Petition for Writ of Certiorari — Argentine Republic, Petitioner v. Petersen Energia Inversora S.A.U., et al.
Supreme Court briefOct 31, 2018
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No. 18-____
IN THE
Supreme Court of the United States
ARGENTINE REPUBLIC,
Petitioner,
v.
PETERSEN ENERGÍA INVERSORA S.A.U. AND
PETERSEN ENERGÍA, S.A.U.,
Respondents.
On Petition For A Writ Of Certiorari
To The United States Court Of Appeals
For The Second Circuit
PETITION FOR A WRIT OF CERTIORARI
Maura Barry Grinalds
Counsel of Record
Boris Bershteyn
Jonathan J. Lerner
Timothy G. Nelson
Austin R. Winniford
SKADDEN, ARPS, SLATE, MEAGHER &
FLOM LLP
Four Times Square
New York, NY 10036
(212) 735-3000
maurabarry.grinalds@skadden.com
QUESTION PRESENTED
Whether the “commercial activity” exception to
sovereign immunity in the Foreign Sovereign Immunities Act, 28 U.S.C. § 1605(a)(2), is inapplicable
to suits challenging conduct inextricably intertwined
with a sovereign act of expropriation.
ii
PARTIES TO THE PROCEEDINGS BELOW
Petitioner Argentine Republic is a defendantappellant below.
Respondent YPF S.A. is a defendant-appellant below.
Respondents Petersen Energía Inversora S.A.U.
and Petersen Energía, S.A.U. are plaintiffs-appellees
below.
iii
TABLE OF CONTENTS
Page
QUESTION PRESENTED........................................... i
PARTIES TO THE PROCEEDINGS BELOW .......... ii
TABLE OF AUTHORITIES....................................... vi
PETITION FOR A WRIT OF CERTIORARI ............. 1
OPINIONS BELOW .................................................... 1
STATEMENT OF JURISDICTION............................ 1
STATUTE INVOLVED ............................................... 1
PRELIMINARY STATEMENT .................................. 2
STATEMENT OF THE CASE .................................... 5
REASONS FOR GRANTING THE WRIT ................ 12
I.
The Second Circuit’s Decision Deepens a
Circuit Split Regarding the FSIA’s
Commercial Activity Exception ........................ 12
II.
The Second Circuit’s Decision Deviates
from This Court’s Precedent and Is
Incorrect............................................................. 15
A.
The Second Circuit’s Decision
Extends the Commercial Activity
Exception Beyond “Strictly
Commercial” Acts to Sovereign Acts
That Invoke Sovereign Powers ................. 15
iv
B.
The Second Circuit Improperly
Deemed Any Alleged Breach of
Contract by a Sovereign
“Indisputably” Commercial
Conduct ...................................................... 19
C.
The Second Circuit’s Decision
Undermines the Limited
Expropriation Exception to
Sovereign Immunity.................................. 22
III. The Second Circuit’s Decision Raises an
Exceptionally Important and Recurring
Question Implicating Foreign Policy
Interests that Should Be Addressed by
This Court.......................................................... 27
CONCLUSION .......................................................... 33
APPENDIX A – Second Circuit Opinion,
July 10, 2018 ................................... 1a
APPENDIX B – District Court Opinion,
September 9, 2016 ........................ 34a
APPENDIX C – Order Denying Rehearing,
August 20, 2018 ............................ 72a
APPENDIX D – Plaintiffs’ Complaint,
April 8, 2015 ................................. 73a
APPENDIX E – Bylaws of Y.P.F.
Sociedad Anónima ...................... 109a
APPENDIX F – Intervention Decree,
April 16, 2012 ............................. 161a
v
APPENDIX G – Expropriation Law,
May 2, 2012................................. 178a
APPENDIX H – Declaration of Ismael Mata,
September 8, 2015 ...................... 187a
APPENDIX I – Reply Declaration of Ismael Mata,
November 9, 2015 ....................... 209a
vi
TABLE OF AUTHORITIES
CASES
Adler v. Federal Republic of Nigeria,
107 F.3d 720 (9th Cir. 1997) .......................... 13
Alberti v. Empresa Nicaraguense De La Carne,
705 F.2d 250, 252 (7th Cir. 1983) .................. 25
Animal Science Products, Inc. v. Hebei
Welcome Pharmaceutical Co.,
138 S. Ct. 1865 (2018) .................................... 18
Aquamar, S.A. v. Del Monte Fresh Produce
N.A., Inc.,
179 F.3d 1279 (11th Cir. 1999) ...................... 28
Argentine Republic v. Amerada Hess Shipping
Corp.,
488 U.S. 428 (1989)........................................... 2
Asociacion de Reclamantes v.
United Mexican States,
735 F.2d 1517 (D.C. Cir. 1984) ....................... 24
Azima v. RAK Investment Authority,
305 F. Supp. 3d 149 (D.D.C. 2018) ................. 31
Banco Nacional de Cuba v. Sabbatino,
376 U.S. 398 (1964)............................. 16, 21, 27
Beg v. Islamic Republic of Pakistan,
353 F.3d 1323 (11th Cir. 2003) ................ 24, 30
Bolivarian Republic of Venezuela v. Helmerich
& Payne International Drilling Co.,
137 S. Ct. 1312 (2017) .............................passim
Butters v. Vance International, Inc.,
225 F.3d 462 (4th Cir. 2000) .......................... 21
vii
Cicippio v. Islamic Republic of Iran,
30 F.3d 164 (D.C. Cir. 1994)........................... 20
Daimler AG v. Bauman,
571 U.S. 117 (2014)......................................... 21
de Csepel v. Republic of Hungary,
714 F.3d 591 (D.C. Cir. 2013) ......................... 30
de Sanchez v. Banco Central de Nicaragua,
770 F.2d 1385 (5th Cir. 1985) ............ 20, 23, 25
Dole Food Co. v. Patrickson,
538 U.S. 468 (2003)......................................... 29
DRFP L.L.C. v. Republica Bolivariana de
Venezuela,
706 F. App’x 269 (6th Cir. 2017) .................... 31
Garb v. Republic of Poland,
207 F. Supp. 2d 16 (E.D.N.Y. 2002),
vacated and remanded on other grounds,
72 F. App’x 850 (2d Cir. 2003) .................. 25, 30
Haven v. Polska,
215 F.3d 727 (7th Cir. 2000) .......................... 22
Honduras Aircraft Registry, Ltd. v.
Government of Honduras,
129 F.3d 543 (11th Cir. 1997) ........................ 18
Jungquist v. Sheikh Sultan
Bin Khalifa Al Nahyan,
115 F.3d 1020 (D.C. Cir. 1997) ....................... 20
Mastafa v. Chevron Corp.,
770 F.3d 170 (2d Cir. 2014) ............................ 29
McCulloch v. Sociedad Nacional
de Marineros de Honduras,
372 U.S. 10 (1963) .......................................... 28
viii
MCI Telecommunications Corp. v. Alhadhood,
82 F.3d 658 (5th Cir. 1996) ............................ 20
Millen Industries, Inc. v. Coordination
Council for North American Affairs,
855 F.2d 879 (D.C. Cir. 1988) ................... 13, 20
Ministry of Defense & Support for
Armed Forces of Islamic
Republic of Iran v. Elahi,
546 U.S. 450 (2006)......................................... 29
Ministry of Defense & Support for
Armed Forces of Islamic
Republic of Iran v. Elahi,
556 U.S. 366 (2009)......................................... 29
Mohamad v. Palestinian Authority,
566 U.S. 449 (2012)......................................... 29
National City Bank of New York
v. Republic of China,
348 U.S. 356 (1955)................................... 25, 27
Nemariam v. Federal Democratic
Republic of Ethiopia,
491 F.3d 470 (D.C. Cir. 2007) ......................... 30
OBB Personenverkehr AG v. Sachs,
136 S. Ct. 390 (2015) ................................ 25, 29
Orient Mineral Co. v. Bank of China,
506 F.3d 980 (10th Cir. 2007) ........................ 30
Permanent Mission of India to
United Nations v. City of New York,
551 U.S. 193 (2007)......................................... 29
Persinger v. Islamic Republic of Iran,
729 F.2d 835 (D.C. Cir. 1984) ......................... 28
ix
Petersen Energía Inversora S.A.U. v.
Argentine Republic & YPF S.A.,
895 F.3d 194 (2d Cir. 2018) .............................. 1
Petersen Energia Inversora, S.A.U. v.
Argentine Republic & YPF S.A.,
No. 15-cv-2739 (LAP), 2016 WL
4735367 (S.D.N.Y. Sept. 9, 2016) ..................... 1
Powerex Corp. v. Reliant Energy Services, Inc.,
551 U.S. 224 (2007)......................................... 29
Republic of Argentina v. NML Capital, Ltd.,
134 S. Ct. 2250 (2014) .................................... 29
Republic of Austria v. Altmann,
541 U.S. 677 (2004)......................................... 29
Republic of Iraq v. Beaty,
556 U.S. 848 (2009)......................................... 29
Republic of Philippines v. Pimentel,
553 U.S. 851 (2008)................................... 27, 29
Rong v. Liaoning Province Government,
452 F.3d 883 (D.C. Cir. 2006) ..................passim
Rubin v. Islamic Republic of Iran,
138 S. Ct. 816 (2018) ...................................... 29
Samantar v. Yousuf,
560 U.S. 305 (2010)......................................... 29
Sampson v. Federal Republic of Germany,
250 F.3d 1145 (7th Cir. 2001) ........................ 22
Saudi Arabia v. Nelson,
507 U.S. 349 (1993)..................................passim
Siderman de Blake v.
Republic of Argentina,
965 F.2d 699 (9th Cir. 1992) ................ 3, 12, 13
x
Simon v. Republic of Hungary,
812 F.3d 127 (D.C. Cir. 2016) ......................... 30
Spectrum Stores, Inc. v.
Citgo Petroleum Corp.,
632 F.3d 938 (5th Cir. 2011) .................... 21, 29
TRW Inc. v. Andrews,
534 U.S. 19 (2001) .......................................... 24
United States v. California,
332 U.S. 19 (1947) .......................................... 29
United States v. Carmack,
329 U.S. 230 (1946)......................................... 16
USX Corp. v. Adriatic Insurance Co.,
345 F.3d 190 (3d Cir. 2003) ............................ 14
Vencedora Oceanica Navigacion, S.A. v.
Compagnie Nationale Algerienne De
Navigation (C.N.A.N.),
730 F.2d 195 (5th Cir. 1984) .......................... 14
Verlinden B.V. v. Central Bank of Nigeria,
461 U.S. 480 (1983)................................... 14, 27
World Wide Minerals, Ltd. v.
Republic of Kazakhstan,
296 F.3d 1154 (D.C. Cir. 2002) ....................... 21
STATUTES
28 U.S.C. § 1254(1) ...................................................... 1
28 U.S.C. § 1391(f)(4) ................................................ 14
28 U.S.C. § 1604 ...................................................... 1, 2
28 U.S.C. § 1605(a) ..................................................... 2
28 U.S.C. § 1605(a)(2) .............................................. 10
xi
28 U.S.C. § 1605(a)(3) ..................................... 4, 23, 24
OTHER AUTHORITIES
H.R. Rep. No. 94–1487 (1976), as
reprinted in 1976 U.S.C.C.A.N.
6604 ..................................................... 14, 23, 28
Gary Born, A New Generation of International
Adjudication, 61 Duke L.J. 775 (2012) .......... 30
Gary B. Born & Peter B. Rutledge,
International Civil Litigation in United
States Courts (5th ed. 2011) .......................... 31
Almudena Calatrava & Michael Warren,
Argentina’s YPF Gamble Is a Result
of the Country’s Terrible Energy Crisis,
Business Insider (Apr. 22, 2012),
https://www.businessinsider.com/argent
inas-ypf-gamble-is-a-result-of-thecountrys-terrible-energy-crisis-2012-4 ............ 7
Joseph W. Dellapenna, Suing Foreign
Governments and Their Corporations
(2d ed. 2003) .............................................. 31, 32
Joan E. Donoghue, Taking the “Sovereign”
Out of the Foreign Sovereign
Immunities Act: A Functional Approach
to the Commercial Activity Exception,
17 Yale J. Int’l L. 489 (1992) .......................... 19
George Kahale, III, Characterizing
Nationalizations for Purposes of the
Foreign Sovereign Immunities Act and
the Act of State Doctrine,
6 Fordham Int’l L.J. 391 (1982) ..................... 21
xii
Philippe Lieberman, Expropriation, Torture,
and Jus Cogens Under the Foreign
Sovereign Immunities Act: Siderman
De Blake v. Republic of Argentina,
24 U. Miami Inter-Am. L. Rev.
503 (1993).................................................. 26, 32
Michael D. Ramsey, Acts of State and Foreign
Sovereign Obligations, 39 Harv. Int’l
L.J. 1 (1998) .................................................... 20
PETITION FOR A WRIT OF CERTIORARI
Petitioner Argentine Republic (“Argentina”) respectfully petitions for a writ of certiorari to review
the judgment of the United States Court of Appeals
for the Second Circuit.
OPINIONS BELOW
The opinion of the United States Court of Appeals
for the Second Circuit (App. 1a-33a) is reported at
895 F.3d 194. The opinion of the district court (App.
34a-71a), denying in part Argentina’s motion to dismiss the complaint, is unreported and is available at
2016 WL 4735367.
STATEMENT OF JURISDICTION
The Second Circuit entered its judgment on July
10, 2018. App. 1a. A timely petition for rehearing
was denied on August 30, 2018. App. 72a. This
Court has jurisdiction under 28 U.S.C. § 1254(1).
STATUTE INVOLVED
The Foreign Sovereign Immunities Act (“FSIA”)
mandates that “a foreign state shall be immune from
the jurisdiction of the courts of the United States,”
subject only to limited statutory exceptions. 28
U.S.C. § 1604. The narrow “commercial activity” exception to immunity provides that:
A foreign state shall not be immune from the
jurisdiction of courts of the United States or of
the States in any case—
....
(2) in which the action is based upon a commercial activity carried on in the United States
by the foreign state; or upon an act performed
in the United States in connection with a com-
2
mercial activity of the foreign state elsewhere;
or upon an act outside the territory of the United States in connection with a commercial
activity of the foreign state elsewhere and that
act causes a direct effect in the United States[.]
28 U.S.C. § 1605(a).
PRELIMINARY STATEMENT
This case involves an exceptionally important and
unsettled question regarding the scope of foreign
sovereign immunity under the FSIA, on which U.S.
courts of appeals are divided. On the face of the
complaint filed by Respondents Petersen Energía Inversora S.A.U. and Petersen Energía, S.A.U.
(together, “Petersen” or “Plaintiffs”), the claims in
this case directly follow from, and are inextricably
intertwined with, Argentina’s lawful 2012 expropriation of a controlling stake in its largest domestic oil
and gas company, YPF S.A. (“YPF” or the “Company”), through sovereign acts of Argentina’s executive
and legislature. Under the doctrine of foreign sovereign immunity, codified in the FSIA, “a foreign state
shall be immune from the jurisdiction of the courts of
the United States,” subject only to limited statutory
exceptions. 28 U.S.C. § 1604. “[T]he FSIA provides
the sole basis for obtaining jurisdiction over a foreign
state in the courts of this country.” Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428,
443 (1989). Accordingly, Argentina invoked its immunity from suit under the FSIA. The statute
specifies when sovereign acts of expropriation do not
receive immunity, but Argentina’s actions unquestionably do not fit that “expropriation exception” and
Petersen did not invoke it. Petersen instead chose to
frame its claims as challenging the immediate and
direct consequences of Argentina’s lawful sovereign
3
acts and asserted that they fall into the FSIA’s
“commercial activity” exception.
In affirming the district court’s denial of Argentina’s motion to dismiss, the Second Circuit construed
this exception to extend to Argentina’s alleged failure
to effectuate a takeover through a tender offer and
its exercise of the voting rights attaching to the expropriated shares, purportedly breaching YPF’s
bylaws—even when, on the face of Petersen’s complaint, these allegedly commercial “activities” were
inextricably intertwined with a lawful sovereign act
of expropriation. A writ of certiorari to review the
Court of Appeals’ holding is warranted for several
independent reasons.
First, the Second Circuit’s decision exacerbates a
split of authority among U.S. courts of appeals.
Whereas the D.C. Circuit has held that the commercial activity exception does not apply to acts
stemming directly from an expropriation (even if
those acts can be said to be “commercial”), see Rong v.
Liaoning Province Government, 452 F.3d 883, 888-90
(D.C. Cir. 2006), the Ninth Circuit has held that it
does so apply. See Siderman de Blake v. Republic of
Arg., 965 F.2d 699, 708-09 (9th Cir. 1992). The Second Circuit has now deepened this split by departing
from the sound decisions of the D.C. Circuit.
Second, this Court’s precedent strongly indicates
that the D.C. Circuit’s position on this issue is correct—and that the Second Circuit’s opinion below is
not. This Court has indicated that “a state engages
in commercial activity . . . where it exercises ‘only
those powers that can also be exercised by private
citizens,’ as distinct from those ‘powers peculiar to
sovereigns.’” Saudi Arabia v. Nelson, 507 U.S. 349,
360 (1993) (emphasis added) (citation omitted). Thus,
4
the FSIA denies immunity “in cases ‘arising out of a
foreign state’s strictly commercial acts.’” Bolivarian
Republic of Venezuela v. Helmerich & Payne Int’l
Drilling Co., 137 S. Ct. 1312, 1320 (2017) (emphasis
added) (citation omitted). The Second Circuit’s extension of the commercial activity exception to
conduct inextricably intertwined with a sovereign act
of expropriation flouts these principles.
Further, the Second Circuit’s decision undermines—and encourages plaintiffs to evade—the
FSIA’s narrow “expropriation exception” to sovereign
immunity, which allows jurisdiction over acts stemming from expropriations only where property rights
are taken in violation of international law. See 28
U.S.C. § 1605(a)(3). Under the Second Circuit’s decision, a plaintiff aggrieved by an expropriation need
not show it was unlawful; it may now simply characterize the immediate consequences of an
expropriation as “commercial activity” to invoke the
jurisdiction of a U.S. court. Indeed, under the Second Circuit’s decision, “almost any subsequent
disposition of expropriated property could allow the
sovereign to be haled into a federal court under [the]
FSIA,” thereby thwarting the FSIA’s purpose. Rong,
452 F.3d at 890.
Finally, whether the FSIA’s commercial activity
exception applies to conduct inextricably intertwined
with a sovereign act is an exceptionally important
and recurring question that should be resolved by
this Court. The principles of sovereign immunity
embodied in the FSIA “recognize[ ] the ‘absolute independence of every sovereign authority’ and help[ ]
to ‘induc[e]’ each nation state, as a matter of ‘international comity,’ to ‘respect the independence and
dignity of every other,’ including our own.”
