United States District Court, S.D. New York
OPINION & ORDER
LORETTA A. PRESKA, SENIOR UNITED STATES DISTRICT JUDGE
the Court is Defendant Republic of Argentina's
("Defendant" or "the Republic"} motion to
dismiss Plaintiff Aurelius Capital Master, Ltd.'s
("Plaintiff" or "Aurelius") breach of
contract suit related to various U.S. dollar tied, GDP-linked
securities issued by the Republic in 2005 and 2010.
Specifically, Aurelius's complaint alleges that the
Republic failed to make approximately $61 million in payments
as required by the terms of the relevant securities. At the
center of the dispute is a Byzantine mathematical calculation
set forth in the documents governing the securities that
determines whether the Republic's payment obligations for
a given year are triggered. The parties fundamentally
disagree as to how the core machinery of that equation is
meant to function under the terms of the securities'
down to the studs, this is a dispute about contractual
interpretation. This, of course, is "a question of law .
. . suitable for disposition on a motion to dismiss."
Medtech Prods. Inc. v. Ranir, LLC, 596 F.Supp.2d
778, 807 (S.D.N.Y. 2008)(citations omitted). Here, the
Republic has argued that this case may be dismissed as a
matter of law because (1) the Republic's calculations
relevant to determining its payment obligations are
"binding" upon Aurelius absent proof of bad faith,
willful misconduct, or manifest error and (2) data relied
upon by Aurelius in arguing that the payment obligation was
triggered is different from the data prescribed by the terms
of the securities' governing documents.
Court "may dismiss a breach of contract claim only if
the terms of the contract are unambiguous." Orchard
Hill Master Fund Ltd. V. SBA Commc'ns Corp., 830
F.3d 152, 156 (2d Cir. 2016). Here, the relevant contractual
terms clearly and plainly indicate that the calculations
material to Aurelius's breach of contract claim must rely
on enumerated economic metrics produced by the Argentinian
government. Aurelius, however, has rested its claim on data
not contemplated by the plain terms of the relevant contract
and has argued for an interpretation of that contract that
allows use of alternate statistics. Aurelius could have
bargained for a contract that required the use of the
specific metrics "or the closest equivalent,"
"or the stated successor," but it did not. Thus,
Aurelius is stuck with the enumerated metrics and,
accordingly, the Republic of Argentina's motion to
dismiss is GRANTED. However, that dismissal is
without prejudice, and Plaintiff will be granted leave to
amend its complaint.
facts below are drawn from Aurelius's complaint and,
where necessary, from the parties' briefing on the
instant motion. (See Complaint ("Compl."), dated
January 14, 2019 [dkt. no. 1]); (see also
Republic's Memorandum of Law in Support of Motion to
Dismiss ("MTD"), dated April 18, 2019 [dkt. no.
17]); (see also Aurelius's Memorandum of Law in
Opposition to Motion to Dismiss ("Opp."), dated
June 3, 2019 [dkt. no. 18]); (see also
Republic's Reply to Aurelius Opposition
("Reply"), dated July 2, 2019 [dkt. no. 21]}. Of
course, the Court must accept as true all factual allegations
in the complaint and must draw all reasonable inferences in
favor of Plaintiff. Marbi Corp. of New York v.
Puhekker, 9 F.Supp.2d 425, 427 (S.D.N.Y. 1998).
The Argentinian Debt Crisis
story of the Argentinian financial crisis is, to put it
mildly, familiar to this Court. Between 1993 and 2001, the
net interest payments on the Republic's sovereign debt
increased sharply, rising from approximately $2.9 billion
(1.2 percent of GDP) to $10.2 billion (3.8 percent of GDP).
(MTD at 5). Due to the strain of its exploding debt load, the
Republic announced a moratorium on its debt service payments
in December 2001. See EM Ltd. v. Republic of
Arg., 473 F.3d 463, 466 (2d Cir. 2007). That
default spurred seemingly endless rounds of litigation
relating to unpaid amounts on the distressed debt.
(See MTD at 5).
and 2010, the Republic launched voluntary debt exchanges
whereby owners of the country's defaulted debt could
exchange their non-performing bonds for new securities.
(See Compl. ¶ 2); (see also MTD at 5).
Because the new bonds issued in the debt exchanges
represented a "steep haircut" from the face value
of the bonds tendered by participants, (see Compl.
