Fallo de Griesa (Citibank)

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Case 1:08-cv-06978-TPG Document 762 Filed 03/12/15 Page 1 of 16

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------------------------------ x
NML CAPITAL, LTD.,
:
:
Plaintiff,
:
:
v.
:
:
THE REPUBLIC OF ARGENTINA,
:
:
Defendant.
:
------------------------------------------------------ x
:
AURELIUS CAPITAL MASTER, LTD. and
:
ACP MASTER, LTD.,
:
:
Plaintiffs,
:
:
v.
:
:
THE REPUBLIC OF ARGENTINA,
:
:
Defendant.
:
:
------------------------------------------------------ x
:
AURELIUS OPPORTUNITIES FUND II, LLC :
and AURELIUS CAPITAL MASTER, LTD.,
:
:
Plaintiffs,
:
:
v.
:
:
THE REPUBLIC OF ARGENTINA,
:
:
Defendant.
:
:
------------------------------------------------------ x
OPINION

08 Civ. 6978 (TPG)
09 Civ. 1707 (TPG)
09 Civ. 1708 (TPG)

09 Civ. 8757 (TPG)
09 Civ. 10620 (TPG)

10 Civ. 1602 (TPG)
10 Civ. 3507 (TPG)

(captions continued on
next page)

Case 1:08-cv-06978-TPG Document 762 Filed 03/12/15 Page 2 of 16

------------------------------------------------AURELIUS CAPITAL MASTER, LTD. and
AURELIUS OPPORTUNITIES FUND II,
LLC,
Plaintiffs,
v.
THE REPUBLIC OF ARGENTINA,
Defendant.
------------------------------------------------BLUE ANGEL CAPITAL I LLC,
Plaintiff,
v.
THE REPUBLIC OF ARGENTINA,
Defendant.
------------------------------------------------OLIFANT FUND, LTD.,
Plaintiff,
v.
THE REPUBLIC OF ARGENTINA,
Defendant.
------------------------------------------------PABLO ALBERTO VARELA, et al.,
Plaintiff,
v.
THE REPUBLIC OF ARGENTINA,
Defendant.
-------------------------------------------------

x
:
:
:
:
:
: 10 Civ. 3970 (TPG)
: 10 Civ. 8339 (TPG)
:
:
:
:
:
x
:
:
:
:
:
10 Civ. 4101 (TPG)
:
10 Civ. 4782 (TPG)
:
:
:
x
:
:
:
:
:
10 Civ. 9587 (TPG)
:
:
:
:
x
:
:
:
:
:
10 Civ. 5338 (TPG)
:
:
:
:
x

Case 1:08-cv-06978-TPG Document 762 Filed 03/12/15 Page 3 of 16

Citibank, N.A. (“Citibank”) has a bank branch located in Buenos Aires.
This branch is a custodian for certain “exchange bonds” issued by the Republic
of Argentina (“the Republic”) and governed by Argentine law. Citibank has
moved, by order to show cause, to vacate this court’s order of July 28, 2014,
which clarified that an injunction issued against the Republic prohibits Citibank
from processing payments on the “dollar-denominated exchange bonds.” See
Order of July 28, 2014 at 4. For the following reasons, the court denies Citibank’s
motion to vacate the July 28, 2014 order.
Background
In 1994, the Republic issued bonds pursuant to a Fiscal Agency
Agreement (“FAA”). The FAA provided that the Republic’s payment obligations on
the 1994 bonds “shall at all times rank at least equally with all its other present
and future unsecured and unsubordinated External Indebtedness.” FAA ¶ 1(c).
This clause of the FAA has become known as the “Equal Treatment Provision.”
The FAA also contained provisions whereby, in the event litigation arose
regarding the 1994 bonds, the Republic agreed to the jurisdiction of any state or
federal court in New York City. Id. ¶¶ 22–23.
From 1994 until 2001, it appears the Republic made timely interest
payments on the 1994 bonds. However, in 2001 the Republic experienced a
severe economic crisis. The Republic stopped making interest payments on its
public debt, including the 1994 bonds.
In 2002, holders of the 1994 bonds began filing lawsuits against the
Republic in this court. The court issued judgments in some of these cases in
1

