Execution on $310 Million of Intangible Sovereign Assets

John is joined by Dennis Hranitzky, partner in Quinn Emanuel’s New York office and Head of the firm’s Sovereign Litigation Practice; Alex Loomis, senior associate in Quinn Emanuel’s Boston office; and John Bash, partner in Quinn Emanuel’s Austin office and Co-Chair of the firm’s National Appellate Practice. They discuss sovereign debt litigation, particularly the challenges of enforcing judgments against sovereign entities, and the team’s recent success executing on over $310 million in assets to enforce in judgments against Argentina.  Dennis describes his decades-long history of enforcing judgments against Argentina, starting with a case for Elliott Management in 2002, where strategies like freezing Argentina out of capital markets and exposing corruption were key to recovery.  The team’s recent case focused on the collateral for Argentina's “Brady” bonds, instruments from the 1990s designed to make sovereign debt more tradable.  The enforcement litigation was not over the collateral itself, but on Argentina’s "reversionary interest" in the collateral.  Alex explains how the team discovered and leveraged admissions from Argentina's SEC filings to identify attachable assets, including Argentina’s reversionary interest in zero-coupon bonds held in New York and Germany.  The legal arguments involved nuanced interpretations of the Foreign Sovereign Immunities Act, including whether the reversionary interest qualified as commercial property subject to attachment and whether its situs (location) was in New York or Germany.  John Bash describes the appellate process, in which the Second Circuit upheld the attachment, agreeing that Argentina’s reversionary interest was a commercial asset located in New York.  The discussion highlights the intellectual rigor required in such cases, involving intricate property law and sovereign immunity issues. The podcast concludes with reflections on Argentina’s expected attempt to obtain review by the U.S. Supreme Court and the professional satisfaction the team derived from winning such a unique and challenging case.

Podcast Link: Law-disrupted.fm
Host: John B. Quinn 
Producer: Alexis Hyde
Music and Editing by: Alexander Rossi

Transcript

LD_ARGENTINA DEBT

JOHN QUINN: [00:00:00] This is John Quinn and this is Law Disrupted and today we're going to be talking about kind of an esoteric subject and that is, uh, sovereign debt litigation, judgments against countries, uh, how you, the challenges and how you go about executing on judgments against countries. And we have with us, uh, two of my partners and one of our very outstanding.

Senior associates, Alex, you may even be a council. Are you? I want to make sure I get this right. 

ALEX LOOMIS: No, I'm still an associate. 

JOHN QUINN: Okay. So Alex is for now for now. I want to emphasize for now a very senior associate, but he's widely recognized as a star in our firm. And, uh, Dennis is an expert, maybe the world's.

Expert in sovereign debt litigation and collection on judgments against sovereigns. It has a very long [00:01:00] history in that area, particularly with respect to Argentina, which is the country. We're going to be talking about here and also John bash, who's just, uh, Has a very large brain and is an expert and or can quickly become an expert in anything you need him to be an expert in.

I've been the beneficiary of John's. Uh, supports, uh, and, uh, insights in many, many cases, John does a lot of, uh, appellate work, uh, and is one of our stars, uh, you know, big thinking and writing, uh, stars and a terrific oral, oral advocate, but in this case, we're going to be talking about, as I said, collection of a judgment against Argentina on its sovereign debt, Dennis, you have a long history with Argentina, uh, I think Argentina has a reputation, uh, uh, uh, uh, you know, being kind of a sovereign debt scofflaw, uh, don't, don't pay their, uh, in debt, their sovereign debt [00:02:00] obligations, uh, but they do fight, they do litigate and, but they didn't get a judgment and that can just be the beginning, uh, because collecting on those judgments can be a real challenge.

Can you kind of, is that basically a fair summary or what's your history here with Argentina? Yeah. 

DENNIS HRANISKY: Well, that, that's a very fair summary. Um, my history with Argentina goes way back, um, the first, I, I first got involved with li collection litigation against Argentina in 2002, so I'm well into my third decade.

Um, and I mean, you put it exactly right, um, getting a judgment. Is the easy part, um, collecting the judgment is invariably the very difficult part. I like to think that, uh, after many years of doing this. We've gotten better and smarter and more focused and more effective, but, uh, the first go around, um, litigating for Elliott, um, is a case that, you know, John, I got to work with [00:03:00] John Bash on when John was a, a young associate, but, uh, that case went on for 14 years.

