Foley Hoag Wins Key Victory for Government of Bolivia in Investor Dispute over Nationalization of Telephone Company
New York federal judge rules that investors opposed to nationalization cannot sidestep arbitral procedures and pressure a sovereign government by attaching company's assets; case has implications for other state-investor disputes over nationalization of corporate assets
NEW YORK and WASHINGTON, Aug 01, 2008 -- Foley Hoag LLP secured a critical victory for the government of Bolivia when a federal judge held that foreign investors in a recently nationalized company had improperly attached the company's U.S. assets, and issued an order dissolving the attachment. The decision could have major implications in other state-investor disputes in Latin America and elsewhere tied to nationalization of corporate assets.
Judge Laura Swain of the Southern District of New York ruled this week that European investors in Bolivia's national telephone company Entel, whose shares were nationalized by Bolivia on May 1, had no right to seize any of Bolivia's or the company's assets in U.S. banks. As a result of her decision, full access to the funds will be restored to Bolivia and Entel.
The European concern, ETI, a Dutch subsidiary of an Italian firm itself owned by Telecom Italia, had filed for arbitration against Bolivia with the International Centre for the Settlement of Investment Disputes (ICSID), the arbitration arm of the World Bank, protesting the nationalization of its shares in Entel and demanding compensation of more than $500 million. On May 5, four days after the nationalization decree was issued by Bolivian President Evo Morales, the investor group appeared ex parte in courts in New York and London and convinced judges in both jurisdictions to attach bank accounts of Entel totaling more than $90 million, as security to guarantee payment of the arbitral award they are seeking.
Judge Swain ruled that ETI had no right to attach Bolivia's or Entel's assets prior to the final outcome of what is expected to be a lengthy arbitration process. Accordingly, she dissolved an ex parte order of attachment issued by a different judge on May 5. On July 11, a similar order was issued by the High Court in London, ending the attachment of Bolivia's and Entel's funds in British banks. With Judge Swain's ruling, all of the formerly attached funds are now available to the Bolivians.
The Bolivian Ambassador to the U.S., Gustavo Guzman, said, "The recent decision by a federal judge of the Southern District of New York, which has put a final end to the attachments of the bank accounts of the Bolivian telecommunications company Entel -- attachments sought by the Italian company Euro Telecom International, ETI -- manifests an unquestionable legal support for the firm conviction of Bolivia to determine the management and administration of a strategic sector of its economy according to the principles of sovereignty, self-determination, and fairness and respect for foreign investments."
Paul S. Reichler, a partner in Foley Hoag's Washington, DC, office, was lead counsel in the case on behalf of Bolivia. "Judge Swain's ruling establishes a very clear precedent for sovereign nations pursuing a policy of nationalization, as well as for investors who may seek to challenge the execution of that policy," said Mr. Reichler, who specializes in representing nations before judicial and arbitral bodies around the world.
"Her decision prevents foreign investors from going outside the arbitral process to obtain an unfair advantage by freezing bank accounts, as well as from putting undue pressure on sovereign states to compel settlements on terms dictated by the investors," he added.
Mr. Reichler argued for dissolution of the attachments on grounds that the attachment of sovereign funds prior to issuance of a final judgment or arbitral award is prohibited by the U.S. Foreign Sovereign Immunities Act. Bolivia's lawyers also argued that since Entel is not a party to the arbitration between Bolivia and ETI its funds could not be attached to secure a possible future award against Bolivia. In addition, Mr. Reichler's group submitted that ICSID arbitration rules prohibit the parties from seeking relief in national courts prior to the conclusion of the arbitration proceedings.
In her decision in favor of Bolivia and Entel, Judge Swain wrote, "ETI has brought an arbitration action against Bolivia, not Entel, and the attached bank accounts in New York undisputedly belong to Entel, not Bolivia. Plaintiff has made no proffer ... as to how the monies in Entel's New York bank accounts constitute an attachable debt obligation of Entel to Bolivia. The order of attachment will therefore be vacated."
Working alongside Mr. Reichler on behalf of the Bolivian government were Foley Hoag partners Janis Brennan and Lawrence Martin, both of the Washington, D.C. office.
Entel was represented by Michael Krinsky, a partner with Rabinowitz, Boudin, Standard, Krinsky & Lieberman, PC, of New York. ETI was represented by Robert Sills, a partner with Orrick Herrington & Sutcliffe LLP's New York office.
The case is E.T.I. Euro Telecom International N.V. v. Republic of Bolivia, and Empresa Nacional de Telecommunicaciones Entel S.A., No. 08 Civ. 4247 (LTS) (FM).
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