Novoriver S.A. v. Argentine Republic

Background

This opinion addresses Argentina’s motions to dismiss amended complaints filed in five related actions: those 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 alleged that they held global securities issued by Argentina that could require additional payments when Argentina’s economic performance exceeded specified benchmarks.

The dispute concerns the 2013 reference year. The securities used economic data published by Argentina’s Instituto Nacional de Estadistica y Censos, or INDEC, to calculate whether a payment was due. In 2014, INDEC changed the base year for its gross domestic product calculations from 1993 to 2004 and stopped publishing 2013 gross domestic product in constant 1993 prices. The plaintiffs alleged that this prevented calculation of the adjustment required by the securities and that Argentina used unadjusted figures instead of applying that adjustment.

The plaintiffs asserted New York-law claims for breach of contract, including breach of the implied covenant of good faith and fair dealing. They alleged that Argentina used rebasing and the missing data to avoid making a payment that would otherwise have been due. Argentina argued that the securities gave it discretion over the calculations, imposed no obligation to cause INDEC to publish the missing data, and required dismissal of the good-faith claims under the heightened pleading standard for fraud-related allegations.

Court’s Analysis

The court applied Federal Rule of Civil Procedure 12(b)(6), which asks whether the complaint alleges enough facts to state a legally plausible claim. It also held that Federal Rule of Civil Procedure 9(b), which requires particular details for fraud or mistake allegations, did not apply. The court concluded that the plaintiffs’ claims were based on alleged contract breaches and Argentina’s alleged effort to avoid payment, not on a misrepresentation that induced the plaintiffs to enter into the securities.

The court rejected Argentina’s argument that the securities’ “Binding Effect” clause gave it unrestricted authority to use unadjusted economic figures. The court read that general clause together with the securities’ more specific “Modifications Provision,” which required the consent of 75 percent of the affected security holders for a change in the method used to calculate payment amounts. Because applying unadjusted figures changed the payment calculation, the court held that the plaintiffs plausibly alleged that Argentina breached the Modifications Provision by doing so without the required consent.

The court separately rejected the plaintiffs’ argument that the securities expressly or impliedly required Argentina to compel INDEC to publish the missing data. The court stated that the securities did not impose that obligation and that it would not add such a term to the parties’ agreement. But the court held that the plaintiffs plausibly alleged a breach of the implied covenant of good faith and fair dealing. That doctrine generally requires contracting parties not to act to destroy or injure the other party’s right to receive the contract’s benefits. The plaintiffs alleged that Argentina knew the missing 2013 data would show that a payment was due and caused INDEC not to publish it to avoid paying the security holders.

Disposition

Judge Loretta A. Preska denied Argentina’s motion to dismiss the amended complaints. The court allowed both the contract claim based on the Modifications Provision and the claim based on the implied covenant of good faith and fair dealing to continue at the pleading stage. The court did not determine whether the plaintiffs would ultimately prove that Argentina caused the missing data, breached the securities, or owed the claimed payment. The parties were directed to confer and propose a discovery schedule by April 16, 2021.