MEMORANDUM DECISION AND ORDERGRANTING IN PART AND DENYING IN PART PETITIONER ESH’S MOTION FOR PRELIMINARY INJUNCTION IN AID OF ARBITRATION This petition for an injunction in aid of arbitration arises out of a dispute among Mexican citizens who formed Canadian limited liability entities, which then entered into a Partners Agreement governed by Delaware law — all so they could own and operate, through a series of Delaware LLCs, a taximeter and ride-hailing company operating in Mexico City.The Partners Agreement mandates that all disputes arising out of the agreement be arbitrated before the International Court of Arbitration at the International Chamber of Commerce (“ICC”).So what are we doing in the Southern District of New York, in a state and judicial district that has not the slightest interest in the underlying enterprise?The answer is that, for reasons best known to the partners themselves, the agreed site for the ICC arbitration is New York City, and the Partners Agreement confers “exclusive jurisdiction” on New York City courts (including specifically this Court) for the limited purpose of awarding pre-arbitral injunctive relief — including injunctions in aid of arbitration.But while dispute resolution is supposed to take place in New York, Petitioner alleges that, through a series of unlawful corporate maneuvers and lawsuits in Mexico, Respondents1 have wrested control of various downstream entities that the parties agreed would be controlled jointly, have misappropriated trade secrets belonging to the joint venture for their sole use, and plan to use the now solely-controlled companies to compete with the joint venture in the same line of business in different locales — and perhaps even in Mexico City itself. Petitioner has commenced an arbitration before the ICC, but Respondents appear to have obtained at least two ex parte orders from a Mexican court, one of which purports to bar Petitioner from commencing arbitration. This order appears to grow out of an application to declare that the arbitration clause is either void or does not apply — I do not know, as Petitioner does not have, and so cannot provide to the Court, the papers that were filed with the Mexican court. Respondents refuse to provide them.Petitioner seeks an emergency injunction in aid of arbitration, principally to prevent Respondents from altering the status quo by bidding unilaterally on a lucrative public contract using the disputed technology or by otherwise transferring to their sole control the primary asset of the joint venture while the parties proceed to arbitration.On May 2, 2019, Petitioner Espiritu Santo Holdings, LP (“ESH”), having given 24 hours’ notice to Respondents, approached this Court seeking a temporary restraining order in their favor. Respondents did not appear. After reviewing the papers (which included Spanish language copies of portions of purported orders from a Mexican court that Petitioner had no time to translate), and hearing Petitioner ex parte, the Court temporarily restrained Respondents L1bero Partners, LP (“L1bero”) and Espiritu Santo Technologies, LLC (“EST”) from:1. Improperly competing with the joint venture in violation of that certain Espiritu Santo Technologies, LLC Partners Agreement dated December 6, 2017 (the “Partners Agreement”) (Decl. of Santiago Leon Aveleyra (“Leon Decl.”), Dkt. No. 21, Ex. 1);2. Misusing any trade secret or intellectual property developed by ESH in violation of the Partners Agreement; and3. Taking any further steps in any Mexican court or otherwise, anywhere in the world, to interfere with or divest or derogate the exclusive jurisdiction of the United States District Court for the Southern District of New York to decide the issue of pre-arbitral injunctive relief, as provided for in the Partners Agreement.(Dkt. No. 3 at 2.)Now before the Court is ESH’s application for an order to show cause why a preliminary injunction in substantially the same form as the temporary restraining order should not issue. (See Dkt. No. 3.)On May 13, 2019, the parties appeared before this Court for a hearing, at which the Court heard testimony and argument. (See generally Transcript of Hearing dated May 13, 2019 (“Tr.”).)For the reasons that follow, ESH’s emergency motion for a preliminary injunction is granted in part and denied in part.I. Findings of FactA. The PartiesPetitioner ESH is a limited partnership organized under the laws of the province of Alberta, Canada, with its principal place of business in Missouri, Texas. (Emergency Pet., Dkt. No. 1, 8.) ESH is represented and managed by nonparties Santiago Leon Aveleyra (“Leon”) and Eduardo Zayas Duenas (“Zayas”) on behalf of a close group of investors. (Id.)Respondent L1bero is a limited partnership organized under the laws of the province of Alberta, Canada, with its principal place of business in Houston, Texas. (Id. 9.) L1bero is indirectly owned and controlled by two Mexican businessmen, Ricardo Salinas Pliego (“Salinas”) and Fabio Covarrubias Piffer (“Covarrubias”). (See Leon Decl. Ex. 1 §10.1(b).)Respondent EST is a limited liability company organized under the laws of the State of Delaware with its principal office in Miami, Florida. (Emergency