895 F.3d 194
2d Cir.2018Background
- Argentina privatized YPF in 1993, listing ADRs on the NYSE and amending YPF bylaws to require tender offers and impose penalties for noncompliant acquisitions; section 28(A) made the tender-offer obligation apply to Argentina if it acquired control (≥49%).
- Petersen purchased ~25% of YPF shares (ADRs) in compliance with the bylaws and financed purchases with loans secured by the ADRs; dividends were important to Petersen's loan servicing.
- In April–May 2012 Argentina intervened in YPF and enacted a law expropriating 51% of YPF (Repsol’s stake); Argentina thereafter refused to comply with the bylaws’ tender-offer requirement and exercised voting rights on the expropriated shares.
- Argentina’s actions led to cancellation of dividends, Petersen’s loan default, and foreclosure on its ADRs; Repsol was later paid for the expropriation.
- Petersen sued in New York federal court for breach of contract against Argentina and YPF, alleging repudiation of the bylaws’ tender-offer obligations and failure to enforce bylaw penalties. Defendants moved to dismiss under the FSIA and the act-of-state doctrine; the district court denied dismissal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FSIA commercial-activity exception (direct-effect clause) applies | Petersen: defendants repudiated commercial bylaw obligations (tender offer/penalties) causing direct effects in NY | Argentina/YPF: core of suit is sovereign expropriation (non‑commercial), so FSIA immunity applies | Held: FSIA commercial-activity exception applies; claims are based on commercial repudiation that caused direct U.S. effects |
| Whether Argentina could comply with both the expropriation law and bylaws | Petersen: nothing in Argentine law prevented a post-expropriation tender offer; obligation was commercial | Argentina: expropriation and sovereign powers preclude/byoverride bylaw obligations and expert says bylaws can’t limit sovereign acts | Held: Court rejects Argentina’s reading; YPF Expropriation Law does not show Argentina was barred from a post-expropriation tender offer |
| Whether YPF’s conduct was sovereign or commercial | Petersen: YPF’s failure to enforce bylaws and penalties is commercial and caused direct U.S. effects (ADR market, dividends, foreclosures) | YPF: allowing Argentina to vote expropriated shares was compliance with sovereign expropriation, not commercial | Held: YPF’s failures are commercial acts falling within the FSIA exception |
| Whether act-of-state doctrine bars suit | Petersen: suit challenges contractual repudiation, not validity of Argentine sovereign acts | Defendants: suit requires questioning validity/effects of Argentine official acts; act-of-state bars inquiry | Held: Appellate court declines interlocutory review of act-of-state ruling under §1292(b) and dismisses that portion of appeal (district-court denial stands for now) |
Key Cases Cited
- Republic of Argentina v. Weltover, 504 U.S. 607 (1992) (establishes FSIA direct-effect analysis for commercial activity)
- Garb v. Republic of Poland, 440 F.3d 579 (2d Cir. 2006) (expropriation is a sovereign act distinct from commercial activity)
- Kensington Int’l Ltd. v. Itoua, 505 F.3d 147 (2d Cir. 2007) (collateral-order doctrine permits immediate appeal of FSIA immunity denials)
- Saudi Arabia v. Nelson, 507 U.S. 349 (1993) (distinguishes commercial acts from sovereign acts by reference to whether the state acted like a private party)
- Atlantica Holdings, Inc. v. Sovereign Wealth Fund Samruk-Kazyna JSC, 813 F.3d 98 (2d Cir. 2016) (interprets direct-effect requirement under FSIA)
- OBB Personenverkehr AG v. Sachs, 136 S. Ct. 390 (2015) (focus on the gravamen of the suit to identify the act on which the action is based)