The opinion of the court was delivered by: 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.
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. Dec. 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 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).)*fn1 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. E ¶ 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.)*fn2 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 non-competition 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.*fn3 (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.*fn4 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 Telenor was not a party to, and had never been notified of, those proceedings. (Award at 16.) In the alternative, Storm argued that the Agreement itself was invalid "because it was entered into without the requisite authority and fails to comply with the registration and execution requirements of Ukrainian law." (Id. 16-17.)
Storm's Motion to Dismiss and the Partial Final Award
Although Storm submitted a Statement of Defense and appointed an arbitrator to the Tribunal, on June 7, 2006, Storm moved to dismiss the arbitration on the alternative ground presented in its Statement of Defense, specifically, that the Tribunal had "no authority to decide the merits of Telenor's claim because the Ukrainian courts had ruled . . . that the January 30, 2004 Shareholders Agreement was 'null and void in full, including the arbitration clause.'" (Id. 18-19.)
The Tribunal, composed of Kenneth R. Feinberg, Gregory B. Craig, and William R. Jentes, held a series of hearings on Storm's motion to dismiss during the summer of 2006. On October 22, 2006, the arbitrators entered a "Partial Final Award" rejecting Storm's jurisdictional argument. (Zeballos Decl. Ex. H.) As an initial matter, the Tribunal found that it had authority to determine its own jurisdiction. (Id. 12-13, citing Sphere Drake Ins. v. Clarendon Nat'l Ins., 263 F.3d 26 (2d Cir. 2001).) Next, the Tribunal considered whether it was precluded by the Ukrainian court decisions from determining the merits of the dispute. The arbitrators did not accept the Ukrainian courts' conclusions as binding on them, finding instead that those conclusions were based on an incomplete record and collusive litigation. (Id. 14-16.) Though reserving to later hearings the questions regarding the validity of the Shareholders Agreement (id. 15), the arbitrators declared that whether or not Nilov had authority to enter into the Shareholders Agreement itself, he at least had the authority to enter the Arbitration Agreement. (Id.) Furthermore, the Tribunal determined that the Ukrainian courts had not given "meaningful consideration" to the severability of the arbitration clause because neither Alpren nor Storm raised that issue with those courts. (Award at 26.) Accordingly, the Tribunal denied Storm's motion to dismiss, and scheduled the arbitration hearing for December 7 and 8, 2006. (Zeballos Decl. Ex. H at 16.)
Further Attempts to Avoid Arbitration and the Preliminary Injunction
After losing its motion to dismiss before the Tribunal, Storm's attempts to avoid arbitration proceeded in two fronts, in both the Ukrainian and American courts. First, on November 8, 2006, Storm obtained a "clarification" from the Ukrainian courts that broadened the scope of their initial rulings by specifically stating that the arbitration clause of the Shareholders Agreement was invalid, apparently in response to the arbitrators' suggestion that the Ukrainian courts had not considered the possible severability of the Arbitration Agreement. (Zeballos Decl. Ex. K.) In addition, the November 8 ruling sought to cure Alpren's failure to join Telenor as a party in the earlier proceedings by announcing that the court's earlier order "shall apply and be binding also upon those entities that were not among the parties to the [original] court proceedings." (Id.) The Ukrainian court also ruled that "[s]hould the parties and the arbitrators . . . ignore the above circumstances and render an award on the dispute, such acts shall constitute a violation of the court decision." (Id.) Storm again returned to the Tribunal, arguing that the November 8 ruling precluded it from appearing at the upcoming arbitration hearing and requesting postponement of that hearing, but the Tribunal denied the postponement and reaffirmed the December hearing dates. (Award at 28.)
