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On March 27, 2026, the U.S. Court of Appeals for the Second Circuit in Petersen Energía Inversora S.A.U. v. Argentine Republic1 reversed the U.S. District Court for the Southern District of New York (“SDNY”)’s $16.1-billion money judgment2 – the largest-ever judgment against a sovereign in a U.S. court3 – arising from a decade-long U.S. litigation over Argentina’s 2012 renationalization of the Argentine oil and gas company, YPF S.A. (“YPF”). In the same decision, the Second Circuit vacated SDNY’s turnover order, which is an enforcement order that would have required Argentina to transfer its YPF shares to New York for delivery to the judgment creditors in partial satisfaction of the district court’s judgment.
As discussed below, the decision highlights how lawsuits against foreign states in U.S. courts can fail on any of three fundamental grounds that each entail challenges and carry independent risk:
- Lack of jurisdiction to adjudicate under the Foreign Sovereign Immunities Act (“FSIA”) (whether the case may proceed at all);
- Failure to state a claim under governing substantive law (whether the plaintiff has a cognizable claim); and
- Lack of jurisdiction to enforce (whether a valid judgment can be enforced against a sovereign’s assets).
In Petersen, these issues presented challenges for the plaintiffs to advance their claims and opportunities for Argentina to mount its defense at every stage of the case. The case is particularly instructive because it demonstrates that (1) jurisdiction may be secured against a sovereign defendant under the FSIA’s commercial activity exception even when some sovereign conduct (here, the exercise of Argentina’s sovereign authority to expropriate) is involved; (2) foreign law – including foreign public law – may govern the merits of an FSIA litigation and is reviewed de novo on appeal, creating a risk of reversal following extensive district‑court proceedings; and (3) although New York enforcement tools are powerful, enforcement proceedings against foreign states present serious challenges in light of the FSIA’s rules on the immunity from attachment of sovereign property and the foreign state’s ability to collaterally attack the underlying judgment.
Background
YPF, an Argentine oil and gas company, was privatized in the early 1990s. Its bylaws included takeover protections – most notably, tender‑offer provisions designed to offer minority holders a compensated exit if control was acquired in specified circumstances, including acquisition by Argentina. In 2012, Argentina renationalized YPF by expropriating a controlling stake but did not conduct the tender offer contemplated in the bylaws.
Minority shareholders later sued in the SDNY on contract‑based theories, arguing that Argentina’s acquisition of control triggered the tender‑offer obligation and that failure to tender caused compensable harm.
FSIA and Jurisdiction to Adjudicate: Why the Case Could Proceed
Argentina moved to dismiss on FSIA grounds, arguing that the suit was a challenge to a sovereign taking and therefore outside the FSIA’s commercial‑activity exception.4 The district court upheld jurisdiction over the claim in 2016,5 holding that the expropriation triggered separate commercial contractual obligations under the bylaws to commence a tender offer.
In 2018,6 the Second Circuit affirmed under the FSIA commercial‑activity exception, emphasizing that expropriation is “decidedly sovereign” but concluding that plaintiffs’ claim was based on the repudiation of a separate commercial tender‑offer obligation, not a challenge to the expropriation itself. The court also held that, because the bylaws’ tender offer obligation required a tender for YPF American Depositary Receipts listed on the NYSE, the alleged breach had a direct effect in the United States sufficient to satisfy the U.S.-nexus requirement of the FSIA’s commercial-activity exception.
The Second Circuit’s 2018 ruling recognizes a U.S.-court pathway for claims against sovereigns under the FSIA’s commercial-activity exception, even where the harm was triggered by sovereign conduct in the form of an unlawful expropriation. But, as discussed below, establishing jurisdiction under the commercial activity exception does not ensure victory on the merits. Moreover, adjudication of the merits may require application of foreign law, including foreign public law, which may favor the foreign state.
Governing Law and the Merits: Why SDNY Entered Judgment for the Plaintiffs and Why the Second Circuit Reversed
After finding jurisdiction, both SDNY and the Second Circuit decided the merits under Argentine law. Argentine law governed the substantive claims because the bylaws require application of Argentine law and New York choice‑of‑law rules generally apply the law of the place of incorporation to internal corporate-affairs disputes.