Pet. 10.) EST’s operations is governed, in part, by the Partners Agreement entered into between the parties on or about December 6, 2017. (Leon Decl. Ex. 1.) Pursuant to the Partners Agreement, the CEO of EST is Covarrubias. (Emergency Pet. 10.)B. Development of the New Taximeter TechnologyThere are approximately 138,000 registered taxis in Mexico City that, every day, account for over 2.7 million trips. (Leon Decl. 2.) Most of the taxi fleet is equipped with technologically obsolete equipment; the fleet cannot be hailed from smartphone applications or paid for with credit cards, and many of the taximeter systems are inaccurate and lack geolocation or safety features. (Id.)Understanding these shortcomings, in 2015, Leon and Zayas began developing technology aimed at making taxi transport within Mexico City safer and more efficient for both taxi drivers and their customers (the “L1bre technology”). (Leon Decl.
1, 3.)Leon and Zayas recruited and built a team that included senior managers formerly from companies like Uber and Apple; created and registered the “L1bre” tradename and associated trademarks for the system; and developed the first version of the overall technology and related software. (Id. 3.) To develop the software, Leon and Zayas entered into an agreement with a developer called NullData. (Tr. 49:12-19.)The resulting technology was something akin to the love child of Verifone and Uber: it included physical taximeters, as well as the ability to ride hail through smartphones. In order to develop this technology, ESH spent USD $40 million of its own capital. (Leon Decl. 7.)C. Creation and Corporate Ownership of OpCo LusadAs part of this first phase of development, in October 2015, Leon and Zayas incorporated an operating company in Mexico named Servicios Digitales Lusad, S. de R.L. de C.V. (“Lusad”), as well as two other affiliated companies: Servicios Administrativos Lusad, S. de R.L. de C.V. (“Servicios Administrativos Lusad”) and Lusad Servicios, S. de R.L. de C.V. (“Lusad Servicios”). (Id.)Because Lusad was the operating company, Lusad registered the “L1bre trademark,” (Tr. 54:1-7) and entered into the contract with NullData for the development of key software (id. at 58:3-7).Lusad was the wholly-owned subsidiary of nonparties L1bre Holding and L1bre LLC, each of which, in turn, was a wholly-owned subsidiary of Respondent Espiritu Santo Technologies, LLC.2 (Id. at 58:8-11.) EST, in turn, was the wholly-owned subsidiary of Petitioner ESH. (Leon Decl. 9.)(Id. 10.)Leon and Zayas appointed Manuel Tabuenca (“Tabuenca”), a former high-level employee at Uber, as Lusad’s CFO. (Id. 15.)D. Mexico City Taximeter ConcessionThrough Lusad, Leon and Zayas approached the Mexico City Secretariat of Mobility (Secretaria de Movilidad, or “Semovi”) in order to explain and promote the benefits of the system they were developing. (Id. 4.) The city’s representatives explained that the technology was appropriate and necessary, but that Semovi would have to put such a project out for public bid. (Id.)As such, in or around May 2016, Semovi published in the Mexico City Official Gazette a declaration of need for the replacement, installation, and maintenance of the City’s taxi fleet taximeters, to include a satellite geo-localization system, smart maps, centralized tracking, safety and security features, announcements and publicity capabilities, including advertising, as well as the ability for remote taxi hailing. (Id. 5.) The concession was to be awarded for a period of ten years. (Id. 12.)Eight companies, including Lusad, submitted bid packages. (Id. 6.) However, Lusad was the only bidder whose bid complied with all of the bidding specifications and requirements mandated by Semovi. (Id.) In fact, the L1bre corporate group remains, to this day, the only company in Mexico with certified digital taximeters. (Tr. 76:23-25.) Accordingly, on June 17, 2016, Semovi’s adjudication committee granted Lusad the concession for the substitution, installation, and maintenance of new taximeters and related application technology. (Leon Decl. 6.)The original terms of the concession allowed Lusad to install the taximeters in the entire existing Mexico City taxi fleet and to receive trip-based compensation — up to 12 Mexican pesos per trip, as well as advertising and other revenue streams. (Id. 12; Tr. 99:10.)Even at this early stage, however, the concession began to show signs of trouble on the horizon. In May of 2017, Semovi issued a mandatory notice to all taxi drivers, requiring them to switch from analog taximeters to digital ones — i.e., to the Lusad technology. (Tr. 103:4-8.) This announcement was met with resistance by an organized group of about 400 taxi drivers — out of 138,000 taxis total — who sued for an injunction. (Id. at 103:8-12) Apparently, the protests attracted attention both from the media and from prospective mayoral candidates, who planned to run in the summer of 2018. (Id. at 103:11-19.) During this time, the eventual winner of the mayoral race distinguished himself by promising taxi drivers that he would not require them to adopt the Lusad technology. (Id.)E. The Unit Purchase Agreement and Partners AgreementIn 