Alliance Bond Fund v. Mexicano De Desarrollo

• Decision Date: 01 August 1998
• Docket Number: Docket No. 98-7549,L,III-,II-,IV-,No. 851--,851--
• Citation: 190 F.3d 16
• Parties: (2nd Cir. 1999) ALLIANCE BOND FUND, INC., ALLIANCE WORLD DOLLAR GOVERNMENT FUND II, INC., ALLIANCE GLOBAL DOLLAR GOVERNMENT FUND, INC., ELLIOT ASSOCIATES, L.P., AVALON TOTAL RETURN FUND, L.P., THE VARDE FUND, L.P., THE VARDE FUNDP., THE VARDE FUNDP., THE VARDE FUNDP., THE VARDE FUNDP. and THE VARDE FUNDP., Plaintiffs-Counter-Defendants-Appellees, v. GRUPO MEXICANO DE DESARROLLO, S.A., DESARROLLO DE INFRAESTRUCTURA, S.A. DE C.V., OBRAS Y PROYECTOS, S.A. DE C.V., DESARROLLO URBANO INTEGRAL, S.A. DE C.V. and DESARROLLO INDUSTRIAL LATINOAMERICANO, S.A. DE C.V., Defendants-Counter-Claimants-Appellants
• Court: U.S. Court of Appeals — Second Circuit

Page 16

190 F.3d 16 (2nd Cir. 1999)

ALLIANCE BOND FUND, INC., ALLIANCE WORLD DOLLAR GOVERNMENT FUND II, INC., ALLIANCE GLOBAL DOLLAR GOVERNMENT FUND, INC., ELLIOT ASSOCIATES, L.P., AVALON TOTAL RETURN FUND, L.P., THE VARDE FUND, L.P., THE VARDE FUND II-A, L.P., THE VARDE FUND II-B, L.P., THE VARDE FUND III-A, L.P., THE VARDE FUND III-B, L.P. and THE VARDE FUND IV-A, L.P., Plaintiffs-Counter-Defendants-Appellees, v. GRUPO MEXICANO DE DESARROLLO, S.A., DESARROLLO DE INFRAESTRUCTURA, S.A. DE C.V., OBRAS Y PROYECTOS, S.A. DE C.V., DESARROLLO URBANO INTEGRAL, S.A. DE C.V. and DESARROLLO INDUSTRIAL LATINOAMERICANO, S.A. DE C.V., Defendants-Counter-Claimants-Appellants.

Docket No. 98-7549

No. 851--August Term, 1998

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

Argued: December 10, 1998

Decided: August 20, 1999

Defendants appeal from a judgment of the United States District Court for the Southern District of New York (Martin, J.) insofar as the judgment orders the defendants to "irrevocably assign or transfer" to the plaintiffs (i) certain notes that have been issued to the defendants by the Government of Mexico; and (ii) the defendants' right to receive certain other notes that are expected to be issued by the Government of Mexico.

Vacated and remanded.

[Copyrighted Material Omitted]

ANDREW J. WERTHEIM and DALE C. CHRISTENSEN, JR., New York, NY (Carolyn E. Bassani, Siobhan A. Handley, Orrick, Herrington & Sutcliffe LLP; John J. Galban, Seward & Kissel, on the brief), for Plaintiffs-Counter-Defendants-Appellees.

SCOTT S. BALBER, New York, NY (Richard A. Mescon, Gerald M. Freedman, Morgan, Lewis & Bockius LLP, on the brief), for Defendants-Counter-Claimants-Appellants.

Before: WINTER, Chief Judge, and JACOBS and POOLER, Circuit Judges.

JACOBS, Circuit Judge:

Plaintiffs ("the noteholders") are United States investors who purchased notes issued by defendant Grupo Mexicano de Desarrollo, S.A. ("GMD"), one of several construction firms hired by private concessionaires that built Mexico's intercity toll roads in the early 1990s. Following defaults by the concessionaires on their debt to the construction firms, GMD defaulted on its notes. In 1997, the Government of Mexico implemented a Toll Road Rescue Program, by which it took control of the toll roads and in exchange promised to assume responsibility for the concessionaires' construction debt.

In this breach of contract suit, the United States District Court for the Southern District of New York (Martin, J.) (i) entered judgment in favor of the noteholders; and (ii) ordered GMD to "irrevocably assign or transfer" to the noteholders its rights under the Toll Road Rescue Program. On appeal, GMD contends that the order of assignment or transfer does not comport with New York's procedures for enforcing judgments.

We vacate the relief component of the judgment, and we remand to the district court for factfinding that bears on whether the noteholders are entitled either tore-entry of that order or to some other relief.

BACKGROUND

Between 1990 and 1994, GMD performed contracting work on a network of intercity toll roads being built pursuant to a program implemented by the Government of Mexico. Under the program, Mexico granted concessions to private companies ("the toll road concessionaires") that engaged construction firms to construct and operate the roads. GMD was also an investor in the concessionaires.

In 1994, the plaintiffs purchased notes that were issued by GMD and were guaranteed by four of its subsidiaries. (The subsidiaries are co-defendants; for ease of reference, the defendants are referenced collectively as GMD.)