Meanwhile, on November 13, 2006, Storm filed a petition in New York state court to enjoin the arbitration from continuing, and seeking to vacate the Partial Final Award. Telenor removed the action to this Court, asserting subject matter jurisdiction under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 3 (the "New York Convention" or "Convention"). See 9 U.S.C. §§ 203, 205. On November 22, 2006, this Court denied preliminary relief, holding that the Court could not review an interlocutory order of an arbitral panel, and that to the extent Storm relied on the general equitable power of the Court, it was insufficiently likely to prevail on the merits, given the likely correctness of the arbitrators' ruling, the apparently collusive nature of the Ukrainian litigation, and the lack of conflict between the arbitrators' decision and the Ukrainian judgment, given that Storm had not been prohibited by the Ukrainian court from participating in the arbitration. (See 11/22/06 Tr. 19-38.)
Following this decision, the Ukrainian parties returned to court. This time, Alpren once again threw its hat into the ring, and sued not Storm but Klymenko himself as general director of Storm. On December 1, 2006, again without notice to Telenor, Alpren secured an injunction from the Ukrainian court barring Telenor, Storm, and Klymenko from participating in any way in the arbitration -- notwithstanding that Telenor had again not been notified of the action nor named as a party to it. (Award at 28; see, e.g., Sills Decl. I, Ex. C at 1.) Telenor was not served in Ukraine with the order of the Ukrainian court; it obtained a copy of the judgment only via New York counsel for Storm in connection with the arbitration proceedings and this litigation.
(Sills Decl. I, Ex. B ¶ 41.) Three days later, on December 4, 2006, Storm again sought to halt the arbitration on the basis of the December 1 injunction. (Id.) The Tribunal again denied the request, and ordered the hearing to proceed as scheduled. (Award at 28.)
After this ruling, Telenor sought relief from this Court, counterpetitioning to compel arbitration, and simultaneously seeking an anti-suit injunction against Storm, Alpren, and Altimo to prevent further litigation in the Ukraine. Storm, 2006 WL 3735657, at *4. On December 7, 2006, the Court granted a temporary restraining order, and held an evidentiary hearing on Telenor's motion for a preliminary anti-suit injunction. Id. On December 15, 2006, the Court, finding that the Ukrainian judgments had been "conducted in the most vexatious way possible" and that Nilov "had at least apparent authority to sign the Shareholders Agreement and thereby to bind Storm to the Agreement's arbitration clause," granted Telenor's petition to compel arbitration and preliminarily enjoined "Storm, Altimo and Alpren . . . from bringing or attempting to cause the enforcement of any legal action in the Ukraine that would disrupt, delay or hinder in any way the arbitration proceedings between Telenor and Storm in New York." Id. at *14.*fn5
Despite Storm's attempts to indefinitely postpone the arbitration proceedings, the arbitration hearings took place on December 18-19, 2006. At the beginning of the hearing, Storm requested that the Tribunal "adjourn [the] hearing until such time as the Ukrainian Court action has run its course," arguing once again that the Ukrainian action prohibited Storm from participating in the arbitration proceedings. (Award at 31.) When the Tribunal denied Storm's application, counsel for Storm stated that, "[b]ecause of the December 1 ruling [in Ukraine], Storm feels that its hands are tied and that it cannot go forward on the merits." (Id.) Storm then physically withdrew from the hearing room and did not participate in the hearing. (Id.)
At the hearing, Telenor presented two witnesses and submitted one new affidavit into evidence. The first witness was Jay Moland, Chief Financial Officer at Telenor and Deputy Chairman of the Board of Kyivstar. (Id.) Moland testified about the failure of Storm's members of the Kyivstar Board of Directors to attend board meetings beginning on March 18, 2005, and continuing to the present. (Id.) He described the damage caused to Kyivstar that resulted from Storm's boycott, and testified that Storm -- up until the commencement of the arbitration -- had never explained their Board members' absence by claiming that the Shareholders Agreement was invalid. (Id. 31-32.) The second witness was Fredrik Lykke, former in-house counsel for Telenor. (Id. 32.) Lykke described the drafting and negotiation of the Agreement, the fact that there was no objection to identifying the law of the State of New York in the choice of law provision, and the importance to Telenor of having a non-compete provision included in the Agreement. (Id.)
