652 F.3d 172 (2nd Cir. 2011), 10-1487-cv(L), NML Capital, Ltd. v. Banco Central de la Republica Argentina

Docket Nº:10-1487-cv(L), 10-1488-cv(CON), 10-1493-cv(CON), 10-1507-cv(CON), 10-1510-cv(CON), 10-1524-cv(CON), 10-1529-cv(CON), 10-1545-cv(CON), 10-1603-cv(CON), 10-1629-cv(CON).
Citation:652 F.3d 172
Opinion Judge:JOS
Party Name:NML CAPITAL, LTD. and EM Ltd., Plaintiffs-Appellees, v. BANCO CENTRAL DE LA REP
Attorney:Jonathan I. Blackman (Carmine D. Boccuzzi, Christopher P. Moore, Rahul Mukhi, on the brief), Cleary Gottlieb Steen & Hamilton LLP, New York, NY, for Defendant-Appellant The Republic of Argentina. Joseph E. Neuhaus (Laurent S. Wiesel, Michael J. Ushkow, Taly Dvorkis, on the brief), Sullivan & Crom...
Judge Panel:Before: MINER, CABRANES, and STRAUB, Circuit Judges.
Case Date:July 05, 2011
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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652 F.3d 172 (2nd Cir. 2011)

NML CAPITAL, LTD. and EM Ltd., Plaintiffs-Appellees,

v.

BANCO CENTRAL DE LA REPÚ BLICA ARGENTINA, Interested Non-Party-Appellant,

The Republic of Argentina, Defendant-Appellant.

Nos. 10-1487-cv(L), 10-1488-cv(CON), 10-1493-cv(CON), 10-1507-cv(CON), 10-1510-cv(CON), 10-1524-cv(CON), 10-1529-cv(CON), 10-1545-cv(CON), 10-1603-cv(CON), 10-1629-cv(CON).

United States Court of Appeals, Second Circuit.

July 5, 2011

Argued: Aug. 25, 2010.

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[Copyrighted Material Omitted]

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Jonathan I. Blackman (Carmine D. Boccuzzi, Christopher P. Moore, Rahul Mukhi, on the brief), Cleary Gottlieb Steen & Hamilton LLP, New York, NY, for Defendant-Appellant The Republic of Argentina.

Joseph E. Neuhaus (Laurent S. Wiesel, Michael J. Ushkow, Taly Dvorkis, on the brief), Sullivan & Cromwell LLP, New York, NY, for Interested Non-Party-Appellant Banco Central de la Repú blica Argentina.

Theodore B. Olson, Gibson, Dunn & Crutcher LLP, Washington, DC (Matthew D. McGill, Jason J. Mendro, Gibson, Dunn & Crutcher LLP, Washington, DC; Robert A. Cohen, Dennis H. Hranitzky, Dechert LLP, New York, NY, on the brief), for Plaintiff-Appellee NML Capital, Ltd.

David W. Rivkin (John B. Missing and Suzanne M. Grosso, on the brief), Debevoise & Plimpton LLP, New York, NY, for Plaintiff-Appellee EM Ltd.

Michele Kalstein, Counsel and Vice President (Thomas C. Baxter, Jr., General Counsel, on the brief), The Federal Reserve Bank of New York, New York, NY, for amicus curiae The Federal Reserve Bank of New York in support of Appellants.

John D. Clopper, Assistant United States Attorney (Preet Bharara, United States Attorney, Benjamin H. Torrance, Assistant United States Attorney, United States Attorney's Office for the Southern District of New York, New York, NY; Tony West, Assistant Attorney General, Douglas N. Letter, Sharon Swingle, United States Department of Justice, Washington, DC; George W. Madison, General Counsel, Department of the Treasury, Washington, DC; Harold Hongju Koh, The Legal Adviser, Department of State, Washington, DC, on the brief), for amicus curiae United States of America in support of Appellants.

Hal S. Scott, Program on International Financial Systems, Harvard Law School, Cambridge, MA, amicus curiae in support of Appellees.

Before: MINER, CABRANES, and STRAUB, Circuit Judges.

JOSÉ A. CABRANES, Circuit Judge:

The question presented is whether certain assets held in the United States in an account of interested non-party-appellant Banco Central de la Repú blica Argentina (" BCRA" ) at the Federal Reserve Bank of New York (" FRBNY" ) are immune

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from attachment and execution under the Foreign Sovereign Immunities Act of 1976, 28 U.S.C. § 1602 et seq. (" FSIA" ). 1 For ease of reference, we refer to those assets as the " FRBNY Funds."

In order to decide whether the FRBNY funds are immune from attachment or execution, we must first decide two questions of first impression in this Circuit: (1) does the exercise of sovereign immunity for " property ... of a foreign central bank or monetary authority held for its own account" pursuant to 28 U.S.C. § 1611(b)(1)2 depend upon whether the central bank or monetary authority is entitled to a presumption of independence under First National City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611, 103 S.Ct. 2591, 77 L.Ed.2d 46 (1983) (" Bancec " ); and (2) what is the proper meaning of the phrase " property ... of a foreign central bank or monetary authority held for its own account" in § 1611(b)(1)?

