In 2001,
Argentina imposed a moratorium on its debt service payments and since then has
not made scheduled payments. NML Capital, Ltd. (NML) and EM, Ltd. (EM)
(Plaintiffs) hold some of those debt obligations. In 2003, they sued Argentina
in New York federal court. The bonds held by Plaintiffs contain waivers of
Argentina’s sovereign immunity.
The district
court granted EM a final judgment for almost $725 million. NML has not yet
obtained any judgment. Plaintiffs sought to attach $105 million of the Banco
Central de la Republica Argentina [Central Bank of the Republic of Argentina]
(BCRA) at the Federal Reserve Bank of New York (FRBNY).
Plaintiffs argued
that the court can attach the funds based on two Argentine decrees. They
authorized its Government to use BCRA funds to repay Argentina’s debt to the
International Monetary Fund (IMF). Argentine President Nestor Kirchner issued
Decrees 1599/2005 and 1601/2005 to use certain BCRA reserves for the payment of
international debts. The decrees made about $8.4 billion available for these
purposes.
The district
court granted EM a restraining notice under 28 U.S.C. Section 1610(c) of the
Foreign Sovereign Immunities Act of 1976 (FSIA). It provides that a federal
court may order the attachment of, or execution against, the assets of a
foreign state or its instrumentalities. NML also obtained an ex parte order of
prejudgment attachment and temporary restraining orders as to the same assets.
The FSIA
generally protects a foreign state’s property from attachment and execution,
subject to existing international obligations, except for limited circumstances
(see 28 U.S.C. Sections 1610 and 1611). The FSIA protections also apply to
instrumentalities of a foreign state such as BCRA, though the standards differ
from those for the states as such. The FSIA specifically protects the U.S.
assets of foreign central banks. 28 U.S.C. Section 1611(b)(1).
In January
2006, the government of Argentina and BCRA moved to have the court set aside
the attachments and restraining notices. The district court agreed, considering
the funds immune based on the FSIA, 28 U.S.C. Sections 1609‑11. Although the
Plaintiffs appealed, the Second Circuit affirms.
The
Argentine decrees did not, in its view, create an attachable interest on the
part of Argentina in the FRBNY Funds. Further, the FRBNY Funds are immune from
attachment because BCRA, an entity that is separate from the Republic of
Argentina, continues to own them.
Here,
Plaintiffs relied on the attachment provisions applicable to foreign states in
Section 1610; this assumed that the FRBNY Funds are attachable assets of the
Republic of Argentina—but not of BCRA. “Although plaintiffs hold or seek
judgments against the Republic, the FRBNY Funds that plaintiffs seek to attach
are held in BCRA’s name. Plaintiffs have conceded that: (1) before December 15,
2005, the date on which the Decrees were issued, the FRBNY Funds were the
property of BCRA; (2) plaintiffs had no right to attach the FRBNY Funds before
that date; and (3), even after issuance of the Decrees, the FRBNY Funds were
held in BCRA’s name. Thus, under New York law, it is presumed that the FRBNY
Funds continue to be owned by BCRA even after issuance of the Decrees. ...”
“Plaintiffs
do not bring to our attention any contrary New York or Argentine legal
principles governing ownership of funds in bank accounts ..., nor do they point
to any order or other document explicitly transferring ownership of the FRBNY
Funds from BCRA to the [Argentine] Republic. Instead, plaintiffs contend that
the Decrees changed the legal status of $8.4 billion of BCRA’s reserves—i.e.,
the funds that the Decrees designated as Unrestricted Reserves – when it made
those funds available to pay the Republic’s debt to the IMF.”
“NML
contends that the Decrees had the effect of making the Unrestricted Reserves
property of the Republic. ... EM argues that it is immaterial whether the
‘nominal’ holding and ownership of the Unrestricted Reserves changed, because,
under New York attachment law, the Unrestricted Reserves are attachable if the
Republic has a right to assign or transfer them. ... According to EM, the
Unrestricted Reserves must be subject to attachment because the Decrees
demonstrated the Republic’s power to assign or transfer BCRA’s assets. ...”