Um, uh, we did recover some assets in that case, but. We ultimately won the case. Um, by freezing Argentina out of the capital markets with what was called the Perry Pescew injunction and, uh, and applying political pressure to them by exposing official corruption, which I think had a meaningful impact on the election of 2015.

Um, but these cases are hard to to win. Um, over the years, I think we've gotten better, um, and including. And identifying assets to seize, and this was a prime example of that, uh, I mean, I'll, I can let Alex and John speak more to this, but, uh. Um, we have successfully, um, seized a 310 [00:04:00] million dollar asset, um, on judgments collectively, um, for 450 million dollars, so a very, very substantial, um, percentage recovery given the size of the claim.

JOHN QUINN: Before we jump into this, uh, Dennis, Alex, and John, what is it with Argentina? See you later. Why do they have this singular record? I mean, I have my own theory of not paying their sovereign debt. I, my impression is, is that maybe the Argentinians live beyond their means. They think they're, you know, Italian, Spanish, they think they're Europeans down in this Latin American continent, and they spend like Europeans, but they're really not Europeans.

DENNIS HRANISKY: All right, well, maybe I'll start and then John and Alex may want to jump in. Um, I think he hit the nail on the head by referring to Argentinians as Italians. The Italians invented sovereign debt. [00:05:00] Um, sovereign debt goes back to the era of Italian city states and, um, the cities or city states borrowing from their own citizens to fund their wars, um, with each other.

Um, you know, back during the 14th, 15th century. And so, and, and as you probably know, there's a huge Italian diaspora in Argentina. Um, so I guess you could say that, you know, borrowing sovereign, sovereign borrowing is in their blood. Um, and you know, they've got a long and storied history of, of sovereign defaults.

JOHN QUINN: Yeah. But I mean, they're, they're adjacent to a country, Brazil, which hasn't had a sovereign debt problem in decades. I mean, their, their, uh, debt is regarded as investment grade and have a great credit record. It's not really the subject of this podcast, but it's always struck me as kind of strange, uh, why the Argentinians don't [00:06:00] singularly, uh, don't pay their debts.

But let's jump into this case. Alex, tell us about this case. Who is our client? How did the client come to us? And what was the challenge that we faced? 

ALEX LOOMIS: Of course, so our clients were a group of creditors who, uh, had judgments or were about to obtain judgments on long defaulted Argentinian bonds that weren't settled as part of the broader settlement and restructuring that, um, Dennis participated in, um, for some of his projects.

Former clients and they came to us in 2020. I think they're about 

JOHN QUINN: we were we were not involved in getting these judgments for these clients. They came to us after they already had judgments. 

ALEX LOOMIS: Several of the clients, yes, we've obtained judgments for some of the clients since then, because some were in the pre judgment phase.

But, yes, that's right, because as Dennis mentioned, really, the hardest thing going on when you have a defaulted bond is the collection effort rather than the. [00:07:00] Actually, obtaining judgment. So they came to us to retain dennis specifically as judgment enforcement council And as part of this there's there's numerous discovery efforts that we undertake that dennis has really perfected To try to find assets that are all over the world that could be seized in different jurisdictions Dennis famously once seized an argentinian warship while it was transiting through africa uh, and At some point one of the clients noticed in an sec filing that argentina Referred to the fact that it still had collateral securing what were called the brady bonds Which were not bonds that we were suing under Those were not the defaulted bonds at issue, but that did exist and that they identified as a potential collection target Now the brady bonds Uh, this all goes back to this brady plan of I think 1992, uh early 90s Where basically the 1980s were [00:08:00] basically a lost decade for a lot of developing countries worldwide This was in an era when people generally were not issuing sovereign bonds instead sovereign countries Were relying very heavily on loans from major financial institutions And that led to a big problem because that meant that if a foreign state defaulted You Then you would have presented systemic financial risk.

You had major banks of major Western Japanese, uh, banks that could not take a write down on this debt without causing potential widespread financial harm. And the debt wasn't alienable. So the idea behind the Brady bond or the Brady plan was that they were going to encourage financial reforms, sort of as part of the Washington consensus and a lot of these developing countries.

Refinance the debt, have a write down, but also make the debt more tradable based on bonds that were backed by collateral that would be more investment grade because they were fully backed and that would because they were [00:09:00] based on bonds rather than individual bank loans would be easier to trade and therefore wouldn't face the same systemic risks that you had in the 1980s.

JOHN QUINN: What was this collateral that was going to back these bonds?

