[Michael D. Ramsey is the Hugh and Hazel Darling Foundation Professor of Law at the University of San Diego Law School. Professor Ramsey previously prepared an analysis of this case for the Judicial Education Project supporting the bondholders, for which he was compensated.]
In a new claim in the long-running battle between Argentina and holders of its defaulted bonds (see here), the question is whether a U.S. court can order Argentina not to pay some bondholders unless it also pays others. Again, Argentina says the Foreign Sovereign Immunities Act (FSIA) protects it, and again it tries to make the Act’s text say something it does not.
To recap, a decade ago Argentina stopped making payments on some of its bonds, and the private bondholders (including NML Capital) sued Argentina in federal court in New York (as the FSIA and the contracts governing the bonds allowed them to do). Argentina refused to pay the resulting judgments against it, so the bondholders are seeking enforcement. One approach is to seek discovery of Argentina’s worldwide assets; whether a U.S. court can make such an order is the subject of the first Republic of Argentina v. NML Capital case, argued to the U.S. Supreme Court in April.
The bondholders’ second strategy involves a clause in the bond contracts known as the equal treatment or pari passu clause. To oversimplify, after Argentina initially failed to make payments on the bonds, it persuaded many of the bondholders to accept new bonds, with substantially reduced payments (but some hope of salvaging part of their investment). NML Capital (and a few others) refused to take the deal, and sued for full payment of the original bonds instead. Argentina now wants to pay the new bondholders (that is, those who agreed to the refinancing) while refusing to pay the holders of the old bonds.
But that sort of discrimination among bondholders, the U.S. court held, violates the “equal treatment” clause in the original bond contracts: the clause says that the old bonds have to be treated equally to any new bonds, and clearly they aren’t. Argentina had already said it wouldn’t obey a court order to pay on the old bonds. So the holders of the old bonds asked the court for an injunction barring payment on the new bonds unless the old bonds receive equal treatment. The district court granted the order and the Second Circuit affirmed.
Now Argentina is bringing this claim to the U.S. Supreme Court on petition for certiorari (scheduled to be considered at the June 12 conference). As with the case involving the discovery order, its supposed shield is the FSIA. But again, Argentina is trying to make the FSIA do something it does not. Argentina concedes that the FSIA allows the bondholders’ suit: Argentina waived its sovereign immunity in the bond contracts, and the FSIA allows suit where immunity is waived (Section 1605(a)(1)). The FSIA further says (Section 1606) that non-immune sovereigns are (subject to specific exceptions) liable to the same extent as private litigants.
The only plausible exception (and the only one Argentina argues) (more…)