« General Mills: About-Face | Main | When the Wheels are Spinning Around »

Round One in the Books: Oral Argument in NML v. Argentina

posted by Mark Weidemaier

On Monday, lawyers for NML and Argentina (with a cameo by lawyers for the US Department of Justice) were before the Supreme Court arguing about the scope of a US court's power to order discovery in aid of execution. (Here's the transcript; here's a good summary of the argument itself.) This case is about the proper interpretation of the Foreign Sovereign Immunities Act (FSIA) and is unrelated to the pari passu litigation. The question, in a nutshell, is whether a creditor that holds a money judgment from a US court can obtain broad discovery into the nature and location of the sovereign's assets worldwide. Bear in mind that the US court can only enforce its judgment by allowing the creditor to execute on commercial assets located in the United States; it has no power to reach assets overseas. But NML wants to use the information it uncovers during discovery to identify assets in other countries that might be subject to seizure under the law of those countries. Let's call this the "discovery case" to distinguish it from the "pari passu" case.

The discovery case has provoked a bit of discussion, most recently by Jonathan Macey in the Wall Street Journal and Jonathan Adler in the Washington Post. Both characterize the issue as whether US courts should hold Argentina to its promises to investors. That's...not what the case is about.

Let's clear some underbrush. NML has valid money judgments from US courts. It can enforce these judgments by identifying executable assets controlled by Argentina in the United States. If it wants to enforce the judgments against assets outside the United States it must (i) get a judgment from a court in the jurisdiction where the assets are located and (ii) show that the assets are executable under that jurisdiction's law. Step (i) typically involves asking the non-US court to recognize the US court's judgment. This isn't automatic by any means, but we'll leave those complexities aside. One way or the other, whether an asset is available to the creditor depends on the law of the country where the assets are located. But how does a creditor like NML find the assets in the first place? Consider two possibilities:
  • NML goes to any jurisdiction where it suspects Argentina might have assets. Say, Ghana. It asks the Ghanaian courts to recognize the US court's judgment and, if successful, uses the discovery tools available under Ghanaian law to identify any executable assets in Ghana. Think there might also be assets in Switzerland? Lather, rinse, repeat.
  • NML uses the discovery tools available under US law to order Argentina and assorted third parties (the case before the Supreme Court only involves discovery directed to banks) to identify all Argentine assets, wherever they are located. Then it goes to the relevant jurisdictions and tries to convince courts there that the assets are executable.

Option 1 is much less efficient. Option 2 potentially allows the US court to force the disclosure of information that would be protected under the law of the relevant foreign jurisdiction, which might be perceived as an affront by officials there. Some countries, for example, have enacted blocking statutes that forbid compliance with certain US court discovery orders. But neither Option 1 nor Option 2 has anything to do with any promise made by Argentina. I suppose we can say that option 2 grants US courts more rather than less enforcement authority and so is generally consistent with Argentina's promise to, you know, actually pay its debts. But that's not an especially helpful way to answer complex legal questions. (Should the court allow more than the baseline of ten depositions authorized by the rules of procedure in US federal court? Sure, if it means more enforcement! Should a US court enjoin non-US payment intermediaries notwithstanding potential spillover effects? Sure, if it means more enforcement! Etc.)

For what it's worth, I'm inclined to think NML has the better of the argument on this one. If Argentina were a private debtor, it's reasonably clear that a US court could order at least some discovery of the sort requested by NML. There's really nothing in the FSIA to suggest that sovereigns ought to be treated differently. On the other hand, you don't have to think too hard to come up with uncomfortable scenarios. NML has made quite clear, for example, that it thinks US courts have the power to order Argentina to disclose the location and identity of all its military assets (on the chance that some of those assets might be executable under the law of the relevant jurisdiction). Its argument here is that, if creditors can only ask about commercial assets, Argentina can avoid disclosing executable assets by falsely designating them military in nature. But disclosure of military property is obviously a sensitive matter, especially when a court orders disclosure of property located in other countries. This explains the US government's amicus brief in support of Argentina; the US would prefer not to be on the receiving end of similar discovery requests issued by foreign courts.

The Supreme Court's primary goal is to interpret the FSIA, not to engage in free-wheeling policy analysis. But its interpretation of the statute will surely be informed by other considerations, and one of these might be the desire to create a strong legal enforcement regime. Such a regime can benefit government borrowers as well as investors. But other considerations matter too, including the desire not to offend foreign governments (other than Argentina) and the fear of exposing the US government to similarly-intrusive discovery requests elsewhere in the world. "Enforcement at all costs" isn't the answer.


The comments to this entry are closed.


Current Guests

Follow Us On Twitter

Like Us on Facebook

  • Like Us on Facebook

    By "Liking" us on Facebook, you will receive excerpts of our posts in your Facebook news feed. (If you change your mind, you can undo it later.) Note that this is different than "Liking" our Facebook page, although a "Like" in either place will get you Credit Slips post on your Facebook news feed.

News Feed



  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless (rlawless@illinois.edu) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.