ALEX LOOMIS: There 

was 

2 categories of it. Um, I think technically up to 4, but really came down to 2 basic categories. First, there were zero coupon bearer bonds that were located at the Federal Reserve Bank of New York in New York. And then there were also zero coupon bonds that were originally denominated in Deutschmarks.

Held at a German state owned bank, um, and that, but in an account that was owned by the Federal Reserve Bank of New York. And that was a very important distinction for us ultimately in the end. That it was actually in an account belonging to the Federal Reserve Bank. 

JOHN QUINN: So these are the two kinds of collateral.

These, these underlying bonds that were collateral for these Brady bonds. 

ALEX LOOMIS: That's right. And most of the Brady collateral no longer [00:10:00] existed. This was only a portion of it that was still left. Because as part of when Argentina had their major default around the year 2000 or so, when they ultimately restructured for most of their bondholders, not everybody, which is why our clients still had claims, but they restructured for most of them through a large 2005 exchange where they offer new bonds in exchange for some of the old Brady bonds.

And as part of that, when you would exchange your prior Brady bonds, you would. You would receive as part of it, some of the liquidated collateral based on a formula that was specified in the Brady documents. So, most of the Brady bond holders had already made that exchange and there weren't that many Brady bond holders left.

And Argentina actually had communicated in their SEC filings that the Brady bonds that did exist there, because there were still some outstanding, they were going to be fully paid by, I think, March 2023 was the year. [00:11:00] Uh, and they, they said that they were fully collateralized that they had excess collateral.

And so the thought that the that that we had with working with the client was that we could seize the right of Argentina to receive the excess collateral. This is what the second circuit has previously described as Argentina's Reversionary interest in the Argentinian collateral. 

JOHN QUINN: Let me make sure I've got this.

So the sec Argentina's sec filings, which they presumably make because they have publicly traded debt securities in this country, identified the fact that these bonds were outstanding and that they were oversecured. There was some excess collateral that, you know, was held in these accounts. That's essentially the situation.

And they had a reversionary interest that when the bonds were paid off, uh, They had entitlement to the excess collateral that expectation that receivable, if you will, could be seen as an asset. Is that essentially [00:12:00] right? 

ALEX LOOMIS: That's exactly right, John, and New York is very, it takes a very broad view of what constitutes property rights that can be seized.

When it comes to collecting on judgments and there used to be, you know, differences between whether or not something about different types of property rights, but in the 1970s, the New York Court of Appeals decided that it doesn't matter if it's something that has real value that people could trade and people conceivably would trade to that has real financial value, then that qualifies and notably there have been a prior attempt by other creditors.

To seize Argentina's to attach Argentina's reversionary interest in this very same Brady collateral, and it wasn't disputed that this was actually a type of property, right? That could be seized and attacked and it upheld the attachment have been upheld on 2 prior occasions by the 2nd circuit.

Argentina had made different arguments at the time. Um, [00:13:00] Argentina, the first time people tried to seize, uh, this reversionary interest, it was in the middle. It was just before the 2005 exchange went through. And Argentina said, if you allow this attachment to go forward, it will disrupt this exchange.

Please don't allow it to go forward. The District Court didn't allow it to go forward, but the Second Circuit said that was an error and ordered the District Court to put it in place. Argentina then asked to remove it again so they could go forward with a second 2011 extension. On the U. S. On U. S.

markets, the district. This went up the 2nd circuit again, and the 2nd circuit said, yes, there really should have been an attachment in this circumstance. The 2011 exchange didn't end up happening because of this attachment. Argentina claimed the attachment interfered. With their ability to go forward with the exchange, but there have been 2 prior iterations where Argentina had made arguments saying, if you leave this attachment in place, then it'll interfere with our ability to restructure debts.

And that argument had no currency with the second circuit. So when it came [00:14:00] to our time are trying to attack it, Argentina had to come up with different arguments. 

JOHN QUINN: All right, so just so the audience understands, we're not the asset we're talking about. Attaching or executing on to satisfy a judgment. It's not the underlying collateral itself.

It's the Reversionary interest the asset represented by argentina's right to get excess collateral back 

ALEX LOOMIS: That's exactly right Uh, we were not seizing the assets because the the underlying bonds because the underlying bonds didn't belong to argentina yet Argentina's only right to the property Was this contractual reversionary interest we were basically saying please transfer to us the right to contractually demand of the federal reserve bank of new york At the end of march 2023 the right to repayment of this reversionary interest.

