Federal District Court Opinions
STORM LLC v. TELENOR MOBILE COMMUNICATIONS AS, (S.D.N.Y.
12-15-2006) STORM LLC, Petitioner, v. TELENOR MOBILE
COMMUNICATIONS AS, Respondent, and ALTIMO HOLDINGS &
INVESTMENTS LTD. and ALPREN LTD., Relief Defendants. 06
Civ. 13157 (GEL). United States District Court, S.D. New
York. December 15, 2006
Peter Van Tol and Gonzalo S. Zeballos, Lovells Law Firm,
New York, NY, for petitioner.
Robert L. Sills, Jay K. Musoff and Peter O’Driscoll,
Orrick, Herrington & Sutcliffe LLP, New York, NY, for
respondent.
Ronald S. Rolfe, Cravath, Swaine & Moore, New York, NY,
for relief defendants.
OPINION AND ORDER
GERARD 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 Page 2
and managment of Kyivstar. To resolve the dispute, Telenor
invoked the arbitration provision of the Shareholders
Agreement. Storm duly responded to the notice, appointed
one of the three arbitrators as provided for in the
Agreement, and appeared before the arbitrators (“the
arbitrators” or “the Tribunal”), although its opening move
was to challenge the arbitrators’ jurisdiction, claiming
that the Shareholders Agreement was invalid because Storm’s
general director, who signed it, lacked authority to bind
the company. (See id. Ex. J. at 5-6.) The case is before
this Court on (1) Storm’s petition to vacate the
arbitrators’ decision on the jurisdictional issues, which
rejected Storm’s position and found the issues before them
to be arbitrable, and (2) Telenor’s cross-petition to
compel arbitration. The issue now pending before the Court
is Telenor’s motion for relief in the form of a preliminary
anti-suit injunction prohibiting Storm and its parent
companies from further litigation in Ukraine in relation to
the dispute.
The matter is of considerable urgency. Telenor’s
counter-petition was served on December 6, 2006; the
arbitrators have scheduled hearings for Monday, December
18. Having heard evidence and argument in sessions on
November 15, November 22, December 7, December 11 and
December 15, as well as having reviewed an extensive record
submitted in connection with Telenor’s motion and Storm’s
earlier motion to vacate, the Court is prepared to rule.
Telenor’s motion will be granted.
BACKGROUND
The 2004 Agreement is the product of a series of
negotiations and transactions among Telenor, Storm, and
several other companies, some of which were formerly
shareholders of Kyivstar. The details of these
transactions, which date back at least to 1998, need not be
recited in full here. It suffices to note that the
negotiations arose from the desire of Alpha Page 3
Telecommunications, a predecessor company of the “relief
defendant” Altimo Holdings & Investment Limited (“Altimo”),
to obtain a significant share of Kyivstar. Storm was the
vehicle through which the acquisition was made. 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. (See, e.g., 11/15/06 Tr. at 14:6 to 15:2.)
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 UNCITRAL rules. (12/5/06
Sills Dec. Ex. A at 30.)
Though the Agreement is nominally between Storm and
Telenor, Storm is merely a holding company with no business
other than holding the shares of Kyivstar for its ultimate
corporate parent Altimo, which owns 50.1% of Storm through
Hardlake, a Cyprus entity that is 100% owned by Altimo, and
the remaining 49.9% through Alpren Limited, which is also
100% owned by Altimo. (See 12/11/06 Sills Dec. Ex J at 2,
Ex. D at 3; 12/11/06 Tr. at 21:3-5.)
In entering the Shareholders Agreement on January 30,
2004, Storm provided documents warranting that its general
director, Valeriy Vladimirovich Nilov, who signed the
agreement on its behalf, was legally authorized to do so.
(See 12/11/06 Tr. at 59; 8/9/06 Evidentiary Brief in Opp.
to Storm Mot. to Dismiss at 16; 12/8/06 Storm Mem. in Opp.
to Mot. for Prelim. Injun. Relief at 10.) Storm now argues,
however, that Nilov had not received any such
authorization. (See id. at 17.) Although a resolution
passed by unanimous consent of Storm’s shareholders
specifically authorized the general director to enter the
Shareholders Agreement on behalf of Page 4 Storm, Storm
argues that the authorization referred only to a 2002
agreement, which was slightly but materially different from
the 2004 Agreement. (See, e.g., 12/11/06 Tr. at 83:16 to
84:16.) In testimony that is part of the record before this
Court, Telenor’s key witness acknowledged that the
differences are material (see 12/8/06 Van Tol Dec. Ex. D.
at 115:16 to 117:18); Storm, however, does not dispute
Telenor’s contention that the differences in essence
favored Storm, and were the result of concessions extracted
by Storm during a final period of negotiations. (See
12/11/06 Tr. at 82:14 to 83:15.)
After an initial honeymoon, Telenor and Storm developed
differences, 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 (1) to
attend shareholder meetings, (2) to appoint candidates for
election to the Kyivstar board, and (3) to attend board
meetings and to participate in the management of Kyivstar.
(12/5/06 Sills Dec. Ex. J at 4-5.) Telenor also claims that
Storm’s five percent ownership of a competitive company
violates the Agreement. (Id.) On February 7, 2006, Telenor
sought redress for these alleged violations by invoking the
arbitration clause.
As noted above, Storm responded to the arbitration demand
by appointing an arbitrator and participating in
proceedings before the arbitrators. Even as this process
was developing, however, legal proceedings were instituted
in Ukraine. In the Ukrainian proceedings, Alpren, the 49.9%
owner of Storm, sought a declaration of the invalidity of
the Shareholders Agreement. (See 12/5/06 Sills Dec. Ex. J.
at 8; see also 11/15/06 Tr. 9:10-18.) Telenor was not named
as a defendant in the suit, and indeed neither Telenor nor
the arbitrators were advised of its pendency. Storm did not
retain counsel or file written opposition to the action.
