New York Times

By ADAM LIPTAK
June 16, 2014

The Supreme Court handed Argentina two major defeats on Monday in cases
brought by bondholders who refused to accept reduced payments after the
country’s 2001 default.

The developments are likely to add to the turmoil in Argentina’s already
unsettled bond market.

In a one-line order issued at 9:30 a.m., the court refused to hear Argentina’s
appeal of a lower court’s decision requiring it to pay holdouts who did not
participate in debt restructurings in 2005 and 2010. About 45 minutes later, the
court issued a 7-to-1 decision allowing the bondholders to issue subpoenas to
banks in an effort to trace Argentina’s assets abroad.

The holdouts include NML Capital, an affiliate of Elliott Management, the
hedge fund founded by Paul Singer. It brought 11 lawsuits in federal court in
Manhattan to collect the billions it said it was owed, winning each one.

The case the court declined to hear, Argentina v. NML Capital, No. 13-990,
concerned the larger question of whether those rulings were correct.

The United States Court of Appeals for the Second Circuit, in New York,
ruled last August that Argentina had violated a contractual promise to treat all
bondholders equally.

In the Supreme Court, Argentina asked the justices to refer the case to New
York’s highest court for a definitive resolution of the proper interpretation of
that contractual language, as it is a question of state law.

Separately, Argentina asked the justices to decide whether the lower court
had misinterpreted a federal law on sovereign immunity.

The bondholders had urged the justices not to hear the case, in part because
they said Argentina had vowed not to comply with a ruling against it in the case,

“This court does not grant review to render decisions that the parties are free to
ignore,” their brief said.

Argentina replied that it would try to comply but that another default would
be a possibility given the overall sums at stake for all holdout bondholders.

“Since Argentina lacks the financial resources to pay the holdouts in full
(what would amount to $15 billion) while also servicing its restructured debt to
92 percent of bondholders,” the country’s lawyers wrote, “Argentina will have to
face, objectively, a serious and imminent risk of default.”

The case in which the justices actually ruled, Argentina v. NML Capital, No
12-842, was by comparison less significant. It concerned whether federal courts
in the United States may issue subpoenas to banks to help creditors who have
won judgments against Argentina find its assets around the world.

Justice Antonin Scalia, writing for the majority, said the subpoenas were
proper and did not offend the protections Congress granted to Argentina and
other countries in the Foreign Sovereign Immunities Act.

For starters, he said, Argentina had waived its immunity from the
jurisdiction of courts in the United States in the contracts it signed when it sold
the bonds.

The law also makes some kinds of property owned by a foreign country in
the United States ineligible to be seized to pay a court judgment.

“That is the last of the act’s immunity-granting sections,” Justice Scalia
wrote. “There is no third provision forbidding or limiting discovery,” or court-
ordered factual investigation, “in aid of execution of a foreign-sovereign
judgment debtor’s assets.”

Argentina argued that subpoenas meant to uncover assets held abroad were
improper if those assets could not be seized under the relevant foreign law.

Justice Scalia conceded the point. “But the reason for these subpoenas,” he said,
“is that NML does not yet know what property Argentina has and where it is, let
alone whether it is executable under the relevant jurisdiction’s law.”

In a dissent, Justice Ruth Bader Ginsburg said such subpoenas were
improper unless the bondholders could first show that there was something to be
seized.

“A court in the United States,” she wrote, “has no warrant to indulge the
assumption that, outside our country, the sky may be the limit for attaching a
foreign sovereign’s property in order to execute a U.S. judgment against the
foreign sovereign.”

Justice Scalia responded that there was no reason to require creditors to
prove up front that they were entitled to seize property turned up through a
subpoena.

The Obama administration had urged the justices to rule for Argentina in
the subpoena case. “The United States would be gravely concerned about an
order of a trial court in a foreign country, entered at the behest of a private
person, seeking to establish a clearinghouse in that country of all the United
States’ assets,” Edwin S. Kneedler, a deputy solicitor general, said at the
argument of the case in April.

In its brief, the administration said a ruling for the bondholders would
harm international relations and could provoke “reciprocal adverse treatment of
the United States in foreign courts.

Justice Scalia said those concerns should be addressed to Congress, which
enacted the Foreign Sovereign Immunities Act in 1976 in an effort to address
what he called the bedlam of “the old executive-driven, factor-intensive, loosely
common-law-based immunity regime.”

The administration’s apprehensions, Justice Scalia wrote, “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.”

Justice Sotomayor recused herself in both cases. As is the court’s custom, she
offered no explanation for the move.