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United States District Court, S.D. New York

February 8, 2005.


The opinion of the court was delivered by: HAROLD BAER, JR., District Judge


Plaintiff, Greylock Global Opportunity Master Fund Ltd., and Greylock Global Distressed Debt Master Fund Ltd. (collectively, "Greylock"),*fn1 filed an action for declaratory and injunctive relief against Defendant, Province of Mendoza ("Province"), seeking to prevent the Province from amending a bond indenture. Greylock moves and Province cross moves, pursuant to Fed.R.Civ.P. 56, for summary judgment. For the following reasons, Defendant's motion for summary judgment is GRANTED and Plaintiffs' motion for summary judgment is DENIED.


  A. Factual Background

  1. Issuance

  In September 1997, Province issued $250 million in bonds ("Existing Bonds") due in 2007. (Compl. ¶ 13, Answer ¶ 13). The Existing Bonds are governed by the September 4, 1997 Indenture, among the Province, as issuer, the Bank of New York ("BONY"), as trustee, paying agent, and transfer agent, and Kredietbank S.A. Luxembourgeoise and the Bank of New York S.A., each as paying agent and transfer agent ("Indenture"). The Indenture and affixed bond terms ("Bond Terms") are governed by, and construed in accordance with, New York law. Under the terms of the Indenture, the Existing Bonds had an annual interest rate of 10%, payable on March 4 and September 4 of each year (Declaration of Christopher P. Moore, dated December Page 2 9, 2004 ("Moore Decl.") Ex. A (Bond Terms) at ¶¶ 1(a), 2), and scheduled to be amortized in a single `bullet' payment of principal on September 4, 2007. (Compl. ¶ 13, Answer ¶ 13). It is uncontested that Greylock is a beneficial holder of the Existing Bonds. (Declaration of Thomas Elwood, dated December 9, 2004 ("Elwood Decl.") at ¶ 6).

  2. Indenture & Bond Terms

  The terms and conditions of the Indenture and Bond Terms govern the Existing Bonds. These terms include that, inter alia, each Bondholder has the right to receive payment; Existing Bondholders can enforce their rights in cases of default or other contingencies under New York law; the Province "irrevocably waives" Sovereign Immunity ("Sovereign Immunity Clause"); the Province guarantees that Existing Bondholders will not be subordinate to other creditors; and, that the Existing Bonds "will rank pari passu among themselves and at least pari passu in priority of payment with all other present and future unsecured and unsubordinated Indebtedness . . . of the Province." (Ford Decl. Ex. A (Indenture) at 13-28) (Ford. Decl. Ex. A (Bond Terms) at ¶ 1(c)-17(d)).

  3. Exchange Offer & Consent Solicitation

  On June 30, 2004, the Province proposed that the Existing Bonds, due in 2007 with a 10% interest rate, be exchanged for new bonds ("New Bonds") due in 2018 with a 5½% interest rate (the "Exchange Offer"). (Am. Compl. ¶ 24; Answer ¶ 24). The June 30, 2004 Explanatory Memorandum ("Explanatory Memorandum") set forth in detail the terms and conditions of the Exchange Offer. (Ford Decl. Ex. B) The Explanatory Memorandum was thereafter amended by the Supplement to the Explanatory Memorandum dated August 23, 2004 (the "First Supplement") (Ford Decl. Ex. C), the Supplement to the Explanatory Memorandum dated October 14, 2004 (the "Second Supplement") (Ford Decl. Ex. D), the Supplement to the Explanatory Memorandum dated October 21, 2004 (the "Third Supplement") (Ford Decl. Ex. E), and the final Supplement to the Explanatory Memorandum dated October 28, 2004. (the "Final Supplement") (Ford Decl. Ex. H)

