Sovereign Immunity

• Author: International Law Group
• Pages: 14-16

Page 14

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 fi nal 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 (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 NÈstor 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. ß 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. ßß 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 specifi cally protects the U.S. assets of foreign central banks. 28 U.S.C. ß 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. ßß 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...