Capital Ventures v. Republic of Argentina

• Decision Date: 23 March 2006
• Docket Number: No. 05-2591-CV.,05-2591-CV.
• Citation: 443 F.3d 214
• Parties: CAPITAL VENTURES INTERNATIONAL, Plaintiff-Appellant, v. REPUBLIC OF ARGENTINA, Defendant-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

443 F.3d 214

CAPITAL VENTURES INTERNATIONAL, Plaintiff-Appellant, v. REPUBLIC OF ARGENTINA, Defendant-Appellee.

No. 05-2591-CV.

United States Court of Appeals, Second Circuit.

Argued: December 23, 2005.

Decided: March 23, 2006.

COPYRIGHT MATERIAL OMITTED

Kenneth G. Roberts, Wolf, Block, Schorr and Solis-Cohen LLP, New York, N.Y. (Jennifer F. Beltrami and Jill L. Mandell on brief), for Plaintiff-Appellant.

Jonathan I. Blackman, Cleary Gottlieb Steen & Hamilton LLP, New York, N.Y. (Carmine D. Boccuzzi on brief), for Defendant-Appellee.

Before: MESKILL and SOTOMAYOR, Circuit Judges, and KAPLAN, District Judge.^*

KAPLAN, District Judge.

Plaintiff Capital Ventures International ("CVI") appeals from denial of its motions for an order of attachment and for reconsideration of that ruling.

Background

A. The Brady Plan

In the late 1980s, after a number of Latin-American nations defaulted on their external debt, then United States Treasury Secretary Nicholas F. Brady developed a debt relief program known as the Brady Plan. Under its auspices, the Republic of Argentina ("Argentina") negotiated the restructuring of much of its medium and long-term commercial debt in April of 1992, exchanging an estimated $28.5 billion in unsecured commercial bonds for a series of collateralized bonds due in 2023 (the "Brady Bonds"). The Brady Bonds were secured, pursuant to a 1992 Collateral Pledge Agreement, by United States Treasury and German government bonds (the "Brady Collateral") owned by Argentina and held by the Federal Reserve Bank of New York ("FRBNY"). The Brady Collateral was divided between two separate accounts, one securing Argentina's payment upon maturity of the principal of the Brady Bonds (the "Principal Collateral") and the other securing interest payments to Brady Bond holders prior to maturity (the "Interest Collateral").

B. The 1994 Bonds

In 1994, Argentina issued another series of bonds pursuant to various prospectuses and a Fiscal Agency Agreement. CVI, a Cayman Islands company, acquired a beneficial interest in approximately $111 million worth of these bonds.¹

In the late 1990s, a decade after the debt crisis that spurred the Brady Plan, Argentina sank into recession. In December 2001, it suspended payments of interest and principal on much of its foreign debt, including the Brady Bonds and the bonds issued in 1994. This constituted an Event of Default under the Fiscal Agency Agreement, permitting holders of the 1994 bonds to declare the principal amount due and payable upon delivery of written notice of acceleration to Argentina.

C. The 2005 Exchange Offer

In January 2005, following improvement in its economy, Argentina contemplated restructuring at least some of its non-performing debt through an exchange offer (the "Exchange Offer") pursuant to which holders of certain of its Brady and other bonds would be afforded an opportunity to exchange non-performing bonds for cash and additional consideration. It intended to obtain at least part of the necessary cash by liquidating so much of the collateral as secured payment of tendered Brady Bonds, which would become available upon their tender. This, however, created a risk — in the brief interval between the release of the collateral upon the tender of Brady Bonds and the payment of the proceeds of its liquidation to tendering bondholders, a creditor might attach either the collateral or its proceeds. No doubt for this reason, Argentina, prior to the Exchange Offer, entered into a so-called Continuation of Collateral Agreement pursuant to which the tendering bondholders were granted a security interest in the Principal Collateral and its proceeds until the proceeds were paid to them.

With the Continuation of Collateral Agreement in place, Argentina proceeded with the Exchange Offer. Brady Bond holders were offered cash proceeds of the liquidation of Principal Collateral attributable to any bonds they tendered plus a newly issued bond valued at approximately one-third of the principal amount of any Brady Bonds tendered.

The Principal Collateral attributable to Brady Bonds owned by non-tendering holders could not be sold and, in the ordinary course, will not become available to those holders until the 2023 maturity of the bonds.

