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by Bill Singer
by Bill Singer
BREAKING STORY. FULL TEXT Supreme Court Opinion Argentina v NML
June 16, 2014
In December 2001, after Argentina defaulted, its President declared a "temporary moratorium" on principal and interest payments on more than $80 billion of its public external 14 debt including the Fiscal Agency Agreement ("FAA Bonds") Bonds. Argentina offered holders of the FAA Bonds new exchange bonds in 2005 and 2010 at 25 to 29 cents on the dollar, and the country continued to make payments to holders of those Exchange Bonds while failing to make any payments to persons who still held the defaulted FAA Bonds.
Argentina has annually passed legislation renewing the moratorium and has made no principal or interest payments on the defaulted debt. Plaintiffs estimate that, collectively, their unpaid principal and prejudgment interest amounts to approximately $1.33 billion. After two exchange offers in 2005 and 2010, Argentina had restructured over 91% of the defaulted foreign debt.
The Legal Ordeal Begins
On October 26, 2012, Plaintiffs appealed from permanent injunctions entered by the United States District Court for the Southern District of New York (Griesa, J.). The district court granted plaintiffs summary judgment and enjoined Argentina from making payments on debt issued pursuant to its 2005 and 2010 restructurings without making comparable payments on the 2001 defaulted debt. Plaintiffs alleged that Argentina's conduct violated the Pari Passu Clause by
- subordinating their FAA Bonds to the Exchange Bonds; and
- lowering the ranking of their FAA Bonds below the Exchange Bonds.
The Circuit Court found that an equal treatment provision in the bonds bars Argentina from discriminating against plaintiffs' bonds in favor of bonds issued in connection with the restructurings and that Argentina violated that provision by ranking its payment obligations on the defaulted debt below its obligations to the holders of its restructured debt. Pointedly, the Circuit Court found that the District Court had not abused its discretion in fashioning injunctive relief and that such a remedy was not in violation of the Foreign Sovereign Immunities Act ("FSIA").
The 2nd Circuit held that Argentina breached its promise, affirming the district court's judgments but remanding the proceedings to clarify the manner in which the injunctions will function, pointedly, the operation of the payment formula and the Injunctions' application to third parties and intermediary banks.
READ Full-Text 2nd Circuit Opinion: NML Capital Limited v. Republic of Argentina (2nd Cir. October 26, 2012)
Otra Vez
On August 23, 2013, we went for the re-match, with the case bouncing back, yet again, to 2nd Circuit with Defendant-Appellant the Republic of Argentina, Non-Party Appellants, and Intervenors appealing from SDNY amended orders. The Circuit Court AFFIRMED and held that the district court did not abuse its discretion in issuing the orders. Enforcement of the amended injunctions shall be stayed pending the resolution by the Supreme Court of the United States of a timely petition for a writ of certiorari.
In explaining its rationale, the Circuit Court noted that:
We further observed that cases like this one are unlikely to occur in the future because Argentina has been a uniquely recalcitrant debtor and because newer bonds almost universally include collective action clauses ("CACs") which permit a super-majority of bondholders to impose a restructuring on potential holdouts . . .
Pages 23-24 of the Opinion
Further, the Circuit Court admonished that:
[W]e do not believe the outcome of this case threatens to steer bond issuers away from the New York marketplace. On the contrary, our decision affirms a proposition essential to the integrity of the capital markets: borrowers and lenders may, under New York law, negotiate mutually agreeable terms for their transactions, but they will be held to those terms. We believe that the interest-one widely shared in the financial community-in maintaining New York's status as one of the foremost commercial centers is advanced by requiring debtors, including foreign debtors, to pay their debts. . .
