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Centro Empresarial Cempresa S.A., et al v. America Movil

June 7, 2011

CENTRO EMPRESARIAL CEMPRESA S.A., ET AL., APPELLANTS,
v.
AMERICA MOVIL, S.A.B. DE C.V., ET AL., RESPONDENTS.



The opinion of the court was delivered by: Ciparick, J.:

This opinion is uncorrected and subject to revision before publication in the New York Reports.

Plaintiffs claim they were fraudulently induced to sell their ownership interests in a company they co-owned with one of the defendants, and to release defendants from claims arising out of that ownership. We affirm the Appellate Division's determination that this action is barred by the release.

Plaintiffs Centro Empresarial Cempresa S.A. (Centro) and Conecel Holding Limited (CHL) allege they once owned substantial shares of an Ecuadorian telecommunications company, defendant Consorcio Ecuatoriano de Telecomunicaciones S.A. Conecel (Conecel). The complaint alleges that, in 1999, they approached defendant Carlos Slim Hele (Slim), the "moving force behind" defendant Telefonos de Mexico, S.A. de C.V. (Telmex Mexico), which owned defendant AMX Ecuador LLC, then known as Telmex Wireless LLC (Telmex), about the possibility of Telmex investing in Conecel.

Through a "Master Agreement" executed in March 2000, Telmex obtained a 60% indirect interest in Conecel, while plaintiffs each retained a minority interest, all held through a new entity, defendant Telmex Wireless Ecuador LLC (TWE). In exchange for its interest, Telmex contributed $150 million to TWE and paid CHL $35 million to cancel Conecel debts. The parties simultaneously entered into various other agreements. Under the "LLC Agreement," the members of TWE agreed that Telmex would manage accounting, tax, and record-keeping for TWE, and that TWE would provide quarterly financial statements to all its members. In the "Agreement Among Members," the members of TWE agreed that if Telmex ever consolidated -- or "rolled up" -- its Latin American telecommunications interests into a single entity "for purposes of selling the equity securities of such entity in international capital markets" at a time when plaintiffs owned 5% or more of TWE, plaintiffs could "negotiate in good faith (for a period not to exceed 20 days)" to exchange their TWE units for equity shares in the new company "at a mutually satisfactory rate of exchange." The Agreement also stated that, prior to any roll-up, Telmex and TWE would provide "financial, accounting and legal information with respect to Conecel and [TWE] as may reasonably be requested." A fourth agreement, the "Put Agreement," gave plaintiffs the right to require Telmex to purchase plaintiffs' TWE units at a set "floor price" during three separate 180-day periods between March 2002 and March 2006. Plaintiffs could exercise these put options for up to 50 percent of their units during the 2002 period; up to 75 percent during the 2004 period; and up to 95 percent during the 2006 period.

In September 2000, Telmex Mexico formed defendant America Mavil, S.A.B. de C.V. (America Mavil), which became the holding company for several entities, including TWE. Plaintiffs allege that, under the Agreement Among Members, this triggered their right to negotiate an exchange of their TWE units for shares in America Mavil. They allege that in March 2001 they asked defendant Daniel Hajj Aboumrad (Hajj), Slim's son-in-law and CEO of America Mavil, for financial information about Conecel and TWE for use in the contemplated negotiations. Plaintiffs assert that they never received the information, despite repeated requests. They also allege that throughout 2001 Hajj falsely represented that Conecel was financially weak and had not generated any profits to distribute to TWE.

At this point, the complaint states, plaintiffs were, "wary of the threat that Defendants would never negotiate in good faith and would never distribute the Conecel profits . . . as agreed." Thus left with "no practical alternative," plaintiffs exercised the first put option in March 2002 and sold Telmex 50 percent of their TWE units, the maximum number allowed in the first 180-day period, for which the put agreement entitled them to over $66 million. Over the next year, plaintiffs allege that they repeatedly attempted to open exchange negotiations, but defendants refused to negotiate. In 2003, defendants provided Conecel's balance sheet, which indicated that the company was not doing well, and made further representations to that effect.

In 2003, Telmex offered to purchase plaintiffs' remaining units at the floor price, and plaintiffs -- allegedly relying on the false financial information -- agreed, entitling them to additional substantial consideration. In July 2003, plaintiffs entered a Purchase Agreement with America Mavil, AM Wireless, LLC (formerly Telmex), and Wireless Equador, LLC (formerly TWE). The parties executed various releases in connection with the sale. In the "Release for Agreement Among Members" ("Members Release"), the sellers released Telmex and its affiliates, shareholders, and agents 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, whatsoever, in law or equity, 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]."

A second release, the "Release for Master Agreement" ("Master Release"), employed nearly identical language, but added a proviso. It released the Telmex-related parties from claims,

"relating to (A) the ownership by the Telmex Released Parties of the [TWE] Units, or (B) any matter arising under or in connection with the Master Agreement, or any other document, agreement, instrument related thereto or executed in connection therewith . . . provided that the foregoing release shall not release any claims involving fraud."

In June 2008, plaintiffs commenced this action against Telmex Mexico and several of its affiliates: America Mavil, AMX Ecuador (formerly Telmex), Wireless Ecuador LLC (formerly TWE), Conecel, Slim, and Hajj. The complaint asserts 12 causes of action for, among other things, breach of contract, breach of fiduciary duty, fraud, and unjust enrichment. The crux of plaintiffs' claim is that defendants failed to provide them with accurate tax and financial statements for Conecel and were unwilling to negotiate in good faith for a share exchange. Plaintiffs allege that they only discovered that defendants supplied them with fraudulent information in 2008, after the Ecuadorean government audited Conecel and released the results. They seek a minimum of $900,000,000 in damages -- the amount they claim they would have made if a good faith share exchange had been accomplished under the terms of the Members Agreement --plus interest.

Defendants moved to dismiss the complaint on several grounds, including that a defense is founded on documentary evidence (see CPLR 3211 [a] [1]) and the action is barred by a release (see CPLR 3211 [a] [5]). Supreme Court, ruling from the bench, denied the motion.

The Appellate Division reversed and granted the motion to dismiss, holding that plaintiffs' claims, "are barred by the general release they granted defendants in connection with the sale of their interest" (Centro v America Mavil, 76 AD3d 310, 311 [1st Dept 2010]). After finding that the release "includes any claim possibly to be discovered in the future that defendants had misrepresented the value of Conecel" (id. at 317), the court concluded that the release was not fraudulently induced, since plaintiffs failed to allege any fraud "separate and distinct" from that contemplated by the release (id. at 317-318). That Telmex, as the majority shareholder, owed plaintiffs a fiduciary duty did not alter the court's analysis. Further, the court noted, plaintiffs were allegedly aware that they lacked a full picture of Conecel's internal finances and that the relationship between the parties had become adversarial, yet they failed to condition the release on the truth of the information supplied by defendants, obtain representations or warranties to that effect, or insist on viewing additional information.

Two justices dissented on the ground that the release was fraudulently induced, since plaintiffs did not realize the depths of the alleged fraud and a fiduciary cannot be released from liability unless it has fully disclosed its tortious conduct (see id. at 329 [Catterson, J., dissenting]). The dissent emphasized that the complaint does not allege that plaintiffs had knowledge of defendants' fraud, and plaintiffs were "reasonably justified in their expectations that the defendants," as fiduciaries, "would disclose any information in their possession that might affect plaintiffs' decision on their best course of action" (id. at 330). ...


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