In 1999, at the peak of the telecom bubble, New Jersey-based global communications company IDT Corporation entered into a Memorandum of Understanding (MOU) with the Spanish telecom company Telefónica Internacional, S.A., to become a partner on Telefónica’s planned $1.3 billion undersea fiber-optic cable network encircling Latin America. Thereafter, negotiations stalled and IDT sued Telefónica for breach of the MOU in an arbitration. IDT won, but was awarded only minor damages given that the telecom bubble had burst. IDT then sued our client, Morgan Stanley, for tortiously interfering with its contract with Telefónica. IDT alleged that Morgan Stanley, which was Telefónica’s financial adviser on the deal, advised Telefónica to first delay consummating definitive contracts and then to ultimately breach the MOU with IDT. IDT also alleged that because Morgan Stanley had done some work for IDT in the fall of 1999, Morgan Stanley had a fiduciary duty to IDT, which it breached by tortiously interfering with the MOU, misappropriating IDT’s confidential information and giving this information to Telefónica, and allegedly extorting a $10 million fee from IDT on an unrelated transaction.

Morgan Stanley, then represented by Covington & Burling LLP, moved to dismiss the complaint on the ground that IDT’s claims were time barred and, in any event, collateral estoppel should bar IDT from relitigating its damages. Justice Cahn in the Commercial Division of the New York Supreme Court dismissed IDT’s claim for interference with prospective business relations but otherwise denied Morgan Stanley’s motion. Morgan Stanley then appealed to the Appellate Division, First Department, and retained Davis Polk. In the year it took the Appellate Division to affirm Justice Cahn’s ruling and thereafter, Davis Polk and Morgan Stanley had embarked on full-fledged discovery, including approximately 40 depositions in the United States, London, Madrid, Jerusalem and Buenos Aires. Morgan Stanley was granted leave to appeal to the New York Court of Appeals, and on February 10, 2009, Davis Polk partner Guy Miller Struve argued for Morgan Stanley before the Court.

On the March 26, 2009, the Court of Appeals ruled in favor of Morgan Stanley, holding that all of IDT’s claims were time-barred as IDT could have been able to make out elements of the claims at least on the date on which it decided to sue Telefónica in the first place. Moreover, the Court of Appeals held that IDT’s claim for unjust enrichment based on the allegedly extorted fee failed to state a claim as that fee was governed by a contract.

Partner Benjamin S. Kaminetzky led the team that included partners Guy Miller Struve, Michael P. Carroll and Frances E. Bivens, counsel Rebecca Winters, associates Boris Ayala, Dominick D. Barbieri, Russell Capone, Jonathan K. Chang, John D. Couriel, Nicholas N. George, Lori S. Gutzman, Michael A. Helfand, Alicia C. Llosa, Scott B. Luftglass, Matthew R. Maddox, Brooke A. Russakoff and Lindsay H. Tomenson, former associates Jason Manning, Christopher L. McCall and Vassili Thomadakis, and legal assistant Patricia H. Lui. All members of the Davis Polk team are based in the New York office.