Hickory Argentine Bond Case Sent Back to Trial Judge

A U.S. appeals court in New York directed that a class-action suit brought against the Republic of Argentina by Hickory Securities Ltd. be sent back to a lower court for further consideration to calculate the amount bondholders can collect.

Argentina defaulted on $95 billion in debt in late 2001, the biggest default in history. In 2005, then-President Nestor Kirchner offered holders of defaulted debt 30 cents on the dollar. Holders of about $20 billion in bonds rejected that deal.

U.S. District Judge Thomas Griesa in New York issued eight judgments in January 2009 ordering Argentina to make payments between $95 million and $543 million to the noteholders, including interest that has accumulated since 2001. The awards at the time added up to $2.2 billion. Griesa also granted class-action, or group, status in each action and aggregate classwide relief.

Griesa concluded the class consisted of bondholders who purchased Argentine bonds prior to the filing of the suit for each respective bond series and who held such bonds continuously until entry of judgment by the district court.

Argentina challenged class certification and aggregate relief, arguing the amounts were improperly based on estimates of the total amount each class might recover, without accounting for bondholders who might not have held bonds continuously during the class period.

‘Likely Inflated’

The U.S. Court of Appeals in New York upheld Griesa, ruling in May 2010 that he had properly granted class status to the plaintiffs. The court also reversed Griesa, saying he had erred in basing judgments on estimates of Argentina’s liability that resulted in classwide awards that were “likely inflated.”

The appeals court remanded the case back to Griesa on aggregate-wide class relief and to consider alternative approaches to calculating damages.

After the case was initially sent back to Griesa, he ruled in May 2011 that the bond series in three of the eight actions that hadn’t yet matured were deemed accelerated. Argentina again challenged the calculation, arguing the lower court had erred in granting aggregate class-wide relief and that he’d failed to account for bonds purchased in the secondary market after the start of the class period.

Classwide Judgments

The appeals court ruled today that Griesa erred in granting aggregate classwide judgments without sufficiently accounting for non-continuous bondholders.

The court also directed Griesa to conduct a hearing to consider evidence with respect to the volume of bonds purchased in the secondary market after the start of the class period that weren’t tendered in the debt exchange offers or are currently held by opt-out parties or litigants in other proceedings.

The circuit also directed Griesa to make findings as to a “reasonably accurate non-speculative estimate” of that volume based on the evidence provided by the parties and account for such volume in any damage award would “roughly reflect” the loss of each class.

If no reasonably accurate non-speculative estimate can be made, then Griesa was directed to determine how to proceed with the awarding of damages on an individual basis.

‘Without Merit’

The appeals court also rejected Argentina’s arguments against class certification as being “without merit” and “disingenuous” noting Argentina defaulted on these bonds and conceded before Griesa that “it had no intention of resuming payments.”

“As Argentina acknowledges, it ceased servicing this debt in 2001,” the panel said today.

Carmine Boccuzzi, a lawyer with Cleary Gottlieb Steen & Hamilton LLP representing Argentina, and Howard Sirota, a lawyer for the plaintiffs, didn’t immediately return calls seeking comment on the ruling.

The case is Hickory Securities Ltd. v. Republic of Argentina, 04-cv-936, U.S. District Court for the Southern District of New York (Manhattan); the appeals case is 11-cv-3317, 2nd U.S. Circuit Court of Appeals (New York).

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