In an important win for the Republic of Argentina and bond issuers alike, on September 16, 2015, the Second Circuit in Brecher v. Republic of Argentina vacated an order from the District Court for the Southern District of New York, finding that the class definition "all owners of a beneficial interest in the bonds" lacked specificity and violated the implied ascertainability requirement of Federal Rule of Civil Procedure 23. The Second Circuit found that the overly broad class definition made it impossible to determine an "identifiable and administratively feasible class." Brecher v. Republic of Argentina, No. 14-4385, slip op. at 2 (2d Cir. Sept. 16, 2015). Comparing the bondholder class definition to "[a] class defined as 'those wearing blue shirts,'" the Second Circuit explained that a class that is not time-limited and whose members are ever-changing is simply too vague to pass muster. The case is a significant victory for Argentina, a country that has faced billions of dollars' worth of lawsuits since declaring a default in 2002.
The complaint in the underlying action was filed on December 19, 2006, by Henry Brecher, individually and on behalf of all others who held a beneficial interest in a particular series of bonds issued by Argentina. The complaint alleges that Argentina promised to pay principal and interest on the bonds, but that, since it declared a moratorium on the payment of its foreign debt on or about December 23, 2001, Argentina had failed to make any payments of interest or principal on the bonds. The complaint defined the class as "all persons who from the date of class certification in this action until the date of final judgment in the District Court continuously hold beneficial interests in Bonds issued by the Republic of Argentina with ISIN XS0113833510."
The district court certified the class defined in the complaint because of its "continuous holder requirement, i.e., the class contained only those individuals who [] possessed beneficial interests in a particular bond series issued by the Republic of Argentina from the date of the complaint—December 19, 2006—through the date of final judgment in the District Court." Brecher, No. 14-4385, slip op. at 3. After the Second Circuit ruled in similar Argentinian bond cases that damages calculations were inflated due to a comparable class definition, plaintiff moved to modify the class definition, proposing that the district court remove the continuous holder requirement and expand the class to all holders of beneficial interests in the bond series. The district court granted the motion.
The Second Circuit vacated and remanded. The court wrote that "[l]ike our sister Circuits, we have recognized an implied requirement of ascertainability' in Rule 23 of the Federal Rules of Civil Procedure," and "that the touchstone of ascertainability is whether the class is 'sufficiently definite so that it is administratively feasible for the court to determine whether a particular individual is a member.'" Brecher, No. 14-4385, slip op. at 4–5 (citations omitted). The Second Circuit rejected the argument that reference to objective criteria is sufficient to meet the ascertainability requirement, finding that "the use of objective criteria cannot alone determine ascertainability when those criteria, taken together, do not establish the definite boundaries of a readily identifiable class," and that the objective standard in the case—owning a beneficial interest in a bond series—was "insufficiently definite to allow ready identification of the class or the persons who will be bound by the judgment." Id. at 6–7 (citation omitted). The Second Circuit noted in particular that the fact that the Argentinian bonds are traded on the secondary market would make it especially difficult to identify potential members of the class. The decision is good news for Argentina, as well as other bond issuers, as it makes clear that amorphous class definitions will be rejected and leaves open the possibility that damages may not be available on a class-wide basis.
Keywords: securities litigation, Argentina, rule 23, ascertainability, Brecher