MercoPress. South Atlantic News Agency

US Court rejects Argentina sovereign immunity argument; banks must show documents

US District Judge Thomas Griesa in Manhattan

Argentina lost a bid on Monday to prevent bondholders from obtaining documents from two banks about the country's assets outside the United States. A three judge panel of the 2nd US Circuit Court of Appeals in New York said in an opinion that the Argentine government could not prevent a lower court's order forcing the banks to produce the documents.

The Court of Appeals backed a September 2011 ruling by US District Judge Thomas Griesa in Manhattan, ordering non-parties Bank of America Corp. and state-owned Banco de la Nación Argentina to comply with the subpoenas, rejecting Argentina’s argument that its sovereign immunity was affected.

The case stems from Argentina's roughly 80 billion dollars default in 2002 and its ultimate outcome could affect how easily countries might fend off angry creditors in bids to extricate themselves from sovereign debt crises.

“Because the district court ordered only discovery, not the attachment of sovereign property, and because that discovery is directed at third-party banks, Argentina's sovereign immunity is not affected,” the written opinion said.

Argentina remains embroiled in US litigation with hedge funds and other creditors that have spurned restructurings and demanded full repayment. The litigation has been a major impediment to Argentina's return to global credit markets.

Monday's opinion, by appeals judges John Walker, Joseph McLaughlin and Jose Cabranes, comes out of a challenge by Argentina of subpoenas by NML Capital Ltd, an affiliate of the investment firm Elliott Management Corp, first served in 2010 on Bank of America and Banco de la Nación Argentina.

The subpoenas sought documents relating to accounts or assets Argentina might have at the two banks. Argentina had argued that because the underlying assets were protected by a US law, the Foreign Sovereign Immunities Act of 1976, the subpoenas were not valid.

“Argentina maintains that its property abroad is categorically immune from attachment, and that the district court cannot order discovery into those assets,” the opinion said.

The opinion, however, said that forcing the banks to produce the documents was well within a US judge's power and had nothing to do with attaching any of the country's assets.

Beginning in 2003, NML filed 11 actions in federal court seeking to collect on its defaulted Argentine bonds. NML has won five money judgments in its favour totalling 1.6 billion dollars. Griesa has also granted summary judgment to NML in six other actions in which it claims total more than 900 million, the appeals court said.

NML, an Elliott Management Corp. affiliate, has sought “discovery” or evidence about Argentina’s property and served subpoenas, seeking to gain an understanding of how Argentina moves its assets. Argentina describes NML as a “vulture fund”.