Alison Frankel reports for Thomson Reuters:
On Tuesday, the Republic of Argentina asked the justices of the U.S. Supreme Court to grant review of a pair of rulings by the 2nd Circuit Court of Appeals that, according to Argentina’s brief, have put millions of Argentineans on the brink of economic catastrophe. The 2nd Circuit decisions, as you may recall, held that under the pari passu, or equal footing, clauses of defaulted Argentine bonds, Argentina may not make payments to bondholders who participated in two rounds of restructuring before it pays more than $1 billion to holdout distressed debt investors that refused to exchange their defaulted bonds. In the cert petition, Argentina’s new Supreme Court counsel, Paul Clement of Bancroft, reprises arguments that failed to sway U.S. District Judge Thomas Griesa and the 2nd Circuit when Cleary Gottlieb Steen & Hamilton previously asserted them. But Argentina is counting on the Supreme Court’s proven interest in the boundaries of sovereign immunity, and, if that doesn’t do the trick, in the court’s federalism concerns.
In fact, the cert petition presents federalism as the first issue for the justices, asserting an extremely unusual request for the U.S. Supreme Court to refer a question to a state high court. The 2nd Circuit, you’ll recall, agreed to block Argentina’s payments to exchange bondholders based on the appellate court’s interpretation of the pari passu provisions in the country’s sovereign debt offerings. Argentina contends not only that the federal appeals court reached the wrong conclusions, but that it exceeded its authority when it did. The interpretation of the pari passu provision is of surpassing interest to New York because it will impact the state’s status as a financial center, the brief said. And no New York state court has issued a decision on the meaning of an equal footing clause in a sovereign debt contract.
So according to Argentina, the justices should certify to the New York Court of Appeals the question of whether a foreign sovereign breaches pari passu provisions when it pays interest to holders of performing debt before paying holders of defaulted bonds. As precedent for this unusual maneuver, the brief cites the justices’ 2013 referral in the abortion pill case Cline v. Oklahoma Coalition for Reproductive Justice, but in that case, the U.S. court was asking Oklahoma justices to clarify a recently passed state law, not to interpret a contract provision.
But according to Argentina, the 2nd Circuit has improperly exercised the state court’s prerogative. “The New York Court of Appeals should have the final word,” Argentina argues. “If New York courts want New York law to upset settled expectations, impede restructurings, and endanger New York’s status as the law of choice for sovereign debt, that is their prerogative. But they should not have those consequences thrust upon them.”
Argentina didn’t assert federalism when it previously asked the Supreme Court to look at the pari passu issue on an interlocutory appeal the justices declined to hear. According to its new counsel, Clement, if the Supreme Court certifies equal footing contract interpretation to the New York Court of Appeals, the justices needn’t even consider Argentina’s argument that the 2nd Circuit improperly sidestepped the Foreign Sovereign Immunities Act when it enjoined Argentina from paying exchange bondholders before distressed debt holdouts. But Clement nevertheless urged the high court to grant review on FSIA grounds, and in quite florid terms. “The Second Circuit affirmed injunctions that effectively reach into Argentina’s borders, coercing it into violating its sovereign debt policies and commandeering billions of dollars of core sovereign assets – Argentina’s reserves – to pay the vulture fund NML Capital and other holdout creditors,” the brief said. “The injunctions circumvent (FSIA’s) express limitation on judicial authority by coercing Argentina into paying respondents with immune assets located outside the United States.” . . .