Damage Award One of the Largest, If Not the Largest, Award Ever After a Litigated Trial
Court Relies on Testimony and Analysis of Compass Lexecon’s President Professor Daniel R. Fischel
The case involved claims by certain minority shareholders in YPF SA (YPF), an Argentinian oil and gas company, resulting from the Republic of Argentina’s (ROA) expropriation of 51 percent of the shares of the company in 2012. The investors claimed that minority shareholders were entitled to a tender offer under the terms of the company’s By-laws, which were put in place when Argentina privatized YPF via an IPO in 1993. ROA claimed that their expropriation did not require them to make a tender offer as their expropriation was a sovereign act, but the United States Court of Appeals for the Second Circuit rejected this claim in a prior proceeding. An additional proceeding was then required to determine the damages owed to minority shareholders resulting from the failure of ROA to make the required tender offer.
Compass Lexecon and its President, Professor Daniel R. Fischel, were then retained by Kellogg, Hansen, Todd, Figel & Frederick PLLC on behalf of its client, Burford Capital (Burford), to calculate damages in light of the relevant economic evidence. Burford had previously acquired the litigation rights of YPF minority shareholders Petersen Group and Eton Park. Professor Fischel filed two reports which addressed the economic purpose of YPF’s By-laws and the remedy provided in those By-Laws if the ROA failed to make a required tender offer. Professor Fischel then calculated damages based on his interpretation of the appropriate method laid out in the By-laws and concluded that total damages were approximately $16 billion after applying an 8 percent prejudgment interest rate. By contrast, the ROA and its expert originally claimed that damages amounted to less than $200 million and argued for no prejudgment interest.
Judge Loretta A. Preska of the United States District Court for the Southern District of New York held a three-day trial in July of 2023 to adjudicate the damages issues. At trial, Professor Fischel testified that the ROA had made a precommitment to provide a compensated exit to minority shareholders in the event of a renationalization, and that the ROA had abrogated this precommitment when it acquired control of YPF and failed to make the required tender offer. Professor Fischel further testified that the relevant date for calculating damages was the date the ROA’s expropriation was announced because “as a matter of economic substance, the actions that mattered occurred” then. He stated that when implementing the By-laws formula, damages before prejudgment interest were approximately $7.5 billion for Petersen Group and $900 million for Eton Park. Professor Fischel also explained the economic theory of prejudgment interest, commonly called the coerced or forced loan theory, and opined that the highest Argentine prejudgment interest rate the Court was asked to consider, 8 percent simple interest, would not provide full compensation to the Plaintiffs.
On September 8, 2023, Judge Preska ruled that the ROA was liable for damages calculated according to Professor Fischel’s method and that the rate of prejudgment interest that should be applied to such damages was 8 percent simple interest, the highest rate considered. The Court cited Professor Fischel’s testimony in ruling that “[t]he market also recognized that an event having material economic significance had occurred” on the date ROA announced the expropriation. The Court also cited Professor Fischel’s opinion about economic substance and accepted his estimate of damages stating the appropriate methodology “was the [one] used by Professor Fischel in his calculations.” In doing so, the Court rejected the ROA’s and its expert’s alternative, and much lower estimate of damages. In setting the rate of prejudgment interest, the Court noted that “[i]t would offend, not serve, equity to allow the Republic knowingly to violate the bylaws, force Plaintiffs to be its involuntary creditors for a massive amount over the course of a decade, and then pay a reduced rate by crying poverty when the bill comes due.” Professor Fischel’s estimate of damages that the court accepted, including prejudgment interest at 8 percent, totals over $16 billion. On September 15, 2023, the Court entered judgment awarding damages of just under $16.1 billion.
Professor Fischel was supported by a team led by Jessica Mandel that included Quinn Johnson, Andrew Lin, Todd Kendall, Kevin Hartt, Agustina Levy, Jason Cherry, James Libby, Joe Dykstra, and Uzziel Guzman, among others.
Compass Lexecon worked with Professor Jonathan Molot, Chief Investment Officer of Burford Capital, and Burford’s successful counsel, Mark Hansen, Derek Ho, Andrew Goldsmith, and Christopher Goodnow, among others from Kellogg, Hansen, Todd Figel & Frederick PLLC. We also worked with Paul Clement from Clement & Murphy PLLC, and attorneys from King & Spalding LLP.