Petersen Energia Inversora, S.A.U. v. Argentine Republic

Background

Petersen Energía Inversora, S.A.U. and Petersen Energía, S.A.U. (together, Petersen), and Eton Park Capital Management, L.P., Eton Park Master Fund, Ltd., and Eton Park Fund, L.P. (together, Eton Park) previously held interests in YPF S.A. They sued the Argentine Republic and YPF for breach of contract and related claims. The remaining dispute centered on Sections 7 and 28 of YPF’s bylaws, which required a tender offer for YPF’s remaining outstanding shares when the Republic acquired or controlled at least the specified percentage of YPF’s capital stock.

In 2012, the Republic took control of more than 51% of YPF’s Class D shares through its intervention and expropriation of shares previously held by Repsol S.A. The Republic never made the tender offer required by the bylaws. The plaintiffs claimed that they were harmed because they did not receive the compensated exit that the tender offer would have provided.

Summary-judgment standards and governing law

The court applied the summary-judgment standard, under which judgment is appropriate when there is no genuine dispute about a material fact and the moving party is entitled to judgment as a matter of law. The court treated interpretation and application of Argentine law as legal questions. It also stated that Argentine law governed the action, consistent with its prior ruling.

Claims against YPF

The plaintiffs argued that YPF had a contractual duty to enforce the tender-offer requirements and the sanctions for failing to make the offer. The court rejected that argument. It concluded that the bylaws clearly specified when they imposed affirmative obligations and on whom they imposed them, but Sections 7 and 28 did not say that YPF had to enforce the tender-offer requirement or the related sanctions. The bylaws’ use of passive language did not create such a duty.

The court also rejected the plaintiffs’ arguments that an earlier appellate decision had already established YPF’s obligation, that YPF was barred from taking its position based on its prior statements, or that YPF guaranteed the Republic’s obligations. The court therefore granted YPF’s motion for summary judgment.

Claims against the Republic

The court held that the plaintiffs had enforceable contract rights against the Republic. It rejected the Republic’s argument that the plaintiffs lacked standing because they no longer held YPF securities or did not hold them when the Republic obtained legal title to Repsol’s shares. The court concluded that the tender-offer obligation was triggered by control, not only by legal ownership, and that the Republic exercised control no later than May 7, 2012. The plaintiffs held YPF securities at that time.

The court further held that the plaintiffs’ accrued claims for damages did not automatically transfer when they later transferred their YPF American Depositary Receipts. Under both New York and Argentine law, the court found that an accrued claim generally requires an express assignment or another affirmative legal basis to transfer with property. The Republic identified neither an express assignment nor an applicable statutory rule requiring transfer.

The court found that the plaintiffs established the elements of an Argentine breach-of-contract claim against the Republic: a valid and binding contract, breach, damages, attribution of the damages to the Republic, and the Republic’s strict liability for failing to achieve the specific result required by the bylaws. The court characterized the Republic’s promise as a bilateral obligation owed to identifiable YPF security holders.

Republic’s defenses based on Argentine law

The court rejected the Republic’s argument that Argentine law did not permit the plaintiffs to sue directly for breach of the bylaws. It held that the relevant provisions created bilateral contractual obligations, rather than merely corporate obligations governed by procedures for challenging shareholder resolutions. The court also concluded that the Argentine Civil Code, rather than the General Corporations Law’s procedures for intra-corporate disputes, governed the plaintiffs’ claims.

The court ruled that Section 7(h), which removed voting, dividend, distribution, and quorum rights from shares acquired in breach of the tender-offer provisions, was not a contractual penalty clause that replaced damages. The section did not require the Republic to pay money or provide substitute performance. The court also held that Argentine law allowed the plaintiffs to elect damages rather than first seek specific performance.

The court rejected the Republic’s argument that the claims impermissibly challenged its sovereign activity. It explained that the plaintiffs were not seeking to invalidate or prevent the expropriation; they were seeking damages based on the Republic’s separate contractual obligation after the expropriation occurred. The court likewise concluded that Argentina’s expropriation law did not eliminate the plaintiffs’ claims or make compensation from Repsol their exclusive remedy.

Damages

The court held that the appropriate measure of direct damages was the tender-offer price the Republic would have been required to pay if it had complied with the bylaws. That calculation depended on identifying the date when the Republic acquired control and then using the required notice period and applicable pricing formula.

The court found a factual dispute about when the Republic acquired control of the relevant shares and what the Republic’s temporary occupation of those shares entailed. Because the court could not determine the triggering date, it could not determine the counterfactual notice date or quantify compensatory damages. It rejected the Republic’s other legal arguments seeking to reduce or eliminate damages, including arguments concerning currency conversion, the alleged inflation of the tender-offer price, the use of daily price-to-income ratios, and prejudgment interest. The court reserved judgment on the precise prejudgment-interest rate and on certain consequential-damages issues.

Disposition

The Republic’s motion for summary judgment was granted as to the plaintiffs’ breach-of-the-duty-of-good-faith-and-fair-dealing claim and otherwise denied. YPF’s motion for summary judgment was granted. The plaintiffs’ motion for summary judgment was granted as to liability against the Republic but denied as to damages against the Republic, and it was denied in its entirety as to YPF. The parties’ motions for oral argument were denied as moot. The court directed counsel to confer and report how they proposed to proceed.