[Slip op. 8]
The Court
disagrees. The Decrees did not alter property rights in the FRBNY Funds. They
merely reflect Argentina’s ability to control BCRA itself. Plaintiffs failed to
show that they can attach the FRBNY Funds based on Argentina’s control over
BCRA. There is no evidence that BCRA transferred ownership or control over the
funds to the Republic.
“We see no
reason why the presumption of separateness required by Bancec and applied in
Letelier and LNC Investments [see below] should not apply here to shield the
FRBNY Funds from attachment. The separate juridical status of BCRA is not
disputed by plaintiffs, ... and plaintiffs expressly elected not to argue in
support of attachment that BCRA’s separate juridical status should be
disregarded because BCRA is the alter ego of the Republic. ...”
“Nor have
they argued that the Bancec presumption should be overcome based on a finding
that disregarding BCRA’s separate juridical status is necessary to prevent
fraud or injustice. ... In fact, neither EM nor NML even so much as mentions
Bancec in its briefs.”
“We reject
plaintiffs’ effort to circumvent First Nat’l City Bank v. Banco Para El
Comercio Exterior de Cuba, 462 U.S. 611, 628‑33 (1983) (Bancec) and our
decisions in Letelier v. Republic of Chile, 748 F.2d 790, 794 (2d Cir. 1984)
and LNC Invs., Inc. v. Republic of Nicaragua, 115 F. Supp. 2d 358 (S. D. N. Y.
2000), aff’d sub nom. LNC Invs., Inc. v. Banco Central de Nicaragua, 228 F.3d
423 (2d Cir. 2000) by characterizing the Republic’s ability and willingness to
control BCRA as a transfer of property rights sufficient to give the Republic
an attachable interest in the FRBNY Funds.”
“Under
Bancec and its progeny, plaintiffs bear the burden of overcoming the
presumption that the FRBNY Funds are not available to satisfy a judgment
against the Republic. Bancec indicates two circumstances in which the
presumption may be overcome—if BCRA were proven to be the alter ego of the
Republic, or if disregarding BCRA’s separate juridical status were necessary to
avoid fraud or injustice. Plaintiffs chose not to argue that either of these
circumstances existed here, even though the Republic’s alleged misdeeds cited
in plaintiffs’ briefs might have lent some credence to these arguments. ...”
“Bancec
forecloses any argument that all of BCRA’s $26.8 billion in reserves are
‘attachable interests’ of the Republic merely because the Republic
hypothetically could have ordered (but in the Decrees did not order) BCRA to
assign or transfer the FRBNY Funds. See Letelier, above at 794 (findings that
assets and facilities of Chile’s instrumentality LAN ‘were under the direct
control of Chile, which had the power to use them; [and that] Chile could have
decreed LAN’s dissolution and taken over property interests held in LAN’s name’
did not support allowing creditor to attach LAN’s assets in order to satisfy
judgment against Chile).” [Slip op. 12‑13].
Finally, the
Court notes that FSIA Section 1610(a) dealing with “property in the United
States ... used for a commercial activity in the United States” does not permit
the attachment of the FRBNY Funds even if they were considered an attachable
asset of the Republic of Argentina. A government’s repayment of its debt to the
IMF is not a “commercial activity” and there is no showing that the FRBNY Funds
were to be “used for” repayment of the IMF obligations.
Citation:
EM Ltd. v. Republic
of Argentina, No. 06‑0403‑cv (2d Cir. January 5, 2007).
*** About Sarah Ellen Cox: Sarah E. Cox is a Personal Injury attorney in Fort Myers, Florida. Ms. Cox received her Juris Doctor from Whittier School of Law in 2005, and was admitted to the Florida Bar in 2008. News about Sarah E. Cox are at: https://attorneygazette.com/sarah-ellen-cox# Attorney Profile at: https://solomonlawguild.com/sarah-ellen-cox Blog at: http://SarahECoxBlog.blogspot.com
