Don’t Cry For Me Argentina

Litigation stemming from Argentina’s 2001 massive sovereign default has taken place in U.S. federal courts for over a decade. Because most of the plaintiffs are located in New York City and the terms of the bonds specifically grant subject matter jurisdiction to New York State, the cases have been heard in the state’s Southern District Federal Courts. The eventual outcome of these cases will leave one party content and satisfied that justice has been served. The other party will probably pursue all legal remedies to continue the fight. Unfortunately justice is often viewed in its subjective and political form. In my opinion the core legal issues of the cases have become somewhat obscured by the constant political posturing of Argentina.

On October 26, 2012 the United States Court of Appeals for the second circuit (the Court) decided the case of NML Capital v. the Republic of Argentina. The Court affirmed in part and remanded in part the lower court’s decision that was entered by Federal Judge Griesa of the Southern District. In the case Judge Griesa ruled against Argentina in granting the applications of the Plaintiffs.  Much to the chagrin of Argentina; its fiery pronunciations of sovereign integrity and legal quasi political arguments that it had a sovereign right to force restructuring upon debt holders were judicially debunked by the District Court. 

It appears that after a decade of avoiding payment on bonds that were not restructured the time has finally come for the former South American economic power to pay up what it owes bondholders. Argentina last paid interest in 2001 on these non-exchanged bonds. There has been an abundance of sensationalism and drama at ever stage of the litigation. Yet, the legal issues have always relatively clear cut. The underlying facts of the case have never been in dispute. In its simplest terms; Argentina borrowed money that it did not repay and now must repay. 

In a well reasoned opinion the Court decided the issues before it while crafting a remedy.  A panel of three circuit judges concluded that the Judge Griesa’s decision on the law and novel equitable remedy were correct and appropriate. Importantly the appellate court found that the lower court’s judge did not abuse his discretion in granting the Plaintiff’s applications. The Court agreed that Argentina violated the terms of the bonds that were issued to NML Capital and other the plaintiffs. The subject bonds that were originally issued decades ago did not contain subordination clauses. In fact the bonds specifically contained an equal treatment clause that prevented Argentina from discriminating against the Plaintiffs in favor of holders of later restructured debt. The Court referred to the relevant paragraph in the bonds as the “Pari Passu” clause. This provision required that

“[t]he securities will constitute…direct, unconditional, unsecured and unsubordinated obligations of the Republic and shall at all times rank pari passu without any preference among the themselves. The payment obligations of the Republic with the Securities shall at all time, rank at least equally with all of its other present and future unsecured and unsubordinated External Indebtness…

After having sustained the lower court’s ruling on law based on the undisputed facts the Court considered Judge Griesa’s award of equitable relief to the Plaintiffs.  In this respect the panel of appellate judges cited many examples of Argentina having done everything within its sovereign power to legally avoid paying the Plaintiffs on the bonds that they held. The Court agreed with the lower court’s conclusion that Argentina could not be trusted to make the required payments or respect the Court’s orders. Consequently the Court affirmed the lower court’s granting of the restraining orders and injunctions. The Plaintiffs had clearly established that they would suffer irreparable harm if they were not granted the relief that was requested. In my opinion, based upon the facts presented to Judge Griesa, the Court had no choice but to affirm the granting of the equitable relief. It was conclusively established that Argentina by executive and legislative pronouncements had enacted measures that prevented the Plaintiffs from ever receiving any payment for or on their non-restructured bonds. Importantly, the Plaintiffs’ cause of action actually arose when Argentina continued to discriminate against the Plaintiffs’ and their rights to repayment. The Court remanded the case in part to Judge Griesa “for proceedings as are necessary to address the operation of the payment formula and injunctions applicable to the third parties and intermediary banks.”

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