ACP Master, Ltd. v. The Republic of Argentina

Background

The memorandum addressed coordinated motions to dismiss amended complaints filed by Aurelius Capital Master, Ltd., Novoriver S.A., ACP Master, Ltd., 683 Capital Partners, LP, and Adona LLC and related entities. The plaintiffs held GDP-linked securities issued by the Republic of Argentina. The securities could require additional payments if Argentina’s economic performance exceeded specified thresholds.

For the 2013 reference year, the securities used economic data published by Argentina’s Instituto Nacional de Estadistica y Censos, or INDEC. In 2014, INDEC changed the base year for its GDP calculations from 1993 to 2004 and stopped publishing full-year 2013 actual real GDP in constant 1993 prices. The plaintiffs alleged that Argentina then used unadjusted GDP figures instead of applying the contract’s required adjustment fraction, and that Argentina caused INDEC not to publish the missing data to avoid making a payment.

The plaintiffs asserted New York-law claims for breach of contract and breach of the implied covenant of good faith and fair dealing. Argentina moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing that the securities did not require it to cause INDEC to publish the data, that it had discretion to calculate the payment amount, and that the good-faith claims had to satisfy the heightened pleading standard for fraud claims under Rule 9(b).

Rule 9(b)

The court held that Rule 9(b), which requires fraud to be pleaded with particular detail, did not apply. The plaintiffs’ claims were based on an alleged bad-faith failure to provide or use contractually required data years after the securities were issued, not on alleged misrepresentations or omissions that induced them to enter the debt exchange. The court therefore evaluated the amended complaints under Rule 8’s ordinary plausibility standard.

Modification provision

The court rejected Argentina’s argument that the securities’ binding-effect clause gave the Ministry of Economy unrestricted authority over the payment calculation. The securities specifically required bondholder consent for changes to the method of calculating payment amounts. Because the plaintiffs alleged that Argentina used unadjusted figures instead of applying the adjustment fraction, they plausibly alleged that Argentina changed the payment-calculation method without the consent required by the modification provision.

The court also stated that the securities did not give Argentina the power to substitute other INDEC-published GDP figures when the required data was unavailable. It therefore held that the plaintiffs had adequately pleaded a claim for breach of the express modification provision.

Implied obligation and good faith

The court declined to read the securities as imposing a categorical obligation on Argentina to compel INDEC to calculate and publish the missing data. It found that the written agreements did not contain such a term and that the court could not add one through contract interpretation.

The court nevertheless held that the plaintiffs plausibly stated claims for breach of the implied covenant of good faith and fair dealing. That covenant generally prevents a contracting party from destroying or injuring the other party’s right to receive the contract’s benefits. The plaintiffs alleged that Argentina knew the adjusted data would show that a payment was due and caused INDEC not to publish the data so that Argentina could avoid paying bondholders. At the motion-to-dismiss stage, the court accepted those allegations as true and found them sufficient to support a plausible claim.

Disposition

Judge Loretta A. Preska denied the Republic of Argentina’s motion to dismiss the amended complaints. The court directed the parties to propose a schedule for discovery.