2017, rather than continue to fund the enterprise exclusively, and with the ten-year concession in hand, Leon and Zayas began to seek additional capital and financing necessary to finalize the technology, manufacture the taximeters, and further develop the L1bre project. (Leon Decl. 7.)It was at this point that Leon and Zayas met with Salinas and Covarrubias. (Id.) Covarrubias is a Mexican businessman with millions of dollars of investments. (See Tr. 133:24-134:3.)1. Unit Purchase AgreementThe parties agreed that Salinas and Covarrubias would together acquire 50 percent of the L1bre business in exchange for (i) USD $5 million in cash, (ii) a USD $20 million intercompany loan, and (iii) Salinas’ commitment to obtain a line of credit for working capital through his bank, Banco Azteca, of USD $90 million. (Leon Decl. 8.)This agreement involved restructuring the ownership of Lusad. To effectuate this, Leon and Zayas first entered into a Unit Purchase Agreement3 with Salinas and Covarrubias, pursuant to which Leon and Zayas agreed to transfer 50 percent of the voting units of EST to Salinas and Covarrubias, to be held through their company, Respondent L1bero. (Id. 9.) As a result of the Unit Purchase Agreement, the following ownership and ultimate control structure was created for the L1bre business:(Id. 10.)2. Partners AgreementApproximately two weeks after entering into the Unit Purchase Agreement, on December 6, 2017, Leon, Zayas, and Covarrubias executed the Partners Agreement. (Id. 11.)The purpose of the Partners Agreement is “to govern the relation between [L1bero and ESH] as partners of [EST].” (Leon Decl. Ex. 1 §1 (emphasis added).) Note that the agreement was to govern the relationship between ESH and L1bero both as partners of EST and otherwise. The Partners Agreement requires EST to “take all necessary corporate actions to ensure that its operating agreement reflects and includes the agreements contained in this PA.” (Id.)The Agreement gives each partner a 50 percent ownership interest in EST. (Id. §3.1) It further states that, “In the event of any merger, consolidation, division or other reorganizations of the Company, each of the Partners shall have the right to maintain its percentage of Ownership Interest in the Company or any successor of the Company as the percentage it then holds immediately before such merger, consolidation, division or other reorganizations.” (Id. §3.2.)The Agreement also provides that, inter alia:ESH and L1bero shall be “jointly responsible for…[h]andling the day-to-day operations of L1bre and Lusad” and for “[e]xplor[ing] new business opportunities for [EST] and/or L1bre in any other countries in which services similar to those contemplated by the Lusad Concession may be performed, including the licensing of the application, software and know-how developed by L1bre for remote hiring of cab services and other related services” (id. §4.2(a)-(b) (emphasis added));EST’s Board will have four Directors, and that ESH and L1bero will each appoint two directors for indefinite terms (id. §5.1(a));“If a Director position becomes vacant for any reason, the Party who appointed the Director whose position is vacant shall be entitled to appoint a successor in writing” (id. (emphasis added)); and“[T]he Board composition and structure and the appointment procedure for the Top Management shall be replicated in the other [EST] Affiliates and in any new affiliates or subsidiaries that may be incorporated as part of [EST's] expansion of its business operations” (id. §5.1(b)).This last provision applies regardless of where the subsidiary might be incorporated. There are no restrictions whatever on its applicability. In other words, any downstream subsidiary that might be incorporated as a part of the expansion of the partnership; and any other business opportunities, had to have two directors appointed by ESH and two directors appointed by L1bero.The Agreement further provides:All “Major Decisions” are subject to unanimous affirmative written resolution of all Directors, including:“The entry by [EST] or any of [EST]‘s Affiliates into any partnership, joint venture or other profit sharing arrangement with a third party; and/or the admittance or acceptance to additional partners in [EST] or in [EST]‘s Affiliates, directly or indirectly” (id. §5.2(h));“Engaging or changing the external auditors for the audit of [EST]‘s financial statements or of any of [EST]‘s Affiliates” (id. §5.2(k));“[T]he execution of any agreement, act or operation by [EST] or by [EST]‘s Affiliates with a related party to the Parties” (id. §5.2(r));“[T]he incorporation by [EST] or by any of [EST]‘s Affiliates of any direct or indirect affiliate or investment company or vehicle with legal personality or not” (id. §5.2(t)); and“The exercise of any corporate or voting rights issued by [EST]‘s Affiliates and the designation of any proxy or representative authorized to vote and approve any of the acts or matters described in paragraphs (a) to (s) hereof by each of [EST]‘s affiliates” (id. §5.2(u));“The Partners shall co-operate and discuss in good faith to resolve operational disputes which might arise between them” (id. §5.3(a));If the