Argentina has moved for an emergency stay of Judge Griesa’s injunction. As we saw earlier this week, the judge had lifted the stay of his injunction in light of Argentina’s announced intention never to pay the owners of its defaulted bonds. Argentina’s stay request makes a few interesting points.
First, Argentina argues that the injunction creates a risk that Argentina will default on its bond payments to the holders of Argentina’s restructured bonds. Judge Griesa’s view on this was that the bondholders who accepted the restructured bonds knew that other bondholders had not accepted them and would be seeking payment in full. Argentina argues that the restructured bondholders could not have foreseen that the judge would enjoin third-party intermediaries, “since the theory on which it is based had no prior support in decades of market practice.” I don’t know the details of the history of sovereign debt litigation, but I wonder whether one could flip this point around and assert that the Argentine position is itself unprecedented. Perhaps someone who knows the history of other defaults could provide more detail. Argentine domestic law forbids payments to the holders of the old debts, but isn’t that really Argentina’s problem?
Second, Argentina argues that Judge Griesa overstepped his bounds by purporting to bind the banks that actually handle payments to holders of the restructured debt, the DTC, and others. This argument asserts that the intermediaries are Argentina’s “agents” (FRCP 65(d)(2)(B)) or “persons who are in active concert or participation with” Argentina or its officers, agents, servants, employees, or attorneys (FRCP 65(d)(2)(C)). But maybe more interesting than the technical argument about who is or is not an agent or in active concert with Argentina is the claim, made not just by Argentina but by the Federal Reserve Bank of New York, the DTC, and the Clearing House LLC, a banking association, warning of dire risks to the payment system if the injunction is enforced, as institutions become wary of processing payments that may subject them to contempt sanctions.
A third theme, which appears most clearly in a Financial Times editorial that Argentina submitted with its brief, is really a matter of policy. Does Judge Griesa’s order make it more difficult for other countries to restructure their debts? I can’t express an informed view on this. It does seem to me that the distinction between outright attachment of Argentine state property, which would be forbidden under the FSIA, and Judge Griesa’s injunction, which rests on the grounds that Argentina is not being forced to do anything, but is simply being forced to treat the old bondholders pari passu if it chooses to pay the new bondholders, is cutting things somewhat finely; but the Second Circuit has already affirmed that holding. Moreover, while I think it is clearly the judge’s job to think about the equities as they affect all of the stakeholders, including the financial intermediaries and the new bondholders, it’s less clear to me that the judge should be worrying about the next sovereign default, since as the Argentine case shows, these events can be sui generis, and so it’s unclear—to me at least—that there will be many lessons from Judge Griesa’s decision for later defaults (e.g., if the next sovereign default involves a collective action clause that may reduce or eliminate the holdout problem). I would point interested readers to what I found to be an interesting article on the topic by Felix Salmon at Reuters.