(See id.) Instead, its current Page 5 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.
(See 12/5/06 Sills Dec. Ex. E at 2; see also id. Ex. J. at
9-10.)
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.” (12/5/06 Sills
Dec. E. at 6.) The initial Ukrainian proceeding appears to
have lasted all of ten minutes (12/11/06 Tr. at 55:2-6),
suggesting that Klymenko’s oral opposition was somewhat
perfunctory. It resulted in a judgment declaring the
Shareholders Agreement invalid. Storm appealed the result,
again without submitting any substantial defense of its
position.[fn1] An appellate court not only affirmed the
lower court’s decision against Storm, but broadened it by
finding specifically that the Arbitration Agreement was
invalid.
The arbitrators, however, did not accept the Ukrainian
courts’ conclusions as binding on them. In a well-reasoned
decision, the arbitrators entered a “Partial Final Award”
rejecting Storm’s jurisdictional argument. (12/5/6 Sills
Dec. Ex. J.) Though reserving to later hearings the
questions regarding the validity of the Shareholders
Agreement, the arbitrators declared that whether or not
Nilov had authority to enter into the Agreement itself, he
at least had the authority to enter an arbitration
agreement. (Id. Ex. J at 13-14.) Accordingly, the Tribunal
denied Storm’s Page 6 motion to dismiss and held that it
had jurisdiction to hear Telenor’s claims.
After losing its motion to dismiss before the Tribunal,
Storm obtained a “clarification” form 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. (See 12/5/06 Tr. at 61:25 to 62:10.)
Storm then quickly filed a petition in state court to
enjoin the arbitration from continuing. 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. 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 ordered by the Ukrainian court not
to participate in the arbitration. (See 11/22/06 Tr. at
19:15 to 38:15.)
Following this decision, the Ukrainian parties returned to
court. This time, Alpren sued not Storm but Klymenko himself
as general director of Storm, and obtained in equally short
order a ruling that not only barred Klymenko from
participating in the arbitration, but that also purported
to bar Storm and Telenor from proceeding with the
arbitration — notwithstanding that Telenor had again
not been notified of the action nor named as a party to it.
(12/5/06 Sills Dec. Page 7 Ex. C; see also 12/7/06 Tr. at
23:19-24.) Telenor has still not been served in Ukraine
with any 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.
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. 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. Alpren and Altimo moved to dismiss any claims
against them for lack of in personam jurisdiction, and
Storm contested Telenor’s motion on the merits. Storm and
Telenor agreed to the admission of the evidentiary record
compiled during the arbitration proceeding with respect to
jurisdiction, supplemented by additional testimony taken
before this Court.[fn2] In a further hearing today, Alpren
and Altimo also agreed that the Court could consider all of
the evidence in the record in addressing the motion for an
injunction against them.
DISCUSSION
I. Legal Standards
The standard for issuing a preliminary injunction is well
established. To obtain a preliminary injunction, the party
seeking relief must demonstrate (1) that it will suffer
irreparable harm absent injunctive relief, and (2) either
(a) that it is likely to succeed on the merits, or (b)
Page 8 “that there are sufficiently serious questions going
to the merits to make them a fair ground for litigation,
and that the balance of hardships tips decidedly in favor
of the moving party.” Moore v. Consol. Edison Co., 409 F.3d
506, 510 (2d Cir. 2005) (citation and internal quotation
marks omitted).
A federal court may enjoin a party from pursuing litigation
in a foreign forum. China Trade and Development Corp. v.
M.V. Choong Yong, 837 F.2d 33, 35 (2d Cir. 1987). “But
principles of comity counsel that injunctions restraining
foreign litigation be `used sparingly’ and `granted only
with care and great restraint.'” Paramedics Electromedicina
Comercial, Ltda. V. GE Med. Sys. Info. Techs., Inc., 360
F.3d 645, 653 (2d Cir. 2004), quoting China Trade, 837 F.2d
at 36. Two threshold requirements must be met before an
anti-suit injunction is appropriate: (1) the parties must
be the same in both matters; and (2) resolution of the case
before the enjoining court must be dispositive of the action
to be enjoined. See Paramedics, 360 F.3d at 652-53. If
those requirements are satisfied, a court must then
consider such factors as (1) the potential frustration of a
policy in the enjoining forum; (2) the vexatiousness of the
foreign litigation; (3) a threat to the issuing court’s
jurisdiction; (4) any prejudice caused by the foreign
litigation to other equitable considerations; and (5) any
delay, inconvenience, expense, inconsistency or unseemly
race to judgment created by adjudication of the same issues
in separate actions. See Ibeto Petrochemical Indus., Ltd.
v. M/T “Beffen”, 412 F. Supp. 2d 285, 29 (S.D.N.Y. 2005);
Am. Home Assurance Corp. v. Ins. Corp. of Ireland, Ltd.,
603 F. Supp. 636, 643 (S.D.N.Y. 1984), cited with approval
in China Trade, 837 F.2d at 35-36.
II. The Standards Applied
A. Threshold Requirements Page 9
1. The same parties
At the outset, there is some question in this case as to
whether the threshold requirements are met. This is not a
typical arbitration anti-suit scenario, such as Paramedics,
in which A seeks to compel arbitration against B in one
jurisdiction while B seeks relief in the same dispute
against A in a foreign court. In that situation, the
parties will typically be the same in both proceedings,
satisfying the first threshold requirement for an anti-suit
injunction.
