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Argentina loses... big.

posted by Mark Weidemaier

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.


You must be reading a private opinion because no where does the court say anything about "contempt" proceedings. On the contrary, the court says any third party would be entitled to full hearing and the ability to provide evidence. The Supreme Court opinion cited says as much.

If one of the named financial institutions processes a payment to exchange bondholders in violation of the injunction, it may (if certain conditions are satisfied) be held in contempt as having acted "in active concert and participation" with Argentina in the violation. Those are the proceedings to which, as the Court of Appeals puts it, a third party might be "summoned to answer" for the violation. So: while the third party can raise its objections at that time and have them adjudicated, the proceedings will be for contempt or similar sanction.

Again, no where does the Court of Appeals say subsequent proceedings would be contempt proceedings. On the contrary, the court says "and of course there will be no adjudication of liability against a non-party without affording it a full opportunity at a hearing, after adequate notice, to present evidence." It goes on to cite Golden State which you should read because the facts there were whether a successor entity can be held liable for the predecessor's Labor Law violation. The SCT was absolutely clear it is a full trial. Due process would countenance nothing less. More importantly, aside from some dicta and inconsistent comments from Parker, there was no finding that any third parties (with the exception of BoNY U.S.) has been acting in "active concert or participation" or that Griesa has jurisdiction over any non U.S. party. Indeed, Parker implies Griesa may have been mistaken to think the Euro denominated debt has any contact with the U.S. With the 6-9 month runway before there is any decision by the SCT on cert you should expect parties to show up at Griesa's door. And regardless of how he rules, it will be appealed before a new panel which will hopefully include less feckless and more academic judges than the current panel.

What the ruling is implying is you would need a separate action against a third party processing those payments. Not a contempt hearing. I concur you'd require a full trial against the payment processor on the grounds they acted against the interests of NML. Contempt is groundless against a sovereign, so that raises the ridiculous situation that a sovereign is effectively immune from a contempt against its actions, but a third party can be punished by proxy. Not going to happen. Still, this is a chill. The Second is trying very, very hard to throw this out of the US IMO.

HHalifax: Whether or not a separate action against a payment processor is feasible, the court clearly has in mind contempt proceedings. That is the primary method of enforcing an injunction, and Rule 65 provides that an injunction "binds" third parties deemed to be "in active concert or participation" with the enjoined litigant. So when the court refers to the possibility that payment processors might be "summoned to answer for assisting in a violation of the district court's injunctions," it is referring to contempt proceedings. The confusion seems to stem from the assumption that contempt proceedings necessarily involve perfunctory procedures. That is only sometimes true. Here, the district court will have to decide whether processing a payment to exchange bondholders counts as "active concert or participation" (although it has clearly tipped its hand here); it will have to decide whether the third party qualifies as an "intermediary bank"; and it will also have to decide jurisdictional and other objections. This might involve discovery, and the proceedings might well resemble something like a full trial. But it's important to keep in mind that the procedures followed do not determine the purpose of the hearing. The purpose is to determine whether to impose contempt sanctions. (However, as the original post notes, the risk of being held in contempt will likely deter payment processing, so the practical result will probably be that these issues are never addressed at all.)

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