NML’s request for discovery of state assets – through subpoenas on banks, related third parties, embassies and a host of other properties including reserves held at the Argentine central bank (BCRA) that would allow plaintiffs to then attach and execute on – is running in parallel to its efforts to enforce its pari passu claims. Elliott has attempted for many years to seize assets across the globe and recover the funds owed to it under its defaulted FAA bonds but has met with little success so far.

18:28 Argentina knocked back in US District Court hearing; holdouts granted motions for asset discovery

Story: Last week’s hearing between a group of plaintiffs led by Elliott Management subsidiary NML Capital and the Republic of Argentina dealt another blow to the sovereign embroiled in an 11-year legal dispute following its 2001 default.



The proceedings before US District Court (DC) Judge Thomas Griesa did not result in any rulings but the Court granted motions to enforce existing subpoenas surrounding the discovery of worldwide Argentine assets and denied the Republic’s motion to quash.



NML’s request for discovery of state assets – through subpoenas on banks, related third parties, embassies and a host of other properties including reserves held at the Argentine central bank (BCRA) that would allow plaintiffs to then attach and execute on – is running in parallel to its efforts to enforce its pari passu claims. Elliott has attempted for many years to seize assets across the globe and recover the funds owed to it under its defaulted FAA bonds but has met with little success so far.



Throughout this perennial litigation, five money judgments have been entered to NML’s favour against Argentina totalling approximately USD 1.6bn. In 2011 Judge Griesa also granted summary judgment to NML in six additional actions with claims totalling over USD 900m (with interest) on the hedge fund’s claim that the Republic breached the pari passu clause embedded in its bonds as it “relegat[ed] NML’s bonds to a non-paying class.”



In an effort to enforce those judgments, NML has sought discovery of the location of Argentina’s assets by serving subpoenas on third parties, government agencies, ministries, affiliates, alter-egos and all other persons acting on Argentina’s behalf. Griesa has for many years given Argentina the benefit of the doubt over what can and cannot be seized by judgment creditors but started ruling in favour of the plaintiffs in 2011.



The latest hearing addresses a different but related set of subpoenas the Second Circuit Court of Appeals (AC) decided on 20 August 2012. At the time, the AC moved to set forth the basic rule that a judgment creditor is not obligated to show that specific assets are likely subject to execution under US law in order to obtain discovery about them. In other words, whether a particular sovereign asset is immune from attachment needs to be determined separately under the Foreign Sovereign Immunities Act (FSIA) and does not affect discovery. A petition for writ of certiorari is pending in the Supreme Court (since 7 January) in which Argentina’s lawyers argue that the Second Circuit’s decision conflicts with other circuits, that federal statutes are presumed to apply domestically and not extraterritorially and that the legal dispute has foreign policy implications for the US.



Judge Griesa was quick to grant the motions of the subpoenas, characterising Argentina’s attitude as “defiant”, which he noted should hopefully change when the AC’s decision becomes final. In siding with the plaintiffs he added that the request for discovery on certain assets is “most strange” and that this was not a “normal case”, but stated “the plaintiffs are anything but frivolous in seeking to have information about the possible use of some branch of the Republic to do something that that branch does not normally do, that is, deal with assets.”



“Like many of the Second Circuit’s recent rulings in enforcement cases involving sovereigns, Judge Griesa’s comments reflect a mounting impatience with foreign states that refuse to abide by lawful adjudications of US courts, particularly in those circumstances where the state has waived its immunity,” a legal source said.



The timing and outcome of the hearing has led many market participants to infer that NML is planning to escalate its efforts to recover the debts in expectation of the Republic continuing to try and implement a payment workaround of some form (which is looking legally impossible) or choose to self-destruct and default on its restructured bonds, which would leave the sovereign compliant with Griesa's amended injunction affirmed by the AC last month. The plaintiffs would then have no option but to resort to attachment, which is much harder than blocking parts of the payment system.



“The view that Elliott is desperate is totally flawed,” said the legal source. “There is a huge amount of background litigation going on which the market is not even aware of. Discovery in aid of execution is a more pedestrian route that Elliott has been pursuing for years.”



The transcript of the hearing goes into great detail surrounding the FSIA, as well as touching on The Hague Convention and the Vienna Convention. The hearing was originally scheduled to be held in early August but was pushed back for procedural reasons, according to sources close to the situation.



The timing of the hearing is not related to the AC issuing its long-awaited opinion on Argentina’s appeal from the District Court’s amended injunction last month which required the sovereign to make a “ratable payment” to plaintiffs whenever it honours its payment obligations to restructured creditors, the sources said.



“The hearing and resulting motion to grant discovery is not a way to intuit what the plaintiffs are thinking,” noted the legal source. “It is another positive result for the plaintiffs through the courts.”



“This is really an offshoot and there is no stay in place, so the plaintiffs can continue to collect information on parties subject to the subpoena,” said one of the sources close to the situation. “The trouble is the holdouts have to constantly ask for more information from banks and entities that are slow and inefficient in doing just that.”



There is no doubt that Argentina expressly waived its sovereign immunity in its underlying bond contracts (under clause 22 of FAA) and agreed not to plead any claims it might have to state immunity. The Republic has long argued that the Extraterritorial Asset Discovery Order served by the DC violates the FSIA by permitting discovery on assets located outside the United States, not used for commercial activity in the US and belonging to entities and officials other than the Republic.



by Christopher de Vrieze



Source: Debtwire 

Intel. Grade: Strong evidence

Intelligence ID: 1656329