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United States District Court, Southern District of New York

April 25, 2003


The opinion of the court was delivered by: Thomas P. Griesa, United States District Judge.


Plaintiff is the owner of a note issued by The Province of Buenos Aires, Argentina. The Province has defaulted on the note. Plaintiff has brought sues to recover amounts due it by virtue of this default. The Province has answered denying liability and counterclaiming for tortious interference with prospective contractual relations.

Plaintiff has moved for summary judgment on its claims under the note, and to dismiss the counterclaim. The Province opposes plaintiff's motion, and has cross-moved for a stay on the grounds that the Province is engaged in efforts to achieve a debt restructuring.

The following rulings are made based upon a reconsideration of an earlier ruling of September 5, 2002, denying all motions.

Plaintiff's motions are granted. The Province's motion for a stay of the proceedings is denied, except that the court stays execution of plaintiff's judgment until May 14, 2003. A similar stay has been granted until May 14 in certain actions brought against the Republic of Argentina.


Plaintiff's Note and the Default

A copy of the note itself has not been submitted to the court. However, both sides rely on the indenture and pricing supplement for the note as accurately stating its terms and conditions.

Plaintiff purchased a $1,020,000 face value note on July 12, 2000. The note is part of $100,000,000 in 12.75% notes, issued July 13, 2000 and due for principal payment on August 1, 2003, with interest to be paid on February 1 and August 1 of each year.

The terms of the $100,000,000 notes are contained in the July 8, 1998 Indenture for $650,000,000 Euro Medium-Term Notes. The indenture provides (Section 501) that failure to make any payment of principal or interest for 30 days after the applicable payment date constitutes an event of default. The Province's or the Republic of Argentina's declaration of a moratorium on the payment of indebtedness is also listed as an event of default. In order to declare an outstanding principal amount immediately due and payable, the claimant must hold at least 25% of the aggregate principal amount of the outstanding notes of the series. Since plaintiff does not have such a holding, it can only claim unpaid interest.

The indenture states (Section 113) that the Province 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 indenture also states (section 111) that it is to be governed by and construed in accordance with the laws of the State of New York.

The indenture further states (Section 301) that the note is a "legal, valid and binding" obligation of the Province enforceable against the Province.

On January 29, 2002 the Province announced a moratorium on the payment of any interest or principal. Principal is not yet due, but the Province has missed the following scheduled interest payments:

February 1, 2002: $65,000

July 1, 2002: $65,000

February 1, 2003: $65,000

Plaintiff filed its lawsuit in federal court on March 6, 2002.

The Province's Claim for Tortious Interference

In the April 6, 2002 issue of the International Financing Review under the caption "Bondholder suit turns up the heat." The following item appeared:

Florida-based DCA Grantor Trust has filed for a U.S. federal court judgement in a US $1.3m suit that may allow it to seize assets from Argentina and the Province of Buenos Aires. This is the first case of its kind in the Argentina debacle and could set a precedent. "A default judgement was entered today." said DCA owner and principal Allan Applestein last Wednesday. "We will proceed with collection immediately."
Applestein declined to describe how this would be done, but he said that assets outside Argentina had already been identified. Sovereign assets that can be realistically seized tend to be very difficult to locate.
In this lawsuit, the Province complains about the statement that plaintiff had obtained a default judgment against the Province. Plaintiff had obtained no such judgment at the time. Instead, plaintiff had simply made a motion for default judgment. This motion was subsequently withdrawn.

The Province claims that plaintiff's statements were designed to "tortiously interfere with the efforts of the Province to negotiate with its external creditors in an effort to reprofile its debts" and that as a result the Province's "prospective contractual relations with its external creditors" were adversely affected.

The Argentine Economic Crisis

The Province and the Republic of Argentina are experiencing the worst economic crisis in their history. Argentina's gross domestic product ("GDP") has contracted severely each year since 1999, and tax collections have dropped sharply.

On December 24, 2001, the Republic declared a moratorium on payments of principal and interest on the external debt of the Republic. On January 29, 2002 the Province followed suit. These moratoriums are still in effect.

As of July 2002 the Province's external indebtedness was approximately $3.6 billion and the combined indebtedness of the Province and the Republic was approximately $140 billion.

The Republic and the Province are making efforts to resolve the fiscal crisis, and consideration is being given to ways to restructure their debt. But no definite plan has been arrived at as to either the Republic or the Province, and there is no basis at present for forecasting what such a plan might be or when it might come about.


As indicated above, plaintiff seeks summary judgment on its claims under the note. The Province opposes the motion, moves for a stay of the proceedings and counterclaims for tortious interference. The Province relies on considerations of international comity and urges that it should be given an opportunity to achieve an overall debt restructuring, which would be interfered with by piecemeal judgments in favor of individual note holders.

The Second Circuit has dealt with similar circumstances and similar issues in Pravin Banker Assoc. v. Banco Popular del Peru, 109 F.3d 850 (2d Cir. 1997). There the plaintiff had invested in the debt of a bank owned by the Republic of Peru. The Republic guaranteed the debt. During a national economic crisis, the bank stopped making interest payments. The plaintiff demanded payment of the principal and unpaid interest. Peru's central bank appointed a committee of liquidators for the bank. Negotiations were also undertaken to resolve the overall debt of Peru. The plaintiff refused to take part in the liquidation proceedings or the other debt negotiations, and brought suit in the Southern District of New York against the bank and the Republic. The plaintiff moved for summary judgment.

The defendants opposed the motion and cross-moved to dismiss or stay the action, arguing that international comity should be extended to Peru so that it could resolve the debt problems of the bank and the Republic. The district court granted a six-month stay to allow the completion of the bank's liquidation proceedings. Apparently there was no resolution, and, after the six-month stay expired, the plaintiff renewed the motion for summary judgment. The district court granted an additional two-month stay to obtain more information about the course of events in Peru. At the conclusion of the second stay, the plaintiff again renewed the motion for summary judgment, which was granted by the district court. The defendants moved to stay the judgment, and this motion was denied. The defendants appealed.

