Hernandez v. Telecom Business Solution, LLC

Background

Jorge Hernandez, Alberto Arzu, Alejandro Sagastume, and William Mendez petitioned to permanently stay, or stop, an arbitration brought by Telecom Business Solution, LLC, LATAM Towers, LLC, and AMLQ Holdings (Cay), Ltd. The respondents are minority shareholders of Continental Towers LATAM Holdings Limited. A shareholder agreement requires arbitration of disputes arising from or connected with that agreement.

The arbitration began in 2021 after Telecom Business Solution and AMLQ alleged that Terra Towers Corp. violated a forced-sale provision. The arbitration later included claims against Hernandez and Arzu, who had served as Terra directors, and then against Sagastume and Mendez, who replaced them as directors. The petitioners challenged the tribunal’s authority over them in filings to the tribunal. They did not seek a court-ordered stay until May 3, 2024, shortly before a scheduled July merits hearing. Respondents removed the petition from New York state court and moved to dismiss it.

Legal standard

The court applied Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a pleading does not state a legally sufficient claim for relief. At this stage, the court generally accepts the pleaded facts as true and draws reasonable inferences for the party opposing dismissal.

Timeliness under New York law

Respondents argued that the petition was untimely under New York Civil Practice Law and Rules section 7503, which generally requires an application to stay arbitration within 20 days after service of a qualifying notice. The court rejected that argument. The 20-day period is triggered only by valid notice containing the required warning about the deadline. Respondents did not dispute that they had failed to provide notice in the required manner, and nothing in the petition or incorporated documents showed that the petitioners received qualifying notice. The court therefore concluded that the 20-day deadline did not bar the petition.

Forfeiture of pre-award judicial relief

The court nevertheless held that the petitioners forfeited their right to seek a judicial stay before an arbitration award. Under the cases discussed in the opinion, an agreement to arbitrate may be implied by conduct, including failing to raise an objection in a timely way or actively and voluntarily participating in arbitration.

Hernandez and Arzu had been involved in the arbitration for several years, while Sagastume and Mendez had been involved for more than six months. All four challenged the tribunal’s authority in the arbitration but did not seek judicial relief until the eve of a merits hearing concerning, among other matters, the same issue. The court concluded that objecting only before the tribunal did not preserve their right to seek a stay in court. Their participation and delay meant that they had forfeited that pre-award judicial challenge.

Disposition

The court granted respondents’ motion to dismiss. It did not decide the merits of the petitioners’ arguments about the arbitrators’ authority. The court stated that the petitioners must await the tribunal’s decision and may, if necessary, raise an adequately preserved arbitrability issue in a later judicial proceeding after an arbitration award. The Clerk was directed to close the case.