Telenor Mobile Communication As v. Storm LLC

• Decision Date: 02 November 2007
• Docket Number: No. 07 Civ. 6929(GEL).,07 Civ. 6929(GEL).
• Citation: 524 F.Supp.2d 332
• Parties: TELENOR MOBILE COMMUNICATIONS AS, Petitioner, v. STORM LLC, Respondent.
• Court: U.S. District Court — Southern District of New York

524 F.Supp.2d 332

TELENOR MOBILE COMMUNICATIONS AS, Petitioner, v. STORM LLC, Respondent.

No. 07 Civ. 6929(GEL).

United States District Court, S.D. New York.

November 2, 2007.

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Robert L. Sills and Jay K. Musoff, Orrick, Herrington & Sutcliffe LLP, New York, NY, for petitioner.

Peter Van Tol, Gonzalo S. Zeballos, Johanne Houbouyan, and Lisa J. Fried, Loveils LLP, New York, NY, for respondent.

OPINION AND ORDER

GERARD E. LYNCH, District Judge.

Telenor Mobile Communications AS ("Telenor"), a Norwegian telecommunications company, and Storm LLC ("Storm"), a company organized under the laws of Ukraine, jointly own Kyivstar G.S.M. ("Kyivstar"), a Ukrainian telecommunications venture. Telenor and Storm are engaged in a dispute over, inter alia, the validity and effect of a 2004 shareholders' agreement (the "Shareholders Agreement" or "Agreement") related to the corporate governance and management of Kyivstar. To resolve the dispute, Telenor invoked the arbitration provision of the Shareholders Agreement. The parties appeared before the arbitrators ("the arbitrators" or "the Tribunal") at a series of hearings held during December 2006. On August 1, 2007, the Tribunal issued a unanimous final award (the "Final Award" or "Award"), granting various relief to Telenor, including conditional divestiture of Storm's Kyivstar shares and an anti-suit injunction. The case is before this Court on (1) Telenor's petition to confirm the arbitration award pursuant to 9 U.S.C. §§ 9 and 207, and (2) Storm's cross-motion to vacate the Award. For the following reasons, Telenor's petition will be granted, and Storm's motion will be denied.

BACKGROUND

Many of the following facts have already been set forth in a prior decision by the Court. See Storm LLC v. Telenor Mobile Comm'ns AS, No. 06 Civ. 13157, 2006 WL 3735657 (S.D.N.Y. Dee. 15, 2006). However, because the instant motion requires an independent determination of the arbitrability of the dispute, see Discussion, Part II.A.2, infra, the relevant facts will be recited again here.

The 2004 Agreement

The 2004 Agreement is the product of a series of negotiations and transactions which arose from the desire of Alfa Telecommunications, a predecessor company of Altimo Holdings & Investment Limited ("Altimo"), to acquire a significant share in Kyivstar. (Zeballos Decl. Ex. E ¶¶ 16, 21.) Ownership of Kyivstar had previously been divided up among a group of shareholders, including both Telenor and Storm. (Award at 3.) In 2002, Alfa purchased a majority interest in Storm, and used Storm in turn as the vehicle to acquire an interest in Kyivstar. (Id. 4.) Because Storm obtained over 40% of the Kyivstar shares — which under Ukrainian law gave it substantial rights in corporate governance — Telenor negotiated an agreement obligating Storm not to exercise its rights in certain ways. (Zeballos Decl. Ex. E ¶ 22; see id. ¶ 17 (stating that Telenor currently owns approximately 56.5% and Storm owns approximately 43.5% of the Kyivstar shares).)¹ Wary of the Ukrainian legal system, Telenor also negotiated an arbitration clause (the "Arbitration Agreement"), which provided that "[a]ny and all disputes and controversies arising under, relating to or in connection with" the Shareholders Agreement would be resolved by a tribunal of three arbitrators in New York in accordance with the Arbitration Agreement and the United Nations Commission on International Trade Law ("UNCITRAL") Arbitration Rules. (Agreement § 12.01.)

Telenor received several assurances that Storm's purchase of the Kyivstar shares was authorized by Storm's shareholders and management. During negotiations between the parties in 2002, Storm provided documents warranting that its general director, Valeriy Vladimirovich Nilov, who signed the agreement on its behalf, was legally authorized to do so. (Zeballos Decl. Ex. ¶ 41.) In addition, a resolution passed by unanimous consent of Storm's shareholders on October 7, 2002, specifically authorized the general director to enter the Shareholders Agreement on behalf of Storm. (Id. ¶ 32.) Furthermore, upon execution of the final agreement on January 30, 2004, Storm and Telenor exchanged customary certificates that each signatory possessed full authority to sign on its behalf. (Id. ¶¶ 40, 41.)² Storm delivered to Telenor two identical documents entitled "Certificates of Incumbency and Authority," one of which was signed by Yuri Tomanov, the Chairman of Storm, who certified that Nilov "is duly authorized to sign" the Agreement on behalf of Storm. (Id. ¶ 41.)

