A U.S. investor's attempt to enforce a long-distance phone deal in El Salvador turns into a legal battle with the richest man in the world.
BY JANE BUSSEY
jbussey@MiamiHerald.com
Thomas A. Gordon, an investment banker turned Latin American investor, expected there would be minor legal wrangling after his company plunked down $16.5 million to buy international long-distance providers in El Salvador and Guatemala last year.
But Gordon never thought his fight to enforce a long-distance access agreement with El Salvador's main telephone company would lead to a bare-knuckles battle with the telecommunications conglomerate owned by Mexico's Carlos Slim, whom Fortune magazine now ranks as the richest man in the world.
Gordon's attorney, Daniel E. González, of the international law firm Hogan & Hartson, calls the dispute ``a fight between David and Goliath.''
In May, Gordon's Americatel El Salvador won a $9.4 million arbitration award -- and more importantly new long-distance access -- in a case that stemmed from Compañía de Telecomunicaciones de El Salvador's refusal to provide agreed-upon telephone access connections.
CTE is owned by América Móvil, the largest telecommunications company in Latin America and a part of Slim's estimated $58.5 billion holdings in telecommunications, manufacturing, retail, banking, transportation and real estate, mostly in Mexico.
But despite Americatel's arbitration win in El Salvador and the fact that it prevailed a second time after a clarification was requested on some points, Slim's company fought on in Salvadoran civil court -- contrary to rules saying the arbitration would be final.
Increasingly, international arbitration is being written into contracts as a way of saving time and money in business disputes -- as well as to avoid having a disagreement heard in local courts in Latin America or the United States. A binding arbitration clause was in Americatel's contract with CTE, which Slim's América Móvil acquired from France Telecom in 2003.
But arbitration decisions can still run into problems, as this case underscores.
In mid-July, CTE petitioned a civil court in San Salvador to annul the decision, arguing that there were procedural defects and that the dispute should not have been subjected to international arbitration rules in the first place.
International arbitration groups such as the American Arbitration Association, CTE attorneys contended in a court filing, had no authority in El Salvador.
Unaware of the legal maneuvering in San Salvador, some days later, Gordon's attorneys filed a petition in federal court in Miami to obtain a judge's order to collect the money. Under international arbitration treaties, a judgment in one country can be collected in any country where companies have holdings or bank accounts. The final arbitration session in the case also was held in Miami.
On Aug. 21, U.S. District Judge Federico A. Moreno confirmed the $9.4 million judgment for Americatel El Salvador. But once Moreno learned that there was a competing motion filed in El Salvador, he called attorneys from both sides for a Sept. 14 hearing to try to better understand the dispute.
''Why did you participate in the arbitration? It took you 2 ½ years to say time out?'' Moreno asked Angel Castillo, an attorney with Ogletree, Deakins who represents CTE. ``What did you think happens in an arbitration? One of you was going to win.''
NO JURISDICTION
Castillo insisted Moreno had no jurisdiction since the petition to annul the arbitrations was in the hands of a civil court in El Salvador, which had ordered Americatel to halt any attempt to collect the award from CTE.
''This is a Salvadoran arbitration,'' Castillo said, noting that under Salvadoran law a party can take an arbitration to civil court. ``The court in Miami does not have jurisdiction.''
González, Gordon's attorney, said CTE is constantly changing its tune.
''They even went before Salvadoran courts and insisted no action be taken by regulators given that there was an ongoing arbitration,'' he said. ``Once they lost the arbitration, they want to do a 180-degree turn and say that the arbitration is invalid.''
The dispute between Americatel El Salvador and CTE stems from a 2003 agreement that stipulated Americatel -- then owned by a Chilean company -- could request and receive additional local telephone interconnection access, known as E-1 ports, as demand rose for more long-distance traffic to El Salvador.
Without new E-1 ports, long distance calls will not connect in peak evening hours and clients take their business elsewhere. Americatel argues that its market share in El Salvador fell from 25 percent in 2003 to 18 percent in 2004.
CTE earns a fee from additional access ports, but it also allows companies like Americatel to grow. After two years of refusal by CTE for more E-1 ports, Americatel filed for arbitration in 2005, citing breach of contract.
CTE argued, unsuccessfully, in the arbitration that the agreement was broken because Americatel had given another telephone provider better connection terms. But the three arbitration judges who heard the case said the other contract was with a cellphone company whose connections charges were higher than for land lines.
Not only was CTE ordered to pay the multimillion-dollar award, but also to open up 21 E-1 ports for Americatel.
TYPICAL FIGHT
Gordon sees his dispute with the richest man in the world as typical of a bigger company trying to crush a small upstart. ''We've had a series of events, a pattern by Compañía de Telecomunicaciones to drive people like myself out of business,'' he said. ``With CTE being the dominant carrier and able to set prices, lower prices, we can't counter that with increased volume if they won't open it up for us.''
Slim's hardball tactics with business competitors are well known in Mexico, where he gained control of Teléfonos de México in a $1.7 billion privatization deal in 1990 and has held a near monopoly ever since. With limited competition, Mexico has one of the highest-cost telephone systems in the world.
Slim's América Móvil, which has assets of $29.2 billion, has fixed-line or wireless companies in the United States, Mexico and 14 countries in the Caribbean, Central America and South America.
A spokeswoman for América Móvil in Mexico City declined to comment on the case, and a spokesman also said that Slim was not available to comment.
Gordon was an investment banker in Denver before becoming involved in the telecom sector in Central America. His Denver-based Iselo Holdings bought Americatel Central America, which included companies in El Salvador and Guatemala, from the Chilean company Entel in 2006.
Gordon said he was aware of the dispute and arbitration when he acquired Americatel but had been confident Americatel would win.
CTE attorney Castillo, who has been working on the case for more than two years but never met Slim, dismissed the difference in financial clout between Americatel and the Slim empire.
Now the dispute is riding on both Moreno's final ruling and what happens in court in El Salvador.
''Sometimes what happens is the parties end up getting the worst of both worlds,'' said Keith S. Rosenn, a law professor at the University of Miami. ``They have to litigate and arbitrate.''
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