Helmerich, 137 S. Ct. at 1319 (third alteration in
5
original) (citations omitted). By extending the commercial activity exception to claims based on conduct
that directly ensues from a quintessentially sovereign act, the Second Circuit’s decision threatens to
disrupt these sensitive interests, including the interest of the United States in reciprocal treatment
before foreign courts. This Court frequently grants
certiorari in cases involving the FSIA, and it has
specifically noted that it has yet to address a case
“where a claim consists of both commercial and sovereign elements.” Nelson, 507 U.S. at 358 n.4. The
case offers the Supreme Court a vehicle for resolving
this important issue now.
STATEMENT OF THE CASE
The Parties
Defendant Argentina is a foreign state.
Plaintiffs are limited liability companies organized under the laws of the Kingdom of Spain. App.
76a ¶ 6.
Defendant YPF is a publicly-held oil and gas
company organized under the laws of Argentina.
App. 78a ¶ 8.
YPF’s Privatization and Bylaws
YPF was a state-owned enterprise until 1993.
App. 77a ¶ 7. That year, Argentina privatized the
Company by offering and selling its shares to the
public. App. 80a ¶ 13.
As part of the privatization process, YPF amended its bylaws to add certain “takeover” provisions.
As Petersen has alleged, these provisions “require[d]
persons intending to consummate a control acquisition to first make a public tender offer for all of
YPF’s outstanding shares.” App. 82a ¶ 17. Specifi-
6
cally, Section 7(e) of the bylaws provided that any
“person wishing to [effect] a Takeover . . . shall . . .
[a]rrange a takeover bid for the acquisition of all of
the shares . . . of the Corporation [i.e., a tender offer].” App. 119a. The bylaws mandated a multi-step
tender offer procedure lasting at least 35 days. App.
120a-127a.
The bylaws applied this tender offer requirement
to certain controlling acquisitions made by Argentina.
In particular, Section 28(A) of the bylaws provided:
The provisions of [Section 7(e)] shall apply to
all acquisitions made by [Argentina], . . . if, as
a consequence of such acquisition, [Argentina]
becomes the owner, or exercises the control of
the shares of [YPF] which . . . represent, in the
aggregate, at least 49% of the capital stock.
App. 159a. The bylaws further provided that any
shares acquired in contravention of the tender offer
requirements “shall not [have] any right to vote or
collect dividends.” App. 130a. According to Petersen,
“Section 28 expressly prohibit[ed] Argentina from
exercising control over the Company unless and until
it . . . made a tender offer.” App. 84a ¶ 20 (emphasis
added).
Petersen’s Acquisition of YPF Shares
Between 2008 and 2011, Petersen acquired approximately 25% of YPF’s stock from Repsol YPF S.A.
(“Repsol”), YPF’s controlling shareholder at the time.
App. 87a-88a ¶¶ 27-28. Petersen financed its acquisitions through approximately $3.6 billion in loans,
primarily from Repsol. App. 37a. To ensure repayment of these loans, Petersen and Repsol agreed, as
controlling shareholders, to cause YPF to (i) distribute at least 90% of its profits to shareholders as
dividends paid twice per year and (ii) pay a single
7
“extraordinary dividend” of $850 million. App. 88a89a ¶ 30.
Argentina’s Energy Crisis and the Expropriation Law
In the judgment of Argentina’s Government, Petersen’s and Repsol’s operation of YPF ensured that
virtually none of the profits of YPF were being reinvested to develop the country’s domestic energy
reserves. App. 161a-170a. The Argentine Government determined that this had made Argentina
unduly dependent on foreign energy sources. Id.; see
also Almudena Calatrava & Michael Warren, Argentina’s YPF Gamble Is a Result of the Country’s
Terrible Energy Crisis, Business Insider (Apr. 22,
2012), https://www.businessinsider.com/argentinasypf-gamble-is-a-result-of-the-countrys-terribleenergy-crisis-2012-4 (characterizing Argentina as
having a domestic energy crisis prior to the April
2012 expropriation).
To address its domestic energy crisis, on April 16,
2012, the Argentine Government issued a decree directing the immediate and temporary seizure of
Repsol’s controlling stake in YPF (the “Intervention
Decree”). App. 172a-175a. The Intervention Decree
announced that the President would submit a bill to
the Argentine legislature providing for the expropriation of a controlling stake in YPF. App. 172a. The
Intervention Decree indicated that temporary government control of YPF and expropriation of a
controlling stake were urgent matters of national interest requiring immediate legislative action. App.
172a-173a.
In accordance with the Intervention Decree, on
May 3, 2012, the Argentine legislature enacted Law
8
26,741 (the “Expropriation Law”). App. 178a-186a.
Citing Argentina’s public interest in “[a]chieving selfsufficiency in the supply of hydrocarbons, as well as
in the exploration, exploitation, industrialization,
transportation and sale of hydrocarbons,” the Expropriation Law declared that there was a public
necessity for the Government to expropriate exactly
51% of the shares of YPF owned by Repsol. App.
178a, 181a. This percentage was significant, as it
served the Expropriation Law’s twin objectives of retaking government control while ensuring that YPF
continued to use private capital and remained publicly traded. See App. 179a (describing the objective to
“[i]ntegrate public and private capital . . . into strategic alliances”). The Expropriation Law directed the
Argentine Government to immediately exercise all
voting rights associated with the expropriated shares.
App. 182a (“[T]he National Executive Office . . . shall
exercise all the political rights associated with the
shares subject to expropriation until the transfer of
political and economic rights is completed.”). The
Expropriation Law was an indisputably lawful exercise of legislative authority made with respect to
property located in Argentina (i.e., shares of YPF).1
In mandating the immediate expropriation of exactly 51% of the shares of YPF owned by Repsol and
directing the Argentine Government to immediately
vote those shares (App. 181a-182a), the Expropriation Law conflicted with (indeed overrode) the
1 Argentina’s Constitution permits the legislature to expro-
priate property for a public use and provides a framework for
compensation of the property owner. App. 193a-196a. Repsol’s
challenge to the validity of the Expropriation Law failed in Argentine courts. 2d Cir. J.A. 60-61. The expropriation process
was completed when Repsol was compensated for the expropriated shares in May 2014. App. 202a.
9
provisions of YPF’s bylaws that, but for the Expropriation Law’s terms and implementation, would
have (i) purportedly required Argentina to make a
tender offer for all shares before acquiring a controlling stake in YPF and (ii) precluded Argentina from
exercising voting rights associated with shares acquired in breach of that requirement. App. 212a214a. In conformity with the Expropriation Law,
therefore, Argentina did not make a tender offer before appropriating Repsol’s shares.2
Pursuant to the power expressly conferred by the
Expropriation Law, Argentina also exercised the voting rights of the expropriated shares and, at a June
2012 shareholder meeting, voted to cause YPF to
terminate dividends under Repsol’s and Petersen’s
agreement. App. 93a ¶ 39. Petersen alleged that, as
a result of YPF’s termination of dividend payments,
it defaulted on its loans and went bankrupt. App.
76a-77a ¶ 6.
Petersen’s Complaint
In April 2015, Petersen filed a complaint against
Argentina and YPF in the district court. App. 73a108a. Petersen alleged that, in connection with Argentina’s expropriation of a controlling stake in YPF
through the Expropriation Law, Argentina and YPF
failed to comply with (i) “the requirement in Section
7 and 28 of [YPF’s] bylaws that any acquisition of a
controlling stake in YPF by Argentina be conditioned
2 Argentina’s expert explained that (i) the tender offer pro-
cess would have “force[d] [Argentina] to acquire a larger
number of shares than necessary to achieve the purposes of the
expropriation as stated in the [Expropriation Law]” and (ii) under Argentine law, a private contract, such as YPF’s bylaws,
“cannot impede or restrict a constitutionally enacted public
law,” such as the Expropriation Law. App. 210a, 214a.
10
on a tender offer for all . . . shares” and (ii) “the provision of Section 7 of the bylaws prohibiting
Argentina from voting . . . using a controlling stake
acquired in violation of the tender offer requirement.” App. 98a-99a, 103a ¶¶ 53, 71. Petersen
asserted claims for breach of contract, among other
causes of action. Id.
Aware that it needed to overcome Argentina’s
sovereign immunity under the FSIA and unable to
satisfy the strict requirements of the FSIA’s expropriation exception, Petersen framed its claims as
merely challenging the immediate, allegedly commercial consequences of Argentina’s sovereign act of
expropriation—its alleged failure to make a tender
offer and its exercise of shareholder voting rights in
purported breach of YPF’s bylaws—rather than the
expropriation itself. App. 75a-76a ¶¶ 3-5. Petersen
did not claim that the “expropriation exception” to
sovereign immunity applied to its claims.
As a foreign sovereign presumptively immune
from suit, Argentina moved to dismiss the complaint
for lack of jurisdiction under the FSIA.
The Decisions Below
In September 2016, the district court denied Argentina’s motion to dismiss. App. 70a-71a. The
district court held that Petersen’s complaint satisfied
the commercial activity exception to foreign sovereign immunity under 28 U.S.C. § 1605(a)(2) because
it “concern[ed] the effects of sovereign acts on commercial obligations rather than the sovereign acts
themselves.”3 App. 44a. In particular, the district
3 The district court also determined that the other aspects
of Section 1605(a)(2) were satisfied because Petersen’s claims
were based on acts outside of the United States that caused a
11
court held that the complaint did not challenge the
expropriation but rather challenged “Argentina’s
failure to issue a tender offer and YPF’s failure to enforce the tender offer requirements that are
contained in [YFP’s] Bylaws.” Id. At the same time,
the district court indicated that these alleged obligations were “triggered” by the expropriation. App. 47a.
Argentina and YPF immediately appealed the
district court’s decision under the collateral order
doctrine. In July 2018, the Second Circuit affirmed
the denial of sovereign immunity. App. 3a. In its
opinion, the Second Circuit recognized that
“[e]xpropriation is a decidedly sovereign—rather
than commercial—activity.” App. 15a. The Court of
Appeals nonetheless held that both Argentina’s alleged obligation to make a tender offer under the
bylaws and its alleged repudiation of that obligation
“were indisputably commercial in nature in that they
are ‘the type of actions by which a private party engages in trade and traffic or commerce.’” App. 20a.
The Second Circuit similarly determined that
YPF’s alleged failure to enforce the tender offer provision was “commercial in nature,” because “every
corporation is obligated to abide by its bylaws.” App.
26a. And it concluded that YPF’s alleged failure to
enforce the penalties in Section 7(h) of the bylaws—
i.e., its failure to prevent Argentina from voting the
expropriated shares—constituted commercial activity because that provision “implicates the commercial
affairs of YPF, i.e., what voting rights attach to
________________________
direct effect in the United States. App. 44a-49a; 28 U.S.C.
§ 1605(a)(2). Those aspects of the statute are not presented for
review in this petition.
12
which shares and which shares are entitled to collect
dividends.” Id.
On August 30, 2018, the Second Circuit denied
Argentina’s petition for panel rehearing or rehearing
en banc. App. 72a. On Argentina’s and YPF’s motions, the Second Circuit stayed the issuance of its
mandate pending their filing of a petition for certiorari by November 1, 2018.
REASONS FOR GRANTING THE WRIT
I.
The Second Circuit’s Decision Deepens a
Circuit Split Regarding the FSIA’s Commercial Activity Exception
The Second Circuit’s decision deepens a split of
authority among U.S. courts of appeals. On the one
hand, the D.C. Circuit has held, correctly, that activities that directly flow from a sovereign act of
expropriation are not encompassed by the commercial activities exception, even if commercial in
nature. See Rong, 452 F.3d at 888-90. On the other
hand, the Ninth Circuit has applied that exception to
the commercial consequences of an expropriation.
See Siderman, 965 F.2d at 708-09.
In Rong, a Chinese province expropriated the
plaintiff’s shares in a company and months later
transferred them to a newly formed entity at a below-market price. 452 F.3d at 886-87. The province
also removed plaintiff from the company’s board and
replaced him with party officials. Id. The plaintiff
argued that these various acts taken by the province
in connection with its ownership of the shares constituted commercial activity. Id. at 888-89. The D.C.
Circuit disagreed. It held that, while “seem[ingly]
commercial,” “all of the[ ] acts [relied on by the plain-
13
tiff] flow[ed]” from the expropriation—“an act that
can be taken only by a sovereign.” Id. at 889. It further observed that, were the plaintiff correct, “almost
any subsequent disposition of expropriated property
could allow the sovereign to be haled into a federal
court under [the] FSIA,” which would thwart the
Act’s purpose. Id. at 890.
Conversely, in Siderman, the plaintiffs alleged
that the Argentine government wrongfully expropriated a hotel they owned and subsequently operated it
for the government’s benefit, depriving them of the
associated revenue stream. 965 F.2d at 709. The
Ninth Circuit held that the claims fell within the
FSIA’s commercial activity exception. Id. at 708-09.
The court based its holding solely on the direct commercial consequences of the expropriation—
“Argentina’s continuing . . . operation of the [hotel],
and its receipt of profits from the [hotel’s management company],” id., which were “clearly activities ‘of
a kind in which a private party might engage.’” Id.
at 709.
The decisions in Rong and Siderman cannot be
reconciled and thus represent a clear circuit split.
Nor is this inter-circuit conflict limited to two cases.
Compare, e.g., Millen Indus., Inc. v. Coordination
Council for N. Am. Affairs, 855 F.2d 879, 885 (D.C.
Cir. 1988) (“Even if a transaction is partly commercial, jurisdiction will not obtain if the cause of action
is based on a sovereign activity.”), with Adler v. Fed.
Republic of Nigeria, 107 F.3d 720, 725 (9th Cir. 1997)
(applying the commercial activity exception to various indisputably “sovereign” acts taken by Nigeria
because they were related to certain commercial acts
and “the FSIA does not require that every act by the
foreign state be commercial” for the exception to apply (citing Siderman, 965 F.2d at 709 n.10)).
14
Here, in holding that the commercial activity exception was capable of applying to an “activity” that
itself was inextricably intertwined with (and directly
followed from) a sovereign expropriation, the Second
Circuit departed from the D.C. Circuit and joined the
Ninth Circuit. As described further below, on the
face of Petersen’s complaint, the purported commercial conduct at issue—Argentina’s alleged failure to
make a tender offer and its exercise of shareholder
voting rights in alleged breach of YPF’s bylaws—
flowed directly from, and was dictated by, Argentina’s sovereign expropriation of a controlling stake in
YPF. Consequently, the commercial activity exception would not have applied to this conduct under
Rong. See Rong, 452 F.3d at 889.
The resulting lack of uniformity is uniquely problematic in this context, as the purpose of the FSIA is,
in part, to ensure “a uniform body of law in this area,” “[i]n view of the potential sensitivity of actions
against foreign states” and the heightened risk of forum shopping. Verlinden B.V. v. Cent. Bank of
Nigeria, 461 U.S. 480, 480, 489 (1983) (alteration in
original) (quoting H.R. Rep. No. 94–1487, at 32
(1976)); see also USX Corp. v. Adriatic Ins. Co., 345
F.3d 190, 207 (3d Cir. 2003) (“[U]niformity in decision . . . is desirable since a disparate treatment of
cases involving foreign governments may have adverse foreign relations consequences.” (quoting H.R.
Rep. No. 94–1487, at 13 (1976))); Vencedora Oceanica
Navigacion, S.A. v. Compagnie Nationale Algerienne
De Navigation (C.N.A.N.), 730 F.2d 195, 203 (5th Cir.
1984) (“[I]t is highly desirable to avoid circuit conflicts in the sensitive area of sovereign immunity.”).
Although the D.C. Circuit is the default venue under
the FSIA’s venue provisions, see 28 U.S.C.
§ 1391(f)(4), the Second Circuit’s decision will en-
15
courage forum-shopping to the Second and Ninth
Circuits to avoid the FSIA’s limitations on challenges
to sovereign acts, including expropriations, which
will only further exacerbate the lack of uniformity in
this context.
II.
The Second Circuit’s Decision Deviates
from This Court’s Precedent and Is Incorrect
The Second Circuit’s decision is also inconsistent
with this Court’s precedent, would improperly transform virtually every sovereign expropriation into
commercial conduct and negate sovereign immunity
for any alleged contractual breach, and would undermine the FSIA’s limited expropriation exception.
A. The Second Circuit’s Decision Extends
the Commercial Activity Exception Beyond “Strictly Commercial” Acts to
Sovereign Acts That Invoke Sovereign
Powers
This Court has recognized that the FSIA “largely
codifies the so-called ‘restrictive’ theory of foreign
sovereign immunity,” and that “the meaning of
‘commercial’ for purposes of the [FSIA] must be the
meaning Congress understood the restrictive theory
to require at the time it passed the statute.” Nelson,
507 U.S. at 359. Under that restrictive theory, “a
state engages in commercial activity . . . where it exercises ‘only those powers that can also be exercised
by private citizens,’ as distinct from those ‘powers
peculiar to sovereigns.’” Id. at 360 (emphasis added)
(citation omitted). More recently, this Court reaffirmed that the restrictive theory of immunity
codified in the FSIA denies immunity “in cases ‘arising out of a foreign state’s strictly commercial acts,’”
16
and grants it “in ‘suits involving the foreign sovereign’s public acts.’” Helmerich, 137 S. Ct. at 1320
(emphasis added) (citation omitted).
The Second Circuit’s extension of the commercial
activity exception to conduct inextricably intertwined
with a sovereign act of expropriation deviates from
these established principles. Argentina’s legislative
expropriation of a controlling stake in YPF was accomplished through “powers peculiar to sovereigns.”
Nelson, 507 U.S. at 360; see also Banco Nacional de
Cuba v. Sabbatino, 376 U.S. 398, 428 (1964) (“[T]he
Judicial Branch will not examine the validity of a
taking of property within its own territory by a foreign sovereign government . . . .”); United States v.
Carmack, 329 U.S. 230, 236 (1946) (“The power of
eminent domain is essential to a sovereign government.”); Rong, 452 F.3d at 890 (recognizing that
expropriation is “a quintessentially sovereign act”).
On the face of Petersen’s complaint, the purported commercial activity at issue—the alleged breaches
of YPF’s bylaws—is inextricably intertwined with,
and due to, the Expropriation Law. 4 The alleged
“commercial activity,” according to Petersen, was Ar4 Tellingly,
although Petersen disclaimed any challenge to
the expropriation below and made no attempt to invoke jurisdiction under the FSIA’s expropriation exception, it filed a
“Notice of Dispute” under a bilateral investment treaty between
Argentina and Spain including allegations in haec verba with
its complaint and asserting, inter alia, that the Expropriation
Law operated as a wrongful expropriation of Petersen’s property. 2d Cir. J.A. 461 (asserting that Argentina’s “illegal actions
included . . . confiscation of Repsol’s controlling shareholding
interest without first complying with the public tender provisions of the YPF’s by-laws” and that these “measures” violated
Argentina’s treaty obligation “toward [Petersen] . . . not to nationalize, expropriate” or adopt “similar” measures except on
certain conditions).
