Mayer Brown won a significant victory for international mobile carrier América Móvil, Carlos Slim, and affiliated companies when the New York Court of Appeals rejected a $900 million lawsuit by the sellers of an Ecuadorian mobile carrier.  In Empresarial Cempresa S.A. v. América Movíl, S.A.B. de C.V., New York’s highest court unanimously held that a 2003 release barred the lawsuit, an important precedent enabling sophisticated parties to grant mutual repose when terminating fiduciary relationships.

The plaintiffs sued América Móvil, its subsidiaries, Slim, and another director in New York state court in 2008, claiming that the defendants supplied them with false financial information regarding the value of their shares as they bought them out early in the last decade. Based on that false information, the plaintiffs claimed, they sold their shares to América Móvil and released the defendants from any liabilities in connection with the share sales. The allegations included breach of contract, fraud, fraudulent inducement, unjust enrichment, and a claim for accounting.  But the New York Court of Appeals did not buy those arguments.

“As sophisticated entities, [the plaintiffs] negotiated and executed an extraordinarily broad release with their eyes wide open," wrote Judge Carmen Beauchamp Ciparick in the 14-page opinion. “They cannot now invalidate that release by claiming ignorance of the depth of their fiduciary's misconduct.”

Added Mayer Brown partner Steve Selsberg, who led the trial team for the defendants: "The court absolutely got the right result. It was a business deal that everyone knew what they were getting into.”

The plaintiffs were two companies controlled by Simon Parra that had been majority owners of Porta, then known as Conecel.  In early 2000, the Parra companies sold a majority interest in Conecel to Telmex for about $185 million, and received a minority interest in a new company that was created to own Conecel.  Later in 2000, Telmex founded América Móvil as a holding company for mobile carriers and other Telmex interests in the United States, Mexico, and South America, including Telmex’s majority interest in Conecel.

The Parra companies alleged that, after América Movíl filed for its initial public offering, they asked the defendants to give them shares in the public company in exchange for their minority interest in the Ecuadorian carrier, claiming that the acquisition contract entitled them to the share exchange.  When those negotiations failed, the plaintiffs ultimately sold their remaining shares to Telmex for a total of $128 million.  With the last payment in 2003, the Parra companies released the defendants from “all manner of actions” relating to their joint ownership of the Ecuadorian carrier.

Five years later, after América Móvil stock appreciated dramatically, the Parra companies sued, claiming that they had been defrauded into selling their shares in 2003 for cash rather than shares of América Movíl.  The suit sought the increased value of the América Móvil shares—approximately $900 million—and punitive damages.

The trial court, based on plaintiffs’ allegations, refused to dismiss the case as barred by the 2003 releases.  The intermediate appellate court reversed that ruling, enforced the release, and dismissed the complaint.

But in this ruling, New York’s highest court unanimously held that the 2003 release barred the Parra companies’ lawsuit.

“Holding the Parra companies to the deal they struck, the decision clarifies and settles several important questions of New York commercial law,” Mr. Selsberg added. “ The case will serve as an important precedent in future cases involving sophisticated parties who execute mutual releases when terminating fiduciary relationships like those between majority and minority owners of a venture.”

In addition to Mr. Selsberg, Mayer Brown partner Don Falk played a key role as he argued the case before the New York Court of Appeals.  Other team members included partners Tim Bishop and Joshua Yount as well as  senior counsel Philip Lacovara.

The case is Centro Empresarial Cempresa S.A. v. América Movíl, S.A.B. de C.V., No. 2011-93 (N.Y. June 7, 2011).

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