US Federal Court Grants Telenor Motion, Holds Altimo in Contempt,
Published on: 21st November 2008
The US Federal Court for the Southern District of New York on 19 November granted Telenor's motion requesting that Alfa Group companies Altimo, Alpren, Hardlake and Storm be held in contempt of court for their failure to obey a November 2, 2007 court order upholding Telenor's arbitration award against Alfa Group subsidiary Storm.
The Court held all four companies in contempt, imposed escalating fines, and ordered Storm to sell its shares in Ukrainian mobile operator Kyivstar within 90 days, unless within that period, Alfa has divested its shareholdings in excess of 5 per cent of Turkcell and Ukrainian High Technologies.
The Court found that none of the four Alfa companies had complied with the Court's November 2, 2007 order and ordered them to immediately begin complying. The Court imposed fines of $100,000 per day on the four Alfa companies, beginning on 29 November until they comply with the order, with such amount doubling to $200,000 per day 30 days thereafter, and to $400,000 per day 30 days after that, and continuing to double every 30 days until they are no longer in contempt. The Court found that Alfa's previous efforts to comply with the arbitration award by entering into purported asset sales did not in fact comply with the Court's prior order, and, as a consequence, ordered Storm to sell its Kyivstar shares within 90 days, unless within that period, Alfa has sold its shares in excess of 5% of Turkcell and Ukrainian High Technologies. The Court ordered Storm to deposit its Kyivstar shares with the Court, along with an executed blank share transfer form, within seven days so that the Court can ensure Storm complies with its divestiture obligations. The Court also ordered the four Alfa companies to pay Telenor's attorneys' fees and costs incurred in connection with the contempt motion.
The Court's November 2, 2007 order confirmed that Storm was required to sell its stake in Kyivstar or that Altimo must dispose of stakes higher than five per cent in competing wireless operators Turkcell and Ukrainian High Technologies within 120 days of the date of the arbitration award. The order also required Storm and its Alfa affiliates to begin attending Kyivstar board and shareholder meetings, to withdraw their various lawsuits in Ukraine and to cease filing additional lawsuits in Ukraine.
In his 47 page decision, Judge Gerard E. Lynch of the Southern District of New York said:
At every juncture in this dispute, Storm and the Altimo Entities have brought questionable claims in Ukrainian courts that have-through a combination of procedural unfairness, the absence of bona fide opposition, and poorly reasoned decisions- purported to vindicate Storm's and the Altimo Entities' interests.
Referring to the collusive litigation techniques employed by Alfa, Judge Lynch said: "[The Altimo Entities and Storm's] extensive and brazen history of 'collusive and vexatious litigation,' used to avoid compliance with their legal obligations, supports an inference that they are complicit too in this latest chapter."
Judge Lynch recognized that Alfa's conduct is harmful to both Kyivstar and Telenor, stating "The magnitude of the harm [from] Storm and the Altimo Entities' continued contempt of the November 2 Order is great. Kyivstar, a multi-billion dollar enterprise, is paralyzed from taking important corporate action, including disbursement of hundreds of millions of dollars in potential dividends. Moreover, Storm and the Altimo Entities have enormous financial resources and have shown a willingness to incur significant expense . in order to avoid their legal obligations. Under these circumstances, a substantial daily fine is required to compel compliance. Moreover, the harm to Telenor increases with time"
Referring to various Ukrainian legal opinions submitted to the Court by Storm and the other Alfa entities, Judge Lynch said "The opinions appear to be nothing more than a sham, a pseudo-legal excuse for Storm and the Altimo Entities to refuse to do what they have all along refused to do. It is outrageous, though not surprising given their prior conduct in this matter, that Storm and the Altimo Entities would construct such a sham. It is both outrageous and surprising that their counsel-two esteemed New York law firms-would represent that sham to the Court, unexamined, as a bona fide basis for their clients' refusal to comply with the Final Award."
"We are very pleased with the Court's decision," said Telenor's Executive Vice President and Head of Central and Eastern Europe, Jan Edvard Thygesen. "It shows how little regard Alfa Group has for the rule of law, the agreements they have entered into, arbitration awards, court orders and their business partners. Being held in contempt by a US federal court is a serious matter. Things will only get worse for Alfa until it begins to comply with the Court's order."