17
gentina’s failure to make a tender offer and its exercise of shareholder voting rights in alleged breach of
YPF’s bylaws. Under Petersen’s theory, as endorsed
by the Second Circuit, the expropriation “triggered
an obligation [under the bylaws] to make a tender
offer for the remainder of YPF’s outstanding shares,”
and the failure to do so was “commercial activity.”
App. 17a.
In fact, the non-occurrence of a tender offer was a
direct product of, and inseparable from, the expropriation. Argentina’s alleged failure to make a
tender offer was specifically dictated by the Expropriation Law’s interrelated provisions expressly
mandating that (i) Argentina acquire exactly 51% of
the shares of YPF owned by Repsol and (ii) YPF remain publicly traded. App. 179a, 181a, 213a-214a.
Had a tender offer process occurred, it would have
“force[d] [Argentina] to acquire a larger number of
shares than necessary to achieve the purposes of the
expropriation as stated in the law.” App. 214a.
Making a tender offer would have been incompatible
with the Expropriation Law, because (in contrast
with the terms of that Law, which held Argentina’s
stake at 51% of a publicly traded company), a tender
offer would have required a larger takeover, exceeding the stake prescribed in the Expropriation Law
and resulting in complete state ownership of YPF.
In addition, the intricate tender offer process in
the bylaws (App. 120a-127a) conflicted with the Argentine Legislature’s determination of an urgent
public need to immediately seize and exercise control
over YPF as expressed in the Intervention Decree.
App. 172a-173a. The tender offer purchase price
mechanism (App. 123a-126a) also clashed with that
Law’s compensation process.
18
Further, the Expropriation Law itself mandated
Argentina’s immediate exercise of all voting rights of
the expropriated shares (App. 182a), thereby precluding application of the bylaws’ prohibition against
exercising voting rights associated with shares acquired in purported breach of the tender offer
requirement. The alleged breaches of YPF’s bylaws
at issue in this case were thus the direct and inextricable “effects of [a] sovereign act[ ].” App. 44a.
Accordingly, it simply cannot be said that the alleged breaches of YPF’s bylaws were accomplished
through “only those powers that can also be exercised
by private citizens,” Nelson, 507 U.S. at 360 (emphasis added), or that Petersen’s claims arise out of
Argentina’s “strictly commercial acts.” Helmerich,
137 S. Ct. at 1320 (emphasis added); see also Hond.
Aircraft Registry, Ltd. v. Gov’t of Hond., 129 F.3d
543, 548 (11th Cir. 1997) (indicating that commercial
and sovereign elements must be “separable” before
applying the commercial activity exception). Rather,
these purported commercial acts were inextricably
intertwined with the method through which Argentina lawfully expropriated a controlling stake in YPF
using “powers peculiar to sovereigns.” Nelson, 507
U.S. at 360. Petersen’s claims therefore fall outside
of the FSIA’s commercial activity exception under
the principles articulated by this Court’s decisions.5
5 The Second Circuit’s decision is also in tension with this
Court’s decision in Animal Science Products, Inc. v. Hebei Welcome Pharmaceutical Co., 138 S. Ct. 1865 (2018), which held
that, “[i]n the spirit of ‘international comity,’ a federal court
should carefully consider a foreign state’s views about the
meaning of its own laws” and “accord respectful consideration”
to those views. Id. at 1869, 1873. In its decision, the Second
Circuit declared that “there is . . . no statement in [Argentina’s]
expert’s opinion that the [Expropriation Law] compelled Argen-
19
B. The Second Circuit Improperly Deemed
Any Alleged Breach of Contract by a
Sovereign “Indisputably” Commercial
Conduct
Underlying the Second Circuit’s error was its endorsement of a bright-line rule that, in all cases, the
alleged repudiation of a contract is “indisputably
commercial,” and the commercial activity exception
invariably applies (App. 20a), notwithstanding the
role that sovereign expropriation played with respect
to the contract. Such a rule would substantially unsettle FSIA jurisprudence.
As commentators,
including the current U.S. member of the International Court of Justice, have recognized, “a per se
rule against immunity for any alleged breach of contract . . . . conflicts with the legislative intent
underlying the commercial activity exception and
has been rejected by several courts.” Joan E. Do________________________
tina to ‘acquire exactly 51% ownership in YPF’ and no greater
ownership position.” App. 22a (emphasis in original). Yet, Argentina’s expert submissions established that the expropriation
process “excluded any procedure, such as the public tender offer
described in YPF’s bylaws, which would have force[d] the Republic to acquire a larger number of shares than necessary to
achieve the purposes of the expropriation stated in the law.”
App. 214a. The Second Circuit gave no consideration, let alone
“respectful consideration,” to Argentina’s experts on the meaning of Argentina’s own laws. And the district court was more
explicit in its failure to consider Argentina’s experts. Disregarding expert testimony that the Expropriation Law
preempted any tender offer obligation because a public law
cannot be restricted or limited by private contract under Argentine law, the district court declared “I actually don’t really care
what the experts say.” 2d Cir. J.A. 538. Nonetheless, this
Court need not address any factual disputes as to the meaning
of the Expropriation Law or YPF’s bylaws to resolve the question presented in this petition.
20
noghue, Taking the “Sovereign” Out of the Foreign
Sovereign Immunities Act: A Functional Approach to
the Commercial Activity Exception, 17 Yale J. Int’l L.
489, 504 (1992); see, e.g., Millen Indus., 855 F.2d at
885 (“[Claims] based on . . . breaches of promises . . .
involving extending duty-free status and/or the benefit of Taiwanese law . . . would plainly be sovereign
aspects of the transaction over which we lack jurisdiction.”); de Sanchez v. Banco Cent. de Nicaragua,
770 F.2d 1385, 1394 (5th Cir. 1985) (“Where a government enters into a contract in its sovereign
capacity, then the breach of that contract partakes of
the contract’s initial sovereignty.”); see also MCI Telecomms. Corp. v. Alhadhood, 82 F.3d 658, 663 (5th
Cir. 1996) (alleged promise to pay for telephone calls
made through diplomatic channels was not “commercial activity”). Such a bright-line rule also ignores
the commonsense notion “that a given act be judged
in context before concluding whether it is commercial
activity.” Cicippio v. Islamic Republic of Iran, 30
F.3d 164, 168 (D.C. Cir. 1994); see also Jungquist v.
Sheikh Sultan Bin Khalifa Al Nahyan, 115 F.3d
1020, 1030 (D.C. Cir. 1997) (“[T]he fact that . . . actions may relate in certain respects to commercial
activity does not provide a basis for jurisdiction under [the commercial activity exception].”); Michael D.
Ramsey, Acts of State and Foreign Sovereign Obligations, 39 Harv. Int’l L.J. 1, 75 (1998) (“United States
courts should [not] be able to judge a non-commercial
sovereign act that triggers the non-performance of a
sovereign’s original commercial obligation.”).
Applying the commercial activity exception to alleged breaches of contract intertwined with a
sovereign act of expropriation would also thwart congressional intent.
In enacting the commercial
activity exception, Congress “did not intend to abro-
21
gate the traditional immunity accorded a foreign
state when it acted as a sovereign.” George Kahale,
III, Characterizing Nationalizations for Purposes of
the Foreign Sovereign Immunites Act and the Act of
State Doctrine, 6 Fordham Int’l L. J. 391, 407 (1982).
“To place nationalization under the umbrella of [the
commercial activity exception] on the theory that it
is an act in connection with a commercial activity
would not [be] consistent with this legislative intent.” Id.
In addition, “[o]ne of the main concerns of the
immunity framework adopted by the FSIA is to accommodate ‘the interests of foreign states in avoiding
the embarrassment of defending the propriety of
[sovereign] acts before a foreign court.’” Butters v.
Vance Int’l, Inc., 225 F.3d 462, 465 (4th Cir. 2000)
(citation omitted). This purpose is severely undermined where, as here, a sovereign must defend
against claims based on conduct that directly followed and was inseparable from a sovereign act.
Given the inextricable links between the claims at
issue in this case and Argentina’s sovereign act of
expropriation, Argentina will inevitably be forced to
“defend[ ] the propriety” of that sovereign act before
the district court. Id.; cf. World Wide Minerals, Ltd.
v. Republic of Kaz., 296 F.3d 1154, 1166 (D.C. Cir.
2002) (affirming dismissal of breach of contract claim
under act of state doctrine because conduct resulting
in breach was “accomplished pursuant to” a sovereign act of expropriation, and “the Judicial Branch
will not examine the validity of a taking of property
within its own territory by a foreign sovereign government” (quoting Sabbatino, 376 U.S. at 428));
Spectrum Stores, Inc. v. Citgo Petroleum Corp., 632
F.3d 938, 955–56 (5th Cir. 2011) (affirming dismissal
of antitrust claims under act of state doctrine be-
22
cause “[t]he granting of any relief to Appellants
would effectively order foreign governments to dismantle their chosen means of exploiting the valuable
natural resources within their sovereign territories”
and thereby “frustrate the longstanding foreign policy of the political branches by wading . . . brazenly
into the sphere of foreign relations”).
In short, the Second Circuit “paid little heed to
the risks to international comity its expansive view
of . . . jurisdiction posed.” Daimler AG v. Bauman,
571 U.S. 117, 141 (2014) (referring to personal jurisdiction).
Because cases involving foreign states
“might have serious foreign policy implications which
courts are ill-equipped to anticipate or handle,”
Sampson v. Federal Republic of Germany, 250 F.3d
1145, 1155–56 (7th Cir. 2001) (citation omitted), the
FSIA’s exceptions to foreign sovereign immunity
must be “narrowly construed.” Haven v. Polska, 215
F.3d 727, 731 (7th Cir. 2000). The Second Circuit
painted, instead, with a broad brush—extending the
“commercial activity” exception beyond its intended
reach to quintessentially sovereign conduct.
C. The Second Circuit’s Decision Undermines
the
Limited
Expropriation
Exception to Sovereign Immunity
In extending the commercial activity exception to
conduct inextricably intertwined with an expropriation, the Second Circuit’s decision effectively permits
plaintiffs to circumvent the requirements of the narrow “expropriation exception” to sovereign immunity.
In light of the uniquely sovereign nature of expropriations, Congress granted courts jurisdiction over
claims arising from expropriations only in very specific and limited circumstances, including where
property is taken in violation of international law
23
and has a commercial nexus to the United States.
See 28 U.S.C. § 1605(a)(3).
Specifically, the expropriation exception permits
the exercise of jurisdiction only in cases:
in which rights in property taken in violation
of international law are in issue and that
property or any property exchanged for such
property is present in the United States in
connection with a commercial activity carried
on in the United States by the foreign state;
or that property or any property exchanged
for such property is owned or operated by an
agency or instrumentality of the foreign state
and that agency or instrumentality is engaged in a commercial activity in the United
States.
28 U.S.C. § 1605(a)(3). Just last term, this Court reaffirmed that the expropriation exception is narrowly
drawn: it “grants jurisdiction only where there is a
valid claim that ‘property’ has been ‘taken in violation of international law.’” Helmerich, 137 S. Ct. at
1318; see also De Sanchez, 770 F.2d at 1395 (“In applying Section 1605(a)(3), our inquiry is narrowly
circumscribed.”); H.R. Rep. No. 94-1487, at 19 (1976),
reprinted in 1976 U.S.C.C.A.N. 6604, 6618 (expropriation exception is limited to “two categories of cases .
. . where ‘rights in property taken in violation of international are in issue’”).
“In enacting Section 1605(a)(3), Congress decided
that foreign states would be subject to suit in U.S.
courts in only a narrow class of cases— ones in which
‘international law’ has been ‘violat[ed]’ by such an
action and a commercial-activity nexus to the United
States is present.” Brief of United States as Amicus
Curiae at 17, Bolivarian Republic of Venezuela v.
24
Helmerich & Payne Int’l Drilling Co., 37 S. Ct. 1312
(2017) (No. 15-423). “Governmental decisions involving property . . . within a sovereign’s own
territorial jurisdiction are generally reserved to that
sovereign free of interference by the courts of another nation.” Id. (citing Asociacion de Reclamantes v.
United Mexican States, 735 F.2d 1517, 1520-1524
(D.C. Cir. 1984)).
Notwithstanding the congressional determination
to confine U.S. jurisdiction over challenges to sovereign expropriations to specified cases where the
taking violated international law, see 28 U.S.C. §
1605(a)(3), the Second Circuit’s decision would allow
a plaintiff aggrieved by an expropriation—even one
that violated no international norms—to bypass the
express strictures of the expropriation exception and
secure U.S. jurisdiction merely by challenging the
immediate contractual or other seemingly commercial consequences of the expropriation. Such a result
is contrary to the principle that, “[w]here Congress
explicitly enumerates certain exceptions to a general
prohibition, additional exceptions are not to be implied, in the absence of evidence of a contrary
legislative intent.” TRW Inc. v. Andrews, 534 U.S.
19, 28 (2001).
The Second Circuit’s interpretation of the commercial activity exception would render the
expropriation exception and its carefully-crafted limitations largely meaningless, and has been properly
rejected by other courts. See Beg v. Islamic Republic
of Pak., 353 F.3d 1323, 1327–28 (11th Cir. 2003) (declining to apply commercial activity exception to
sovereign defendant’s failure to abide by agreement
to compensate plaintiff in connection with the expropriation of his property in part because “the FSIA
25
has a separate exception for certain foreign government expropriations”); de Sanchez, 770 F.2d at 1398
(“We do not believe that Congress intended plaintiffs
to be able to rephrase their takings claims … and
thereby bring the claims even where the takings are
permitted by international law.”). In Alberti v. Empresa Nicaraguense De La Carne, for instance, the
plaintiffs sued the Government of Nicaragua after it
expropriated the plaintiffs’ 35 percent stake in a beef
company. See 705 F.2d 250, 252 (7th Cir. 1983). In
declining to apply the commercial activity exception,
the Seventh Circuit rejected the plaintiffs’ attempt to
“transform [a] governmental dispute into a commercial dispute” by seeking to offset the value of their
expropriated stock against a debt owed for beef they
had purchased from the nationalized company. Id.
at 254. The Seventh Circuit determined that the
plaintiffs’ suit was based on the expropriation,
“which is a quintessential Government act.” Id. at
254. The above decisions confirm that where, as
here, a plaintiff’s claims arise from a sovereign expropriation, the plaintiff should not be permitted to
circumvent the defendant’s sovereign immunity under the FSIA merely by reframing their claims as
challenging commercial conduct. See generally OBB
Personenverkehr AG v. Sachs, 136 S. Ct. 390, 396
(2015) (cautioning against “allow[ing] plaintiffs to
evade the [FSIA’s] restrictions through artful pleading”).
Moreover, given that “every expropriation of
property has some commercial implications,” Garb v.
Republic of Poland, 207 F. Supp. 2d 16, 32 (E.D.N.Y.
2002), vacated and remanded on other grounds, 72 F.
App’x 850 (2d Cir. 2003), the Second Circuit’s decision will make U.S. jurisdiction available to virtually
any plaintiff aggrieved by a foreign expropriation:
26
all they will need to do is characterize one consequence of the taking process as “commercial” in its
effect. Indeed, the D.C. Circuit correctly reasoned
that, if the commercial activity exception were to apply in such an indiscriminate manner, then “almost
any subsequent disposition of expropriated property
could allow the sovereign to be haled into a federal
court under [the] FSIA.” Rong, 452 F.3d at 890. And
as one commentator noted: “American courts taking
jurisdiction because of post-expropriation commercial
activities must review acts of governments which
Congress intended to be reviewable only within the
narrow confines of [the FSIA’s expropriation exception].” Philippe Lieberman, Expropriation, Torture,
and Jus Cogens Under the Foreign Sovereign Immunities Act: Siderman De Blake v. Republic of
Argentina, 24 U. Miami Inter-Am. L. Rev. 503, 528–
29 (1993).
This increased burden on foreign sovereigns and
U.S. courts undermines the FSIA’s structure and objectives and will translate, through reciprocity, to
increased burdens on the United States in foreign
litigation. See Nat’l City Bank of N.Y. v. Republic of
China, 348 U.S. 356, 362 (1955) (recognizing that
sovereign immunity is derived from standards of “reciprocal self-interest”). That is precisely the result
this Court sought to avoid in Helmerich. See
Helmerich, 137 S. Ct. at 1322 (accepting the Department of State’s warning against interpreting the
FSIA’s expropriation exception in a manner that
“would ‘affron[t]’ other nations, producing friction in
our relations with those nations and leading some to
reciprocate by granting their courts permission to
embroil the United States in ‘expensive and difficult
litigation, based on legally insufficient assertions
that sovereign immunity should be vitiated’”).
27
III.
The Second Circuit’s Decision Raises an
Exceptionally Important and Recurring
Question Implicating Foreign Policy Interests that Should Be Addressed by This
Court
As this Court has long recognized, “foreign sovereign immunity is a matter of grace and comity on the
part of the United States,” and “[a]ctions against foreign sovereigns in our courts raise sensitive issues
concerning the foreign relations of the United
States.” Verlinden B.V. v. Cent. Bank of Nigeria, 461
U.S. 480, 493 (1983); accord Banco Nacional de Cuba
v. Sabbatino, 376 U.S. 398, 407 (1964) (“We granted
certiorari because the issues involved bear importantly on the conduct of the country’s foreign
relations and more particularly on the proper role of
the Judicial Branch in this sensitive area.”).
“The doctrine of foreign sovereign immunity has
been recognized since early in the history of our Nation” and “is premised upon the ‘perfect equality and
absolute independence of sovereigns, and th[e] common interest impelling them to mutual intercourse.’”
Republic of Phil. v. Pimentel, 553 U.S. 851, 865
(2008) (citation omitted). This doctrine “helps to ‘induc[e]’ each nation state, as a matter of
‘international comity,’ to ‘respect the independence
and dignity of every other,’ including our own.”
Helmerich, 137 S. Ct. at 1319 (citation omitted); accord Pimentel, 553 U.S. at 866 (“Giving full effect to
sovereign immunity promotes . . . comity interests . .
. . [as] foreign sovereign immunity derives from
‘standards of public morality, fair dealing, reciprocal
self-interest, and respect for the “power and dignity”
of the foreign sovereign.’” (citation omitted)).
28
Sovereign immunity is derived in part from
standards of “reciprocal self-interest.” Nat’l City
Bank of N.Y., 348 U.S. at 362. Its purposes thus include “according foreign sovereigns treatment in U.S.
courts that is similar to the treatment the United
States would prefer to receive in foreign courts.”
