Opinion ID: 1435659
Heading Depth: 1
Heading Rank: 3

Heading: The Arbitration and the Ukrainian Proceedings

Text: Pursuant to the 2004 Agreement's arbitration provision, Telenor instituted an arbitration against Storm on February 7, 2006, alleging that Storm had breached the 2004 Agreement by (1) violating its obligation thereunder not to frustrate Kyivstar board activities through Storm's absence; (2) violating a noncompete provision therein by acquiring an equity interest in at least one other company engaged in the mobile telecommunications business in Ukraine; and (3) violating the arbitration provision therein by prosecut[ing] a series of court actions throughout Ukraine, attacking provisions of the Shareholders Agreement and Kyivstar's charter. Telenor among other relief, a declaration that Storm had breached the 2004 Agreement, an injunction requiring Storm to participate in the governance and management of Kyivstar, an anti-suit injunction, and damages. On April 14, 2006the day of the first conference of the arbitration panelAlpren Limited (Alpren), a Cyprusbased subsidiary of Altimo Holdings & Investment Limited (Altimo), brought suit in a Ukrainian court against Storm. Alpren and Altimo are the owners of Storm, and Alpren, Altimo, and Storm all belong to the same Russian corporate group, the Alfa Group Consortium. Alpren applied to the Ukrainian court for a declaration that the 2004 Agreement was invalid because Nilov lacked the authority to execute it on Storm's behalf. Apparently, neither Telenor nor the arbitration panel were notified of the Alpren lawsuit. Storm retained no counsel and submitted no written defense to the Alpren suit. Instead, Vadim Klymenko, an Altimo officer responsible for that company's litigation and arbitration but who is not an attorney-at-law, appeared for Storm and registered an oral opposition on the ground that the arbitration panel had jurisdiction over Alpren's claim. The proceeding lasted approximately 20 minutes. On April 25, 2006, the Ukrainian court concluded that Nilov lacked the authority to execute the 2004 Agreement on behalf of Storm. The court's decision rendered that agreement null and void in full, including the arbitration clause, from the time of [Nilov's] execution [of the document]. Storm appealed. On May 25, 2006, the Ukrainian appeals court affirmed. Five days later, Storm filed a statement of defense in the arbitration panel arguing, among other things, that Telenor's claims were not arbitrable in light of the Ukrainian judgment. Storm also moved before the panel to dismiss the arbitration. On October 22, 2006, the panel issued a partial final award and denied the motion. The panel concluded that it had jurisdiction to determine the 2004 Agreement's arbitrability. It also concluded that the dispute was arbitrable, notwithstanding the Ukrainian decision in the Alpren suit, because it found that Storm and Telenor had a clear intent to have their disputes resolved through arbitration, and that the arbitration provision of the 2004 Agreement was severable and thus not subject to the Ukrainian judgment. Partial Final Award 11-13. The panel noted that the Ukranian court did not address the severability question, because Alpren and Storm did not present the question to the court and because Telenor was never even notified of the proceeding. Id. at 14. Shortly thereafter, Storm asked the Ukrainian court of appeals to clarify whether, in the court's opinion, the arbitration provision of the 2004 Agreement and the agreement as a whole were invalid in light of the potential severability of the arbitration clause. On November 8, 2006, the court concluded, by now unsurprisingly, that the arbitration agreement was invalid and that any arbitration pursuant to it was in violation of the court's prior order. On November 13, 2006, Storm applied in New York State Supreme Court for an injunction terminating the arbitration proceedings and vacating the partial final award in light of the Ukrainian decisions. Telenor removed the New York lawsuit to the United States District Court for the Southern District of New York. Storm then made a motion in that forum seeking a preliminary injunction. The district court denied the motion on the grounds that the panel's order was interlocutory and therefore not ordinarily subject to appeal, and that Storm was unlikely to prevail on the merits. A Ukrainian court then, upon Alpren's application, enjoined Telenor, Storm, and Klymenko from participating in the arbitration. Telenor received no notice of the injunction and was not a party to this new Alpren lawsuit. Storm twice applied to the arbitration panel to stop the arbitration pursuant to the Ukrainian injunction, but the panel denied each application. In an attempt to put a stop to the Ukrainian litigation, Telenor applied in these federal district court proceedings for an anti-suit injunction against Storm and its related entities. The district court issued such a temporary restraining order. Following an evidentiary hearing, the district court issued an anti-suit injunction, writing that there is no doubt that [the Ukrainian] litigation has been designed to, and has had the effect of, interfering in the arbitration process  indeed, that it was conducted in the most vexatious way possible  and that the court substantially agreed that Nilov ... had at least apparent authority to sign the [2004 Agreement] under either New York or federal law. Storm LLC v. Telenor Mobile Commc'ns AS, No. 06 Civ. 13157(GEL), 2006 WL 3735657, at -, 2006 U.S. Dist. LEXIS 90978, at - (S.D.N.Y. Dec.18,2006). With the injunction in place, the arbitration hearings continued. Storm refused to participate. On July 2, 2007, the arbitration panel issued a final award, which reaffirmed the partial final award's findings in light of subsequent events. See Final Award 33-36. The panel held, as relevant to this appeal, that Nilov had both actual and apparent authority under New York law to execute the 2004 Agreement on Storm's behalf, see id. at 36, 43-53, and that Storm was in breach of the agreement in several respects, see id. at 55. Telenor was granted injunctive relief but no damages. See id. at 65-68.