D. Proceedings Below

CVI did not accept the Exchange Offer. In April 2005, it gave written notice of acceleration under the Fiscal Agency Agreement and then sued Argentina for breach of contract based on its default on the 1994 bonds. It sought damages of approximately $111 million plus costs and attorneys fees, and applied for an order attaching the Brady Collateral.²

CVI argued principally that it was entitled to attach the portion of the Principal Collateral that would be liquidated to pay tendering Brady Bond holders, thus validating the concern that must have been responsible for the Continuation of Collateral Agreement. It acknowledged that the Brady Bond holders' lien on the Principal Collateral would be superior to any right it might obtain through attachment prior to the tendering of any bonds. It contended, however, that the portion of the Principal Collateral attributable to tendered Brady Bonds would revert to Argentina, free and clear of the tendering bondholders' security interest, upon the tender, thus giving CVI the senior lien.

The district court concluded that CVI was certain to prevail on its breach of contract claim against Argentina, but it nevertheless denied the order of attachment from the bench for at least one and possibly two reasons.

First, it concluded that the Continuation of Collateral Agreement extended the lien of the tendering bond holders on the Principal Collateral to its proceeds and continued it to the point at which the proceeds were paid over to them. At one point it concluded from this fact that it would not be "proper to allow an attachment ... to simply have [plaintiff] become a junior lien holder, when the instruments that are operative would mean that the junior lien holder would get nothing." Moments later it observed in the same connection that "there is no property interest that is attachable in respect to these bonds."

Second, the court at another point expressed concern that the issuance of an order of attachment "could create a lot of confusion." This appears to have been a reference to possible disruption of the marketplace during the pendency of the Exchange Offer. It is not clear, however, whether the court relied on this concern in denying relief.

Following the bench decision, CVI moved for reconsideration. That application likewise was denied.

The Exchange Offer closed in due course. Argentina liquidated the portion of the Principal Collateral attributable to the tendered bonds and paid the proceeds to the tendering bondholders. Principal Collateral attributable to the untendered Brady Bonds remains in the hands of the FRBNY.

This appeal followed.

Discussion

CVI concedes that its appeal is moot as to the tendering bondholders' portion of the Principal Collateral, which Argentina already has sold, and its proceeds. It argues, however, that it is entitled to attach certain portions of the Interest Collateral and the Principal Collateral attributable to the non-tendering bondholders, which was not released pursuant to the Exchange Offer.

A. The Interest Collateral

CVI did not argue below that it was entitled to attach the Interest Collateral. We generally do not consider a claim raised for the first time on appeal, Sniado v. Bank Austria AG, 378 F.3d 210, 213 (2d Cir.2004) (per curiam), and see no reason to do so here.³ Accordingly, we must determine only whether plaintiff was entitled to attach Argentina's interest in the reversion of the Principal Collateral securing the non-tendered bonds.

B. The Principal Collateral

1. Attachment Under New York Law

Attachment is available in a federal court, subject to qualifications not applicable here, "under the circumstances and in the manner provided by the law of the state in which the district court is held." FED.R.CIV.P. 64; accord Cargill, Inc. v. Sabine Trading & Shipping Co., Inc., 756 F.2d 224, 227 (2d Cir.1985). The grounds for attachment in New York are set out in Section 6201 of the New York Civil Practice Law and Rules:

"[a]n order of attachment may be granted in any action, except a matrimonial action, where the plaintiff has demanded and would be entitled ... to a money judgment against one or more defendants, when:

"(1) the defendant is a nondomiciliary residing without the state, or is a foreign corporation not qualified to do business in the state; or

"(2) the defendant resides or is domiciled in the state and cannot be personally served despite diligent efforts to do so; or

"(3) the defendant, with intent to defraud his creditors or frustrate the enforcement of a judgment that might be rendered in plaintiff's favor, has assigned, disposed of, encumbered or secreted property, or removed it from the state or is about to do any of these acts; or

"(4) the action is brought by the victim or the representative of the victim of a crime, as defined in subdivision six of section six hundred twenty-one of the executive law, against the person or the legal representative or assignee of the person convicted of committing such crime and seeks to recover damages sustained as a result of such crime pursuant to section six hundred thirty-two-a of the executive law; or

"(5) the cause of action is based on a judgment, decree or order of a court of the United States or of any other court which is entitled to full faith and credit in this state, or on a judgment which qualifies for recognition under the provisions of article 53." N.Y. CPLR § 6201 (McKinney 1980 & Supp.2005).

More, however, is required than the existence of a statutory ground for attachment. A plaintiff seeking an order of attachment must show "that there is a cause of action, that it is probable that the plaintiff will succeed on the merits,...