NML Capital v. Republic of Argentina
17 N.Y.3d 250
| NY | 2011Background
- FRANs issued by Argentina in 1998 due 2005 with biannual interest payments at a floating rate; documents state interest “until the principal hereof is paid or made available for payment.”
- Acceleration clauses allowed bondholders to accelerate principal upon default; NML Capital accelerated about $32 million in February 2005.
- Argentina defaulted in December 2001 and has not paid interest or principal since; events of default triggered under bond terms.
- Dispute over prejudgment interest: whether post-maturity or post-acceleration interest continued to accrue and whether 9% CPLR 5001 interest applies to unpaid post-maturity payments.
- District Court held: interest on unpaid post-maturity/ post-acceleration principal could bear contract rate; 9% statutory interest applied to unpaid post-maturity interest; acceleration did not terminate ongoing biannual payments for some bonds.
- Second Circuit certified three questions to New York Court of Appeals about interpretation of “until the principal hereof is paid” and entitlement to statutory prejudgment interest on unpaid post-maturity/post-acceleration payments.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does “until the principal hereof is paid” extend biannual interest after maturity? | Bondholders: continued payments required until principal paid. | Argentina: obligation ends at maturity. | Yes, continued post-maturity. |
| Does post-acceleration continue biannual payments after acceleration? | Continues post-acceleration. | Capital Ventures suggests cessation after acceleration. | Yes, continued post-acceleration. |
| Are statutory prejudgment interest (CPLR 5001) due on unpaid post-maturity/post-acceleration payments? | Yes, on unpaid biweekly payments from due dates. | No windfall; no interest on interest. | Yes, statutory prejudgment interest applies. |
Key Cases Cited
- Capital Ventures Intl. v. Republic of Argentina, 552 F.3d 289 (2d Cir. 2009) (accelerated debt does not automatically end ongoing interest unless contract says so)
- Spodek v. Park Prop. Dev. Assoc., 96 N.Y.2d 577 (N.Y. 2001) (prejudgment interest on unpaid installment payments remains from due date)
- O’Brien v. Young, 95 N.Y. 428 (1884) (contract rate remains until payment of principal or judgment merger)
- Gizzi v. Hall, 309 A.D.2d 1140 (3d Dept 2003) (illustrates unearned interest issues when no explicit until-paid language)
- Chipetine v. McEvoy, 238 A.D.2d 536 (2d Dept 1997) (default rate vs contract rate after breach)