Here, in contrast, Telenor has demanded arbitration
against Storm in New York, pursuant to the Shareholders
Agreement. Unlike the typical anti-suit scenario, Storm did
not refuse arbitration and seek converse relief against
Telenor in the courts of Ukraine. Rather, Storm appointed
an arbitrator, and appeared before the arbitration panel.
Although the first issue presented to the arbitrators by
Storm was a challenge to their jurisdiction, Storm has
taken the position before this Court that it is ready and
willing to proceed to the merits before the arbitrators
— indeed, that it is eager for its “day in court” to
vindicate its position on the merits — but for the
fact that it has been placed in an untenable position by a
lawsuit brought not by but against it in Ukraine. Telenor
seeks to enjoin that litigation, which on its face is not a
suit involving the same parties (Telenor and Storm) who are
before the arbitrators here, but a suit between a third
party, Alpren, and Storm. Thus, Storm argues, the first
threshold requirement is not met, because the parties to
the litigation in Ukraine are not the same as the parties
here. Put another way, Storm argues that there is no basis
for enjoining it from bringing litigation in Ukraine,
because it has not brought any such litigation; rather,
litigation has been brought against it there.
Telenor argues, however, that Storm’s view of the
litigation in Ukraine is at best Page 10 formalistic, and
at worst deceptive. According to Telenor, Alpren and Storm
are mere alter egos of one another, and more importantly,
they are both alter egos of their shared corporate parent,
Altimo. And, Storm posits, even if the present record is
insufficient to demonstrate that these various companies
are alter egos of one another, the litigation between them
is nevertheless collusive; it is, in effect, a friendly
suit between Storm and its parent, in which the interests
of the parties are aligned rather than adverse. In
Telenor’s view, Storm is in effect the plaintiff, having
stimulated an action against itself in order to produce an
order that serves its interests in the New York
arbitration. And while Telenor is not formally a party to
the Ukrainian lawsuit — indeed, it was deliberately
left out of both actions in Ukraine, and given notice of
neither until a judgment was obtained — its absence
has not prevented the Ukrainian courts from entering an
injunction that purports to bind Telenor. Thus, according
to Telenor, the real parties in interest in the Ukrainian
litigation are Storm (and its parents) on one side and
Telenor on the other, the same parties as the New York
arbitration.
Paramedics itself illustrates that although the threshold
requirement is usually formulated as requiring that the
parties be “the same,” the rule is not so strict in
practice. In Paramedics, the Second Circuit held that the
fact that a different party was present in the foreign
proceedings did not defeat the “same parties” requirement,
because the purportedly distinct party was a close
affiliate of one of the parties in the New York action, and
was involved only because of its affiliation. Thus, the
Court ruled, “[t]he district court did not abuse its
discretion in ruling that the parties to the two actions
are thus sufficiently similar to satisfy the first
threshold requirement of China Trade.” 369 F.3d at 652
(emphasis added). See also Int’l Equity Invs., Inc. v.
Opportunity Equity Partners Ltd., 441 F. Supp.2d 552, 562
(S.D.N.Y. 2006) (“Where parties to Page 11 the two
actions are affiliated or substantially similar, such that
their interests are represented by one another, courts have
found the first requirement is met.”); Motorola Credit Corp.
v. Uzan, 02 Civ. 666 (JSR), 2003 WL 56998, at *2 (S.D.N.Y.
Jan. 7, 2003) (finding sufficient similarity between
parties, even though not all parties to the two actions
were identical, because “the real parties in interest are
the same in both matters”), cited in Paramedics, 369 F.3d
at 652; MasterCard Int’l, Inc. v, Argencard S.A., 01 Civ.
3027 (JGK), 2002 WL 432379, at *10 (S.D.N.Y. Mar. 20, 2002)
(finding “sufficient[] similar[ity]” between parties
despite intervention in foreign action by one party’s
controlling shareholder, which was “not a necessary party
to that action”), cited in Paramedics, 369 F.3d at 652-53.
As explained below, see Part III, the Court agrees that
Telenor will likely succeed in establishing that Storm,
Alpren and Altimo are alter egos of one another, at least
to the extent necessary to warrant the relief Telenor seeks
against them. Even if they are not, however, the parties in
the two actions are sufficiently similar to satisfy the
threshold requirement for a preliminary anti-suit
injunction. The litigation in Ukraine, while nominally
between Alpren and Storm, seeks to influence the
arbitration proceedings and has resulted in orders that are
directed at Telenor. Although Alpren is a participant in
the Ukrainian litigation, Alpren is not merely a
shareholder of Storm but is part of a family of affiliated
corporations that collectively owns the entirety of Storm.
The real parties in interest in the Ukrainian lawsuit are
essentially the same entities that are involved in the
arbitration here.
Of course, if Telenor is ultimately unable to show that
the Altimo-controlled companies are alter egos of one
another, this case would differ from Paramedics in at least
one significant respect. In Paramedics, the party to be
enjoined had sued an additional affiliate of the
plaintiff. Page 12 See Paramedics, 369 F.3d at 652. Here,
the party to be enjoined is ostensibly the defendant in
litigation brought by a third party abroad. Nevertheless,
the Court has no trouble concluding that the parties here
and in the Ukraine are “sufficiently similar” for purposes
of an antisuit injunction. The question of whether an
injunction can or should issue against a nominal defendant
in a foreign action presents a distinct and more difficult
issue, which is best deferred to a later stage of the
analysis.
2. Dispositive litigation
The second threshold question is whether the present
litigation will be dispositive of the issues being
litigated in the foreign forum. As is frequently the case
where arbitration is in issue, the litigation between Storm
and Telenor in this Court does not in itself concern the
merits of the issues that divide them, or that have been
put in issue in Ukraine. Rather, this case concerns only
the arbitrability of those issues. Nevertheless, courts
have recognized that in this situation, the district
court’s judgment disposes of the foreign action by
determining the arbitrability of the issues. See
Paramedics, 369 F.3d at 653. See also Affymax, Inc. v.
