SDNY Grants Anti-Suit Injunction Against TV Azteca

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For the past several years, parallel litigation has been ongoing in Mexico and the United States between the Mexican media conglomerate TV Azteca, S.A.B. de C.V. and The Bank of New York Mellon (BNY), the Indenture Trustee for a series of TV Azteca’s unsecured notes. Two weeks ago, Judge Paul G. Gardephe (SDNY) granted BNY’s motion for an order enjoining TV Azteca from continuing to litigate in Mexican courts. The decision highlights the ready availability of anti-suit injunctions to prevent parties from avoiding their obligations under exclusive forum selection clauses. It also raises (although doesn’t fully engage with) one of the critical questions related to this form of relief: whether a delay on the part of the applicant should affect the availability of an injunction.

Background

The dispute involves $400 million in unsecured notes issued by TV Azteca and guaranteed by a number of its subsidiaries. The notes were issued pursuant to an Indenture dated August 9, 2017, with BNY serving as Indenture Trustee, and were scheduled to mature in 2024.

In May 2022, after TV Azteca failed to make certain interest payments on the notes, noteholders authorized the issuance of an acceleration notice declaring the entire unpaid principal, along with unpaid interest, to be due and payable immediately. TV Azteca responded by filing a complaint in the Ninth Superior Court of Mexico against the noteholders, arguing that the acceleration notice was invalid. It obtained an injunction from that court prohibiting the noteholders from taking any action to collect on the notes. After BNY transmitted an additional notice of acceleration at the direction of the noteholders, the Mexican injunction was extended to prohibit any collection efforts by BNY as Indenture Trustee.

In August 2022, BNY filed a motion for summary judgment in lieu of complaint in New York state court. It sought a total of nearly $470,000,000, representing the entire unpaid principal along with unpaid interest and a redemption premium. That action was subsequently removed to federal district court for the Southern District of New York (SDNY).

One month later, TV Azteca in turn filed a complaint against BNY and certain noteholders in the Sixty-Third Superior Court in Mexico. It sought a declaration that because of force majeure events related to the Covid pandemic, it was not in default under the terms of the Indenture. On September 27, 2022, that court issued an injunction prohibiting TV Azteca from making any payments under the Indenture until the World Health Organization declared that the pandemic had ended.

In June 2024, BNY filed a motion in the SDNY seeking an anti-suit injunction to bar TV Azteca from continuing its litigation in Mexico.

The Second Circuit Approach to Anti-Suit Injunctions

The Second Circuit uses a three-step framework to consider anti-suit injunctions. First, the applicant must meet the threshold requirements for enjoining a parallel proceeding: the parties in interest must be the same in both matters, and the resolution of the proceeding in the issuing court must be dispositive of the action to be enjoined. Second, a set of factors meant to assess the risk of permitting the foreign proceeding to continue—more on this test below—must weigh in favor of an injunction. Third, the applicant must satisfy the generally applicable test for preliminary injunctions, including a showing of irreparable harm.

The second step of this analysis involves the so-called “China Trade” test, named after a leading Second Circuit case on anti-suit injunctions, China Trade & Dev. Corp. v. M.V. Choong Yong (1987). In that case, the court listed five factors that earlier decisions had identified as relevant to the analysis:

(1) frustration of a policy in the enjoining forum; (2) the foreign action would be vexatious; (3) a threat to the issuing court’s… jurisdiction; (4) the proceedings in the other forum prejudice other equitable considerations; or (5) adjudication of the same issues in separate actions would result in delay, inconvenience, expense, inconsistency, or a race to judgment.

In China Trade itself, the Second Circuit brushed aside the second and fifth factors. It noted that they would likely be present in any situation involving parallel proceedings, so that giving them weight would undermine the general rule permitting such proceedings. Instead, the court emphasized just two reasons to grant an anti-suit injunction: “(A) whether the foreign action threatens the jurisdiction of the enjoining forum, and (B) whether strong public policies of the enjoining forum are threatened by the foreign action.” In subsequent cases, however, the Second Circuit has indicated that all five of the China Trade factors should be considered.

Overall, while some circuits follow a more liberal approach in granting anti-suit injunctions, the Second Circuit is relatively restrictive. Its approach starts from the principle that U.S. law generally tolerates parallel proceedings until the point at which one of them results in a judgment. It also emphasizes the serious international comity concerns that anti-suit injunctions raise, counseling restraint in their issuance.

