Ajdler v. Province Mendoza

• Decision Date: 21 March 2019
• Docket Number: No. 18,18
• Citation: 99 N.Y.S.3d 749,33 N.Y.3d 120,123 N.E.3d 233
• Parties: Moshe Marcel AJDLER, Appellant, v. PROVINCE OF MENDOZA, a Province of the Republic of Argentina, Respondent.
• Court: New York Court of Appeals Court of Appeals

33 N.Y.3d 120

123 N.E.3d 233

99 N.Y.S.3d 749

Moshe Marcel AJDLER, Appellant,

v.PROVINCE OF MENDOZA, a Province of the Republic of Argentina, Respondent.

No. 18

Court of Appeals of New York.

March 21, 2019

Dechert LLP, Philadelphia, Pennsylvania (Michael H. McGinley of the Pennsylvania bar, admitted pro hac vice, of counsel) and New York City (Dennis H. Hranitzky of counsel), and Hoffner PLLC, New York City (David S. Hoffner of counsel), for appellant.

Cleary Gottlieb Steen & Hamilton LLP, New York City (Carmine D. Boccuzzi, Jr., Michael Athy-Plunkett and Rathna Ramamurthi of counsel), for respondent.

OPINION OF THE COURT

FEINMAN, J.

The limited issue before us concerns the enforceability of a bond issuer's obligation to pay interest on an outstanding principal debt when a claim to recover that principal is time-barred.

The United States Court of Appeals for the Second Circuit has asked us to decide, pursuant to Rule 500.27 of this Court, "[i]f a bond issuer remains obligated to make biannual interest payments until the principal is paid, including after the date of maturity (see NML Capital v. Republic of Argentina , 17 N.Y.3d 250, 928 N.Y.S.2d 666, 952 N.E.2d 482 [2011] ), do enforceable claims for such biannual interest continue to accrue after a claim for principal of the bonds is time-barred?" We answer this question in the negative.¹ Pursuant to New York common law and the terms of the indenture, in the absence of a timely action to recover principal, a bondholder cannot enforce the conditional obligation to make post-maturity interest payments.

I.

A.

In September 1997, defendant Province of Mendoza issued bonds valued at $ 250 million (the "Bonds"). Plaintiff Moshe Marcel Ajdler is the beneficial owner of $ 7,050,000 of the principal amount. The Bonds, which were issued pursuant to an indenture and were governed by attendant terms and conditions (collectively, the "Indenture"), were due to mature ten years later. The plain language of the Indenture, which is to be interpreted pursuant to New York law, provides that defendant was required to pay interest in biannual installments accruing on the principal sum at a 10% annual rate. Relatedly, the language of the Bonds states: "Interest shall accrue from and including the most recent date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from [the date the Bonds were issued] until payment of said principal sum has been made or duly provided for."

Under the terms of the Indenture, defendant was required to repay the principal in a lump sum on the maturity date. Moreover, the Indenture states that "[e]ach Bond will cease to bear interest from [that date] unless ... payment of principal is improperly withheld or refused." Upon defendant's failure to pay principal or interest, the Indenture provides that "[n]otwithstanding any other provision in [the] Indenture," plaintiff and the other bondholders have an "absolute and unconditional" right to "receive payment of the principal of and interest on ... the Bond on the stated maturity expressed in such Bond and to institute suit for the enforcement of any such payment...." The terms and conditions of the Bonds further circumscribe that right, stating that "[a]ll claims against [defendant] for payment of principal of or interest ... on or in respect of the [b]onds shall be prescribed unless made within four years from the date on which such payment first became due."

In June 2004, defendant offered, in exchange for the Bonds, to issue new restructured bonds with a delayed maturity date and a lower interest percentage in anticipation of its inability to meet its obligations as a result of the evolving Argentinian sovereign debt crisis. Plaintiff rejected defendant's exchange offer. Subsequently, plaintiff did not receive any scheduled biannual interest payments or payment of his share of principal on the maturity date.

B.

Nine and a half years after the maturity date, in March 2017, plaintiff commenced this action against defendant in the United States District Court for the Southern District of New York seeking to collect his share of principal as well as all accrued and unpaid biannual interest payments to which he was entitled under the Indenture. Defendant moved to dismiss the complaint, as relevant here, on the ground that plaintiff's claims were time-barred under the four-year prescription period provided in the Indenture. In opposition, plaintiff relied primarily on NML Capital v. Republic of Argentina, 17 N.Y.3d 250, 928 N.Y.S.2d 666, 952 N.E.2d 482 (2011), in which we held based on a nearly identical indenture provision requiring the bond issuer to make biannual interest payments "until the principal was repaid" that, where principal was not repaid on the maturity date, the bond issuer was obligated to make interest payments until the principal was actually repaid. Plaintiff argued that because we did not expressly cabin our holding in NML Capital to timely claims for principal, defendant was obligated to make biannual interest payments until plaintiff's share of principal was actually repaid or the Indenture merged into a judgment, regardless of whether the bondholder sued before a claim to recover the principal was untimely. Thus, at a minimum, plaintiff maintained that he was entitled to recover unpaid post-maturity interest payments due within what he then argued was the applicable six-year limitations period prior to commencing this action.²

