Background

The United States Court of Appeals for the Second Circuit has reversed the Southern District of New York’s (SDNY) US$16.1 billion money judgment against the Argentine Republic in Petersen Energía Inversora S.A.U. and others v. Argentine Republic and YPF S.A. The Second Circuit also vacated SDNY’s post‑judgment turnover order (which would have required Argentina to transfer its YPF shares for delivery in partial satisfaction of the judgment) following the reversal of the underlying merits judgment. Argentine President Milei described the result as “the greatest legal achievement in national history”.

The decision is a reminder that sovereign cases in US courts can turn on three distinct issues: (i) jurisdiction to adjudicate under the Foreign Sovereign Immunities Act (FSIA); (ii) whether the claimant has a cognizable cause of action and remedy under the governing substantive law (here, Argentine law); and (iii) jurisdiction to enforce against sovereign assets, where the FSIA’s execution‑immunity rules can constrain enforcement tools.

The Facts

YPF was founded as a state‑run oil company in Argentina in 1922 and remained state‑owned until 1993. Argentina then privatized YPF through an IPO and amended key provisions of YPF’s bylaws.

The bylaws required any acquirer of more than 15% of YPF’s common shares to make a public tender offer to all shareholders. Those requirements were extended to the Argentine government: if the Republic were to acquire (directly or indirectly) and “become the owner, or exercise the control of” 49% or more of YPF’s shares, it was obliged to make a compensated exit offer to minority shareholders.

YPF’s IPO prospectus and SEC filings highlighted these protections, including in connection with NYSE‑listed American Depositary Receipts (ADRs). The ADRs represented the largest portion of YPF’s IPO, generating more than US$1.1 billion in revenue for the Republic.

In April 2012, Argentina announced it would expropriate a 51% controlling stake in YPF from Repsol. The expropriation was effected through legislation passed in May 2012, together with an executive intervention decree. The Republic did not conduct the tender offer required by the bylaws; officials stated publicly that it would not do so.

At the time of the expropriation, Petersen held ADRs representing just over 25% of YPF’s Class D shares (financed with loans secured on its YPF shares), while Eton Park held approximately 3% of the Class D shares.

After the expropriation (and consequent loss of dividends from YPF), Petersen defaulted on its loan obligations, entered insolvency proceedings in Spain, and sold its litigation rights to Prospect Investments LLC (a Burford Capital subsidiary) for €15 million. Under the financing agreement, Burford would receive 70% of any recovery (and Petersen the remaining 30%). Burford separately acquired Eton Park’s claims in 2016, on terms providing for a 75% share of Eton Park’s recovery.

FSIA and the ability to sue a sovereign in New York

Although the Second Circuit ultimately reversed the SDNY’s judgment on the merits, the case remains significant on jurisdiction. Earlier Second Circuit decisions had held that the FSIA’s commercial activity exception could apply even where the disputed commercial obligation was triggered by expropriation, because the claim was “based on” breach of commercial tender‑offer obligations in the bylaws, which had a direct effect in the United States (including through NYSE‑listed ADRs).

The Lower Court Decision

After years of litigation in SDNY, the district court granted summary judgment for the shareholders on liability on their Argentine‑law breach of contract claims against the Republic. On 15 September 2023, SDNY entered final judgment exceeding US$16.1 billion (damages plus prejudgment interest), with post‑judgment interest continuing to accrue.

The Second Circuit’s Decision

In March 2026, a majority of the three‑judge panel reversed the district court’s decision. It held that the shareholders’ breach of contract damages claims against the Republic were not cognizable under Argentina’s civil codes and public law governing expropriation, and accordingly reversed SDNY’s judgment on those claims.

The majority’s reasoning rested on two independent grounds:

1. Argentine contract law

The court held that, under Argentine law, corporate bylaws are not generally understood to create bilateral obligations among shareholders enforceable through ordinary contract damages. They primarily establish rules of corporate governance between the company and its shareholders, rather than reciprocal promises owed by one shareholder to another.

