Court Opinion

ID: 9930197
Source: CourtListenerOpinion
Date Created: 2024-02-06 16:01:08.460218+00
Date Added: 2024-06-11T11:11:17.151341
License: Public Domain

23-144
Telecom Business Solution, LLC v. Terra Towers Corp.

                       UNITED STATES COURT OF APPEALS
                           FOR THE SECOND CIRCUIT
                                    SUMMARY ORDER
Rulings by summary order do not have precedential effect. Citation to a summary order
filed on or after January 1, 2007, is permitted and is governed by Federal Rule of Appellate
Procedure 32.1 and this court’s Local Rule 32.1.1. When citing a summary order in a
document filed with this court, a party must cite either the Federal Appendix or an
electronic database (with the notation “summary order”). A party citing a summary order
must serve a copy of it on any party not represented by counsel.
        At a stated term of the United States Court of Appeals for the Second Circuit,
held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the
City of New York, on the 6th day of February, two thousand twenty-four.

        PRESENT:        John M. Walker, Jr.,
                        Susan L. Carney,
                        Steven J. Menashi,
                                  Circuit Judges.
____________________________________________

TELECOM BUSINESS SOLUTION, LLC, LATAM
TOWERS, LLC, AMLQ HOLDINGS (CAY), LTD.,

                 Petitioners-Appellees,

          v.                                                   No. 23-144

TERRA TOWERS CORP., TBS MANAGEMENT,
S.A.,

                 Respondents-Appellants,

DT HOLDINGS, INC.,

               Cross-Claimant-Appellant.
____________________________________________
 For Petitioners-Appellees              MICHAEL           N.   UNGAR   (Katherine    M.
 Telecom Business Solution,             Poldneff, on the brief), Ulmer & Berne LLP,
 LLC, LATAM Towers, LLC:                Cleveland, Ohio.

 For Petitioner-Appellee AMLQ           GREGG L. WEINER, Ropes & Gray LLP, New
 Holdings (Cay), Ltd.:                  York, New York (Andrew S. Todres, Ropes
                                        & Gray LLP, New York, New York, Daniel
                                        V. Ward, Ropes & Gray LLP, Boston,
                                        Massachusetts, on the brief).

 For Respondents-Appellants:            JUAN J. RODRIGUEZ (Luke T. Jacobs, on the
                                        brief), Carey Rodriguez, LLP, Miami,
                                        Florida.

      Appeal from a judgment of the United States District Court for the Southern
District of New York (Kaplan, J.).

      Upon due consideration, it is hereby ORDERED, ADJUDGED, and
DECREED that the judgment of the district court is AFFIRMED.

      Respondents-Appellants         Terra       Towers    Corp.   (“Terra”)   and   TBS
Management S.A. (“TBS”) are the majority shareholders in Continental Towers
LATAM Holdings Limited (the “Company”), which owns and operates telecom
towers in Latin America. Petitioners-Appellees Telecom Business Solution, LLC
(“Telecom”), LATAM Towers, LLC (“Towers”), and AMLQ Holdings (Cay), Ltd.
(“AMLQ”) are minority shareholders in the Company. The parties’ relationship is
governed by a shareholders’ agreement (“SHA”) that, inter alia, allows the
minority shareholders to force a sale of the Company after a period of five years
from the date of their initial investment. The SHA provides for binding arbitration
of all disputes.

                                             2
      In February 2021, Telecom and Towers—later joined by AMLQ—initiated
an arbitration proceeding, alleging that Terra had violated the SHA by blocking a
proposed sale. The arbitration panel agreed and ordered specific performance of
the SHA’s forced-sale provision. In the course of the arbitration proceeding, the
panel also issued certain interim orders relating to Terra’s ongoing interference
with the Company’s management team. Terra and its affiliates appeal from the
district court’s decision of January 18, 2023, confirming the arbitration award. We
assume the parties’ familiarity with the facts, procedural history, and issues on
appeal.

                                          I

      In 2015, Telecom, Towers, and AMLQ invested in the Company’s
predecessor, which had been wholly owned by Terra, TBS, and their affiliates.
Telecom and Towers are affiliates of Peppertree Capital (“Peppertree”), a private
equity firm. AMLQ is an affiliate of Goldman Sachs. After the Peppertree entities
and AMLQ invested in 2015, they owned roughly 45 percent of the Company
while Terra and TBS owned roughly 55 percent. According to the arbitration
panel, “the business model of the Company is to build telecom towers at suitable
locations and then rent ‘space’ on the towers to mobile communications
operators.” App’x 813. “The construction of towers … is a revenue stream for an
affiliate of the majority shareholders, DT Holdings (‘DTH’) … [which] is paid by
the Company for the construction.” Id.