Johnson & Johnson, 420 F. Supp. 2d 876, 885 (N.D. Ill.
2006) (finding second threshold requirement met where
“resolution of the arbitration will be dispositive of the
[foreign] action”); Ibeto Petrochemical Indus., 412 F.
Supp. 2d at 292 (finding second threshold requirement met
where “resolution of [the] case (through arbitration) will
be dispositive of the [foreign] matter”).
Here, the issue pending before this Court is the
arbitrability of the very issues put before the Ukrainian
court: Storm brought this action seeking to enjoin the
arbitration, and Telenor counterpetitions to compel it. If
the present action results in a judgment for Telenor and
against Storm, then the issues before the Ukrainian courts
will be, “by virtue of [that] judgment, . . . Page 13
reserved to arbitration,” Paramedics, 369 F.3d at 653, and
the threshold requirement for an anti-suit injunction will
be met.[fn3]
One further problem arises, however. The arbitration will
finally dispose of all pending issues between Telenor and
Storm. It is separate question, however, whether it will
have any effect on the status of those issues between Storm
and Alpren, who are the parties to the Ukrainian
litigation. If the Ukrainian court had confined itself to
adjudicating matters between the parties before it, this
might be a significant obstacle to an anti-suit injunction.
Whoever was responsible for bringing the Ukrainian action,
that action is between Alpren and Storm (and Klymenko as
Storm’s agent). The relationship of those entities is not
governed by a contract with an arbitration clause, and
whatever rights might be at stake as between them are not
at issue in the arbitration, which concerns only Storm’s
obligations to Telenor.
This concern evaporates, however, once Telenor demonstrates
— as it likely will be able to do — that
Altimo, Alpren and Storm are, for purposes of the present
dispute, the same entity. See Part III, infra. In any
event, even if Telenor’s alter-ego argument does not
succeed in the end, the fact remains that the parties in
Ukraine have obtained orders purporting to bind Telenor,
and to prohibit both Telenor and Storm from going forward
with the arbitration. At least with respect to such orders,
the arbitration, and any decision in this Court regarding
arbitrability, will be dispositive. By attempting to bind
Telenor to the results of litigation between them to which
Telenor is not a party, Alpren and Storm have created the
prerequisite conditions for an anti-suit Page 14
injunction.
Accordingly, although the issue is not free from doubt
given the convoluted factual situation, the Court concludes
that Telenor is likely to succeed in demonstrating that
the prerequisite conditions for an anti-suit injunction
have been met on the facts of this case.
B. Factors Bearing on Injunctive Relief
The Court thus turns to the factors bearing on whether an
injunction should issue. As noted above, the usual factors
applied in this context are (1) the potential frustration of
a policy in the enjoining forum; (2) the vexatiousness of
the foreign litigation; (3) a threat to the issuing
court’s jurisdiction; (4) any prejudice caused by the
foreign litigation to other equitable considerations; and
(5) any delay, inconvenience, expense, inconsistency or
unseemly race to judgment created by adjudication of the
same issues in separate actions. See Ibeto Petrochemical
Indus., 412 F. Supp. 2d at 290. If Storm had directly sued
Telenor in the Ukrainian courts, balancing the factors
involved here would be relatively easy, since several of
the factors weigh heavily in favor of an injunction in this
case.
With respect to the first factor, federal policy strongly
favors the enforcement of arbitration agreements. Arciniaga
v. General Motors Corp., 460 F.3d 231, 234 (2d Cir. 2006)
(“[I]t is difficult to overstate the strong federal policy
in favor of arbitration, and it is a policy we have often
and emphatically applied.” (citation and internal quotation
marks omitted)). This policy “applies with particular force
in international disputes.” Paramedics, 369 F.3d at 654,
citing Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,
Inc. 473 U.S. 614, 638-40 (1985). To the extent that the
litigation in Ukraine threatens to disrupt the arbitration
process, it would have the effect of frustrating that
policy. And there is no doubt that that litigation has been
Page 15 designed to, and has had the effect of, interfering
in the arbitration process. The judgments issued in that
litigation have been the basis for objections to the
arbitrators’ jurisdiction, appeals to this Court to enjoin
the arbitration, and concerns on the part of Telenor that
it or even the arbitrators themselves may be subject to
penalties in Ukraine if the arbitration goes forward. This
factor thus strongly favors an injunction.
Storm argues that this factor is not significant here
because the entire Shareholders Agreement, including the
arbitration agreement, is invalid. The federal policy
favoring arbitration, Storm contends, cannot apply where
there is no agreement to arbitrate in the first place.
Telenor, however, has satisfied its burden of demonstrating
a likelihood of success on the merits on that issue, and
that is all that is required at this stage. In light of the
urgency of the preliminary injunction issue, the Court will
not discuss the matter in depth. It suffices to note that
the Court agrees in substantial part with Telenor’s
argument that Nilov, Storm’s general director, had at least
apparent authority to sign the Shareholders Agreement and
to thereby bind Storm to the Agreement’s arbitration
clause. (Telenor Mem. 6-10; 12/11/06 Tr. at 50:22 to
59:20.)[fn4] While the Court has expressed some doubt as to
whether Telenor is entitled to an order Page 16 compelling
arbitration, the reason for that doubt has nothing to do
with the validity of the arbitration clause. Rather, the
Court’s reservations regarding the motion to compel were
based on the concern that an order compelling arbitration
may not be procedurally appropriate where both parties have
already submitted to arbitration. (See 12/11/06 Tr. at 3:5
to 9:6.) Moreover, because Telenor is likely to succeed in
demonstrating that Storm, Alpren and Altimo are alter egos
of one another, the federal policy favoring arbitration
also weighs strongly in favor of issuing an antisuit
injunction against Alpren and Altimo.
