Hickory Securities Ltd. v. Republic of Argentina

11-3317-cv(L)
Hickory Securities Ltd. v. Republic of Argentina

UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT

SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED
BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT'S LOCAL RULE
32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A
PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH
THE NOTATION "SUMMARY ORDER"). A PARTY CITING A SUMMARY ORDER MUST SERVE A
COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

At a stated term of the United States Court of Appeals
for the Second Circuit, held at the Daniel Patrick Moynihan
United States Courthouse, 500 Pearl Street, in the City of New
York, on the 14th day of August, two thousand twelve.
PRESENT:
RALPH K. WINTER,
CHESTER J. STRAUB,
DENNY CHIN,
Circuit Judges.

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HICKORY SECURITIES LTD., CESAR RAUL 11-3317-cv (Lead)
CASTRO, SILVIA SEIJAS, HEATHER M. 11-3321-cv (Con)
MUNTON, THOMAS L. PICO ESTRADA, EMILIO 11-3323-cv (Con)
ROMANO, RUBEN WEISZMAN, ANIBAL CAMPO, 11-3324-cv (Con)
MARIA COPATI, RUBEN CHORNY, ELIZABETH 11-3329-cv (Con)
ANDREA AZZA, RODOLFO VOGELBAUM, CLAUDIA 11-3331-cv (Con)
FLORENCIA VALLS, EDUARDO PURICELLI, 11-3354-cv (Con)
Plaintiffs-Appellees, 11-3373-cv (Con)

-v.-

REPUBLIC OF ARGENTINA,
Defendant-Appellant.
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FOR PLAINTIFFS-APPELLEES: JENNIFER R. SCULLION (Charles S.
Sims, William H. Weisman, Jean
Clemente, on the brief), Proskauer
Rose LLP, New York, New York.

Michael Diaz, Jr., Carlos F.
Gonzalez, Albert Xiques, Marta
Colomar-Garcia, on the brief, Diaz
Reus & Targ, LLP, Miami, Florida.

Howard Sirota, on the brief, Belle
Harbor, New York.
FOR DEFENDANT-APPELLANT: CARMINE D. BOCCUZZI (Jonathan I.
Blackman, Christopher P. Moore, on
the brief), Cleary Gottlieb Steen &
Hamilton LLP, New York, New York.

Appeal from the United States District Court for the

Southern District of New York (Griesa, J.). UPON DUE

CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that

the judgments of the district court are AFFIRMED in part and

VACATED in part and the case is REMANDED for further proceedings.

Defendant-appellant Republic of Argentina ("Argentina")

appeals from eight judgments entered July 22, 2011 by the

district court, granting aggregate class-wide relief to eight

classes of plaintiff-appellee owners of beneficial interests in

defaulted Argentine bonds.

We assume the parties' familiarity with the underlying

facts, the procedural history of the case, and the issues on

appeal, which we reference only as necessary to explain our

decision.

In 2004, plaintiff class representatives, claiming to

own beneficial interests in eight series of defaulted Argentine

bonds, filed eight putative class actions and moved for class

certification. On August 5, 2005, the district court granted

class certification in each action. The classes consisted of

bondholders who purchased Argentine bonds prior to the filing of

the class action for each respective bond series and who held

such bonds continuously until entry of judgment by the district

court. On January 9, 2009, following motions for summary

judgment by the plaintiffs in each of the eight actions, the

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district court entered judgments granting aggregate class-wide

relief to each of the plaintiff classes.

Argentina appealed, challenging class certification and

the award of aggregate relief. See Seijas v. Republic of

Argentina, 606 F.3d 53 (2d Cir. 2010) ("Seijas I"). It

contended, inter alia, that the aggregate amounts were improperly

based on estimates of the total amount each class might recover

without accounting for bondholders who might not have held bonds

continuously during the class period (i.e., they purchased bonds

in the secondary market after the start of the class periods in

2004) or who held bonds that had not yet matured or been

accelerated. It argued, therefore, that aggregate relief was

improper and individualized proof of damages was necessary.