The district court granted defendant's motion to dismiss. The court held that the four-year prescription period set forth in the Indenture applied, and measuring that period from the maturity date, all claims for principal and any accrued interest were time-barred ( Ajdler v. Province of Mendoza , No. 17-CV-1530 (VM), 2017 WL 3635122 [S.D.N.Y. Aug 2, 2017] ). Moreover, the court agreed with defendant that NML Capital was not intended to extend to situations in which a claim to recover the principal was untimely ( id. at **8–9 ).

The Second Circuit agreed that the four-year prescription period applied and that plaintiff's claim for principal was untimely ( Ajdler v. Province of Mendoza , 890 F.3d 95 [2d Cir.2018] ). Like the trial court, the Second Circuit did not find NML Capital to be unambiguously dispositive of the viability of plaintiff's claims to recover interest because "it was made in the context of a timely claim for principal" ( id. at 101 ). However, the court considered New York law inconclusive as to the timeliness of plaintiff's claims for post-maturity interest payments that came due in the four years before plaintiff commenced this action ( id. ). On the one hand, the court highlighted our decision in Chapin v. Posner, 299 N.Y. 31, 85 N.E.2d 172 (1949) and its progeny stemming from the time-limited mortgage moratorium legislation enacted in the wake of the Great Depression (see e.g. Civ Prac Act §§ 1077–a, 1077–b). The court noted that those cases support defendant's argument, as they indicate that "unpaid principal on which the limitations period has run cannot give rise to new interest claims" ( Ajdler , 890 F.3d at 102 ). The court also discussed a number of cases from New York lower courts "suggesting not only that claims for post-maturity interest cannot accrue once the principal is time-barred, but that claims for interest on unpaid principal expire when the limitations period has run for recovery of the principal" ( id. ). The court noted that defendant's argument "might well persuade but for" plaintiff's citation to a section of the encyclopedia New York Jurisprudence sanctioning a separate action to recover post-maturity interest due on unpaid principal even where the principal is barred by the statute of limitations ( id. at 102–103 ). That source, however, cited as its only authority an Appellate Division decision issued in partial reliance on our mortgage moratorium jurisprudence (see 72 N.Y. Jur 2d Interest and Usury § 54, citing Union Trust Co. of Rochester v. Kaplan , 249 App.Div. 280, 292 N.Y.S. 152 [4th Dept. 1936] ). The court also cited a recent Appellate Division decision that did not explicitly consider the issue here, but which impliedly indicated that the obligation to make post-maturity interest payments after a claim on the principal was time-barred was enforceable (see Amrusi v. Nwaukoni , 155 A.D.3d 814, 65 N.Y.S.3d 62 [2d Dept. 2017] ). Thus, the Second Circuit certified the two aforementioned questions for our consideration ( id. at 105–106 ), and we accepted them (see 31 N.Y.3d 1105, 80 N.Y.S.3d 206, 105 N.E.3d 345 [2018] ).

II.

As a general rule, we have viewed interest, which is "payable for the loan or retention of money by express contract, or as damages for non-payment of money due" ( Ledyard v. Bull , 119 N.Y. 62, 74, 23 N.E. 444 [1890] ), as incident to the principal as opposed to a separately enforceable debt (see Williamsburgh Sav. Bank v. Town of Solon , 136 N.Y. 465, 481, 32 N.E. 1058 [1893] ["Interest, as a rule, follows the principal...."]; Havender v. Brodbeck , 83 Misc. 9, 11, 144 N.Y.S. 418 [App. Term 1st Dept. 1913] ["Ordinarily interest follows the principal as the shadow does the substance"] [internal quotation marks and citation omitted] ). Thus, absent contractual language to the contrary, "the receipt of the principal bars a subsequent claim for the interest, for the reason that in such cases interest, being a mere incident, cannot exist without the debt, and, the debt being extinguished, the interest must necessarily be extinguished" ( Crane v. Craig , 230 N.Y. 452, 461, 130 N.E. 609 [1921] ; see also Kaplan , 249 App.Div. at 283, 292 N.Y.S. 152 ["(W)here several sums or installments are due upon a single contract, .... (and) such claims are single, entire, and indivisible .... they must all be included within one action; otherwise a recovery upon one will constitute a bar to the others"], citing Kennedy v. City of New York , 196 N.Y.19, 22, 89 N.E....