TELEFONICA v. MILLICOM INTERNATIONAL CELLULAR (2021)

The following e-filed documents, listed by NYSCEF document number (Motion 002) 46, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63, 64 were read on this motion to/for DISMISSAL.

Upon the foregoing documents, for the reasons set forth on the record (1-5-2021) and as otherwise set forth below, the defendants' motion to dismiss pursuant to CPLR 3211 is denied. Simply put, the defendants are not entitled to dismissal because if the contract is clear and unambiguous as the defendants argue, the contract required an “authorization” by the Comptroller and not an “endorsement” of the SPA (hereinafter defined). An “authorization” is not something the Comptroller can grant (i.e., it is granted by the Sutel [hereinafter defined] with respect to antitrust concerns) per the Comptroller's Opinion (NYSCEF Doc. No. 51) (which was a separate required condition of the SPA). Thus, there was not a failure of condition that would relieve the defendants of their obligation to close. If, on the other hand, the contract is not clear and unambiguous, extrinsic evidence should be considered by the court as to what the parties intended by “General Comptroller's Office authorization” (NYSCEF Doc. No. 49, PDF pg. no.186 [emphasis added] ) -- i.e., whether the parties intended it to mean an endorsement of the SPA. Given plaintiff's local counsel's affidavit (NYSCEF Doc. No. 63, ¶ 4), which indicates that the language set forth in the SPA was deliberate, intended, discussed and negotiated and that endorsement and authorization are not synonymous, this certainly raises issues of facts that cannot be resolved on a motion to dismiss and may, in fact, suggest a unilateral mistake by the defendants if they intended something else. In addition, even if an endorsement was what was intended, and not an authorization as the express language of the SPA provides, given the well plead allegations set forth in the Amended Complaint that the defendants have frustrated the ability to obtain the endorsement, which was atypical pre-closing to obtain, the defendants are not entitled to dismissal based on a failure of that condition. Finally, to the extent that the defendants argue that an endorsement is what was meant as a closing condition, and the plaintiff argues that the defendants have failed to use their best efforts as required by the SPA to obtain this endorsement, given the allegations set forth in the Amended Complaint, this necessarily raises issues of fact not properly decided on a motion to dismiss.

More specifically, this action arises out of Telefonica S.A.'s (Telefonica) agreement to sell its Costa Rican telecommunications and satellite television business (the Business) to Millicom International Cellular S.A (Millicom SA) and Millicom Spain S.L. (Millicom SL; together with Millicom SA, Millicom) for approximately $570 million, following lengthy negotiations, subject to certain regulatory approvals from various Costa Rican governmental entities (Amend. Compl., NYSCEF Doc. No. 48) pursuant to a certain Share Purchase Agreement (the SPA), dated February 20, 2019, by and between Telefonica and Millicom SA (NYSCEF Doc. No. 49). Pursuant to the SPA, the obligation to close was subject to obtaining certain government approvals including:

General Comptroller's Office authorization for Concession for Use and Exploitation of Radioelectric Spectrum for the Offering of Mobile Telecommunication Services No. C-001-2011-MINAET, in accordance with Concession Clause number 59, to substitute Telefonica Sociedad Anonima as concessionaire's Holding Company, obligated to provide technical support and financial capacity as a requirement to execute the Concession.

(NYSCEF Doc. No. 49, PDF pg. no.186 [emphasis added] ).

Inasmuch as the parties were unclear whether the Comptroller would give an authorization of the Concession to substitute Telefonica Sociedad Anonima as concessionaire's Holding Company, the Amended Complaint (NYSCEF Doc. No. 48, ¶ 33) alleges that they indicated in Section 6.1 that this was a closing condition “to the extent permitted by law”:

Section 6.1 of the SPA, Conditions to the Parties' Obligations, provides:

Subject to Section 2.3, the respective obligation of each Party to consummate the transactions contemplated hereby is subject solely to the satisfaction or waiver, to the extent permitted by applicable Law, on or prior to the Closing Date of the following conditions:

(a) the Regulatory Approvals set forth in Section 6.1 of the Disclosure Schedule (the “Closing Regulatory Approvals”), shall be in full force and effect and any related waiting periods required by Law shall have expired or been terminated.

(b) No Governmental Authority shall have enacted, issued, promulgated, enforced or entered any Law or Order that is in effect and would (i) make the Closing illegal or (ii) otherwise prohibit or enjoin the Closing.

(id., § 6.1, PDF pg. no. 69).

The defendants argue that dismissal is required because inasmuch as the Comptroller's approval was never obtained (i.e., that neither an authorization by the Comptroller nor an endorsement of the SPA was obtained), there was a failure of condition and they were therefore never required to close. The argument fails.

It is a well-settled principle of contract interpretation that an agreement has to be interpreted according to its plain meaning (Greenfield v Philles Records, Inc., 98 NY2d 562, 569 [2002]). The SPA according to its plain meaning required the General Comptroller's authorization of the Concession to substitute Telefonica Sociedad Anonima as concessionaire's Holding Company to the extent permitted by law. This condition was not possible to satisfy as it is the Sutel and not the General Comptroller that grants this authorization.

