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FONTANA v. REPUBLIC OF ARGENTINA

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

OPINION

Introduction

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

  The Bonds

  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.

  Discussion

  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 judgment.

  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 inconsistency.

  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 standing."). Conclusion

  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.

  SO ORDERED.

20040521

© 1992-2004 VersusLaw Inc.



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