Case 1:08-cv-06978-TPG Document 762 Filed 03/12/15 Page 4 of 16

favor of the bondholders, but the bondholders struggled to enforce those
judgments. They were unable to seize the Republic’s assets or otherwise collect
payment.
A. The 2005 and 2010 Exchanges and Citibank’s Role in the Payment
Process
In 2005, the Republic issued an exchange offer (the “2005 Exchange”)
inviting creditors, including holders of the 1994 bonds, to exchange their old
bonds for newly issued bonds worth 25%–29% of the original bonds’ value.
Approximately 72% of the Republic’s creditors accepted this offer. In 2010, the
Republic issued another exchange offer (the “2010 Exchange”) with terms
substantially identical to the 2005 exchange offer. The 2010 Exchange garnered
some additional interest. All told, an estimated 93% of the Republic’s creditors
accepted the 2005 or 2010 exchange offers.
The 2005 and 2010 exchange offers created new types of bonds, including:
(1) bonds governed by New York law; (2) bonds governed by English law; and
(3) bonds governed by Argentine law.
The payment process on the dollar-denominated exchange bonds governed
by Argentine law is as follows: the Republic sends the interest payments to an
entity

named

Central

de

Registro

y

Liquidación

de

Instrumentos

de

Endeudamiento Publico (“CRYL”). CRYL forwards those payments to another
entity named Caja de Valores, S.A. (“Caja”). Caja forwards the payments to
Citibank’s Argentine branch. Citibank’s Argentine branch then transmits the
payments to its customers, including the clearinghouses Euroclear and

2

Case 1:08-cv-06978-TPG Document 762 Filed 03/12/15 Page 5 of 16

Clearstream. Euroclear and Clearstream then distribute their portion of the
interest payments to bondholders.
The exchange bonds governed by Argentine law are denominated in U.S.
dollars and in Argentine pesos. Only the dollar-denominated bonds, amounting
to $2.3 billion, are at issue in the instant motion. These bonds were assigned
five International Securities Identification Numbers (“ISINs”): ARARGE03E097,
ARARGE03E113, ARARGE03E154, ARARGE03G688, and ARARGE03G704.
B. The Injunction and the Orders of June 27, 2014 and July 28, 2014
Plaintiffs in this case hold bonds issued pursuant to the FAA. Plaintiffs
rejected both the 2005 and 2010 exchange offers, opting instead to seek payment
on the terms agreed to in the FAA. Plaintiffs sued the Republic in this court and
obtained judgments. However, like other 1994 bondholders, plaintiffs found it
impossible to collect on their judgments.
On February 23, 2012, this court issued an order prohibiting the Republic
from making payments on the exchange bonds without also making a ratable
payment to plaintiffs on their bonds. This order was amended and supplemented
on November 21, 2012. As amended, the February 23, 2012 order has become
known as “the Injunction.”
The Injunction provides: “Whenever the Republic pays any amount due
under terms of the bonds or other obligations issued pursuant to the Republic’s
2005 or 2010 Exchange Offers . . . the Republic shall concurrently or in advance
make a ‘Ratable Payment’ to NML.” Injunction ¶ 2(a). The Injunction provides
further that: “the Republic is ENJOINED from . . . making any payment under
3