Pages 24-25 of the Opinion
SyllabusSCALIA, J., delivered the opinion of the Court, in which ROBERTS, C. J., and KENNEDY, THOMAS, BREYER, ALITO, and KAGAN, JJ., joined. GINSBURG, J., filed a dissenting opinion. SOTOMAYOR, J., took no part in the decision of the case.After petitioner, Republic of Argentina, defaulted on its external debt,respondent, NML Capital, Ltd. (NML), one of Argentina's bondholders, prevailed in 11 debt-collection actions that it brought against Argentina in the Southern District of New York. In aid of executing the judgments, NML sought discovery of Argentina's property, serving subpoenas on two nonparty banks for records relating to Argentina's global financial transactions. The District Court granted NML's motions to compel compliance. The Second Circuit affirmed, rejecting Argentina's argument that the District Court's order transgressed the Foreign Sovereign Immunities Act of 1976 (FSIA or Act).Held: No provision in the FSIA immunizes a foreign-sovereign judgment debtor from post judgment discovery of information concerning its extraterritorial assets. Pp. 4-12.(a) This Court assumes without deciding that, in the ordinary case, a district court would have the discretion under Federal Rule of Civil Procedure 69(a)(2) to permit discovery of third-party information bearing on a judgment debtor's extraterritorial assets. Pp. 4-5.(b) The FSIA replaced an executive-driven, factor-intensive, loosely common-law-based immunity regime with "a comprehensive framework for resolving any claim of sovereign immunity." Republic of Austria v. Altmann, 541 U. S. 677, 699. Henceforth, any sort of immunity defense made by a foreign sovereign in an American court must stand or fall on the Act's text. The Act confers on foreign states two kinds of immunity. The first, jurisdictional immunity (28 U.S. C. §1604), was waived here. The second, execution immunity,generally shields "property in the United States of a foreign state"from attachment, arrest, and execution. §§1609, 1610. See also §1611(a), (b)(1), (b)(2). The Act has no third provision forbidding or limiting discovery in aid of execution of a foreign-sovereign judgment debtor's assets. Far from containing the "plain statement" necessary to preclude application of federal discovery rules, Société Nationale Industrielle Aérospatiale v. United States Dist. Court for Southern Dist. of Iowa, 482 U. S. 522, 539, the Act says not a word about post judgment discovery in aid of execution.Argentina's arguments are unavailing. Even if Argentina were correct that §1609 execution immunity implies coextensive discovery in-aid-of-execution immunity, the latter would not shield from discovery a foreign sovereign's extraterritorial assets, since the text of §1609 immunizes only foreign-state property "in the United States."The prospect that NML's general request for information about Argentina's worldwide assets may turn up information about property that Argentina regards as immune does not mean that NML cannot pursue discovery of it. Pp. 5-10.695 F. 3d 201, affirmed.================
The text of the Act confers on foreign states two kinds of immunity. First and most significant, "a foreign state shall be immune from the jurisdiction of the courts of the United States . . . except as provided in sections 1605 to 1607." §1604. That provision is of no help to Argentina here: A foreign state may waive jurisdictional immunity,§1605(a)(1), and in this case Argentina did so, see 695 F. 3d, at 203. Consequently, the Act makes Argentina"liable in the same manner and to the same extent as a private individual under like circumstances." §1606.The Act's second immunity-conferring provision states that "the property in the United States of a foreign state shall be immune from attachment[,] arrest[,] and execution except as provided in sections 1610 and 1611 of this chapter." §1609. The exceptions to this immunity defense (we will call it "execution immunity") are narrower. "The property in the United States of a foreign state" is subject to attachment, arrest, or execution if (1) it is "used for a commercial activity in the United States," §1610(a), and (2) some other enumerated exception to immunity applies, such as the one allowing for waiver, see §1610(a)(1)-(7). The Act goes on to confer a more robust execution immunity on designated international-organization property,§1611(a), property of a foreign central bank, §1611(b)(1),and "property of a foreign state . . . [that] is, or is intended to be, used in connection with a military activity" and is either "of a military character" or "under the control of a military authority or defense agency," §1611(b)(2).Pages 7-8 of the OpinionThe argument founders at each step. To begin with, Argentina cites no case holding that, before the Act, a foreign state's extraterritorial assets enjoyed absolute execution immunity in United States courts. No surprise there. Our courts generally lack authority in the first place to execute against property in other countries, so how could the question ever have arisen? See Wright & Miller §3013, at 156 ("[A] writ of execution . . . can be served anywhere within the state in which the district court is held"). More importantly, even if Argentina were right about the scope of the common-law execution immunity rule, then it would be obvious that the terms of §1609 execution immunity are narrower, since the text of that provision immunizes only foreign-state property "in the United States." So even if Argentina were correct that§1609 execution immunity implies coextensive discovery in-aid-of-execution immunity, the latter would not shield from discovery a foreign sovereign's extraterritorial assets.Page 9 of the OpinionNonetheless, Argentina and the United States urge us to consider the worrisome international-relations consequences of siding with the lower court. Discovery orders as sweeping as this one, the Government warns, will cause"a substantial invasion of [foreign states'] sovereignty,"Brief for United States as Amicus Curiae 18, and will "[u]ndermin[e] international comity," id., at 19. Worse, such orders might provoke "reciprocal adverse treatment of the United States in foreign courts," id., at 20, and will "threaten harm to the United States' foreign relations more generally," id., at 21. These apprehensions are better directed to that branch of government with authority to amend the Act-which, as it happens, is the same branch that forced our retirement from the immunity-by factor-balancing business nearly 40 years ago.6Page 11 of the Opinion