Aquamar, S.A. v. Del Monte Fresh Produce N.A., Inc.,
179 F.3d 1279, 1295 (11th Cir. 1999). Courts “give
effect to these Congressional purposes by considering
the potential impact of [their] FSIA interpretations
on foreign litigation involving the United States and
its interests.” Id.; accord Persinger v. Islamic Republic of Iran, 729 F.2d 835, 841 (D.C. Cir. 1984) (noting
that “some foreign states base their sovereign immunity decisions on reciprocity” and declining to
adopt construction of FSIA that bore the “potential
for international discord and for foreign government
retaliation”); H.R. Rep. No. 94–1487, at 29–30 (1976),
as reprinted in 1976 U.S.C.C.A.N. 6604, 6628–29
(noting goal of FSIA provision to prevent unfavorable
treatment of U.S. corporations in courts abroad); see
also McCulloch v. Sociedad Nacional de Marineros
de Honduras, 372 U.S. 10, 21 (1963) (construing
statute to avoid “invit[ing] retaliatory action from
other nations”).
Whether the commercial activity exception applies to conduct inextricably intertwined with a
sovereign act poses a vitally important and oftrecurring question. As described above, the doctrine
of sovereign immunity codified in the FSIA implicates exceptionally important and sensitive interests
bearing on foreign relations and international comity. Thus, in recent years this Court has frequently
granted certiorari to review decisions that, as here,
29
risked infringing upon state sovereignty. 6 The exceptionally important interests embodied in the
FSIA are heightened here, where a U.S. court has
asserted jurisdiction over conduct inextricably intertwined with a foreign state’s quintessentially
sovereign act of legislating to expropriate a stake in
its largest oil company, an act it judged necessary to
avert an escalating domestic energy crisis and ensure national energy independence. Cf. Spectrum
Stores, Inc. v. Citgo Petroleum Corp., 632 F.3d 938,
954–55 (5th Cir. 2011) (“The Supreme Court has
held, albeit in a different factual context, that exploitation of natural resources is an inherently sovereign
function.” (citing United States v. California, 332
U.S. 19, 38–39 (1947))); see also Mastafa v. Chevron
Corp., 770 F.3d 170, 187 (2d Cir. 2014) (“[T]he danger of unwarranted judicial interference in the
conduct of foreign policy is . . . . all the more pressing
when the question is whether a cause of action under
the [Alien Tort Statute] reaches conduct within the
territory of another sovereign.” (citation omitted)).
6 See, e.g., Rubin v. Islamic Republic of Iran, 138 S. Ct. 816
(2018); Bolivarian Republic of Venez. v. Helmerich & Payne Int’l
Drilling Co., 137 S. Ct. 1312 (2017); OBB Personenverkehr AG v.
Sachs, 136 S. Ct. 390 (2015); Republic of Arg. v. NML Capital,
Ltd., 134 S. Ct. 2250 (2014); Mohamad v. Palestinian Auth., 566
U.S. 449 (2012); Samantar v. Yousuf, 560 U.S. 305 (2010); Republic of Iraq v. Beaty, 556 U.S. 848 (2009); Ministry of Def. &
Support for Armed Forces of Islamic Republic of Iran v. Elahi,
556 U.S. 366 (2009); Republic of Phil. v. Pimentel, 553 U.S. 851
(2008); Powerex Corp. v. Reliant Energy Servs., Inc., 551 U.S.
224 (2007); Permanent Mission of India to U.N. v. City of New
York, 551 U.S. 193 (2007); Ministry of Def. & Support for Armed
Forces of Islamic Republic of Iran v. Elahi, 546 U.S. 450 (2006);
Republic of Austria v. Altmann, 541 U.S. 677 (2004); Dole Food
Co. v. Patrickson, 538 U.S. 468 (2003).
30
In addition, given that “every expropriation of
property has some commercial implications,” Garb,
207 F. Supp. 2d at 32, lawsuits like Petersen’s challenging those alleged implications are not uncommon
and are especially likely to recur if the decision below
stands. Courts of appeals, for instance, have recently considered cases under the FSIA involving the
expropriation of real property, see, e.g., Beg, 353 F.3d
at 1326–28, personal property, see, e.g., Simon v. Republic of Hungary, 812 F.3d 127, 141–42 (D.C. Cir.
2016), stock, see, e.g., Rong, 452 F.3d at 888-89, bank
accounts, see, e.g., Nemariam v. Federal Democratic
Republic of Ethiopia, 491 F.3d 470, 474–75 (D.C. Cir.
2007), and art. See, e.g., de Csepel v. Republic of
Hungary, 714 F.3d 591, 598–600 (D.C. Cir. 2013).
More generally, commentators have noted that
“litigation against foreign states under foreignsovereign-immunity legislation has become a significant category of contemporary international
adjudication,” with approximately 1,000 cases involving claims against foreign states pending in national
courts at any given time and approximately 250 new
cases filed each year. Gary Born, A New Generation
of International Adjudication, 61 Duke L.J. 775,
823–24 (2012). A substantial portion of these cases
involve the FSIA’s commercial activity exception—
the “‘most significant . . . exception[ ]’ to foreign sovereign immunity’ . . . ‘at the heart’ of the FSIA’s
codification of the restrictive theory of foreign sovereign immunity.” Orient Mineral Co. v. Bank of
China, 506 F.3d 980, 992 (10th Cir. 2007) (citations
omitted).
Further, while the Second Circuit’s decision deviates from certain fundamental principles adopted by
this Court (see Section II, supra), the Court has never squarely addressed whether the FSIA’s
31
commercial activity exception applies to conduct inextricably intertwined with a sovereign act. Indeed,
this Court has noted that it has not yet addressed a
case “where a claim consists of both commercial and
sovereign elements.” Nelson, 507 U.S. at 358 n.4.
Courts have struggled to fill the void left by this
Court’s silence on this issue, often reaching conflicting decisions. Courts have observed that “the case
law in this area lacks clarity,” DRFP L.L.C. v. Republica Bolivariana de Venezuela, 706 F. App’x 269,
273 (6th Cir. 2017), and that “drawing the line between commercial and sovereign activities for FSIA
purposes can sometimes be quite difficult.” Azima v.
RAK Inv. Auth., 305 F. Supp. 3d 149, 162 (D.D.C.
2018); see also Gary B. Born & Peter B. Rutledge, International Civil Litigation in United States Courts
279 (5th ed. 2011) (“[T]he historic uncertainties that
have surrounded the distinction between commercial
and sovereign acts can be expected to persist.”). One
commentator in this area has highlighted the existence of conflicting authority on a question similar to
the one presented here; namely, whether “a nationalization involving a breach a contract is a commercial
act.” Joseph W. Dellapenna, Suing Foreign Governments and Their Corporations 370 (2d ed. 2003).
This case offers an ideal vehicle for the Court to
resolve these exceptionally important and unsettled
questions and clarify the scope of the commercial activity exception to sovereign immunity under the
FSIA. As described above, on the face of Petersen’s
complaint, the claims in this case are inextricably
intertwined with Argentina’s sovereign expropriation
of a controlling stake in YPF. The Second Circuit’s
assertion of jurisdiction over conduct inextricably intertwined with a quintessentially sovereign act will
have far-reaching implications for foreign relations
32
and international comity. “[A]pplying the commercial activity exception to claims based on the
expropriating country’s post-expropriation commercial activities seriously limits the sovereign’s rights
to expropriate and its respective benefits.” Lieberman, supra, at 528; see also Dellapenna, supra, at
369 (“Once one realizes that a nationalization is
‘commercial’ if it involves breach of a contract, one
could also conclude that the foreign state is acting
like a private person whenever it nationalizes property, even without breaching a contract. After all, a
private person is capable of converting property . . . .
If the [FSIA] requires a court to determine the ‘commerciality’ of an act by its most specific aspect, then
arguably a foreign state is never immune for nationalizing property.”). This Court should intervene to
address this vitally important issue now.
33
CONCLUSION
For the foregoing reasons, the Court should grant
the petition for a writ of certiorari.
Respectfully submitted,
Maura Barry Grinalds
Counsel of Record
Boris Bershteyn
Jonathan J. Lerner
Timothy G. Nelson
Austin R. Winniford
SKADDEN, ARPS, SLATE, MEAGHER &
FLOM LLP
Four Times Square
New York, NY 10036
(212) 735-3000
maurabarry.grinalds@skadden.com
Counsel for Petitioner
October 31, 2018
APPENDIX
1a
APPENDIX A
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
————
Docket Nos. 16-3303-cv(L),16-3304-cv(Con)
————
PETERSEN ENERGÍA INVERSORA S.A.U.
AND PETERSEN ENERGÍA, S.A.U.,
Plaintiffs-Appellees,
v.
ARGENTINE REPUBLIC AND YPF S.A.,
Defendants-Appellants.*
————
August Term 2016
(Argued: June 15, 2017 Decided: July 10, 2018)
————
ON APPEAL FROM THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK
————
Before:
WINTER, CALABRESI, AND CHIN, Circuit Judges.
————
Appeal from an order of the United States District
Court for the Southern District of New York (Preska,
*
The Clerk of Court is directed to amend the official caption to
conform to the above.
2a
J.), denying defendants‐appellants’ motion to dismiss
under (1) Federal Rule of Civil Procedure 12(b)(1)
for lack of subject matter jurisdiction on grounds of
foreign sovereign immunity and (2) Federal Rule of
Civil Procedure 12(b)(6) pursuant to the act of state
doctrine.
AFFIRMED IN PART AND DISMISSED IN PART.
Judge WINTER concurs in part and dissents in part
in a separate opinion.
————
MICHAEL K. KELLOGG (Mark C. Hansen, Derek T. Ho,
Benjamin S. Softness, on the brief), Kellogg, Hansen,
Todd, Figel & Frederick, P.L.L.C., Washington, D.C.,
and Reginald R. Smith, King & Spalding LLP, New
York, New York, for Plaintiffs-Appellees.
MAURA BARRY GRINALDS, Skadden, Arps, Slate,
Meagher & Flom LLP, New York, New York, and
Martin Domb, Benjamin Joelson, Ackerman LLP, New
York, New York, for Defendant-Appellant Argentine
Republic.
MICHAEL A. PASKIN, Cravath, Swaine & Moore LLP,
New York, New York, and Thomas J. Hall, Marcelo M.
Blackburn, Chadbourne & Parke LLP, New York, New
York, for Defendant-Appellant YPF S.A.
————
CHIN, Circuit Judge:
Defendants-appellants the Argentine Republic
(“Argentina”) and YPF S.A. (“YPF”) (together,
“defendants”) appeal an order of the United States
District Court for the Southern District of New York
(Preska, J.), denying defendants’ motions to dismiss
under (1) Federal Rule of Civil Procedure 12(b)(1) for
3a
lack of subject matter jurisdiction on grounds of
foreign sovereign immunity and (2) Federal Rule of
Civil Procedure 12(b)(6) pursuant to the act of state
doctrine. We affirm the district court’s order insofar as
it denied the motion to dismiss under the Foreign
Sovereign Immunity Act and we dismiss defendants’
appeal as to the act of state doctrine.
BACKGROUND
Unless otherwise noted, the facts herein are undisputed. They are drawn from the complaint and the
documents submitted by the parties in reference to
defendants’ motions to dismiss.
I. YPF Becomes a Publicly Traded Company
YPF is a petroleum company that was wholly owned
and operated by the Argentine government until 1993.
That year, in accordance with broader efforts to reform
its economy, Argentina decided to privatize the petrol
firm through an initial public offering (“IPO”) of nearly
100% of YPF’s voting stock (the “shares”).1 Argentina
and YPF took a number of steps to entice investors to
participate in the IPO and thereby ensure its success,
1
Indeed, an article written by the then-Governor of the Central
Bank of Argentina notes that “[t]he reforms of the 1990s . . .
included financial system reforms, liberalization of trade and the
capital account, and far-reaching public sector reforms,” including “[p]ublic sector reform, which substantially reduced the scope
of [Argentina’s] public sector [and] entailed privatizing almost
all of the major public enterprises” in the country. Pedro Pou,
Argentina’s Structural Reforms of the 1990s, 37 Fin. & Dev. 13,
13 (2000). Privatizing Argentina’s major public enterprises had
three main benefits: “Public subsidies to [the formerly public]
enterprises were reduced or eliminated; the enterprises’ efficiency and provision of services improved dramatically; and funds
became available to cover a substantial part of the government
deficit while other reforms . . . were underway.” Id.
4a
two of which are particularly relevant to this case.
First, they arranged for YPF to offer shares in the
United States as American Depository Receipts (“ADRs”)
listed on the New York Stock Exchange (“NYSE”).
Second, they amended YPF’s bylaws – that is, the contract governing the relationship among YPF, Argentina
(in its capacity as a shareholder), and other YPF
shareholders. In particular, the bylaws were amended
to incorporate protections for investors from (1) hostile
takeovers and (2) attempts by Argentina to renationalize the company. These takeover protections form the
basis of this breach of contract dispute, and so we
describe them in some detail.
Section 7(d) of the amended bylaws prohibits (with
certain exceptions inapplicable here) the direct or
indirect acquisition of YPF shares if the acquisition
results in the acquirer controlling 15% or more of the
shares, unless the acquirer makes a tender offer for all
of the outstanding shares in accordance with certain
procedures and at a price determined by a formula in
the bylaws. Among the prescribed procedures, section
7(f) requires that any such tender offer comply with
the rules and regulations imposed by the governments
and stock exchanges where YPF’s shares are listed.
Because YPF’s securities were to be listed on the
NYSE, those conducting tender offers in accordance
with these shareholder protection measures would be
compelled by section 7(f) to comply with NYSE and
Securities and Exchange Commission (“SEC”) rules
and regulations. Section 7(f)(iv) further obligates the
acquirer to publish notice of its tender offer “in the
business section of the major newspapers . . . in the
City of New York, U.S.A. and any other city where the
shares [of YPF] shall be listed.” App. 340. Perhaps
most importantly for purposes of this appeal, section
5a
28(A) of the bylaws extends the tender offer requirement of sections 7(e) and 7(f) to:
all acquisitions made by the [Government of
Argentina], whether directly or indirectly, by
any means or instrument, of shares or securities of [YPF], 1) if, as a consequence of such
acquisition, the [Government] becomes the
owner, or exercises the control of, the shares
of [YPF], which, in addition to the prior holdings thereof of any class of shares, represent,
in the aggregate, at least 49% of the capital
stock [of YPF]; or 2) if the [Government]
acquires at least 8% of class D outstanding
shares of stock, while withholding class A
shares of stock amounting at least to 5% of
the capital stock.
App. 432.
The penalties for breaching these provisions are
drastic. Section 7(h) provides that “[s]hares of stock
and securities acquired in breach of [the tender offer
requirements] shall not grant any right to vote or
collect dividends.” App. 342. And section 28(C) extends
such treatment to shares acquired by Argentina,
unless its breach is accidental. In that case, “[t]he
penalties provided for in subsection (h) of Section 7
shall be limited . . . to the loss of the right to vote.” App.
355. At bottom, these shareholder protection measures
appear to promise investors a compensated exit from
their ownership position in the firm if Argentina were
to decide to renationalize YPF.
Argentina and YPF touted these protections in the
prospectus filed with the SEC in connection with the
IPO. That document stated that “[u]nder [YPF’s] Bylaws, in order to acquire a majority of [YPF’s] capital
6a
stock . . ., the Argentine Government first would be
required to make a cash tender offer to all holders of
[the shares] on terms and conditions specified in the
By-laws.” App. 23. The prospectus further stated that
“any Control Acquisition carried out by the Argentine
Government other than in accordance with th[at] procedure . . . will result in the suspension of the voting,
dividend and other distribution rights of the shares so
acquired.” Id. (alteration in original).
By all accounts, Argentina’s marketing efforts
worked. YPF launched a successful IPO on June 29,
1993. Through the sale of YPF securities, Argentina
raised billions of dollars in investment capital with the
largest share (more than $1.1 billion in total) coming
from the sale of ADRs in the United States on the
NYSE. A firm called Repsol S.A. (“Repsol”) emerged
from the IPO as YPF’s majority shareholder. Even
after the IPO, however, Argentina continued to participate in YPF’s corporate governance as a commercial
actor. It remained a holder of YPF’s Class A shares,
entitling it to elect at least one member of the firm’s
board of directors. Argentina also retained a veto right
over certain third-party acquisitions of YPF’s capital
stock. After the IPO, YPF’s shares, via the ADRs, were
traded publicly on the NYSE and other exchanges.
Plaintiffs-appellees Petersen Energía Inversora,
S.A.U. and Petersen Energía, S.A.U. (together,
“Petersen”) entered the picture in 2008. Between 2008
and 2011, Petersen conducted a series of acquisitions
and came to own approximately 25% of YPF’s shares,
held in the form of ADRs issued by the Bank of New
York Mellon in New York City. All of Petersen’s
acquisitions were made in accordance with YPF’s
bylaws, including the tender offer provisions in section
7. The bulk of Petersen’s shares were purchased from
7a
Repsol and their purchase was financed by Repsol and
various financial institutions, which maintained a
security interest in the stock as collateral. As part of a
shareholder agreement with Petersen, Repsol agreed
to cause YPF to make biannual distributions of 90% of
its profits to shareholders via dividends in accordance
with section 25 of the bylaws. Petersen often used
these dividends to make payments on the loans it used
to finance the purchase of YPF stock.
All of that changed in 2012. Early that year,
members of the Argentine government began publicly
criticizing Repsol’s and Petersen’s management of
YPF and started discussing the prospect of renationalizing the company. The value of YPF’s ADRs
plummeted in response to this news. To put what
happened next in the appropriate context, it helps to
understand a little about the mechanics of Argentine
expropriation law.
II. Argentine Expropriation Law
Expropriation is the “governmental taking or modification of an individual’s property rights.” Expropriation,
BLACK’S LAW DICTIONARY (10th ed. 2014). A “classic
example” is the government’s condemnation of a parcel
of land to make way for some public good, like a road.
Murr v. Wisconsin, 137 S. Ct. 1933, 1939 (2017). The
enactment of land use regulations may also, in some
cases, constitute an expropriation. See id. But these
land-based examples understate the breadth of a
sovereign’s power of expropriation, which can be vast.
That is so because all types of property can be
expropriated, whether tangible or intangible. Personal
property, airspace rights, contract rights, even the
shares of a corporation – at least in theory, a sovereign
can expropriate them all. See Penn Cent. Transp. Co.
v. City of New York, 438 U.S. 104, 128 (1978)
8a
(discussing a “taking” of airspace rights); accord August
Reinisch, Expropriation, in The Oxford Handbook
of International Investment Law 407, 410 (Peter
Muchlinski et al. eds., 2008) (“It is generally asserted
that expropriation may affect not only tangible
property but also a broad range of intangible assets of
economic value to an investor. Property that may be
expropriated by states thus comprises immaterial
rights and interests, including in particular contractual rights.”). In reality, however, whether a government
may expropriate property, what property is subject to
expropriation, and how much the government must
compensate the individual it expropriated the property
from (if at all) are largely questions of law of the
expropriating nation. Leo T. Kissam & Edmond K.
Leach, Sovereign Expropriation of Property and
Abrogation of Concession Contracts, 28 Fordham. L.