Attempts to interfere with arbitration of international
disputes are so powerfully disapproved that the Second
Circuit has suggested, albeit not decided, that “an attempt
to sidestep arbitration” might be “sufficient to support a
foreign anti-suit injunction.” Paramedics, 369 F.3d at 654.
Where this factor is present, little else is required to
authorize an injunction. But here there is much else. The
foreign litigation here has been conducted in the most
vexatious way possible. Telenor has found its interests
undermined by litigation to which it has not been made a
party, and of which it has not even received notice until
after orders have been Page 17 entered. The Ukrainian
orders have been used against Telenor in court and before
the arbitrators here in New York, and have exposed it to
potential criminal liability in Ukraine. As late as this
very day, Telenor was receiving what appeared to be service
of process in yet another lawsuit, only to be advised by
Alpren’s New York attorney during oral argument that there
was no such lawsuit, and that the papers were a “mistake”
of no legal significance. If a federal court may enjoin
foreign litigation that straightforwardly seeks to
adjudicate the rights of a party to litigation, a fortiori
it should be able to enjoin litigation being conducted by a
kind of stealth attack. These facts also support a finding
that the fourth factor favors an injunction: to the extent
that the litigation in Ukraine purports to bind Telenor
without notice or opportunity to be heard, it manifestly
prejudices any equitable concern for fair play.
In addition, the foreign litigation threatens the
jurisdiction of this Court. This case is here, at Storm’s
original instance, by virtue of the pending arbitration.
Storm lost in its effort to derail that arbitration by a
preliminary injunction. The Ukrainian litigation seeks to
“sidestep” not merely the arbitration, but this Court’s
ruling. It further threatens the very existence of the
arbitration, by threatening serious sanctions against
Telenor if it proceeds with the arbitration. If Telenor
were forced to yield to that pressure, this Court’s
jurisdiction would be at an end.
Moreover, continued litigation in Ukraine raises the
distinct specter of delay, inconvenience, expense,
inconsistency and an unseemly race to judgment. Arbitration
is intended to be an expeditious and efficient means of
resolving commercial disputes. Being forced to litigate in
both American and Ukrainian courts not merely to enforce an
arbitration agreement but to defend the existence of an
arbitration already under way, has already created
extensive delays in the arbitration proceeding and added
considerable expense to the Page 18 proceedings. The risk
of inconsistent adjudications is acute, particularly
because Alpren and Storm apparently insist on conducting
their Ukrainian litigation without even notifying Telenor,
such that Telenor’s position has not even been heard.[fn5]
A proceeding in which Storm and Telenor vigorously contest
the issues is highly likely to reach different conclusions
than one in which the only participating parties share a
common interest and the same analysis of the issues.
As for an “unseemly race to judgment,” “unseemly” and
“race” do not begin to describe the situation here. After
every setback in the arbitration or in this Court, parties
associated with Storm have proceeded to the Ukrainian
courts, seeking and obtaining broad rulings without any
meaningful opposition. Telenor seeks to arbitrate the
dispute in a neutral forum; Storm and its parents seek to
coopt that process by resorting to a forum in which their
home-court advantage is magnified by their willingness to
play the game without letting the other team show up.
The factors relevant to an award of anti-suit relief thus
strongly favor Telenor. And strongly favor Telenor they
must, for as the courts have emphasized, even though “such
an injunction in terms is leveled against the party
bringing the suit, it nonetheless `effectively restricts
the jurisdiction of the court of a foreign sovereign.'”
Paramedics, 369 F.3d at 655, quoting China Trade, 837 F.2d
at 35. Considerations of comity thus always weigh against
an anti-suit injunction.[fn6] Page 19
Accordingly, to the extent that Storm can be held
responsible for the Ukrainian litigation, the issue is
clear-cut: Telenor is extremely likely to succeed in
establishing that virtually all of the factors considered
by courts in granting anti-suit injunctions favor its
cause. Nevertheless, the entry of an anti-suit injunction
against the defendant in foreign litigation is both
unconventional, and, so far as the parties’ or the Court’s
research can determine, unprecedented. The Court thus turns
to consideration of that issue.
C. May an Anti-Suit Injunction Issue Against Storm?
Telenor persistently refers to the Ukrainian litigation
between Storm and Alpren as “collusive,” and indeed this
Court too has so found it, at least to the limited degree
necessary to make preliminary findings with respect to
Storm’s request for preliminary relief. Telenor also claims
that an injunction against Storm is appropriate because
Storm is acting as the alter ego of its corporate parents
Altimo and Alpren.
Having weighed the parties’ arguments and evidence, the
Court finds that Telenor is at a minimum likely to prove
that the Ukrainian action has been brought with the
collusion of Storm. First, the position that Alpren seeks
to vindicate in the Ukrainian courts is exactly the
position that Storm has asserted before the arbitrators and
in this Court, namely, that the arbitration agreement is
invalid because it is part of a Shareholders Agreement that
the then general director of Storm was not authorized to
sign. Although Storm argues that Klymenko formally opposed
the relief sought by Alpren, it does not contend that
Klymenko or Storm objected on the merits Page 20 to the
legal position taken by Alpren. Rather, it argues that
Storm urged the Ukrainian court to defer to the on-going
arbitration. (See, e.g., 12/5/06 Sills Dec. Ex. E at 3.)
