Centro Empresarial Cempresa S.A. v. MÓvil

• Decision Date: 03 June 2010
• Citation: 76 A.D.3d 310,901 N.Y.S.2d 618,2010 N.Y. Slip Op. 04719
• Parties: CENTRO EMPRESARIAL CEMPRESA S.A., et al., Plaintiffs–Respondents,v.AMÉRICA MÓVIL, S.A.B. DE C.V., et al., Defendants–Appellants.
• Court: New York Supreme Court — Appellate Division

76 A.D.3d 310
901 N.Y.S.2d 618
2010 N.Y. Slip Op. 04719

CENTRO EMPRESARIAL CEMPRESA S.A., et al., Plaintiffs–Respondents,
v.
AMÉRICA MÓVIL, S.A.B. DE C.
v.
, et al., Defendants–Appellants.

Supreme Court, Appellate Division, First Department, New York.

June 3, 2010.

[901 N.Y.S.2d 619]

Mayer Brown LLP, New York (Philip Allen Lacovara and Scott A. Chesin of counsel), for appellants.Fox Horan & Camerini LLP, New York (Kathleen M. Kundar and Eric Lindquist of counsel), for respondents.DAVID FRIEDMAN, J.P., JOHN W. SWEENY, JR., JAMES M. CATTERSON, DIANNE T. RENWICK, HELEN E. FREEDMAN, JJ.FRIEDMAN, J.P.

[76 A.D.3d 311] Plaintiffs allege that they were induced to sell out their indirect minority interest in an Ecuadorian mobile telephone company by misrepresentations made to them by defendants (the owner of the majority interest and its affiliates) concerning the value of the underlying enterprise. We hold that plaintiffs' various causes of action for fraud and breach of contract are barred by the general release they granted defendants in connection with the sale of their interest, which release covered any and all claims, “whether past, present or future, actual or contingent,” arising from the parties' association as co-investors in this enterprise.

Plaintiffs Centro Empresarial Cempresa S.A. and Conecel Holding Limited are British Virgin Islands entities that, as of 1999, held a combined majority interest in defendant Consorcio Ecuatoriano de Telecommunicaciones S.A. Conecel (Conecel), the Ecuadorian mobile telephone company. As alleged in the complaint, in 1999, plaintiffs were seeking an outside investor to

[901 N.Y.S.2d 620]

infuse additional capital into Conecel. To that end, they approached defendant Carlos Slim Helú (Slim), the chairman of defendant Teléfonos de México, S.A. de C.V. (Telmex), a Mexican telecommunications company with operations (through subsidiaries) throughout Latin America. Slim expressed interest in acquiring 100% of Conecel, but plaintiffs insisted on retaining a minority interest in the company and on participating in any “upside” that might result from a future public offering of its shares.

After several months of negotiation, the parties entered into a number of related agreements, dated as of March 8, 2000, under which Telmex invested $185 million in Conecel and acquired a 60% indirect interest in the company, with plaintiffs (together with a third investor not participating in this lawsuit) retaining [76 A.D.3d 312] a combined 40% indirect interest. As a result of the transaction, the parties held their interests in Conecel through defendant Telmex Wireless Ecuador LLC (TWE), a newly formed Delaware limited liability company.¹ Telmex held its interest in TWE through a subsidiary, defendant Telmex Wireless LLC (Telmex LLC), which, under the TWE limited liability company agreement, was given the responsibility to “oversee [TWE's] accounting, tax and recordkeeping matters.” ²

One of the contracts made in connection with Telmex's investment in Conecel was the Agreement Among Members, dated March 8, 2000. Section 3.09 of the Agreement Among Members provided that, in the event Telmex sought to consolidate its Latin American telecommunications interests into one entity “for purposes of selling the equity securities of such entity in international capital markets” (a transaction the complaint refers to as a “roll-up”), plaintiffs would have the right to “negotiate in good faith (for a period not to exceed 20 days)” to exchange their units in TWE for equity shares of the new entity “at a mutually satisfactory rate of exchange.” ³

Another contract made in connection with the transaction was the Put Agreement, dated March 8, 2000, which granted plaintiffs the right to require Telmex LLC to purchase, at a pre-set price, up to 95% of plaintiffs' TWE units in increments during three six-month windows of time over a period of 6 1/2 years. The price set by the Put Agreement (referred to in the complaint as the “Floor Price”) was based on Conecel's value at the end of 1999, at which time (plaintiffs allege) Ecuador's economy was in crisis and, as a result, Conecel's value was depressed. The Put Agreement entitled plaintiffs to “put” up to [76 A.D.3d 313] 50% of their TWE units to Telmex LLC during the 180 days following March 8, 2002; up to 75% of their units during the 180 days following March 8, 2004; and up

[901 N.Y.S.2d 621]

to 95% of their units during the 180 days following March 8, 2006.

