ejected from a potentially $10 billion joint venture to service commercial satellites while in orbit.

ATK Space Systems was supposed to honor a 2010 agreement creating the ViviSat joint venture, US Space said, but after a 2015 merger between corporate parent Alliant Techsystems Inc. and Orbital Sciences Corp. made the company a subsidiary of Orbital ATK, it reneged and unilaterally pulled the “on-orbit services” project in-house.

In April 2016, in a double-cross of cosmic proportions, defendants purported to 'dissolve' ViviSat and eject US Space from any further involvement in the parties' joint venture. Defendants within days then seized the lucrative fruits of the joint venture for themselves by creating a new subsidiary, Space Logistics LLC, that replicated ViviSat's business and customers,” US Space said. “Defendants' hijacking of ViviSat's business (and attempt to remove US Space from the picture) breached the parties' agreements and ATK's fiduciary duties owed to ViviSat.”

The fruits of that joint venture, according to the complaint, had been projected at an equity of more than $10 billion. Orbital ATK had itself identified on-orbit servicing as a source of between $400 to $500 million a year in revenue in early March, US Space said.

The idea behind ViviSat's servicing satellites, or mission extension vehicles, according to the complaint, is a vehicle that can latch onto commercial satellites in geostationary orbit. Once attached, the MEV can relocate or otherwise service the satellites, greatly extending their lifespans.

ATK Space Systems had been the one to approach US Space — formed in 2009 by former U.S. government officials — after hearing a company founder speak about the potential for on-orbit servicing, according to the complaint, with ATK Space Systems having been interested in expanding beyond its roots building satellites for the U.S. government.

One of the agreements between ATK and US Space, according to the complaint, was an October 2010 teaming agreement under which ATK pledged to support US Space's efforts to bring in investors and promised to work with US Space and ViviSat, and no one else, in on-orbit servicing. An operating agreement signed at the same time had held ViviSat's operations solely to US Space and ATK, according to the complaint, providing each a 50 percent stake.

Under the Operating Agreement, ViviSat could be dissolved only with the written consent of US Space and ATK, or by court order,” US Space said.

US Space argued that the joint venture had relied on its commercial satellite expertise and connections to develop on-orbit servicing as a viable effort over the course of the last five years. By 2015, ViviSat had inked five contracts, totaling in the hundreds of millions of dollars, with major satellite operators, according to the complaint. It had also drawn in significant investment commitments — neither company had the hundreds of millions needed on their own — to develop and build the “revolutionary” satellites that would actually perform the servicing, according to US Space.

ViviSat came crashing down in February 2016, just as its potential was becoming realized, with Orbital ATK's announcement that it was yanking on-orbit servicing in-house, US Space said.

Unlike Alliant (and its subsidiary, ATK), Orbital produced commercial satellites and had customer relationships with commercial satellite operators,” US Space said. “For Orbital, a critical benefit of the proposed merger was that it offered the opportunity to gain access to ATK' s on-orbit servicing venture, ViviSat, and its unique satellite design. Indeed, Orbital ATK believed that on-orbit servicing could be the source of tremendous new growth.”

The merger also created other complications for ViviSat, US Space said, arguing that Orbital had “stonewalled” efforts to secure financing, in breach of the contract.

Additionally, US Space alleged that Orbital ATK sought to revise the agreements in September in a “clear takeover of ViviSat.” After US Space refused, the company said that Orbital ATK alleged that ViviSat hadn't met certain financing requirements, which Orbital ATK used months later as an excuse to assert control, despite having continued to treat ViviSat as a joint venture in the intervening months.

In addition to breach of contract, the lawsuit brings counts including interference with the teaming agreement, bad-faith dealing and breach of fiduciary responsibilities. It seeks a declaratory judgment of the contract's binding power and on whether or not US Space failed to meet financing requirements as Orbital ATK says. US Space says it met every milestone required of it.

The company does not comment on pending litigation; however, we believe the allegations have no merit,” Orbital ATK said in a statement.

A US Space representative did not immediately respond to a press inquiry late Monday.

US Space is represented by Amiad Kushner, Reynold Lambert and Katy Akopjan of Lowenstein Sandler LLP.

Attorney information for the defendants was not available Monday

The case is U.S. Space LLC v. Orbital ATK Inc. et al., case number 652303/2016 in the Supreme Court of the State of New York.

— Editing by Ben Guilfoy.