Rev. 177, 184 (1959) (“States are at liberty to carry
out . . . expropriations in the manner and form they
consider best; . . . they are free to operate their municipal system of property according to their own national
genius . . . .”); compare Org. for Econ. Co-operation &
Dev., “Indirect Expropriation” and the “Right to Regulate”
in International Investment Law, in International
Investment Law: A Changing Landscape 43, 43-72
(2005) (discussing limits imposed on expropriations by
customary international law). In this case, we look to
Argentine law. See Garb v. Republic of Poland, 440
F.3d 579, 594-98 (2d Cir. 2006).
Article 17 of Argentina’s National Constitution sets
the conditions under which property may be expropriated by the Argentine government. To effectuate an
expropriation consistent with Article 17, two conditions must be met: (1) the Argentine Congress must
declare a public use for the property to be expropriated
and (2) the owner of the property must be compensated.
9a
The Argentine government has passed laws to clarify
what property is subject to expropriation and to
specify the procedures that must be followed to meet
the conditions for expropriation.
One such law is Law 21,499, known as the “General
Expropriation Law.” App. 57. It empowers, among
other entities, the Argentine Federal Government to
act as an expropriator. As for the declaration of public
use required by Article 17 of the National Constitution, section 5 of the General Expropriation Law
clarifies that the Argentine Congress “shall particularly refer to specific property” to be expropriated in
its declaration and section 1 provides that “[p]ublic
use, which is required as legal grounds for expropriation, comprises all cases where public welfare may be
involved.” App. 185-86. The law further declares that
“[a]ll such property as may be convenient or necessary
to satisfy [that] ‘public use’ purpose, whatever the
legal nature thereof, whether publicly or privately
owned, or be they things or not, may be subject to
expropriation . . . .” App. 186. As for compensation for
that property, section 10 of the General Expropriation
Law provides that the owner shall receive “the objective value of the property plus any direct and
immediate damages resulting from expropriation,”
such amounts to be fixed by agreement of the owner
and expropriator or pursuant to a court proceeding.
App. 187. And, presumably to prevent the owner’s
malfeasance while compensation is being fixed, section
16 of the law proclaims that “[n]o contract executed by
the owner after the effective date of the law declaring
the expropriation of the property and which may imply
the creation of any right or interest in the property
shall be good as against the expropriator.” App. 187.
10a
Accordingly, with this legal backdrop in mind, we
return to how Argentina regained control over YPF’s
affairs in the spring of 2012.
III. Argentina Regains Control of YPF
On April 16, 2012, pursuant to the General Expropriation Law, Argentina proposed legislation that
would expropriate directly from Repsol 51% of the
voting stock of YPF. On the same day, the Argentine
National Executive Office decreed that it was empowering an “Intervenor” to seize immediate control of
YPF’s operations and to operate the company as a
going concern while the Argentine Congress considered the expropriation legislation. Action was swift.
Indeed, before some of these measures were even
announced publicly, the Intervenor seized control of
YPF’s facilities, replaced top management with
government officials, and escorted YPF’s then-CEO off
the premises. The Intervenor also cancelled regularlyscheduled meetings of YPF’s board of directors and
refused to make expected dividend payments.
Argentine officials were also quick to declare that,
despite having acquired control of the company,
Argentina and YPF had no intention of complying
with the tender offer provisions of YPF’s bylaws. For
example, on April 17, 2012, in a speech before the
Argentine Senate, the country’s Deputy Economy
Minister described as “fools . . . those who think that
the State has to be stupid and buy everyone according
to YPF’s own law, respecting its by-law.” App. 29 n.1.
He also dismissed the tender offer requirements as
“unfair” and a “bear trap.” Id.
On May 3, 2012, the proposed expropriation legislation was enacted as Law 26,741 with an effective date
of May 7, 2012 (the “YPF Expropriation Law”). In
11a
accordance with Article 17 of the National Constitution, the YPF Expropriation Law pronounced Argentina’s
national public interest in achieving “self-sufficiency
in hydrocarbon[] supply,” App. 165, by, inter alia,
integrating “public and private . . . capital into strategic
alliances aimed at the exploration and exploitation of
conventional and unconventional hydrocarbons,” App.
166. The law further provided that:
to ensure the fulfillment of the objectives of
this law, the fifty-one percent (51%) equity
interest in YPF Sociedad Anónima represented by the same percentage of Class D
shares of the said Company, held by Repsol
YPF S.A., its controlled or controlling entities,
directly or indirectly, is hereby declared to be
of public use and subject to expropriation.
App. 167. The YPF Expropriation Law also extended
the Intervenor’s control over the firm’s operations and
granted the Argentine executive branch the right to
“exercise all the political rights over all the shares
subject to expropriation” until the expropriation, including compensation of Repsol, was finalized. App. 167.
Argentina did indeed exercise the rights of Repsol’s
shares, using them to cancel YPF’s previously-scheduled dividend payment and board meeting in April
2012, and voted the shares at a shareholder meeting
in June 2012, in contravention of section 7(h) of the
bylaws. Unable to meet its loan obligations without
the dividend payment, Petersen entered insolvency
proceedings in July 2012 and its lenders foreclosed on
the YPF ADRs that Petersen had pledged as collateral.
Repsol was eventually compensated for its expropriated shares to the tune of $4.8 billion.
12a
IV. Procedural History
Petersen commenced this action in the district court
on April 8, 2015, alleging, inter alia, breach of contract
on grounds that (1) Argentina repudiated its obligation to make the tender offer in accordance with
sections 7(e) and (f) and 28 of the bylaws, (2) YPF
breached its obligation to ensure Argentina made such
a tender offer in light of its acquisition of Repsol’s
shares, and (3) YPF permitted Argentina to exercise
the voting rights of Repsol’s shares and other corporate governance powers in contravention of section
7(h) of the bylaws. Defendants moved to dismiss the
complaint, arguing, inter alia, that the district court
lacked subject matter jurisdiction under the Foreign
Sovereign Immunities Act, 28 U.S.C. § 1601 et seq. (the
“FSIA”), and that Petersen’s claims were barred by the
“act of state doctrine.” As is relevant here, the district
court denied defendants’ motions to dismiss with
respect to the FSIA and act of state issues. They timely
appealed the FSIA ruling and the district court
subsequently certified the act of state issue for our
interlocutory review.
DISCUSSION
Two issues are presented. First, we consider whether
the federal courts have subject matter jurisdiction
over this case under the FSIA. Second, we address
defendants’ arguments based on the act of state doctrine.
I. Subject matter jurisdiction under the FSIA
A. Applicable law
Our jurisdiction over the district court’s FSIA ruling
is premised on the collateral order doctrine, which
“allows an immediate appeal from an order denying
immunity under the FSIA.” Kensington Int’l Ltd. v.
13a
Itoua, 505 F.3d 147, 153 (2d Cir. 2007) (citation
omitted). We review de novo “a district court’s legal
determinations regarding its subject matter jurisdiction, such as whether sovereign immunity exists,” and
its factual determinations for clear error. Filler v.
Hanvit Bank, 378 F.3d 213, 216 (2d Cir. 2004). “In
determining whether an exception to the FSIA applies,
the district court can and should consider matters
outside the pleadings relevant to the issue of jurisdiction,” and we do the same on appeal. Kensington, 505
F.3d at 153.
The FSIA “provides the sole basis for obtaining
jurisdiction over a foreign state in the courts of
this country.” Argentine Republic v. Amerada Hess
Shipping Corp., 488 U.S. 428, 443 (1989). “The Act
states that a ‘foreign state shall be immune from the
jurisdiction of the courts of the United States and of
the States except as provided in sections 1605 to
1607.’” Rogers v. Petroleo Brasileiro, S.A., 673 F.3d
131, 136 (2d Cir. 2012) (quoting 28 U.S.C. § 1604).
Here, the parties do not dispute that Argentina is a
foreign state and YPF is an instrumentality of
Argentina and therefore Petersen has “the burden of
going forward with evidence showing that, under
exceptions to the FSIA, immunity should not be
granted.” Kensington, 505 F.3d at 153 (citation
omitted). “Where the plaintiff satisfies [its] burden
that an FSIA exception applies, the foreign sovereign
then bears the ultimate burden of persuasion that the
FSIA exception does not apply.” Swarna v. Al‐Awadi,
622 F.3d 123, 143 (2d Cir. 2010).
The exception relevant here, the commercial activity
exception, provides as follows:
A foreign state shall not be immune from the
jurisdiction of courts of the United States . . .
14a
in any case . . . in which the action is based
[1] upon a commercial activity carried on in
the United States by the foreign state; or
[2] upon an act performed in the United
States in connection with a commercial activity
of the foreign state elsewhere; or [3] upon an
act outside the territory of the United States
in connection with a commercial activity of
the foreign state elsewhere and that act
causes a direct effect in the United States.
28 U.S.C. § 1605(a)(2). As for these conditions “[a]
plaintiff need only show that one of [them] is met
for the commercial activities exception to apply.”
Kensington, 505 F.3d at 154.
Below, the district court held that Petersen’s claims
satisfy the third condition, known as the “direct-effect
clause.” To establish jurisdiction on that basis, the
action must be “(1) based . . . upon an act outside the
territory of the United States; (2) that was taken in
connection with a commercial activity of Argentina
outside this country; and (3) that cause[d] a direct
effect in the United States.” Republic of Argentina v.
Weltover, Inc., 504 U.S. 607, 611 (1992) (alteration in
original) (internal quotation marks omitted).
As to the first element, “we must identify the act of
the foreign sovereign State that serves as the basis
for plaintiffs’ claims.” Garb, 440 F.3d at 586. What
matters for this inquiry is that the challenged “action
is ‘based upon’ the ‘particular conduct’ that constitutes
the ‘gravamen’ of the suit.” OBB Personenverkehr AG
v. Sachs, 136 S. Ct. 390, 396 (2015). The Supreme Court
has instructed us to “zero[] in on the core of [the plaintiffs’] suit: the . . . acts that actually injured them.” Id.
15a
As to the second element, “the Act defines ‘commercial activity’ as ‘either a regular course of commercial
conduct or a particular commercial transaction or act,’
and provides that ‘[t]he commercial character of an
activity shall be determined by reference to the nature
of the course of conduct or particular transaction or
act, rather than by reference to its purpose.’” Saudi
Arabia v. Nelson, 507 U.S. 349, 358‐59 (1993) (quoting
28 U.S.C. § 1603(d)). A state engages in “commercial
activity . . . only where it acts ‘in the manner of a
private player within’ the market” or, put differently,
“where it exercises ‘only those powers that can also be
exercised by private citizens,’ as distinct from those
‘powers peculiar to sovereigns.’” Id. at 360. For
example, “a foreign state’s repudiation of a contract is
precisely the type of activity in which a private player
within the market engages.” De Csepel v. Republic of
Hungary, 714 F.3d 591, 599 (D.C. Cir. 2013) (citation
and internal quotation marks omitted). By contrast,
“expropriations . . . do not fall within the ‘commercial
activity’ exception of the FSIA [because] [e]xpropriation is a decidedly sovereign – rather than commercial –
activity.” Garb, 440 F.3d at 586.
As to the third element, “a direct effect in the United
States,” “to be direct, an effect need not be substantial
or foreseeable, but rather must simply follow[] as
an immediate consequence of the defendant’s . . .
activity.” Atlantica Holdings, Inc. v. Sovereign Wealth
Fund Samruk‐Kazyna JSC, 813 F.3d 98, 108 (2d Cir.
2016) (alteration in original) (internal quotation
marks omitted).
B. Application
With these principles in mind, we turn to defendants’ arguments that this case does not fall within
the FSIA’s commercial activity exception. We first
16a
consider Argentina’s contention that Petersen’s claims
are in fact based on sovereign acts, rather than commercial ones, and then we address YPF’s arguments
that it too is entitled to immunity under the FSIA.
1. Argentina
Argentina does not challenge the district court’s
conclusion that its breach of the bylaws’ tender offer
requirements caused a direct effect in the United States.
And we agree with that conclusion because those
provisions required Argentina to tender for ADRs listed
on the NYSE and “courts have consistently held that,
in contract cases, a breach of a contractual duty causes
a direct effect in the United States sufficient to confer
FSIA jurisdiction [if] the United States is the place of
performance for the breached duty.” Id. at 108-09.
Instead, Argentina argues that Petersen’s claims
are “based on” the sovereign act of expropriation, rather
than any commercial activity, thereby rendering the
FSIA’s commercial activity exception inapplicable. It
premises this argument on three claims about the
nature of Petersen’s lawsuit. First, Argentina asserts
that the complaint misinterprets the bylaws, obscuring that the breach Petersen complains of is actually
Argentina’s sovereign expropriation of Repsol’s 51%
ownership stake in YPF, rather than the failure to
conduct a tender offer. Second, Argentina contends
that it could not have complied with both the YPF
Expropriation Law and the bylaws’ tender offer requirement because the former required Argentina to acquire
51% ownership of YPF and no greater amount. Third,
Argentina characterizes Petersen’s claims as an impermissible effort to “enforce the bylaws.” Argentina
Reply Br. 2. We discuss each argument, in turn.
17a
Argentina first contends that the district court erred
in accepting Petersen’s interpretation that YPF’s
bylaws permitted Argentina to conduct a tender offer
after it acquired a controlling interest in YPF. According
to Argentina, the bylaws instead required Argentina
to acquire its majority ownership position through
the tender offer process contemplated in the bylaws.
Argentina, in this view, breached the bylaws (if at all)
by acquiring Repsol’s stock through the expropriation
instead of a tender offer. So understood, Petersen’s
lawsuit is not “based on” Argentina’s commercial
activity; rather, it is based on a decidedly sovereign
act, i.e., the expropriation of Repsol’s shares. Consequently, Argentina argues that Petersen’s lawsuit falls
outside of the FSIA’s commercial activity exception.
We are not persuaded. Looking, as we must, to “the
core of [the plaintiffs’] suit,” i.e., “the . . . acts that
actually injured them,” OBB Personenverkehr, 136 S.
Ct. at 396, we conclude that Petersen seeks relief for
injuries caused by commercial, rather than sovereign,
activity.
To start, we agree with the district court that, under
the bylaws, Argentina’s expropriation triggered an
obligation to make a tender offer for the remainder of
YPF’s outstanding shares. Argentina’s contrary interpretation, i.e., that the bylaws required Argentina to
conduct a tender offer in order to acquire Repsol’s 51%
stake in YPF (meaning that the expropriation itself
was Argentina’s breach, rather than its subsequent
failure to make a tender offer) rests on a misreading of
the bylaws. To recap, section 28(A) of the bylaws
provides in its totality that:
The provisions of subsections e) and f) of
Section 7 (with the sole exception of the
provisions of paragraph B of the said Section)
18a
shall apply to all acquisitions made by the
National Government, whether directly or indirectly, by any means or instrument, of shares
or securities of the Corporation, 1) if, as a
consequence of such acquisition, the National
Government becomes the owner [of], or
exercises the control of, the shares of the
Corporation, which, in addition to the prior
holdings thereof of any class of shares, represent, in the aggregate, at least 49% of the
capital stock; or 2) if the National Government
acquires at least 8% of class D outstanding
shares of stock, while withholding class A
shares of stock amounting at least to 5% of
the capital stock provided for in subsection (a)
of section 6 of these By-laws upon registration
thereof with the Public Registry of Commerce.
Should class A shares represent a lower percentage than the one previously mentioned,
the provisions set forth in point 2) of this
Section shall not be applicable. Instead, the
general criteria set forth in subsection d) of
Section 7 shall apply.
App. 432. Admittedly, the wording of this bylaw is not
a paragon of clarity, a defect that is no doubt exacerbated by the provision’s translation into English from
the Spanish language original. But we can divine its
meaning if, for the sake of simplicity, we unpack some
of the cross references and omit certain clauses that do
not apply to this case. Recall, for example, that the
tender offer requirements are found in “[t]he provisions of subsections e) and f) of Section 7,” App. 432,
and that we are concerned only with Argentina’s
expropriation of Repsol’s 51% ownership stake. With
these facts in mind, section 28(A) can be fairly
rephrased as follows:
19a
The [obligation to make a tender offer] shall
apply to [Argentina’s acquisition of YPF’s
shares] . . . by any means or instrument . . .
if, as a consequence of such acquisition,
[Argentina] becomes the owner [of], or exercises the control of, . . . at least 49% of the
capital stock [of YPF] . . . .
App. 432. Simply put, section 28(A) compels Argentina
to make a tender offer in accordance with the procedures set forth in the bylaws if “by any means or
instrument” it “becomes the owner [of], or exercises
the control of,” at least 49% of YPF’s capital stock.
App. 432 (emphasis added).
This interpretation is bolstered by the language
of section 7(d), which determines whether acquirers
other than Argentina must make a tender offer. That
bylaw provides that “[i]f the terms of subsections e)
and f) of this section are not complied with, it shall
be forbidden to acquire shares or securities of the
Corporation . . . if, as a result of such acquisition, the
purchaser becomes the holder of,” inter alia, “[15%] or
more of the capital stock.” App. 338 (emphasis added).
As the italicized language demonstrates, when the
drafters of the bylaws, namely, YPF and Argentina,
wanted to ensure that certain acquisitions would
proceed only through a tender offer process, they
used language that flatly forbade non-conforming
acquisitions. By contrast, the absence of any similar
prohibitory language in section 28(A) suggests that
Argentina’s acquisition of a control position is
different in that it merely triggers a separate
obligation to make a tender offer. In other words, in
contrast to a hostile takeover by a private actor,
Argentina’s acquisition of a control position, as such,
20a
did not have to be accomplished through the tender
offer.
Under this reading of the contract, we conclude that
Petersen’s lawsuit is “based on” Argentina’s breach of
a commercial obligation. The gravamen of Petersen’s
claim is that Argentina denied Petersen the benefit
of the bargain promised by YPF’s bylaws when
Argentina repudiated its obligation to tender for
Petersen’s shares. As the district court noted, when
Argentina expropriated Repsol’s 51% stake in YPF, it
incurred the obligation under section 28(A) of YPF’s
bylaws to make a tender offer for the remainder
of YPF’s outstanding shares. That obligation and
Argentina’s subsequent repudiation of it were indisputably commercial in nature in that they are “the
type of actions by which a private party engages in
trade and traffic or commerce.” Weltover, 504 U.S. at
614 (citation and internal quotation marks omitted);
accord De Csepel, 714 F.3d at 599 (“[A] foreign state’s
repudiation of a contract is precisely the type of
activity in which a private player within the market
engages.” (citation and internal quotation marks
omitted)). Indeed, as noted above, the bylaws impose
similar obligations on others who seek to acquire large
ownership stakes in YPF, and the record shows that
those commercial actors, including Petersen, conducted tender offers when so required. Although
Argentina’s obligation to conduct a tender offer in this
case was triggered by its sovereign act of expropriation, see Garb, 440 F.3d at 586 (“Expropriation is
a decidedly sovereign – rather than commercial –
activity.”), there is nothing unusual about conditioning a commercial obligation on the occurrence of a
sovereign act, even when the sovereign itself is one
of the parties to the contract, see, e.g., Guevara v.