In total, over the course of all of its hearings, the Tribunal heard or received testimony from eighteen different witnesses by live appearance and by affidavit. (Id.) It received hundreds of exhibits and thousands of pages of other documentary submissions. (Id.) Both Storm and Telenor also submitted lengthy pleadings, briefs, letters, and submissions of legal authorities in which they analyzed the facts, discussed the relevant law, and argued their positions. (Id.) The Tribunal also received post-hearing briefs from both parties, although only Telenor filed a post- hearing brief. (Id.) However, in response to an order directing further briefing on the choice of law issue, Storm participated in the final briefing of the case. (Id.; see Sills Decl. I, Exs. R & T.) On May 8, 2007, the Tribunal closed the hearings. (Sills Decl. I, Ex. U.)
On August 1, 2007, the Tribunal issued a unanimous final award. First, the Tribunal reaffirmed the Partial Final Award, finding that "[n]othing that has . . . transpired" since the Partial Final Award "has caused the Tribunal to change its earlier decisions." (Award at 33.) Instead, the arbitrators found that the November 8 ruling of the Ukrainian court "actually convince[d]" them "that the [Ukrainian] Court . . . failed to take into account several crucial factors bearing on a determination of the validity of the arbitration clause." (Id. 34.) In addition, the Tribunal found that the persuasive force of the November 8 ruling is "further reduced by the fact that Telenor (again) did not receive notice of the proceeding before the [r]uling was rendered," and by the limited evidentiary record submitted to the Ukrainian court in support of that ruling. (Id.) Specifically, the Tribunal noted that the Ukrainian court did not consider certain evidence of Storm's "clear intent to have its disputes with Telenor resolved with arbitration, . . . thus removing a key underpinning for the Alpren decisions." (Id. 34-35.) The arbitrators also rejected the December 1 injunction as not binding on the Tribunal, and found that their proceedings were consistent not only with the anti-suit injunction entered by this Court, but with "the directives of the UNCITRAL Rules, the Parties' intent as reflected in the Shareholders Agreement, and well-settled international commercial arbitration practice." (Id. 35; see, e.g., id. ("[T]he Tribunal points out that international commercial arbitration is a centerpiece of dispute resolution in today's global economy . . . . For commercial arbitration to succeed in this international environment, an arbitral tribunal must be free to proceed in accordance with the arbitration rules selected by the Parties.").)
Next, the Tribunal determined that New York law governed the arbitration, as "designated by the parties" in the arbitration clause. (Id. 36, quoting Agreement § 13.06.) The Tribunal rejected Storm's attempts to apply Ukrainian law, finding that application of New York law was consistent both with the terms of the arbitration clause, and with New York, federal, and international law. (Award at 39-42.) In addition, the Tribunal again rejected Storm's argument that it should "give conclusive effect to the decisions of the Ukrainian courts, regardless of what contrary results might be reached under New York law." (Id. 41-42.) The Tribunal found that "the same reasons" that led the Tribunal to "decline to accept those . . . decisions in connection with the issues of its jurisdiction," including the collusive nature of the Ukrainian litigation and the fact that Telenor was not named as a party to that litigation or notified of it until after the appeal had been rendered, also led it "to reject those decisions in favor of the application of New York law to the merits of this controversy." (Id. 42.)
Applying New York law, the Tribunal found that the 2004 Shareholders Agreement was validly executed and binding on the parties. In so finding, the Tribunal determined that Nilov had both actual and apparent authority to execute the 2004 Agreement. (Id. 45-53.) The Tribunal also found that, because Storm had intentionally created an appearance that Nilov had the authority to enter into the Agreement, and because Telenor relied on that representation to its detriment, Storm was estopped from challenging the validity of the Agreement. (Id. 53-54.)