Plaintiffs asserted that aggregate damages were proper and could

be accurately estimated based on, in part, expert analysis of

data found in public filings on each respective bond series.

They further argued that once such judgments were entered, class

members could present proof of continuous ownership during the

class period and apply for individual awards.

On May 27, 2010, we affirmed the district court's

certification of the classes, but vacated its judgments granting

aggregate class-wide relief. See Seijas I, 606 F.3d at 59. We

held that the district court erred in basing the judgments on

estimates of Argentina's liability that resulted in class-wide

awards that were "likely inflated." Id. at 58-59. Specifically,

we concluded that "[e]stimating gross damages for each of the

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classes as a whole, without using appropriate procedures to

ensure that the damages awards roughly reflect the aggregate

amount owed to class members, enlarges plaintiffs' rights by

allowing them to encumber property to which they have no

colorable claim," thus violating the Rules Enabling Act, 28

U.S.C. § 2072(b). Seijas I, 606 F.3d at 58-59 (citing McLaughlin

v. Am. Tobacco Co., 522 F.3d 215, 231 (2d Cir. 2008), abrogated

on other grounds by Bridge v. Phoenix Bond & Indem. Co., 553 U.S.

639 (2008)). We remanded so that the district court could

consider alternative approaches to calculating damages "that more

closely reflect the losses class members experienced." Seijas I,
606 F.3d at 59.

On remand, plaintiffs presented revised aggregate

damage awards that deducted for (1) bonds tendered in Argentina's

two debt exchange offers, (2) bonds held by parties who had opted

out of the class actions, and (3) bonds held by parties pursuing

relief through other legal proceedings. These awards did not

account for bonds purchased in the secondary market after the

start of the class periods in 2004. Plaintiffs relied on the

testimony and declaration of their proposed expert, Professor

Michael Adler, to assert that the "overwhelming majority" of such

bonds had likely been sued on in separate proceedings or tendered

in one of Argentina's two debt exchange offers. (Adler Decl.

¶ 14). Throughout the proceedings below, Argentina continued to

object to the aggregate judgments.

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 At a hearing on May 9, 2011, the district court ruled,

over Argentina's objection, that bond series in three of the

eight actions that had not yet matured were deemed accelerated.

The district court further directed the parties to finalize their

damage calculations and present final revised aggregate judgments

to the court for approval. On July 19, 2011, the parties

stipulated to final revised aggregate judgment awards for each

plaintiff class "without waiver" of Argentina's objections to

"aggregate judgments and acceleration." (J.A. 3069-70, ECF No.

66). On July 22, 2011, the district court approved the

stipulation and entered the judgments accordingly.

On appeal, Argentina contends principally that the

district court (1) erred in granting aggregate class-wide relief

and (2) improperly deemed the three series of bonds accelerated.

We address each issue in turn.
1. Aggregate Judgments

Argentina argues that the district court improperly

awarded aggregate class-wide relief based on damage calculations

similar to those rejected in Seijas I and failed to account for
bonds purchased in the secondary market after the start of the

class periods in 2004.1

"'Although the amount of recoverable damages is a

question of fact, the measure of damages upon which the factual

1
To the extent that plaintiffs argue that Argentina
waived this point in entering into the July 22, 2011 stipulation,
we reject that argument. Argentina's position on aggregate
judgments necessarily incorporates objections to how damages are
calculated at an aggregate level.

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computation is based is a question of law.'" Arch Ins. Co. v.

Precision Stone, Inc., 584 F.3d 33, 40 (2d Cir. 2009) (quoting

Wolff & Munier, Inc. v. Whiting-Turner Contracting Co., 946 F.2d

1003, 1009 (2d Cir. 1991)). Accordingly, we review a district

court's applied method of damage calculation de novo and the

amount it determines to be recoverable under such a calculation

for clear error. See Bessemer Trust Co., N.A. v. Branin, 618

F.3d 76, 85 (2d Cir. 2010).