Republic of Peru, 468 F.3d 1289, 1300 (11th Cir. 2006)
21a
(discussing a hypothetical contract wherein a sovereign conditioned its payment on a contract “to buy
bullets from a private manufacturer . . . on it declaring
war on a neighbor before the scheduled date of
delivery” and concluding that “[t]he condition precedent of a declaration of war . . . does not change the
commercial nature of the acts of purchasing and
paying” for the bullets); Restatement (Second) of
Contracts § 264, ill. 3. Moreover, as the district court
correctly observed, “[t]he commercial contractual obligations at issue here could just as easily have been
triggered by Argentina’s acquisition of a controlling
stake in YPF in open-market transactions.” S. App. 17.
Accordingly, for these reasons, we conclude that
Argentina’s breach of those obligations was a
commercial act, not a sovereign one.
We turn next to Argentina’s contentions that (1) it
could not have complied with both the bylaws and the
YPF Expropriation Law at the time of its breach and
(2) Petersen’s lawsuit is an ex post facto attempt to
“enforce the bylaws.” Argentina Reply Br. 2. Both
arguments fail.
As to the first argument, we see no reason why
Argentina could not have complied with both the bylaws’
tender offer requirements and the YPF Expropriation
Law. In support of its argument to the contrary,
Argentina relies on the declaration of an expert
witness who opines that “the YPF Bylaws cannot
validly restrict, limit, or in any way affect the exercise
of sovereign powers of the National Government in
general and regarding expropriations in particular.”
App. 214. Because its expropriation powers trump the
bylaws and “requiring any post-expropriation tender
for the remaining YPF shares would be inconsistent
with the [YPF] Expropriation Law’s requirement that
22a
Argentina acquire exactly 51% ownership in YPF,”
Argentina Br. 39, Argentina contends that it could not
have complied with both obligations and thus the YPF
Expropriation Law prevails. Finally, Argentina avers
that, pursuant to our opinion in In re Vitamin C
Antitrust Litigation, 837 F.3d 175 (2d Cir. 2016), we
must defer to its expert’s interpretation of Argentine
law. Again, we are not persuaded.
Starting with the latter argument, In re Vitamin C
Antitrust Litigation has now been reversed by the
Supreme Court, in Animal Science Products, Inc. v.
Hebei Welcome Pharmaceutical Co., 138 S. Ct. 1865
(2018). The Supreme Court in Animal Science rejected
our ruling in Vitamin C that federal courts are “bound
to defer” to a foreign government’s construction of its
own law, 837 F.3d at 189, and instead held that “[a]
federal court should accord respectful consideration to
a foreign government’s submission, but is not bound to
accord conclusive effect to the foreign government’s
statements.” Animal Sciences, 138 S. Ct. at 1869.
Here, even according respectful consideration to
Argentina’s views, we do not find that the expert’s
interpretation supports Argentina’s argument that
“any post-expropriation tender for the remaining
YPF shares would be inconsistent with the [YPF]
Expropriation Law’s requirement that Argentina
acquire exactly 51% ownership in YPF.” Argentina Br.
39. In particular, there is no provision in the YPF
Expropriation Law itself and no statement in the
expert’s opinion that the law compelled Argentina to
“acquire exactly 51% ownership in YPF” and no greater
ownership position. Argentina Br. 39 (emphasis in
original).
To the contrary, as noted above, the YPF Expropriation Law declares only that to ensure “self-sufficiency
23a
in hydrocarbon[] supply,” App. 165, and to integrate
“public and private . . . capital into strategic alliances
aimed at the exploration and exploitation of conventional and unconventional hydrocarbons,” App. 166,
“the fifty-one percent (51%) equity interest in YPF
Sociedad Anónima represented by the same percentage
of Class D shares of the said Company, held by Repsol
YPF S.A., its controlled or controlling entities, directly
or indirectly, is hereby declared to be of public use and
subject to expropriation,” App. 167. The law further
provides that YPF shall remain a publicly-traded
company after the expropriation and “shall not be
subject to any legislation or regulation applicable to
the administration, management and control of companies or entities partly owned by the national or
provincial governments” of Argentina, confirming that
YPF would continue its normal commercial activities
after the expropriation. App. 169. At bottom, the YPF
Expropriation Law does not prohibit a post-expropriation tender offer under YPF’s bylaws; indeed, it says
absolutely nothing about Argentina’s acquisition of additional YPF shares in a subsequent market transaction.
Similarly, Argentina’s expert opines only that
(1) Argentina’s sovereign power of expropriation cannot
be limited by private agreement, (2) “the expropriation
of YPF shares for reasons of public use . . . prevails
over clauses in . . . a private corporate agreement” such
as the bylaws, and (3) “in [his] opinion, [he did] not
perceive, in the process of intervention of YPF or in the
temporary occupation and subsequent expropriation
of shares, that there was any violation of constitutional or legal norms under Argentine law.” App. 218.
Again, none of these opinions support the proposition
that Argentina was required by law to acquire exactly
51% of YPF, no more and no less. Accordingly, even if
we were to accord deference to Argentina’s legal expert
24a
pursuant to In re Vitamin C Antitrust Litigation, we
conclude that his opinion does not establish what
Argentina says it does. Although we are mindful of the
deference we owe to foreign sovereigns as to the
construction of their laws, we simply see no basis in
the record for concluding that Argentina could not
have complied with both the YPF Expropriation Law
and the bylaws’ tender offer requirements by launching
a post-expropriation tender offer.
As to Argentina’s last argument on the FSIA issue,
it is unclear what Argentina means when it characterizes Petersen’s lawsuit as an attempt to “enforce the
bylaws.” Argentina Reply Br. 2. To the extent that
Argentina is suggesting that Petersen wants a court to
order Argentina to conduct a tender offer now, such
argument is baseless. Petersen’s complaint does not
seek a specific performance remedy. Nor could it for
Petersen is no longer a YPF shareholder and therefore
could not perform its obligation to tender shares in the
event of a court-ordered tender offer. Restatement
(Second) Contracts § 363, cmts. a & b (plaintiff’s ability
to perform its obligations under the contract is a
prerequisite to a specific performance remedy). Rather,
Petersen merely seeks compensatory damages for
Argentina’s breach of its tender offer obligation in
2012. The award of such damages would no more
“enforce the bylaws” than an award of damages in any
breach of contract case would enforce the contract
forming the basis of the plaintiff’s suit.
In sum, we conclude that when Argentina asserted
control over Repsol’s 51% stake in YPF via expropriation, it incurred a separate commercial obligation
under the bylaws to make a tender offer for the remainder
of YPF’s outstanding shares. Because Petersen claims
it was injured by Argentina’s repudiation of that
25a
commercial obligation and we conclude that the repudiation was an act separate and apart from Argentina’s
expropriation of Repsol’s shares, we hold that Petersen’s
action against Argentina falls within the “directeffects clause” of the FSIA.
2. YPF
As a threshold matter, we note that although YPF
became an instrumentality of Argentina by virtue of
the expropriation of Repsol’s shares, see 28 U.S.C.
§ 1603(b)(2) (an “instrumentality of a foreign state” is,
inter alia, “any entity . . . a majority of whose shares
or other ownership interest is owned by a foreign
state”), that fact does not render all of its subsequent
conduct “sovereign,” rather than “commercial,” in
nature. See Gemini Shipping, Inc. v. Foreign Trade
Org. for Chems. & Foodstuffs, 647 F.2d 317, 318-20 (2d
Cir. 1981) (noting that a foreign instrumentality can
engage in commercial activity sufficient to bring such
conduct within FSIA’s commercial activity exception).
Instead, the inquiry remains whether YPF “act[ed]
in the manner of a private player within the market,”
or whether “it exercise[d] . . . powers peculiar to
sovereigns.” Nelson, 507 U.S. at 360 (citations and
internal quotation marks omitted).
YPF raises two objections to maintaining subject
matter jurisdiction over this case under the FSIA.
First, it argues that the gravamen of Petersen’s claims
against it is its alleged failure to stop Argentina from
voting Repsol’s expropriated shares and that such act
was in compliance with Argentina’s sovereign expropriation and thus not a commercial activity. Second,
YPF contends that its failure to stop Argentina from
exercising corporate governance powers conferred by
Repsol’s shares had no direct effect in the United States.
26a
Petersen responds, correctly in our view, that YPF’s
arguments ignore that Petersen alleges two separate
breaches of YPF’s bylaws. The complaint alleges that
YPF breached the bylaws by (1) failing to enforce the
bylaws’ tender offer provisions vis-à-vis Argentina and
(2) failing to enforce the penalties that section 7(h)
imposes on shareholders who have breached their
tender offer obligations. As for Petersen’s first theory
of the case, we conclude that the claim against YPF
falls within the “direct-effect clause” of FSIA’s commercial activity exception for the same reasons that
the analogous claim against Argentina does. That is,
YPF’s obligation to enforce the tender offer provision
triggered by Argentina’s expropriation of Repsol’s 51%
ownership stake is commercial in nature – indeed,
every corporation is obligated to abide by its bylaws,
see, e.g., Boilermakers Local 154 Ret. Fund v. Chevron
Corp., 73 A.3d 934, 938-40 (Del. Ch. 2013) – and YPF’s
failure to do so caused a direct effect in the United
States, namely, the required tender for ADRs listed on
the NYSE never took place. See Atlantica Holdings,
813 F.3d at 108-09 (“[C]ourts have consistently held
that, in contract cases, a breach of a contractual duty
causes a direct effect in the United States sufficient to
confer FSIA jurisdiction [if] the United States is the
place of performance for the breached duty.”).
As for Petersen’s second theory of liability, we
conclude that YPF’s failure to enforce the penalties
imposed by section 7(h) is of a piece with its failure to
enforce the tender offer provisions. Like those latter
provisions, section 7(h) implicates the commercial
affairs of YPF, i.e., what voting rights attach to which
shares and which shares are entitled to collect dividends, and thus its enforcement or non-enforcement
constitutes commercial activity. To be sure, the YPF
Expropriation Law granted Argentina the right to
27a
exercise the voting rights associated with Respsol’s
shares, but YPF has not explained how that fact
transforms its own failure to enforce the bylaws into
an exercise of “powers peculiar to sovereigns.” Nelson,
507 U.S. at 360. What is more, as noted, the YPF
Expropriation Law explicitly stated that the firm
would remain a publicly-traded company, subject to
laws applicable to private, rather than governmentowned companies. This fact cuts against YPF’s
contention that it was somehow acting as a sovereign.
Furthermore, YPF’s refusal to enforce section 7(h)’s
penalties had a direct effect in the United States
because (1) it enabled Argentina to cancel planned
dividend payments, some of which would have been
made to investors based in the United States, and
(2) it precipitated Petersen’s default on its loan obligations and the subsequent foreclosure of Petersen’s
ADRs, which were held by the Bank of New York
Mellon in New York City.
Accordingly, we conclude that Petersen’s claims
against YPF also fall within the “direct-effect clause”
of the FSIA’s commercial activity exception.
* * *
The thrust of defendants’ arguments on appeal is
that Petersen has engaged in a form of artful pleading
that we have previously rejected. They contend that
Petersen has re-characterized Argentina’s expropriation of Repsol’s shares as a commercial act, rather
than a sovereign one, so as to trigger application of the
FSIA’s commercial activity exception. See Garb, 440
F.3d at 588 (“Federal courts have repeatedly rejected
litigants’ attempts to establish subject matter jurisdiction pursuant to . . . FSIA exceptions when their claims
are in essence based on disputed takings of property.”).
Based on our review of the complaint and the record
28a
before us, however, we are satisfied that Petersen is
not challenging the expropriation.
As noted above, Argentina’s expropriation powers
are vast. Indeed, it could have expropriated the
entirety of YPF, some smaller portion of the firm such
as the 25% stake owned by Petersen, or even just the
contractual rights of shareholders to receive tender
offers in accordance with the bylaws. Of course, had
Argentina done any of these things, it would have been
obligated by its own law to compensate Petersen for
“the objective value of the property” it expropriated,
“plus any direct and immediate damages resulting
from expropriation.” App. 187. And we agree that a
lawsuit based on such expropriations would fall
outside of the FSIA’s commercial activity exception.
Argentina, however, did not expropriate anything
from Petersen. To be sure, it did expropriate Repsol’s
51% stake in YPF. But, Petersen does not challenge
that, or any other sovereign act. Instead, Petersen
wants a court to award it the benefit of the bargain
that Argentina and YPF struck with each shareholder
who purchased YPF shares on the open market. Petersen
claims that defendants repudiated that bargain when
they refused to conduct a tender offer in accordance
with YPF’s bylaws, despite having incurred the
obligation to do so by virtue of Argentina’s acquisition
of a controlling stake in the firm. The “gravamen” of
Petersen’s lawsuit is thus the defendants’ repudiation
of a contract that had a direct effect in the United
States. OBB Personenverkehr,136 S. Ct. at 396.
Sovereigns are not immune from such lawsuits under
the FSIA. See Weltover, 504 U.S. at 614-15.
29a
II. The Act of State Doctrine
As noted, we have appellate jurisdiction over the
issue of the defendants’ immunity from suit under the
FSIA under the collateral order doctrine, pursuant to
which the district court’s order denying such immunity
was immediately appealable. See Atlantica Holdings,
813 F.3d at 105. By contrast, the district court’s denial
of defendants’ motions to dismiss under the act of state
doctrine, which were brought pursuant to Federal
Rule of Civil Procedure 12(b)(6), is not immediately
appealable. See Will v. Hallock, 546 U.S. 345, 351
(2006); see also Balintulo v. Daimler AG, 727 F.3d 174,
186 (2d Cir. 2013) (“As a general matter, denials of a
motion to dismiss are not appealable as ‘final decisions’
of the district courts under 28 U.S.C. § 1291.”).
Interlocutory orders that are otherwise non-appealable, however, may be reviewed under 28 U.S.C.
§ 1292(b) if the district court is “of the opinion that [the
relevant] order involves a controlling question of law
as to which there is substantial ground for difference
of opinion and that an immediate appeal from the
order may materially advance the ultimate termination of the litigation.” 28 U.S.C. § 1292(b); see
McDonnell Douglas Fin. Corp. v. Penn. Power & Light
Co., 849 F.2d 761, 764 (2d Cir. 1988). If, as here, the
district court certifies an appeal, the Court of Appeals
may then, “in its discretion, permit an appeal to be
taken from such order.” 28 U.S.C. § 1292(b).
We exercise our discretion not to accept jurisdiction
over this aspect of the appeal. The act of state doctrine
provides an affirmative defense and was raised below
on a motion to dismiss pursuant to Rule 12(b)(6).
Dismissal was warranted only if the doctrine’s applicability was “shown on the face of the complaint.”
Konowaloff v. Metro. Museum of Art, 702 F.3d 140, 146
30a
(2d Cir. 2012); accord Daventree Ltd. v. Republic of
Azerbaijan, 349 F. Supp. 2d 736, 755 (S.D.N.Y. 2004)
(“As a substantive rather than a jurisdictional defense,
the Act of State doctrine is more appropriately raised
in a motion for summary judgment than in a motion to
dismiss.”). As discussed above, the face of Petersen’s
complaint makes clear that it is not challenging
Argentina’s official acts – the expropriation of property
– and the complaint’s allegations that Argentina and
YPF breached their obligations by failing to engage
in a tender offer did not require the district court to
rule on the validity of any of Argentina’s official acts.
At this juncture of the proceedings, the act of state
doctrine does not present the kind of legal question
that normally constitutes a “controlling question of
law.” Whether the act of state doctrine bars Petersen’s
claims is a merits determination that turns on the
facts. In these circumstances, we decline to reach the
issue. Accordingly, we dismiss the portion of this
appeal challenging the district court’s ruling on the
defendants’ act of state defense.
CONCLUSION
For the foregoing reasons, we AFFIRM the district
court’s order holding that Argentina and YPF are not
immune from suit under the FSIA and DISMISS the
portion of this appeal challenging the district court’s
ruling on the defendants’ act of state defense.
31a
WINTER, Circuit Judge, concurring in part and
dissenting in part:
I agree entirely with the excellent discussion and
ruling as to whether FSIA immunizes Argentina and
YPF. I dissent from the disposition of the act-of-state
issue.
Having rejected the Section 1292(b) motion that
we hear an interlocutory appeal – otherwise nonappealable – from the district court’s rejection on the
pleadings of the act-of-state defense, my colleagues’
opinion is quite clear that we lack jurisdiction over the
act-of-state issue. It is less clear in stating that the
reason for rejecting the motion is that the issue
depends on “facts.” The district court ruled that the
facts alleged in the complaint stated a claim that was
not subject to the act-of-state defense. My colleagues’
conclusion that fact-finding is needed to rule on the
issue is a merits decision going to the nature and
contours of the act-of-state defense. Such a conclusion
seems, therefore, inconsistent with the ruling that we
lack jurisdiction over the issue. Because the reasons
we give for rejecting FSIA immunity are that the harm
to plaintiffs was not caused by a sovereign, rather than
commercial, act of the Argentinian state, that portion
of the opinion’s reasoning also calls for a rejection of
the act-of-state defense to the claim as alleged.
A brief review of the relevant procedural history
is in order. The defendants moved to dismiss the
complaint on the basis that the district court lacked
subject matter jurisdiction under the FSIA and that
Petersen’s claims were barred by the act-of-state
doctrine. The district court denied the defendants’
motion on both fronts. The first issue – FSIA immunity –
was immediately appealable under the collateral order
doctrine. Kensington Int’l Ltd. v. Itoua, 505 F.3d 147,
32a
153 (2d Cir. 2007). The rejection of the act-of-state
defense was interlocutory and not immediately appealable. The district court, believing the conditions of
Section 1292(b) had been met, certified the appeal so
that we could decide both issues in tandem. Argentina
and YPF then moved this court to grant leave for
immediate appeal of the act-of-state issue. 2d Cir. Dkt.
Nos. 16-3510, 16-3512. No opposition was filed to these
motions. The motions were referred to a motions
panel, which then referred them to the merits panel –
this panel – so that “[t]hat panel can decide, in the first
instance, whether the act-of-state issue is appropriate
for immediate appeal pursuant to . . . § 1292(b).”
Motion Order, 2d Cir. Dkt. No. 16-3510 (Feb. 14, 2017).
Pursuant to 28 U.S.C. § 1292(b), we have discretion
to allow an appeal to be taken from an order not
otherwise appealable when the district judge states
in writing “that such order [1] involves a controlling
question of law [2] as to which there is substantial
ground for difference of opinion and [3] that an immediate appeal from the order may materially advance
the ultimate termination of the litigation.” (brackets
added). In my view, the established standards under
Section 1292(b) are satisfied.
First, a controlling question of law is present.
Reversing the district court’s holding that the act-ofstate doctrine “does not preclude inquiry into contractual obligations related to or arising out of [acts of
expropriation],” would result in dismissal of the case.