Given that Storm has taken the exact opposite position here
and has actively supported in this litigation the position
taken by its supposed adversary abroad, it is reasonable to
infer that its true position in the Ukrainian is identical
to Alpren’s.[fn7]
Indeed, Storm has explicitly conceded before this Court
that it wishes the Ukrainian action to continue precisely
because it hopes and expects that the Ukrainian courts will
rule against Storm. In its most recent memorandum to the
Court, Storm argues that this “Court should allow the
Ukrainian action to continue” because that action “will
lend further support to Storm’s claim in the arbitration
that the Shareholders Agreement is null and void in its
entirety under Ukrainian law.” (Storm Mem. in Opposition to
Telenor Mot. for Prelim. Injunc. Relief at 27.) In view of
this blatant acknowledgment that Storm’s opposition to
Telenor’s request for an antisuit injunction is rooted in a
desire to protect the ruling in favor of Alpren, Storm’s
claim that it has opposed Alpren’s lawsuit is simply
implausible.
Klymenko, moreover, neither retained counsel nor submitted
written legal or factual arguments in the Ukrainian court.
Storm offers expert testimony that, contrary to federal
practice here, it is both permissible and not uncommon in
Ukraine for corporations to appear in court pro se through
their chief executive officer, and that oral presentation
of arguments and evidence is also common practice. But the
point is not whether such practices are permissible or even
whether they are common. The issue is whether a party that
seriously opposed an action Page 21 would proceed in that
manner. There can be little doubt, for example, that if
such an action had been brought against Telenor, it would
have retained counsel and sought a sufficient adjournment
to make a substantive, serious presentation to the Court.
Storm, however, presented its defense in the most
perfunctory manner, and did not even bother to notify
Telenor of the proceedings. Alpren, in contrast, was
represented by counsel throughout the proceedings. Indeed,
it appears that it was represented by a law firm that had
previously represented Storm.
Alpren relies heavily on the affidavit of Klymenko, who
claims to have presented a defense in the Ukrainian
actions. Klymenko, however, has never been present in this
Court or in the arbitration to be cross-examined, and his
affidavit — which Storm submitted to the arbitrators
— relates only to the first stage of the first
litigation. His affidavit does not address how Storm
managed, by seeking a “clarification” of the “adverse”
judgment in the first case, to succeed only in broadening
the order in such a way as to better conform to the
position it was taking in the United States, and it does
not speak to the action later brought against Klymenko
personally.
It is worth emphasizing that Klymenko is not merely the
general director of Storm, but also an executive of Altimo
(12/11/06 Tr. at 22:19-23, 47:9-15; 12/11/06 Sills Dec. Ex.
A), and there is evidence that as an Altimo executive, he
has responsibility for, among other things, litigation.
(See 12/5/06 Sills Dec. Ex. E at 6.) There is also evidence
in the record that in his dealings with Telenor, Klymenko
held himself out indiscriminately as representing either
company, and that there was no real distinction between his
duties as an Altimo executive and his duties as director of
Storm. (See, e.g., 12/11/06 Tr. at 47:9 to 48:18; 12/5/06
Sills Dec. Ex. E. at 6.) It is difficult to believe that
Alpren undertook to sue Storm without the knowledge Page
22 either of Storm or of the litigation manager of Altimo.
Finally, all of the facts described above must be
considered in light of the corporate structure of the
supposedly adverse parties. As noted above, Storm is 50.1%
owned by Altimo through one intermediary, and Alpren, which
owns the other 49.9% of Storm, is 100% owned by Altimo.
Neither Storm nor Alpren conduct any real business
activities; Alpren exists to hold Altimo’s shares in Storm,
and Storm’s sole activity is its possession of the shares
in Kyivstar. Storm’s general director, Klymenko, is an
executive of Altimo, and Klymenko’s own description of his
responsibilities suggests no meaningful distinction between
his activities for Storm and his activities for Altimo.
(12/5/06 Sills Dec. Ex. E at 2, 6.)
Weighing all these matters, the Court is persuaded that
Telenor is likely to succeed in establishing, at a minimum,
that the litigation in Ukraine has been collusive, and not
truly adversarial. The Ukrainian litigation was brought in
Storm’s as well as Alpren’s interests, sought relief that
Storm had every reason to desire, and was not meaningfully
resisted by Storm or its general director. Storm has
effectively conceded before this Court that it wants to
preserve the Ukrainian judgment “against” it. Accordingly,
it is a fair inference, and one that on this limited record
the Court finds more likely true than not, that Storm
colluded in the bringing of this litigation against itself.
It can therefore be enjoined from continuing with such
actions.
D. Futility
A court of equity will not undertake futile acts. See
Foster v. Mansfield, C. & L. M. R. Co., 146 U.S. 88, 101-02
(1892); Spectacular Venture, L.P. v. World Star Int’l,
Inc., 927 F.Supp. 683, 686 (S.D.N.Y. 1996). In arguing that
the actions here will not be dispositive, Storm contends
that whatever this Court or the arbitrators do, “[t]he
Ukrainian courts have already Page 23 determined several
times that the Shareholders Agreement violates Ukrainian
law [and] [n]othing that the arbitral tribunal determines
is going to change that.” (12/8/06 Storm Mem. in Opp. to
Mot. for Prelim. Injun. Relief at 27.)
It may well be questioned whether Telenor in the end can
secure any benefit from an arbitration award in its favor,
even if such an award is confirmed and embodied in a
judgment of this Court. But it cannot simply be assumed
that this Court’s judgments will be disregarded by foreign
courts. The “determin[ations]” of the Ukrainian courts to
which Storm refers were reached in apparently
non-adversarial proceedings between friendly parties with
no incentive to raise serious issues about the correctness
of their joint position. Such determinations may not be
adhered to in genuine judicial proceedings. Moreover, the
record in this case contains no information about what
assets Storm may have outside Ukraine that could be reached
by either a judgment on the merits or a contempt
adjudication. The views of the Ukrainian courts may not be
shared by those of other countries.
