Over the last few days Argentina’s leaders have publicly stated on television and on Twitter that they have no intention of abiding by a U.S. injunction that upended the country’s plan for repaying its many U.S. creditors. So it’s no shock that Argentina’s lawyers at Clearly Gottlieb Steen & Hamilton–who are in the awkward position of having to explain Argentina’s intransigence to U.S. judges–are pressing an appeals court to undo the injunction.
In a petition for an en banc rehearing filed on Tuesday, Argentina’s lawyers at Cleary urged the U.S. Court of Appeals for the Second Circuit to set aside an injunction ordering the country to cease paying back any creditors until it starts repaying a group of U.S. hedge funds led by NML Capital Ltd. that hold defaulted Argentine bonds. A federal judge in Manhattan issued the injunction in February in order to give the funds more leverage over Argentina. A three-judge Second Circuit panel affirmed on Oct. 26, for which we named NML appellate counsel Theodore Olson of Gibson, Dunn & Crutcher Litigator of the Week.
After Argentina defaulted on more than $80 billion in sovereign debt a decade ago, most of its creditors agreed to take 25 to 33 cents on the dollar. A group of so-called “vulture funds”–NML, EM Capital Management, and Aurelius Capital Master, among others–refused to restructure their debt and brought suit in U.S. district court in Manhattan instead. The judge overseeing the Argentine bond litigation, Thomas Griesa, has awarded the funds more than $10 billion.
Argentina has refused to recognize those judgments, but it continues to repay holders of restructured debt. Griesa has apparently had enough, and in February he tried a new approach to get Argentina to pay up. In an unusual injunction, he ordered Argentina to start treating the hold-outs with equal priority as holders of restructured debt. The injunction was stayed pending appeal, but Griesa indicated at a Nov. 9 hearing that he would lift the stay on Dec. 1, after he’s gotten a chance to resolve some questions the Second Circuit had about the scope and impact of his injunction.
Griesa’s timing for lifting the stay is bad news for Argentina, which is scheduled to make a $3.3 billion payment to creditors on Dec. 15. If the stay on the injunction is lifted before that, the Republic will be under orders to make a proportionate payment to NML and its cohorts. Argentina’s Minister of Economy vowed on his Twitter page that “we are never going to pay the ‘vulture funds.’” And in a Nov. 12 speech, Argentine president Christina Fernandez de Kirchner proclaimed that Argentina “will not pay them in any way.”
At the Nov. 9 hearing in Manhattan, Griesa has some tough words for Cleary partner Carmine Boccuzzi Jr. over his client’s actions, as Reuters columnist Alison Frankel reported. “If turns out as a fact that the Republic has some intention of evading the Court of Appeals ruling, our courts are not helpless,” Griesa said from the bench. “I think that the Republic should realize that the record of defiance of judgments already entered is. . .beginning to be viewed very negatively.”
Judging by Griesa’s recent statements, he has no intention of turning down the heat. So it makes sense that Cleary now wants to plead its case to a full panel of Second Circuit judges. In its brief, the Republic argues that Griesa and the Second Circuit panel misinterpreted a so-called pari passu clause in the funds’ contracts, which entitle them to equal treatment as other creditors (pari passu is Latin for “on equal footing”). According to Argentina’s lawyers, those clauses are basically boilerplate and have never been used to justify extraordinary relief like Griesa’s injunction.
Argentina’s lawyers have also asked Griesa to extend the stay of his injunction pending further appeal. NML’s counsel at Dechert and Gibson Dunn objected to that request in a motion filed on Tuesday, arguing that the judge should stick by his plan to lift the stay at the beginning of next month. “[T]he press, informed analysts, and other market participants are widely reporting that Argentina already is developing means to evade [the injunctions],” the brief states. “Continuing the stay facilities and enables that course of action, which would unquestionable prejudice the plaintiffs and upend the rule of law.”