Case of the Day: Republic of Argentina v. NML Capital
Posted on June 17, 2014
NML Capital, one of the distressed debt investors (or vulture funds, depending on how you look at these things) that had purchased defaulted Argentine debt at a steep discount, had obtained a judgment in New York and was seeking discovery about Argentine assets for purposes of collection. It served subpoenas on Bank of America and Banco de la Nación Argentina, seeking “documents relating to accounts maintained by or on behalf of Argentina, documents identifying the opening and closing dates of Argentina’s accounts, current balances, transaction histories, records of electronic fund transfers, debts owed by the bank to Argentina, transfers in and out of Argentina’s accounts, and information about transferors and transferees.”
After motion practice, the district court granted NML’s motion to compel compliance with the subpoenas, and Argentina appealed on the grounds that the subpoenas sought (impermissibly, it claimed) information about Argentina’s assets outside the United States. The Second Circuit affirmed, holding that “because the Discovery Order involves discovery, not attachment of sovereign property, and because it is directed at third-party banks, not at Argentina itself, Argentina’s sovereign immunity is not infringed.” The Supreme Court granted Argentina’s petition for further review.
Let’s set up the issue by looking at the provisions of Rule 69 and of the FSIA. On the one hand, FRCP 69(a)(2) provides:
In aid of the judgment or execution, the judgment creditor or a successor in interest whose interest appears of record may obtain discovery from any person—including the judgment debtor—as provided in these rules or by the procedure of the state where the court is located.
On the other hand, the relevant provisions of the FSIA provide two immunities for foreign states: immunity from jurisdiction and immunity from execution. Section 1604 provides:
Subject to existing international agreements to which the United States is a party at the time of enactment of this Act a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States except as provided in section 1605 to 1607 of this chapter.
Section 1609 provides:
Subject to existing international agreements to which the United States is a party at the time of enactment of this Act 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.
And Section 1611 provides in part:
Notwithstanding the provisions of section 1610 of this chapter [regarding exceptions to the immunity from execution], the property of a foreign state shall be immune from attachment and from execution, if … (2) the property is, or is intended to be, used in connection a military activity and (A) is of a military character, or (B) is under the control of a military authority or defense agency.
The main point in the Court’s decision (7-1, per Scalia, J., with Justice Sotomayor taking no part and Justice Ginsburg dissenting) was that the FSIA is a comprehensive statutory scheme, and that it only creates two forms of immunity: immunity from jurisdiction and immunity from execution. It was agreed that the immunity from jurisdiction in § 1604 wasn’t really in play, as Argentina had waived its immunity from jurisdiction when it issued its bonds. “There is no third provision forbidding or limiting discovery in aid of execution of a foreign-sovereign judgment debtor’s assets.” Thus the FSIA does not contain the kind of “plain statement” that the Court, in Aerospatiale, said was necessary in order to ground any exception to the application of the ordinary rules of civil procedure on grounds of comity.
Argentina made some non-textual arguments. It claimed that historically US courts (and the executive) accorded absolute immunity from execution to the property of a foreign sovereign outside the United States, and that this absolute immunity from execution implied an immunity from discovery in aid of execution. The Court rejected this argument on all points. First, Argentina cited no cases in which the US courts had afforded absolute immunity to execution on a sovereign’s extraterritorial property. Second, whatever the historical practice, § 1609 rather expressly provides immunity only with respect to “property in the United States.” So even if immunity from execution implied immunity from discovery in aid of execution, the argument would not work as to property abroad.
Of course, there is some property abroad that would be immune from execution under the FSIA, e.g., military property within the scope of § 1611. Justice Scalia’s answer to this point seems a little contrived to me:
Argentina maintains that, if a judgment creditor could not ultimately execute a judgment against certain property, then it has no business pursuing discovery of information pertaining to that property. But the reason for these subpoenas is that NML does not yet know what property Argentina has and where it is, let alone whether it is executable under the relevant jurisdiction’s law. If, bizarrely, NML’s subpoenas had sought only “information that could not lead to executable assets in the United States or abroad,” then Argentina likely would be correct to say that the subpoenas were unenforceable—not because information about nonexecutable assets enjoys a penumbral “discovery immunity” under the Act, but because information that could not possibly lead to executable assets is simply not “relevant” to execution in the first place. But of course that is not what the subpoenas seek. They ask for information about Argentina’s worldwide assets generally, so that NML can identify where Argentina may be holding property that is subject to execution.
I say that this seems a little contrived because even if Argentina’s assets abroad are not necessarily immune from execution under the FSIA, they almost certainly cannot be reached by a writ of execution issued by an American court—a point Justice Scalia seems to recognize throughout the opinion (e.g., when he refers to property “executable under the relevant jurisdiction’s law,” or when he writes: “Our courts generally lack authority in the first place to execute against property in other countries”). If discovery under FRCP 69 is to be in aid of the judgment of the US court or an execution issued to enforce that judgment, then unless there is some state law post-judgment procedure to permit the US court to order the judgment debtor, in personam, to hand over property located abroad to the judgment creditor,2 there should be strong arguments against extraterritorial postjudgment discovery whether or not the judgment debtor is a foreign state. Justice Scalia seems to be countenancing the use of FRCP 69 in aid of either present or prospective foreign judgments against Argentina, which seems to be beyond the scope of the rule. It’s surprising to me that this point didn’t feature in the Court’s discussion.
Justice Ginsburg wrote a short but pithy dissent, which makes a few good points. The one I want to call out is her concern about reciprocity and the role of judicial modesty in the doctrine of comity:
A court in the United States has no warrant to indulge the assumption that, outside our country, the sky may be the limit for attaching a foreign sovereign’s property in order to execute a U.S. judgment against the foreign sovereign. Without proof of any kind that other nations broadly expose a foreign sovereign’s property to arrest, attachment or execution, a more modest assumption is in order.
Unless and until the judgment debtor, here, NML, proves that other nations would allow unconstrained access to Argentina’s assets, I would be guided by the one law we know for sure—our own. That guide is all the more appropriate, as our law coincides with the international norm.
The executive branch took Argentina’s side in this case for good reason. When a foreign court seeks to discover, by way of a subpoena, what military or diplomatic assets the United States has around the world, we may have a better sense of the comity implications of today’s decision. Justice Scalia notes that Congress, in enacting the FSIA, codified the law of immunity and thus put a stop to the kind of common-law development that could have led to a different outcome here. In short, he says the ball is in Congress’s court. I think Congress should consider an amendment to the statute.
- I have stopped covering the dispute about the merits of the injunction and the correct construction of the pari passu clause, because there are lots of people covering it very well.
- I think there are such procedures in some states. In Massachusetts, for example, we have supplementary process, a procedure in which a court examines a judgment debtor about its ability to pay and then enters a payment order that may be enforced as an injunction, i.e., via the court’s contempt power. Under FRCP 69, the federal court in Massachusetts will make use of this procedure at the judgment creditor’s request. But I question whether such a procedure has any application where the judgment debtor is a foreign sovereign.