E. Irreparable Injury
The Court need not dwell on the issue of irreparable
injury, for there is no question that the action to be
enjoined places Telenor under threat of imminent and
irreparable harm. To the extent the Ukrainian litigation
interferes with the arbitration, Storm will be able to
prolong its boycott of Kyivstar meetings, thereby making it
impossible for that company — in which Telenor has a
majority stake — to function. (See 11/22/06 Tr. at
36:24 to 37:4.) More importantly, however, the Ukrainian
proceedings place Telenor under threat of criminal
sanctions if it proceeds with the arbitration. Not only
does Storm concede that this possibility exists, but it has
exploited the possibility in its attempt to derail the
arbitration. (12/5/06 Sills Page 24 Dec. Ex. B.)
III. Altimo and Alpren
Telenor seeks a preliminary anti-suit injunction not only
against Storm, but also against Altimo and Alpren. Those
corporations have entered a limited appearance to contest
the in personam jurisdiction of the Court.
Altimo and Alpren argue that neither of them transacts any
business within New York. This claim is something of a red
herring, however. It is undisputed that neither Altimo nor
Alpren — nor Storm, for that matter — has any
ordinary business in New York or would be subject to
general jurisdiction here.
The Arbitration Agreement, however, expressly provides for
arbitration in New York, and in that same agreement Storm
expressly consents to the jurisdiction of this Court.
Counsel for Altimo and Alpren conceded at a December 15
hearing before this Court that if they were found to be
alter egos of Storm, the Court could properly exercise
personal jurisdiction over them on a theory of consent.
The question, therefore, is whether Telenor has succeeded
in demonstrating, for personal jurisdiction purposes, that
Altimo, Alpren and Storm are alter egos of one another. To
determine whether a company is an alter ego of another
company (or a “mere department” of another company), the
Court must evaluate four factors: “(1) common ownership,
which is essential; (2) financial dependency of the
subsidiary on the parent; (3) the degree to which the
parent interferes in the selection and assignment of the
subsidiary’s personnel and fails to observe corporate
formalities; and (4) the degree of control that the parent
exercises over the subsidiary’s marketing and operational
policies.” Sodepac, S.A. v. Choyang Park in rem, 02 Civ.
3927 Page 25 (SAS), 2002 WL 31296341, at *4 (S.D.N.Y. Oct.
10, 2002).[fn8]
These factors clearly weigh in favor of Telenor’s motion
here. The common ownership of Alpren and Storm by Altimo is
undisputed. Alpren and Storm, moreover, are essentially
shell companies that exist solely for the purpose of
holding shares for Altimo — Alpren holds shares in
Storm, and Storm holds shares in Kyivstar. The Court is
unaware of any evidence in the voluminous record that these
shell companies are financially independent, or that they
have more than a few employees. Indeed, Alpren and Altimo’s
counsel conceded at the December 15 hearing that he knew of
no evidence in the record that Storm had employees other
than its general director. In a submission to the
arbitration panel, Storm conceded that it had no board of
directors and that its senior management consisted only of
Klymenko. (12/15/06 Sills Letter Ex. A.) There is also
evidence in the record that Altimo has the right to select
Storm’s general director. (See, e.g., Telenor Evidentiary
Brief Ex. P.) To the extent Storm and Alpren have any
employees, there is evidence that they share the employees
of Altimo. Klymenko, for example, is both an Altimo
executive and the general director of Storm. Alpren,
moreover, is a Cypriot company that is 100% owned by
Altimo, whose directors are provided by another Cypriot
company, Abacus, that exists merely to provide corporate
services to some 700 clients. Alpren has no known employees
other than those provided by Abacus. It passes credulity
that these Cypriot officials independently decided to bring
this action, without consultation with Abacus’s client
Altimo. Indeed, it is apparent that they made no such
decision; the lawsuit was filed by Page 26 Ukrainian
counsel for Altimo, who acted pursuant to a general power
of attorney by Alpren’s Cypriot directors. Finally, the
question of whether Storm controls Alpren and Storm’s
“marketing and operational policies” is answered by the
fact that Alpren and Storm likely do not engage in any
marketing; nor do they have significant “operations” other
than their possession of shares.
The same alter-ego theory that provides for jurisdiction
over Altimo and Alpren also leads the Court to conclude
that Telenor is likely to succeed in establishing that
Altimo and Alpren are bound by the Arbitration Agreement.
Thus, the policy favoring arbitration applies to them as
well, and they are appropriately subject to an antisuit
injunction.
It is undisputed that Altimo played a significant role in
the negotiations leading to the Arbitration Agreement.
Alpren and Altimo make much of the fact that at time the
Agreement was negotiated, Storm was not a mere shell
company and was not wholly owned by Altimo or its
subsidiaries. Telenor responds, however, that at that time,
the negotiating parties had already determined that Storm
would become what it is now — a shell company
existing solely for the purpose of holding shares. The
Court finds that Telenor is likely to succeed in proving
that that was the case.
There is no real dispute that Altimo negotiated the entire
transaction that gives rise to this dispute, agreed to the
arbitration clause demanded by Telenor as part of that
bargain, negotiated the Shareholders Agreement by which its
vehicle Storm would operate in voting the shares it held
for Altimo, and provided Telenor with assurances that the
general director of Storm — Altimo’s own employee
— was properly authorized to sign the Shareholders
Agreement, including the Arbitration Agreement. Altimo now
seeks to frsutate the Arbitration Agreement Page 27 by
litigating the same issues in the very Ukrainian courts the
parties agreed to bypass in favor of arbitration. It cannot
be permitted to do this.