Aggregate class-wide damages are not per se unlawful.

See, e.g., Van Gemert v. Boeing Co., 553 F.2d 812, 815-16 (2d
Cir. 1977) ("Van Gemert II") (affirming, in part, award of

aggregate damages to plaintiff class of bondholders); Gerstle v.

Gamble-Skogmo, Inc., 478 F.2d 1281, 1290, 1310 (2d Cir. 1973)

(modifying and affirming award of aggregate damages in securities

class action); see also In re Pharm. Indus. Average Wholesale

Price Litig., 582 F.3d 156, 197-98 (1st Cir. 2009) ("The use of

aggregate damages calculations is well established in federal

court and implied by the very existence of the class action

mechanism itself."). As we stated in Seijas I, however, a
district court must "ensure that the damages awards roughly

reflect the aggregate amount owed to class members." 606 F.3d at

58-59. Although "damages need not usually be demonstrated with

precision," aggregate calculations that result in inflated damage

figures that do "not accurately reflect the number of plaintiffs

actually injured" and "bear[] little or no relationship to the

amount of economic harm actually caused by defendants" violate

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the Rules Enabling Act. McLaughlin, 522 F.3d at 229, 231

(internal quotation marks and alteration omitted).

We have conducted an independent review of the record

in light of these principles and conclude that the district court

erred in granting aggregate class-wide judgments without

sufficiently accounting for non-continuous bondholders.

Here, aggregate class-wide relief would not be improper

so long as it accurately reflected the losses to the class and

adequately accounted for bondholders who are not class members.

Although we recognize the efforts of the district court and the

parties below to account for bonds tendered in the debt exchange

offers and held by opt-out parties and litigants in other

proceedings, the district court still has not adequately

addressed, much less resolved, the "[c]omplicated question[],"

Seijas I, 606 F.3d at 56, of the volume of bonds purchased in the
secondary market after 2004 that were not tendered or are

currently held by opt-outs or other litigants. In that regard,

there is little difference between the calculation of these

aggregate judgments and that of the judgments we previously

vacated in Seijas I.
Although the district court on remand initially

inquired as to the trading of bonds in the secondary market and

the possibility of expert analysis to determine the volume, it

did not direct a specific course of action with respect to

resolving the issue nor did it make any findings. Further, there

is nothing in the record to indicate that the district court

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accepted -- or even considered -- Professor Adler's analysis and

conclusions in entering the aggregate judgments.

In addition, we are not convinced that Professor

Adler's testimony or declaration resolves the issue. His

conclusion that the "overwhelming majority" of bonds traded in

the secondary market post-2004 have been tendered or are held by

parties in other legal proceedings and that "very few . . . have

been held, passively, until today" (Adler Decl. ¶ 14) does not

appear to be based on any specific calculation. Indeed, the

plaintiffs did not ask Professor Adler to calculate such amounts.

Professor Adler also conceded that there was trading of bonds in

the secondary market throughout and after the 2010 debt exchange

offer but that he could not determine the volume of such trading

or identify the bondholders involved.

Accordingly, on remand, the district court shall

conduct an evidentiary hearing to resolve these issues.

Specifically, it shall: (1) consider evidence with respect to the

volume of bonds purchased in the secondary market after the start
of the class periods that were not tendered in the debt exchange

offers or are currently held by opt-out parties or litigants in

other proceedings; (2) make findings as to a reasonably accurate,

non-speculative estimate of that volume based on the evidence

provided by the parties; (3) account for such volume in any

subsequent damage calculation such that an aggregate damage award

would "roughly reflect" the loss to each class, see Seijas I, 606

F.3d at 58-59; and (4) if no reasonably accurate, non-speculative

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estimate can be made, then determine how to proceed with awarding

damages on an individual basis. Ultimately, if an aggregate

approach cannot produce a reasonable approximation of the actual

loss, the district court must adopt an individualized approach.2
2. Acceleration

Argentina argues that the district court erred in

declaring the series of bonds in three of the class actions --

Castro v. Republic of Argentina, No. 04 Civ. 506 (S.D.N.Y. filed

Jan. 22, 2004) ("Castro"), Hickory Securities Ltd. v. Republic of
Argentina, No. 04 Civ. 936 (S.D.N.Y. filed Feb. 4, 2004)

("Hickory"), and Puricelli v. Republic of Argentina, No. 04 Civ.