See Klinghoffer v. S.N.C. Achille Lauro, 921 F.2d 21,
24 (2d Cir. 1990) (“[I]t is clear that a question of law is
‘controlling’ if reversal of the district court’s order
would terminate the action.”); In re Duplan Corp.,
591 F.2d 139, 148 n.11 (2d Cir. 1978).
33a
Second, there is substantial ground for difference of
opinion; in particular, whether Argentina’s obligation
under the bylaws to make a tender offer was independent of Argentina’s sovereign acts of intervention and
expropriation.
Finally, an immediate appeal would materially
advance the ultimate termination of the case. Judicial
efficiency would be served by deciding both this issue
and the FSIA question simultaneously. My colleagues’
conclusion as to the lack of immunity under FSIA is
that the facts alleged in the complaint do not state a
claim that implicates a sovereign, rather than commercial, act of the Argentinian state. This conclusion
resolves both the FSIA issue and the act-of-state
defense. Only a paragraph, if that, would be necessary
to explain an affirmance of the certified appeal if we
took jurisdiction. We need say only that assertion of an
act-of-state defense requires that a sovereign, rather
than commercial, act has caused the harm to the
plaintiffs, and no such act occurred here.
Instead, my colleagues deny the motion, hold that
we lack appellate jurisdiction, and explain these rulings
on the grounds that unspecified “facts” are needed to
adjudicate the act-of-state defense. While the reason
given suggests a remand for further proceedings, my
colleagues’ jurisdictional ruling leaves the dismissal of
the act-of-state defense in place and governed by the
law of the case doctrine in the district court. See Am.
Hotel Int’l Grp., Inc. v. OneBeacon Ins. Co., 611 F.
Supp. 2d 373, 378-79 (S.D.N.Y. 2009) aff’d, 374 F.
App’x 71 (2d Cir. 2010).
I therefore concur in the affirmance on the FSIA
issue. I dissent from the denial of the Section 1292(b)
motion and would affirm the dismissal of the act-ofstate defense to the claim alleged in the complaint.
34a
APPENDIX B
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
[Filed 09/09/16]
————
15-cv-2739 (LAP)
————
PETERSEN ENERGÍA INVERSORA, S.A.U.,
AND PETERSEN ENERGÍA, S.A.U.,
Plaintiffs,
v.
ARGENTINE REPUBLIC and YPF S.A.,
Defendants.
————
OPINION & ORDER
LORETTA A. PRESKA, United States District Judge:
Plaintiffs Petersen Energía Inversora, S.A.U. and
Petersen Energía, S.A.U. (collectively, “Petersen” or
“Plaintiffs”), bring this action against the Republic of
Argentina (“Argentina”) and YPF S.A. (“YPF”) (collectively, “Defendants”), alleging that the Defendants
breached obligations arising out of YPF’s bylaws upon
Argentina’s expropriation of YPF shares. Defendants
move to dismiss the action on various grounds,
including: lack of subject matter jurisdiction and personal jurisdiction, the act of state doctrine, violation of
New York State champerty law, lack of standing, the
doctrine of forum non conveniens, and failure to state
a claim. On July 20, 2016, the Court held oral argument on Defendants’ motions. For the reasons stated
35a
below, Defendants’ motions (dkt. nos. 23, 32) are
granted in part and denied in part.
I. BACKGROUND1
Plaintiffs are limited-liability companies organized
under the laws of the Kingdom of Spain. (Complaint,
dated Apr. 8, 2015 [dkt. no. 1] (“Compl.”), ¶ 6.)
Defendant Argentina is the controlling shareholder of
Defendant YPF, a publicly-held limited liability stock
company organized under the laws of Argentina.
(Compl. ¶¶ 7-8.)
A. Privatization
Until 1993, YPF was an entirely state-owned and
state-run enterprise. (Id. ¶¶ 11-13.) In the early 1990s,
Argentina decided to privatize YPF and, eventually,
to sell its shares in an initial public offering (“IPO”).
(Id. ¶¶ 12-13.) As part of this privatization process,
Argentina adopted certain provisions in YPF’s Bylaws
(the “Bylaws”), which took effect in May 1993 and have
remained in effect since that date. (Id. ¶ 16.)
Particularly relevant to the instant action are
Sections 7 and 28 of the Bylaws. Section 7(d) forbids
the acquisition of YPF shares if it would cause the
acquirer to own more than a stated percentage of
YPF’s capital stock or Class D shares, unless the
acquirer complies with Sections 7(e) and (f) of the
Bylaws. (Bylaws § 7(d).) These subsections require
that the acquirer arrange for a takeover bid of all other
YPF shares at a price calculated as provided therein
and that a takeover bid must be conducted in accordance with certain procedures. (Id. §§ 7(e)(ii), 7(f)(v).)
1
The following facts, which are undisputed except where
otherwise indicated, are drawn from the Complaint and the
parties’ submissions on these motions.
36a
These procedures include publication of notice in
New York City and compliance with Securities and
Exchange Commission (“SEC”) and New York Stock
Exchange (“NYSE”) rules, such as SEC filings detailing the tender offer and delivery of tender offer
materials to the NYSE. (Id. § 7(f); Compl. ¶¶ 23, 44.)
Section 28 of the Bylaws extends the takeover bid
requirements of Sections 7(e) and (f) to “all acquisitions made by the National Government, whether
directly or indirectly, by any means or instrument, of
shares or securities of [YPF]” if, as a consequence of
such acquisition, “the National Government becomes
the owner, or exercises the control of, the shares of
[YPF] which, in addition to the prior holdings thereof
of any class of shares, represent, in the aggregate, at
least 49% of the capital stock.” (Id. § 28(A).)
The Bylaws further provide that, if shares are
acquired in breach of the requirements for a takeover
bid, the holder of those shares shall be deprived of
voting, dividends, and other rights corresponding to
such shares. (Id. §§ 7(h).) These penalties are extended
to acquisitions made by Argentina. (Id. § 28(C)).
After adopting these provisions in YPF’s Bylaws, on
June 29, 1993, Argentina and YPF launched an IPO of
YPF’s Class D shares, which were offered on multiple
stock exchanges, including the NYSE. (Compl. ¶ 13.)
The largest portion of the public offering was in the
United States, which generated proceeds of more than
$1.1 billion to Argentina as a selling shareholder. (Id.)
The offering was registered through registration
statements filed with the SEC and effectuated by
means of a United States IPO prospectus. (Id.) The
prospectus described the tender offer requirement and
its applicability to acquisitions made by Argentina,
noting that,
37a
Under the Company’s By-laws, in order to
acquire a majority of the Company’s capital
stock or a majority of the Class D shares,
the Argentine Government first would be
required to make a cash tender offer to all
holders of Class D shares on terms and
conditions specified in the By-laws.
(Id. ¶ 24.)
Following the IPO, YPF was owned, managed, and
controlled by private shareholders. (Id. ¶ 7.) YPF’s
Class D shares were listed and traded in Buenos Aires
and in New York as American Depositary Receipts
(“ADRs”) issued by the Bank of New York Mellon, a
New York banking corporation, from its offices in New
York City. (Id. ¶¶ 1, 8, 14.) Argentina remained a
minority, non-controlling shareholder and continued
to participate in YPF’s management through a designated representative on YPF’s Board of Directors.
(Id. ¶¶ 7, 26.)
Between 2008 and 2011, Petersen purchased
NYSE-listed and SEC-registered shares of YPF stock
amounting to just over 25% of the company. (Id. ¶ 6.)
These purchases were financed by two sets of loans,
one by a group of financial institutions and the other
by Repsol YPF, S.A. (“Repsol”), YPF’s majority shareholder at the time. (Id.) Both of these loans were
secured in part by Petersen’s YPF shares. (Id.)
Because Petersen intended to service the interest
under those loans using the dividend payments associated with the acquired stock (id.), Repsol and Petersen
entered into a shareholder’s agreement in which
Repsol agreed to cause YPF to distribute dividends
twice per year, amounting to 90% of YPF’s profits, and
to cause YPF to pay a single “extraordinary dividend”
of $850,000 (id. ¶ 30). Argentina and YPF were aware
38a
of the agreement, which YPF subsequently described
in an SEC filing, and participated in the agreement’s
implementation. (Id. ¶ 30.)
B. Intervention and Expropriation
In late January 2012, the Argentine press began
reporting that Argentina was considering nationalizing YPF. (Id. ¶ 33.) In the month following this initial
report, the price of YPF’s ADRs dropped by over 20%
(id.) and, over the course of a few months, the price
of YPF shares was cut nearly in half (id. ¶¶ 33-34).
During this period, Argentine officials made public
statements acknowledging the decline in share price
and linking the decline to the public good. (Id. ¶ 34.)
On April 16, 2012, Argentina announced legislation
that would expropriate 51% of YPF’s Class D shares.
(Id. ¶ 35.) Also on April 16, 2012, by Emergency Decree
No. 530/12, Argentina declared that it would take
immediate and complete control of YPF by appointing
an “Intervenor” vested with all of the powers of YPF’s
board of directors and president. (Id.) That same day,
Argentine government officials entered YPF’s headquarters, seized control of YPF facilities, and began
exercising control of YPF’s operations. (Id. ¶ 36.)
Certain executives, including Sebastian Eskanazi,
then-CEO of YPF and an owner of Petersen, were
removed from the premises. (Id.)
On April 17, 2012, Deputy Economy Minister Axel
Kicillof, who was appointed Vice-Intervenor in YPF by
Emergency Decree No. 532/12, delivered a speech
before the Argentine Senate regarding Argentina’s
takeover of YPF, in which he declared that Argentina
and YPF did not intend to issue a tender offer.
(Id. ¶ 38.)
39a
On May 3, 2012, the Argentine Legislature passed
Law 26,741, signed May 4, 2012 and effective May 7,
2012, declaring a public need for expropriation of 51%
of YPF’s shares, which were then owned by Repsol.
(Id. ¶¶ 35, 40; Arg.’s Mem. of Law in Supp. of Mot. to
Dismiss, dated Sept. 8, 2015 [dkt. no. 28] (“Arg. Mem.
of Law”), at 6.) Article 9 of Law 26,741 granted the
National Executive office authority to “exercise all
the political rights associated with the shares subject
to expropriation until the transfer of political and
economic rights is completed.” (Decl. of Martin Domb,
dated Sept. 8, 2015 [dkt. no. 27], (“Domb Decl.”) Ex. 12
(“Law 26,741”) at Art. 9.) According to Argentina, the
expropriation was completed in May 2014, at which
time Argentina formally acquired and paid Repsol for
its shares. (Arg. Mem. of Law [dkt. no. 28] at 6-7.)
C. Period Following Intervention
The value of YPF shares decreased substantially
during the period following the Emergency Decree.
(Compl. ¶¶ 6, 37.) On April 23, 2012, YPF did not make
an expected dividend distribution to shareholders
following the Intervenor’s cancellation of a meeting
of the YPF Board of Directors. (Id. ¶ 39.) YPF did
not hold a shareholder meeting until June 4, 2012
(Def. YPF’s Mem. of Law in Supp. of its Mot. to Dismiss [dkt. no. 33] (“YPF Mem. of Law”), at 24) and did
not issue a dividend until November 2012 (Compl.
¶ 39). Argentina voted in the June 4, 2012 meeting.
(YPF Mem. of Law [dkt. no. 33] at 24.)
In May 2012, after Petersen defaulted on its loan
obligations, Petersen’s institutional lenders foreclosed
on Petersen’s Class D shares of YPF. (Compl. ¶¶ 6, 42.)
In July 2012, Petersen entered into insolvency proceedings in Spain, and it is currently undergoing liquidation in an effort to satisfy its outstanding creditor
40a
claims. (Id. ¶¶ 6, 46.) In November 2014, a Spanish
Bankruptcy Court approved a plan to liquidate
Petersen. (Id. ¶ 46.) That plan contemplated sale of
indemnification rights for €15 million or for a lower
price combined with a percentage of the total amount
obtained from a lawsuit against Argentina. (Domb
Decl., Ex. 15 pt. 1 at 11-12.)
In accordance with the liquidation plan, Petersen’s
bankruptcy administrator entered into an agreement
on behalf of Petersen with Prospect Investments LLC
(“Prospect”), a Delaware limited liability company and
a wholly owned subsidiary of Burford Capital LLC
(“Burford”), to provide financing for Petersen’s claims
in the instant case. (Compl. ¶ 47.) The agreement
stated, in relevant part, that “nothing in this Agreement shall be interpreted to constitute an assignment
or transfer by the Counterparty of the Claims.” (Domb
Decl. Ex. 16 pt. 1 at ¶ 2.2.) Under the agreement,
Prospect made an initial, non-refundable payment to
Petersen in the amount of C15,101,000 (id. at ¶ 2.1)
and agreed Petersen would receive 30% of the total
amount obtained in the lawsuit (id. at ¶ 3.1). Petersen
granted Prospect an irrevocable power of attorney in
this matter (id. at annex III), with Prospect to fund all
litigation (id. at ¶ 2.3), and Petersen to “not take
actions in connection with the Claims absent the
direction of” Prospect (id.) and to “reasonably defer” to
Prospect “in selecting the course of action that is best
for” both parties (id. at ¶ 4.3(c)).
Plaintiffs are represented in this matter by King
& Spalding LLP (“K&S”). According to Plaintiffs, on
September 14, 2015, Argentina announced the initiation of criminal proceedings against K&S and Burford,
alleging that they had defrauded Argentina by participating in an arbitration on behalf of international
41a
investors whose interest in two Argentine airlines was
expropriated by Argentina. (Pl’s Mem. of Law in Opp’n
to Arg.’s Mot. to Dismiss, dated Oct. 19, 2015 [dkt. no.
44] (“P1. Opp’n to Arg.”), at 2, 9; see also Decl. of Derek
T. Ho, dated Oct. 19, 2015 [dkt. no. 45], Ex. A.)
Argentina’s Attorney General indicated that the
instant case raised similar concerns. (Id.) At oral argument on Defendants’ motions to dismiss, Argentina
asserted that “whatever investigation may be taking
place is not public . . . What I have been told is that
the attorney general has never included King &
Spalding in her allegations” and that “[n]o charges
have been brought . . . At most, there was an accusation.” (Tr. of Oral Arg., dated July 20, 2016 (“Tr.”),
at 59:10-14, 61:1-2.) Plaintiffs responded that K&S
staff had attended a proceeding in Argentina where
“[n]ames were taken down, and every one of those
people, including paralegals . . . were told they were
the subject of criminal investigation . . . in Argentina.”
(Id. at 61:24-62:2.)
II. DISCUSSION
Argentina moves for an order dismissing the claims
alleged against it (1) pursuant to Fed. R. of Civ. P.
(“Rule”) 12(b) (1) and the Foreign Sovereign Immunities Act (“FSIA”), 28 U.S.C. §§ 1602-1611, for lack of
subject-matter jurisdiction, and accordingly, pursuant
to Fed. R. Civ. P. (“Rule”) 12(b)(2) and the FSIA, for
lack of personal jurisdiction; (2) under the act of state
doctrine; (3) on the ground that this action violates
New York’s champerty statute, N.Y. Judiciary Law
§ 489; (4) under the doctrine of forum non conveniens;
and (5) pursuant to Fed. R. Civ. P. (“Rule”) 12(b)(6) for
failure to state a claim.
YPF moves for an order dismissing the claims
alleged against it (1) pursuant to Rule 12(b)(1) and the
42a
FSIA; (2) under the act of state doctrine; (3) on the
ground that Plaintiffs lack standing prior to recognition of the Spanish bankruptcy proceeding in United
States courts under Chapter 15 of the Bankruptcy
Code; and (4) pursuant to Rule 12(b)(6) for failure to
state a claim.
A. FSIA
“The FSIA is the sole source for subject matter
jurisdiction over any action against a foreign state.”
Kensington Int’l Ltd. v. Itoua, 505 F.3d 147, 153 (2d
Cir. 2007) (quoting Cabiri v. Gov’t of the Republic of
Ghana, 165 F.3d 193, 196 (2d Cir. 1999)) (internal
quotation marks omitted). Under the FSIA, a foreign
state2 is immune from the jurisdiction of the courts of
the United States unless one of several statutorily
defined exceptions applies. See Republic of Argentina
v. Weltover, Inc., 504 U.S. 607, 610-11 (1992); see also
Verlinden B.V. v. Cent. Bank of Nigeria, 461 U.S. 480,
485 n.5 (1983) (“[I]f none of the exceptions to sovereign
immunity set forth in the Act applies, the District
Court lacks both statutory subject matter jurisdiction
and personal jurisdiction.”).
In deciding a challenge to jurisdiction under the
FSIA, a “court must look at the substance of the
allegations to determine whether one of the exceptions
to the FSIA’s general exclusion of jurisdiction over
foreign sovereigns applies.” Robinson v. Gov’t of
2
For the purposes of the FSIA, a “foreign state” includes “a
political subdivision of a foreign state or an agency or instrumentality of a foreign state.” Kensington, 505 F.3d at 153 (2d Cir.
2007) (citing 28 U.S.C. § 1603(a)). “Instrumentality status is
determined at the time of the filing of the complaint.” Dole Food
Co. v. Patrickson, 538 U.S. 468, 480 (2003). Plaintiffs do not
dispute that Defendants are foreign states within the meaning of
the FSIA. (Compl. ¶¶ 7-8.)
43a
Malaysia, 269 F.3d 133, 140 (2d Cir. 2001) (internal
quotation marks and citation omitted). In doing so, the
court “must review the pleadings and any evidence
before it . . . including affidavits” in order to resolve
factual disputes. Id. at 140-41 (citation omitted).
Plaintiffs contend that this action falls within the
FSIA’s commercial-activity exception, which provides
that a foreign state is not immune from suit in any
case:
[I]n which the action is based [1] upon a
commercial activity carried on in the United
States by the foreign state; or [2] upon an act
performed in the United States in connection
with a commercial activity of the foreign state
elsewhere; or [3] upon an act outside the
territory of the United States in connection
with a commercial activity of the foreign state
elsewhere and that act causes a direct effect
in the United States.
§ 1605(a)(2). This exception applies if the plaintiff
shows that any one of these three conditions is met.
See Kensington, 505 F.3d at 154. In the instant case,
Plaintiffs rely on the first and third clauses to argue
that Defendants are not immune from this Court’s
jurisdiction. (See Pl. Opp’n to Arg. [dkt. no. 44] at 1022.) Because this Court agrees that the third clause
applies to the instant case, Plaintiffs’ arguments
regarding the first clause are not addressed here.
Under the third clause of the commercial-activity
exception, this Court has jurisdiction if the claim is
“(1) ‘based . . . upon an act outside the territory of
the United States’; (2) that was taken ‘in connection
with a commercial activity’ of Argentina outside this
country; and (3) that ‘cause[d] a direct effect in the
44a
United States.’” Weltover, 504 U.S. at 611 (alterations
in original) (quoting 28 U.S.C. § 1605(a)(2)). All three
factors are met in the instant case.
