In FSIA appeal, Second Circuit finds that Plaintiffs
cannot attach property of Argentine Central Bank to satisfy debt obligations of
the Republic of Argentina despite Argentina’s general control over Central Bank
In 2001, Argentina imposed a moratorium on its debt service
payments and since then has not made scheduled payments. NML Capital, Ltd.
(NML) and EM, Ltd. (EM) (Plaintiffs) hold some of those debt obligations. In
2003, they sued Argentina in New York federal court. The bonds held by
Plaintiffs contain waivers of Argentina’s sovereign immunity.
The district court granted EM a final judgment for almost
$725 million. NML has not yet obtained any judgment. Plaintiffs sought to
attach $105 million of the Banco Central de la Republica Argentina [Central
Bank of the Republic of Argentina] (BCRA) at the Federal Reserve Bank of New
York (FRBNY).
Plaintiffs argued that the court can attach the funds based
on two Argentine decrees. They authorized its Government to use BCRA funds to
repay Argentina’s debt to the International Monetary Fund (IMF). Argentine
President Nestor Kirchner issued Decrees 1599/2005 and 1601/2005 to use certain
BCRA reserves for the payment of international debts. The decrees made about
$8.4 billion available for these purposes.
The district court granted EM a restraining notice under 28
U.S.C. Section 1610(c) of the Foreign Sovereign Immunities Act of 1976 (FSIA).
It provides that a federal court may order the attachment of, or execution
against, the assets of a foreign state or its instrumentalities. NML also obtained
an ex parte order of prejudgment attachment and temporary restraining orders as
to the same assets.
The FSIA generally protects a foreign state’s property from
attachment and execution, subject to existing international obligations, except
for limited circumstances (see 28 U.S.C. Sections 1610 and 1611). The FSIA
protections also apply to instrumentalities of a foreign state such as BCRA,
though the standards differ from those for the states as such. The FSIA
specifically protects the U.S. assets of foreign central banks. 28 U.S.C.
Section 1611(b)(1).
In January 2006, the government of Argentina and BCRA moved
to have the court set aside the attachments and restraining notices. The
district court agreed, considering the funds immune based on the FSIA, 28
U.S.C. Sections 1609‑11. Although the Plaintiffs appealed, the Second Circuit
affirms.
The Argentine decrees did not, in its view, create an
attachable interest on the part of Argentina in the FRBNY Funds. Further, the
FRBNY Funds are immune from attachment because BCRA, an entity that is separate
from the Republic of Argentina, continues to own them.
Here, Plaintiffs relied on the attachment provisions
applicable to foreign states in Section 1610; this assumed that the FRBNY Funds
are attachable assets of the Republic of Argentina—but not of BCRA. “Although
plaintiffs hold or seek judgments against the Republic, the FRBNY Funds that
plaintiffs seek to attach are held in BCRA’s name. Plaintiffs have conceded
that: (1) before December 15, 2005, the date on which the Decrees were issued,
the FRBNY Funds were the property of BCRA; (2) plaintiffs had no right to
attach the FRBNY Funds before that date; and (3), even after issuance of the
Decrees, the FRBNY Funds were held in BCRA’s name. Thus, under New York law, it
is presumed that the FRBNY Funds continue to be owned by BCRA even after
issuance of the Decrees. ...”
“Plaintiffs do not bring to our attention any contrary New
York or Argentine legal principles governing ownership of funds in bank
accounts ..., nor do they point to any order or other document explicitly
transferring ownership of the FRBNY Funds from BCRA to the [Argentine]
Republic. Instead, plaintiffs contend that the Decrees changed the legal status
of $8.4 billion of BCRA’s reserves—i.e., the funds that the Decrees designated
as Unrestricted Reserves – when it made those funds available to pay the
Republic’s debt to the IMF.”
“NML contends that the Decrees had the effect of making the
Unrestricted Reserves property of the Republic. ... EM argues that it is
immaterial whether the ‘nominal’ holding and ownership of the Unrestricted
Reserves changed, because, under New York attachment law, the Unrestricted
Reserves are attachable if the Republic has a right to assign or transfer them.
