Espiritu Santo Holdings, LP v. Libero Partners, LP, Espiritu Santo Technologies, LLC

At a glance

Parties

Espiritu Santo Holdings, LP (petitioner) v. Libero Partners, LP and Espiritu Santo Technologies, LLC (respondents; EST named as nominal respondent)

Case no.

No. 19 Civ. 3930 (CM)

Court

U.S. District Court, Southern District of New York

Forum and rules

Court proceeding for a preliminary injunction in aid of ICC arbitration (seat New York City) under the New York Convention, 9 U.S.C. §§ 201–08, Fed. R. Civ. P. 64/65 and N.Y. C.P.L.R. § 7502(c)

Treaty

Partners Agreement of 6 December 2017, Section 12 (ICC arbitration clause; Delaware law)

Court

Chief Judge McMahon

Sector

Taximeter and ride-hailing technology

Outcome

Preliminary injunction granted in part and denied in part (14 May 2019). The court refused to block the Monterrey bid and refused an anti-suit injunction against the Mexican litigation, but restrained the respondents from eliminating ESH's interest in the Libre group or changing the corporate status quo.

Amount

No damages before the court. ESH had invested USD 40 million in development. Goldman Sachs valued the Mexico City concession at USD 2.4 billion.

The dispute

Espiritu Santo Holdings (ESH) and Libero Partners each owned 50% of Espiritu Santo Technologies, LLC (EST), a Delaware company. Through downstream entities, including the Mexican operating company Servicios Digitales Lusad, EST held a ten-year Mexico City taximeter concession using the "Libre" technology. The Partners Agreement of 6 December 2017 provided for joint control of EST and its subsidiaries, unanimity on major decisions and a non-compete. It also required ICC arbitration seated in New York, and gave the S.D.N.Y. exclusive jurisdiction over pre-arbitral injunctions. ESH alleged that Libero's principals, through CEO Fabio Covarrubias Piffer, secretly incorporated Libre Jalisco and Libre Nuevo León, obstructed a forensic audit by Deloitte, brought criminal and civil proceedings in Mexico, and ousted ESH's directors from Lusad. On 24 April 2019 Libero also obtained an ex parte Mexican order barring ESH from starting arbitration. ESH filed an ICC Request for Arbitration and asked the court for an injunction in aid of arbitration, mainly to stop a bid on the Monterrey taximeter concession. Libero relied on comity with the Mexican order and argued that being unable to bid would cause it irreparable harm.

Key holdings

1. The court has subject-matter jurisdiction under 9 U.S.C. § 203 to grant provisional relief in aid of arbitration falling under the New York Convention, even without a motion to compel arbitration. The arbitration clause in Section 12 is valid and binding under Delaware law. This is a threshold ruling, without prejudice to the arbitrators' final decision on validity. pp. 27–30, 50
2. The court declined to extend comity to the Mexican court's 24 April 2019 order. That order was preliminary, was issued ex parte without notice, and was unsupported by any papers given to the court. In Section 12(c) the parties had also waived any request for a stay based on proceedings in other courts. pp. 31–33
3. ESH is likely to succeed in the arbitration on its claims for breach of the Partners Agreement, breach of fiduciary duties under the Delaware Revised Uniform Partnership Act, and breach of the implied covenant of good faith. The breaches include incorporating affiliates without consent, ousting ESH's directors, denying access to books and records, and undermining the Deloitte audit. The court also found that Lusad's in-house counsel had made a false statement to the Mexican court. pp. 36–42
4. Under Faiveley, the alleged misappropriation of trade secrets is not irreparable harm, because the issue is use, not dissemination, and lost profits can be compensated in damages. Non-competition was not shown, because ESH holds an indirect interest in Libre Nuevo León. The irreparable harm lies instead in ESH being systematically cut out of the management and control of a venture in which it holds a 50% interest. pp. 43–47
5. The court refused to bar the registration for the Monterrey concession bid. It also refused an anti-suit injunction against the Mexican litigation: Section 12 sends the final decision on validity to the ICC, the court's ruling would not dispose of the Mexican action, and comity counsels restraint. pp. 47–52
6. The court granted an injunction barring the respondents and their privies from taking any steps to eliminate ESH's interest in any business venture anywhere in the world that is linked to the Libre group. Pending a formal order, they were also restrained from changing the corporate status, directors or ownership of any company covered by the Partners Agreement. The balance of hardships and the public interest favour ESH. pp. 52–55

Procedural history

1. 6 December 2017Partners Agreement signed, with an ICC arbitration clause (seat New York) and exclusive S.D.N.Y. jurisdiction over pre-arbitral injunctions.
2. 14 December 2018The Lusad board unanimously resolves to order a Deloitte forensic audit and to bring the new Libre entities into the group.
3. 21–22 February 2019A Mexican court issues an ex parte injunction against León and Zayas. They are then removed from the Lusad board.
4. 24 April 2019A Mexican court issues an ex parte order barring the parties from starting arbitration under clause 12.
5. 2 May 2019ESH files an ICC Request for Arbitration and its petition in the S.D.N.Y. The court grants a TRO after an ex parte hearing.
6. 13 May 2019Preliminary injunction hearing with live testimony.
7. 14 May 2019Memorandum Decision and Order grants the preliminary injunction in part and denies it in part.

Tribunal, counsel and experts

For the claimant

David Dunn

For the respondent

Reed Smith LLP

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Keywords

• injunction in aid of arbitration
• pre-arbitral relief
• New York Convention
• 9 U.S.C. § 206
• C.P.L.R. § 7502(c)
• anti-suit injunction
• comity
• ex parte foreign injunction
• ICC arbitration
• Delaware law
• joint venture
• breach of fiduciary duty
• irreparable harm
• trade secrets
• Libre
• taximeter concession
• Mexico City
• Monterrey

Summary generated with AI from the published documents — refer to the award for the authoritative text.