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EM Ltd. v. Banco Central De La RepÚ Blica Argentina

United States Court of Appeals, Second Circuit

August 31, 2015

EM LTD., NML CAPITAL, LTD., Plaintiffs-Appellees,
v.
BANCO CENTRAL DE LA REPÚBLICA ARGENTINA, REPUBLIC OF ARGENTINA, Defendants-Appellants

Argued: December 10, 2014.

As Amended December 8, 2015.

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[Copyrighted Material Omitted]

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Appeal from the United States District Court for the Southern District of New York. No. 1:06-cv-7792--Thomas P. Griesa, Judge.

Appeal from an order entered in the United States District Court for the Southern District of New York (Thomas P. Griesa, Judge) denying a motion to dismiss for lack of subject matter jurisdiction filed by defendant-appellant Banco Central de la Repú blica Argentina (" BCRA" ). We hold that the District Court erred in: (1) imputing Argentina's waiver of sovereign immunity to BCRA based on an alter-ego theory; and (2) applying the commercial-activity exception to BCRA's use of its account with the Federal Reserve Bank of New York. Accordingly, we REVERSE the District Court's order of September 26, 2013, and we REMAND the cause with instructions to dismiss the complaint on sovereign-immunity grounds.

JOSEPH E. NEUHAUS (Michael J. Ushkow and Zeh S. Ekono, Sullivan & Cromwell LLP, New York, NY; Jeffrey B. Wall, Sullivan & Cromwell LLP, Washington, DC, on the brief), Sullivan & Cromwell LLP, New York, NY, for Banco Central de la Repú blica Argentina, Defendant-Appellant.

CARMINE D. BOCCUZZI, JR. (Jonathan I. Blackman, Daniel J. Northrop, and Michael M. Brennan, on the brief), Cleary Gottlieb Steen & Hamilton LLP, New York, NY, for Republic of Argentina, Defendant-Appellant.

THEODORE B. OLSON (Matthew D. McGill and Jason J. Mendro, Gibson, Dunn & Crutcher LLP, Washington, DC; Robert A. Cohen and Dennis H. Hranitzky, Dechert LLP, New York, NY, on the brief), Gibson, Dunn & Crutcher LLP, Washington, DC, for NML Capital, Ltd., Plaintiff-Appellee.

DAVID W. RIVKIN, Debevoise & Plimpton LLP, New York, NY, for EM Ltd., Plaintiff-Appellee.

Before: CABRANES, WESLEY, and HALL, Circuit Judges.

OPINION

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José A. Cabranes, Circuit Judge :

In December 2001, in the midst of a severe financial crisis, the Republic of Argentina (" Argentina" or " the Republic" ) declared a moratorium on principal and interest payments for more than $80 billion in sovereign debt, including bonds that were issued under a Fiscal Agency Agreement (" FAA" ). Pursuant to two " exchange offers" in 2005 and 2010, Argentina " restructured" over 91% of the then-existing FAA bonds.[1]

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Plaintiffs-appellees EM Ltd. (" EM" ) and NML Capital, Ltd. (" NML" ) (jointly, " plaintiffs" ) own FAA bonds that were not restructured. Since 2001, Argentina has refused to make any scheduled payments on these defaulted bonds. In 2003, plaintiffs filed suit in the United States District Court for the Southern District of New York, seeking to recover their unpaid principal and interest. Plaintiffs eventually obtained judgments against Argentina, which now total approximately $2.4 billion.

This appeal concerns plaintiffs' ongoing efforts to satisfy their judgments against Argentina by attaching funds held by Argentina's central banking authority, the Banco Central de la Repú blica Argentina (" BCRA" ). In their third amended complaint (" TAC" ), plaintiffs seek a declaratory judgment that BCRA is Argentina's " alter ego" and that, therefore, BCRA is liable for Argentina's debts. If successful, plaintiffs' stated intent is to use the declaratory judgment to attach unspecified funds that BCRA holds in unnamed foreign jurisdictions.

As an instrumentality of a sovereign state, BCRA is ordinarily immune from lawsuits in American courts under the Foreign Sovereign Immunities Act, 28 U.S.C. § § 1330, 1602 et seq. (" FSIA" ).[2] Accordingly, BCRA moved to dismiss the TAC for lack of subject matter jurisdiction on sovereign-immunity grounds, as well as for lack of personal jurisdiction and for failure to state a claim upon which relief can be granted. On September 26, 2013, the United States District Court for the Southern District of New York (Thomas P. Griesa, Judge ) issued an order denying BCRA's motion.

Relevant to this appeal, the District Court concluded that BCRA had waived its sovereign immunity under two statutory exceptions. First, the District Court held that the FAA's express waiver of sovereign immunity also waived BCRA's immunity--under 28 U.S.C. § 1605(a)(1)[3]--because BCRA is Argentina's " alter ego." Second, the District Court held that BCRA's use of its account with the Federal Reserve Bank of New York (" FRBNY" ) constituted " commercial activity" in the United States, which waived BCRA's sovereign immunity under 28 U.S.C. § 1605(a)(2).[4]

Because neither of these statutory exceptions applies to this case, the District

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Court erred in denying BCRA's motion to dismiss for lack of subject matter jurisdiction. Accordingly, we REVERSE the District Court's order of September 26, 2013, and we REMAND the cause with instructions to dismiss the TAC with prejudice.

