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Nml Capital, Ltd v. the Republic of Argentina

August 29, 2012



Plaintiff NML Capital, Ltd. ("NML") owns beneficial interests in defaulted bonds issued by defendant the Republic of Argentina (the "Republic"). The court has issued judgments in favor of plaintiff in a number of cases, but to date plaintiff has been largely unable to collect on those judgments.

NML has filed an amended complaint in the present case against the Republic and Energia Argentina S.A. ("ENARSA"). The motions to dismiss the amended complaint are granted.


On August 7, 2009, NML filed its initial complaint against ENARSA and the Republic seeking a determination that ENARSA is the Republic's alter ego under First National City Bank v. Banco Para El Comercio Exterior de Cuba ("Bancec"), 462 U.S. 611 (1983), and that ENARSA is therefore liable for the Republic's debts. On February 15, 2011, the court granted defendants' motions to dismiss the complaint, finding that NML failed to state a claim that ENARSA is the Republic's alter ego. NML Capital, Ltd. v. The Republic of Argentina, 2011 WL 524433, at *8 (S.D.N.Y. Feb. 15, 2011). The court noted that there were no detailed allegations in the complaint that the Republic managed the day-to-day business of ENARSA or disposed of the funds of ENARSA in any abnormal manner or in any way designed to treat such funds as funds of the Republic. In dismissing the complaint, the court granted NML leave to amend.

On July 21, 2011, NML filed an amended complaint. In the amendment, NML did not seek to strengthen its case of alter ego, based on Bancec. Whereas the original complaint had expressly cited Bancec as the legal basis for its claim, Bancec is not referred to in the amended complaint. The new complaint cites, as its legal basis, Garb v. Republic of Poland, 440 F.3d 579 (2d Cir. 2006). Referring to the reasoning in Garb, the amended complaint alleges that ENARSA has core functions that are predominantly governmental and thus operates as a political organ of the Republic. The claim is that ENARSA is not merely a separate entity which is an alter ego of the Republic, but it is part of the Republic itself. Am. Compl. ¶ 15.

It should be said at the outset that Garb does indeed distinguish between the foreign state itself and a separate "agency or instrumentality" of the state, within the meaning of the Foreign Sovereign Immunities Act, 28 U.S.C. § 1602 et seq. However, Garb defines the distinction as being "whether the core functions of the foreign entity are predominantly governmental or commercial," relying on Transaero, Inc. v. La Fuerza Aerea Boliviana, 30 F.3d 148, 151 (D.C. Cir. 1994). Garb, 440 F.3d at 591. The facts about ENARSA, as alleged in the amended complaint, will now be described.


ENARSA is an energy company that commercializes oil, gas, and electric energy. It is a duly incorporated "sociedad anonima"-a stock corporation that is an independent, juridical entity with its own legal personality-under Argentine law. ENARSA is owned primarily by the Republic.

According to the law that created ENARSA, its objective involves "the study, exploration, and exploitation of solid, liquid, and/or gaseous Deposits of Hydrocarbons, and the transportation, storage, distribution, sale, and industrialization of these products and their direct and indirect derivatives." Law No. 25,943, Nov. 2, 2004, Art. 1 (Arg.). It transports and distributes natural gas, "for which purpose it may process, treat, refine, purchase, sell, convert, import, or export" such product, it "may perform any other operation complementary to its industrial and sales activities," and it may "itself or through or in partnership with third parties, generate, transport, distribute, and sell electric energy." Id. In addition, ENARSA "may engage in trade activities connected with energy assets, and may develop any of the activities specified in its purpose, both domestically and in other countries." Id.

NML alleges that ENARSA performs multiple governmental functions, specifically: (1) providing low-cost energy to the Argentine people; (2) owning and administering the state's mineral rights; (3) serving as regulator of anticompetitive behavior in the energy sector; and (4) acting on behalf of the Republic in myriad other ways, as described below.

1. Low-Cost Energy

The Argentine government provides significant subsidies to ensure access to low-cost energy for the Argentine people. As discussed in the court's opinion of February 15, 2011, one of ENARSA's functions is to sell natural gas at low prices for the benefit of Argentine citizens, and the Republic subsidizes ENARSA for the losses it incurs.

ENARSA's website describes Argentina's energy policy and objectives and states that ENARSA is a company directed toward the public interest.

We believe that ENERGY is a state matter, because it constitutes an essential input resource for economic development and well-being. The State must ensure that all citizens have access to this capital resource. . . . [T]he National Government resolved to create ENARSA as a reference company for the energy market, directed ...

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