Directors appointed by each Party are not able to reach unanimous agreement on Major Decisions, the Parties will attempt resolution by consultation; and in the event of a failure of consultation, will engage in a procedure to valuate and sell the company (id.); andEach partner, at any time, during normal business hours, may examine the books and records of EST, L1bre LLC, and Lusad (id. §8.3).The Agreement contains a broad non-compete provision:The Partners agree, either directly or indirectly not to compete or to not to intervene (and to cause that none of the Principals compete or intervene directly or indirectly) in any activities similar to the ones performed by [EST] and [EST]‘s Affiliates, and/or to directly or indirectly invest or participate in the capital stock and/or as creditor or lender, in or in favour of third parties that is a competitor of [EST] in such countries and jurisdictions where [EST] and [EST]‘s Affiliates perform their current and/or future activities. The provision herein will be in force during the term of this Agreement and for a term of 24 (twenty four) months after the same is terminated for any reason.The Partners hereby agree that they will refrain to analyse and/or to enter into any new line of businesses or economic activities or initiatives that could have a synergy with the activities or the line of business performed by [EST] or by [EST's] Affiliates, without submitting such new venture or new line of business to the prior analysis of the Board of Directors of the Company, provided that if the Board elects to reject or denies to participate in such initiative in writing, the Partners shall be free to pursue the submitted venture independently to the extent the Members of the Board of Directors appointed by the Partner not submitting the initiative rejected the proposal. The approvals of new ventures hereof shall be considered a Major Decision.(Id. §11(d)-(e).)Crucially, the Partners Agreement contained the following language regarding dispute resolution:12. APPLICABLE LAW. ARBITRATION.This Agreement and all actions contemplated herein shall be governed by and construed in accordance with the laws of the State of Delaware. Any dispute, claim or controversy resulting from, relating to or arising out of this Agreement, including the breach, termination, enforcement, interpretation or validity thereof, shall be submitted to final and binding arbitration administered by the International Court of Arbitration of the International Chamber of Commerce (“ICC”) in accordance with its Rules of Arbitration then in effect (the “Rules”), except as modified herein:[…](b) The seat of arbitration shall be New York City, New York. The language of the arbitration proceedings, and of the award, shall be the English language.(c) By agreeing to arbitration, the Partners do not intend to deprive any court of its jurisdiction to issue a pre-arbitral injunction, pre-arbitral attachment or other temporary or interim order in aid of arbitration proceedings. In any such action, each of the Partners hereto irrevocably and unconditionally (i) submit to the exclusive jurisdiction and venue of the United States District Court for the Southern District of New York located in New York County, New York, or, if such court does not have jurisdiction, the Supreme Court of the State of New York or any court of competent civil jurisdiction sitting in New York County New York (the “New York Courts”); (ii) waives, and agrees not to assert, by motion or otherwise, that it is not subject to the jurisdiction and venue of such courts, that its property is exempt or immune from attachment and execution in the New York Courts, that such action is brought in an inconvenient forum, that the action should be transferred or removed to any court other than one of the New York Courts, that such action should be stayed by reason of the pendency of some other proceeding in any other court other than one of the New York Courts, or that this Agreement or the subject matter hereof may not be enforced in or by the New York Courts; and (iii) Waives any right to trial by jury. Without prejudice to such provisional remedies as may be available under the jurisdiction of a court, the arbitral tribunal[ --- ]or the emergency arbitrator to the extent and as provided in the Rules[ --- ]shall have full authority to grant provisional remedies and to direct the Partners to request that any court modify or vacate any temporary or preliminary relief issued by such court, and to award damages for the failure of any party to respect the arbitral tribunal’s orders to that effect.(Leon Decl. Ex. 1 at §12(a)-(c).)Covarrubias was appointed CEO of EST, L1bre Holding LLC, L1bre LLC, and Servicios Digitales Lusad, S. de R.L. de C.V., i.e., Lusad. (Leon Decl. 11.)Upon the appointment of Covarrubias as CEO, Tabuenca, then-general controller of Lusad, was demoted to “controller for administrative processes,” where he was responsible for reviewing and supervising certain administrative procedures, including supplier relationships. (Tr. 96:6-97:2.)F. Trouble BrewsFrom about December 2017 until mid-to-late 2018, the partnership appeared to operate smoothly. (Id.