  Pursuant to the terms of the Exchange Offer, the Province would "accept all Existing Bonds validly tendered prior to the Expiration Date and not properly withdrawn, . . . deliver New Bonds[,] and make the Accrued Interest Payment in exchange for Existing Bonds pursuant to the Exchange Offer on the Settlement Date." (Ford Decl. Ex. B (Explanatory Memorandum) Page 3 at 33). The Explanatory Memorandum also established the method by which Existing Bondholders would consent (the "Consent Solicitation") to the proposed amendments to the Indenture and the Bond Terms:

Effect of tender:
By tendering Existing Bonds in the Exchange Offer prior to the Expiration Date, holders of Existing Bonds will be deemed to have delivered their consent to the Proposed Amendments. Holders of Existing Bonds may not tender Existing Bonds without consenting to the Proposed Amendments and may not consent to the Proposed Amendments without tendering Existing Bonds.
(Ford Decl. Ex. B (Explanatory Memorandum) at 28). While the Consent Solicitation expressly conditioned the right to exchange Existing Bonds for New Bonds, the terms of the Indenture demanded that amendments "be approved by holders of not less than a majority of the aggregate principal amount of the Existing Bonds outstanding." (Ford Decl. Ex. B (Explanatory Memorandum) at 55). If the amendments were approved by a majority of the bondholders, the Province would "execute the 2007 Supplemental Indenture that will effect the amendments to (i) the 2007 Terms of the Existing Bonds and (ii) the 2007 Indenture." (Ford Decl. Ex. B (Explanatory Memorandum) at 55).

  The Consent Solicitation included proposed amendments that would eliminate, inter alia, the Negative Pledge Clause ("Negative Pledge"), Interest Coverage Clause ("Interest Coverage"), Covenant Compliance Certificate ("Covenant Compliance"), Maintenance of Listings Clause ("Maintenance of Listings"), and "Events of Default Clause (other than a default in the payment of principal, interest, additional amounts, if any, on the Existing Bonds)." (Ford Decl. Ex. B (Explanatory Memorandum) at 57-58). The Consent Solicitation also included an amendment to the Bond Term and Indenture's waiver of sovereign immunity ("Sovereign Immunity Amendment"). (Ford Decl. Ex. B (Explanatory Memorandum) at 57-58).

  On August 23, 2004, in the First Supplement, the Province announced that, because of the Exchange Offer, the Province would not make the scheduled interest payments on September 4, 2004 (Ford Decl. Ex. C (First Supplement) at 3) but, rather, compensate the holders of the New Bonds. (Ford Decl. Ex. B (First Supplement) at 38).

  4. Exchange

  On October 22, 2004, the Exchange Offer expired and, according to the Province, $150.4 Page 4 million of Existing Bonds were exchanged for $150.4 million of New Bonds or more than sixty percent of the aggregate principal amount of the Existing Bonds. Consequently, $100 million, or 40% aggregate principal amount of the Existing Bonds, including those of Greylock, did not tender their Existing Bonds and, pursuant to the terms of the Exchange Offer, did not consent to any of the amendments or receive the Accrued Interest Payment. (Ford Decl. Ex. F (Listing Supplement) at 2; Ex. G (List of Tendered Bonds); Elwood Decl. at ¶ 6). Following the expiration of the Exchange Offer, on October 28, 2004, the Province Executed the First Supplemental Indenture that, among other things, gave effect to the amendments. (Ford Decl. Ex. H ("Final Supplement")).

  On October 28, 2004, the Exchange Offer and Consent Solicitation were implemented and the amendments became effective.

  B. Procedural History

  On September 27, 2004, Greylock filed an application for a temporary restraining order and preliminary injunction enjoining the Province from consummating an allegedly unlawful Exchange Offer and Consent Solicitation. See Greylock Global Opportunity Master Fund Ltd. v. Province of Mendoza, No. 04 Civ. 7643, 2004 WL 2290900 (S.D.N.Y. Oct. 12, 2004). Oral arguments were held on October 8, 2004, at which time I granted a temporary restraining order which would extend to October 14, 2004. Greylock, No. 04 Civ. 7643, 2004 WL 2290900 at *1. However, on October 12, 2004, that order was vacated, the Court having concluded that Greylock faced limited harm, that Greylock "may not succeed on the merits . . . [and that] the balance of hardships tips in Province's favor." Greylock, No. 04 Civ. 7643, 2004 WL 2290900, at *4.