In sum, because Telenor has made a sufficient showing that
Altimo, Alpren and Storm are mere alter egos of one another,
they are subject to this Court’s jurisdiction and, more
importantly, to the Court’s order granting a preliminary
antisuit injunction.
CONCLUSION
For the foregoing reasons, the motion for a preliminary
anti-suit injunction is granted. Storm, Altimo and Alpren
are enjoined 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.[fn9]
SO ORDERED.
[fn1] Telenor argues that Storm appealed because an “appeal
gives a special enforceable status, at least as a formal
matter of Ukrainian law, to the judgment.” (12/11/06 Tr. at
61:7-9.)
[fn2] After the December 11 evidentiary hearing, Telenor
received documents from an attorney for Alpren that on
their face would appear to be a complaint in yet another
suit in the Ukraine, this time naming Telenor itself as a
defendant, attacking the validity of the Shareholders
Agreement, as well as the arbitration. At a conference held
on December 15, 2006, counsel for Alpren represented to the
Court that the documents had been sent in error, and that
no further litigation had in fact been filed.
[fn3] At this time, of course, the case has not progressed
to a final judgment, and the question is not whether a
final injunction should issue, but whether preliminary
relief should be granted. The point, however, is that this
is the kind of action that satisfies the threshold
requirement for an anti-suit injunction, because it will be
dispositive of the issues raised in the foreign litigation
if those issues are found arbitrable.
[fn4] This is not to say that the Court necessarily accepts
Telenor’s argument on the choice-of-law question. Telenor
argues that New York law applies to the question of whether
Storm agreed to arbitrate, whereas Storm argues that
Ukrainian law applies to that issue. Both parties have
acknowledged, however, that this case falls under the New
York Convention. (11/15/06 Tr. 3:1 to 4:20.) The weight of
the authority suggests that in such cases, federal law
governs the issue of whether the parties have agreed to
arbitrate. See Smith/Enron Cogeneration Ltd. P’ship v.
Smith Cogeneration Int’l, Inc., 198 F.3d 88, 96 (2d Cir.
1999) (explaining that with respect to questions regarding
the making of an agreement to arbitrate in a case falling
under the Convention, “compelling reasons [exist] to apply
federal law . . . to the question of whether an agreement
to arbitrate is enforceable.”); Genesco, Inc. v. T.
Kakiuchi & Co., 815 F.2d 840, 845 (2d Cir. 1987) (“In
enacting the federal Arbitration Act, Congress created
national substantive law governing questions of the
validity and the enforceability of arbitration agreements
under its coverage. Hence whether Genesco is bound by the
arbitration clause of the sales confirmation forms is
determined under federal law, which comprises generally
accepted principles of contract law.” (citations omitted));
Stony Brook Marine Transp. Corp. v. Wilton, 94 Civ. 5880
(JS), 1996 WL 913180, at *3 (E.D.N.Y. May 1, 1996) (“[T]he
vast majority of the cases in this Circuit hold that under
the Federal Arbitration Act, federal law applies to
contract formation issues when the question of an agreement
to arbitrate is at issue.”); 21 Williston on Contracts
§ 57:56 (4th ed. 2006) (noting that under the
Convention, “[g]eneral federal law, rather than the state
law of the forum and its conflict of laws rules, governs
the question whether an agreement to arbitrate was made”);
see also Republic of Ecuador v. ChevronTexaco Corp., 376
F.Supp.2d 334, 352-56 (S.D.N.Y. 2005) (analyzing, and
attempting to reconcile, inconsistencies in Second Circuit
case law on this issue).
However, even if federal law, as opposed to New York or
Ukrainian law, applies, this does not undermine the
substance of Telenor’s argument, because federal law and
New York State law are consistent with respect to apparent
authority in agency relationships. See 36 Convent Ave. HDFC
v. Fishman, 03 Civ. 3998 (JGK), 2004 WL 1048213, at *3
(S.D.N.Y. May 7, 2004).
[fn5] Storm’s blithe suggestion that Telenor could intervene
on appeal after judgment has already been reached against
it is hardly an adequate opportunity to be heard.
[fn6] Telenor contends that comity is a lesser concern here
because the courts of Ukraine are entitled to less
deference than might otherwise be the case. Telenor relies
on reports from the State Department, which has found that
the Ukrainian judiciary suffers from “corruption and
inefficiency.” See United States Department of State,
Country Report on Human Rights Practices in the Ukraine
(2006), available at
http://www.state.gov/g/drl/rls/hrrpt/2005/61682.htm. This
Court rejects the view that it can simply dismiss the usual
comity due to a foreign sovereign on the basis of such
criticism. However, it must be noted that the departure
from due process involved in entering orders against
absent, unserved parties without prior notice lessens the
degree of comity due, not to the Ukrainian courts at large,
but to the particular orders at issue in this case.
[fn7] At the December 11, 2006, hearing, Storm acknowledged
that the argument it presented to the Ukrainian courts was
the “same argument” that it opposes here. (12/11/06 Tr. at
73:5-8.)
[fn8] Establishing the exercise of personal jurisdiction
over an alleged alter ego requires application of a less
stringent standard than that necessary to pierce the
corporate veil for purposes of liability. See Marine
Midland Bank, N.A. v. Miller, 664 F.2d 899, 904 (2d Cir.
1981); Quebecor World (USA), Inc. v. Harsha Assocs.,
L.L.C., ___ F.Supp.2d ___, 06 Civ. 6002, 2006 WL 2918797,
at *7 (W.D.N.Y. Oct. 11, 2006).
[fn9] Telenor also moves for an injunction directing Storm
and its corporate parents to take steps to withdraw the
Ukrainian litigation. Telenor does not ask for a
preliminary injunction of this sort, however. The Court
expresses no view at this time as to whether such an order
would be appropriate.