MercoPress. South Atlantic News Agency

Argentina wins appeal on damage award to thousands of defaulted bond holders

Guillermo Gleizer, co-lead counsel for the investors

US federal appeals court threw out a 2.24 billion US dollars damage award to tens of thousands of investors who held defaulted Argentine sovereign bonds, saying a lower court erred in calculating an “inflated” sum.

The US 2nd Circuit Court of Appeals in Manhattan ordered US District Judge Thomas Griesa to consider alternative means to calculate payouts that “more closely reflect the losses class members experienced.”

Thursday's ruling, by a unanimous three-judge panel, is a victory for Argentina, in that it could reduce any payout the country might ultimately be ordered to make.

The court nonetheless rejected Argentina's request that the investors not receive class-action status and should instead be required to show individualized proof of harm. This could have made it prohibitively costly for smaller investors to sue.

Argentina has faced more than seven years of lawsuits over its 2002 default on an estimated 100 billion USD of sovereign debt. The litigation has impeded the country's ability to return to world capital markets.

About 18.3 billion of defaulted bonds are still held by investors who did not participate fully in a 2005 debt swap. Griesa handles US lawsuits over the debt.

Guillermo Gleizer, co-lead counsel for the investors, said the ruling leaves his clients “one step closer to securing payment.” A lawyer at Cleary, Gottlieb, Steen & Hamilton LLP, which represents Argentina, declined to comment.

Griesa on Monday ordered a freeze on about 2.43 billion USD of assets held in the United States by Argentina's state-run Banco de la Nación, a ruling that Gleizer had said would help secure funds to pay judgments to bondholders.

Late on Thursday, Griesa ordered the US Marshals Service not to take control of the property pending a further court order.

In the 2nd Circuit case, lawyers for eight bondholder groups had argued the case's complexity made it proper for Griesa to grant class-action status and award damages based on “reasonable estimates” of the total sums owed to bondholders.

Argentina countered that this approach was inappropriate because it could result in bloated awards.

Writing for the appeals court, Judge Barrington Parker said class-action status was proper, citing “the importance of the hunt for assets available” to all members of all classes. Yet he rejected Griesa's setting of awards ranging from 95.3 million to 543.9 million for the eight classes.

“The court reasoned that granting inflated judgments was justifiable because, given Argentina's general refusal to pay any judgment against it, plaintiffs were unlikely to recover,” Parker wrote.

“However practical this approach might have been,” Parker went on, “it was improper” because it could result in “astronomical” damages relative to the harm suffered.