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Aurelius Capital Partners, Lp and Aurelius Capital Master, Ltd v. the Republic of Argentina

March 22, 2012

AURELIUS CAPITAL PARTNERS, LP AND AURELIUS CAPITAL MASTER, LTD., PLAINTIFFS,
v.
THE REPUBLIC OF ARGENTINA, DEFENDANT.
AURELIUS CAPITAL PARTNERS, LP AND AURELIUS CAPITAL MASTER, LTD., PLAINTIFFS,
v.
THE REPUBLIC OF ARGENTINA, DEFENDANT.
BLUE ANGEL CAPITAL I LLC, PLAINTIFF,
v.
THE REPUBLIC OF ARGENTINA, DEFENDANT.
AURELIUS CAPITAL MASTER, LTD. AND ACP MASTER, LTD, PLAINTIFFS,
v.
THE REPUBLIC OF ARGENTINA, DEFENDANT.
AURELIUS CAPITAL MASTER, LTD. AND ACP MASTER, LTD, PLAINTIFFS,
v.
THE REPUBLIC OF ARGENTINA, DEFENDANT.
AURELIUS OPPORTUNITIES FUND II, LLC AND AURELIUS CAPITAL MASTER, LTD., PLAINTIFFS,
v.
THE REPUBLIC OF ARGENTINA, DEFENDANT.
AURELIUS OPPORTUNITIES FUND II, LLC AND AURELIUS CAPITAL MASTER, LTD., PLAINTIFFS,
v.
THE REPUBLIC OF ARGENTINA, DEFENDANT.
AURELIUS CAPITAL MASTER, LTD. AND AURELIUS OPPORTUNITIES FUND II, LLC, PLAINTIFFS,
v.
THE REPUBLIC OF ARGENTINA, DEFENDANT.
BLUE ANGEL CAPITAL I LLC, PLAINTIFF,
v.
THE REPUBLIC OF ARGENTINA, DEFENDANT.
BLUE ANGEL CAPITAL I LLC, PLAINTIFF,
v.
THE REPUBLIC OF ARGENTINA, DEFENDANT.
AURELIUS CAPITAL MASTER, LTD. AND AURELIUS OPPORTUNITIES FUND II, LLC, PLAINTIFFS,
v.
THE REPUBLIC OF ARGENTINA, DEFENDANT.



OPINION

Plaintiffs Aurelius Capital Partners, LP, Aurelius Capital Master, Ltd., ACP Master, Ltd., Aurelius Opportunities Fund II, LLC, and Blue Angel Capital I LLC (collectively, "Aurelius") own beneficial interests in defaulted bonds issued by defendant, the Republic of Argentina (the "Republic"). On May 16, 2011, Aurelius applied for, and the court signed, two ex parte orders of attachment. The first was directed to the interests of certain entities connected with the Republic in U.S. patents or pending patent applications. The second was directed to royalties generated by license agreements. Aurelius now moves to confirm the orders of attachment, and the Republic and non-party BASF Corp. cross-move to vacate the orders. The attachment orders are vacated.

Facts

Procedural History

Aurelius has eleven actions in this court pertaining to the Republic's bond default in 2001 and has been awarded eleven final judgments against the Republic for a total of about $1.2 billion. Aurelius also has additional cases pending before the court seeking further money judgments. As stated above, on May 16, 2011, this court ordered the ex parte attachment of certain patent interests and royalty interests of entities connected with the Republic. The court also appointed a Receiver to preserve the status quo and protect the value of the property covered by the attachment orders.

The order relating to patent interests (the "Patent Attachment Order") purports to attach property interests held by the Republic in U.S. patents or patent applications, including any patent interests held by any of the following five Argentine entities: Agencia Nacional de Promocion Cientifica y Tecnologica ("ANPCT"); Consejo Nacional de Investigaciones Cientificas y Tecnicas ("CONICET"); Comision Nacional de Energia Atomica ("CNEA"); Instituto Nacional de Tecnologia Agropecuaria ("INTA"); or Instituto Nacional de Tecnologia Industrial ("INTI").

The order relating to royalty fees (the "Royalty Attachment Order") focuses on two licensing agreements between INTA and BASF, a chemical company. The licensing agreements give BASF the right to commercialize a rice gene technology developed by INTA, and the attachment order purports to attach INTA's interests in licensing or royalty fees payable under the agreements.

