Argentina May Get Supreme Court Review For Its First Debt Case, But Not The Second

Jan 6 2014, 12:59pm CST | by

Argentina May Get Supreme Court Review For Its First Debt Case, But Not The Second
Photo Credit: Forbes Business

Originally posted at WLF’s Legal Pulse blog

On the day that it returns from its holiday break on January 10, the chances are good that the U.S. Supreme Court will agree to review a dispute between Argentina and a creditor that is owed substantial sums on defaulted bondsRepublic of Argentina v. NML Capital, Ltd ., Case No. 12-842.  That dispute is not the one that has been making big headlines for the past year, however.  The high-profile case—in which the federal appeals court in New York (the U.S. Court of Appeals for the Second Circuit) last August upheld an order barring Argentina from treating “holdout” bondholders such as NML less favorably than other bondholders—has not yet reached the Supreme Court.  Moreover, major differences exist between the two cases such that even if the Court decides this week to review the first case, there is no reason to view that decision as an indication that the Court is likely to grant review in the second, higher profile case.  Indeed, there is good reason to conclude that the Court will not agree to hear the second case, which would preserve the bondholder’s victory.

The petition for review that the High Court will consider on January 10 arises from NML’s efforts to collect on court judgments against Argentina totaling $1.6 billion.  NML obtained the judgments after Argentina defaulted on bonds held by NML, which the nation has refused to voluntarily pay.  When judgment creditors are faced with a recalcitrant debtor, the law permits them to subpoena records for the purpose of attempting to pinpoint the location of the debtor’s assets; if they locate “nonexempt” assets, they are entitled to seize the assets in satisfaction of their court judgments.  NML has been attempting to engage in just such document discovery.  In particular, in 2010 it served document subpoenas on two banks located in New York in an effort to learn more about how Argentina moves assets through New York and around the world.  Over Argentina’s objection, the lower federal courts upheld the subpoenas.  Early in 2013, Argentina filed a petition asking the Supreme Court to review those decisions; Argentina asserted that the subpoenas violated its rights under the Foreign Sovereign Immunities Act (FSIA).

Although the Supreme Court grants no more than a tiny fraction of the thousands of petitions for review it receives each year, there is reason to conclude that the Court is giving serious consideration to granting Argentina’s petition.  First, the Court issued an order last April directing the Solicitor General to file a brief expressing the views of the United States about the case.  The Court issues no more than a handful of such orders each year; an order directing the Solicitor General to file a brief is generally viewed as an indication that the Court is actively mulling the petition in question.  The Solicitor General’s brief, filed earlier this month, recommended that the Court grant Argentina’s petition.  As studies have shown, such a recommendation substantially increases the chances of the Court’s granting a petition.

Nonetheless, a certiorari grant in the pending Argentina petition should not be viewed as a signal that the Court will also grant the yet-to-be-filed “pari passu” petition from the Second Circuit decision.  Argentina argues in both cases that the lower court orders violated the FSIA, but the similarity between the two cases ends there.  In particular, the reasons why the Court may be leaning in the direction of granting Argentina’s pending petition are largely inapplicable to the impending second petition.

The principal factor supporting Supreme Court review is the resolution of conflicting interpretations of law by two or more federal appeals courts.  In the case pending before the High Court, the Second Circuit has adopted an interpretation of the FSIA that directly conflicts with an interpretation of the FSIA adopted by the Seventh Circuit.  A 2011 Seventh Circuit decision held that the FSIA severely limits the scope of post-judgment discovery directed at a foreign sovereign’s assets.  Noting that the FSIA permits attachment of only a very limited category of assets belonging to a foreign sovereign, the Seventh Circuit held that any post-judgment discovery must be limited to assets that are both located within the United States and subject to attachment under the FSIA.  In contrast, the Second Circuit has held for many years that the FSIA imposes no such limitations on discovery.  In particular, it held in this case that the FSIA did not bar NML from engaging in discovery from non-party banks regarding Argentine assets located throughout the world.  While recognizing that U.S. courts cannot order attachment of Argentine assets located outside the U.S., the Second Circuit held that NML could use information gleaned from its document discovery to ask foreign courts to attach those assets.  Given that two federal appeals courts have adopted directly conflicting interpretations of the FSIA as applied to document discovery, it would not be surprising if the Court—in accord with the recommendation of the Solicitor General—grants the pending certiorari petition.

In contrast, the pari passu case does not involve any FSIA issue over which the federal appeals courts disagree.  Argentina argues that district court injunctions—which bar Argentina from making payments to holders of 2005 Exchange Bonds unless it makes equivalent payments to holdout bondholders—violate the FSIA because they amount to an attachment of Argentina’s assets.  The Second Circuit brushed that argument aside in its August 2013 decision upholding the district court injunctions, explaining, “The injunctions allow Argentina to pay its [bond] debts with whatever resources it likes.”  Importantly, no other federal appeals court has issued a conflicting interpretation of what constitutes an “attachment” for purposes of the FSIA.  There is little reason to believe that the Supreme Court will agree to review the Second Circuit’s pari passu decision in the absence of such a conflict.