      At the time of the minority shareholders’ investment, the parties entered
into the SHA, which gives the minority shareholders the right to force a sale of the
Company after five years. The SHA provides that once the minority shareholders
give notice of a proposed sale to an unaffiliated third-party purchaser, the majority
shareholders have 30 days to procure an opinion from an investment bank
recommending against the transaction; otherwise, they must consent to the
proposed sale. If the majority shareholders procure an unfavorable opinion, or if
the minority shareholders do not identify a buyer when they give notice of their

                                         3
sale request, the Company must within 30 days retain an investment bank to
facilitate a sale, and the majority and minority shareholders each agree to consent
to the sale arranged by the investment bank.

        The SHA also specifies governance arrangements for the Company. It
allocates two board seats each to the majority and minority shareholders, with no
procedure for breaking deadlocks. Section 4.04(a)(vi) gives the board authority
over “the hiring or firing and compensation of members of the Management Team,
including the Executive Team.” Id. at 474.

        Section 8.10 of the SHA provides that the agreement is governed by New
York law. However, section 8.15 provides for mandatory arbitration in New York
City, which will “be conducted in accordance with the Commercial Arbitration
Rules of the American Arbitration Association in effect at the time of the
arbitration.” Id. at 502. Finally, section 8.12 provides that if the SHA is breached,
the non-breaching party is entitled to specific performance.

         The parties’ relationship during the initial five-year lockup period was
fraught, 1 and on November 4, 2020, the Peppertree entities gave notice pursuant
to section 5.04(b) of their proposal to sell the Company to Torrecom Partners LP
(“Torrecom”). Terra rejected the sale and procured an unfavorable opinion from
an investment bank. The parties exchanged further communications over the next

1   The arbitration panel attributed the tension between the parties to:
        the divergent views of the majority and minority shareholders about what
        towers should be built and where, and the minority shareholders defend
        their having opposed certain tower construction, that the majority
        shareholders advocated, on the basis that the towers would not be
        profitable to operate. The majority shareholders, for their part, contend that
        the minority’s opposition to tower construction has had a different and
        allegedly improper motive: to depress the value of the Company so that an
        alleged affiliate of one of the minority shareholders could acquire the
        Company at an artificially low price.
App’x 813.

                                              4
few weeks, but no board meeting was convened and no investment bank was
retained. On January 19, 2021, the Peppertree entities sent another letter requesting
the sale of the Company and demanding that the board retain an investment bank.
The January 19 letter did not attach a purchase offer. In response, on January 27,
2021, Terra sent a letter asserting that the deadline for retaining an investment
bank pursuant to Section 5.04(b)(i) of the SHA had passed        and offering to buy
out the minority investors’ shares.

      Finally, on February 2, 2021, the Peppertree entities (later joined by AMLQ)
initiated arbitration proceedings, seeking damages and specific performance in the
alternative. On August 12, 2021, the arbitration panel granted the minority
shareholders’ request for expedited consideration of their specific performance
claim in the first phase of a bifurcated proceeding. On August 20, 2021, the panel
denied the majority shareholders’ request for discovery relating to affirmative
defenses to the minority shareholders’ claim for specific performance. The panel
clarified that “in Phase 1 … the Tribunal intends only to make a determination of
the legal sufficiency of pleaded affirmative defenses … and as to those affirmative
defenses found to be legally sufficient we will in turn decide what evidence-
gathering and hearing process is suitable.” Id. at 1014-15. Phase 1 of the arbitration
proceeding took place between September 27, 2021, and December 9, 2021. On
February 24, 2022, the panel issued the unanimous First Partial Final Award
(“FPFA”), which granted the minority shareholders’ request for specific
performance and ordered the sale of the Company.