  Thereafter, Greylock filed an Amended Complaint which, in pertinent part, alleged additional grounds for declaratory and injunctive relief. (Dckt. 20). In addition to Greylock's objections to the Sovereign Immunity Amendment, the Amended Complaint alleges that (1) as a result of the Supplemental Indenture, Exchange Offer and Consent Solicitation, "holders of New Bonds will be given priority of payment over holders of the Existing Bonds in violation of Section 4.5 of the Indenture and Section 1(c) of the Bond Terms" (Am. Compl. at ¶ 50) and (2) "the principal amount of an interest on the Existing Bonds will not only be reduced, they will be eliminated, in violation of Section 7.2 of the Indenture and Section 8 of the Bond Terms." (Am. Page 5 Compl. at ¶ 51).

  On December 22, 2004, Greylock and Province jointly filed a stipulation, which the Court so Ordered on December 29, 2004, that withdrew Plaintiff's allegation in the Amended Complaint dated October 15, 2004, relating to the Pari Passu Clause. (Dckt. 58). Accordingly, on January 6, 2004, Greylock filed their Second Amended Complaint that reflected the withdrawal. (Dckt. 59) ("2nd Amend. Compl.").


  A court will not grant a motion for summary judgment unless it determines that there is no genuine issue of material fact and the undisputed facts are sufficient to warrant judgment as a matter of law. Fed.R.Civ.P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Anderson v. Liberty Lobby Inc., 477 U.S. 242, 250 (1986). The party opposing summary judgment "may not rest upon the mere allegations or denials of the adverse party's pleading, but . . . must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). In determining whether there is a genuine issue of material fact, the Court must resolve all ambiguities, and draw all inferences, against the moving party. United States v. Diebold, Inc., 369 U.S. 654, 655 (1962) (per curiam); Donahue v. Windsor Locks Bd. of Fire Comm'rs, 834 F.2d 54, 57 (2d Cir. 1987). It is not the court's role to resolve issues of fact; rather, the court may only determine whether there are issues of fact to be tried. Donohue, 834 F.2d at 58 (citations omitted). However, a disputed issue of material fact alone is insufficient to deny a motion for summary judgment, the disputed issue must be "material to the outcome of the litigation," Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 11 (2d Cir. 1986), and must be backed by evidence that would allow "a rational trier of fact to find for the non-moving party." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). When considering cross-motions for summary judgment, the same legal standards apply and a court "must evaluate each party's motion on its own merits, taking care in each instance to draw all reasonable inferences against the party whose motion is under consideration." Make The Road by Walking, Inc. v. Turner, 378 F.3d 133, 142 (2d Cir. 2004) (citations omitted); see also Morales v. Quintel Entm't, Inc., 249 F.3d 115, 121 (2d Cir. 2001) (holding that "each party's motion must be examined on its own merits, and in each case all reasonable inferences must be drawn against the party whose motion is under consideration.") Page 6


  According to Greylock, the Exchange Offer, Consent Solicitation, and Supplemental Indenture violated the terms of the Indenture and, therefore, Greylock is "entitled to a judgment declaring that the Sovereign Immunity Amendment is not enforceable" and "an injunction barring the Province from attempting to enforce the Sovereign Immunity Amendment against any Existing Bondholder who has not consented to the Proposed Amendments." (2nd Am. Compl. at ¶¶ 41, 47); (Lane Tr. 2:21-3:6).*fn2 First, Greylock argues that the Sovereign Immunity Amendment and the elimination of the Negative Pledge and the Interest Coverage Covenant (collectively, the "Amendments") contravene Section 4.6 of the Indenture because the Amendments "as a practical matter, impair[s] the [Existing] Bondholders absolute and unconditional right to receive payment of principal and interest, and to institute suit for the enforcement of any such payment." (2nd Am. Compl. at 38).*fn3 Second, Greylock contends that because the Amendments "impaired" Greylock's rights, the Amendments required unanimous consent and not, as the Province suggests, the majority of the aggregate principal amount of the Bonds.