2117 (S.D.N.Y. filed Mar. 17, 2004) ("Puricelli") -- accelerated

in disregard of the acceleration requirements contained in the

Fiscal Agency Agreement (the "FAA") that governs the bonds.

Specifically, it contends, inter alia, that acceleration notices

sent by class counsel in 2004 and 2011 on behalf of the class

representatives and each entire class, respectively, were invalid

under the FAA. Argentina further posits that class counsel

cannot assert the contractual rights of individual absent class

members to accelerate their bonds. We conclude that Argentina's

arguments are without merit.

2
In addition, first entering aggregate judgments
inconsistent with the foregoing and then moving forward with an
individual claims process would not allay our concerns. See
McLaughlin, 522 F.3d at 231 ("Roughly estimating the gross
damages to the class as a whole and only subsequently allowing
for the processing of individual claims would inevitably alter
defendants' substantive right to pay damages reflective of their
actual liability.").

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 In affirming class certification in these actions, we

observed in Seijas I that "the representative parties must fairly

and adequately protect the interests of the class." 606 F.3d at

57. We have also previously recognized that a "certification

under Rule 23(c) makes the [c]lass the attorney's client for all

practical purposes." Van Gemert v. Boeing Co., 590 F.2d 433, 440

n.15 (2d Cir. 1978) ("Van Gemert IV"); see also Fed. R. Civ. P.

23(g)(4) ("Class counsel must fairly and adequately represent the

interests of the class.").

Here, we find the acceleration notices sent by class

counsel on behalf of each class to be sufficient under the FAA

and, for "practical purposes," see Van Gemert IV, 590 F.2d at 440
n.15, in keeping with the appropriate duties of class counsel in

their representation of all class members in these actions.

In the event of non-payment of principal or interest or

a declared moratorium on payment of principal or interest, the

FAA provides that "each holder of Securities of such Series may

by such notice in writing declare the principal amount of

Securities or such Series held by it to be due and payable

immediately." (J.A. 3037-38, ECF No. 66). Class counsel's

notices sent in March 2011 were adequate in that regard.3
Argentina had defaulted on these bonds. It conceded before the

district court that it had no intention of resuming payments.

Class counsel, acting on behalf of the plaintiff classes, sent

3
As we find the March 2011 acceleration notices
sufficient, we do not address the parties' arguments as to the
2004 acceleration notices.

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the acceleration notices to Argentina's fiscal agent as required

by the FAA.

Moreover, in affirming class certification in Seijas I,

we effectively authorized class counsel to act on behalf of each

class and its members and to represent their interests. See Fed.

R. Civ. P. 23(g)(4). Filing acceleration notices in actions

seeking payment of principal due on defaulted bonds does just

that. For Argentina to argue that class counsel's notices strip

individual class members of their right to "strategic[ally]"

decide whether to continue to be "entitled to receive interest

payments that would otherwise have become due" in lieu of unpaid

principal (Appellant's Br. 50) is disingenuous. As Argentina

acknowledges, it ceased servicing this debt in 2001.

Acceleration protects the interest of the class members, and

class counsel properly took collective action on behalf of the

classes to effectuate it.

Accordingly, we affirm the ruling of the district court

in deeming the bonds at issue in Castro, Hickory, and Puricelli
accelerated.
CONCLUSION

We have considered the parties' other arguments on

appeal and find them to be without merit. Accordingly, the

judgment of the district court is hereby AFFIRMED in part and

VACATED in part and the case is REMANDED for further proceedings.

FOR THE COURT:
CATHERINE O'HAGAN WOLFE, CLERK

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