In plaintiffs' request for the Royalty Attachment Order, plaintiffs stated: Upon information and belief, BASF has incorporated, or is in the process of incorporating, INTA's rice technology into its 'Clearfield' product line and/or other product lines that BASF sells in the United States, for which it is contractually obligated to pay royalties to INTA on the basis of its commercialization of INTA's rice gene technology in the United States.

Plaintiffs' Brief at 2. Plaintiffs served the attachment order on BASF Corporation ("BASF Corp."), a North American company that is present in New York.

Plaintiffs move to confirm both attachment orders. They also request that the court enter an order transferring the patent interests to the court-appointed Receiver. Defendant and non-party BASF Corp. move to vacate both attachment orders.

There is a voluminous record on these motions about the facts relevant to the various issues raised. Much of this submission relates to the nature of the Argentine entities, and their relation to the Republic. The issue here is whether the property of the entities can be considered to be the property of the Republic for the purposes of attachment.

To date, plaintiffs have identified a variety of scientific and medical technologies that are apparently the subject of 47 patents and pending patent applications. These patents and patent applications involve various of the Argentine entities. However, as far as the record shows, none of the patents have given rise to commercial activity in the United States, within the meaning of the relevant statute, the Foreign Sovereign Immunities Act (the "FSIA), and only two pending patent applications involve technology which is used in commercial activity. Those pending applications relate to INTA's rice gene technology. This technology is also the subject of the licensing agreements referred to earlier.

Consequently, there is no need for the court in this opinion to describe any of the entities except for INTA. And there is no need to describe any of the patents or pending patent applications except those of INTA. Instituto Nacional de Tecnologia Agropecuaria ("INTA") The FSIA distinguishes the sovereign state from an agency or instrumentality of the sovereign state. There are somewhat different rules regarding attachments depending on whether it is the sovereign's property or an instrumentality's property that is sought to be attached. Plaintiffs contend that INTA is part of the Republic. They make no argument that there can be an attachment if INTA is an agency or instrumentality of the Republic.

INTA is a decentralized autarkic agency. Under Argentine law, autarkic entities have full capacity to act on their own behalf and in their own name, enter into contracts, and to serve as plaintiffs or defendants in legal proceedings. They are created to serve public, governmental purposes. INTA is a governmental research institution within the Argentine Ministry of Agriculture, Livestock, and Fisheries. According to the Executive Decree that created INTA, its mission is to promote agricultural science and research pursuant to "the directives of the National Executive Branch," in order to fulfill the state's responsibility to promote the efficient development of agricultural production. INTA Decree No. 21,680, at preamble & arts. 1-2.

INTA is headed by the Argentine Minister of Agriculture. It is governed by a ten-member advisory board, seven of whom are nominated by independent agricultural entities, including agricultural producers and agronomy and veterinary schools. The board has the power to issue INTA's internal rules, prepare a budget, and hire, promote, and dismiss personnel. The board's members are appointed by the Executive Branch, but the National Executive may only appoint individuals that were nominated. The Advisory Board appoints INTA's National Director, who is in charge of INTA's day-to-day operations.

INTA's budget is made up primarily of tax revenues imposed by the Republic and earmarked for INTA's use, along with contributions from provincial governments, and other independent sources of operating revenue. Plaintiffs state that INTA generally does not pay any periodic federal taxes, while the Republic states that INTA pays periodic federal taxes. The court previously found that INTA was a separate agency or instrumentality-rather than a part of the Republic-and that another debtor, EM Ltd., could not attach a bank account held by INTA. EM Ltd. v. Republic of Argentina, 2009 WL 3149601, at *6 (S.D.N.Y. Sept. 30, 2009), vacated in part on other grounds, 2010 WL 3910604 (S.D.N.Y. Sept. 30, 2010). In that case, the plaintiff sought to attach an account of INTA held at BNA's New York branch. The account contained about $2,000. EM Ltd. requested discovery as to INTA, but the court denied it because the court did not "believe that further discovery as to the status of INTA is justified." Id. at *7. The court does not consider itself bound to follow now its ruling with regard to the $2,000 bank account and will consider the status of INTA anew on this motion.

INTA's Rice Gene Technology and the BASF Licensing Agreements INTA has developed a rice gene (the "Rice Gene") and a rice variety incorporating that gene (the "Rice Variety") that are resistant to herbicides used against "red rice," a weed that has significantly harmed the output of rice fields worldwide. In 2005, INTA entered into two licensing agreements (the "Rice Gene License Agreement" and the "Rice Variety License Agreement") with BASF Agrochemical Products B.V. ...


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