      On October 11, 2021, during the Phase 1 proceedings, independent counsel
for the Company wrote to the panel to inform it that Jorge Hernandez, chairman
of the Company’s board and a principal of DTH and Terra, and his “agents” were
harassing the Company’s CEO, Jorge Gaitan, and his team—including Carol
Echeverria, the Company’s COO—and interfering with their conduct of the
Company’s affairs. In particular, the letter alleged that Hernandez and his agents
had verbally attacked Gaitan and his team and “confiscated Mr. Gaitan’s and his
team’s computers, searched their offices, disabled their email access, and

                                          5
conducted a search of Mr. Gaitan’s personal car.” Id. at 1130. Based on these
allegations, testimony, and other supporting evidence, the panel found that “DTH
acting through Jorge Hernandez and Kristha Pineda replaced Mr. Gaitan and Ms.
Echeverria as CEO and COO of the Company in late September or early October
2021,” that “the actions of DTH … [were] attributable to … Terra and TBS … by
reason of the affiliate relationships among them and DTH,” and that DTH’s actions
breached sections 4.04(a)(vi) and 4.06(b) of the SHA. Id. at 1187. The panel issued
an order on November 12 requiring that Gaitan and Echeverria be restored to their
positions with the Company. On March 15, 2022, the panel found that Terra and
DTH had failed to comply with the November 12 order and granted in part the
minority shareholders’ motion to compel compliance.

      Telecom, Towers, and AMLQ petitioned the district court to confirm the
FPFA. Terra and DTH argued that the FPFA should be vacated. The district court
summarized the arguments of Terra and DTH as follows:

      First, Respondents claim that the Panel violated ‘fundamental
      fairness’ by refusing to provide them with ‘a fair opportunity to be
      heard.’ Second, Respondents argue that the panel acted in ‘manifest
      disregard of the law’ and in excess of its authority by granting specific
      performance to Petitioners. Third, Respondents claim that there was
      ‘evident partiality’ by two of the three arbitrators on the Panel in favor
      of Petitioners.

Telecom Bus. Sol., LLC v. Terra Towers Corp., No. 22-CV-1761, 2023 WL 257915, at *5
(S.D.N.Y. Jan. 18, 2023) (footnotes omitted). Terra and DTH’s arguments focused
on the panel’s denial of discovery in the Phase 1 proceeding and the panel’s
decision to apply AAA Commercial Rule R-47(a)’s standard for granting specific
performance rather than New York law. Rule R-47(a) states that “[t]he arbitrator
may grant any remedy or relief that the arbitrator deems just and equitable and
within the scope of the agreement of the parties, including, but not limited to,
specific performance of a contract.” AAA Commercial Rule R-47(a). Terra and

                                          6
DTH also asked the court to vacate the November 12 and March 15 orders. On
January 18, 2023, the district court entered judgment confirming the FPFA. The
district court also held that the November 12 and March 15 orders were not
judicially reviewable. This appeal followed.

                                           II

      “This Court reviews a district court’s decision to confirm or vacate an
arbitration award de novo for questions of law. We review findings of fact for clear
error.” Kolel Beth Yechiel Mechil of Tartikov, Inc. v. YLL Irrevocable Tr., 729 F.3d 99,
103 (2d Cir. 2013). “We review de novo the district court’s application of the
manifest disregard standard to an arbitration award.” Seneca Nation of Indians v.
New York, 988 F.3d 618, 625 (2d Cir. 2021) (emphasis added).

                                          III

      Terra and DTH raise several arguments on appeal. First, Terra and DTH
argue that the arbitration panel manifestly disregarded the law by declining to
apply New York’s standards for specific performance. Second, they claim that the
arbitration procedure was fundamentally unfair because the district court denied
them discovery on their affirmative defenses to specific performance and applied
AAA Commercial Rule R-47(a) rather than New York law after the parties had
briefed the specific performance issue on the assumption that New York law
applied. Third, they argue that the November 12 and March 15 orders are
judicially reviewable and should be vacated on the ground that those orders
exceeded the arbitration panel’s authority. We address each argument in turn.

                                           A

      The Federal Arbitration Act (“FAA”) provides that arbitration awards may
be vacated when the arbitrators exhibit corruption, partiality, or misconduct or
exceed their powers. See 9 U.S.C. § 10(a). In addition, “[w]e have held that ‘as
judicial gloss on the[] specific grounds for vacatur of arbitration awards’ in the
FAA, an arbitrator’s ‘manifest disregard’ of the law or of the terms of the

