NML Capital, LTD. v. The Republic of Argentina and Energia Argentina S.A., No. 09-7013 (S.D.N.Y. Aug. 29, 2012)

Plaintiff, NML Capital LTD ("NML"), owns beneficial interests in defaulted bonds issued by defendant, the Republic of Argentina ("the Republic").  After receiving judgments in its favor in a number of cases against the Republic, NML filed a complaint against the Republic and Energia Argentina S.A. ("ENARSA"), asserting that ENARSA was the alter ego of the Republic, and thus liable for the Republic’s debts.  The court dismissed the complaint for failure to state a claim that ENARSA was the Republic’s alter ego, but granted leave to amend the complaint.  Thereafter, NML filed an amended complaint alleging not that ENARSA is an alter ego of the Republic, but that it acts as a political organ of the Republic since its core activities are primarily governmental and it is therefore part of the Republic.  The amended complaint specifically cited, as a legal basis, the Second Circuit’s decision in Garb v. Republic of Poland, 440 F.3d 579 (2d Cir. 2006).  Once again, Defendant Republic and ENARSA moved to dismiss for failure to state a claim.

According to the court, under Garb, the distinction between the foreign state and a separate agency or instrumentality of the state within the meaning of the Foreign Sovereign Immunities Act, 28 U.S.C. § 1602 et seq., is "whether the core functions of the foreign entity are predominantly governmental or commercial."  Here, the amended complaint described ENARSA as "an energy company that commercializes oil, gas and electric energy."  The law that set up ENARSA provided that its objective involves "the study, exploration, and exploitation of solid, liquid, and/or gaseous Deposits of Hydrocarbons, and the transportation, storage, distribution, sale, and industrialization of these products and their direct and indirect derivatives."  NML alleged that ENARSA carried out many governmental functions such as "providing low-cost energy to the Argentine people," "owning and administering the state's mineral rights," "serving as regulator of anti-competitive behavior in the energy sector," and acting on behalf of the Republic in a number of other ways. 

The court observed that while ENARSA carries out "functions in accordance with the policies and goals of the Republic . . . the character of the functions is surely predominantly commercial."  The court stated that ENARSA's priority is to sell natural gas at low prices in Argentina.  Despite the fact that the natural gas is usually sold at a loss that is later subsidized by the Republic, the court found that "the activity is still the commercial activity of selling natural gas."  The court also found that ENARSA's ability to search for and explore for hydrocarbons in national marine areas appeared to be a commercial function. 

Based on its review of the allegations in the amended complaint, the court held that ENARSA's predominant function is commercial, to market low-cost natural gas.  As a result, the court dismissed the amended complaint