New York Judge Rules in Favor of Avianca in Discovery Request Filed by Minority Shareholder

A New York Supreme Court judge today made a favorable ruling for Colombian airline Avianca by denying a expedited discovery request from its minority shareholder.

The Bogotá-based carrier has been engaged in a heated legal battle with its second largest shareholder Kingsland Holdings Ltd for months, and this legal decision is a blow to Kingsland’s attempt to block negotiations between Avianca and United Airlines to potentially form a partnership.

In a statement, Avianca said it was satisfied by today’s decision and “looks forward to the court taking into consideration its motion to dismiss Kingsland’s lawsuit,” which the airline believes is “without merit.”

Hernán Rincón, chief executive of Avianca, added that Avianca remains convinced that an alliance with United is in the best interest of the company and its shareholders. “For this reason, we will continue negotiations with United,” said Rincón. “We want to achieve a commercial alliance that contributes to strengthening operations and service while creating value for our shareholders.”

Kingsland, which has a 22% voting position in Avianca, stated that the decision today does not address the merits of the company’s lawsuit. According to a spokesperson, Kingsland plans to monitor the situation and continue to “zealously defend the interests of all shareholders” going forward.

“The court’s ruling does not address the merits of the Kingsland Holdings lawsuit,” said the representative. “Following assurances from Avianca’s lawyers to the court that no transaction with United is imminent and remains subject to negotiation, the court directed Kingsland Holdings to wait to obtain discovery.”

The spokesperson also noted that “Kingsland is pleased that its litigation has exposed the secret side deal which United is negotiating with Synergy and Germán Efromovich, which will be the subject of scrutiny by the court and the public if a definitive agreement is announced.”

Kingsland first filed suit against Avianca, its largest shareholder Synergy Group, Germán Efromovich (who controls Synergy), and United Continental Holdings Inc. after the start of formal negotiations were announced early this year.

The Kingsland suit was harsh in its criticism of Avianca, saying that Efromovich has “plundered” the airline and wants to reach a deal with United solely for personal gain. It also claimed that “he torpedoed the strategic process by clandestinely negotiating a transaction with United.”

Avianca countersued in April in a filing that took on a similar tone. It called Roberto Kriete of Kingsland a “disloyal director who has worked actively to undermine the company’s strategic goals.” It also countered the allegations against Efromovich by alleging that the Kingsland suit was filed by Kriete “for his own selfish purposes.”

In a statement, Avianca said the goal of its April lawsuit was to “stop the inappropriate actions that he has carried out seeking to prevent progress of the company.” It also appealed to the court to reject the legal claims previously made by Kingsland and issue an order preventing Kingsland from “further disclosing confidential information.”