On summary judgment in 2023, SDNY granted plaintiffs judgment on liability against Argentina on a breach‑of‑contract theory under Argentine law.7 The case then proceeded to a damages phase that resulted in a judgment of $16.1 billion.8
In its March 2026 decision,9 the Second Circuit reversed, concluding that plaintiffs’ breach‑of‑contract damages claims were not cognizable as a matter of Argentine law.10 The court reviewed Argentine law de novo and reversed the district court on two independent grounds: first, the bylaws did not create the bilateral shareholder‑to‑shareholder obligations necessary to support plaintiffs’ contract‑damages theory under Argentine civil law; and second, even assuming a bilateral contract theory, Argentina’s public law governing expropriation foreclosed the damages remedy, emphasizing that the dispute arose in the “shadow of expropriation” and implicated Argentine public law limits on third‑party actions that “impede” expropriation or its effects.
The court further explained that its 2018 jurisdictional ruling did not control the merits. The FSIA addresses what the action is “based on” for immunity purposes, whereas the merits inquiry asks what remedies the governing law permits when a private‑law claim is asserted in the wake of sovereign expropriation.
Petersen is a reminder that securing jurisdiction over a foreign state under an FSIA exception to immunity does not equate to a ruling on the substantive claims and by no means guarantees a win on the merits. Claims that are based on “commercial activity” sufficient to establish jurisdiction may still fail on the merits, for example, if the applicable foreign law does not recognize a viable claim or damages remedy, including where foreign public‑law limits apply. It also highlights the importance of careful governing‑law choices at the contracting stage. The choice of law in a contract can materially shape, or even determine, the outcome of potential sovereign litigation.
Post‑Judgment Enforcement: Why SDNY Ordered Turnover and Why the Second Circuit Vacated
Having obtained the judgment in the district court in 2023, the Petersen plaintiffs sought to enforce the judgment and moved for an order directing Argentina to transfer foreign‑held shares to New York for delivery to the judgment creditors in partial satisfaction of the judgment. The district court granted that relief in 202511 under New York’s turnover statute, CPLR 5225. The district court held that the FSIA “does not supersede” CPLR 5225 or prevent a court with personal jurisdiction from ordering foreign‑sited sovereign assets to be transferred to New York for turnover, providing the FSIA’s execution-immunity limits are observed.12
In its March 2026 decision, the Second Circuit vacated SDNY’s turnover order following the reversal on appeal of the underlying merits judgment. The Second Circuit did not opine on the correctness of SDNY’s turnover analysis and it likely will not do so, given its observation that the merits decision could render moot related enforcement appeals.
It bears noting that, in other cases, SDNY courts have applied the same CPLR 5225 framework as in Petersen to order turnover of sovereign assets held abroad.13 Thus, New York remains a forum where judgment creditors can pursue an enforcement strategy under CPLR 5225 to reach foreign‑held sovereign assets and compel transfer of such assets to New York for purposes of turnover relief and satisfaction of an FSIA judgment.
Conclusion
Petersen offers strategic lessons for U.S. sovereign litigation. Framing a claim around a commercial obligation with U.S. effects may clear the FSIA jurisdictional gateway even where sovereign conduct underlies the dispute. But that same sovereign context can require the application of foreign public law that may favor the foreign state on the merits, potentially foreclosing a private-law cause of action or remedy under the governing law, with de novo appellate review of foreign law heightening reversal risk for successful plaintiffs. At the enforcement stage, New York courts may reach sovereign assets held overseas, but only if the merits judgment survives and FSIA execution‑immunity limits are satisfied.
Following the Second Circuit’s decision, the Petersen plaintiffs reportedly are exploring the possibility of commencing investment treaty arbitration against Argentina in further pursuit of their claims.14 Where available, such arbitration may offer a more promising path to recovery, especially when the dispute arises from sovereign conduct. At the award-enforcement stage, U.S. courts may exercise jurisdiction under the FSIA’s exception to immunity from attachment for arbitral awards, rather than other, more narrow exceptions to immunity from attachment, for example, for court judgments under the commercial-activity exception or the expropriation exception. And while arbitration has its own limits, we explained in a prior client alert that U.S. courts give ICSID awards full faith and credit once the statutory requirements are met. Award enforcement under the New York Convention remains a strong enforcement vehicle as well, as the enumerated set of defenses to enforcement under the Convention are limited and narrow.