Case 1:08-cv-06978-TPG Document 762 Filed 03/12/15 Page 6 of 16

the terms of the Exchange Bonds without complying with its obligation . . .
[under] the FAA by concurrently or in advance making a Ratable Payment to
NML.” Id. ¶ 2(d).
The Injunction also prohibits “participants in the payment process of the
Exchange Bonds . . . . from aiding and abetting any violation of this ORDER.” Id.
¶ 2(e). The term “participants” “refer[s] to those persons and entities who act in
active concert or participation with the Republic, to assist the Republic in
fulfilling its payment obligations under the Exchange Bonds.” Id. ¶ 2(f) (emphasis
added) (listing several examples of participants). Finally, the Injunction provides
that non-parties may seek clarification from the court of their duties, if any,
under the Injunction. Id. ¶ 2(h).
In 2013, Citibank filed a motion asking the court to clarify whether the
Injunction prohibits its handling of payments on the exchange bonds governed
by Argentine law. The court initially deferred action on the motion pending
appeal of the Injunction to the Court of Appeals for the Second Circuit. The Court
of Appeals affirmed the Injunction in August of 2013, and the Supreme Court
denied certiorari in June of 2014.
With the appeals of the Injunction having concluded, the court revisited
Citibank’s motion for clarification. On June 27, 2014, the court issued an order
(“June 27th Order”) providing that the Injunction does “not as a matter of law
prohibit payments by Citibank[’s] . . . Argentine branch on Peso- and U.S. Dollardenominated bonds—governed by Argentine law and payable in Argentina—that
were issued by the Republic of Argentina in 2005 and 2010 to customers for
4

Case 1:08-cv-06978-TPG Document 762 Filed 03/12/15 Page 7 of 16

whom it acts as custodian in Argentina.” Order of June 27, 2014. Plaintiffs filed
a motion for partial reconsideration of the June 27th Order.
On July 28, 2014, the court issued an order (“July 28th Order”) allowing
Citibank to make a one-time payment on the dollar-denominated exchange
bonds governed by Argentine Law. However, the court clarified that the
Injunction would prohibit Citibank from processing payments on the dollardenominated exchange bonds going forward.
Citibank appealed the July 28th Order to the Court of Appeals for the
Second Circuit. The Court of Appeals denied the appeal on jurisdictional
grounds, but noted that “nothing in this Court’s order is intended to preclude
Citibank from seeking further relief from the district court.” Thus, on September
22, 2014, Citibank filed a motion, by order to show cause, to vacate the July
28th Order. It is this motion that is the subject of the present opinion.
The court held hearings on Citibank’s motion on September 28, 2014 and
March 3, 2015. The court, on consent of plaintiffs, allowed Citibank to process
payments at the end of September and the end of December on the dollardenominated exchange bonds governed by Argentine law. Citibank’s Argentine
branch is expected to receive another interest payment on those bonds on March
31, 2015. Plaintiffs have not consented to Citibank’s processing of that payment.
Discussion
Citibank and the Republic have advanced three primary arguments in
support of vacating the July 28th Order: (1) the exchange bonds governed by
Argentine law should not be subject to the Injunction because they are not
5

Case 1:08-cv-06978-TPG Document 762 Filed 03/12/15 Page 8 of 16

“external indebtedness” of the Republic; (2) Citibank’s Argentine branch should
not be considered a “participant in the payment process” and therefore its
dealings in Argentina should not implicate the Injunction; and (3) principles of
comity weigh in favor of vacating the July 28th Order.
1. Whether the Injunction Prohibits Citibank’s Processing of Payments
on the Exchange Bonds Governed by Argentine Law
Citibank argues that the exchange bonds governed by Argentine law
should fall outside the scope of the Injunction because those bonds do not qualify
as external indebtedness of the Republic.
The operative paragraphs of the Injunction do not speak in terms of
“external indebtedness.” Rather, the Injunction prohibits “participants in the
payment process” from assisting the Republic in making payments on exchange
bonds. See Injunction ¶ 2(a),(d),(e). Thus the Injunction by its terms does not, in
and of itself, refer to external indebtedness as a condition for its application.
However, the Injunction effectuates the Equal Treatment Provision of the
FAA. See, e.g., Injunction ¶ 1(d). The Equal Treatment Provision does speak in
terms of external indebtedness, providing that “The payment obligations of the
Republic under the Securities shall at all times rank at least equally with all its
other

present

and

future

unsecured

and

unsubordinated

External

Indebtedness.” FAA ¶ (1)(c). Thus there is an issue about whether the Injunction,
in light of the FAA, prohibits the Republic from making, and “participants” from
assisting in, payments on external indebtedness (unless of course a ratable
payment is made to plaintiffs holding 1994 bonds).