JOHN QUINN: All right, and it sounds like you had uh, a couple of precedents which sort of supported the theory that this reversionary interest was a Asset that [00:15:00] was attachable. 

ALEX LOOMIS: Yeah, and that that's right and it didn't really come up too much in our case at one point They did argue that the reversionary interest didn't really belong to them It belonged to the central bank of argentina because the bond sample instruction specified that the assets would be transferred To the central bank of Argentina as a default rule, so that was an argument where that where we were able to leverage the past president and note that Argentina had never made this argument before and the second servant had already held that these assets belong to Argentina.

But for the most part, we were relying on these 2, right? The arguments they made were entirely different and were more predicated on sovereign immunity. 

JOHN QUINN: Yeah, I mean, I don't know much about this area, but I seem to understand that assets held by a national bank of the equivalent of the Federal Reserve of any country.

Cannot be attached. So they're putting up that defense. That was potentially at [00:16:00] least a showstopper 

ALEX LOOMIS: potentially Um, there's some exceptions But yes There is much broader central bank immunity for assets than there are for other sovereign assets and sovereign assets already have substantial immunity 

JOHN QUINN: All right.

So tell us how You design what, how you thought about and how you arrived at the strategy and how that was executed at the district court level. 

ALEX LOOMIS: So, as sort of a nuts and bolts issue, the 1st thing you do is you, you thought you speak at an ex parte of attachments and attachment for the purposes of this.

It used to be that attachment you would have to send a sheriff to physically seize physical property To do this, but when you have, you know financial assets that are being held in a bank What you really do is you just go to a court and say I believe I have a right to do this It's an ex parte proceeding and the reason it's an ex parte proceeding is that Once you obtain an attachment, you obtain priority over other creditors, because if there are creditors with competing attachments [00:17:00] and liens, it's the 1st attachment for the entity with the 1st attachment has priority over other creditors.

So, we 1st thing you do is you get an export rate of attachment. 

JOHN QUINN: Does that mean no notice to the other side or just no notice to other creditors? 

ALEX LOOMIS: No notice to the other side or other creditors at first But as soon as the note at the ex parte written attachment is obtained Then they obtain notice that's when um, and that's when you have the motion to confirm the attachment The other side did have notice we successfully sealed proceedings The courts agreed to seal proceedings as to other creditors for some time Um, for the motion to confirm the attachment proceeding, and that's where the real action was the initial rate of attachment was just a simple was a was a preliminary showing just to make sure that we had made made it show that it was not a crazy ask, but the real action was in the motion to confirm proceedings when Argentina showed up and they started making some very interesting arguments about sovereign.

JOHN QUINN: In terms of the initial [00:18:00] attachment, that's all I assume. New York law. That's right. Yeah. The federal Rules of Civil procedure provide that for pre-judgment proceedings. You look to the, uh, pre-judgment, attachment, et cetera, procedure of the form state. So, uh, and then you get to the confirmation hearing, and that's where the real action started.

ALEX LOOMIS: Yeah, that's right. And the primary arguments they made were sort of were, the first argument was that. This asset was not being used for commercial activity. And so that that sounds like a somewhat odd argument to be making about you know as collateral But I the argument came down to the specific text of the foreign sovereign immunities act in general The foreign sovereign immunities act creates a default presumption of immunity from execution and attachment all enforcement measures even though this creates the possibility of lots of creditors having judgments without effective remedies judgments that they'll never be able to collect and Section [00:19:00] 1610 of the foreign sovereign immunities act creates an exception to immunity Um, if there's a waiver, there's other circumstances But waiver is the is the one we were going under because argentina had waived Immunity from execution and attachment in the bond documents There is a if you have that waiver You still need to show that the assets are in the United being used for a commercial activity in the United States.

That's at least how most courts have interpreted the statute. So the question. 

JOHN QUINN: Yeah. How could you say that a reversionary interest was being used? Being used in present tense for a commercial purpose 

ALEX LOOMIS: so the the present tense thing was actually an important point because the The way courts have interpreted this fairly uniformly across different circuits isn't to say that there needs to be Active use at this very moment that the writ of attachment actively disrupts So just to be clear what I mean by that [00:20:00] they're they're really the inquiry is really about What is the character of the asset?