Moreover, the FSIA provision that caused the Solicitor General to question the Second Circuit’s document discovery decision is not applicable to the pari passu case.  The Solicitor General asserted that because a FSIA provision bars attachment of foreign sovereign assets located outside the U.S., that provision should also be interpreted as barring discovery regarding non-U.S. assets—because such discovery could only be seen as a precursor to an effort to attach assets over which U.S. courts lack any jurisdiction.  The Solicitor General’s assertion has no relevance to the pari passu case; the sole purpose of the injunctions issued in that case is to assure that holdout bondholders like NML receive “equal treatment,” not to permit the later attachment of any Argentine assets.

Argentina is scheduled to file its Supreme Court certiorari petition in the pari passu case sometime between February and April 2014.  The probability that the Court will agree to hear the case is extremely low given the absence of any decisions that conflict with the Second Circuit’s interpretation of the FSIA provisions at issue in that case.  That probability is reduced further still by Argentina’s repeated statements that it will not comply with an adverse decision; the Supreme Court is highly unlikely to devote its limited resources to hearing a petition from a party that does not consent to be bound by the Court’s decision on the merits.  For all the reasons outlined above, a decision by the Court this month to grant review in Argentina’s document discovery dispute should not be interpreted as a signal that the Court is likely to grant review in the pari passu case as well.

Source: Forbes Business

 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

New crew aboard Russian spaceship reach ISS
Washington, Nov 24 (IANS) Three new crew members from the US, Russia and Italy arrived Monday at the International Space Station (ISS) on board a Russian spaceship.
 
 
First Italian female astronaut ready for spaceflight
Rome, Nov 24 (IANS) History will be made Monday with the first ever Italian female astronaut set to go into space for a mission on board the International Space Station (ISS).
 
 
Mummy wearing jewellery unearthed in Egypt
London, Nov 23 (IANS) Spanish archaeologists have discovered about 4,000 years old female mummy wearing rare jewellery in Egypt.
 
 
Exercise and fasting could boost brain's functions
Washington, Nov 23 (IANS) Exercise along with occasional fasting is good for boosting the brain's neurons, shows a new research.
 
 
 

Latest from the Network

Hamilton admits hardly sleeping the night before
Abu Dhabi, Nov 24 (IANS/CMC) Newly crowned Formula 1 World champion Lewis Hamilton has revealed he hardly slept the night before the season-ending Abu Dhabi Grand Prix which he eventually won to clinch his second...
Read more on Sport Balla
 
Real Madrid to play in Australian tournament
Melbourne, Nov 24 (IANS) Real Madrid, which boasts the most expensive squad in world football, have been announced as one of three teams to compete in the International Champions Cup in Melbourne in July. The...
Read more on Sport Balla
 
Cruzeiro win Brazil Serie A title
Belo Horizonte (Brazil), Nov 24 (IANS) Cruzeiro have clinched their second consecutive Brazilian Serie A title with a 2-1 victory over Goias. Everton Ribeiro struck the winner at the Mineirao stadium Sunday after...
Read more on Sport Balla
 
Honours shared in Milan derby
Rome, Nov 24 (IANS) Inter Milan have played out a 1-1 draw against crosstown rivals AC Milan in a sellout Serie A game. Jeremy Menez gave AC Milan a lead at halftime but Joel Obi equalised for Inter shortly after the...
Read more on Sport Balla
 
IOC chief condemns Afghan bombing
Lausanne, Nov 24 (IANS) International Olympic Committee President Thomas Bach condemned the suicide bombing at a volleyball tournament in Afghanistan. The lone bomber detonated explosives Sunday during a local...
Read more on Sport Balla
 
Marseille tops French league
Paris, Nov 24 (IANS) Marseille have climbed to the top of the French league after rallying to beat Bordeaux 3-1. With the victory, they now enjoy a one-point lead over Paris Saint-Germain. Bordeaux striker Thomas...
Read more on Sport Balla
 
New crew aboard Russian spaceship reach ISS
Washington, Nov 24 (IANS) Three new crew members from the US, Russia and Italy arrived Monday at the International Space Station (ISS) on board a Russian spaceship. Terry Virts of NASA, Soyuz Commander Anton...
Read more on Business Balla
 
Sears plans for big Black Friday 2014
Sears is looking foward to cashing in big time for the upcoming Black Friday 2014 shopping holiday on Novermber 28th. Members of Sears have seen their Black Friday specials start one week early and the company has...
Read more on Black Friday Countdown
 
Apple gears up for Black Friday
Black Friday is fast approaching and one company that plans on seeing a sales increase is Apple. Apple has announced that they will have discounted prices for the upcoming buying holiday and one product they plan on...
Read more on Black Friday Countdown
 
Thousands protest in Chile in favour of new constitution
Santiago, Nov 24 (IANS/EFE) Several thousand people took to the streets of Santiago and other Chilean cities to demand a Constitutional Assembly as a means to provide the country with a new constitution, as was...
Read more on Politics Balla