In a case involving the assets of a foreign state, Argentina, being
subject to discovery by hedge funds and other creditors in a federal court,
U.S. Supreme Court oral
argument appeared sympathetic to the asset discovery concerns of the judgment
creditors, while at the same time some Justices emphasized that this case is about
the scope of discovery against a foreign sovereign, not a private debtor.
The Court is reviewing a Second Circuit ruling that post-judgment
discovery under FRCP 69 in aid of enforcing a judgment against a foreign state
can be ordered with respect to all assets of a foreign state regardless of
their locations or uses. (Republic of Argentina
v. NML Capital Ltd., Dkt. No. 12-842).
Edwin Kneedler, U.S. Deputy Solicitor General, argued that the sweeping discovery order sustained by
the Second Circuit in a case in which hedge funds and other judgment
creditors were seeking discovery against the assets of Argentina based on the
sale of bonds establishes a federal district court in the United States as a clearinghouse for all of
Argentina's assets and transactions throughout the world
the contrary to both the Foreign Sovereign Immunities Act and principles of
comity and reciprocity. Responding to a question from Justice Scalia on the
broadness of the scope of discovery, the official said that discovery cannot extend to property outside the United States.
Similarly, Jonathan Blackman argued for the
Republic of Argentina that the sweeping worldwide forensic examination of
foreign state property that the court of appeals approved
targets sovereign property that the FSIA makes categorically immune from the
process of U.S. courts. This far exceeds the enforcement powers of U.S.
courts, he added, asking somewhat rhetorically how it can be appropriate for a
U.S. court to be asking a foreign state to
turn over information about property beyond the execution powers
of the court.
Justice Kennedy noted that the discovery is about
assets that can be executed on but that
are in other countries. The Deputy Solicitor General noted that the
Government’s position is a categorical one and based on reciprocity
in that the U.S. would be very concerned about a foreign court setting itself
up as a clearinghouse for all U.S. assets around the world.
Justice Scalia was surprised that foreign
countries have not filed amicus briefs in this case if these issues so
gravely
affect their jurisdictions and the positions of all foreign sovereigns. He
found it extraordinary that not one foreign sovereign filed an amicus brief
with the Court supporting the Government’s position. Why aren’t they here as
amici?, queried the Justice. Foreign sovereigns file amicus briefs all
the time with the Court on issues concerning their prerogatives, he added,
and if this is as horrific as the
Government is painting it to be, why has the Court not heard from them..
Theodore Olson, representing the
creditors, said that the case is not about execution, but about information.
The federal Rules of Civil Procedure were not displaced by the
Foreign Sovereign Immunities Act, he argued, and all we're talking
about here is information. The context of this case is that
Argentina was able to sell bonds and raise money in the U.S. capital markets
only by agreeing to be bound by U.S law and the judgments of U.S. courts, and
by waiving sovereign immunity and consenting to attachment in aid of execution. He added that many debtors
move assets around to avoid judgments.
But Justice Ginsburg emphasized that this is a
sovereign, not a private debtor, and the Foreign Sovereign Immunities Act provides
immunity from execution except when we are dealing with commercial property in
the U.S.
The statute starts with a blanket immunity against
execution for the foreign sovereign, said the Justice, and then says that there
is an exception for property in the U.S. The Justice also noted that the vast majority of the
bondholders settled with Argentina. Yes they did, agreed Mr. Olson, because anybody who has
ever litigated against Argentina knows that it probably may be less costly to
just give in on whatever terms Argentina offers.
But the fact is that these are debts
undeniably owing and sovereign immunity was waived by Argentina.
Justice Ginsburg noted that this argument
goes to execution and FSIA says nothing about discovery. Mr. Blackman said that
FSIA delineates the bounds of permissible discovery when it delineates
the universe of executable property.
Justices Breyer and Scalia said that when
you read FRCP 69 on obtaining discovery, you can obtain it in
aid of judgment or execution as provided in the rules. So, you
look to the rule on discovery, the reasoned, which is certainly broad enough to
encompass this situation. For example, said Justice Breyer, on the back of a bond
Argentina said that it waived sovereign immunity, thus allowing for execution
in the U.S. It does, in fact, say nothing about discovery in aid of execution. The rules do, he emphasized.