Is that a commercial asset generally rather than is it being, you know, is it a car that's If you imagine, for example, a cab that was being seized to satisfy a debt, if Argentina was had a cab service in the United States, you wouldn't need to show that the cab was being driven when the rate of attachment was served, it would be fine if it was in the garage, even if it had been in the garage for a month or two.

The fact is that it's still a commercial asset, even though it's not riding on the road the moment the sheriff pulls them over. And so our argument was that it's the same thing or this reversionary interest that this reversionary interest was created as part and parcel of the Brady plan when they were issuing bonds.

Supreme Court has already held in many times that issuing bonds actually in a case originally against Argentina from 1992, that issuing bonds is a quintessential commercial act that states engage in all the time. So posting collateral is also part of that [00:21:00] commercial act. And the reversionary interest is what kept those assets marketable and kept those assets commercial in character.

Now, Argentina argued that that was a little bit too passive to qualify as commercial use. We disagree with that. But the other thing that we came up with, and this was, I think, something that really broke through to the Second Circuit and made the case very unique, I think, in the fashion of circumstances, Is the 2005 and 2011 exchanges that I mentioned earlier when Argentina decided to refinance the Brady bonds by encouraging people to trade in their Brady bonds in return for some of the collateral and in return for a new bond.

We said in that case they were effectively using the brady their reversionary interest as payment to people They were engaged. They were asking people to use their reversionary interest as payment To take on a different bond and they were using financial markets And although this there wasn't an exchange right now the [00:22:00] fact we've pointed out that there wasn't any sovereign use of the asset And it had been used as this collateral in a commercial sense, and they had done these exchanges before.

Those were all reasons why it was being used for commercial purposes. And we felt we were on pretty good ground under long standing precedent from 2nd circuit and other circuits on that ground. 

DENNIS HRANISKY: I just jump in for a 2nd, uh, on this point. This is Dennis for those who don't recognize his voice. Um, so this was an argument that obviously we had to develop in the district board and I handled the district court litigation.

But, uh, I think we understood that this was probably 1 of the most. Um, complex issues in the case and, you know, 1 of the many ways that John bash, um, added value is when we got up on appeal. Um, I think he just did a masterful job of refining and further developing that argument. And it was, uh, I think it's probably what won the [00:23:00] case for us as well.

JOHN QUINN: Well, I know there's issues to be talked about, uh, regarding the location. Where do you find, you know, where do you execute on? How do you execute on what is the. Locusts of the reversionary interest. But before we get to that, are there any other of these? Challenging intellectual issues and arguments that you faced at the district court level that we should talk about 

ALEX LOOMIS: Well, actually the locus and the the location of the reversionary interest was actually another one Um, the the foreign sovereign immunities act is it's written a little bit strangely It says that property in the united states of a foreign state is immune It doesn't say anything about property outside the united states But most courts at least historically have viewed that as almost no oversight and said that You can only seize assets That are actually located in the United States.

And this posed a problem for us because although we got a, an original attachment order that said that all of the Brady reversionary interests, [00:24:00] including the reversionary interest for the German bonds, for the bonds that were physically located in Germany was attached. The bank of new york the federal reserve bank of new york and argentina took the position that that order did not actually reach the German assets because they were not physically located in new york and they said therefore that it wasn't subject to new york Uh turnover and attachment laws, but also that if that they were they were immune Under the foreign sovereign immunities act because there was absolute immunity for assets located abroad And we readied several arguments against that, including as a backup, the argument that the Foreign Sovereign Immunities Act simply doesn't protect assets located abroad that are used for commercial purposes abroad, at least when there's a waiver.

But we also developed, um, I think 3 or 4, I can't even remember the number of player responses, uh, arguments as to why the reversionary interest for the Thurman [00:25:00] collateral was actually located in New York for purposes of conflict of loss principles and for purposes of the FSIA. 

JOHN QUINN: Explain that to me. 

How is 

that located in New York?

ALEX LOOMIS: So the problem is that you know, when you when you have a reversionary interest, it's not it's not a house You don't physically take possession as I mentioned. There's no sheriff. The sheriff can't go over and grab it The reversionary interest is instead is an intangible property interest and at least since the early 20th century You know, we're talking justice homes type opinions US courts have taken the position that when you have an intangible property interest, the location of that property is a legal fiction, and it's really just located wherever the person who owns the pro, the contract right to the property or owns the intangible property interest is located.

And so we argued that the pro, that the person who and, and the way this has been translated into New York precedent. Is it's the location of the person of [00:26:00] whom performance is required. And so to break that down in this context, Argentina had a right to contract school performance from the federal reserve bank of New York.

