Case Title: Centro Empresarial Cempresa S.A. v. America Movil, S.A.B. de C.V.

Citation: 

Docket Number: 

State: new-york

Court: New York Appellate Court

Date: 2011-06-07T00:00:00Z

Document:
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This opinion is uncorrected and subject to revision before
publication in the New York Reports.
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No. 93  
Centro Empresarial Cempresa S.A., 
et al.,
            Appellants,
        v.
America Movil, S.A.B. de C.V., et 
al., 
            Respondents.
Kathleen M. Kundar, for appellants.
Donald M. Falk, for respondents.
CIPARICK, J.:
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.
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No. 93
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 Helú (Slim), the "moving force
behind" defendant Teléfonos de México, S.A. de C.V. (Telmex
México), 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%
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No. 93
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
América Móvil, S.A.B. de C.V. (América Móvil), 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 América Móvil.  They allege that in March 2001 they
asked defendant Daniel Hajj Aboumrad (Hajj), Slim's son-in-law
and CEO of América Móvil, 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
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No. 93
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 América Móvil, 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,
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No. 93
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: América Móvil, 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
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No. 93
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 América Móvil, 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
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No. 93
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).  Moreover, in the dissent's view, the
release did not "mention[] or contemplate[]" fraud claims (id. at
331).  Plaintiffs appealed as of right pursuant to CPLR 5601 (a). 
Plaintiffs argue that, as the Appellate Division
dissent found, the Members Release was not intended to reach
fraud claims.  They further contend that the release itself was
fraudulently induced, particularly in light of the parties'
fiduciary relationship, and that their reliance on defendants'
financial disclosures was justified.
Generally, "a valid release constitutes a complete bar
to an action on a claim which is the subject of the release"
(Global Minerals v Holme, 35 AD3d 93, 98 [1st Dept 2006]).  If
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No. 93
"the language of a release is clear and unambiguous, the signing
of a release is a 'jural act' binding on the parties" (Booth v
3669 Delaware, Inc., 92 NY2d 934, 935 [1998], quoting Mangini v
McClurg, 24 NY2d 556, 563 [1969]).  A release "should never be
converted into a starting point for . . . litigation except under
circumstances and under rules which would render any other result
a grave injustice" (Mangini, 24 NY2d at 563).  A release may be
invalidated, however, for any of the "the traditional bases for
setting aside written agreements, namely, duress, illegality,
fraud, or mutual mistake" (id.).  
Although a defendant has the initial burden of
establishing that it has been released from any claims, a signed
release "shifts the burden of going forward . . . to the
[plaintiff] to show that there has been fraud, duress or some
other fact which will be sufficient to void the release" (Fleming
v Ponziani, 24 NY2d 105, 111 [1969]).  A plaintiff seeking to
invalidate a release due to fraudulent inducement must "establish
the basic elements of fraud, namely a representation of material
fact, the falsity of that representation, knowledge by the party
who made the representation that it was false when made,
justifiable reliance by the plaintiff, and resulting injury"
(Global Minerals, 35 AD3d at 98). 
Notably, a release may encompass unknown claims,
including unknown fraud claims, if the parties so intend and the
agreement is "fairly and knowingly made" (Mangini, 24 NY2d at
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No. 93
566-567; Alleghany Corp. v Kirby, 333 F2d 327, 333 [2d Cir
1964]).  As the Appellate Division majority explained below
(Centro, 76 AD3d at 318), a party that releases a fraud claim may
later challenge that release as fraudulently induced only if it
can identify a separate fraud from the subject of the release
(see Bellefonte Reinsurance Co. v Argonaut Ins. Co., 757 F2d 523,
527-528 [2d Cir 1984]).  Were this not the case, no party could
ever settle a fraud claim with any finality.  
As a preliminary matter, the parties here debate
whether the Members Release encompasses unknown fraud claims.  We
find that it does.  The broad language of the release reaches,
"all manner of actions . . . whatsoever . . . whether past,
present or future, actual or contingent, arising under or in
connection with the Agreement Among Members and/or arising out of
. . . the ownership of membership interests in [TWE]."  The
phrase "all manner of actions," in conjunction with the reference
to "future" and "contingent" actions indicates an intent to
release defendants from fraud claims, like this one, unknown at
the time of contract (see Ingram Corp. v J. Ray McDermott & Co.,
Inc. (698 F2d 1295, 1312 [5th Cir 1983]; Consorcio Prodipe, S.A.
de C.V. v Cinci, S.A., 544 F Supp 2d 178, 192 [SD NY 2008]).   
Plaintiffs note that the Master Release, executed at
the same time as the Members Release, is substantially similar
but expressly excludes fraud claims.  They argue -- apparently
for the first time in their briefs before us -- that the fraud
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No. 93
exception in the Master Release should be read into the Members
Release.  Even assuming we can reach this argument (see SoHo
Alliance v New York City Bd. of Stds. and Appeals, 95 NY2d 437,
442 [2000]), "courts should be extremely reluctant to interpret
an agreement as impliedly stating something which the parties
have neglected to specifically include" (Rowe v Great Atl. & Pac.
Tea Co., 46 NY2d 62, 72 [1978]).  We see no reason to import the
Master Release's express statement into the Members Release.  If
anything, the explicit exclusion of fraud claims from the Master
Release suggests that the Members Release is not so limited. 
Plaintiffs' claims are either brought under the Agreement Among