In September 2000, Telmex formed defendant América Móvil, S.A.B. de C.V. (América Móvil), a spin-off company which became the holding company for a number of Telmex's telecommunications interests, including TWE (and thus Conecel). The complaint alleges that plaintiffs did not learn of the formation of América Móvil until December 2000, when the latter filed a registration statement with the United States Securities and Exchange Commission setting forth the trading markets on which its shares were listed, including the New York Stock Exchange and Nasdaq. The complaint further alleges that “[t]he América Móvil spin-off constituted a roll-up as covered by Section 3.09 of the Agreement Among Members,” triggering plaintiffs' right to a 20–day negotiation for an exchange, “at a mutually satisfactory rate,” of their TWE units for América Móvil shares.

The complaint alleges that, beginning in March 2001, plaintiffs sought to enter into negotiations with defendants concerning an exchange of their TWE units for América Móvil shares and, to that end, requested that defendants provide them with Conecel's and TWE's internal “financial information” and business plans. The complaint further alleges that defendants failed to provide plaintiff with the requested information, in violation of various contractual obligations to do so, and instead consistently brushed off plaintiffs' requests for information, failing to return phone calls and directing plaintiffs from one executive to another. Plaintiffs also allege that, to the extent defendants provided them with any information about the value of Conecel and TWE, such information, whether conveyed orally or in written documents (such as balance sheets), was to the effect that Conecel was “financially distressed with uncertain prospects,” consistent with the company's public filings. Plaintiffs allege that the bleak picture of Conecel's financial condition thus portrayed to them (and to investors generally through public filings) was materially false and misleading. In fact, plaintiffs allege, Conecel was performing much better than reflected in defendants' oral and written representations and public filings.

It is further alleged that plaintiffs, having been led by defendants to believe that Conecel was in financial difficulty, disposed [76 A.D.3d 314] of their interest in Conecel in two stages. First, in March 2002, plaintiffs exercised their right under the Put Agreement to sell 50% of their TWE units to Telmex LLC at the pre-set “Floor Price,” which amounted to $64 million. In this regard, plaintiffs allege:

“Deprived by [d]efendants of complete and accurate financial information regarding Conecel in public filings [ sic ], [plaintiffs] were deprived of having an informed negotiation for the exchange [pursuant to section 3.09 of the Agreement Among Members] and were wary of the threat that [d]efendants would never negotiate in good faith and would never distribute the Conecel profits through TWE LLC as agreed by them. Consequently, [plaintiffs] were left with no practical alternative but to dispose of the portion of their interest in ... TWE LLC that could be sold through the exercise of the First Put [under the Put Agreement].”

The complaint alleges that defendants' obfuscation and misrepresentation of Conecel's true financial condition continued for more than a year after plaintiffs' exercise of their first option under the Put Agreement. Ultimately, in 2003, Telmex LLC offered to purchase all of plaintiffs' TWE units at the “Floor Price” set by the Put Agreement, but in advance of the

[901 N.Y.S.2d 622]

schedule set by that agreement. Plaintiffs accepted the offer, allegedly “in reliance on [defendants'] misrepresentations,” and the parties entered into a Purchase Agreement, dated July 29, 2003, pursuant to which plaintiffs sold their remaining TWE units to Telmex LLC at the “Floor Price,” which amounted to another $64 million. It is undisputed that the Purchase Agreement was the product of rigorous, arm's length negotiations between sophisticated parties, all of whom were advised by their own expert legal counsel.

Pursuant to the Purchase Agreement, the parties executed and exchanged a broadly drafted mutual release (the 2003 release), under which, in pertinent part, plaintiffs

“fully release[d] [defendants] of and from all manner of actions, causes of action, suits, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions, claims and demands, liability [ sic ], whatsoever, in law or equity, [76 A.D.3d 315] whether past, present or future, actual or contingent, arising under or in connection with the Agreement Among Members and/or arising out of, based upon, attributable to or resulting from the ownership of membership interests in [TWE] or having taken or failed to take any action in any capacity on behalf of [TWE] or in connection with the business of [TWE].”

The complaint further alleges that, years after the buy-out of plaintiffs' interest, defendants' alleged dishonesty was exposed as a result of an audit of Conecel conducted by the Ecuadorian tax authority. The findings of the tax audit allegedly revealed that “the true financial results of Conecel in 2001–2003 were considerably better than represented by [d]efendants to [p]laintiffs when [d]efendants offered to purchase [p]laintiffs' Units [in TWE].” As a...