And the federal because the federal reserve bank of new york is the one who had to pay argentina the excess of the bonds Whether they be in new york or whether the bonds be in germany and the federal reserve bank of new york Is located in new york Therefore we argued they had an obligation the the location of the asset Was actually in new york with the federal reserve bank of new york and that argument was You Well, it arguably was federal law, although Argentina notably said that was a state law issue.

But even under state law, that was absolutely true if you read all the New York cases and really went down the path. So although Argentina kept asserting that the assets were really located in Germany, that we're talking about German bonds and so forth, [00:27:00] At the end of the day, the district court judge framed it as, look, it doesn't matter where the bonds are physically located.

They could be in Timbuktu for all we know. The point is that Argentina's right to repayment comes from the Federal Reserve Bank of New York, and therefore, it makes sense to start in New York. 

JOHN QUINN: All right, so you get a order or there's a judgment from the federal court in New York, basically instructing the Federal Reserve to turn over.

The value of this reversionary interest. 

ALEX LOOMIS: Yes, it was state. It's still state. It was state pending appeal, but that's exactly what we got. 

JOHN QUINN: So, so, I mean, the Federal Reserve must not get many attachment orders or orders to turn over property that's holding on behalf of other states. I'm sure that's not an everyday event that may be even be unprecedented.

ALEX LOOMIS: Well, it wasn't unprecedented in this case because it happened a few times before, but, uh, but yeah, I think that the Brady collateral situation is probably, it doesn't, [00:28:00] the Brady restructuring situation, I think, is relatively unique in the context. 

JOHN QUINN: All right, is there an issue with valuing this reversionary interest?

This has to be reduced. I know it was reduced to an amount particular. Dollar amount. But is there an issue with valuing it? I mean, how, if it's over collateralized, that assumes some assigned value to the collateral and does, there's at least potential that that changes over time? 

ALEX LOOMIS: I don't, it didn't matter because I think that the, the, the end result I think of the New York cases is that it just needs to be capable of valuation rather than we need to provide and prove that the valuation will never change.

And that, of course, makes sense. You see as a house or you see, you know, a car, the valuation can change over time. And, you know, I think that when it comes down to actually collecting it, that's when we would have to. Add up the dollars and cents and decide whether or not it fully matches the judgment outstanding.

DENNIS HRANISKY: Also, as Alex [00:29:00] explain for most of the life of the litigation, the collateral took the form of. Either the 0 coupon Treasury bonds or. Uh, Deutsche Mark denominated zero coupon bonds, but those bonds matured two days before the Brady bonds mature. And so by the time the Brady bonds matured and the reversionary interest became ripe, they had been converted to cash.

JOHN QUINN: Okay. Yeah. So it was a liquidated amount at that point. Right. All right, so in terms of this underlying security interest, I take it article 9 did not apply to this. This is a bespoke security structure that was created for these bonds. 

ALEX LOOMIS: So, that was actually one of the interesting issues on appeal. Um, so, yes, the, there, there is a specific UCC provision that governs security interests in the bonds.

It didn't really apply in this case because, as you said, it was the [00:30:00] reversionary interest. Argentina tried to make the argument that under New York state law principles, the, you would look to the UCC. The problem is that the way the UCC was written, actually, the proper, because it was still the reversionary interest and not the bonds, it still meant that the proper situs of the interest was in the proper, The proper custodian of the property interest was the Federal Reserve Bank of New York.

So we want even that under that theory. 

JOHN QUINN: So, in Article 9 terms, this was, this was an intangible, the, it was the reversionary interest is an intangible asset. In Article 9 terms. Yeah. All right. So John bash, uh. Dennis and Alex did all this good work and these very esoteric. Uh, you know, how many angels on the head of a pin, uh, you know, legal issues and theories and then, uh, Argentina appeals.

And you had to defend that in the 2nd circuit. Uh, what were the primary issues you had to deal with there? [00:31:00] 

JOHN BASH: That's right, John. And, um, when you have people like Dennis and Alex working up the arguments in the 1st instance, and of course, they worked on the appeal to. Uh, it makes it pretty easy for an appellate lawyer, even in a pretty complex case like this.

Um, but Argentina, and by the way, there were two different appeals that were consolidated. Um, they had done a second appeal from the order attaching and turning over the, um, reversionary interest for the bonds held in Germany or for the collateral held in Germany. So those ended up being totally separately briefed because of the timing of the appeal.

