Republic of Argentina v. NML Capital, Ltd.

Republic of Argentina v. NML Capital, Ltd. is a U.S. Supreme Court opinion regarding foreign sovereign immunity. After defaulting on its debt and losing a federal collection action, Argentina claimed that its foreign assets were immune from discovery. The Court found that no such immunity existed.^[1][2]

On the same day as it announced this opinion the Supreme Court denied Argentina’s appeal of a court order prohibiting Argentina from favorably preferencing certain creditors.^[3][4] This was the third case involving Argentina that term, with BG Group Plc v. Republic of Argentina involving Argentina’s refusal to obey a neutral arbitrator's order^[5] and Daimler AG v. Bauman involving atrocities committed by the Argentine military junta during its Dirty War.^[6]

Background

In 2001 Argentina was in a severe economic depression. NML Capital, a ‘vulture fund’ that specializes in distressed sovereign debt, purchased at extreme discounts Argentine public bonds off a panicking market.^[7] Argentina then defaulted on $103 billion of debt.^[8] After announcing that it would not pay its debts Argentina offered its creditors a choice: accept new bonds worth 70% less, or receive nothing.^[9] The vast majority of bondholders accepted the new bonds. NML Capital did not.^[10]

Instead, NML Capital brought a collection action against Argentina in Manhattan federal district court. Finding that Argentina did have to pay its debt, District Judge Thomas Griesa ordered Argentina to pay plaintiff $2.4 billion and, pari passu, to stop favoring other creditors over NML Capital.^[11]

Argentina responded by pulling its assets out of the United States. Seeking to satisfy the judgment order, NML Capital undertook a worldwide search for Argentina’s assets, at one point convincing Ghana to seize the Argentine Navy’s ARA Libertad and forcing Argentina’s president to charter private airplanes to avoid having her state aircraft confiscated.^[12][13]

As part of its search for attachable assets NML Capital served subpoenas on Bank of America and Banco de la Nación Argentina. Argentina moved to quash, claiming that as a sovereign the locations of its assets were immune from discovery. Judge Griesa disagreed, ordering discovery on all assets “reasonably calculated to lead to attachable property.” On Argentina’s appeal the Second Circuit affirmed the discovery order.^[14] Still refusing to comply, Argentina then petitioned for a writ of certiorari from the Supreme Court of the United States and the petition was granted.

Opinion

The Supreme Court affirmed, with Justice Scalia writing for the seven member majority. Scalia first traces the history of foreign sovereign immunity in the United States, from initially undisturbed Executive discretion, to the “muddling” noncommercial acts distinction the State Department adopted in 1952, to Congress’s creation of the “comprehensive” Foreign Sovereign Immunities Act of 1976.

Scalia then turns to the statute’s text. FSIA does not expressly address postjudgment discovery. Argentina claimed that there is “meaning from this silence”, and since discovery is not expressly permitted it is, then, prohibited. Scalia disagrees. Emphasizing that FSIA is the comprehensive framework for sovereign immunity, Scalia finds that any claimed immunity must stand or fall on the Act’s text alone.^[15] Noting that the “riddle” of Congress’s motive was not “ours to solve”, Scalia found that since Congress did not mention foreign sovereign immunity from postjudgment discovery in the Act, there can be no such immunity.

Dissent

Justice Ginsburg dissented. Noting that FISA and international law only allow the attachment of commercial property, Ginsburg objected to the discovery order’s “unlimited inquiry”. Because NML Capital had offered no proof that foreign noncommercial assets were be subject to attachment, Ginsberg questioned what authorization a US court could have to act as a “clearinghouse for information” about Argentina’s noncommercial property.

Reaction

One month later Argentina, again, defaulted on its debt. Argentina then unsuccessfully attempted to sue the United States at the Hague for “judicial malevolence”.^[16] The United Nations General Assembly condemned debt collection on sovereign debt.^[17] After Argentina continued to refuse to follow court orders, Judge Griesa held it in contempt.^[18] Creditors worldwide are imitating NML Capital, with Argentina losing lawsuits to creditors in Germany and England.^[19][20]

References