Can a court order post-judgment discovery that would help enforce a judgment against a sovereign nation with respect to all assets, regardless of use or location, or is such discovery limited to assets located in the United States that fall under the Foreign Sovereign Immunities Act of 1976?
In December 2001, Argentina defaulted on its external debt payments. As a result, several bondholders agreed to debt restructurings with the country. However, NML Capital opted to file eleven different actions against Argentina in the Southern District of New York, with the district court ruling for NML in each action. Argentina has not satisfied any of the judgments, forcing NML to pursue Argentinian property located in the United States and abroad to try to attach and execute that property. NML subpoenaed two banks that are not parties to the litigation, seeking information about assets related to Argentina held at those banks. After the banks filed motions against the subpoenas, the district court ordered compliance with them and the Second Circuit affirmed, holding that the court directed the subpoenas at third-party banks seeking only discovery, not attachment or execution, and thus did not impinge on Argentina’s sovereignty. Argentina claims that these subpoenas violate long-standing protections of sovereign immunity. NML counters that the court ordered the subpoenas against non-litigating banks that fall outside sovereign immunity protection. The Supreme Court will now consider whether a court can compel discovery of all assets, regardless of location, of a sovereign state in a post-judgment proceeding that would help enforce the judgment against that state. This decision could affect diplomatic relations between the United States and countries that give reciprocal treatment of judicial decisions.
Whether post-judgment discovery in aid of enforcing a judgment against a foreign state can be ordered with respect to all assets of a foreign state regardless of their location or use, as held in the Second Circuit, or is limited to assets located in the United States that are potentially subject to execution under the FSIA, as held by the Seventh, Fifth, and Ninth Circuits.
In December 2001, the Republic of Argentina defaulted on its external debt payments. See EM Ltd. v. Republic of Argentina, 695 F.3d 201, 203 (2nd Cir. 2012). While several of Argentina’s bondholders agreed to restructurings, others, including NML Capital, Ltd. (“NML”), opted for legal action. See id.In 2003, NML filed eleven claims against Argentina in the Southern District of New York seeking payment for the defaulted debt. See id.The court based jurisdiction on a contractual provision where Argentina waved sovereign immunity. See id. The court granted summary judgment for NML in six actions totaling more than $900 million, and decided five actions against Argentina for monetary damages over $1.6 billion. See id.Because Argentina refuses to satisfy the judgments, since 2003, NML has pursued discovery of Argentinian property located in the United States and abroad to learn more about Argentinian assets in an attempt to attach and execute them. See id.In 2010, NML served subpoenas on Bank of America (“BOA”) and Banco de la Nacion Argentina (“BNA”), two banks that are non-parties to the default actions against Argentina. See id.
BOA received its subpoena in March 2010. See id.at 204. The subpoena requested information on all accounts maintained by BOA that related to Argentina and information on all transfers related to Argentina through the SWIFT system. See id.Furthermore, the subpoena defined “Argentina” broadly to include Argentina’s “agencies, instrumentalities, ministries, political subdivisions [and] employees,” as well as the current President and her late husband. See id.
BNA received its subpoena in June 2010. See id. The subpoena requested information on assets or accounts maintained by Argentina at BNA as well as debts owed by BNA to Argentina. See id.This subpoena included in its definition of “Argentina” all state-controlled entities. See id.
On September 2, 2011, the district court denied the motion to quash the BOA subpoena and granted NML’s motion to compel. See id. The court reasoned that the subpoenas did not impinge on Argentina’s sovereignty because they only sought information on Argentinian assets from third parties and did not attempt to attach the property, but the court also instructed NML to focus the discovery of assets abroad on information that could reasonably lead to attachable property. See id. at 205.
After the court’s decision, BOA and NML agreed on further terms and BOA has begun producing information pursuant to them. See id.However, even though BNA and MNL agreed on further terms for the subpoena, NML claims that BNA has not produced any documentation. See id.
The district court ordered compliance by January 6, 2012. See id.Argentina, but neither BOA nor BNA, appealed the order arguing that it violates the Foreign Sovereign Immunities Act (“FSIA”). See id.On appeal, the United States Court of Appeals for the Second Circuit held that because the discovery order is directed at third-party banks and seeks to compel discovery and not attach property, it does not infringe on Argentina’s sovereignty and is thus not an abuse of discretion. See id.After the Second Circuit denied rehearing, Argentina appealed to the United States Supreme Court. See Brief of Petitioner, Republic of Argentina, at 1. The Supreme Court granted certiorari on January 10, 2014 to determine whether a court can order discovery to help in the enforcement of a judgment against a foreign state with respect to all assets, regardless of location, or whether the order is limited to assets in the United States that are potentially subject to the FSIA. See id. at i.