6

Case 1:08-cv-06978-TPG Document 762 Filed 03/12/15 Page 9 of 16

The FAA defines “external indebtedness” as “obligations . . . for borrowed
money . . . payable . . . in a currency other than the lawful currency of the
Republic provided that no Domestic Foreign Currency Indebtedness, as defined
below, shall constitute External Indebtedness.” FAA at 16. Since the exchange
bonds at issue here are denominated in dollars, they qualify as “external
indebtedness” of the Republic unless the carve-out for Domestic Foreign
Currency Indebtedness (“DFCI”) applies.
The FAA defines DFCI in three ways. See FAA at 17. First, DFCI includes
seven specifically named bonds issued between 1991 and 1993. Id. Second, DFCI
includes any debt issued in replacement for one of those seven specific bonds.
Third, DFCI includes any foreign currency indebtedness “offered exclusively
within the Republic of Argentina” or “issued in . . . substitution . . . or
replacement of indebtedness payable in the lawful currency of Argentina.” Id.
The first and second types of DFCI do not apply here. No one suggests that
the exchange bonds, issued in 2005 and 2010, could have been specified in the
FAA, which was drafted more than a decade earlier. The parties do, however,
agree that a small fraction (3%-17%) of the exchange bonds governed by
Argentine law were issued as replacements for one of the seven bonds specified
in the definition of DFCI. Thus, if the operative paragraphs of the Injunction
spoke in terms of external indebtedness, it could be argued that this 3%–17%
would qualify as DFCI. The vast majority, however, would not qualify as DFCI.
The parties sharply dispute whether the exchange bonds governed by
Argentine law were “offered exclusively within the Republic of Argentina” and
7

Case 1:08-cv-06978-TPG Document 762 Filed 03/12/15 Page 10 of 16

thus qualify as DFCI under the third category. The court has reviewed hundreds
of documents going to this question, and held two hearings where this question
was debated. The evidence produced is overwhelming: the exchange bonds
governed by Argentine law were, like all the other exchange bonds, offered in
many countries, not exclusively in Argentina. See, e.g., 2005 Prospectus
Supplement at (iii), S-95, see also 2010 Prospectus Supplement at (v).
The Republic argues that the exchange bonds governed by Argentine law
were offered locally because they were registered at and payable through CRYL,
an Argentine entity. See Republic’s Supp. Mem. L. at 19. But this argument goes
to where the transactions were consummated, or in the parlance of contract law,
where the exchanges were “accepted.” It does not go to where the exchange bonds
were offered.
The final type of DFCI, also falling under the third category, is foreign
currency indebtedness “issued in . . . substitution . . . or replacement of
indebtedness payable in the lawful currency of Argentina.” FAA at 17. Citibank
argues that in 2002, the Republic passed a series of measures converting all of
its public debts payable in foreign currencies into debts payable in Argentine
pesos. Thus, Citibank contends that the exchange bonds governed by Argentine
law were replacing debts payable in Argentine pesos, and qualify as DFCI under
the third category.
It appears that in 2002 the Argentine President, with authorization from
the Argentine National Congress, “pesified” its public debts. See Duggan Decl.
¶ 6. However, when the exchange bonds were created in 2005, the Republic
8