And then consolidated. So we had, you know, six merits briefs in total between the parties up at the second circuit. Um, so there's a lot of brief writing, 

JOHN QUINN: but since I'm an expedited schedule, 

JOHN BASH: no, it was not and we, we, we wanted to not consolidate the appeal so that we could at least, um, prevail on the 1st appeal before having to litigate the 2nd 1, but, but the 2nd circuit decided to consolidate.

So, Argentina, let's just say, [00:32:00] made some interesting choices on the way they frame their appellate issues. Their lead issue was an issue we haven't even talked about, um, because it was not something we were very concerned about, which is they, they thought that the reversionary interest really belong to the bank, the Central Bank of Argentina.

And they based that argument on the fact that. The bond documents had an appendix that had one of these forms with blanks kind of like a mad libs thing And but one of the things that wasn't blank is it said deliver something like deliver the Remaining um collateral to an a bikra account or something bikra is the name of the central bank And so they thought well this firm I mean this form document in the appendix Means actually the reversionary interest belongs To the central bank, which as you alluded to earlier would trigger a whole set of provisions about central bank immunity and so forth The problem with that argument is that the actual text of the bond document said like half a dozen times That the reversionary interest [00:33:00] belongs to argentina um And it doesn't take expertise in new york contract law to know that the actual terms of the operative document are going to control over an incomplete form document in the appendix But they led with that argument, um, under New York contract law and the second circuit ultimately rejected that in a couple of paragraphs.

Um, possibly the more interesting, although I think ultimately pretty clear argument was that the foreign sovereign immunities act barred this attachment for various reasons. Um, and as Alex noted earlier, the, uh, provision of the Foreign Sovereign Immunities Act that allows the attachment and execution of sovereign property, um, is section 1610, and it allows for that execution and attachment when the sovereign is waived and when certain other conditions are met.

And those conditions are basically that the property is in the United States. And is you and I don't want to say the verb is [00:34:00] and you mentioned that earlier But it says property used for a commercial activity in the united states and the reason the lack of the verb is interesting is Because it's not actually obvious that it says is used versus was used versus has been used It's just kind of using the past participle used without really giving you the verb and so that has led to some interpretive issues But their argument was basically this thing was never used.

It's passive. That's not used for a commercial activity and by the way Um the to the extent the reversionary interest relates to the collateral held in germany It's not in the united states either and it's and for that reason it's not used in the united states Um, because it's abroad. Um, and so we, we made the arguments that we made below.

Um, 1, we said, this is really used for commercial activity in 2 different ways. 1, as a general matter, the existence of the reversionary interest as [00:35:00] an integral part of this arrangement with bondholders. Is constantly doing work for Argentina because it gives Argentina flexibility in the way it can service its debt.

If it wants to retire the debt early or get into exchange offers, it knows that the collateral is coming back to Argentina to the extent it's not owed to bondholders. And that's constantly doing work because it gives Argentina strategic flexibility and how it determines how it wants to administer this debt, which is a classic commercial activity.

The other thing we said, and, you know, I got Alex credit for this argument, and I think it's ultimately what we prevailed on is that even if you don't buy that, these reversionary interests actually were used 2010 as part of an exchange offer with bondholders. And that was just a direct, pretty clear use.

Um, and that's what the second circuit ultimately adopted. Alex has already talked about this, but on the territorial issue with respect to the German collateral, we said, look, this is an intangible right to a [00:36:00] versionary interest in New York law provides pretty clearly that, um, that right is located where the party that has the obligation of performance located.

And that was, I think, indisputably the Federal Reserve Bank of New York, because they're the ones that have to pay the reversionary interest there in New York. It's located there. The 2nd Circuit agreed with that too. And then they had a, what I will describe charitably as an interesting argument. Under New York law that a sovereign essentially could not be a judgment debtor for purposes of collection.

And one reason I'll call that interesting is that because the same terminology is used in the definition of judgment creditor, the logical implication of the argument would have been that sovereigns who win. In new york courts against private parties can't collect their judgments against the private parties That really made no sense and the second circuit disposed of it.

Uh pretty quickly. So those are the arguments we made Um, we ended up drawing [00:37:00] a good panel, um Not in terms of who they were going to favor but just in terms of a lot of intellectual heft Although that's probably true in almost any panel you get in the second circuit Um, but it was uh, judge michael park.