                                           7
arbitration agreement ‘remains a valid ground for vacating arbitration awards.’”
Seneca Nation, 988 F.3d at 625 (quoting Schwartz v. Merrill Lynch & Co., 665 F.3d 444,
451-52 (2d Cir. 2011)). “To succeed in challenging an award under the manifest
disregard standard, a party must make ‘a showing that the arbitrators knew of the
relevant legal principle, appreciated that this principle controlled the outcome of
the disputed issue, and nonetheless willfully flouted the governing law by
refusing to apply it.’” Id. at 626 (quoting Schwartz, 665 F.3d at 452). “In addition to
this ‘subjective component,’ a finding of manifest disregard requires an objective
determination that the disregarded legal principle was ‘well defined, explicit, and
clearly applicable.’” Id. (quoting Westerbeke Corp. v. Daihatsu Motor Co., 304 F.3d
200, 209 (2d Cir. 2002)).

      Terra and DTH cannot satisfy either component of the manifest disregard
standard. With respect to the subjective component, the panel did not willfully
flout law that it knew to be controlling. Rather, the panel considered—and
rejected—Terra’s argument that New York law, rather than AAA Commercial
Rule R-47(a), determined its power to award specific performance. Moreover, as
the district court noted, the panel “concluded that even if New York law governed
the availability of specific performance, Petitioners had satisfied its requirements.”
Telecom Bus. Sol., 2023 WL 257915, at *6; see App’x 830, 835, 838-42. Far from
flouting New York law, the panel explained (1) its decision that AAA Commercial
Rule R-47(a) applied and (2) its view that the application of New York law on
specific performance would yield the same outcome.

      With respect to the objective component, Terra and DTH cannot show that
New York law clearly and explicitly prohibits parties from opting out of New
York’s specific performance law in favor of another standard. On the contrary, the
New York Court of Appeals has held that “a court may not vacate an award
because the arbitrator has exceeded the power the court would have” outside an
arbitration proceeding; instead, “[t]hose who have chosen arbitration as their
forum should recognize that arbitration procedures and awards often differ from
what may be expected in courts of law.” Rochester City Sch. Dist. v. Rochester

                                          8
Teachers Ass’n, 362 N.E.2d 977, 981 (N.Y. 1977). Similarly, we have recognized that,
“[l]ike federal law, New York law gives arbitrators substantial power to fashion
remedies that they believe will do justice between the parties,” including
“fashion[ing] relief that a court might not properly grant.” Benihana, Inc. v.
Benihana of Tokyo, LLC, 784 F.3d 887, 902 (2d Cir. 2015) (internal quotation marks
omitted). In general, “[w]here an arbitration clause is broad, … arbitrators have
the discretion to order remedies they determine appropriate, so long as they do
not exceed the power granted to them by the contract itself.” Banca de Seguros del
Estado v. Mut. Marine Office, Inc., 344 F.3d 255, 262 (2d Cir. 2003). For these reasons,
the district court correctly rejected Terra and DTH’s claim that the arbitration
panel displayed manifest disregard of the law.

                                           B

      Terra and DTH also argue that the arbitration procedure was fundamentally
unfair. See Tempo Shain Corp. v. Bertek, Inc., 120 F.3d 16, 20 (2d Cir. 1997) (“Federal
courts do not superintend arbitration proceedings. Our review is restricted to
determining whether the procedure was fundamentally unfair.”) (quoting
Teamsters, Local Union 657 v. Stanley Structures, Inc., 735 F.2d 903, 906 (5th Cir.
1984)). It was fundamentally unfair, they suggest, because the panel did not apply
New York law after “the entire proceeding was conducted with the understanding
that the question of specific performance and associated defenses were governed
by New York law.” Appellants’ Br. 19. Terra and DTH also assert that it was
fundamentally unfair for the panel to make “findings of disputed fact in favor of
Peppertree and AMLQ without affording Terra and DTH discovery to substantiate
their affirmative defenses.” Id.

      Both arguments fail. Beginning with what Terra and DTH describe as the
panel’s “last-minute switch” from New York law to AAA Commercial Rule R-
47(a), fundamental fairness requires only that the arbitrator “give each of the
parties to the dispute an adequate opportunity to present its evidence and
argument.” Tempo Shain, 120 F.3d at 20 (quoting Hoteles Condado Beach v. Union de