Case 1:08-cv-06978-TPG Document 762 Filed 03/12/15 Page 11 of 16

expressly preserved the foreign currency status of debts that may have been
“pesified,” stating: “Solely for the purposes of the [exchange] Offer, Eligible
Securities originally denominated in a currency other than pesos and governed
by Argentine law will be treated as if they were denominated in the currency in
which they were originally issued.” 2005 Prospectus Supplement at S-9, S-40.
Thus, the exchange bonds governed by Argentine law and denominated in dollars
do not qualify as DFCI because they replaced bonds that were treated as payable
in a foreign currency, making the third category inapplicable here.
As discussed, the operative paragraphs of the Injunction do not speak in
terms of “external indebtedness,” and as a result, Citibank’s participation in
making payments on exchange bonds is prohibited. This is true whether or not
the exchange bonds are external indebtedness. Nonetheless, the court finds that
the vast majority of exchange bonds governed by Argentine law and payable in
U.S. dollars would not constitute DFCI, but rather would qualify as external
indebtedness of the Republic. Thus, payment on these exchange bonds would
violate the Equal Treatment Provision of the FAA, providing an additional reason
as to why the Injunction applies.
2. Whether Citibank is a “Participant in the Payment Process”
Citibank argues that it does not participate in the payment process of the
exchange bonds, and thus should not be subject to the Injunction.
“Participant” within the meaning of the Injunction refers to “persons and
entities who act in active concert or participation with the Republic, to assist the
Republic in fulfilling its payment obligations under the Exchange Bonds.”
9

Case 1:08-cv-06978-TPG Document 762 Filed 03/12/15 Page 12 of 16

Injunction ¶ 2(f) (emphasis added). The Injunction lists a number of entities that
are participants, such as trustees, depositaries, clearing systems, settlement
agents, transfer agents, et cetera. Id. ¶2(f)(1)–(5). This list is illustrative, not
exclusive. NML Capital, Ltd. v. Republic of Argentina, 727 F.3d 230, 244 (2d Cir.
2013), cert. denied, 134 S. Ct. 2819 (2014). As the court made clear in paragraph
two of the Injunction, a participant in the payment process is any entity that
participates with or assists the Republic in fulfilling its exchange bond
obligations.
Citibank asserts that payments on the exchange bonds governed by
Argentine law are “complete” when those payments reach CRYL, and thus by
processing those payments after they have been transferred, Citibank is not
assisting the Republic in fulfilling its payment obligations. Hr’g Tr. Mar. 3, 2015
at 24–26. This argument is unavailing. Citibank is not an exchange bondholder,
but rather a financial institution that processes payments initiated by the
Republic and intended for and terminating with exchange bondholders. By
crediting those payments to customer accounts, including the accounts of large
clearinghouses, Citibank is assisting the Republic in fulfilling its payment
obligations on the exchange bonds. To rule otherwise, this court would have to
adopt an overly narrow and technical reading of the term “participants,” one at
odds with the clear language of the Injunction and at odds with the court’s intent
in fashioning that Injunction.

10

Case 1:08-cv-06978-TPG Document 762 Filed 03/12/15 Page 13 of 16

3. Whether Principles of Comity Weigh in Favor of Allowing Citibank to

Process Payments on the Dollar-denominated Exchange Bonds
Governed by Argentine Law

Citibank argues that principles of comity weigh in favor of allowing it to
process payments on the dollar-denominated exchange bonds governed by
Argentine law.
In Gucci America, Inc. v. Weixing Li, the Court of Appeals considered
whether to uphold an injunction won by luxury goods companies which froze
assets in accounts of the New York branch of the Bank of China, and also
purported to freeze assets in Bank of China accounts worldwide. 768 F.3d 122,
126–27 (2d Cir. 2014). The Bank of China, owned in “major part” by the Chinese
government, was not incorporated or headquartered anywhere in the United
States, and only a small fraction of its thousands of bank branches were located
in the United States. Id.
The Court of Appeals held that the injunction against the defendant was
valid, and operated to forbid non-parties from “assisting in its violation.” Id. at
130. However, the Court of Appeals reasoned that before the injunction could be
enforced against non-parties such as the Bank of China, the district court must
ensure that it has personal jurisdiction or specific jurisdiction over the foreign
entity. Id. at 134. Since the Bank of China was headquartered outside of the
forum, and because its contacts with the forum appeared remote, the Court of
Appeals held that the district court lacked general jurisdiction over the bank,
and remanded the case to the district court to determine whether it could
exercise specific jurisdiction. Id. at 136–37.
11