  A. Contravention of Section 4.6

  The plain language of the Indenture protects an Existing Bondholder's right to receive Page 7 payment of principal, interest and enforce any monetary judgment due under the Existing Bonds:

Section 4.6 Unconditional Right of Bondholders to Receive Principal and Interest:
Notwithstanding any other provision in this Indenture, each Bondholder shall have the right, which is absolute and unconditional, to receive payment of the principal of an interest on (including Additional Amounts) its Bond on the stated maturity expressed in such Bond and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Bondholder.
(Ford Decl. Ex. A (Indenture) at 14) (emphasis added). According to Greylock, while Section 4.6 protects the individual right of bondholders to receive payment, the Sovereign Immunity Clause protects Existing Bondholders' right to enforce their rights against the Province. The Sovereign Immunity Amendment explicitly withdraws the Province's waiver of Sovereign Immunity:
To the extent that the Province has or hereafter may acquire or have attributed to it any immunity (sovereign or otherwise) under any law from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its revenues, assets or property, the Province hereby irrevocably waives such immunity in respect of its obligation under [this Indenture/the Bonds] to the fullest extent it is permitted to do so under applicable law provided, however, that nothing in this [Section 9.7(d)/Paragraph(d)] shall constitute, or be deemed to constitute, an explicit or implicit waiver of immunity from attachment prior to judgment, attachment in aid of execution or execution with respect to any amount paid by the Province of indebtedness (whether principal, interest, redemption or otherwise) issued, or amended as to payment terms, on or after May 31, 2004. Without limiting the generality of the foregoing, the Province agrees that the waivers set forth in this [Section 9.7(d)/paragraph 17(d)] shall be to the fullest extent permitted under the Foreign Sovereign Immunities Act of 1976 of the United States and is intended to be irrevocable for the purposes of such Act.
(See Ford Decl. Ex. B (Explanatory Memorandum) at 57-58) (Amendment italicized and underlined). Greylock argues, absent the Province's waiver of sovereign immunity, Existing Bondholders may have no legal remedy to enforce their rights under the Indenture.

  In denying Grelock's motion for a preliminary injunction, the Court distinguished Page 8 Greylock's action from this Court's previous decision in a similar case, Federated Strategic Income Fund v. Mechala Group Jam. Ltd., No. 99 Civ. 10517, 1999 WL 993648 (S.D.N.Y. Nov. 2, 1999) (Baer, J.).*fn4 In Federated, the plaintiff moved for a preliminary injunction seeking to enjoin the defendant from closing on a tender offer on a class of notes held by the plaintiff. While I recognized the similarities, the holding in Federated does not apply because here "Greylock [could] still sue Province, attach all of the Province's property that is not covered by the Sovereign Immunity Amendment (e.g., the payments made by bondholders on the new debt) and, later, challenge the Amendment's validity." Greylock, No. 04 Civ. 7643, 2004 WL 2290900, at *3.

  Further, Greylock's argument that the Amendments would eviscerate "the ability of the Existing Bondholders to enforce any money judgment through attachment proceedings — and thus their right to recover principal and interest and to institute suit to collect payment due under the Existing Bonds," Greylock's Mem. of Law in Supp. of Pls.' Mot for Summ. J. at 9 ("Pls.' Mem. of Law"), due to sovereign immunity, is misguided. Greylock contends that "[u]nder the Foreign Sovereign Immunities Act ["FSIA"], a foreign state is presumptively immune from the jurisdiction of United States courts; unless a specified exception applies," and, therefore, "a federal court lacks subject matter jurisdiction over a claim against a foreign state." Saudi Arabia v. Nelson, 507 U.S. 349, 355 (1993). However, the Supreme Court has specifically recognized that "[b]y issuing negotiable debt instruments denominated in United States dollars and payable in New York and by appointing a financial agent in that city, Argentina purposefully availed itself of the privilege of conducting activities within the United States," Rep. of Arg. v. Weltover, 504 U.S. 607, 619-20 (1992), and, therefore, rendered itself subject to the jurisdiction of this Court. As for Greylock's specific concern that the waiver of the Sovereign Immunity Amendment will impair "their right to recover principal and interest and to institute suit to Page 9 collect payment due under the Existing Bonds," Pls.' Mem. of Law at 9, the law is clear. Section 1605(a)(2) of the FSIA, provides that a foreign state is not immune from suit in any case where:

. . . [T]he action is based upon a commercial activity carried on in the United States by the foreign state; or upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.
See also Commercial Bank of Kuwait v. Rafidain Bank, 15 F.3d 238, 239 (2nd Cir. 1994).

  Again, while the purpose of the Sovereign Immunity Amendment is to permit foreign nations and subdivisions thereof to avoid jurisdiction in the United States in the event of a default, here there is a sufficient nexus between the Province's commercial activities and the United States for the Court to exercise jurisdiction. As in Weltover, which involved the question whether the Argentine government acted "in connection with commercial activity" when it refinanced bonds in order to stabilize the national currency, "[w]hen a foreign government acts, not as a regulator of a market, but in the manner of a private player within it, the foreign sovereign's actions are `commercial' within the meaning of the FSIA." Weltover, 504 U.S. at 614; see also, Verlinden B.V. v. Cent. Bank of Nig., 461 U.S. 480, 488 (1983) (stating that when the commercial exception applies "the foreign state shall be liable in the same manner and to the same extent as a private individual under like circumstances"); Weltover Inc. v. Rep. of Arg, 941 F.2d 145, 151 (2d Cir. 1991) ("[o]nce a sovereign enters the marketplace as a commercial actor, it should be subject to all the rules of the marketplace").

  Since under the FSIA Greylock can still bring an action against the Province, the Amendments do not, as Greylock contends, impair Existing Bondholder's right to "institute suit for the enforcement of any such payment."

  B. Unanimous Consent

  Assuming arguendo that the Amendments violated Section of 4.6, Greylock contends that the Amendments were enacted absent unanimous consent of each Existing Bondholder as required by the language "notwithstanding any other provision in this Indenture" ("Notwithstanding Clause") in Section 4.6 and that this ground too serves to invalidate the indenture.

  One of the hallmarks of contract interpretation is that courts should interpret contracts to Page 10 ensure that all terms of a contract are given meaning and, where possible, that the meanings should mesh. See Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 63 (1995); see also Greylock, No. 04 Civ. 7643, 2004 WL 2290900, at *3 (S.D.N.Y. Oct. 12, 2004) (Baer, J.). In that vein, contractual provisions should be interpreted as to avoid rendering provisions of a contract superfluous, redundant, or obsolete. See Int'l Multifoods Corp. v. Commercial Union Ins., Co., 309 F.3d 76, 86 (2d Cir. 2002); see also Rest. 2d of Contracts, § 203(a) ("[A]n interpretation which gives a reasonable, lawful, and effective meaning to all the terms is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect.").

  Here, Section 7.2*fn5 and 7.3*fn6 of the Indenture set forth the Indenture modification requirements. Pursuant to Section 7.2 and 7.3, Indenture modification voting requirements vary depending on the nature of the modification. The majority of modifications require consent from the majority of the aggregate principal amount of the Bonds ("Majority Vote"). The Indenture also, however, provides that in limited circumstances, where the modifications affect the Page 11 fundamental nature of the Indenture itself, unanimous consent is required. To prevent disgruntled bondholders from "holding up" the modification process, the Indenture specifically limits the modifications that require unanimous consent to those that:

