Telecom Bus. Sols., LLC v. Terra Towers Corp., No. 22-cv-1761 (S.D.N.Y. Jan. 18, 2023)
In 2015, Telecom Business Solutions, LLC, LATAM Towers, LLC and AMLQ Holdings (Cay) Ltd. (collectively, “Petitioners”) entered into a shareholders agreement (the “SHA”) with Terra Towers Corp. and TBS Management (collectively, “Terra”) to co-own and operate Continental Towers LATAM Holdings, Ltd. (the “Company”).
Pursuant to the agreement, the Company developed and operated telecommunication towers in Central and South America. Relevant here, Terra held 55 percent of the Company, and Petitioners held 45 percent, but the agreement provided that Petitioners could unilaterally initiate a sale of the Company five years after the effective date of the agreement.
Based on that provision, Petitioners attempted to initiate a sale of the Company after the five-year mark, but Terra obstructed the sale. Following a deterioration of the parties’ relationship, Petitioners commenced an arbitration proceeding against Terra and its affiliate, DT Holdings, Inc. (collectively, “Respondents”), asserting that Respondents had breached the agreement and seeking damages or specific performance.
The Arbitral Tribunal Decision
During the first phase of the arbitration, the panel unanimously determined that Petitioners’ sale of the Company was proper and ordered specific performance even though no discovery had been conducted into the Respondents’ counterclaims. Thereafter, upon learning that Respondents sought to remove the Company’s management team without board approval, the panel granted Petitioners interim relief via injunction on two occasions.
Respondents also sought to disqualify their own appointed arbitrator after she joined a new law firm that represented Goldman Sachs (the parent company of Petitioner AMLQ Holdings (Cay) Ltd.), on a variety of non-related matters. Respondents also later challenged the panel’s chairman due to his distant relative’s connection to Goldman Sachs. The arbitral institution rejected both challenges.
The District Court Decision
Before the Southern District of New York, the Respondents sought to vacate the order of specific performance. Respondents claimed that they had been denied a fair opportunity to be heard, that the panel had acted in manifest disregard of the law in granting specific performance, and that there was evident partiality of two of the three arbitrators in favor of Petitioners.
The court first addressed Respondents’ claim that the panel’s denial of discovery in the first phase was fundamentally unfair. Unpersuaded by Respondents’ position, the court explained that the panel had broad discretion under the AAA Commercial Rules, which governed the arbitration, to deny discovery and bifurcate proceedings as appropriate.
The court next found that there was no merit to Respondents’ claim that the panel’s grant of specific performance was in manifest disregard of the law. To prevail on this argument, a party must establish that there is a well-defined, explicit and clearly applicable law, that the arbitrators actually knew of that law, and they nevertheless improperly applied it. Respondents had not done so here. The panel found that the SHA provided for specific performance, that the AAA Commercial Rules permitted the panel to grant it, and that, even if New York law governed specific performance, Petitioners had satisfied the elements for specific performance under New York law.
Turning to the Respondents’ claims of lack of impartiality, the court remarked that evident partiality may be found “only when a reasonable person, considering all the circumstances, would have to conclude that an arbitrator was partial to one side.” While evidence of actual bias is not required, partiality may not be based on speculation, but may be inferred from objective facts inconsistent with impartiality. Here, Respondents failed to provide any evidence of actual bias or objective facts inconsistent with impartiality.
Finally, the court declined to vacate the interlocutory orders, reasoning that, not only do district courts lack authority to review non-final rulings by arbitration panels, but the orders adhered to the requirement of fundamental fairness, such that vacatur would be improper.
For these reasons, the court granted Petitioners’ petition to confirm the arbitral award granting specific performance, and denied Respondents’ motions to vacate that award and the interlocutory orders.
This Article was originally published in the North America Newsletter.