Case 1:08-cv-06978-TPG Document 762 Filed 03/12/15 Page 14 of 16

The Gucci court also suggested that district courts consider notions of
comity in rendering decisions affecting sovereign interests. Id. at 138–39.
“‘Comity is . . . the recognition which one nation allows within its territory to the
legislative, executive or judicial acts of another nation, having due regard both
to international duty and convenience, and to the rights of its own citizens, or of
other persons who are under the protection of its laws.’” Id. at 139 (quoting Hilton
v. Guyot, 159 U.S. 113, 163–64 (1895)). In conducting a comity analysis, the
Court of Appeals suggested that lower courts address the factors provided in
§ 403 of the Restatement (Third) of Foreign Relations Law. Id. These factors
include considerations of whether the court’s exercise of jurisdiction over a
foreign entity is reasonable; the extent to which an activity takes place within
the regulating state’s territory; the importance of the regulation to the
international political, legal or economic system; the other state’s interest in the
regulating activity; and the likelihood of conflict with regulation by another state.
See Restatement (Third) of Foreign Relations Law § 403 (a)–(h).
The concerns over jurisdiction present in the Gucci case are absent here.
Unlike the Bank of China, which was headquartered outside of the United States
and had only minimal contacts with the forum, Citibank’s global headquarters
is located in New York. Citibank merely maintains a branch in Argentina.
Moreover, just as in Gucci, this court’s injunction is not directed at Citibank, but
at defendant the Republic of Argentina. Third parties like Citibank are not
directly enjoined, but rather indirectly prohibited from assisting the Republic in
meeting its exchange bond obligations.
12

Case 1:08-cv-06978-TPG Document 762 Filed 03/12/15 Page 15 of 16

The court is mindful that considerations of comity play a role when
deciding matters involving foreign sovereigns. See Aurelius Capital Master, Ltd.
v. Republic of Argentina, 589 F. App'x 16, 18 (2d Cir. 2014). The Republic of
Argentina, as a foreign sovereign, is entitled to a degree of grace and comity. Id.
But comity is a two-way street. The Republic, in a contract of its own signing,
irrevocably acceded to the jurisdiction of United States courts for disputes
arising under that contract. See FAA ¶ 22 (“The Republic hereby irrevocably and
unconditionally

waives,

to

the

fullest

extent

permitted

by

law,

any

objection . . . .”). When those courts issued judgments, the Republic refused to
honor them. Comity would have urged the opposite.
By observing the Injunction, Citibank asserts that it risks sanction in
Argentina. However, if Citibank processes payments on exchange bonds, it
violates the Injunction issued by this court. Neither option is appealing. See
Restatement (Third) of Foreign Relations Law 403(2)(h) (referring to “the
likelihood of conflict with regulation by another state.”). But if Citibank’s
predicament is a matter of comity, it is only because the Republic has refused to
observe the judgments of the court to whose jurisdiction it acceded. Comity does
not suggest abrogating those judgments, or creating exceptions to the Injunction
designed to enforce them. Rather, comity suggests that the Republic not penalize
third parties, like Citibank, who must observe the orders of United States courts.
The court has long urged the Republic to participate in negotiating a
resolution to the claims in this case, and has appointed a Special Master to

13

Case 1:08-cv-06978-TPG Document 762 Filed 03/12/15 Page 16 of 16

facilitate that process. The court urges the Republic, once again, to avail itself of
the Special Master's services.
Conclusion
For the reasons given above, the court denies Citibank's motion, by order
to show cause, to vacate the July 28th Order.
SO ORDERED.
Dated: New York, New York
March 12, 2015

'1LI?

' Thomas P. Griesa
United States District Judge

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