New York court rejects suit against America Movil

Reuters News
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Posted: Jun 09, 2011 6:59 PM
New York court rejects suit against America Movil

NEW YORK (Reuters) - Former shareholders of an Ecuadorean cellular-telephone company are contractually barred from bringing a $900 million suit against Mexican telecommunications company America Movil SAB, New York state's top court ruled on Tuesday.

In a unanimous decision, the Court of Appeals held the former shareholders -- Centro Empresarial Cempresa S.A. and Conecel Holding Ltd -- were barred from bringing fraud and breach-of-contract claims by a general release they entered into in 2003, when they sold their remaining shares in Telmex Wireless Ecuador LLC for about $64 million dollars.

"Having executed this release, plaintiffs cannot now claim that defendants fraudulently misled them regarding the value of their ownership interests in TWE unless the release was itself induced by a separate fraud," Judge Carmen Ciparick wrote for the court.

In 1999, the plaintiffs, shareholders in Consorcio Ecuatoriano de Telecomunicaciones S.A. Conecel, a struggling Ecuadorean telecom company, approached billionaire Carlos Slim Helu about investing in Conecel. The following year, Slim's company, Telmex Mexico, pumped $150 million into Conecel and became its majority stakeholder. The plaintiffs retained a minority interest. Following the transaction, all the parties held their interests in Conecel through a new company, Telmex Wireless Ecuador LLC.

In 2000, America Movil was spun off from Telmex Mexico, which plaintiffs say triggered their right to negotiate an exchange of their shares in Telmex Wireless Ecuador for shares of Movil. The plaintiffs claim they repeatedly asked Movil for financial information about Conecel and Telmex Wireless Ecuador, but never received the information. They also say Movil misrepresented the value of Conecel. Allegedly left with "no practical alternative," plaintiffs sold their shares to a subsidiary of Movil at a preset price, according to the suit.

As part of this transaction, the plaintiffs agreed not assert claims against Movil and its CEO -- as well as Slim, Conecel, Telmex Mexico and their subsidiaries -- arising from the sale and ownership of the shares.

"EYES OPEN"

In 2008, the plaintiffs filed suit accusing Movil and the defendants of fraudulently inducing them to sell their Telmex Wireless Ecuador shares. They claimed that, if they had exchanged rather than sold the Telmex shares, they would have had more than $900 million in Movil stock.

Last year, a divided panel in a lower appellate court held the plaintiffs' suit was "barred by the general release they granted defendants in connection with the sale of their interest."

The Court of Appeals agreed.

"Here, according to the facts alleged in the complaint, plaintiffs knew that defendants had not supplied them with the financial information necessary to properly value the TWE units, and that they were entitled to that information. Yet they chose to cash out their interests and release defendants from fraud claims without demanding either access to the information or assurances as to its accuracy in the form of representations and warranties," Ciparick wrote.

Steven Selsberg of Mayer Brown, who represented the defendants, said his clients denied the plaintiffs had any right to exchange shares in the first place.

"The court absolutely got the right result. It was a business deal that everyone went into with their eyes open," he said.

Kathleen Kundar of Fox Horan & Camerini, who represented the plaintiffs, declined to comment.

The Appellate Case is Centro Empresarial Cempresa S.A. v. America Movil, Court of Appeals, No. 93.

(Reporting by Noeleen Walder; editing by Jesse Wegman and Andre Grenon)