This case presents the Supreme Court with the opportunity to consider whether a court can order post-judgment discovery of the assets of a foreign sovereign, regardless of the assets’ location, by subpoena of a non-sovereign third party. See Petition for Writ of Certiorari, Republic of Argentina v. NML Capital, LTD., (2013) at i. Argentina argues that compelling such discovery violates a long-standing practice granting foreign sovereigns with immunity in U.S. courts. See Brief of Petitioner at 26. NML counters that no violation of sovereign immunity takes place when the sovereign has contractually waived immunity. See Brief of Respondent, NML Capital, LTD., at 12. The Supreme Court’s decision will determine how far courts can compel third parties to provide information on sovereign assets abroad, raising U.S. foreign-policy concerns because of the possibility of reciprocal treatment abroad.
FOREIGN POLICY AND LENDER PROTECTION CONCERNS
The United States, in support of Argentina, argues that allowing U.S. courts to compel such an extensive discovery could negatively affect U.S. interests in foreign courts through reciprocal treatment. See Brief of Amicus Curiae United States in Support of Petitioner at 11. The U.S. maintains extensive holdings overseas as part of its global diplomatic and security operations. See id. Since many countries base their own sovereignty decisions on reciprocal treatment abroad, permitting U.S. courts to grant such far-reaching discovery could subject the U.S. to the same type of treatment. See id.Additionally, the requested discovery seeks information on assets belonging to diplomats in their personal capacity, presenting an intrusive inquiry into their personal holdings for no valid reason, since those assets do not belong to the foreign sovereign and thus cannot be attached or executed to satisfy the foreign sovereign’s judgments. See id. Such intrusive inquiries, the United States argues, could have serious negative repercussions on possible bilateral agreements and banking relationships. See id.
South Carolina and other U.S. states counter that to protect lenders, courts should have discretion to authorize discovery that will aid in the execution of their judgments against a foreign sovereign, especially when those cases were decided on the merits. See Brief of Amici Curiae South Carolina, et al., in Support of Respondent at 4–5. This protection is important, the states argue, because it leads to confidence in sovereign debt markets by preventing opportunistic defaults and by forcing voluntary restructurings. See id.at 6. However, if courts fail to enforce creditors’ rights in instances such as this one, where Argentina took a coercive take-it-or leave-it approach to restructuring, this could become the norm. See id.By failing to provide creditor protections, the courts could seriously imperil the secondary market for sovereign debt by increasing the risk of lending to developing nations with poor credit ratings, effectively depriving them of the public debt market. See id.at 8. Thus, the long-term interests of all nations are better served by having U.S. courts protect investors and thus promote confidence in investment, securing the U.S.’s place as the leader in global finance. See id.at 9–10.
THIRD PARTIES AND SOVEREIGN IMMUNITY
The United States argues that sovereign immunity is a principle that has long been respected in international law, and one of the principle’s main goals is to protect sovereigns from the costs and inconveniences of litigation. See Brief of United States at 8, 10. Argentina argues that far reaching discovery can disrupt government functioning and that limits on discovery are necessary to prevent wasting government resources. See Brief of Petitioner at 32. This is even more important where, as here, the discovery encompasses a broad examination of a sovereign’s assets at the request of a private party. See id. at 44. Furthermore, The Clearing House, in support of Argentina, argues that even when the discovery requests go to third parties, a sovereign incurs costs by protecting itself from discovery requests over the state’s financial affairs, especially with requests that are so broad and far reaching that they require financial institutions to perform searches over numerous branches across the world, creating excessive burdens on the sovereign and the financial institutions alike. See Brief of Amicus Curiae The Clearing House in Support of the Petitioner at 7–8. Additionally, The Clearing House argues that such discovery requests can force financial institutions to violate the law of other countries when those countries have different bank and privacy laws that regulate the dissemination of financial information. See id.at 9.