BACKGROUND

This is the parties' second appearance before this Court to litigate whether the FRBNY Funds are immune from attachment under the FSIA. See EM Ltd. v. Republic of Argentina, 473 F.3d 463 (2d Cir.2007) (" EM I " ). We assume familiarity with the facts and procedural history of the dispute as recounted in EM I , as well as knowledge of the preeminence of the Republic of Argentina (" Argentina" or the " Republic" ) in the sorry history of defaults on sovereign debt. Id. at 466 n. 2 (recording Argentina's " many contributions to the law of foreign insolvency through its numerous defaults on its sovereign obligations, as well as through ... a diplomacy of default" ).

A.

In December 2001, the President of Argentina declared a temporary moratorium on principal and interest payments on more than $80 billion of public external debt— that is, money the Republic had borrowed from foreign creditors. Since the 2001 default, Argentina has not made principal or interest payments on its non-performing debt. Plaintiffs-appellees EM Ltd. and NML Capital, Ltd. are beneficial owners of debt instruments on which the Republic has defaulted. The Republic has

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waived its right to assert its sovereign immunity from suit in any claims arising under those instruments.3 See Part C(v) at 195-96, post.

Plaintiffs chose not to participate in restructuring proposals in which the Republic offered to exchange debt instruments on which it defaulted in 2001 for new debt instruments with modified, and generally less favorable, terms. 4 Instead, plaintiffs have sought to recover their investments through litigation against the Republic in the federal courts of the United States; 5 they now hold unsatisfied final judgments in the United States District Court for the Southern District of New York for nearly $2.4 billion. 6 Plaintiffs seek to attach and

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restrain the FRBNY Funds in a BCRA account at FRBNY in aid of execution of those judgments.

As its name suggests, BCRA was founded in 1935 as " [t]he Central Bank of the Argentine Republic," see Law No. 24,144/92, Ch. I, § 1 (Oct. 22, 1992, as amended) (" BCRA Charter" ); JA Vol. V at 763. It is, by statute, " a self-administered institution of the [Argentine] State," charged with acting as the Republic's financial agent and as depository and agent for the Republic before international monetary, banking, and financial entities, as well as with regulating the Argentine banking system and financial sector. BCRA Charter, Arts. 3-4, 17-18, 21-22, 25, 28-29; JA Vol. V at 763, 767-68, 770-71. Pursuant to its " primar[y]" responsibility to " maintain the value of legal tender" in Argentina, BCRA Charter, art. 3, BCRA is " exclusively entrusted with the issuance of banknotes and coins in the Argentine Nation," id. at art. 30, and authorized to " invest a portion of its external assets in deposits or any other interest[-]bearing transaction with any foreign banking institution ... [,]" id. at art 33.

Like many central banks around the world, BCRA maintains a foreign central bank account at the FRBNY in which, among other things, it manages dollar-denominated reserve holdings.7 The FRBNY Funds at issue in this case refer to the funds held in BCRA's account on December 30, 2005. By stipulation, the parties have provided a detailed account of the sources of those funds.8 See generally EM Ltd. v. The Republic of Argentina, 720 F.Supp.2d 273, 289-92 (S.D.N.Y.2010) (discussing the sources of the FRBNY Funds).

Over the course of the three month period preceding December 30, 2005, BCRA transferred approximately $2.1 billion from its account at the FRBNY to its account at

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the Bank for International Settlements (" BIS" ).9 Id. at 290. This followed a general trend during the period between 2001 and 2005, in which— wholly apart from the intra-day transfers necessary to effect transactions performed out of its FRBNY account— BCRA held more and more of its U.S. dollar-denominated foreign exchange reserves outside of the United States, i.e., beyond the jurisdictional reach of the District Court.10

This reduction was attributable to two principal causes. First, as economic conditions in Argentina deteriorated leading up to and in the aftermath of the 2001 default, large quantities of U.S. dollars— in excess of $20 billion— were withdrawn from the Argentine banking system. In an effort to increase liquidity and prevent further economic damage in Argentina, BCRA spent billions of U.S. dollars buying Argentine pesos to defend (i.e., prop up) the value of the peso. This policy depleted BCRA's dollar-denominated foreign exchange reserves. For example, at the beginning of 2001, BCRA's dollar-denominated international reserves totaled $25.1 billion; two years later the reserves totaled $8.3 billion. Basco Decl. ¶ ¶ 13-14 (March 14, 2005); JA Vol. V at 256.

Second, BCRA transferred the majority of its remaining dollar-denominated reserves out of the United States to " more protective jurisdictions" — in the view of BCRA— like the BIS " as a preventive measure against possible wrongful attachment efforts by creditors of the Republic." Basco Decl. ¶ 18 (March 14, 2005); JA Vol. V at 258. BIS deposits are protected from attachment under The Hague Convention of 1930, 104 L.N.T.S. 441 (Jan. 20, 1930) ( available at http:// www. bis. org/ about/ convention- en. pdf) (establishing the BIS); the Protocol Regarding the Immunities of the Bank for International Settlements, 197 L.N.T.S. 31 (July 30, 1936) ( available at http:// www. bis. org/ about/ protoc. pdf); and the Agreement between the Swiss Federal Council and the Bank for International Settlements to determine the Bank's legal status in Switzerland, Feb. 10, 1987, amended Jan. 1, 2003 ( available at http:// www. bis. org/ about/ headquart- en. pdf). According to the BCRA official responsible for open market operations, in light of temporary attachments by U.S. federal courts, which were ultimately vacated in 1999, the protections offered to BIS account holders were deemed by BCRA to be more secure in circumstances in which " an attachment of any significant portion of BCRA's international...

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