During the financial crisis of 2001, Argentina defaulted on its external sovereign debt. Over the course of the next decade, Argentina restructured most of that debt on terms less favorable to the creditors. While a majority of the bondholders agreed to the restructuring, some holdout creditors instead turned to domestic litigation and international arbitration in pursuit of recovery based on the full original amount, creating a wave of legal proceedings. (1) Two recent U.S. judicial decisions resulting from these efforts have created significant foreign-affairs precedent and appear to have triggered a dispute under international law as well.
Supreme Court Rejects Argentina's Sovereign Immunity Defense to Discovery. Relying on a waiver of sovereign immunity contained in the original bonds, one creditor brought a series of successful actions to enforce Argentina's obligations under the original debt instruments. With $2.5 billion of judgments in hand, the creditor then embarked on the complicated process of searching for and attempting to attach various Argentine assets around the world. (2)
As part of that strategy, the creditor served subpoenas on two international banks located in the United States, seeking broad discovery of global information to "locate Argentina's assets and accounts, learn how Argentina moves its assets through New York and around the world, and accurately identify the places and times when those assets might be subject to attachment and execution." (3) The banks moved to quash the subpoenas under the Foreign Sovereign Immunities Act (FSLA). (4) The district court denied the motion to quash and granted the creditor's motion to compel discovery, pending further negotiations between the parties regarding the scope of specific production requests. (5) The U.S. Court of Appeals for the Second Circuit affirmed, acknowledging that its decision created a circuit split. (6) The United States filed an amicus brief supporting the resulting petition for certiorari, (7) and the Supreme Court granted review. (8)
In the resulting decision of Republic of Argentina v. NML Capital, Ltd., the Supreme Court held that the FSLA does not prevent this kind of third-party discovery in aid of execution. (9) The Court reasoned as follows:
The text of the Act confers on foreign states two kinds of immunity. First and most significant, "a foreign state shall be immune from the jurisdiction of the courts of the United States ... except as provided in sections 1605 to 1607." [section] 1604. That provision is of no help to Argentina here: A foreign state may waive jurisdictional immunity, [section] 1605(a)(1), and in this case Argentina did so, see 695 F.3d, at 203. Consequently, the Act makes Argentina "liable in the same manner and to the same extent as a private individual under like circumstances." [section] 1606. The Act's second immunity-conferring provision states that "the property in the United States of a foreign state shall be immune from attachment[,] arrest[,] and execution except as provided in sections 1610 and 1611 of this chapter." [section] 1609. The exceptions to this immunity defense (we will call it "execution immunity") are narrower. "The property in the United States of a foreign state" is subject to attachment, arrest, or execution if (1) it is "used for a commercial activity in the United States," [section] 1610(a), and (2) some other enumerated exception to immunity applies, such as the one allowing for...