Argentina Fails to Block Subpoenas Over Assets in Bond Case

Argentina and entities tied to it must give details of the country’s global assets, including diplomatic and military holdings, to creditors seeking $1.6 billion in a fight over defaulted government bonds, a U.S. appeals court ruled.

Argentina had argued the subpoenas seeking the information may violate international treaties by targeting such property, as well as diplomatic documents and individuals linked to the country, the federal appeals panel in Manhattan said in its ruling today. The court disagreed.

Argentina’s “self-serving legal assertion” of immunity “does not entitle it to withhold otherwise discoverable information,” the appeals court said in the decision. Concerns about individual assets are “entirely speculative” at this point, it said. If the subpoenas target diplomatic property, Argentina can object then, the court said.

The decision implies that entities which aren’t alter egos of Argentina and aren’t liable for its debts may still have to reveal their assets to creditors seeking repayment on debt from the country’s 2001 default on a record $95 billion. Argentina says the subpoena might involve the assets of President Cristina Fernandez de Kirchner, who has vowed never to pay.

‘Attachable Assets’

Such entities may “hold attachable assets on behalf of Argentina,” the appeals court said. Likewise, “an entity that is closely tied to (but legally distinct from) Argentina may possess information about Argentina’s assets, even if it does not own or hold those assets itself.”

The decision upholds a ruling by U.S. District Judge Thomas Griesa, who has clashed with Argentina’s lawyers over the country’s failure to adhere to earlier orders.

Holders of about 92 percent of Argentina’s repudiated debt agreed to take new bonds, at a discount of about 70 percent, in restructurings in 2005 and 2010, pitting them against investors who sued for full payment in the U.S., the forum selected by Argentina in the original bond agreements.

Griesa in 2012 barred Argentina from paying the restructured debt without also paying $1.6 billion to the holdouts, led by NML Capital Ltd., a unit of Paul Singer’s Elliott Management Corp. hedge fund. The U.S. Court of Appeals in New York upheld that ruling, which took effect after the U.S. Supreme Court declined to hear the case in June.

25 Lawsuits

Argentina told Griesa in November that holders of its defaulted bonds have filed 25 lawsuits since June as investors seek to profit from his order.

In the dispute over subpoenas, Argentina had argued that the Foreign Sovereign Immunities Act bars sharing information about sovereign property “that is potentially immune from attachment,” according to the ruling.

Argentina’s lawyer, Jonathan Blackman of Cleary Gottlieb Steen & Hamilton LLP in New York, didn’t immediately return a call or e-mail seeking comment on the ruling.

The country argued that the demands of holdout investors for documents were too broad because they “reach entities -- and, in some cases, individuals -- that are not alter egos of the republic and therefore not liable for Argentina’s debts.”

The appeals court disagreed, ruling that “broad post-judgment discovery is the norm” in U.S. federal and state courts. “Discovery” is the term for sharing information in litigation.

Court Order

The subpoenas are intended to aid holdout creditors in seizing government assets outside Argentina to cover the $1.6 billion the country has refused to pay, despite a court order to do so.

The subpoenas seek asset information from hundreds of state-related entities with accounts or operations outside Argentina. Asset categories include bank accounts and physical assets such as diplomatic and military property, according to a person familiar with the litigation.

For assets in the U.S. to be “attached,” the property would need to be used for a commercial activity, though that might include the purchase of government items including bullets and boots for the military, said the person, who asked not to be identified by name because the discussions are private.

The holdout investors can’t determine whether assets qualify under the judgment unless they first get the information they seek through the subpoenas, the person said.

Griesa will still be able to review subpoenas based on individual challenges, and grant or reject them on various grounds, according to today’s ruling.

Tense Atmosphere

The appeals court also weighed in on the tense atmosphere that has pervaded the dispute among Argentina, the holdouts and the judge in Manhattan, including NML’s bid for a contempt ruling against the nation and harsh words by Griesa over newspaper advertisements placed by Argentina that were perceived as attacks on the investors.

“We stress that Argentina -- like all foreign sovereigns - - is entitled to a degree of grace and comity,” the appeals court said in its ruling today. “We urge the district court to closely consider Argentina’s sovereign interests in managing discovery, and to prioritize discovery of those documents that are unlikely to prove invasive of sovereign dignity.”

Blackman, Argentina’s lawyer, said in arguments before the appeals panel on Dec. 17 that he didn’t know whether the country would comply with the subpoenas if they were backed on appeal. He called the requests “unprecedented.”

‘No State’

“No state has ever before been asked to turn over the keys to its defense establishment, its national security establishment, its military establishment, the personal property of its president, and state officials,” Blackman said at the hearing.

The appellate judges repeatedly questioned him about the legitimacy of Argentina’s claim of immunity.

“We have a situation here where you waived sovereign immunity, you submitted yourself to the jurisdiction of the courts of New York,” the appeals court said during oral argument. “You litigated your obligation under these bonds, for years, before this court. You lost.”

The case is NML Capital Ltd. v. Republic of Argentina, 08-cv-06978, U.S. District Court, Southern District of New York (Manhattan).

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