Pursuant to the November 15, 2019 Comptroller's Opinion (the Opinion, NYSCEF Doc. No. 51), an authorization to enter into the transaction contemplated by the SPA was “not required” under Costa Rican law, but is a determination under Article 56 of the Superintendence of Telecommunications (Sutel) and therefore not something the Comptroller could give. (Amend. Compl, Paragraph 44). Per the Opinion:

For its part, Article 56 regulates cases that present a[n economic] concentration, that is to say, where there is a merger, acquisition of shareholder control, alliances or any other act by virtue of which there is a concentration of companies, associations, shares, capital stock, trusts or assets in general, that is made between network operators and telecommunications service providers that were previously independent of each other. In those cases, Sutel's authorization must be obtained in order to evaluate the impact of the concentration on the market. Said authorization will be required in order to avoid forms of collective provision [of services] that are considered harmful to competition, the interests of users, or of free competition in the telecommunications market.

Thus, this Division agrees with the Ministry's opinion with respect to the fact that in this initial stage there is no applicability of the procedure for requesting authorization of assignment of a contract provided for in the Public Procurement Law, given that there exists a special legal norm that already regulates said assumption, absent the presence of any void or regulatory gap that would justify application of the regulation on public procurement in a supplementary fashion.

Thus, given the inapplicability of the Public Procurement Law with regard to the authorization of the assignment of a contract, it would be of no practical interest to refer to particularities of the specific case in order to decide whether or not the modification of the parent company requires the authorization of the comptroller body, as occurred in other similar cases, according to what is indicated in document No. 08432 (DCA-1908) of August 17, 2012, to which reference is made in your request.

However, it is necessary to emphasize that since the competence of this General Comptroller's Office is expressly established by law with respect to the endorsement of the concession contract indicated above, the applicable contractual modification to be made in order to replace the parent company must indeed be submitted to this comptroller body for the applicable endorsement analysis. The foregoing is in accordance with the opinion set forth in document No. 12457 (DCA-2551) dated October 20, 2017, which noted the following in its relevant part: “A reading of the referenced norms concludes that those contracts for which lawmakers themselves expressly establish the need to have the General Comptroller's approval, have special significance, as the comptroller body, in the regulation of its competence, could not limit or modify the lawmakers' intent that led them to consider as necessary the participation of the Comptroller through the endorsement. This leads us to note that, effectively, contracts for which endorsement is expressly and specifically imposed as a prerequisite for effectiveness at a legal level create a particular jurisdiction that distinguishes them from common contracts, for which endorsement is applied in accordance with the definition of the categories of contracts that the Public Procurement Division requires to be endorsed, as determined by the General Comptroller in the respective Regulation on Endorsements. (...) In this way, to comply with the legislative intent, if a modification is made to the clause of the contract approved by this General Comptroller, the contractual document in which the modification is formalized must necessarily be subject to endorsement.”

(NYSCEF Doc. No. 51, pg. nos. 6-7 [all emphasis in original] ).

Indeed, Section 3.4 of the Contract, as a separate condition to closing required:

Authorization from Superintendence of Telecommunications for anti-trust purposes in relation to the change of control, in accordance with Article 56 of the General Law of Telecommunications, action as sectorial competition authority in the Telecommunication sector.

(NYSCEF Doc. No. 49, PDF pg. no.186).

Thus, the defendants are not entitled to dismissal based on the plain language of the SPA. For the avoidance of doubt, to the extent the defendants argue that the SPA was never endorsed by the Comptroller, according to Carlos Ubico's (plaintiff's counsel) affidavit, the parties did not agree as pre-closing condition that endorsement was required (NYSCEF Doc. No. 63, ¶¶ 2-4) and the language of the SPA does not suggest otherwise.

As noted above, to the extent that the defendants argue what was intended by the provision is an endorsement of the SPA, this suggests that the contract may not be clear and unambiguous and that discovery is necessary to determine what the parties intended in Section 3.4 as to the “General Comptroller's authorization” and that perhaps there may have been a unilateral mistake.

Finally, under Section 5.4 (c)(iv) of the Contract, the defendants had an obligation to cooperate in obtaining the regulatory approvals:

In furtherance and not in limitation of its obligations under this Section 5.4, Purchaser shall at its sole cost: (iv) take, and cause each of its Affiliates to take, any and all actions, including a Remedial Action, to the extent necessary to (1) obtain any Regulatory Approvals and (2) avoid, eliminate or resolve each and every impediment to obtaining any Regulatory Approvals, in each of (1) and (2), so as to cause the transactions contemplated by this Agreement to occur as soon as reasonably possible (and in any event, no later than the End Date)

(NYSCEF Doc. No. 49, PDF pg. no. 54-55; see also id., § 5.4 [a] [requiring both purchaser and seller to use “reasonable best efforts to take, agree to take, or cause to be taken, any and all actions and to do, or cause to be done, any and all things necessary, proper or advisable under any Law or otherwise, so as to, as promptly as practicable, consummate the transactions contemplated by this Agreement, and each such Party shall, and shall cause its respective Affiliates to, cooperate fully to that end”] ).

The well-pled Amended Complaint details conduct of the defendants (NYSCEF Doc. No. 48, ¶¶ 69-77) including demanding last minute changes when the Sutel indicated it was prepared to send the SPA to the Comptroller for endorsement on a pre-closing basis to accommodate the defendants which the Amended Complaint alleges was atypical (id., ¶ 52) and not negotiated for in the SPA which raise issues of fact as to whether they have met their obligation to act in good faith. Therefore, the motion to dismiss is denied in its entirety.

Accordingly, it is

ORDERED the defendants' motion is denied and the defendants are directed to file an answer to the amended complaint within 20 days of this decision and order; and it is further

ORDERED that the parties appear for a remote preliminary conference in Part 53 on February 8, 2021 at 11:30 A.M.

Andrew Borrok, J.