¶ 2), the Republic coupled the new bonds with GDP-linked
securities that provided for contingent additional payments
to bondholders-made yearly through 2035-based on the
performance of the Republic's economy.
(Id.). In essence, participants in the 2005 and
2010 exchanges "bought in" to the Argentinian
economy; they "provided Argentina many billions of
dollars in debt relief in return for  participation in the
ensuing growth of Argentina's economy." Id.
The Global Security
of the GDP-Linked Securities do not automatically receive a
cut of the Republic's economic output. Instead, whether
the Republic's payment obligations are (or are not)
triggered in a given year is determined by a labyrinthine set
of definitions and equations set forth in the securities'
governing documents. The governing documents for the
GDP-Linked Securities include: (i) the June 5, 2005 Trust
Indenture (see Compl. Ex. A); (ii) the 2005 Form of
Registered Security (the "2005 Global Security")
(see Compl. Ex. B); (iii) the April 30, 2010 First
Supplemental Indenture (see Compl. Ex. C); and (iv)
the 2010 Form of Registered Security (the "2010 Global
Security") (see Compl. Ex. D).
table setting is in order. At the most basic level, the
Global Security lays out methods for determining whether a
payment is due "in respect of Argentina's economic
performance in any given year," which the GDP-Linked
Securities refer to as a "Reference Year." (Compl.
¶ 4). However, the deadline for the Republic to make
payment for a given Reference Year is delayed by one year.
(Global Security § 1(e) at R-4) (defining "Payment
Date" as "for any Reference Year, the 15th of
December of the calendar year following such Reference
Year."). So, a payment for Reference Year 2013 would
come due on December 15, 2014, a payment for Reference Year
2014 would come due on December 15, 2015, and so on.
Global Security lays out two tests for determining whether a
payment is due for a given Reference Year. First, the
Security requires that the "Payment Amount" for the
relevant Reference Year must be positive. The Payment Amount
is determined by comparing various GDP figures for the
Reference Year to determine "Excess GDP," which is
then subject to certain further adjustments to arrive at the
Payment Amount figure. (See Compl. ¶ 17). The
parties do not dispute that the Payment Amount for 2013 was
positive, and so the Court will not saddle readers of this
opinion with the technical details of its calculation.
critical theater in this dispute is the second test. That
test includes three subtests whereby a Payment Amount is only
due for a given year if (i) Actual Real GDP exceeds Base Case
GDP for the relevant Reference Year (the "GDP
Subtest"); (ii) Actual Real GDP Growth exceeds Base Case
GDP Growth for the Reference Year (the "GDP Growth
Subtest"); and (iii) the total payments made to date
under the GDP-Linked Securities and the Payment Amount do not
exceed a contractually-defined "Payment Cap."
(Compl. ¶ 18). Only the GDP Subtest and the GDP Growth
Subtest are at issue in this case. Explanations of the
relevant terms follow.
various calculations required to assess the Republic's
economic performance against the GDP Subtest and the GDP
Growth Subtest rely on multiple metrics. Most important among
these metrics, at least for purposes of the present dispute,
is the Republic's Actual Real Gross Domestic Product
("Actual Real GDP"). Actual Real GDP is a
price-adjusted measure of the Republic's total economic
output that "uses a set of 'constant'
prices-prices from a 'base' year-to control for
inflation in order to achieve comparability across different
periods." (MTD at 11). Under the terms of the Global
Security, that "base year," referred to by the
Security as a "Year of Base Prices," is 1993.
Importantly, the Global Security only allows Actual Real GDP
figures that are calculated and published by the
Republic's Instituto Nacional de Estadistica y
Censos ("INDEC")--the Argentinian government
agency officially responsible for publishing the
country's economic data-to be used in the relevant
calculations. (See Global Security § 1(e) at R-2
(Defining Actual Real GDP as "for any Reference Year,
the gross domestic product of Argentina for such Reference
Year measured in constant prices for the Year of Base Prices,
as published by INDEC.") (Emphasis added)).
the GDP Subtest requires that the Republic's actual
economic output exceed a "Base Case GDP." Base Case
GDP functions as a contractually-defined benchmark against
which the Republic's economic performance for a Reference
Year can be measured. Base Case GDP is specifically listed
for every Reference Year in a chart in the ...