A federal appeals court handed Argentina a victory Wednesday in its quest to relieve itself of the pressures of debt owed to American hedge funds and others, saying a judge went too far by letting some bondholders demand payment without proving how much they are entitled to be paid.
The U.S. Court of Appeals for the Second Circuit said a lower-court judge was oversimplifying the definition of the class of bond holders affected by his orders.
Judge Richard Wesley noted that defining a precise class to which Argentina owes damages for refusing to pay bondholders and calculating those damages have been “exasperating tasks.” But the decision issued by a three-judge panel said Southern District Judge Thomas Griesa was making it too easy for some plaintiffs by creating a class including bondholders who were not the original purchasers of the bonds.
“While objective criteria may be necessary to define an ascertainable class, it cannot be the case that any objective criterion will do,” Wesley wrote in Brecher v. Republic of Argentina, 14-4385. “A class defined as ‘those wearing blue shirts,’ while objective, could hardly be called sufficiently definite and readily identifiable; it has no limitation on time or context, and the ever-changing composition of the membership would make determining the identity of those wearing blue shirts impossible.”
The dispute over Argentina’s debt emerged after the South American nation defaulted on $100 billion in debt in 2001.
Most creditors accepted lower-valued bond swaps in 2005 and 2010. But U.S. hedge funds led by billionaire hedge fund investor Paul Singer’s NML Capital Ltd. refused and took Argentina to court in Manhattan and won. Griesa has repeatedly ruled that Argentina can’t pay other creditors until it pays the holdouts.
Argentina has not complied with Griesa’s orders, and the funds have tried to seize Argentine assets around the world. Last month, Griesa ruled the plaintiffs can pursue Argentine assets in the U.S., except for military and diplomatic property.
The plaintiff in Wednesday’s decision held a relatively small number of bonds. The appeals court ordered an evidentiary hearing to decide damages.
Attorney Carmine Boccuzzi, a partner at Cleary Gottlieb Stein & Hamilton who represents Argentina, said he was pleased with the ruling.
“The ruling makes clear that plaintiffs may not use the class mechanism to avoid having to prove the actual damages of purported class members,” he said.
Jason Zweig, a partner at Hagens Berman Sobol Shapiro, the bondholder’s attorney, did not immediately return a message seeking comment.
In court papers, Zweig wrote dismissively of Argentina’s arguments, saying the appeal was designed “simply to further delay this already 9-year-old case, in order to prolong the day it must pay its outstanding debts.”
In court papers, Boccuzzi wrote that judgments in favor of members of the class were “inflated and inaccurate” because the bonds at stake are regularly traded in the secondary market.