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

Background

The opinion addresses six related actions brought by Aurelius Capital Master, Ltd.; Novoriver S.A.; ACP Master, Ltd.; 683 Capital Partners, LP; Adona LLC and other plaintiffs; and Ape Group SPA and other plaintiffs against the Republic of Argentina. The plaintiffs beneficially held GDP-Linked Securities issued in connection with Argentina’s 2005 and 2010 debt exchanges.

The securities gave holders a contingent right to payment through 2035 if Argentina’s economic performance met specified conditions. Argentina changed the base year used for its gross-domestic-product calculations from 1993 to 2004 and stopped publishing the relevant figures in 1993 prices. Argentina later determined that no contingent payment was owed for 2013. The plaintiffs claimed that Argentina had breached the agreements by intentionally failing to publish the required data and by applying incorrect calculations.

The parties filed cross-motions for summary judgment. Argentina argued, among other things, that the plaintiffs could not bring their claims because they had not complied with the No-Action Clause in the governing Indenture and Global Security.

Contractual lawsuit requirements

The Indenture’s No-Action Clause generally barred an individual holder from bringing a lawsuit concerning the Indenture or the securities unless five conditions were met: written notice of default to the Trustee; a written request from holders of at least 25 percent of the relevant securities; reasonable indemnification or security for the Trustee; the Trustee’s failure to sue within 60 days; and no inconsistent direction to the Trustee.

The Global Security contained a substantially similar provision. The parties did not appear to dispute that the plaintiffs had not satisfied those five conditions. Instead, they disputed whether Section 4.9 of the Indenture created an exception allowing them to sue individually for the contingent payments.

Court’s analysis

Applying New York law, the court concluded that the No-Action Clause covered the plaintiffs’ claims. Its language applied broadly to lawsuits concerning the Indenture or the GDP-Linked Securities, and the plaintiffs’ claims sought to enforce contingent payments under those securities.

The court rejected the plaintiffs’ interpretation of Section 4.9. That section gave an individual holder the right to sue for payment of principal and interest on a stated maturity date. The court concluded that the GDP-linked contingent payments were different from principal and interest. The face of the Global Security expressly stated that the securities did not provide principal or interest based on their notional amount and instead provided only payments contingent on Argentina’s gross domestic product.

The court also rejected the argument that applying the No-Action Clause treated GDP-Linked Security holders unfairly. It concluded that the securities could be enforced through the procedures in the No-Action Clause and that requiring compliance with those procedures was not an absolute bar to suit. Because the plaintiffs had not taken the required steps, their claims were not properly before the court.

The court therefore found it unnecessary to address the parties’ other threshold arguments or the merits of the breach-of-contract claims. The opinion does not decide whether Argentina breached the implied covenant of good faith and fair dealing or the Global Security’s “Modifications” provision.

Disposition

The court granted the Republic’s motion for summary judgment and denied the plaintiffs’ cross-motion for summary judgment. It directed the Clerk to enter judgment for the Republic and close the related cases. The Republic’s request for oral argument was denied as moot, and the court directed that the cases be marked closed and any remaining open motions be denied as moot. Judge Loretta A. Preska signed the Opinion & Order.