Em Ltd. v. Republic of Argentina

• Decision Date: 05 January 2007
• Docket Number: Docket No. 06-0403-cv.,Docket No. 06-0406-cv.,Docket No. 06-0405-cv.
• Citation: 473 F.3d 463
• Parties: EM LTD., Plaintiff-Appellant, v. REPUBLIC OF ARGENTINA, Defendant-Appellee. NML Capital, Ltd., Plaintiff-Appellant, v. The Republic of Argentina, Defendant-Appellee. NML Capital, Ltd., Plaintiff-Appellant, v. The Republic of Argentina, Defendant-Appellee, Banco Central De La Republica Argentina, Interested-Non-Party-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

473 F.3d 463

EM LTD., Plaintiff-Appellant, v. REPUBLIC OF ARGENTINA, Defendant-Appellee.

NML Capital, Ltd., Plaintiff-Appellant, v. The Republic of Argentina, Defendant-Appellee.

NML Capital, Ltd., Plaintiff-Appellant, v. The Republic of Argentina, Defendant-Appellee, Banco Central De La Republica Argentina, Interested-Non-Party-Appellee.

Docket No. 06-0403-cv.

Docket No. 06-0405-cv.

Docket No. 06-0406-cv.

United States Court of Appeals, Second Circuit.

Argued: August 29, 2006.

Decided: January 5, 2007.

David W. Rivkin (Dennis H. Hranitzky, Jason R. Abel, on the brief), Debevoise & Plimpton LLP, New York, NY, for Plaintiff-Appellant EM Ltd.

Roy T. Englert, Jr., Robbins, Russell, Englert, Orseck & Untereiner LLP, Washington, DC (Alan E. Untereiner, Robbins, Russell, Englert, Orseck & Untereiner LLP, Washington, DC; Robert A. Cohen, Dechert LLP, New York, NY, on the brief), for Plaintiff-Appellant NML Capital, Ltd.

Jonathan I. Blackman (Carmine D. Boccuzzi, Michael J. Byars, on the brief), Cleary Gottlieb Steen & Hamilton LLP, New York, NY, for Defendant-Appellee The Republic of Argentina.

Joseph E. Neuhaus (Laurent S. Wiesel, Claire E. Coleman, Julia M. Guaragna, Sergio J. Galvis, on the brief), Sullivan & Cromwell LLP, New York, NY, for Interested-Non-Party-Appellee Banco Central de la República Argentina.

Serrin Turner, Assistant United States Attorney (Michael J. Garcia, United States Attorney, Kathy S. Marks, Assistant United States Attorney, United States Attorney's Office for the Southern District of New York, New York, NY; Peter Keisler, Assistant Attorney General, Douglas N. Letter, Irene Solet, Department of Justice, Washington, D.C.; Arnold I. Havens, General Counsel, Department of Treasury, Washington, D.C.; John B. Bellinger, III, Legal Adviser, Department of State, Washington, D.C., on the brief), United States Attorney's Office for the Southern District of New York, New York, NY, for Amicus Curiae United States of America in support of Appellees.

Barry M. Schindler (Thomas C. Baxter, Jr., General Counsel, James P. Bergin, Andrew C. Huszar, on the brief), Federal Reserve Bank of New York, New York, NY, for Amicus Curiae Federal Reserve Bank of New York in support of Appellees.

Before WINTER, CABRANES, and POOLER, Circuit Judges.

JOSÉ A. CABRANES, Circuit Judge.

This appeal arises from the efforts of plaintiffs-appellants NML Capital, Ltd. ("NML") and EM Ltd. ("EM") (collectively, "plaintiffs") to attach certain funds held in an account of the Banco Central de la República Argentina ("BCRA"), the central banking authority of the Republic of Argentina ("Argentina" or "the Republic"), at the Federal Reserve Bank of New York ("FRBNY") (the "FRBNY Account").¹ EM holds, and NML seeks, a judgment against the Republic arising out of the Republic's default on debt obligations held by EM and NML. Even though plaintiffs do not hold or seek judgments against BCRA, they contend that they are entitled to attach $105 million of BCRA's funds held in the FRBNY Account (the "FRBNY Funds"). In particular, plaintiffs argue that the Republic obtained an attachable interest in the FRBNY Funds after the President of the Republic issued two decrees that gave the Republic the authority to use BCRA funds for repayment of the Republic's debts to the International Monetary Fund ("IMF"), but that did not specifically designate the FRBNY Funds for use in repaying the IMF. The United States District Court for the Southern District of New York (Thomas P. Griesa, Judge) vacated orders of prejudgment attachment obtained by NML, and postjudgment restraining notices obtained by EM, that had previously been ordered with respect to the FRBNY Funds. This appeal followed.