... According to EM, the Unrestricted Reserves must be subject to attachment
because the Decrees demonstrated the Republic’s power to assign or transfer
BCRA’s assets. ...” [Slip op. 8]
The Court disagrees. The Decrees did not alter property
rights in the FRBNY Funds. They merely reflect Argentina’s ability to control
BCRA itself. Plaintiffs failed to show that they can attach the FRBNY Funds
based on Argentina’s control over BCRA. There is no evidence that BCRA
transferred ownership or control over the funds to the Republic.
“We see no reason why the presumption of separateness
required by Bancec and applied in Letelier and LNC Investments [see below]
should not apply here to shield the FRBNY Funds from attachment. The separate
juridical status of BCRA is not disputed by plaintiffs, ... and plaintiffs
expressly elected not to argue in support of attachment that BCRA’s separate
juridical status should be disregarded because BCRA is the alter ego of the
Republic. ...”
“Nor have they argued that the Bancec presumption should be
overcome based on a finding that disregarding BCRA’s separate juridical status
is necessary to prevent fraud or injustice. ... In fact, neither EM nor NML
even so much as mentions Bancec in its briefs.”
“We reject plaintiffs’ effort to circumvent First Nat’l City
Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611, 628‑33 (1983)
(Bancec) and our decisions in Letelier v. Republic of Chile, 748 F.2d 790, 794
(2d Cir. 1984) and LNC Invs., Inc. v. Republic of Nicaragua, 115 F. Supp. 2d
358 (S. D. N. Y. 2000), aff’d sub nom. LNC Invs., Inc. v. Banco Central de
Nicaragua, 228 F.3d 423 (2d Cir. 2000) by characterizing the Republic’s ability
and willingness to control BCRA as a transfer of property rights sufficient to
give the Republic an attachable interest in the FRBNY Funds.”
“Under Bancec and its progeny, plaintiffs bear the burden of
overcoming the presumption that the FRBNY Funds are not available to satisfy a
judgment against the Republic. Bancec indicates two circumstances in which the
presumption may be overcome—if BCRA were proven to be the alter ego of the
Republic, or if disregarding BCRA’s separate juridical status were necessary to
avoid fraud or injustice. Plaintiffs chose not to argue that either of these
circumstances existed here, even though the Republic’s alleged misdeeds cited
in plaintiffs’ briefs might have lent some credence to these arguments. ...”
“Bancec forecloses any argument that all of BCRA’s $26.8
billion in reserves are ‘attachable interests’ of the Republic merely because
the Republic hypothetically could have ordered (but in the Decrees did not
order) BCRA to assign or transfer the FRBNY Funds. See Letelier, above at 794
(findings that assets and facilities of Chile’s instrumentality LAN ‘were under
the direct control of Chile, which had the power to use them; [and that] Chile
could have decreed LAN’s dissolution and taken over property interests held in
LAN’s name’ did not support allowing creditor to attach LAN’s assets in order
to satisfy judgment against Chile).” [Slip op. 12‑13].
Finally, the Court notes that FSIA Section 1610(a) dealing
with “property in the United States ... used for a commercial activity in the
United States” does not permit the attachment of the FRBNY Funds even if they
were considered an attachable asset of the Republic of Argentina. A
government’s repayment of its debt to the IMF is not a “commercial activity”
and there is no showing that the FRBNY Funds were to be “used for” repayment of
the IMF obligations.
Citation: EM Ltd. v. Republic of Argentina, No. 06‑0403‑cv
(2d Cir. January 5, 2007).
**** Mr. William B. Blanchard (“Bill Blanchard”) is a Real Estate Attorney with offices in St. Charles and Oakbrook Terrace, Illinois. Bill specializes in representing real estate clients for purchases and sales as well as home owner real estate tax assessment appeals. Mr. Blanchard is General Counsel for Gaia Title, Inc. a title insurance agency and settlement services provider. The Company is owned by real estate attorneys who demand exemplary title insurance services and accurate and efficient settlement services. As General Counsel he is responsible for title examination, commitment and policy review, escrow settlement supervision and regulatory review. - Attorney Profile: https://solomonlawguild.com/william-b-blanchard%2C-esq - Attorney News: https://attorneygazette.com/william-blanchard%2C-esq#40b43d7b-94b2-48d3-b055-1979a636f1e7