BNY v. TV Azteca and the Role of Forum Selection Clauses

Addressing BNY’s motion for an anti-suit injunction, Judge Gardephe determined that the threshold requirements for such relief had been met: the parties in interest were the same in both the Mexican and the U.S. litigation, and a decision in the U.S. case would be dispositive of the Mexican actions. It then turned to the China Trade factors.

At this point in the analysis, one aspect of the Indenture became critical: the Indenture included an exclusive forum selection clause in favor of New York courts for all actions arising out of or related to the Indenture.

When a party initiates foreign litigation in violation of an exclusive forum selection clause favoring a court in the United States, that implicates the two most significant factors under the China Trade test. First, the foreign action threatens the (exclusive) jurisdiction of the enjoining forum. Second, to permit the foreign action to continue would undermine the strong federal policy in favor of enforcing forum selection clauses. In considering BNY’s motion, the court said as much, observing that the justification for issuing an anti-suit injunction “crests” when a party brings foreign litigation in an effort to “evade the rightful authority” of the chosen court.

Interestingly, the court suggested that the forum selection clause also implicated all three of the remaining China Trade factors. In the court’s view, it was “vexatious” to file foreign litigation in violation of an exclusive forum selection agreement. (In discussing this factor, the court also noted that TV Azteca had proceeded on an ex parte basis in the Mexican proceedings.) Equitable considerations include the need to deter forum shopping, in which TV Azteca had engaged when it ignored its own agreement to litigate in New York. And finally, it would increase costs and inconvenience if BNY were required to litigate in Mexico the question whether the forum selection clause should be enforced.

In other words, the fact that the Indenture included an exclusive choice of forum tilted all five China Trade factors in BNY’s favor. This suggests that even in circuits following the restrictive approach to granting anti-suit injunctions, the presence of an exclusive forum selection clause choosing a U.S. court will be dispositive. (For a note on a Ninth Circuit case grappling with a similar issue, see this post by John Coyle.)

The Timing Issue

Having dealt with the China Trade factors, the SDNY turned to the last step in its analysis: determining whether BNY had met the requirements for a preliminary injunction.

Two of the relevant requirements—likelihood of success on the merits and that the injunction would be in the public interest—collapse into the China Trade test. The applicant need only show likely success regarding the anti-suit injunction, not likely success on the underlying claim. Satisfying the China Trade test meets that requirement. And because there is a strong public policy in favor of enforcing forum selection clauses, issuing an anti-suit injunction to prevent the violation of such a clause is in the public interest.

The third requirement is a showing of irreparable harm: an injury that is “actual and imminent, and one that cannot be remedied if a court waits until the end of the trial to resolve the harm.” As the court recognized, forcing a party to litigate in a foreign forum in contravention of an exclusive forum selection clause does cause irreparable harm. In this case, though, BNY permitted the Mexican proceedings to continue for some eighteen months before filing for an anti-suit injunction.

TV Azteca argued that this delay had two implications. First, it made it hard for BNY to argue that the harm in question was “imminent.” Second, if a party delays in asserting its rights under a forum selection clause and permits the investment of judicial and party resources in litigation elsewhere, the equities speak against injunctive relief later on.

BNY argued that its delay was caused by “changing circumstances” in the foreign litigation, pointing in particular to a January 2024 decision of the Sixty-Third Superior Court of Mexico declining to vacate its 2022 injunction despite the end of the Covid pandemic.

The court did not explore at length the reason BNY might have decided to hold off on applying for an anti-suit injunction to enforce its rights under the forum selection clause. Quoting from an earlier (and significantly more complicated) case, it stated that BNY had not failed to defend its interests in a manner that amounted to a waiver of the right to seek injunctive relief. It therefore concluded that the delay did not justify denying its motion for an anti-suit injunction.

Conclusion

Judge Gardephe’s opinion and order in this case mentions only in passing one additional aspect of the litigation between the parties. In March 2023, certain holders of the notes issued under the Indenture initiated an involuntary Chapter 11 proceeding in U.S. bankruptcy court against TV Azteca and its guarantors. That action might explain BNY’s decision not to file for an anti-suit injunction as soon as TV Azteca filed a parallel action in Mexico in September 2022: at the time, BNY may have been considering other strategies for recovery. In November 2023, however, TV Azteca obtained a dismissal of the bankruptcy case.