Litigation Coverage: Second Circuit Panel Hears Arguments in Argentina’s Appeal of $16B Judgment, Weighs Scope, Applicability of Argentine Law

A three-judge panel of the U.S. Court of Appeals for the Second Circuit today heard oral arguments on the Republic of Argentina’s appeal of Petersen and Eton Park’s $16 billion final judgment and the plaintiffs’ appeal of the dismissal of their claims against YPF SA. The arguments centered on whether the case belongs in U.S. or Argentine courts.

In September 2023, U.S. District Judge Loretta A. Preska of the Southern District of New York ruled in favor of plaintiffs Petersen and Eton Park, finding that the Republic breached tender obligations in YPF’s bylaws when it partially expropriated the company in 2012. However, Judge Preska also dismissed the plaintiffs’ claims against YPF, concluding that the company had no obligations under its own bylaws. Both sides appealed.

The panel, composed of Circuit Judges Beth Robinson, José A. Cabranes and Denny Chin, took the matter under advisement at the end of today’s hearing.

The Republic argues that Judge Preska “misapplied Argentine public and private law” in sustaining the plaintiffs’ breach of contract claims. At today’s hearing, Robert J. Giuffra of Republic counsel Sullivan & Cromwell asserted that the plaintiffs’ claims are “solely based” on Argentine law and that the real issue at hand is the proper remedy under Argentine law for the Republic’s failure to make a tender offer when it acquired YPF shares.

According to Giuffra, Judge Preska “made up” an “unprecedented” remedy in her final judgment and did not reconcile her decision with controlling Argentine law. Judge Preska also failed to account for Petersen and Eton Park ignoring their remedies in Argentina, Giuffra said, noting that the Argentine supreme court heard a case by similarly situated shareholders.

Argentina was “substantially prejudiced” by the fact that the case was decided by a U.S. judge, Giuffra continued. A judge on the panel interjected that it “seems awkward” that the venue issue did not arise earlier in this litigation, and Giuffra responded that there is “not a single U.S. law claim in this case.”

Another member of the panel commented that there is “no question that U.S. courts can apply foreign law,” to which Giuffra replied that the entire claim is governed by Argentine law and that the case “should never have been heard in this country.”

Paul D. Clement of Clement & Murphy, representing the plaintiffs, said the fundamental problem is that Petersen’s and Eton Park’s shares were not expropriated. Clement explained that the bylaws explicitly provide private remedies, either a tender offer or an obligation by YPF not to count shares, independent of Argentina’s public expropriation framework. Clement maintained that public law does not automatically trump private contracts unless “expressly displaced,” which it was not in this case.

A member of the panel suggested there is a “feel” that “this should have been litigated in Argentina” and asked how the U.S. might feel if an Argentine court decided issues of U.S. law. Clement answered that this situation is “not that unusual,” referring to “plenty of cases against Argentina” and other sovereigns in U.S. courts, and arguing it made sense for a U.S. court to decide whether Argentine public law trumps private law or bylaws in this case.

Another panel member said that “you don’t typically reach out and decide a challenge to foreign expropriation under foreign law” and added that public law suggests a “strong” Argentine interest in adjudicating this case. Clement countered that an entity cannot raise $1 billion on the New York Stock Exchange “and then express surprise when you’re sued in New York.”

In the cross-appeal regarding the YPF dismissal, YPF counsel Mark Goodman of Debevoise & Plimpton argued that YPF had no obligation under its bylaws to force the Argentine government to make a tender offer, and Argentine law is “absolutely clear” that substantive acts and decisions at a shareholder meeting are the responsibility of the shareholders and not the company directors or employees. YPF “could not force Argentina to do anything,” Goodman said, and there is no basis to believe Argentina would have made a tender offer even if YPF had acted differently.

If the court were to impose a $16 billion judgment against YPF, that would expose all minority holders to a “catastrophic judgment” that would be “profoundly unfair,” Goodman concluded.