United States District Court, S.D. New York
March 16, 2004.
LAIF X SPRL, Petitioner -v- AXTEL, S.A. DE C.V., TELINOR TELEFONIA, S. DE R.L. DE C.V., BLACKSTONE CAPITAL PARTNERS III MERCHANT BANKING FUND, L.P., BLACKSTONE OFFSHORE CAPITAL PARTNERS III, L.P., and BLACKSTONE FAMILY INVESTMENT PARTNERSHIP III, L.P., Respondents
The opinion of the court was delivered by: JED RAKOFF, District Judge
The instant proceedings derive from a litigious battle over control
of a Mexican communications company. Petitioner Laif X Sprl ("Laif X") is
a Belgian investment company. Respondents are, respectively, Axtel S.A.
de C.V. ("Axtel"), a highly-regulated Mexican telecommunications company
created in 1997; Telinor S. de R.L. de C.V. ("Telinor"), a Mexican
limited liability partnership that owns about 58% of Axtel's voting stock
capital; and Blackstone Capital Partners III Merchant Banking Fund, L.P.,
Blackstone Family Investment Partnership III, L.P., and Blackstone
Offshore Capital Partners, L.P. (collectively "Blackstone"), three
partnerships organized under Delaware law.
Pursuant to a subscription agreement dated April 1, 2003, Laif X
purchased $10,054,054 worth of Axtel shares, including a majority of the
Series "C" class of shares. Laif X purported to have the right to
subscribe to these shares because it had received an assignment of such
subscription rights from an affiliated entity known as Laif IV Ltd ("Laif
IV"). Laif IV, however, had never itself been an Axtel shareholder but
had received the subscription rights in question through an assignment
from another affiliated entity, WorldTel Mexico. Telecom Ltd.
("WorldTel"), which was an Axtel shareholder holding the subscription
rights in question.
After Laif X paid for its shares, Axtel and Telinor transferred Series
"A" shares held by Telinor to Blackstone, which converted these into
Series "C" shares, as a result of which Laif X no longer held a majority
of the Series "C" shares and thereby lost its ability to elect a majority
of the Series C directors of Axtel. In other words, as Laif X sees it,
Axtel and its confederates, having obtained over $10 million of Laif X's
money (which, according to Laif X, Axtel desperately needed), thereafter
sought to dilute what Laif X received in return by reducing the extent of
Laif X's control of Axtel.
Axtel's bylaws require arbitration of "any dispute, claim, controversy
or difference (a `Dispute') among the shareholders or between the
shareholders and the Corporation, arising under or in connection with any
of their respective rights and obligations under these bylaws or with
their interpretation." Axtel Bylaws, Art. 60. However, in response to the
foregoing developments, Laif X's first step was not to seek arbitration,
but rather, on October 27, 2003, to file suit against Axtel in the First
Judicial District in Monterrey, Nuevo Leon, Mexico. This lawsuit (which
Laif X neglected to mention in its initial papers here) was, Laif X now
claims, a technical prerequisite to preserving the status quo in Mexico
before initiating arbitration. The lawsuit, however, was dismissed, an
action that is now on appeal to a higher Mexican court. See transcript,
Meanwhile, on December 23, 2003, Laif X initiated an arbitration
proceeding in New York against Axtel, Telinor, and Blackstone, seeking to
nullify the issuance of Series "C" shares to Blackstone. Laif X
designated its arbitrators on January 20, 2004, respondents did likewise
on February 6, 2004, and the American Arbitration Association is
currently in the process of implementing procedures for selecting the
third arbitrator. Each of the respondents has filed Answers to the
Demand for Arbitration, and the arbitration appears to be proceeding on
Nevertheless, on January 26, 2004, Telinor filed a lawsuit (the
"Mexican Lawsuit") against Laif IV, Laif X, and Axtel in the First
Judicial District in Monterrey, Nuevo Leon, Mexico. In that lawsuit,
Telinor challenges the legitimacy of the assignment of subscription
rights from Laif IV to Laif V pursuant to which Laif X purchased its
shares of Axtel. In effect, therefore, Telinor seeks by that lawsuit to
invalidate the Laif X purchase of Axtel shares.