                                           9
Tronquistas Local 901, 763 F.2d 34, 39 (1st Cir. 1985)). Terra and DTH were on notice
that the arbitration would be conducted in accordance with the AAA rules because
the SHA provided as much. While the parties’ initial briefing and the panel’s
orders may have focused on New York law, it was not unfair to expect the parties
to be prepared to address Rule R-47(a) at argument. Moreover, as the minority
shareholders observe, Terra and DTH “submitted two post-hearing briefs that
addressed Phase 1 issues, one on December 9, 2021, and one on January 13, 2022,”
and thus “had multiple opportunities to address” the panel’s suggestion that Rule
R-47(a) rather than New York law might control. Appellees’ Br. 28 (emphasis
omitted). In addition, even after the panel adverted to Rule R-47(a) at oral
argument, Terra and DTH continued to argue that New York law, not the AAA
Commercial Rules, controlled; indeed, they still maintain this position on appeal.
Terra and DTH were not prejudiced by the alleged “last-minute switch” because
their litigation posture remained unchanged. And, as previously noted, the panel
analyzed the specific performance issue under New York law in the alternative
and arrived at the same conclusion.

      The panel’s decision to deny Terra and DTH discovery on their proffered
affirmative defenses of unclean hands and waiver likewise did not render the
procedure fundamentally unfair. The panel determined that discovery was
unnecessary because Terra and DTH’s factual allegations, even if substantiated,
would not establish these affirmative defenses as a matter of law. With respect to
waiver, the panel decided that the minority shareholders’ failure to propose a
resolution to the board to engage an investment bank within 30 days of the
Proposed Sale Notice could not have been a waiver of its right to insist on a sale
because the SHA did not require the minority shareholders to propose such a
resolution. With respect to unclean hands, the panel decided that the text of the
SHA “makes clear that the Parties intended that allegations of misconduct such as
those made by Terra against the Peppertree Claimants would not and could not
be invoked to prevent the … sale process from moving forward.” App’x 844. The
district court correctly deferred to the panel’s interpretation of the parties’

                                         10
contract. See Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 569 (2013) (“An arbitral
decision even arguably construing or applying the contract must stand, regardless
of a court’s view of its (de)merits.”) (quoting Eastern Associated Coal Corp. v. Mine
Workers, 531 U.S. 57, 62 (2000)). Based on that interpretation, Terra and DTH could
not prevail on their proposed affirmative defenses even assuming that evidence
substantiated those defenses.

                                          C

      The district court correctly concluded that the November 12 and March 15
orders were not judicially reviewable. “Under the Federal Arbitration Act, a
district court does not have the power to review an interlocutory ruling by an
arbitration panel.” Michaels v. Mariforum Shipping, S.A., 624 F.2d 411, 414 (2d Cir.
1980). An interim order of an arbitration panel is final—and thus open to judicial
review—only if it “finally and definitely disposes of a separate independent
claim.” Metallgesellschaft A.G. v. M/V Capitan Constante, 790 F.2d 280, 283 (2d Cir.
1986). The November 12 and March 15 orders—which were expressly designated
as “interim relief,” see App’x 1185, 1686—did not conclusively resolve the issues
raised by DTH’s actions with respect to Gaitan and Echeverria. The November 12
order expressly contemplated “further proceedings on the sufficiency of
compliance with this Order, or the consequences of any non-compliance,” and
stated that the panel was “choosing not to prescribe the manner of compliance
with this Order in greater detail at this time.” Id. at 1188. The March 15 order
likewise contemplated “additional proceedings concerning compliance with the
Order of November 12, 2021 or with this Order.” Id. at 1694. Indeed, in its motion
for reconsideration of the November 12 order, Terra and DTH described the
panel’s conclusions as “preliminary finding[s]” and asserted that “[t]he interim
order is certainly not a final award which has any binding impact on the final
[Phase 1] hearing.” Id. at 1192 & n.2 (emphasis added). At the time of the
proceedings before the district court, “[i]ssues related to Respondents’ non-
compliance with the March 15 Order remain[ed] pending before the Panel and
therefore [were] not final and reviewable.” Telecom Bus. Sol., 2023 WL 257915, at

                                          11
*7. We note that AMLQ’s counsel represented at oral argument that Terra and
DTH are challenging the interim orders in their petition to vacate the panel’s
Second Partial Final Award. For these reasons, the district court correctly declined
to review the panel’s interim orders.

                                   *     *      *

      We have considered the appellants’ remaining arguments, which we
conclude are without merit. For the foregoing reasons, we affirm the judgment of
the district court.

                                        FOR THE COURT:
                                        Catherine O’Hagan Wolfe, Clerk of Court

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