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More Pari Passu Judging Puzzles

posted by Anna Gelpern

I find recent court action in NML v. Argentina much more intriguing than Argentina's proposal last Friday to reopen its 2010 debt exchange.

Recall the super-dramatic  Second Circuit hearing on February 27 opened with the three-judge panel denying Argentina's request to revisit the meaning of pari passu and the propriety of a ratable payment injunction, decided last October. The full Second Circuit had not yet denied Argentina's petition to rehear the case en banc, supported by the United States--leading some to assume that the ruling would wait until the three-judge panel had decided on the scope and reach of the injunction.

After the February 27 hearing, where the judges seemed thoroughly exasperated with sovereign contumaciousness, the panel unexpectedly ordered Argentina to submit a ratable payment proposal by March 29. The March 1 order specifically told everyone other than Argentina to stay out of formula design. I took this to mean either that the judges were bending over backwards to give the sovereign its due process before it self-destructed, or that they were being extra careful and splitting babies to secure unanimous decisions both on the panel and en banc.

Then on March 26, as everyone was dusting off their spreadsheets to analyze what Argentina might propose three days later, the Second Circuit summarily rejected Argentina's en banc request, ignoring the United States for the second time in a year.

Lots of people stayed up late last Friday to see what Argentina had to say. Most were disappointed. But just when everyone had decided that Argentina's ratable payment proposal was old, boring and sure to be summarily rejected, last night the three-judge panel ordered NML to submit a reaction by April 22.

As I am not a litigator and have no clue how judges think, I wonder:

(1) Why would the full circuit wait this long to deny the en banc request? ... and if they were going to wait this long, why not wait another few days or weeks until the three-judge panel decided on the scope of the remedy and its application to third parties? At least in theory, this sequence of events highlights the possibility that Argentina would separately ask for an en banc rehearing of the next panel decision, which could give it another month or two of stays on the injunction. Note though that the meaning of Argentina's contract is settled, unless the Supreme Court decides to intervene (unlikely).

(2) Why would the three-judge panel explicitly instruct Argentina alone to submit a ratable payment proposal on March 1, rather than set a briefing schedule including a response by NML? Argentina was crafting a proposal for two lay audiences: the U.S. court and the domestic public. This was not the place for fancy financial engineering--neither audience was going to use a calculator to evaluate the offer. The extreme appeal of NML's position, endorsed by Judge Griesa, is that it requires no numbers whatsoever: everything due under the contract, right now.

So why would the court ask for a response after the fact? Does it need help evaluating the slightly convoluted offer? Does it want to deny it in NML's words, to minimize the appearance of discretion? Is it politely responding to Argentina's contention that the new terms would be "voluntary" for NML, which would have the choice of surrendering its old bonds for new ones, or getting a judgment on them? Is it about more process? Is someone on or off the panel having second thoughts? ... driving a settlement (really?)?

This all seems very classical-theater: everyone knows how it ends, the protagonists have no control over the outcome ... and we have no clue how they will get there. But we know they will. The fates have decreed. In Latin.


any court proceeding is a crap shoot these days.

dice, that is.

It seems like i'm not that familiar with classical theater cause I don't know how it ends... Would you please tell me?

Classical Shakespeare ends with everyone dieing analogous in this case to the COA sticking to its original decision, forcing an Argentine default, and Nml receiving nothing after 1/4bn of legal fees over 10yrs. Everyone loses

Thanks Cw! Sounds like fun to watch! (if you don't have a part on the play).

Anna: A new angle (for me at least) published today on ambito.com (an Arg financial newspaper), http://www.ambito.com/diario/noticia.asp?id=682995.
It's in spanish but i would summarize it:
Argentina did not explicitely said that NML should surrender the original bonds. So, considering there were two obligations breached (1- the original payments of the bonds, 2- Pari Passu), the court could oblige Argentina to pay what Arg said it is able to (solving Pari Passu entirely, but only in part the original claim). The rest of the money would remain outstanding.

What do you think judges would say about this? I think NML would not like to surrender the only weapon (paripassu) they currently hold to try forcing Arg to pay the whole amount (If they think they still have a chance to get that).

On the other hand, and back to Shakespeare, if they truly hold lots of CDS, after forcing default, the will get paid in the end...

They're just making a record. They don't want anyone to say "but the court didn't know if the offer was acceptable to NML". Tjey recognize this is going to be examined globally and they don't want anyone to accuse the 2d Circuit of sloppiness or anything else that might impugn the court's reputation.

I think the Court recognizes this is not about principal anymore, but about principle. And Argentina has put the Court's reputation in opposition to its own, which any advocate can tell you is a bad strategy, as far as the court goes. As a matter of Argentinian political strategy, it may make perfect sense.

Now, what about SCOTUS requesting the solicitor general to file US opinon on the case?

Sorry, false alarm. Is a totally different case.

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