Traffic on the toll roads proved disappointing, and the concessionaires stopped paying the construction companies, which were left with large unpaid invoices, referenced herein as "the toll road receivables." In June 1997, GMD disclosed that it was in serious financial difficulty. By August, it ceased making interest payments on the notes.

Under the Toll Road Rescue Plan, Mexico took control of the toll roads and promised in exchange to assume the responsibility for paying the debt that the toll road concessionaires incurred during the course of construction. The parties disagree as to how Mexico intends to implement this Plan. According to GMD, the government notes will be issued to the concessionaires, who will use the notes to pay debts owed to GMD (and others) evidenced by the toll road receivables. According to the noteholders, the government notes will be issued to GMD in exchange for its toll road receivables.¹

In late 1997, GMD reported in a press release that it was settling debts with a number of Mexican creditors by assigning to them its right under the Toll Road Rescue Program to receive the government notes. The assignment was being effected by placing the toll road receivables in "trust" for the benefit of the creditors, with the understanding that the receivables someday would be exchanged for government notes.

On December 11, 1997, the noteholders accelerated the principal amount of the notes. The next day, they filed this breach of contract suit seeking among other things a money judgment for the principal in default, plus interest.

Soon after, the district court granted a preliminary injunction restraining GMD from "dissipating, disbursing, transferring, conveying, encumbering or otherwise distributing or affecting" its "right to, interest in, title to or right to receive or retain[] any of the Government Notes." In entering the preliminary injunction, the district court required the noteholders to post a $50,000 bond.

This Court affirmed the entry of the preliminary injunction on May 6, 1998. See Alliance Bond Fund, Inc. v. Grupo Mexicano de Desarrollo, S.A., 143 F.3d 688 (2d Cir. 1998). The Supreme Court granted a writ of certiorari on November 30, 1998. See Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 119 S. Ct. 537 (1998).

While the preliminary injunction was in force, the noteholders moved for summary judgment, and for an order directing GMD to "irrevocably assign or transfer" to them a sufficient amount of toll road receivables or government notes (together, "the assets") to satisfy the judgment or, in the alternative, an order converting the preliminary injunction into a permanent injunction.

On April 17, 1998, the district court (i) granted the noteholders' motion for summary judgment; (ii) awarded judgment in the amount of $82,444,259; (iii) directed GMD to "irrevocably assign or transfer" to the noteholders a sufficient amount of toll road receivables or government notes to satisfy the judgment; and (4) converted the preliminary injunction into a permanent injunction to remain in effect until the assignment or transfer of the toll road receivables and government notes was accomplished. The same day, the district court entered judgment in accordance with its order.

In its notice of appeal, GMD challenged both (i) the district court's conversion of the preliminary injunction into a permanent injunction ("the permanent injunction"); and (ii) so much of the district court's judgment as ordered the assignment or transfer to the noteholders of the toll road receivables and government notes ("the turnover order"). GMD's briefs on appeal, however, do not press the appeal from the permanent injunction, and that portion of the appeal is therefore abandoned.

On June 17, 1999, the Supreme Court held that the district court had lacked the authority to issue the preliminary injunction. See Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 119 S. Ct. 1961, 1975 (1999).

We begin our analysis with GMD's assertion that the Supreme Court's preliminary injunction ruling requires reversal of the turnover order.²

DISCUSSION

A. The Supreme Court's Preliminary Injunction Holding.

Although GMD concedes that the "permanent injunction itself is of course valid," it argues that reversal of the turnover order is necessary because, absent the unauthorized preliminary injunction, the toll road receivables and government notes would have been unavailable for satisfaction of the judgment.

GMD cites no case in support of its argument, and we reject it. As the noteholders explain, the Supreme Court's holding does nothing more than give GMD a potential cause of action against the injunction bond. See Blumenthal v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 910 F.2d 1049, 1054 (2d Cir. 1990) ("[T]he theory underlying [Rule 65(c) is] that the applicant [for the injunction] consent[s] to liability up to the amount of the bond, as the price for [the injunction]." (internal quotation marks omitted)); see also W.R. Grace & Co. v. Local Union 759, International Union of the United Rubber Workers, 461 U.S. 757, 770 n.14, 103 S. Ct. 2177, 2185 n.14 (1983) ("A party injured by the issuance of an injunction later determined to be erroneous has no action for damages in the absence of a bond.").³

B. New York Law.

1. The C.P.L.R.

Under Federal Rule of Civil Procedure 69(a), "[p]rocess to enforce a judgment for the payment of money shall be a writ of execution," and "[t]he procedure on execution, in proceedings supplementary to and in aid of a judgment, and in proceedings on and in aid of execution shall be in accordance with the practice and procedure of the state in which the district court is held, existing at the time the remedy is sought" (emphasis added). The question is therefore whether the district court, in issuing the turnover order, acted in accordance with New York's procedures for the enforcement of judgments.

New York procedure for enforcement of judgments is set out in Article 52 of the Civil Practice Law and Rules ("C.P.L.R."). The first section of Article 52 describes the assets that New York law has made subject to enforcement, and thus available to judgment creditors. See C.P.L.R. §5201; David D. Siegel, General Commentary on Article 52 at 49 (McKinney 1997) (hereinafter...