South Carolina and other U.S. states counter that Argentina made specific promises to investors that those investors would be able to have recourse against Argentina in U.S. courts in the event of defaults by waiving its sovereign immunity. See Brief of Amici Curiae South Carolina and 20 other States in Support of Respondent at 11. This type of waiver is a recognized exception in international law to sovereign immunity. See Brief of Amici Curiae Montreux Partners, et al., in Support of Respondent at 7. Furthermore, NML argues that these discovery efforts seek only to produce already existent business records from third-party banks, not from the state, thus relieving the state from any burden of production. See Brief for Repondent at 52. Also, because these banks are not state instrumentalities, the state cannot claim immunity for these non-sovereigns. See id. at 51. Finally, NML argues that Argentina had the opportunity to claim governmental privilege in order to block specific parts of the discovery order in order to protect state secrets, but it chose not to. See id. at 52.
The Supreme Court will determine the permissible scope of post-judgment discovery against sovereign states. See Brief of Petitioner, The Republic of Argentina, at i. Specifically, the Supreme Court will determine what additional documents a foreign state must provide to an opposing party after a case judgment has already been delivered: (1) documents related to all assets of a foreign state regardless of the assets’ locations, or (2) documents related to assets located in the United States that are potentially subject to being taken as part of a judgment under the FSIA. See id. To make this determination, the Supreme Court will have to analyze the text of the FSIA, which sets the legal standard for determining the appropriate level of immunity a foreign state is afforded in a civil action. See id. at 25. The Supreme Court will also have to consider sovereign immunity and other federal interests. See id. at 39.
Argentina claims that the FSIA limits post-judgment discovery to documents that relate to a property that is “potentially subject” to a judgment award. See id. at 26. Argentina also claims that expansive post-judgment discovery of foreign-state property infringes on sovereign immunity and other federal interests. See id. at 39. NML claims that the FSIA does not limit post-judgment discovery to documents that relate to a property that is “potentially subject” to a judgment award. See Brief of Respondent, NML Capital, Ltd., at 23–24. NML also claims that expansive post-judgment discovery of foreign-state property accords with sovereign immunity and other federal interests. See id. at 33.
INTERPRETATION OF THE FSIA
Argentina argues that the FSIA limits post-judgment discovery to documents that relate to a property that is “potentially subject” to a judgment award. See Brief of Petitioner, at 26. Argentina argues that foreign sovereigns have historically been afforded broad immunity by United States courts. See id. at 26. Argentina further argues that Congress intended discovery in aid of judgment enforcement to be limited to narrow circumstances, such as when the property at issue is potentially property of the foreign state and is being used for a commercial activity in the United States. See id. at 29. Argentina argues that this immunity-based limitation on discovery is necessary to constrain the normally broad discretion that district courts have over the discovery process because such broad-ranging discovery “can be peculiarly disruptive of effective government.” See id. at 32.
Argentina also claims that the lower court incorrectly ruled that the FSIA is silent on the permissible scope of discovery against sovereign states. See id. at 32. Argentina argues that the FSIA is not silent with regard to the permissible scope of discovery because Sections 1609 and 1610 of the FSIA state that a foreign property, which is used for a commercial activity in the United States, shall not be immune from attachment in aid of execution. See id. at 36. And even if the FSIA was silent on the issue, Argentina argues that an expansive grant of discovery into the FSIA’s purported “silence” is directly contrary to the common law principle of providing broad immunity to foreign sovereigns. See id.
NML counters that the FSIA does not limit post-judgment discovery to documents that relate to a property that is “potentially subject” to a judgment award. See Brief of Respondent, at 23–24. NML argues that district courts should not be ordered to conduct discovery circumspectly and only to verify allegations of specific facts crucial to an immunity determination. See id. at 23. NML instead argues that, though a district court can voluntarily choose to exercise discretion in permitting discovery against a foreign sovereign, the FSIA should not broadly prohibit post-judgment discovery into a foreign state’s assets. See id. at 22–23. NML instead argues that a district court should have the power to appropriately weigh the benefits of additional discovery against the intrusiveness to the foreign state of permitting such discovery because this power is consistent with the broad post-judgment discovery that is traditionally authorized by the Federal Rules of Civil Procedure. See id.
NML also contends that the lower court correctly ruled that the FSIA is silent on the permissible scope of discovery against sovereign states. See id. at 24. NML argues that Sections 1609 and 1610 of the FSIA do not address the specific issue of post-judgment discovery. See id. NML argues that Congress intended the FSIA to provide broad discovery in aid of acquiring assets post-judgment, and this legislative preference of an expansive grant of discovery should answer the FSIA’s silence about the scope of post-judgment discovery. See id. at 25–27. NML argues that Congress provided this broad jurisdiction to promote uniformity in decision-making, which was desirable since disparate treatment of cases involving foreign governments may have adverse foreign consequences. See id. at 28.