Um, judge pierre laval sort of a legend in new york as i'm sure Listeners know and judge eunice lee who was a very recent appointment by president biden Um, and you know the challenge in a case like this for the advocate Even where um, you feel strong about your position and even where the panel is very strong Intellectually is that these are some pretty abstract and esoteric issues, especially when you start getting into where You're An intangible right is located geographically, um, the nature of a property interest that doesn't feel like an ordinary property interest, but that New York courts have recognized as such.

And it can be a challenge to figure out how to talk about that in a smooth way that makes practical and common sense, even though you're doing these abstract concepts. Um, so that was the challenge of the appeal, although I felt like our arguments were so strong on the [00:38:00] merits that it wasn't the kind of appeal that I was worried that we were wrong.

It's just how you talk about this in a clear way. 

JOHN QUINN: Was it an active bench? Did you get a lot of questions? 

JOHN BASH: It was, um, both, both, uh, both me and my opponent got a lot of questions. Um, i'm trying to think who is the most active they really all asked a lot of questions judge park pressed me on the territorial nexus issue, which I think Um made sense just because it's it gets into some pretty thorny issues of state law, um Judge lee was very active, uh, even though she had joined the bench recently and I think I think her background was Um in something else.

I remember looking at this before the panel, but she was active asked really smart questions Is And Judge LaValle, as I recall from the oral argument, um, articulated a theory of use that was even broader, um, than what we were asking the court to adopt, which I think we were just asking the court to adopt what its precedents had already said, and which was consistent with the precedents of other [00:39:00] circuits.

But, um, Judge LaValle, I think it offered up even slightly broader theory, uh, which of course is the advocate makes you feel good when you get that kind of question. Um, but they were active, they understood these very abstract issues. And I, you know, I think we were fortunate in a case like this to be before such, um, an intellectually rigorous panel in court.

JOHN QUINN: Yeah, no, I mean, intellectually, this, these are, uh, the kinds of issues that could make your head hurt. Um, and I'm sure this conversation we've had here actually is very simplified. There's a lot of avenues you had to go down a lot of dead ends. Yeah. Before you figured out the strategy that was ultimately the successful one.

What's the next step, John, if anything, we've is, uh, our clients free to execute on these attachments now or what? 

JOHN BASH: So a few days ago, the second circuit panel. At the request of Argentina stayed the mandate pending a cert petition. Um, I, [00:40:00] you know, I don't think that was a huge surprise just because, um, otherwise the money would be released, uh, to our clients.

And there may be questions about, you know, what happens if somehow Argentina wins in the Supreme court after that release. Uh, but they did something kind of interesting, which is normally you have 90 days to file a cert petition. And normally it's fairly simple to get at least 1 and probably 2 30 day extensions on that.

Uh, but what the 2nd circuit panel said is you have 20 days from this order to file the cert petition. So, um, presumably Argentina is going to do that because they told the 2nd circuit panel that they were. That would be due December 11th and we have an opportunity. Every party has an opportunity either to oppose that or to waive a response.

And then the Supreme Court will take that up in due course, um, you know, in our view, and we'll of course, um, say this if we follow a response, and I don't think I'm saying anything surprising or privileged here, but, you know, a lot of this turned on very unique circumstances and, [00:41:00] uh, very thorny questions of state law, how you define a property interest, how you define the location of that interest.

Extremely fact bound questions about how this particular interest was used in connection with these 2005 and 2010 exchange offers. So at least to my eye, it's not really a cert issue. Um, There's no conflict of authority and it's a pretty one off and unique situation with this reversionary interest So, um, we'll see if the supreme court agrees You never know, um with the high court, but that's the next step either either waiving or opposing Um the cert petition 

JOHN QUINN: Fascinating case, gentlemen.

Alex, what, what will you remember most about this case? 

ALEX LOOMIS: Uh, I, I think when honestly, um, when I realized that the German bonds reversion interest really was located in New York, and I, when I, when I got that certainty in my mind that this not all this, this answer might seem counterintuitive at 1st, [00:42:00] inexplicably the inexplicably, but it was clearly the right answer.

That I, I remember writing that memo. I remember the feeling of kind of pride that we, that the arguments really lined up and I, I'm probably never going to forget that. 

JOHN QUINN: Well, congratulations, gentlemen, fascinating case. We've been talking with John bash, Alex and Dennis about a very fascinating case regarding reversionary interests in collateral supporting Argentinian bonds.

This is John Quinn, and this has been Law Disrupted.

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