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Silvia Seijas, Heather M. Munton, Thomas L. Pico Estrada v. the Republic of Argentina and

March 28, 2011

SILVIA SEIJAS, HEATHER M. MUNTON, THOMAS L. PICO ESTRADA, EMILIO ROMANO, RUBEN WEISZMAN, ANIBAL CAMPO, MARIA COPATI, CESAR RAUL CASTRO, HICKORY SECURITIES, LTD., ELIZABETH ANDREA AZZA, CLAUDIA FLORENCIA VALLS, RODOLFO VOGELBAUM, EDUARDO PURICELLI, AND RUBEN DANIEL CHORNY,
PLAINTIFF,
v.
THE REPUBLIC OF ARGENTINA AND BANCO DE LA NACIAN ARGENTINA,
DEFENDANT.



The opinion of the court was delivered by: Ttlomas P. Griesa U.S.D.J.

OPINION

This action is the second attempt by plaintiffs in the Argentina bond cases to hold Banco de la Nacian Argentina ("BNA"), as an "alter ego" of the Republic of Argentina, liable for judgments against the Republic. In the first attempt, EM Ltd. and NML Capital Ltd. filed a complaint against the Republic and BNA alleging that BNA was an alter ego of the Republic. After the court granted defendants' motions to dismiss the complaint, EM and NML filed a motion for reconsideration and the court vacated its dismissal. However, shortly thereafter EM and NML voluntarily withdrew their alter ego complaint.

Prior to the court's vacatur and the withdrawal of the EM and NML complaint, plaintiffs in this action-the Seijas plaintiffs-had filed their own alter ego complaint against the Republic and BNA alleging almost the same facts; and defendants had filed motions to dismiss the Seijas complaint. Although EM and NML withdrew their complaint, the Seijas plaintiffs have gone forward with their alter ego claim. The court converted the motions to dismiss into motions for summary judgment at a hearing on November 4, 2010.

Plaintiffs have sought to obtain discovery from defendants, primarily in the form of depositions of persons filing declarations in support of defendants. The court has denied this discovery, finding that there is sufficient information now before the court for the summary judgment motions to be dealt with fairly.

Defendants' converted motions for summary judgment are granted, and the case is dismissed.

Background

Plaintiffs are the named plaintiffs in eight certified class actions pending against the Republic arising out of the Republic's default in 2001 on its bonds.

Founded in 1891, BNA is the largest Argentine commercial banking institution. BNA operates over 600 branch offices, including one in New York. BNA is wholly-owned by the Republic, and an instrumentality of the Republic.

Plaintiffs filed this action against the Republic and BNA seeking (1) a declaratory judgment holding that BNA is an alter ego of the Republic (Count I); and (2) an adjudication that BNA, as an alter ego of the Republic, is jointly and severally liable to satisfy existing judgments in favor of plaintiffs and against the Republic (Counts II-IX).

Procedural History

It is important to review the procedural history of both alter ego actions against BNA before relating the facts.

A. Litigation against BNA by Plaintiffs EM and NML

In September 2008, the court signed orders in EM and NML's bond default cases attaching and restraining certain assets of BNA and the Republic. EM and NML sought to attach BNA's assets on the theory that BNA was the alter ego of the Republic. They also sought to attach any assets of the Republic held in BNA's custody. EM and NML attached and restrained assets in both categories.

Plaintiffs EM and NML filed a complaint against BNA in September 2008 in 08 Civ. 7974. EM and NML sought a declaratory judgment that BNA is an alter ego of the Republic, and an adjudication that BNA is jointly and severally liable to satisfy existing and future judgments in their favor and against the Republic. That complaint's factual pleadings were similar to the one filed in the present Seijas action.

There were various cross-motions regarding the attachments and restraints, as well as the alter ego action. The following is a summary of opinions rendered by the court.

1. September 30, 2009 Opinion

In the first opinion, issued on September 30, 2009, the court ruled that BNA was not an alter ego of the Republic. The court found that the Republic does not control the day-to-day operations of BNA. While there was evidence that the Republic sometimes required BNA to do financing for certain economic sectors of the country and for particular businesses, this did not rise to the degree of de facto ownership or control of BNA's funds sufficient to justify an alter ego ruling.

However, the court did state that something much closer to the alter ego territory occurred in late 2008 when the Republic procured a change in the law governing the bank's charter which greatly loosened the restrictions on the ability of the Republic to borrow money from BNA. Nevertheless, the alleged law offered only the potential for the Republic to use BNA's funds effectively as the Republic's own. The record did not show any actual use by the Republic of this apparent expanded power to borrow from BNA. Accordingly, the court concluded that "even the evidence about the expanded power of the Republic to borrow from BNA is not sufficient to justify holding that BNA was or is the alter ego of the Republic."

It is important to note that the court relied on plaintiffs' representation that the late 2008 proposed law was the version passed by the Argentine government.

On the basis of this ruling, the court vacated the attachments and restraints of BNA's assets, although the court confirmed part of the orders restraining certain of the Republic's assets held by BNA. The court dismissed the separate alter ego action against BNA and the Republic.

2. September 30, 2010 Opinion

EM and NML moved for reconsideration of the September 30, 2009 opinion. First, plaintiffs sought to introduce new evidence showing that the Republic now had actually used the apparent expanded power under the late 2008 legislation to borrow money from BNA with lessened restrictions. Based on this new information, plaintiffs sought new attachments directed to property previously covered by the September 2008 orders, and certain additional properties. This request was granted. Second, plaintiffs asserted that the September 2009 opinion did not apply the controlling legal standards.

However, an important revelation about the late 2008 legislation occurred shortly before the court issued its September 30, 2010 opinion. Plaintiffs informed the court that they had made an error in relying on proposed legislation introduced by Argentine President Fernandez de Kirchner that would have amended BNA's charter by eliminating the special guarantee requirement for loans from BNA to the Republic. On November 21, 2008, a revised version of the legislation was actually signed into law, which did not eliminate the special guarantee requirement in BNA's charter. In fact, the law ratified the requirement of the special guaranties contained in BNA's charter. This court had adopted plaintiffs' erroneous description in its September 2009 opinion.

The EM and NML plaintiffs agreed that the orders of attachment and restraint as they related to property of BNA should be vacated. Thus, no attachments, restraints, or other restrictions remained on any property of BNA.

The court handed down an opinion in September 2010. The court vacated its dismissal of the separate alter ego action but questioned whether the allegations in the alter ego complaint provided a sufficient jurisdictional basis once orders attaching and restraining BNA assets were set aside. The court requested briefing on this issue. The court also granted a motion to amend the alter ego complaint.

However, on November 29, 2010, EM and NML voluntarily dismissed their alter ego complaint ...


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