Summary
In Urban, the Republic states that no claims process has taken place and the amount of damages to the class members has not yet been ascertained five years after the entry of summary judgment on liability.
Summary of this case from Scappini v. Republic of ArgentinaOpinion
02 Civ. 5699 (TPG).
March 9, 2006
OPINION
Plaintiff is the beneficial owner of certain bond indebtedness issued by defendant The Republic of Argentina. The Republic defaulted on such indebtedness in December 2001 during a profound fiscal crisis. On December 30, 2003, the court certified this action as a class action, with plaintiff as the class representative, on behalf of all holders of the beneficial interests in two of the Argentine bonds. Plaintiff has moved (1) individually for summary judgment to recover amounts due to it as a result of the default, and (2) as class representative for partial summary judgment to establish the Republic's liability to the class of holders of beneficial interests that plaintiff represents. Plaintiff also moves as class representative to shift the costs of class notice to the Republic. The Republic objects to each of these applications.
The motion for summary judgment is granted in part and denied in part. The motion to shift the costs of class notice is 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).
In decisions dated December 30, 2003 and February 17, 2004, the court certified a class action on behalf of all current holders of beneficial interests in two bonds who purchased their interests in those bonds on or before July 22, 2002. The bonds that are the subject of this action are: Bond #1 Bond #2 CUSIP Number ISIN Number Date of Issuance Date of Maturity Interest Rate Governing Agreement
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).
DISCUSSION
This Court has already granted summary judgment in other cases to individual plaintiffs seeking to collect on the Republic's defaulted bonds issued under the October 19, 1994 FAA. This has occurred in Lightwater, supra, and other cases.Because this case is a class action, it presents issues not previously encountered in the individual plaintiff summary judgment motions.
Summary Judgment
Plaintiff moves for summary judgment both as class representative and individually. As class representative, plaintiff moves for partial summary judgment establishing the Republic's liability to all class members. Individually, plaintiff moves for summary judgment to recover principal and interest on its beneficial interests in the Argentine bonds.
The Republic's liability to current holders of beneficial interests in the bonds on which it defaulted has been sufficiently adjudicated in the prior cases and cannot be disputed in this case. Thus it is appropriate in this class action to grant partial summary judgment as to liability to the class. Later proceedings will determine exactly who are members of the class and the amounts the members are entitled to. See Fed.R.Civ.P. 56(c).
Plaintiff also moves to obtain judgment for the specific amount due to plaintiff individually. But plaintiff is the class representative and should be treated as part of the class as far as the processing of claims is concerned. At present, the class has not yet been fully defined, and it is necessary to carry out the process of notifying class members, setting an opt-out date, and receiving opt-outs. Then the court will entertain claims by class members, including proofs of ownership.
As class representative, plaintiff has an obligation to continuously and vigorously represent the class. That is why Rule 23 requires a class representative who is typical of the class, and to move ahead with full judgment for plaintiff would work against this objective.
Plaintiff responds that by moving for summary judgment, it "was not purporting to do so only for purposes of securing a money judgment in its own name, but for the larger purpose of establishing a date certain for the end of the class period." Pl. Repl. Mem. of Law 3. It is not clear exactly what plaintiff means. In any event, in order to recover, a class member will need to establish current ownership of the beneficial interest in question as of the time of the judgment. Thus there is no legitimate basis for granting full summary judgment to the individual plaintiff.
Costs of Class Notice
Plaintiff also moves to shift the costs of class notice to the Republic. This motion is denied.
In general, "a plaintiff must initially bear the cost of notice to the class," unless there are exceptional circumstances justifying departure from the general rule. Eisen v. Carlisle Jacquelin, 417 U.S. 156, 178 (1974). Eisen and later cases were reviewed in Alba Conte and Herbert B. Newberg's treatise on class actions. As Conte and Newberg explain:
The Eisen opinion constituted an endorsement of the general rule recognized by the court of appeals — that the petitioner must bear the initial cost of Rule 23(c)(2) notice to the members of the class. However, the Court did not rule out the possibility of exceptional circumstances justifying a shifting of notice cost burdens. The example the Court cited was a shareholder derivative suit, when there is a preexisting fiduciary duty between the plaintiff and defendant; but such an exceptional circumstance was not found to be present in the Eisen situation. In addition, interim litigation costs, including class notice costs, may be shifted to defendant after plaintiff's showing of some success on the merits, whether by preliminary injunction, partial summary judgment, or other procedure.
Alba Conte Herbert B. Newberg, Newberg on Class Actions § 8.6 (4th ed. 2002) (emphasis added).
Plaintiff argues that because the Republic's liability on the bonds is not in dispute, the costs of class notice should be shifted to the Republic. The court does not believe that this case presents an "exceptional circumstance" justifying departure from the general rule endorsed in Eisen regarding the initial cost of notice. While plaintiff has obtained partial summary judgment as to liability, it has not shown any special duty owed by the Republic or any exceptional hardship it will suffer by initially bearing the (currently modest) costs of class notice, which are typically borne by plaintiffs at this stage in a class action. At some later, interim stage, it may be appropriate for plaintiff to petition the court for reimbursement of its expenses, particularly if they mount up substantially. However, as of this time, plaintiff must bear the class notice costs. The motion to shift the costs is thus denied.
CONCLUSION
Plaintiff's motion for summary judgment is granted in part and denied in part. The motion is granted as to the Republic's liability to holders of the beneficial interests described above. The motion for full judgment as to the individual plaintiff is denied.
Plaintiff's motion to shift the costs of class notice is denied.
SO ORDERED.