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A federal jury in San Antonio on Oct. 1 returned a $19.6 million verdict against Avantel, Mexico’s second largest long-distance carrier, finding that the company breached a verbal contract with now-defunct TelePlus Inc. The dispute in TelePlus v. Avantel arose out of the heated competition for long-distance customers following the deregulation of telecommunication services in Mexico. Before 1997, individuals and businesses in Mexico were required to purchase long-distance services from Telefonos de Mexico, known more commonly as “Telmex.” But starting on Jan. 1, 1997, when deregulation went into effect, consumers were allowed to choose their long-distance carrier. TelePlus marketed long-distance service for Avantel in early 1997. In 1998, TelePlus, formerly a San Antonio-based telecommunications company, filed suit against MCI Telecommunications Corp., which owns part of Avantel, in the U.S. District Court for the Western District in San Antonio, alleging, among other things, breach of contract. Senior U.S. District Judge William Wayne Justice was assigned to hear the case, which has undergone changes in defendants over the past five years, including when it added MCI subsidiaries. TelePlus added Avantel as a defendant in the suit in 2000 and dismissed its claims against MCI and its subsidiaries in July 2002, following public disclosure of that company’s impending bankruptcy. In a complaint filed with the federal court, TelePlus alleged that Avantel repeatedly solicited TelePlus in 1996 to enter into an oral agreement to provide additional marketing services in anticipation of the deregulation. Under the contract, which Avantel allegedly said would be put in writing, TelePlus promised to solicit Mexican residential and business customers to select Avantel as their long-distance carrier after Jan. 1, 1997, TelePlus alleged in the complaint. But, according to the complaint, Avantel allegedly refused to execute a written contract. “Avantel continued to tell TelePlus that their agreement would be reduced to writing and urged TelePlus to begin and, thereafter, to continue working without a written agreement in place. Indeed, Avantel represented that it was counting on TelePlus ‘in a big way,’” TelePlus alleged in its complaint. TelePlus alleged in the complaint that the oral agreement was for a three-year term and that the agreement entitled TelePlus to a percentage of the revenue generated by the long-distance customers it persuaded to select Avantel as their carrier. As a result of TelePlus’ marketing efforts, Avantel acquired more than 96,000 long-term, long-distance customers who were expected to provide Avantel an average of more than $2.1 million in revenue per month, TelePlus alleged in the complaint. David Dunham, a partner in Austin’s Dunham & Taylor and lead counsel for TelePlus, alleges that his client opened 18 offices in Mexico and hired approximately 1,200 people to perform the marketing services for Avantel. TelePlus alleged in its complaint that, in reliance on Avantel’s representation of how much TelePlus was going to get paid, it spent $2 million of its own money providing marketing services to Avantel. “Avantel never paid a dime or a peso,” Dunham alleges. Karen Burgess, co-counsel for TelePlus and a partner in Dunham & Taylor, alleges the expense of the marketing effort in Mexico forced TelePlus to close its doors in 1997. James Tancula, lead counsel for Avantel and a partner in Mayer, Brown, Rowe & Maw in Houston, did not return two telephone calls seeking comment before presstime. Mayer, Brown associate Timothy Tyler, Tancula’s co-counsel, declines comment. In its answer to TelePlus’ complaint, Avantel said it did enter into a written contract with TelePlus — in April 1996 to provide some marketing services. That written contract is not at issue in the suit. However, Avantel denied ever soliciting TelePlus to perform additional marketing services under an oral agreement or authorizing the company to perform those services on Avantel’s behalf. Tyler, co-counsel for Avantel, declines to comment on whether his client will appeal. But a possible appeal isn’t the only problem TelePlus faces. TelePlus could find it difficult to collect on the $19.6 million judgment plus interest for Avantel’s alleged breach of contract. Russell Weintraub, a University of Texas School of Law professor who writes on international litigation issues, says if the judgment is not reversed on appeal, TelePlus is unlikely is collect on it unless Avantel has assets in the United States. “There’s no chance a Mexican court would recognize and enforce the judgment,” Weintraub says. Burgess says Avantel has assets in this country. “I’m not sure the assets are extensive enough for this kind of judgment,” she says. Determining Avantel’s U.S. assets will be an issue addressed in post-judgment discovery, Burgess adds.

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