1. Plaintiffs’ Claims are Based Upon Acts
Outside of the United States
First, Plaintiffs’ claims are based on acts outside
the territory of the United States. See 28 U.S.C.
§ 1605(a)(2). “As a threshold step in assessing plaintiffs’ reliance on the ‘commercial activity’ exception, [a
court] must identify the act of the foreign sovereign
State that serves as the basis for plaintiffs’ claims.”
Garb v. Republic of Poland, 440 F.3d 579, 586 (2d Cir.
2006). A claim “is ‘based upon’ the ‘particular conduct’
that constitutes the ‘gravamen’ of the suit.” Atlantica
Holdings v. Sovereign Wealth Fund Samruk-Kazyna
JSC, 813 F.3d 98, 107 (2d Cir. 2016) (quoting OBB
Personenverkehr AG v. Sachs, 136 S.Ct. 390, 396
(2015)).
Defendants argue that the instant claim is “based
upon” Argentina’s sovereign acts of intervention and
expropriation. (Arg. Mem. of Law [dkt. no. 28] at 1114; YPF Mem. of Law [dkt. no. 33] at 7-8.) However,
the particular conduct that constitutes the gravamen
of the Complaint is Argentina’s failure to issue a
tender offer and YPF’s failure to enforce the tender
offer requirements that are contained in the Bylaws.
The Complaint alleges a breach of contract 3 and
concerns the effects of sovereign acts on commercial
obligations rather than the sovereign acts themselves.
3
“[A] company’s . . . bylaws in substance are a contract
between the corporation and its shareholders and among the
shareholders.” M+J Savitt, Inc. v. Savitt, No. 08 CIV. 8535 (DLC),
2009 WL 691278, at *9 (S.D.N.Y. Mar. 17, 2009).
45a
Additionally, as is required under the relevant FSIA
exception, the disputed acts took place outside the
United States. In the FSIA context, “[t]he decision by
a foreign sovereign not to perform [a contractual
obligation] is itself an act . . . in the foreign state.”
Guirlando v. T.C. Ziraat Bankasi A.S., 602 F.3d 69, 76
(2d Cir. 2010) (discussing immunity under third clause
of commercial activity exception). Accordingly, the
decisions not to make a tender offer or enforce the
tender offer requirements occurred in Argentina.
Further, Argentina exercised shareholder rights
associated with its shares, including voting, which
took place in Argentina. Plaintiffs’ claim, therefore, is
‘based . . . upon an act outside the territory of the
United States.” See 28 U.S.C. § 1605(a)(2).
2. Defendants’ Acts Were Taken in
Connection with Commercial Activity
Second, these acts were taken in connection with
commercial activity. See id. An act “in connection with
commercial activity” is one with “a substantive
connection or a causal link” with commercial activity.
Hanil Bank v. PT. Bank Negara Indon., 148 F.3d 127,
131 (2d Cir. 1998) (internal quotation marks omitted).
The FSIA defines “commercial activity” as “either a
regular course of commercial conduct or a particular
commercial transaction or act,” with the “commercial
character” of such activity to be determined by
reference to its “nature . . . rather than by reference
to its purpose.” 28 U.S.C. § 1603(d). Under the FSIA,
a foreign state engages in commercial activity “where
it acts in the manner of a private player within
the market” and “exercises only those powers that can
also be exercised by private citizens, as distinct from
those powers peculiar to sovereigns.” Saudi Arabia v.
46a
Nelson, 507 U.S. 349, 360 (1993) (internal quotation
marks and citation omitted).
Applying this standard, entering into or repudiating
a contract fails within the commercial activity exception. See De Csepel v. Republic of Hungary, 714 F.3d
591, 599 (D.C. Cir. 2013) (“[A] foreign state’s repudiation of a contract is precisely the type of activity in
which a private player within the market engages.”
(internal quotation marks omitted)); see also Guevara
v. Republic of Peru, 468 F.3d 1289, 1229 (11th Cir.
2006) (noting that FSIA permits litigants to “use the
courts of this country to compel [a foreign state] to
keep its contractual promise” where “[t]he underlying
activity at issue . . . is commercial in nature and of
the type negotiable among private parties.” (internal
quotation marks omitted)).
Further, although “[e]xpropriation is a decidedly
sovereign-rather than commercial-activity,” Garb, 440
F.3d at 586, claims closely related to expropriation
may nonetheless be based on commercial activity. For
example, claims arising out of subsequent commercial
activity involving expropriated property may fall
within the commercial activity exception. See Smith
Rocke Ltd. v. Republica Bolivariana de Venezuela, No.
12 CV. 7316 LGS, 2014 WL 288705, at *5 (S.D.N.Y.
Jan. 27, 2014) (“If an expropriated bank, operated by
a sovereign, repudiated loans in its function as an
operating bank . . . the commercial activity exception
would apply, as the claim would be based on the
commercial activity, and relief could be granted solely
upon the breach of contract.”). Similarly, claims arising out of a contract that is conditioned on a sovereign
action may fall within the commercial-activity exception. See Guevara, 468 F.3d at 1300 (noting contract
for purchase of bullets conditioned on declaration of
47a
war falls within commercial activity exception because
“the condition precedent of a declaration of war speaks
to the purpose or motivation for buying the bullets, but
it does not change the commercial nature of the acts of
purchasing and paying for them”).
In this case, once Argentina expropriated the YPF
shares, it assumed certain contractual obligations
in the Bylaws. Section 28 of the Bylaws state that
“all acquisitions made by the National Government,
whether directly or indirectly, by any means or
instrument, of shares or securities of [YPF]” that result
in Argentina’s acquiring a specified percentage of
shares must comply with the takeover bid requirements. (Bylaws § 28(A) (emphasis added).) By entering
into and repudiating contractual obligations—even
ones acquired by sovereign acts—Defendants acted as
ordinary market players and engaged in commercial
activity. See Guevara, 468 F.3d at 1300. Expropriation
is merely the method by which Argentina acquired the
shares (a method fully anticipated by Section 28 of the
Bylaws). The commercial contractual obligations at
issue here could just as easily have been triggered by
Argentina’s acquisition of a controlling stake in YPF
in open-market transactions. Thus, the FSIA permits
this Court to inquire into the effects of sovereign acts
on otherwise commercial obligations.
3. Defendants’ Acts Caused a Direct Effect
in the United States
Third, Defendants’ acts caused a “direct effect in the
United States.” See 28 U.S.C. § 1605(a)(2). “In order to
be direct, an effect need not be substantial or foreseeable, but rather must simply follow as an immediate
consequence of the defendant’s . . . activity.” Atlantica
Holdings, 813 F.3d at 108 (quoting Weltover, 504 U.S.
at 618) (internal quotation marks omitted)); see also
48a
I.T. Consultants, Inc. v. Republic of Pakistan, 351 F.3d
1184, 1190 (D.C. Cir. 2003) (Roberts, C.J.) (“Neither
Weltover nor the subsequent case law of this circuit
suggests that only ‘important’ contractual terms may
give rise to a direct effect.”). A consequence is
“immediate” where there is no “intervening element”
“between the foreign state’s commercial activity and
the effect.” Guirlando, 602 F.3d at 74-75 (quoting
Weltover 941 F.2d at 152)).
As is relevant here, “courts have consistently held
that, in contract cases, a breach of a contractual duty
causes a direct effect in the United States sufficient to
confer FSIA jurisdiction so long as the United States
is the place of performance for the breached duty.”
Atlantica Holdings, 813 F.3d at 108-09. There is a
direct effect on the place of performance even where
the plaintiffs are all foreign corporations, see Weltover,
504 U.S. at 619, and where effects are also felt
elsewhere, see Hanil Bank, 148 F.3d at 133 (noting
United States “need not be the location where the most
direct effect is felt, simply a direct effect” to confer
FSIA jurisdiction).
Here, the United States was the place of performance for certain contractual obligations under the
Bylaws required to implement a tender offer, including the publication of the tender offer notices in
New York, SEC filings detailing the tender offer, the
delivery of tender offer materials to the NYSE, and,
if demanded, the purchase of shares held in the
United States. (See Compl. ¶¶ 23, 44; Bylaws § 7(f).)
Defendants’ failure to perform these contractual obligations necessarily had an immediate and direct effect
in the United States. See Weltover, 504 U.S. at 619
(“Because New York was thus the place of perfor-
49a
mance for Argentina’s ultimate contractual obligations, the rescheduling of those obligations necessarily
had a ‘direct effect’ in the United States.”)
Accordingly, for the reasons stated above, Plaintiffs’
claims fall within the third clause of the FSIA’s commercial activity exception, and, therefore, Defendants’
motion to dismiss on the basis of lack of subject matter
and personal jurisdiction is denied.
B. Act of State Doctrine
Defendants also argue that the act of state doctrine
bars consideration of Plaintiffs’ claims. (Arg. Mem. of
Law [dkt. no. 28] at 18-21; YPF Mem. of Law [dkt. no.
33] at 13-15.) Under this doctrine, “the courts of one
state will not question the validity of public acts (acts
jure imperii) performed by other sovereigns within
their own borders.” Republic of Austria v. Altmann,
541 U.S. 677, 700 (2004); see also Allied Bank Int’l v.
Banco Credito Agricola de Cartago, 757 F.2d 516, 521
(2d Cir. 1985) (“If adjudication would embarrass or
hinder the executive in the realm of foreign relations,
the court should refrain from inquiring into the
validity of the foreign state’s act.”).
Unlike an assertion of foreign immunity, the act of
state doctrine is not a jurisdictional defense but rather
a substantive defense on the merits that “requires
courts to accept, as a rule for their decision, that the
acts of foreign sovereigns taken within the foreign
borders are valid.” Daventree Ltd. v. Republic of
Azerbaijan, 349 F. Supp. 2d 736, 754 (S.D.N.Y. 2004),
opinion clarified on denial of reconsideration, No. 02
CIV. 6356 (SHS), 2005 WL 2585227 (S.D.N.Y. Oct. 13,
2005). “Although . . . the act of state doctrine is an
affirmative defense as to which the [defendant] ha[s]
the burden, a court may properly grant a motion
50a
to dismiss on the basis of that doctrine when its
applicability is shown on the face of the complaint.”
Konowaloff v. Metro. Museum of Art, 702 F.3d 140, 146
(2d Cir. 2012); Ramirez de Arellano v. Weinberger, 745
F.2d 1500, 1534 (D.C. Cir. 1984) (Before granting a
motion to dismiss based on the act of state doctrine,
the court must be satisfied that there is no set of facts
favorable to the plaintiffs and suggested by the
complaint which could fail to establish the occurrence
of an act of state”).
Act of state issues arise when the outcome of a case
turns upon a court’s decision regarding the validity of
a public act of a foreign sovereign within its territory.
See W.S. Kirkpatrick & Co. v. Envtl. Tectonics Corp.,
Int’l, 493 U.S. 400, 406 (1990) (“Act of state issues only
arise when a court must decide—that is, when the
outcome of the case turns upon—the effect of official
action by a foreign sovereign.”). This doctrine may be
applied even if the effects of the foreign sovereign’s
acts within its own territory are also felt in the United
States. See Spectrum Stores, Inc. v. Citgo Petroleum
Corp., 632 F.3d 938, 955 (5th Cir. 2011). The doctrine
does not, however, apply to the purely commercial
conduct of a foreign sovereign. See Alfred Dunhill of
London, Inc. v. Republic of Cuba, 425 U.S. 682, 695
(1976) (“[T]he concept of an act of state should not
be extended to include the repudiation of a purely
commercial obligation owed by a foreign sovereign
or by one of its commercial instrumentalities.”). It
also permits adjudication of cases concerning the
commercial consequences of sovereign action. See, e.g.,
Lyondell-Citgo Ref., LP v. Petroleos de Venezuela, S.A.,
No. 02 CIV. 0795 (CBM), 2003 WL 21878798, at *8
(S.D.N.Y. Aug. 8, 2003) (finding act of state doctrine
inapplicable in action concerning whether an official
51a
act constitutes force majeure under the terms of a
contract).
Defendants rely on Braka v. Bancomer, S.N.C., 762
F.2d 222 (2d Cir. 1985), to argue that the act of state
doctrine bars judicial review of contractual claims
arising out of a foreign sovereign’s expropriation
within its own territory. (See YPF Mem. of Law [dkt.
no. 33] at 13-15; Arg. Mem. of Law [dkt. no. 28]
at 19-21.) In Braka, several United States citizens
purchased peso- and dollar-denominated certificates
of deposits (“CDs”) from a private Mexican bank. 726
F.2d at 223. After these purchases were made, the
Mexican government issued a series of decrees,
nationalizing Mexico’s banks and mandating that all
deposits be repaid in Mexican pesos at a specified rate
of exchange. Id. The purchasers of the CDs filed suit
against the Mexican bank in federal district court in
New York, alleging breach of contract and seeking
compensation for damages that resulted from the
bank’s payment of their CDs at the exchange rates
prescribed by the Mexican government instead of at
the market exchange rate. Id. The Court of Appeals
held that the act of state doctrine barred Plaintiffs’
claims because “the situs of defendant’s obligation
existed wholly within the boundaries of the foreign
sovereign” and, “[w]ere we to issue the order
[plaintiffs] seek, we would find ourselves directing a
state-owned entity to violate its own national law with
respect to an obligation wholly controlled by Mexican
law.” Id. at 225. This case is inapposite to the instant
action, however, because Defendants have not shown
that performance of the alleged obligations would
constitute a violation of Argentine law.
Indeed, as described earlier, the outcome of this case
does not turn on the validity of Argentina’s official acts
52a
but rather on the operation of YPF’s Bylaws in light
of those acts. For the following reasons, it does not
appear from the face of the Complaint that Defendants’ failure to comply with or enforce those Bylaws
either constituted an official act or was compelled by
an official act. See Konowaloff, 702 F.3d at 146.
First, the expropriation and intervention laws did
not explicitly preclude tendering for shares. Law
26,741 stated a public need to expropriate 51% of YPF
shares. (Law 26,741 [dkt. no. 27-121] at Art. 7.) The law
did not address the acquisition of additional shares
in the marketplace, including by tender offer. (Id.)
Accordingly, the tender offer provisions of Bylaws
§§ 7(e), (f) and 28 are not necessarily inconsistent with
the sovereign act of expropriation.
Second, the expropriation law provided that
Argentina would “exercise all political rights associated with the shares subject to expropriation” until the
transfer of rights was completed. (Id. at Art. 9.) This
provision placed Argentina in the position of Repsol
with respect to the shares subject to expropriation,
leaving commercial rights and obligations intact,
including Bylaw § 7(h), which prohibited exercise of
certain rights associated with shares acquired in
breach of the tender offer requirement. Therefore, it
does not appear from the face of the Complaint that
Bylaw § 7(h) was inconsistent with Argentina’s sovereign acts.
Accordingly, performance under the contract by
both Argentina and YPF does not appear to be
inconsistent with Argentina’s official actions, and
therefore the outcome of this action does not “turn on”
a determination regarding the validity of an official
act. Although the act of state doctrine requires that
this Court proceed under the assumption that the
53a
intervention and expropriation in Argentina were
valid acts, it does not preclude inquiry into contractual
obligations related to or arising out of those acts.
Because this assumption of validity does not compel a
finding for the Defendants, and because the Court
does not have to inquire into the validity of the sovereign acts of intervention and expropriation, dismissal
under the act of state doctrine is not warranted. Thus,
Defendants’ motion to dismiss on this ground is
denied.
C. Identity of Party Bringing Suit in this Action
Although the two Petersen entities are the named
plaintiffs in this action, a factual dispute exists concerning whether the action is brought on Petersen’s
behalf by its bankruptcy receiver or whether these
claims have been assigned to Prospect. If the suit
is brought by Prospect, Argentina argues the claim
should be dismissed for violation of the New York
champerty statute (see Arg. Mem. of Law [dkt. no.
28] at 22-25); if brought by Petersen’s receiver, YPF
argues the receiver lacks standing under Chapter 15
of the United States Bankruptcy Code (see YPF Mem.
of Law [dkt. no. 33] at 15-18).
1. New York Champerty Statute
Although Petersen is the named Plaintiff in the
instant action, Argentina claims that Petersen’s
receiver sold its interest in this lawsuit to Prospect
and that the suit should be dismissed because this
arrangement violates New York’s champerty statute.
(Arg. Mem. of Law [dkt. no. 28] at 22-25.) Petersen, in
turn, disputes the existence of an assignment and
argues, in the alternative, that such an assignment
would fall within an exception to the statute. (Pl.
Opp’n to Arg. [dkt. no. 44] at 25-28.) As is explained
54a
below, Argentina’s motion to dismiss on this basis is
denied.
Under New York’s champerty statute, it is prohibited to “solicit, buy or take an assignment of . . .
[a] thing in action, or any claim or demand, with the
intent and for the purpose of bringing an action or
proceeding thereon,” with the exception that “things in
action may be solicited, bought, or assignment thereof
taken, from any . . . receiver in bankruptcy.” N.Y.
Judiciary Law § 489(1). A claim acquired in violation
of this statute may not be enforced by the assignee.
See Elliott Associates, L.P. v. Republic of Peru, 948
F. Supp. 1203, 1208 (S.D.N.Y. 1996). Champerty is an
affirmative defense, and a motion to dismiss will be
granted on this basis only if the facts establishing
the defense are shown in the complaint, documents
attached to the complaint, and matters of which
the Court may take judicial notice. See CIBC Bank
& Trust Co. (Cayman) v. Banco Cent. do Brasil, 886
F. Supp. 1105, 1108 (S.D.N.Y. 1995).
The champerty law is intended to “prevent[] the
strife, discord and harassment that would be likely to
ensue from permitting attorneys and corporations to
purchase claims for the purpose of bringing actions
thereon.” Trust For the Certificate Holders of Merrill
Lynch Mortgage Inv’rs, Inc. v. Love Funding Corp., 918
N.E.2d 889, 893 (2009) (“Love Funding”) (internal
quotation marks omitted). Accordingly, “violation of
Section 489 turns on whether ‘the primary purpose of
the purchase [was] . . . to bring a suit,’ or whether ‘the
intent to bring a suit [was] . . . merely incidental and
contingent.’” Elliott Associates, L.P. v. Banco de la
Nacion, 194 F.3d 363, 378 (2d Cir. 1999) (quoting
Moses v. McDivitt, 88 N.Y. 62, 65 (1882)). “[T]he
champerty statute does not apply when the purpose of
55a
an assignment is the collection of a legitimate claim.”
Love Funding, 918 N.E.2d at 895. Although this
inquiry into intent is “decidedly fact-specific,” courts
have granted motions to dismiss on the basis of assignments violating the New York champerty statute.
See CIBC Bank & Trust Co. (Cayman), 886 F. Supp.
at 1111.
Here, the facts sufficient to establish a champertous
assignment are not clear from the fa
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