BACKGROUND

I. The Underlying Debt

In 1994, Argentina began issuing debt securities pursuant to a Fiscal Agency Agreement (" FAA bonds" ). In light of Argentina's " history of defaulting on, or requiring restructuring of, its sovereign obligations," [5] investors demanded that the FAA include a waiver of Argentina's foreign sovereign immunity as to " any suit, action, or proceeding against it or its properties, assets or revenues with respect to the" FAA bonds, and any suit brought " for the purpose of enforcing or executing" a judgment obtained in a related proceeding.[6] Argentina agreed to include this waiver of sovereign immunity in the FAA.[7]

In December 2001, Argentina declared a moratorium on principal and interest payments on more than $80 billion of foreign debt, including the FAA bonds.[8] Since then, Argentina has not made principal or interest payments on these bonds. In 2005 and 2010, Argentina successfully restructured over 91% of its debt by launching " global exchange offers," pursuant to which creditors holding the defaulted bonds could exchange them for new securities with modified terms that substantially reduced their value.[9] Plaintiffs EM and NML own FAA bonds that were not restructured.

Beginning in 2003, plaintiffs filed multiple actions against Argentina in the Southern District of New York in an effort to recover the full amounts due on their defaulted bonds. Argentina did not dispute that its sovereign immunity had been waived in the FAA. Plaintiffs eventually obtained numerous final judgments against Argentina, which now total approximately $2.4 billion.[10] These judgments remain unpaid.

II. Litigation Against BCRA

On December 15, 2005, Argentina's President, Né stor Kirchner, issued two emergency executive decrees--Decree 1599/2005 and Decree 1601/2005 (jointly, the " Decrees" )--both of which involved funds held by BCRA.[11] The first decree provided that reserves held by BCRA in excess of the amount needed to support Argentina's monetary base[12] could " be

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used for payment of obligations undertaken with international monetary authorities." [13] The decree labeled these excess reserves " unrestricted reserves." The second decree directed the Ministry of Economy and Production to take the necessary steps to repay Argentina's debt to the International Monetary Fund (" IMF" ) out of the unrestricted reserves. As we previously noted:

At the time of the Decrees, BCRA had approximately $26.8 billion in reserves and needed $18.4 billion to cover the monetary base; thus, approximately $8.4 billion in reserves became Unrestricted Reserves pursuant to the Decrees. On December 29, 2005, the Ministry issued Resolution No. 49, directing BCRA to repay [Argentina's] debt to the IMF and providing that, in exchange, [Argentina] would give BCRA a non-transferrable note.[14]

Soon after these Decrees were issued, plaintiffs made their first attempt to satisfy their judgments against Argentina by attaching funds held by BCRA. On December 30, 2005, plaintiffs moved in the Southern District of New York for an ex parte order to restrain funds held by BCRA. Plaintiffs asserted that the Decrees had the effect of transferring ownership of certain BCRA assets--including funds held in BCRA's account with the FRBNY--from BCRA to Argentina. The District Court entered temporary restraining orders with respect to, inter alia, the property held by BCRA in eight garnishee banking institutions, including the FRBNY.[15]

On January 12, 2006, the District Court vacated the temporary restraining orders.[16] Plaintiffs appealed the District Court's decision, maintaining that the Decrees amounted to an expropriation by Argentina of BCRA's assets in order to pay Argentina's debt to the IMF, and that, consequently, the funds in BCRA's FRBNY account had become Argentina's property.

On January 5, 2007, we rejected plaintiffs' argument and affirmed the District Court's order, holding that " the Decrees did not alter property rights with respect to the FRBNY Funds" because they " did not create an attachable interest on the part of [Argentina] in the FRBNY Funds." [17] Although we thus rejected plaintiffs' transfer-of-ownership argument, we noted the difference between two theories of attachment--(1) that " the Decrees transferred to the Republic ownership or control over the assets of BCRA" ; and (2) that Argentina controlled " BCRA itself " -- i.e., that BCRA was Argentina's alter ego.[18] We concluded that plaintiffs had not established that BCRA's funds were transferred to Argentina, but we noted that plaintiffs' allegations regarding Argentina's " misdeeds . . . might have lent some credence to" the alter-ego theory.[19]

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That is, we suggested that plaintiffs could potentially argue that BCRA was " so extensively controlled by [Argentina] that a relationship of principal and agent is created," or that recognizing BCRA's separate juridical status would " work fraud or injustice" [20]--and that, if successful, this claim would subject all of BCRA's assets to potential attachment by Argentina's judgment creditors.

In September 2006, while BCRA I was pending, plaintiffs commenced a new action seeking a declaratory judgment that, pursuant to First National City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611, 103 S.Ct. 2591, 77 L.Ed.2d 46 (1983) (" Bancec " ), BCRA was liable for Argentina's debts. Specifically, plaintiffs argued that Argentina's consistent disregard for BCRA's independence had vitiated any presumption of ...


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