United States District Court, S.D. New York
May 21, 2004.
HERNAN LOPEZ FONTANA and MARIANA MORI DE LOPEZ, Plaintiff's, against THE REPUBLIC OF ARGENTINA, Defendant
The opinion of the court was delivered by: THOMAS GRIESA, Senior District Judge
Plaintiff's Hernan Lopez Fontana and Mariana Mori de Lopez have
acquired certain bonds issued by the defendant, The Republic of Argentina
("The Republic"). The Republic has defaulted on the bonds. Plaintiff's
are suing to recover amounts due to them by virtue of the default and
have moved for summary judgment.
The Republic opposes the motion asserting various defenses. In addition
the Republic moves to dismiss for failure to state a claim.
Plaintiff's' motion for summary judgment on their bond obligations is
granted. The Republic's motion is denied. Facts
Plaintiff's are citizens of the Republic of Argentina and resident in
the City of Ushuaia, Tierra del Fuego Province, Republic of Argentina.
They have acquired certain bonds issued by The Republic of Argentina with
principal amounts, as follows:
(1) $300,000 in face value in bonds due in April 7, 2009, identified by
ISIN US040114BE93 and Common Code 9639713;
(2) $160,000 in face value in bonds due January 30, 2017, identified by
ISIN US040114AR16 and Common Code 7321473, bearing an interest rate of 11
3/8% to be paid semi-annually on January 30 and June 30.
As proof of ownership plaintiffs have provided:
(1) an affidavit stating that they purchased the bonds listed above in
the aggregate principal value of $460,000. Plaintiff's state that the
2009 Bond pays interest at a rate of 11.375% semi-annually on October 7
and April 7. Plaintiff's further state that the bonds were purchased
from, and are held in the name of, Merrill Lynch PFS/SEGREGATE, N.Y.
("Merrill Lynch"), which has allocated them on its books to plaintiffs;
(2) a December 2003 account statement of plaintiffs' brokerage account with Merrill Lynch, listing the above listed bonds, in the
above listed amounts and stating that the bonds were purchased on
November 18, 2002 (for the 2009 Bond) and July 6, 2001 (for the 2017
Bond), respectively. The brokerage statement, however, contradicts the
affidavit, assigning the 2009 Bond an interest rate of 11 3/4%;
(3) a copy of a notarized letter sent to plaintiffs by Merrill Lynch,
confirming that plaintiffs are the beneficial owners of the above listed
bonds, in the above given amounts, which are held in plaintiffs' account
with Merrill Lynch. The letter states that Merrill Lynch holds the bonds
with Euroclear Bank S.A./N.V. for plaintiffs;
(4) notarized statements from the depositary or nominee Euroclear,
stating that the above listed bonds, in the above stated amounts, are
being held on account for Merrill Lynch in Euroclear Securities Clearance
Account 93999, and that the bonds are blocked for the purpose of filing a
claim. The statements also indicate, but do not verify, that Merrill
Lynch has allocated the above listed securities in the above amounts to
the plaintiffs, on its books;
The bonds are all governed by the same Fiscal Agency Agreement between
The Republic of Argentina and Bankers Trust Company, dated October 19,
1994. This is the same FAA as the one governing the bonds concerning
which this court entered summary judgment to plaintiffs in Lightwater Corporation Ltd. v. The Republic of Argentina, Nos. 02 Civ. 3804, 3808,
& 5832, 2003 WL 1878420 (S.D.N.Y. April 14, 2003). Section 22 of the FAA
states that the Republic of Argentina 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 FAA provides 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 of a moratorium on the payment of
principal or interest on its public external indebtedness is an event of
default as well. Upon an event of default, a bondholder is entitled to
give notice declaring the principal amount of the bonds held by it
immediately due and payable.
On December 24, 2001, the Republic declared a moratorium on payments of
principal and interest on the external debt of the Republic. This
moratorium is still in effect. The court refers to its previous opinions
for a more complete description of the circumstances of the default.
See, e.g., Lightwater, 2003 WL 1878420, at *2.
Plaintiff's sent notices of acceleration to The Republic and have
subsequently filed suit.
The Republic moves to dismiss for lack of standing to sue under the contract governing the bonds. It claims that the plaintiffs are
owners of beneficial interests rather than registered holders, and that
the contract confers the right to sue on the registered holder
exclusively, which is the depositary.
Plaintiff's move for summary judgment.
In the Lightwater, Old Castle, Macrotecnic and EM Ltd. cases this court
has already granted summary judgment to the plaintiff bondholders seeking
to collect on Argentine bonds which went into default as a result of the
December 24, 2001 moratorium. This court found that:
The obligations of the Republic on the bonds involved
in these lawsuits are unconditional. Sovereign
immunity has been waived. The Republic defaulted on
the bonds when it ceased to pay the interest. This
would seem to mean that the Republic now owes the
three plaintiffs principal and accrued interest.
2003 WL 1878420 at *4.
The court finds nothing in the record to distinguish plaintiffs' case
as to this court's jurisdiction and plaintiffs' unconditional legal right
to collect on the bonds. Plaintiff's provide affidavits and statements of account that give the
court no reason to doubt that it is the beneficial owner of the bonds.
Argentina has defaulted on the bonds by declaring a moratorium and
failing to make interest payments. Plaintiff's were entitled, by notice,
to declare the principal amount owed to them due and payable immediately
under the terms and conditions of the certificates and the FAA.
Plaintiff's have so notified Argentina's fiscal agent. The Republic has
not provided evidence sufficient to raise doubt as to the validity of
plaintiffs' claim. Plaintiff's are therefore entitled to summary
Final judgment cannot, however, be entered with regard to the 2009
Bond, as the interest rate listed in the brokerage statement is
inconsistent with the interest rate stated in plaintiffs' affidavit and
no note specimen has been submitted that would resolve the
The Republic's argument to dismiss for lack of standing based on the
language in this FAA has already been denied in a previous ruling by this
court. See, Applestein & Kalberman v. The Republic of Argentina, 02
Civ. 4124, Transcript of Oral Argument on March 5, 2004, at 32:17 ("I am
holding that the beneficial owners [of the Argentine bonds] have
Plaintiff's' motion for summary judgment is granted. Judgment will be
entered for the principal amount of the bonds plus accrued interest. A
final judgment awarding accrued interest on the 2009 Bond, identified by
ISIN US 040114B#93, however, will be entered only upon additional
verification of the rate payable under the contract, as no note or
brokerage statement was submitted to verify the rate and payment schedule
and the documents submitted are inconsistent on this point.
The motion by the Republic is denied.
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