The Court of Appeals, agreeing with the reasoning and the actions of the district court, stated that extending comity to Peru's debt negotiations was only appropriate if it was consistent with United States government policy. The Court recognized two United States policies as being implicated by the lawsuit. The first policy was that the United States encourages participation in foreign debt resolution procedures. Second, the United States has a strong interest in ensuring the enforceability of debts under contract law, and in particular, the continuing enforceability of foreign debts owed to United States lenders. The Court stated that the second interest limits the first, and went on to say that creditor participation in foreign debt negotiations "should be on a strictly voluntary basis." Id. at 855. The Court of Appeals expressed approval of the limited stays granted by the district court, but agreed with the district court that an indefinite stay to allow Peru to renegotiate its foreign debt "would prejudice United States interests." Id. at 855. The Court further reasoned that, if the plaintiff's rights were made conditional upon the debt restructuring process (which had no obvious termination date), this would have converted voluntary negotiations into "a judicially-enforced bankruptcy proceeding, for it would, in effect, have prohibited the exercise of legal rights outside of the negotiations." Id. at 855. The Court of Appeals thus ruled that the district court was correct in granting summary judgment to the plaintiff and denying a further stay.

Having made these strong pronouncements, and having affirmed the actions of the district court, the Court of Appeals went on to say that an argument "might be made" that a stay of the proceedings or a stay of the execution of judgment would have been justified to "allow the completion of Peru's negotiations with its creditors without unduly threatening the ultimate enforceability of the debt." Id. at 855-56. How to reconcile this with the Court's earlier statements is not at all clear. In any event, the Court recognized that a decision on whether or not to grant a stay was to be reviewed for abuse of discretion, and ruled that the district court did not abuse it discretion in denying the stay. Id. at 856.

As will be shown by what is set forth below, the court in the present case has decided that it should move forward with the granting of summary judgment to plaintiff on the debt obligations owing to it. The court believes that this is an appropriate means of giving effect to what Pravin declared to be the strong interest of the United States in having debt obligations enforced. The court declines to grant a stay of the proceedings in order to allow the completion of debt restructuring negotiations, since there is no assurance about the success or the timing of such negotiations. However, the court will grant a brief stay of execution of the judgment for reasons which will be described. The court declines to grant relief on the Province's claim for tortious interference.

Summary Judgment

The obligations of the Province on the note involved in this lawsuit are unconditional. Sovereign immunity has been waived. The Province defaulted on the note when it ceased to pay interest. It would seem that the Province now owes the plaintiff the interest which is due and is unpaid. The Province opposes the grant of summary judgment on two grounds, which require brief discussion.

Abuse of Rights

The Province asserts that there is a principle of international law which would bar plaintiff from suing on its note at a time when the issuer, The Province of Buenos Aires, is having a severe economic crisis. The court finds no merit in this argument as applied in the present case. No extended discussion is necessary.

The Province's Request to Take Discovery

The Province claims that it should be allowed to take discovery because the manner in which the note at issue is traded means that the Province has no way of determining whether plaintiff actually owns the note and the manner in which he acquired it. Plaintiff has provided sufficient documentation proving ownership. The Province's request has no merit and is denied.

The Application For A Stay

The Province urges that the lawsuit should be stayed in order to allow the Province to arrive at a restructuring of its overall debt. The court declines at present to grant a stay to the Province for this purpose. The debt restructuring situation is uncertain as to possible success and timing.

However, the court grants a stay of a more limited nature. Although the court is granting plaintiff's motions for summary judgment, the court believes that execution of this judgment should be stayed. The court has before it two class actions brought on behalf of holders of Republic of Argentina bonds. Motions are now pending for class certification. These motions are returnable on April 25. The court believes that it is not appropriate to have the plaintiff go forward with execution on its judgment until the court is better informed as to what will occur regarding holders of the Republic's bonds who may be pursuing their claims in class actions.

The court directs that execution on plaintiffs' judgment in this action is stayed until May 14, 2003. A similar stay has been granted until May 14 in certain actions brought against the Republic of Argentina.

The Province's Claim for Tortious Interference

To state a claim for tortious interference with prospective contractual relations under New York law, four conditions must be met: (i) the plaintiff had business relations with a third party; (ii) the defendant interfered with those business relations; (iii) the defendants acted for a wrongful purpose or used dishonest, unfair, or improper means; and (iv) the defendants' acts injured the relationship. Scutti Enterprises LLC v. Park Place Entertainment Corp., 322 F.3d 211, 215 (2d Cir. 2003); Lombard v. Booz-Allen & Hamilton, Inc., 280 F.3d 209, 214 (2d Cir. 2002).

The gravamen of the Province's counterclaim is that plaintiff falsely informed representatives of the press that he had acquired a default judgement against the Province, and that he made this statement with the intent of interfering with the Province's efforts to reprofile its debts. The claim is that plaintiff interfered with the Province's relations with its noteholders. However, there is no allegation of any actual prejudice as a result of plaintiff's acts. The problems about the Province's debt have vastly more fundamental causes than any statement made by plaintiff.


Plaintiff's motion for summary judgment on its debt claim is granted. Plaintiff is only entitled, as of the present time, to accrued interest. Plaintiff's motion to dismiss the Province's counterclaim is granted. The Province's motion for a stay of the proceedings is denied, except that the court stays execution of plaintiff's judgment until May 14, 2003. The court's ruling on the Province's motion for a stay is without prejudice to a further application, if events provide a reasonable basis for such application.



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