Argentina Gets U.S. Court Skepticism on Bank Subpoenas

Argentina got a skeptical reception at the U.S. Supreme Court as the justices considered whether two banks must turn over details about the country’s assets as part of a multibillion-dollar fight over defaulted government bonds.

Hearing arguments today in Washington, the justices took their first look at a clash between Argentina and owners of the defaulted bonds, led by an affiliate of billionaire hedge-fund manager Paul Singer’s Elliott Management Corp. The dispute has roiled the country’s financial markets, with Argentina saying rulings against the government might force a new default.

Several justices, including Antonin Scalia and Sonia Sotomayor, suggested that the banks can be forced to provide details about Argentine assets worldwide through the legal process of discovery.

“I don’t see that it goes beyond the bounds of what the law allows the discovery to cover,” Scalia said.

The dispute before the justices represents one slice of the fight -- an effort by Elliott’s NML Capital to collect $1.6 billion in judgments it has won in U.S. court cases against Argentina. NML is seeking information from Bank of America Corp. and state-owned Banco de la Nacion Argentina about accounts held by Argentina and hundreds of its officials worldwide.

Military Assets

One possibility is that the Supreme Court could trim a trial judge’s order backing the hedge fund, or at least give Argentina a chance to seek revisions. Several justices asked whether the bondholders could get information about military and diplomatic assets, which the U.S. Foreign Sovereign Immunities Act would make exempt from seizure in this country.

“That’s pretty intrusive at a sovereign level to say you can find out how many jet fighters Argentina happens to have,” Chief Justice John Roberts said.

Argentina says the FSIA would bar the bondholders from collecting those overseas assets. As a result, the country argues, the law also precludes the bondholders from demanding information about that money.

Justice Elena Kagan suggested she read the text of the FSIA differently. She and other justices said that in the case of a private defendant, a judge could require disclosure of assets worldwide.

“What in the text would put a foreign government in a different position than when the suit involved only private parties?” Kagan asked.

U.S. Backing

NML contends that the FSIA doesn’t affect the traditional power of federal trial judges to order entities to provide information that is relevant to a legal claim.

The Obama administration is backing Argentina in the case. The legal fight is putting U.S. courts in the unusual position of shaping another country’s financial future.

A federal trial judge in Manhattan ordered the banks to comply with the subpoenas. An appeals court upheld the order, prompting Argentina to appeal to the highest U.S. court.

The dispute stems from Argentina’s 2001 default on a record $95 billion in debt. The country offered to substitute bonds worth 25 cents to 29 cents on the dollar in 2005 and made a similar proposal in 2010. Owners tendered about 92 percent of the outstanding debt.

Potential Preview

The case is potentially a preview of a separate, higher-stakes battle involving the same litigants. Argentina is asking the Supreme Court to review a ruling that requires the country to pay owners of the repudiated bonds in full before it can make payments on a separate $24 billion in restructured debt.

The high court may hold off acting on that appeal until the justices resolve the bank subpoena case. The justices will rule by late June or early July, when their nine-month term is scheduled to end.

Today’s hour-long session included only faint hints about how the justices might view the larger battle. Justice Ruth Bader Ginsburg, who emerged as perhaps Argentina’s strongest supporter on the court today, suggested that NML was taking an extreme position in the litigation.

“The vast majority of the bondholders settled with Argentina,” she said.

Limited Backing

Scalia said he found it “extraordinary” that no foreign country had filed a brief in support of Argentina in the bank case. “Not a single foreign country, maybe because Argentina owes them money as well as it does these plaintiffs,” he said, drawing laughter from the audience.

Argentina already has stronger support in the other case, with briefs filed by Mexico, France and Brazil urging the court to intervene.

Argentina’s lawyer, Jonathan Blackman, said a federal appeals court had imposed a “sweeping worldwide forensic examination” of the country’s property.

A Justice Department attorney, Deputy Solicitor General Edwin Kneedler, said the lower court ruling violated principles of “international reciprocity.” He said the U.S. government would be “gravely concerned” if a foreign court made itself “a clearinghouse in that country of all the United States’ assets,” including those used for military and diplomatic purposes.

That drew a comeback from Justice Sonia Sotomayor. “How often do you think the U.S. is going to default on paying a judgment and have people chase it all around the world?” she asked.

The bondholders’ attorney, Theodore Olson, told the justices that Argentina, when it issued the bonds, agreed to submit to the jurisdiction of U.S. courts. Had it not done so, “it never would have been able to borrow any money in the United States,” Olson said.

This time, it was Roberts who pushed back, telling Olson, “it seems to me that context is totally irrelevant.”

The case is Argentina v. NML Capital, 12-842.

To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net

To contact the editors responsible for this story: Patrick Oster at poster@bloomberg.net Laurie Asseo, Mark McQuillan

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