SOVEREIGN IMMUNITY AND OTHER FEDERAL INTERESTS
Argentina claims that expansive post-judgment discovery of foreign-state property infringes on sovereign immunity and other federal interests. See id. at 39. First, Argentina argues that expansive post-judgment discovery goes against the ideals of comity, or the principle of foreign sovereigns respecting each other’s sovereignty, because a court is ordering a worldwide “forensic examination” of all assets of a foreign state, including the property of a nation’s military, its diplomatic core, and its highest officials. See id. at 43.
Second, Argentina argues that endorsing such discovery would undermine the federal interest in shielding foreign states from the burdens of litigation. See id. at 43. Even if a third-party bank conducts the discovery, Argentina argues that such discovery will result in additional inconveniences to the foreign state, such as the following: (1) forcing the sovereign to defend itself in subsequent litigation; (2) yielding information that cannot justify an attachment proceeding but which a judgment creditor can use as a basis to seek still more intrusive discovery; and (3) forcing third parties to deem their burdens of discovery as a cost of doing business with a sovereign state, and to either pass those costs on to the state or refuse to do business with that state. See id. at 47.
Third, Argentina argues that since some foreign states base their sovereign immunity decisions on the ideals of reciprocity, or the treatment that U.S. courts provide to foreign sovereigns, the Supreme Court’s interpretation of the FSIA will likely have a tangible impact on the treatment of the United States Government abroad. See id. at 49.
NML counters that expansive post-judgment discovery of foreign-state property accords with sovereign immunity and other federal interests. See Brief of Respondent,at 36. First, NML argues that the United States has to balance the comity interests of foreign states with the federal interest in providing a forum for the final resolution of disputes and for enforcing these judgments. See id. at 28–30. By ensuring that American judgment creditors may obtain the information necessary to enforce their judgments against foreign states, NML believes that the Supreme Court will respect that balance. See id. at 25 & 53.
Second, NML claims that foreign states do not face “the cost and aggravation of discovery” when they do not bear the responsibility of personally responding to the discovery at issue. See id. at 51. NML argues that the FSIA does not apply to non-sovereigns because sovereign immunity is only designed to give foreign states and their instrumentalities some protection from the inconvenience of suit. See id. at 51–52. NML argues that, in this case, the United States court made requests for discovery to seek business records from third-party banks that those banks already possess. See id. at 52. NML argues that Argentina thus did not have to take any action or produce any information. See id. Further, NML refutes Argentina’s contention that discovery from non-sovereign third parties will inevitably spill over into equally intrusive discovery of the party itself because this spill over will only occur if the district court has jurisdiction over the foreign sovereign in that litigation – in which case, the state is not entitled to avoid this inconvenience. See id. at53–54.
Third, NML claims that Argentina is wrong to insist that the post-judgment discovery that was demanded under the circumstances of this case will lead to reciprocal adverse treatment of the United States in foreign courts. See id. at38. NML argues that the United States has a strong federal interest in ensuring the enforceability of valid debts under the principles of contract law, and in particular, the continuing enforceability of foreign debts owed to United States lenders. See id. at 35.NML argues that if creditors cannot obtain the information needed to locate even non-immune assets to satisfy a judgment in their favor—despite having won the case on the merits—then enforcement against a recalcitrant sovereign such as Argentina becomes nearly impossible. See id.
In this case, the Supreme Court will determine the permissible scope of post-judgment discovery against sovereign states. Argentina claims that the FSIA limits post-judgment discovery to documents that relate to a property that is “potentially subject” to a judgment award. Argentina also claims that expansive post-judgment discovery of foreign-state property infringes on sovereign immunity and other federal interests. NML claims that the FSIA does not limit post-judgment discovery to documents that relate to a property that is “potentially subject” to a judgment award. NML also claims that expansive post-judgment discovery of foreign-state property accords with sovereign immunity and other federal interests. The Supreme Court’s decision will impact lower courts’ interpretation of the FSIA and the level of discovery foreign sovereigns face in the American legal system.
- Lawrence Hurley, Reuters: U.S. Top Court Agrees to Hear Argentina Bank Subpoenas Case (Jan. 10, 2014).
- Greg Stohr, Bloomberg: Argentina Seeks U.S. Supreme Court Review in Debt Case (Feb. 18, 2014).
- Ted Folkman, Letters Blogatory: Case of the Day: NML Capital v. Argentina (Aug. 27, 2013).