Aurelius Capital Master, Ltd. v. The Republic of Argentina

Background

The court considered coordinated amended complaints filed by Aurelius Capital Master, Ltd., Novoriver S.A., ACP Master, Ltd., 683 Capital Partners, LP, and Adona LLC, Egoz I LLC, Egoz II LLC, Mastergen, LLC, Erythrina, LLC, AP 2016 1, LLC, AP 2014 3A, LLC, AP 2014 2, LLC, and WASO Holding Corporation. The plaintiffs held GDP-linked securities issued by the Republic of Argentina. Under those securities, Argentina could owe additional payments if specified economic conditions were met for a reference year.

The dispute concerned the 2013 reference year. The securities used GDP figures published by Argentina’s Instituto Nacional de Estadística y Censos, or INDEC, and included an adjustment formula for changes to the GDP base year. In 2014, INDEC changed the base year from 1993 to 2004 and stopped publishing 2013 actual real GDP in constant 1993 prices. The plaintiffs alleged that Argentina used unadjusted figures instead of applying the contractual adjustment formula and that it caused INDEC not to publish the missing figure to avoid making a payment.

The court had previously dismissed Aurelius’s original complaint because the securities did not allow the plaintiffs to substitute the EMAE Index for the contractually specified GDP data. The amended complaints did not assert that the EMAE Index replaced the required input. Instead, the plaintiffs used INDEC data, including the EMAE Index, to support their allegations about what Argentina knew and why the missing figure mattered.

Pleading standards

Argentina moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. The court had to accept well-pleaded factual allegations as true and draw reasonable inferences for the plaintiffs, but it did not have to accept conclusory legal statements.

The court rejected Argentina’s argument that Federal Rule of Civil Procedure 9(b) applied. Rule 9(b) requires fraud or mistake to be pleaded with particularity. The court concluded that the plaintiffs’ claims did not sound in fraud because their core allegation was not that Argentina made misrepresentations to induce the bond exchange. Instead, the plaintiffs alleged that Argentina later acted in bad faith to avoid a payment allegedly required by the securities. The court therefore evaluated the claims under Rule 8’s ordinary plausibility standard.

Contract claims

The court held that the plaintiffs plausibly alleged a breach of the securities’ modification provision. That provision required specified bondholder approval for changes to the securities, including a change to the method of calculating payment amounts. The court concluded that the securities required use of the adjustment formula and that abandoning the formula in favor of unadjusted figures changed the method of calculating the payment amount.

The court rejected Argentina’s argument that the securities’ binding-effect clause gave the Ministry of Economy broad authority to use any figures it chose when the required INDEC data was unavailable. The court read the specific modification provision together with the more general binding-effect language and concluded that the securities did not otherwise give Argentina power to substitute different INDEC-published GDP figures. The plaintiffs sufficiently alleged that Argentina used unadjusted figures without obtaining the required bondholder consent.

The court separately rejected the plaintiffs’ argument that the securities expressly or impliedly required Argentina to compel INDEC to calculate and publish the missing data. The securities did not contain such a requirement, and the court declined to 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. Under New York law, that covenant generally prevents a contracting party from destroying or injuring the other party’s right to receive the benefits of the contract. The plaintiffs alleged that Argentina knew adjusted calculations would show that a payment was due and caused INDEC not to publish the necessary 2013 figure to avoid paying the bondholders. Accepting those allegations as true at the motion-to-dismiss stage, the court found them sufficient to support the good-faith claims.

The court did not decide whether the prevention doctrine applied or whether the plaintiffs would ultimately prove their allegations. It held only that the allegations were sufficient to proceed past the pleading stage. It also concluded that the express-contract and implied-covenant claims were based on distinct alleged conduct and could both proceed.

Disposition

The court denied the Republic of Argentina’s motion to dismiss the amended complaints. It directed the clerk to close the specified motions and ordered the parties to confer and propose a discovery schedule by April 16, 2021.