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Franco v. the Republic of Argentina

United States District Court, S.D. New York
Aug 23, 2006
03 Civ. 9537 (TPG) (S.D.N.Y. Aug. 23, 2006)

Opinion

03 Civ. 9537 (TPG).

August 23, 2006


OPINION


Plaintiffs are the beneficial owners of certain bond indebtedness issued by defendants The Republic of Argentina. The Republic defaulted on such indebtedness in December 2001 during a profound fiscal crisis. Plaintiffs are suing to recover amounts due to them as a result of the default and have moved for summary judgment.

The motions are denied.

FACTS

The bond indebtedness at issue is governed by a Fiscal Agency Agreement dated October 19, 1994 (the "1994 FAA"). The 1994 FAA is the same agreement that governed the bond indebtedness on which this court granted summary judgment to the plaintiffs inLightwater Corporation Ltd. v. Republic of Argentina, No. 02 Civ. 3804, 2003 WL 1878420 (S.D.N.Y. Apr. 14, 2003). Section 22 of the 1994 FAA states that the Republic waives sovereign immunity and consents to jurisdiction in any state or federal court in the borough of Manhattan in the City of New York. The 1994 FAA provides that the Republic's obligations on the bonds are unconditional and that failure to make any payment of principal or interest for 30 days after the applicable payment date constitutes an event of default. A declaration by the Republic of a moratorium on the payment of principal or interest on its public external indebtedness is an event of default as well. Paragraph 12 of the FAA provides for acceleration of principal if there is a failure to pay interest or a moratorium. If either of these events occurs,

each holder of Securities and such Series may by such notice in writing declare the principal amount of Securities of such Series held by it to be due and payable immediately. . . .

On December 24, 2001 the Republic declared a moratorium on payments of principal and interest on the external debt of the Republic. The court refers to its previous opinions for a description of the circumstances of these defaults. Lightwater, 2003 WL 1878420, at *2; Applestein v. Republic of Argentina, No. 02 Civ. 1773, 2003 WL 1990206, at *1 (S.D.N.Y. Apr. 29, 2003). On June 9 and June 23, 2004, plaintiffs sent notices to Bankers Trust Company, the Fiscal Agent of The Republic of Argentina, declaring the principal amounts of the debt securities held by plaintiffs to be immediately due and payable.

The bonds that are the subject of this action are listed hereafter. Also listed are the amounts of the beneficial interests owned by each plaintiff.

The court notes the distinction between bonds and beneficial interests. In some previous opinions, the court has simply referred to the plaintiffs as owners of "bonds," when in fact plaintiffs are technically owners of "beneficial interests in bonds." The Republic actually issues "a bond" to a depository. The depository, in some form, issues "participations" to brokers, who sell "beneficial interests" to purchasers. These beneficial interests are identified by reference to the underlying bond (CUSIP or ISIN number or both; date of issuance and maturity; rate of interest) and the principal amount of the beneficial interest. This distinction is discussed more fully in Million Air Corp. v. Republic of Argentina, No. 04 Civ. 1048, 2005 U.S. Dist. LEXIS 23904 (S.D.N.Y. Oct. 17, 2005).

The following tables contain the necessary identifying information regarding each plaintiff's beneficial interests in bonds.

Table 1.

Plaintiff Bond Holder or Beneficial Owner Face Value: CUSIP No., ISIN No., BB No.: Date Of Issuance: Date Of Maturity: Interest Rate/Payable: Date Of Purchase: Acceleration Contract Documents: Evidence of Ownership Proffered:

Guillermo Franco, Rafael Franco and Luisa : Franco U.S. $ 125,000.00 CUSIP No. 040114AR1; ISIN No. US040114AR16 January 30, 1997. January 30, 2017. 11.375 % On or about January 23, 1997, November 3, 1997, April 6, 1998 and November 16, 1998. : Notice sent June 9, 2004. FAA dated October 19, 1994. (FAA; FRB; Indenture; Offering Prospectus; Certificates, etc.) — Account statement from Merrill Lynch dated February 27, 2004. (Account Statements; Letters; Notarized Statements, etc.)