Even if bylaws could, in principle, create bilateral obligations between shareholders, the majority found no such obligation in the relevant section of YPF’s bylaws (namely, section 28(A)). It reasoned that the “National Government” was named in that section in order to set a higher triggering threshold for the Republic’s acquisitions, not to create a bilateral obligation owed to minority shareholders, who were not identified as counterparties or beneficiaries.

2. Argentina’s General Expropriation Law (GEL)

Further, even if section 28(A) could be read to create reciprocal shareholder obligations, the majority held that the claims would be precluded by Argentina’s public law governing expropriation (the GEL). Article 28 of the GEL provides that “no action by third parties may impede the expropriation or its effects,” with rights treated as transferred from the asset to its compensation.

The majority concluded that the damages award “undoubtedly” interfered with the expropriation and its effects within the meaning of Article 28, even if it did not prevent the expropriation from being completed.

The court acknowledged that Argentina violated YPF’s bylaws and that the tender‑offer protections were touted to investors in the IPO prospectus and SEC filings; it also observed that Argentina’s refusal to honor those protections “cast doubt on the security of foreign investment” in the country. The majority nevertheless treated the question before it as a narrow one of whether the particular cause of action and damages remedy pursued in New York were permitted under Argentine law.

Enforcement and the turnover order

Following the SDNY merits judgment, the plaintiffs had obtained a New York turnover order seeking to compel transfer of Argentina’s YPF shares in partial satisfaction of the judgment. The Second Circuit vacated that order because it reversed the underlying judgment; it did not decide (and did not need to decide) the correctness of the SDNY turnover analysis in circumstances where a merits judgment survives.

Burford Capital’s response and next steps

In a recent press release, Burford described the Second Circuit’s decision as “very disappointing” and “a remarkable abdication” of its role in protecting the rights of NYSE investors.  It said that it expects the plaintiffs to seek rehearing en banc, and then consider whether to seek review by the US Supreme Court.

Burford also stated that, following the US outcome, the plaintiffs may consider commencing investment treaty arbitration against Argentina.  Indeed, they have recently confirmed to a New York federal judge that they will do so, requesting modification of a protective order so that materials obtained in discovery could be used in the arbitration.

Implications for litigation funders and plaintiffs

This decision underscores several practical points for the litigation funding market:

1. In New York, FSIA jurisdiction is necessary but not sufficient. Even where a plaintiff clears the FSIA commercial‑activity gateway, the claim may still fail on the merits under foreign law (including foreign public law).
2. Foreign law can be outcome‑determinative — and is reviewed de novo on appeal. Extensive district‑court proceedings may not insulate a plaintiff from appellate reversal where foreign law is central.
3. Public expropriation regimes can constrain private‑law remedies. The majority treated Argentina’s public expropriation framework as capable of foreclosing a contract‑damages remedy asserted “in the shadow of expropriation.”
4. Enforcement against sovereign assets remains difficult. Even powerful New York tools may be constrained by the FSIA’s execution‑immunity rules, and enforcement orders can fall away if the underlying merits judgment is reversed.
5. Arbitration may offer a different enforcement pathway. Where a treaty claim is available, investment arbitration and award‑enforcement routes can present different (and sometimes broader) jurisdictional bases than enforcement of a domestic court judgment against a sovereign.

Conclusion

The Second Circuit’s decision in Petersen will be studied closely by litigation funders, sovereign debt practitioners, arbitration specialists, and capital markets lawyers. It illustrates that even a strong factual case for breach of an investor‑protection commitment can fail on the availability of a cause of action and remedy under foreign law, particularly where a sovereign expropriation regime applies. The Plaintiffs have confirmed to the Court that they intend to take “seek further review” of the decision (which may include en banc rehearing or Supreme Court review) and to commence an investment treaty arbitration.