Opinion ID: 3065207
Heading Depth: 2
Heading Rank: 1

Heading: The battle for control of Polska Telefonia

Text: In 1999, both T-Mobile Deutschland and Vivendi S.A. took an interest in the Polish wireless telephone company, Polska Telefonia Cyfrowa Sp. z o.o. (Polska Telefonia). At the time, Polish law precluded foreign investors from holding more than 49% of the shares of any Polish telecommunications company.4 The German company T-Mobile Deutschland, which at the time held a 22.5% interest in Polska Telefonia, acquired an additional 26.5% interest from other shareholders, for a total of 49%. While T-Mobile Deutschland was buying up shares, so was Vivendi S.A., a French corporation. To facilitate its intended takeover of Polska Telefonia, Vivendi S.A. partnered with a Polish company, Elektrim S.A. Vivendi S.A. and Elektrim 3 Because this is an appeal from an order granting a motion to dismiss, the facts are taken from Vivendi’s Third Amended Complaint. 4 The Polish government terminated this limitation in 2001. VIVENDI SA v. T-MOBILE USA INC. 14773 established a joint venture that operated through a holding company called Telco. Over time, Vivendi S.A. invested $2.5 billion to acquire a 51% interest in Telco. Pursuant to the joint venture agreement, Elektrim transferred its 37.1% interest in Polska Telefonia to Telco, along with an additional interest it acquired from other shareholders, for a total of 51% of the Polska Telefonia stock. On December 7, 2000, T-Mobile Deutschland initiated arbitration against Elektrim in Vienna. T-Mobile Deutschland claimed that Elektrim’s transfer of its shares to Telco materially breached Polska Telefonia’s shareholder agreement.5 The shareholder agreement bound all Polska Telefonia shareholders and provided certain shareholders, including T-Mobile Deutschland, the option to buy the shares of any shareholder who materially breached the agreement. In 2003, while the arbitration was pending, Solorz purchased a controlling interest in Elektrim, which at the time held a joint venturer’s interest in Telco’s Polska Telefonia shares. Vivendi alleges that Solorz secretly agreed to help T- Mobile Deutschland gain control of Polska Telefonia. To this end, Elektrim terminated its joint venture agreement with Vivendi S.A. Vivendi S.A. and Elektrim, however, retained their joint ownership of Telco. On November 26, 2004, the Vienna arbitration panel held that Elektrim’s transfer of its shares to Telco was ineffective because Elektrim transferred its shares to Telco without the consent of all of the members of Polska Telefonia’s Board of Directors, as required by the Polska Telefonia shareholder agreement. The panel further held that, if Elektrim did not recover its shares from Telco within two months, Elektrim 5 T-Mobile Deutschland alleged that the transfer of Elektrim’s Polska Telefonia shares to Telco constituted a material breach of the shareholder agreement because the transfer violated Poland’s limit on foreign ownership of telecommunications companies. 14774 VIVENDI SA v. T-MOBILE USA INC. would be in material breach of the shareholder agreement, thus triggering T-Mobile Deutschland’s options to buy Elektrim’s shares. A Warsaw Regional Court granted Elektrim’s petition for recognition of the arbitral award. Relying on this recognition order, T-Mobile Deutschland and Elektrim took over the Polska Telefonia management board. Elektrim and T-Mobile Deutschland then secured an order from the Warsaw Regional Court changing the Polish government’s official share register to show Elektrim alone, and not Vivendi S.A., as the owner of the Telco shares. In February 2005, Everest, a Miami-based company, purchased Elektrim bonds. By this time, however, Vivendi alleged Solorz used his controlling interest in Elektrim to begin stripping Elektrim of its assets. Elektrim failed to make required payments on the bonds, and the trustee for the bonds filed a petition in Polish court to put Elektrim into bankruptcy to prevent Solorz from further reducing Elektrim’s assets. The bankruptcy court issued an injunction barring any transfer of Elektrim’s Polska Telefonia shares.6 By May 2005, Elektrim had failed to recover its Polska Telefonia shares from Telco, so T-Mobile Deutschland again initiated arbitration in Vienna. This time, T-Mobile Deutschland sought a declaration that it was entitled to exercise its option to buy Elektrim’s shares. While the arbitration was pending, Deutsche Telekom approached Vivendi S.A., offering to negotiate an agreement that would allow Vivendi S.A. to recoup much of its $2.5 billion investment in Polska Tele- 6 Vivendi filed a request for judicial notice of an injunction from the London Court of International Arbitration barring Elektrim from transferring its Polska Telefonia shares. We deny this request because the injunction does not “have a direct relation to this appeal.” See In re Heritage Bond Litig., 546 F.3d 667, 670 n.1 (9th Cir. 2008). Whether Elektrim or Telco is the legitimate owner of the Polska Telefonia shares does not affect the analysis of the public and private interest in having this action proceed in the Western District of Washington. VIVENDI SA v. T-MOBILE USA INC. 14775 fonia.7 Before any agreement was reached, the Vienna arbitration panel held that T-Mobile Deutschland could exercise its option to buy Elektrim’s shares. On August 28, 2006, despite the Polish bankruptcy court’s injunction barring Elektrim from transferring its Polska Telefonia shares, Elektrim transferred its shares to T-Mobile Deutschland for over 600 million euros. In light of the influx of cash to Elektrim, the trustee for the bonds withdrew the bankruptcy petition. This allowed Solorz to resume stripping Elektrim’s assets, which prevented Everest from maximizing the value of the bonds.8 Vivendi has initiated at least twenty litigation and arbitration actions across Europe to recover its investment in Polska Telefonia.