[S]hall (a) change the stated maturity of the principal of or interest on any such Bond; (b) reduce the principal amount of or interest on any such bond or change the obligation of the Province to pay Additional Amounts; (c) change the currency of payment of principal or interest (including Additional Amounts) on any such Bond; or (d) reduce the percentage of aggregate principal amount of Bonds Outstanding necessary to modify or amend this Indenture or the provisions of the Bonds or reduce the quorum requirements or the percentages of votes required for the adoption of any action at a Bondholders' meeting
(Ford Decl. Ex. A (Indenture) at 23). Pursuant to the terms of the Exchange Offer, none of the four exceptions are triggered. It is clear that provisions (a), (c) and (d) are not impacted, i.e., the principal, the currency of payment, and the voting percentages are unaffected by the Exchange Offer and Consent Solicitation. (Ford Decl. Ex. B at 18). As for (b), under the terms of the Exchange Offer, there is no reduction in principal.


The New Bonds will bear interest at a rate of 5½% per annum payable on March 4 and September 4 of each year commencing on September 4, 2004. Commencing with the interest payment date on March 4, 2006, the Province will make amortization payments such that the total principal and interest payment on each interest payment date will be U.S. $54.34 per U.S. $1,000 principal amount of New Bonds. The New Bonds will mature on September 4, 2018.
(Ford Decl. Ex B at 1). The New Bonds altered the Existing Bonds single "bullet payment," of principle with an amortized payment and 5½ percent interest. According to the Explanatory Memorandum, the effect of the alteration would not trigger 7.2(b) since "the terms of Existing Bonds after {sic} Proposed Amendments have become operative" are the same as the "Existing Terms of Existing Bonds." (Ford Decl. Ex B at 18).

  To interpret the language of Section 4.6 as an additional restriction to the specifically delineated exceptions to majority vote articulated in Section 7.2 is nonsensical. As I stated before, "[i]t is unlikely, at least in my experience, that a contract would list four exceptions in one section of a contract and provide for a fifth, narrowly tailored exception, elsewhere in the contract." Greylock, No. 04 Civ. 7643, 2004 WL 2290900, at *3 (S.D.N.Y. Oct. 12, 2004). The reasonable way to interpret Section 4.6 is to read it in conjunction with the immediately Page 12 preceding provision, Section 4.5, the "Limitation on Suits by Holders." (Ford Decl. Ex. A (Indenture) at 13).*fn7 When read in conjunction with Section 4.5, it becomes clear that the purpose of Section 4.6 is not, as Greylock suggests, to protect the bondholder against rogue bondholder amendments but, rather, as a "savings provision" for individual suits that might otherwise be subject to the immediately preceding limitations. (Ford Decl. Ex. A (Indenture) at 13).

  In addition, Section 7.3 specifically provides how to implement an amendment like the one advanced by the Province. Titled, "The Effect of Supplemental Indenture," Section 7.3 describes the effects of a Supplemental Indenture to, among other things, "immunities" and how amendments to "immunities" should be "determined, exercised and enforced" as they relate to Existing Bondholders. (Ford Decl. Ex. A (Indenture) at 13). Similar to Sections 4.5 and 4.6, when reading Section 7.2 in conjunction with Section 7.3, the provisions explicitly provide for amendments to "immunities," including a waiver, by a majority vote, as was accomplished by the Exchange Offer and Consent Solicitation.

  Lastly, if the Court were to adopt Greylock's interpretation of Section 4.6, all amendments, except those that benefit the bondholders, would require unanimous consent and, therefore, be subject to bondholders who "holdup" the Exchange Offer. The holdout problem exists when, like here, a minority bondholder withholds their consent to an amendment adopted by the majority of bondholders absent full repayment.*fn8 Such an interpretation would render Section 7.2, majority vote, and its four exceptions, superfluous and provide Greylock with an unintended veto over any amendment.


  For all of the foregoing reasons, Plaintiff's motion for Summary Judgment is DENIED. Defendant's cross-motion for summary judgment is GRANTED and the complaint is DISMISSED. Page 13

  The Clerk is instructed to close this motion and all other open motions and remove this case from my docket.


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