We consider here whether the Republic's actions associated with the repayment of its debt to the IMF deprived the FRBNY Funds of immunity from attachment under provisions of the Foreign Sovereign Immunities Act of 1976 ("FSIA") related to the attachment of sovereign assets, 28 U.S.C. §§ 1609-11. We affirm the order of the District Court, concluding that the FRBNY Funds are immune from attachment under the FSIA because, notwithstanding the issuance of the decrees, the FRBNY Funds continue to be owned by BCRA, a separate juridical entity from the Republic, and are not available to satisfy a judgment against the Republic. Moreover, we conclude that the provisions of the FSIA allowing attachment of a foreign state's "property in the United States ... used for a commercial activity in the United States," 28 U.S.C. § 1610(a); see also id. § 1610(d) (allowing prejudgment attachment of a foreign state's property "used for a commercial activity in the United States"), would not permit attachment of the FRBNY Funds even if the funds were considered an attachable asset of the Republic. A government's repayment of its debt to the IMF is not a "commercial activity," and the record is barren of any evidence that the FRBNY Funds were to be "used for" repayment of the IMF.

BACKGROUND

I. Facts and Procedural History

In December 2001, in the midst of a financial crisis in Argentina, the Republic announced a moratorium on its debt service payments. Since that time, the Republic has not made scheduled payments on the debt instruments at issue in this litigation.²

On April 10, 2003, EM, a holder of defaulted Argentine debt, filed an action against the Republic in the United States District Court for the Southern District of New York to recover more than $700 million in interest and principal owed on an Argentine bond it had acquired. EM moved for summary judgment, and the Court granted the motion on September 12, 2003, awarding final judgment to EM in the amount of $724,801,662.56. See EM Ltd. v. Republic of Argentina, No. 03 Civ. 2507(TPG), 2003 WL 22120745 (S.D.N.Y. Sept.12, 2003), amended by EM Ltd. v. Republic of Argentina, No. 03 Civ. 2507(TPG), 2003 WL 22454934 (S.D.N.Y. Oct.27, 2003).³ We affirmed the judgment in favor of EM on August 31, 2004. See EM Ltd. v. Republic of Argentina, 382 F.3d 291, 292-94 (2d Cir.2004).

NML, another holder of defaulted Argentine debt, filed suit in the United States District Court for the Southern District of New York on November 7, 2003, seeking to recover funds due on approximately $170 million in defaulted bonds that the Republic had issued. NML filed a second action on February 28, 2005, seeking payment on approximately $32 million in so-called "Argentine Floating Rate Accrual Notes." No judgment had been rendered in either of NML's suits at the time NML sought to attach the FRBNY Funds.

In the terms and conditions governing EM's bond, the Republic "irrevocably agreed not to claim and has irrevocably waived ... immunity to the fullest extent permitted by the laws of [the] jurisdiction." Terms and Conditions Governing Bond Issued June 22, 2001, Joint Appendix ("J.A.") 54. The Republic also "consent[ed] generally for the purposes of the Foreign Sovereign Immunities Act to the giving of any relief or the issue of any process in connection with any Related Proceeding or Related Judgment, provided that attachment prior to judgment or attachment in aid of execution shall not be ordered by the Republic's courts with respect to . . . the assets which constitute freely available reserves." Id. The bonds that NML acquired contained similar waivers.

On December 15, 2005, Argentina's President, Néstor Kirchner, issued two emergency executive decrees: Decree 1599/2005 and Decree 1601/2005 (the "Decrees"). Decree 1599 provided that BCRA reserves in excess of the amount needed for the backing of the Republic's "monetary base," see Law No. 23,928 of 3/27/91 art. 6, as amended by Law No. 25,561 of 1/7/02 art. 4, J.A. 447 (defining "monetary base" as "composed of the monetary circulation [of Argentine pesos] plus the demand deposits of the financial entities with [BCRA], in checking accounts or special accounts"), "may be used for payment of obligations undertaken with international monetary authorities." Decree 1599/2005 art. 1, J.A. 22. These excess reserves were dubbed "unrestricted reserves" by the decree ("Unrestricted Reserves").⁴ Decree 1601/2005 directed the Ministry of Economy and Production (the "Ministry") to take the necessary steps to repay the Republic's debt to the IMF out of the Unrestricted Reserves. At the time of the Decrees, BCRA had approximately $26.8 billion in reserves and needed $18.4 billion to cover the monetary base; thus, approximately $8.4 billion in reserves became Unrestricted Reserves pursuant to the Decrees. On December 29, 2005, the Ministry issued Resolution No. 49, directing BCRA to repay the Republic's debt to the IMF and providing that, in exchange, the Republic would give BCRA a non-transferrable note. See Resolution No. 49 art. 1, J.A. 511 ("Let [BCRA] be instructed in line with [the Decrees] ... to repay the debt incurred with the [IMF].").

On December 30, 2005, EM moved in the District Court for an ex parte order in aid of enforcing its judgment, and Judge Barbara S. Jones, sitting in Part I, see Rules for the Division of Business Among District Judges of the Southern District of New York 5(b) (motions for "emergency matters in civil cases" presented to the district judge sitting in "Part I"), entered restraining notices, see 28 U.S.C. § 1610(c) (requiring that a court order the attachment of, or execution against, the assets of a foreign state or its instrumentalities); see also Fed.R.Civ.P. 69(a) ("The procedure on execution ... shall be in accordance with the practice and procedure of the state in which the district court is held . . . except that any statute of the United States governs to the extent it is applicable"); N.Y. C.P.L.R. § 5222 (establishing procedure for service of restraining notices on parties holding property of judgment debtor), with respect to property of the Republic and the BCRA held at eight garnishee banking institutions, including the FRBNY. NML contemporaneously sought...