Adona LLC v. The Republic of Argentina

Background

The opinion addresses five coordinated actions brought 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 debt securities issued by the Republic of Argentina.

The securities provided for additional payments if Argentina’s economic performance exceeded specified thresholds for a reference year. For 2013, the securities required calculations using Argentina’s actual gross domestic product in constant 1993 prices. In 2014, Argentina’s statistics agency, the Instituto Nacional de Estadística y Censos, changed the base year for its GDP calculations from 1993 to 2004 and stopped publishing full-year 2013 actual GDP in constant 1993 prices.

The plaintiffs alleged that Argentina then used unadjusted GDP figures rather than applying the securities’ required adjustment fraction. They also alleged that Argentina caused the statistics agency not to publish the missing 2013 figure in order 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.

Arguments and pleading standard

Argentina moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal for failure to state a legally sufficient claim. Argentina argued that the securities’ binding-effect provision gave the Ministry of Economy final authority over the calculations; that the securities did not require Argentina to cause the statistics agency to publish particular data; and that the plaintiffs’ good-faith allegations were subject to Rule 9(b), the heightened pleading rule for fraud or mistake.

The court applied Rule 8 rather than Rule 9(b). It reasoned that the plaintiffs’ claims did not depend on alleged misrepresentations that induced them to enter the securities exchange. Instead, the claims alleged that Argentina later acted in bad faith to avoid a payment that the plaintiffs believed was required. Under Rule 8, the plaintiffs needed to allege facts making their claims plausible, not prove them at the pleading stage.

Contract-calculation claim

The court held that the securities’ modification provision required the consent of 75 percent of the affected security holders for a change in the method used to calculate payment amounts. The court concluded that the securities required use of the adjustment fraction, including its required GDP inputs, when calculating the 2013 payment amount.

The court rejected Argentina’s argument that the binding-effect provision gave it unrestricted authority to substitute unadjusted GDP figures when the required data was unavailable. The modification provision specifically addressed changes to the payment-calculation method, while the binding-effect provision did not specifically address that issue. The plaintiffs alleged that Argentina used unadjusted figures without obtaining the required holder consent. The court therefore found that they adequately pleaded a claim for breach of the modification provision.

Publication of GDP data and good faith

The court rejected the plaintiffs’ argument that the securities imposed a categorical contractual duty on Argentina to compel the statistics agency to calculate and publish GDP data in constant 1993 prices. The securities did not contain such a term, and the court declined to add one through contract interpretation.

The court nevertheless concluded that the plaintiffs plausibly alleged a breach of the implied covenant of good faith and fair dealing. That covenant is an obligation recognized in New York contracts requiring each party not to destroy or injure the other party’s right to receive the contract’s benefits. The plaintiffs alleged that Argentina knew adjusted GDP calculations would show that a payment was due, caused the statistics agency not to publish the necessary data, and thereby sought to prevent the plaintiffs from receiving payment.

The court said it did not need to decide whether the separate prevention doctrine applied because the allegations were sufficient under the related implied-covenant theory. The court also noted that Argentina’s alternative explanations for the statistics agency’s conduct might be considered later, but they did not defeat the claims at the motion-to-dismiss stage.

Disposition

Judge Loretta A. Preska denied the Republic of Argentina’s motion to dismiss the amended complaints. The order allowed the contract and implied-covenant claims to proceed, but it did not determine that Argentina ultimately breached the securities or owe the plaintiffs a payment. The parties were directed to propose a schedule for discovery by April 16, 2021.