Opinion ID: 221341
Heading Depth: 2
Heading Rank: 1

Heading: The Effect of CVI's Attachments on the Proposed Exchange

Text: The parties dispute whether the attachments we ordered block the exchange in the first place. Under New York law, an attachment bars any sale, assignment or transfer of, or any interference with the property attached. N.Y. C.P.L.R. 6214(b); see Fitchburg Yarn Co. v. Wall & Co., 46 A.D.2d 763, 361 N.Y.S.2d 170, 172 (1st Dep't 1974). If the proposed exchange does none of these things, then the district court's order modifying the attachments was just a formality that did not affect CVI's rights. If it does, however, then we must ask whether the circumstances justify lifting the attachments so far as necessary to allow the exchange. In CVI I, we concluded that CVI is entitled to attach Argentina's reversionary interest in the remaining Principal Collateral. 443 F.3d at 223. The Collateral Pledge Agreement gives Argentina at least two such reversionary interests. First, Argentina will receive the collateral in 2023 if it pays the Brady bondholders in full. See Collateral Pledge Agreement § 3.03(a)(ii). That much is uncontroversial. Argentina also has a second reversionary interest: even before 2023, Section 6.01 gives it the collateral if it redeems... or exchanges or causes to be purchased or exchanged any of the bonds, at which time the Lien of this Agreement in favor of the Holders in respect of such Released Securities [the collateral] shall terminate, such Released Securities shall be free of the Lien of this Agreement and all rights with respect to such Released Securities shall revert to Argentina. Id. § 6.01. In laymen's terms, a pre-2023 exchange lifts the lien in favor of the Brady bondholders and returns the collateral to Argentina. The modification to the attachments that Argentina requested and received would destroy this second reversionary interest with respect to the exchanged bonds. Under the district court's order, the collateral would not revert to Argentina in an exchange as under Section 6.01 but would rather go to the benefit of the Brady bondholders. Specifically, the order permitted the Federal Reserve to liquidate the collateral attributable to the tendered Brady bonds and transfer the collateral directly to the tendering bondholders or their representatives, and to amend the Collateral Pledge Agreements in order to accommodate this transaction. The amendment, by effectively writing Section 6.01 out of the Agreement, would eliminate the reversionary interest that that section currently gives Argentina, and thereby interfere[] with the attached property. N.Y. C.P.L.R. 6214(b). Argentina presents several arguments that the exchange would not infringe on CVI's attachments, none prevailing. It primarily relies on the senior security interest in the collateral held by the Federal Reserve on behalf of the Brady bondholders. See Collateral Pledge Agreement §§ 2.01, 9.05. CVI does not dispute the seniority of that security interest, which both makes it impossible (or at least pointless) for CVI to foreclose on the collateral and means that CVI cannot stop the collateral from going to the Brady bondholders if Argentina does not pay up in 2023, as Section 3.04 provides. But this security interest only goes so far. The Uniform Commercial Code provides that a security interest ... continues in collateral ... unless the secured party authorized the disposition free of the security interest.  N.Y. U.C.C. § 9-315(a)(1) (emphasis added). Here, the Collateral Pledge Agreement specifically authorizes the disposition of the collateral free of the security interest in the event that any exchange or redemption occurs before 2023. As noted above, Section 6.01 states that in such a situation the Lien of this Agreement in favor of the Holders in respect of such Released Securities [the collateral] shall terminate, such Released Securities shall be free of the Lien of this Agreement and all rights with respect to such Released Securities shall revert to Argentina. Argentina ignores Section 6.01 and argues instead that Section 9.05 of the Collateral Pledge Agreement extends the security interest in favor of the Brady bondholders beyond the time of the exchange. Section 9.05, titled Continuing Security Interest, provides that the security interest shall remain in full force and effect ... until the Principal Bonds... are no longer outstanding and all interest... has been paid in full, whereupon the Lien of this Agreement ... shall terminate, all Collateral ... of Principal Bonds shall become free of the Lien of this Agreement, and all rights with respect to the Collateral ... shall revert to Argentina. § 9.05(a). Although Section 9.05 speaks of the general existence and endurance of the lien in favor of the Brady bondholders, it does not address what happens in the event of an exchange. Section 6.01 governs that eventuality and explicitly states that the lien lifts upon exchange or redemption. New York, whose law the Agreement adopts, follows the common (and commonsensical) rule that a specific provision like Section 6.01 governs the circumstance to which it is directed, even in the face of a more general provision like Section 9.05. See Muzak Corp. v. Hotel Taft Corp., 1 N.Y.2d 42, 46, 150 N.Y.S.2d 171, 133 N.E.2d 688 (1956); Aramony v. United Way of Am., 254 F.3d 403, 413-14 (2d Cir.2001). Next, Argentina notes that the Collateral Pledge Agreement explicitly provides for its own amendment, see § 9.01, and argues that it and the Brady bondholders may exercise that right even in the face of CVI's attachments. The district court similarly reasoned that Argentina may amend the Agreement to go forward with the exchange because the attached reversionary interest exists subject to various conditions, including the overall terms of the pledge agreement ... [which] includes a provision allowing it to be amended. But the Brady bondholders have no right to amend the Agreement unilaterally; the amendment proposed here requires Argentina's approval. And Argentina would violate the attachments if it gave its approval to an amendment that destroyed its reversionary interest under Section 6.01. Put another way, the right to approve or disapprove a proposed modification of the Agreement to give up Argentina's reversionary interest is itself an attribute of that interest and thus an inextricable part of what CVI has attached. The contrary logic of Argentina and the district court would allow Argentina and the Brady bondholders to amend the Agreement to eliminate not only the reversion in case of an exchange but also the reversion in case Argentina repays the bondholders in 2023, leaving CVI with nothing. That logic is therefore inconsistent with our conclusion in CVI I that Argentina's reversionary rights are attachable property. 443 F.3d at 220 n. 4. We do not mean to imply that attachment of an interest in any executory contract thereby prohibits any amendment to that contract. We merely hold that allowing this amendment would effectively destroy CVI's attached reversionary interest under § 6.01 and thereby violate the attachment. The amendment provision therefore does not help Argentina, and the exchange may not go forward against the original attachments. [2]