Footnotes
1. etersen Energia Inversora S.A.U. v. Argentine Republic, No. 23-7370, 2026 WL 850349 (2d Cir. Mar. 27, 2026).
2. Petersen Energia Inversora, S.A.U. v. Argentine Republic, No. 15 CIV. 2739 (LAP), 2023 WL 2746022 (S.D.N.Y. Mar. 31, 2023); Petersen Energía Inversora, S.A.U. v. Argentine Republic, Nos. 15 Civ. 2739 (LAP), 16 Civ. 8569 (LAP) (S.D.N.Y. Sept. 15, 2023).
3. Petersen Energia Inversora S.A.U. v. Argentine Republic, No. 23-7370, 2026 WL 850349, slip op. at 6-7 (2d Cir. Mar. 27, 2026 (where the Second Circuit Court of Appeals noted that the judgment “equals approximately 45% of the Republic’s entire national fiscal budget for 2024.”)
4. 28 U.S.C. § 1605(a)(2) (“A foreign state shall not be immune from the jurisdiction of courts of the United States ... in any case ... in which the action is based … [3] upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.”).
5. Petersen Energia Inversora, S.A.U. v. Argentine Republic, No. 15-CV-2739 (LAP), 2016 WL 4735367 (S.D.N.Y. Sept. 9, 2016).
6. Petersen Energia Inversora S.A.U. v. Argentine Republic & YPF S.A., 895 F.3d 194 (2d Cir. 2018).
7. Petersen Energia Inversora, S.A.U. v. Argentine Republic, No. 15 CIV. 2739 (LAP), 2023 WL 2746022 (S.D.N.Y. Mar. 31, 2023).
8. Petersen Energía Inversora, S.A.U. v. Argentine Republic, Nos. 15 Civ. 2739 (LAP), 16 Civ. 8569 (LAP) (S.D.N.Y. Sept. 15, 2023).
9. Petersen Energia Inversora S.A.U. v. Argentine Republic, No. 23-7370, 2026 WL 850349 (2d Cir. Mar. 27, 2026).
10. Circuit Judge José A. Cabranes dissented. Although he acknowledged that the Court of Appeals has “discretion to decide [a] question of Argentine law in the first instance,” he opined that the Court of Appeals “owe[s] special consideration and respect to a District Court that has closely evaluated every aspect of the facts and, importantly, the governing law of Argentina.”
11. Petersen Energia Inversora, S.A.U. v. Argentine Republic, No. 15 CIV. 02739 (LAP), 2025 WL 1796392 (S.D.N.Y. June 30, 2025).
12. 28 U.S.C. § 1610(a)(2) (“The property in the United States of a foreign state … used for a commercial activity in the United States, shall not be immune from attachment in aid of execution, or from execution, upon a judgment entered by a court of the United States or of a State after the effective date of this Act, if … the property is or was used for the commercial activity upon which the claim is based.”); Petersen Energia Inversora, S.A.U. v. Argentine Republic, No. 15 CIV. 02739 (LAP), 2025 WL 1796392, at *6 (S.D.N.Y. June 30, 2025) (“In other words, the sovereign must use the property but may do so anywhere, and the activity must occur in the United States but may be conducted by anyone.”).
13. See Virginia Foley, et al., v. Union de Banques Arabes et Francaises, No. 22-CV-01682 (ER), 2026 WL 821414 (S.D.N.Y. Mar. 25, 2026); Bainbridge Fund Ltd. v. Republic of Argentina, 690 F. Supp. 3d 411 (S.D.N.Y. 2023).
14. See Tom Jones, Burford Eyes BIT Claims After Argentina Overturns US$16 Billion Judgment, Glob. Arb. Rev. (Mar. 30, 2026), https://globalarbitrationreview.com/article/burford-eyes-bit-claims-after-argentina-overturns-us16-billion-judgment and Nadia Dreid, Burford Considers Arbitration After 2nd Circ. Tosses $16B Win, Law360 (Mar. 30, 2026), https://www.law360.com/internationalarbitration/articles/2459213.
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