The Initiation of Arbitration and Ukrainian Court Proceedings

Telenor and Storm performed their respective obligations under the Agreement for over a year. During 2005, however, increasing friction developed between the parties, and Telenor now accuses Storm of violating the Shareholders Agreement in ways that effectively paralyze Kyivstar. Specifically, Telenor claims that Storm has violated the Shareholders Agreement by failing to (1) attend shareholder meetings, (2) appoint candidates for election to the Kyivstar board, (3) attend board meetings, and (4) participate in the management of Kyivstar, including enforcement and amendment of the Kyivstar Charter. (Award at 15; see Sills Decl. I, Ex. B ¶¶ 25-28.) Telenor also claims that the partial ownership of two competing Ukrainian telecommunications companies by Alfa, the direct parent of Altimo, and Russian Technologies, a subsidiary of Alfa, violates the Agreement's non-compete clause. (Sills Decl. I, Ex. B ¶¶ 29-33.)

On February 7, 2006, Telenor sought redress for these alleged violations by invoking the arbitration clause. Telenor requested several forms of relief, including an order requiring Storm to comply with the Agreement's requirements relating to shareholder and board meetings, appropriate relief against the breaches of the noncompetition provision of the Agreement, a permanent injunction against court actions instituted in violation of the Agreement's arbitration provisions, and an order requiring Storm to take steps to amend the Kyivstar Charter to conform both to the Shareholders Agreement and to a December 22, 2005, Order of the High Commercial Court of Ukraine.³ (Id.) Telenor also requested an award of damages for Storm's alleged breaches of the Agreement. (Id.)

Storm responded to the arbitration demand by appointing an arbitrator and participating in proceedings before the arbitrators. (Award at 18.) However, notwithstanding the fact that Storm was simultaneously participating in the arbitration proceedings, on April 14, 2006, legal proceedings were instituted in the Ukrainian Commercial Court. In the Ukrainian proceedings, Alpren, the 49.9% owner of Storm, sought a declaration of the invalidity of the Shareholders Agreement. (Zeballos Decl. Ex. B.) Telenor was not named as a defendant in the suit, and neither Telenor nor the arbitrators were advised of its pendency. Storm did not retain counsel or file written opposition to the action. (Sills Decl. I, Ex. B ¶ 38.) Instead, its general director, Vadim Klymenko, appeared in person and registered oral opposition to Alpren's demands, a method of proceeding that Storm contends is permissible, and not unusual, in Ukraine. (Zeballos Decl. Exs. C, F.)

Whether or not unusual under Ukrainian custom, the proceeding had a number of curious features. Although Klymenko, who acted for Storm in the matter, is not a lawyer, a resume submitted by him in connection with the arbitration notes that he is a Vice President of Altimo, the ultimate parent both of Storm and of Alpren, and that his responsibilities in that role include the management of "litigation[,] arbitration, representation and implementation of shareholders' interests." (Zeballos Decl. Ex. C.) The initial Ukrainian proceeding appears to have lasted all of twenty minutes (Award at 21), suggesting that Klymenko's oral opposition was somewhat perfunctory. As a result, on April 25, 2006, the Ukrainian court declared the Shareholders Agreement invalid, finding that Nilov had "acted unlawfully and in excess of [his] powers" by executing the Agreement. (Zeballos Decl. Ex. B at 3.)

Storm appealed the result to the Ukrainian Appellate Commercial Court, again without submitting any substantial defense of its position.⁴ Instead Storm only made a cursory argument that the Agreement was not examinable by the Ukrainian court because of the pending New York arbitration, and presented no evidence regarding the authority of Nilov to enter into the Agreement, nor any other factual submissions. (Award at 22.) Once again, Telenor was not present or notified of the hearing. (Id.; see Sills Decl. Ex. B ¶ 70 ("Telenor Mobile first learned of [the Ukrainian decisions] through an Altimo press release, issued after the Ukrainian appellate court issued its judgment....").) Immediately following the hearing, on May 25, 2006, the appellate court affirmed the lower court's decision against Storm. (Zeballos Decl. Ex. D.) In addition, although Storm made no argument regarding the severability of the arbitration clause to the appellate court, the appellate court broadened the lower court's ruling by finding specifically that the Arbitration Agreement was invalid.(Id.)

On May 30, 2006, Storm filed its Statement of Defense to Telenor's claims in the arbitration proceeding, taking issue with each of Telenor's claims. Specifically, Storm argued that it did not violate the Agreement because (1) it was justified in not attending the shareholder and board meetings; (2) the Kyivstar Charter is violative of Ukrainian law, and therefore, Telenor's attempts to enforce and amend it were improper; (3) the non-compete clause of the Agreement is overbroad and unenforceable; and (4) it was not required to submit to arbitration because Telenor waived its right to arbitration by failing to raise the issue in the prior Ukrainian court proceedings — even though...