Split Decisions in the Argentine Sovereign Debt Cases
Posted on April 10, 2012
There are two new decisions to report in the Argentine sovereign debt cases. In the first, NML Capital, Ltd. v. Republic of Argentina (2d Cir. 2012), the Second Circuit rejected Argentina’s attempt to dissolve an attachment of a government agency’s bank account on FSIA grounds. In the second, Aurelius Capital Partners v. Republic of Argentina (S.D.N.Y. 2012), Argentina was more successful, persuading a judge to vacate attachments the plaintiffs had made on IP license royalties due to Argentina.
We have come across NML Capital twice before in cases of the day. First, we saw NML in the cases of the day from July 8, 2011, one in the UK Supreme Court and the other in the Second Circuit. The Second Circuit rejected investors’ efforts to attach funds the Argentine Central Bank had on deposit with the Federal Reserve Bank of New York. The UK case held that Argentina was not immune from jurisdiction under the state immunity doctrine. Second, we saw NML’s efforts to get at Argentina’s assets in Belgium and France, where NML attempted to attach bank accounts held by Argentine embassies and missions to UNESCO and other international bodies.
In today’s case of the day, NML had obtained an order attaching a New York bank account owned by the Agencia Nacional de Promoción Científica y Tecnólogica, which is an instrumentality of Argentina. The question was whether the account was immune from attachment or execution under the FSIA. In particular, where, as in this case, Argentina has waived its immunity from attachment and execution, was the account “used for commercial activity in the United States” such that attachment was permissible under 28 U.S.C. § 1610?
“Commercial activity,” for purposes of the FSIA, is “a regular course of commercial conduct or a particular commercial transaction or act.” The commercial character of the activity is “determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose.” Here, Argentina used funds from the account to purchase scientific equipment, which, the court held, was quintessentially a commercial act. Argentina argued that the essential nature of the transactions was not commercial, “Because the equipment is purchased in order to implement a national program of scientific research and development.” Too bad, the court rightly responded. The key fact was that Argentina purchased goods in the marketplace, not the purpose for which the goods were intended. “Argentina’s asserted eleemosynary or governmental motives do not change the fact that the ANPCT Account is used to purchase scientific equipment.” Easy case.
Argentina had better luck in the Aurelius Capital case. I’m going to focus on the claims regarding INTA, the Instituto Nacional de Tecnologia Agropecuaria, which were the closest claims. INTA had developed a rice gene and a rice variety containing the gene that was resistant to herbicides used to curb the red rice weed. In 2005, it granted BASF Agrochemical Products, B.V. an exclusive license to develop, make, use, and sell the gene and the variety worldwide (except for Argentina and Uruguay), in exchange for royalties. BASF Agrochemical Products was a subsidiary of BASF SE, a German company. BASF SE had a US subsidiary, BASF Corp., a Delaware corporation with its headquarters in New Jersey. While BASF Agrochemical Products and BASF Corp. are both subsidiaries of BASF SE, they have no direct ownership or control relationship with each other.
BASF sells Clearfield brand rice products in the US, but these do not use any of INTA’s technology. On the other hand, Claerfield products for sale in Costa Rica and Brazil do make use of the INTA technology. INTA has received royalties from for sales in Costa Rica and Brazil, but not for sales elsewhere. BASF Corp. paid these royalties to INTA on behalf of BASF Agrochemical Products, which immediately reimbursed its US affiliate.
BASF has applied (in INTA’s name) for two US patents covering INTA’s inventions, but the applications are still pending. BASF Corp. has not taken any steps to commercialize INTA’s invention in the United States, and it has no plans to do so.
On these facts, was INTA’s property (namely the right to royalty payments and the patent applications) “used for a commercial activity in the United States”, as the FSIA requires before the property loses its immunity to attachment? The judge answered no. The patent applications had not been commercialized in the United States, which, to the judge, was dispositive: “the filing of patent applications and the obtaining of patents represents at most the generation of a property interest, not its commercial use.” The royalty agreement could not be attached because the plaintiffs’ claim depended on the royalties being in the hands of BASF Corp., the US entity (as the US court can only attach property within its territorial jurisdiction). But BASF Corp. was not a party to the license agreement and was not a sham corporation or a mere alter ego of BASF Agrochemical Products. So this claim failed, too.
The case seems correctly decided. One could have doubts about the analysis of the patent applications, since they grant rights only in the United States, and it seems that either the patent applications will eventually lead to commercialization in the United States or they will be worthless (except maybe to claim priority in foreign patent proceedings). But I think the judge likely got it right, because the statute requires actual use, not the potential for use.