Laif X thereupon responded to the Mexican Lawsuit by filing the instant
petition, in which Laif C seeks an order:
(a) compelling Respondents to arbitrate any and all
disputes with Laif X arising under or in connection
with any of their respective rights and obligations
under Axtel's bylaws or with their interpretation; and
(b) enjoining Respondents from commencing or pursuing
any lawsuit (including without limitation the Mexican
Lawsuit) arising under or in connection with any of
their respective rights and obligations under Axtel's
bylaws or with their interpretation, against Laif X
(including any of its affiliates, employees,
officers, and agents) in any jurisdiction
without a prior determination by the arbitral tribunal
in the Pending Arbitration that such action would be
outside the scope of its jurisdiction.
Petition to Compel Arbitration at 5. On March 1, 2004, the Court heard
oral argument on the petition and, essentially on consent, denied the
petition as to respondents Axtel and Blackstone, since neither of these
respondents had refused to arbitrate nor commenced any related
litigation. See transcript, 3/1/04; Order, 3/1/2004 (confirming bench
rulings). By further Order dated 3/8/04, the Court denied the petition as
to the remaining respondent, Telinor. The reasons for this latter ruling
are as follows:
First, Laif X is not entitled to an order compelling Telinor to
arbitrate, since Telinor is already participating in the ongoing
Second, Laif X is not entitled to an order enjoining Telinor from
proceeding further with the Mexican Lawsuit since such an order would
constitute an unwarranted interference with Mexican sovereignty. Although
camouflaged as a suit against Laif IV, the gist of Telinor's position in
that lawsuit is that Laif X never lawfully held shares in Axtel and
therefore cannot exercise any of the rights of shareholders (including
the right to arbitrate). Whether or not such issues
are themselves within the scope of the ongoing arbitration, and whether
or not it is the arbitrators who should determine whether such issues are
within the scope of the arbitration, are themselves largely issues of
Mexican law, see Axtel Bylaws, Art. 62; CTS Corp. v. Dynamics Corp. of
Am., 481 U.S. 69, 90 (1987), that, at least colorably, may belong in a
While there is a strong United States policy of enforcing arbitration
clauses, see e.g., AT&T Techs. Inc. v. Communications Workers of Am.,
475 U.S. 643, 650 (1986), there is an equally strong United States policy
against interfering with proceedings before a foreign sovereign, see
e.g. China Trade & Dev. Corp. v. M.V. Choong Yong, 837 F.2d 33, 35 (2d
Cir. 1987) ("an anti-foreign suit injunction should be used `sparingly'
. . . and should be granted `only with care and great restraint'"). In
resolving this tension, and assuming certain threshold requirements are
satisfied, see id. at 36; Newbridge Acquisition I, LLC v. Grupo Corvi,
S.A. de D.V., et. al, No. 02 Civ. 9839, 2003 WL 42007(S.D.N.Y. Jan. 6,
2003), a court looks to such factors, inter alia, as whether the foreign
action interferes with the U.S. court's own jurisdiction, whether the
foreign action is designedly vexatious or calculated to cause material
delay, and other such equitable considerations. See generally American
Home Assurance Co. v. Ins. Corp. of Ireland, Ltd., 603 F. Supp. 636, 643
(S.D.N.Y. 1984). As noted, however, the Second Circuit takes a
restrictive view of such injunctions, cautioning courts to use them only
in relatively extreme circumstances. See China Trade & Dev. Corp. v.
M.V. Choong Yong, 837 F.2d at 36.
Here, Telinor's lawsuit raises colorable issues under Mexican law that
arguably are the province of a Mexican court rather than the arbitrators.
At the same time, Telinor's lawsuit in Mexico. is not materially
delaying, or even directly interfering, with the ongoing arbitration, for
both are proceeding simultaneously. Indeed, as indicated earlier, Telinor
has not in any manner refused to participate in the arbitration commenced
by Laif X. This is not a proper case, therefore, to exercise the
extraordinary remedy of an anti-foreign suit injunction.
Accordingly, for the foregoing reasons, the petition is dismissed.
Clerk to enter judgment.
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