Cross-posted at WLF’s Forbes.com contributor page
On the day that it returns from its holiday break on January 10, the chances are good that the U.S. Supreme Court will agree to review a dispute between Argentina and a creditor that is owed substantial sums on defaulted bonds. Republic of Argentina v. NML Capital, Ltd., Case No. 12-842. That dispute is not the one that has been making big headlines for the past year, however. The high-profile case—in which the federal appeals court in New York (the U.S. Court of Appeals for the Second Circuit) last August upheld an order barring Argentina from treating “holdout” bondholders such as NML less favorably than other bondholders—has not yet reached the Supreme Court. Moreover, major differences exist between the two cases such that even if the Court decides this week to review the first case, there is no reason to view that decision as an indication that the Court is likely to grant review in the second, higher profile case. Indeed, there is good reason to conclude that the Court will not agree to hear the second case, which would preserve the bondholder’s victory.
The petition for review that the High Court will consider on January 10 arises from NML’s efforts to collect on court judgments against Argentina totaling $1.6 billion. NML obtained the judgments after Argentina defaulted on bonds held by NML, which the nation has refused to voluntarily pay. When judgment creditors are faced with a recalcitrant debtor, the law permits them to subpoena records for the purpose of attempting to pinpoint the location of the debtor’s assets; if they locate “nonexempt” assets, they are entitled to seize the assets in satisfaction of their court judgments. NML has been attempting to engage in just such document discovery. In particular, in 2010 it served document subpoenas on two banks located in New York in an effort to learn more about how Argentina moves assets through New York and around the world. Over Argentina’s objection, the lower federal courts upheld the subpoenas. Early in 2013, Argentina filed a petition asking the Supreme Court to review those decisions; Argentina asserted that the subpoenas violated its rights under the Foreign Sovereign Immunities Act (FSIA).
Although the Supreme Court grants no more than a tiny fraction of the thousands of petitions for review it receives each year, there is reason to conclude that the Court is giving serious consideration to granting Argentina’s petition. First, the Court issued an order last April directing the Solicitor General to file a brief expressing the views of the United States about the case. The Court issues no more than a handful of such orders each year; an order directing the Solicitor General to file a brief is generally viewed as an indication that the Court is actively mulling the petition in question. The Solicitor General’s brief, filed earlier this month, recommended that the Court grant Argentina’s petition. As studies have shown, such a recommendation substantially increases the chances of the Court’s granting a petition.
Nonetheless, a certiorari grant in the pending Argentina petition should not be viewed as a signal that the Court will also grant the yet-to-be-filed “pari passu” petition from the Second Circuit decision. Argentina argues in both cases that the lower court orders violated the FSIA, but the similarity between the two cases ends there. In particular, the reasons why the Court may be leaning in the direction of granting Argentina’s pending petition are largely inapplicable to the impending second petition.
The principal factor supporting Supreme Court review is the resolution of conflicting interpretations of law by two or more federal appeals courts. In the case pending before the High Court, the Second Circuit has adopted an interpretation of the FSIA that directly conflicts with an interpretation of the FSIA adopted by the Seventh Circuit. A 2011 Seventh Circuit decision held that the FSIA severely limits the scope of post-judgment discovery directed at a foreign sovereign’s assets. Noting that the FSIA permits attachment of only a very limited category of assets belonging to a foreign sovereign, the Seventh Circuit held that any post-judgment discovery must be limited to assets that are both located within the United States and subject to attachment under the FSIA. In contrast, the Second Circuit has held for many years that the FSIA imposes no such limitations on discovery. In particular, it held in this case that the FSIA did not bar NML from engaging in discovery from non-party banks regarding Argentine assets located throughout the world. While recognizing that U.S. courts cannot order attachment of Argentine assets located outside the U.S., the Second Circuit held that NML could use information gleaned from its document discovery to ask foreign courts to attach those assets. Given that two federal appeals courts have adopted directly conflicting interpretations of the FSIA as applied to document discovery, it would not be surprising if the Court—in accord with the recommendation of the Solicitor General—grants the pending certiorari petition.
In contrast, the pari passu case does not involve any FSIA issue over which the federal appeals courts disagree. Argentina argues that district court injunctions—which bar Argentina from making payments to holders of 2005 Exchange Bonds unless it makes equivalent payments to holdout bondholders—violate the FSIA because they amount to an attachment of Argentina’s assets. The Second Circuit brushed that argument aside in its August 2013 decision upholding the district court injunctions, explaining, “The injunctions allow Argentina to pay its [bond] debts with whatever resources it likes.” Importantly, no other federal appeals court has issued a conflicting interpretation of what constitutes an “attachment” for purposes of the FSIA. There is little reason to believe that the Supreme Court will agree to review the Second Circuit’s pari passu decision in the absence of such a conflict.
Moreover, the FSIA provision that caused the Solicitor General to question the Second Circuit’s document discovery decision is not applicable to the pari passu case. The Solicitor General asserted that because a FSIA provision bars attachment of foreign sovereign assets located outside the U.S., that provision should also be interpreted as barring discovery regarding non-U.S. assets—because such discovery could only be seen as a precursor to an effort to attach assets over which U.S. courts lack any jurisdiction. The Solicitor General’s assertion has no relevance to the pari passu case; the sole purpose of the injunctions issued in that case is to assure that holdout bondholders like NML receive “equal treatment,” not to permit the later attachment of any Argentine assets.
Argentina is scheduled to file its Supreme Court certiorari petition in the pari passu case sometime between February and April 2014. The probability that the Court will agree to hear the case is extremely low given the absence of any decisions that conflict with the Second Circuit’s interpretation of the FSIA provisions at issue in that case. That probability is reduced further still by Argentina’s repeated statements that it will not comply with an adverse decision; the Supreme Court is highly unlikely to devote its limited resources to hearing a petition from a party that does not consent to be bound by the Court’s decision on the merits. For all the reasons outlined above, a decision by the Court this month to grant review in Argentina’s document discovery dispute should not be interpreted as a signal that the Court is likely to grant review in the pari passu case as well.