Members, under which Telmex agreed to negotiate in good faith and
provide Conecel and TWE's financial information, or otherwise
"arise out of" their "ownership of membership interests in
[TWE]."  They therefore fall under the Members Release.
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.  The fraud described in the
complaint, however, falls squarely within the scope of the
release: plaintiffs allege that defendants supplied them with
false financial information regarding the value of Conecel and
TWE, and that, based on this false information, plaintiffs sold
their interests in TWE and released defendants from claims in
connection with that sale.  Thus, as the Appellate Division
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No. 93
observed: "plaintiffs seek to convert the 2003 release into a
starting point for new . . . litigation, essentially asking to be
relieved of the release on the ground that they did not realize
the true value of the claims they were giving up" (Centro, 76
AD3d at 317). 
That the parties had a fiduciary relationship does not
alter our conclusion.  It is true that Telmex, as a majority
shareholder in a closely held corporation, owed a fiduciary duty
to plaintiffs, minority shareholders (see Fender v Prescott, 64
NY2d 1077, 1079 [1985]).  Telmex was therefore required to
"disclose any information that could reasonably bear on
plaintiffs' consideration of [its purchase] offer" (Dubbs v
Stribling & Assoc., 96 NY2d 337, 341 [2001]).  
A sophisticated principal is able to release its
fiduciary from claims -- at least where, as here, the fiduciary
relationship is no longer one of unquestioning trust -- so long
as the principal understands that the fiduciary is acting in its
own interest and the release is knowingly entered into (see
Alleghany Corp., 333 F2d at 333 ["There is no prerequisite to the
settlement of a fraud case that the (fiduciary) defendant must
come forward and confess to all his wrongful acts in connection
with the subject matter"]; Consorcio Prodipe, S.A. de C.V., 544 F
Supp 2d at 191).  To the extent that Appellate Division decisions
such as Littman v Magee (54 AD3d 14, 17 [1st Dept 2008]), Blue
Chip Emerald v Allied Partners Inc. (299 AD2d 278, 279-280 [1st
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No. 93
Dept 2002]), and Collections v Kolber, 256 AD2d 240, 241 [1st
Dept 1998]) suggest otherwise, they misapprehend our case law. 
Plaintiffs here are large corporations engaged in complex
transactions in which they were advised by counsel.  As
sophisticated entities, they negotiated and executed an
extraordinarily broad release with their eyes wide open.  They
cannot now invalidate that release by claiming ignorance of the
depth of their fiduciary's misconduct. 
In addition to failing to allege that the release was
induced by a separate fraud, plaintiffs have failed to allege
that they justifiably relied on defendants' fraudulent statements
in executing the release.  As we recently reiterated: 
"If the facts represented are not matters
peculiarly within the party's knowledge, and
the other party has the means available to
him of knowing, by the exercise of ordinary
intelligence, the truth or the real quality
of the subject of the representation, he must
make use of those means, or he will not be
heard to complain that he was induced to
enter into the transaction by
misrepresentations" (DDJ Mgt., LLC v Rhone
Group L.L.C., 15 NY3d 147, 153-154 [2010],
quoting Schumaker v Mather, 133 NY 590, 596
[1892]).
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
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No. 93
as to its accuracy in the form of representations and warranties. 
In short, this is an instance where plaintiffs "have been so lax
in protecting themselves that they cannot fairly ask for the
law's protection" (id. at 154). 
In certain circumstances, a fiduciary's disclosure
obligations might effectively operate like a written
representation that no material facts are undisclosed, and this
might satisfy a principal's obligation to investigate further
(see id. at 154-155).  Where a principal and fiduciary are
sophisticated parties engaged in negotiations to terminate their
relationship, however, the principal cannot blindly trust the
fiduciary's assertions.  This is particularly true where, as
alleged here, the principal has actual knowledge that its
fiduciary is not being entirely forthright: "[W]hen the party to
whom a misrepresentation is made has hints of its falsity, a
heightened degree of diligence is required of it.  It cannot
reasonably rely on such representations without making the
additional inquiry to determine their accuracy" (Global Minerals,
35 AD3d at 100 [internal citations omitted]; see also Littman, 54
AD3d at 17 [if the fiduciary is "aware of information that
rendered (its) reliance unreasonable, or if (it) had enough
information to create a duty to investigate further, the
requisite reliance cannot be established"]).   
Plaintiffs repeatedly and unsuccessfully attempted to
hold defendants to their disclosure obligations for years before
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No. 93
negotiating and executing the sale of their shares and the
accompanying releases.  Moreover, the complaint alleges that
plaintiffs were driven to sell because they were "wary of the
threat that defendants would never negotiate in good faith and
would never distribute the Conecel profits."  Plaintiffs
therefore cannot be said to have reasonably relied on defendants'
assertions regarding Conecel's performance in executing the
releases.
In sum, the 2003 Members Release was intended to bar
the very claims that plaintiffs now bring, and plaintiffs fail to
allege that the release was induced by any fraud beyond that
contemplated by the release.  In any event, the fraudulent
statements plaintiffs point to cannot support a conclusion that
the release was fraudulently induced, since plaintiffs allege
that they released defendants from claims relating to the sale of
their TWE units without conducting even minimal diligence to
determine the true value of what they were selling.  The
Appellate Division majority was therefore correct in concluding
that, fully crediting plaintiffs' allegations, they would not be
able to prevail as a matter of law.
Accordingly, the order of the Appellate Division should
be affirmed with costs. 
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Order affirmed, with costs.  Opinion by Judge Ciparick.
Chief Judge Lippman and Judges Graffeo, Read, Smith, Pigott and
Jones concur.
Decided June 7, 2011
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