Argentina loses... big.
The opinion is out, and I'm happy to be asked back to Credit Slips to talk about it. The Second Circuit affirmed the injunction against Argentina... full stop. No changes to the list of third parties potentially subject to contempt sanctions, no changes to the payment formula, just a straight-up affirmance.*
To recap, for those who have let their attention wander to other topics (is this even possible?): The Second Circuit has now definitively approved an injunction that forbids Argentina to pay exchange bondholders (i.e., holders of its restructured debt) unless it pays NML and other plaintiffs the full amount of their accelerated debt and interest. That's roughly $1.4 billion. The opinion is hot off the press, so I'm sure there will be plenty more to say about the case later. For now, you'll find a few more details below the jump.
- Third parties: The injunction names the entire payment chain as potentially subject to contempt sanctions. This prompted a barrage of objections from financial intermediaries of various sorts. For example, the injunction names Euroclear, which arguably isn't subject to personal jurisdiction and which is governed by the law of a foreign country (Belgium) that explicitly forbids injunctions of this nature. The court managed to punt most of these objections, holding that they could be determined case-by-case in later contempt proceedings. Euroclear and other third parties, for example, can raise personal jurisdiction objections "if and when they are summoned ... for having assisted Argentina in violating United States law." Likewise an institution that believes it is protected as an "intermediary bank" can raise that objection in future contempt proceedings.
- Procedure = substance: Punting third party objections to later contempt proceedings was a procedural move, and perhaps it was the right call. But query whether any member of the payment chain will take the risk of processing a payment. No, right? Not much difference, then, between this opinion and one that rejected these arguments on the merits.
- Argentina's the hostage-taker, not us: The exchange bondholders objected that the injunction held them hostage. Recall that Argentina doesn't have to pay anyone at all under the injunction; it just has to pay NML if it pays exchange bondholders. But Argentina really, really doesn't want to pay NML, so... well, you see the problem. The district judge concluded that Argentina could afford to pay everybody. For the Second Circuit, that ended the matter: "We are unwilling to permit Argentina's threat to punish third parties to dictate the availability or terms of relief..."
- Decision stayed for now: The court stayed enforcement of the injunction "pending the resolution by the Supreme Court of a timely petition for a writ of certiorari." Argentina has already filed a cert petition with respect to the October 26 opinion affirming the grant of the injunction, but that petition doesn't cover the issues raised by today's opinion. (It might also have been premature; at least the Court of Appeals suggests as much in footnote 6 of today's opinion.) The things I don't know about Supreme Court practice can just about squeeze into the Hollywood Bowl**, but this will surely push resolution out a bit. Normally, a party has 90 days to file a cert petition.
All in all, a total win for NML. Anna Gelpern and I will have more thoughts as we digest the opinion, but it looks like the good times (for bloggers, anyway) are here to stay for a while.
*Judge Pooler disagreed on a procedural point having to do with which third parties had standing to appeal, but this is irrelevant to the substance and didn't even amount to a formal dissent.
** Yes, I shamelessly adapted this from a line in the movie Barton Fink.