Table 2.

Plaintiff Bond Holder or Beneficial Owner: Face Value: CUSIP No., ISIN No., BB No.: Date Of Issuance: Date Of Maturity: Interest Rate/Payable: Date Of Purchase: Acceleration: Contract Documents: Evidence of Ownership Proffered: Panamel, S.A. U.S. $ 57,000.00 CUSIP No. 040114FC9; ISIN No. US040114 FC91 None given. March 15, 2010. 11.375 % Not provided. Notice sent June 23, 2004. FAA dated October 19, 1994. (FAA; FRB; Indenture; Offering Prospectus; Certificates, etc.) — Certification from Euroclear Bank S.A./N.V. dated October 9, 2003. (Account Statements; Letters; Notarized Statements, etc.)

DISCUSSION

This Court has already granted summary judgment in other cases to plaintiffs seeking to collect on the Republic's defaulted bonds issued under the October 19, 1994 FAA. See Mazzini v. Republic of Argentina, No. 03 Civ. 8120, 2005 U.S. Dist. LEXIS 5692 (S.D.N.Y. Mar. 31, 2005). Only certain specific issues need to be discussed in connection with the present motion.

Standing and Proof of Ownership

In the two opinions in Fontana v. Republic of Argentina, 415 F.3d 238 (2d Cir. 2005), and Applestein v. Province of Buenos Aires, 415 F.3d 242 (2d Cir. 2005), the Second Circuit has held that an owner of a beneficial interest, such as plaintiffs here, must receive authorization from the registered holder of the bond before it may sue, but that such authorization may be granted subsequent to the filing of a lawsuit. Alternatively, the Republic may waive the authorization requirement.

The Republic has agreed to waive objections based on lack of authorization where the court makes a finding of current ownership. See Transcript, March 28, 2006, Cilli v. Republic of Argentina (04 Civ. 6594).

Here, plaintiffs have adequately demonstrated through their account statements that owned the beneficial interests as of late 2003 and early 2004. The court disagrees with the Republic's contentions that the plaintiffs' documentation is improperly certified or authenticated. Plaintiffs have presented a facially valid bank statement from Merrill Lynch and certification from Euroclear demonstrating what beneficial interests they held in 2003 and 2004. The court is satisfied with this measure of proof.

The plaintiffs' proof of current ownership, however, does not meet the court's standards. While otherwise valid, the Euroclear letter was written in 2003 and the Merrill Lynch bank statement is from early 2004. This raises the issue of whether plaintiffs continue to hold these interests, despite a lack of evidence to the contrary.

Acceleration of Principal

The Republic argues that plaintiffs have not effected acceleration of the principal, as it claims to have done. The Republic argues that acceleration of principal can only occur at the behest of holders of 25% or more of the principal amount of securities of a series. This is incorrect. Under Paragraph 12 of the FAA, where a default in the payment of interest or a default by declaring a moratorium occurs, "each holder" may give notice and declare principal due and payable immediately, and such notice will cause the acceleration unless the default has been cured or other conditions have been fulfilled, which are not relevant here.

CONCLUSION

Plaintiffs' motions for summary judgment are denied. Should plaintiffs choose to re-file a summary judgment motion with a more current proof ownership, plaintiffs' proper acceleration of principal will be deemed established, as they have already been adjudicated in this opinion.

SO ORDERED.


Summaries of

Franco v. the Republic of Argentina

United States District Court, S.D. New York
Aug 23, 2006
03 Civ. 9537 (TPG) (S.D.N.Y. Aug. 23, 2006)
Case details for

Franco v. the Republic of Argentina

Case Details

Full title:GUILLERMO FRANCO, RAFAEL FRANCO, LUISA FRANCO, and PANAMEL S.A…

Court:United States District Court, S.D. New York

Date published: Aug 23, 2006

Citations

03 Civ. 9537 (TPG) (S.D.N.Y. Aug. 23, 2006)