Finally, the Tribunal found that Storm had breached, and continues to breach, the Agreement by "fail[ing] to maintain its membership on the [Kyivstar] Board" (id. 56), and by impeding arbitration through "its steadfast efforts before this Tribunal to block the resolution on the merits of Telenor's claims" in violation of the Agreement's arbitration clause (id. 61). The Tribunal also found that Storm had breached the Agreement's non-compete clause when Storm's affiliates, Alfa and Russian Technologies, acquired an interest in competing Ukrainian telecommunications companies (id. 58-61). Furthermore, the Tribunal found that Storm had also breached the Arbitration Agreement by instituting litigation in Ukraine for the sole purpose of enjoining Ernst & Young from providing auditing services to Kyivstar (the "E&Y actions"), which Ernst & Young had agreed to provide pursuant to an agreement with Kyivstar (id. 62-64; see Zeballos Decl. Exs. T-V).*fn6
Because the Tribunal found that Telenor had failed to prove an amount of damages, the Tribunal did not award damages to Telenor as a result of Storm's breach. (Award at 66.) However, based on its findings, the Tribunal ordered that Storm: (1) transfer certain of its Kyivstar shares to "newly-formed affiliated companies" that can nominate members for the Board of Directors; (2) "take such steps as are necessary to assure that its nominated candidates are elected to the" Board of Directors; (3) "cause its duly authorized representatives to attend" all meetings of Kyivstar; and (4) "take such steps as are necessary" to amend the Kyivstar Charter in compliance with the December 22, 2005, Ukrainian court order. (Award at 66-67.) In addition, the Tribunal ordered that Storm must divest its Kyivstar shares within 120 days unless Storm, and any affiliated entities, divest their holdings in the competing telecommunications companies that exceed five percent. (Id.) Finally, the Tribunal ordered the entry of an anti-suit injunction against Storm, prohibiting Storm and "anyone acting in concert with it" from initiating any suit "relating to, or in connection with, any obligations described in the Shareholders Agreement," as well as prohibiting the continued prosecution of "any existing litigations currently pending in the Ukraine," including the E&Y actions. (Id. 67-68.)
On August 1, 2007, Telenor filed a petition to confirm the Tribunal's Final Award with this Court.*fn7 Storm responded and cross-moved to vacate the award on August 24, 2007, and Telenor responded to Storm's cross motion on August 30, 2007. Both motions were fully briefed as of September 12, 2007.*fn8
In order to ensure that "the twin goals of arbitration, namely, settling disputes efficiently and avoiding long and expensive litigation" are met, arbitration awards are subject only to "very limited review." Folkways Music Publishers, Inc. v. Weiss, 989 F.2d 108, 111 (2d Cir. 1993). "Normally, confirmation of an arbitration award is a summary proceeding that merely makes what is already a final arbitration award a judgment of the court." D.H. Blair & Co. v. Gottdiener, 462 F.3d 95, 110 (2d Cir. 2006) (citation and internal quotation marks omitted). Only "a barely colorable justification for the outcome reached" by the arbitrators is necessary to confirm the award. Landy Michaels Realty Corp. v. Local 32B-32J, Serv. Employees Int'l Union, 954 F.2d 794, 797 (2d Cir. 1992) (citation and internal quotation marks omitted). Accordingly, "[t]he showing required to avoid summary confirmation of an arbitration award is high, and a party moving to vacate the award has the burden of proof." Willemijn Houdstermaatschappij, BV v. Standard Microsystems Corp., 103 F.3d 9, 12 (2d Cir. 1997) (citations omitted).
Telenor's application for enforcement of the arbitral award against Storm is governed by the New York Convention, which was enacted into law by Chapter 2 of the Federal Arbitration Act (the "FAA"), 9 U.S.C. §§ 201 et seq. Section 207 of the FAA provides that a party to an arbitration may apply for an order confirming an award made pursuant to the New York Convention "[w]ithin three years after [the] arbitral award . . . is made." 9 U.S.C. § 207. Section 207 further provides that "the court shall confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specific in the" Convention. Id.
The New York Convention, in turn, sets out narrowly limited bases upon which the Court may decline to recognize and enforce an award. Under Article V, a district court may refuse to confirm a foreign arbitration award upon a showing that one or more of the following enumerated grounds exist:
(a) The parties to the agreement . . . were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or
(b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or
(c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award ...