12-105(l) - reutersblogs.reuters.com/felix-salmon/files/2012/04/nml-pari-passu-br.-appeal.pdf ·...

12-105(L) 12-109 (CON), 12-111 (CON), 12-157 (CON), 12-158 (CON), 12-163 (CON), 12-164 (CON), 12-170 (CON), 12-176 (CON), 12-185 (CON), 12-189 (CON), 12-214 (CON), 12-909 (CON), 12-914 (CON), 12-916 (CON), 12-919 (CON), 12-920 (CON), 12-923 (CON), 12-924 (CON), 12-926 (CON), 12-939 (CON), 12-943 (CON), 12-951 (CON), 12-968 (CON), 12-971 (CON)

In the United States Court of Appeals for the Second Circuit

NML CAPITAL, LTD., ET AL.,

Plaintiffs-Appellees, -v.-

REPUBLIC OF ARGENTINA,

Defendant-Appellant.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK

JOINT RESPONSE BRIEF OF PLAINTIFFS-APPELLEES NML CAPITAL, LTD., OLIFANT FUND, LTD., AND VARELA, ET AL.

ROBERT A. COHEN CHARLES I. PORET ERIC C. KIRSCH DECHERT LLP 1095 Avenue of the Americas New York, NY 10036 (212) 698-3500

THEODORE B. OLSON MATTHEW D. MCGILL JASON J. MENDRO GIBSON, DUNN & CRUTCHER LLP 1050 Connecticut Avenue, N.W. Washington, D.C. 20036-5306 (202) 955-8500

Attorneys for Plaintiff-Appellee NML Capital, Ltd. [Additional counsel on inside cover]

!aaassseee::: 111222---111000555 DDDooocccuuummmeeennnttt::: 222666333 PPPaaagggeee::: 111 000444///111777///222000111222 555888333111999111 888999

STEPHEN D. POSS ROBERT D. CARROLL GOODWIN PROCTER LLP 53 State Street Boston, MA 02109 (617) 570-1000

Attorneys for Plaintiff-Appellee Olifant Fund, Ltd.

MICHAEL C. SPENCER MILBERG LLP One Pennsylvania Plaza New York, NY 10119 (212) 594-5300

Attorney for Plaintiffs-Appellees Pablo Alberto Varela, et al.


CORPORATE DISCLOSURE STATEMENT

Pursuant to Federal Rule of Appellate Procedure 26.1, undersigned counsel

state that:

NML Capital, Ltd. is not publicly traded and has no corporate parent and

that no publicly held corporation owns 10% or more of its stock.

Olifant Fund, Ltd.: is not publicly traded; its parent corporation is ABIL,

Ltd.; and that no publicly held corporation owns 10% or more of its stock.


i

TABLE OF CONTENTS Page

PRELIMINARY STATEMENT ............................................................................... 1

COUNTER-STATEMENT OF JURISDICTION ..................................................... 6

COUNTER-STATEMENT OF THE ISSUES .......................................................... 6

COUNTER-STATEMENT OF THE FACTS ........................................................... 7

A. Argentina Induces Investors To Purchase Its Bonds With A Promise Of Equal Treatment .................................................... 7

B. Argentina And The United States Admit That Enacting A Law That Reduces The Rank Of Its Payment Obligations Under The FAA Bonds Would Breach The Equal Treatment Provision .............................................................................................. 10

C. Argentina Breaches The Equal Treatment Provision By Relegating Its Payment Obligations Under The FAA Bonds To A �“Non-Paying�” Class ................................................................... 11

D. The District Court Concludes That Argentina Is Breaching The Equal Treatment Provision ........................................................... 14

SUMMARY OF ARGUMENT ............................................................................... 18

ARGUMENT ........................................................................................................... 24

I. The District Court�’s Holding That Argentina Is Violating The Equal Treatment Provision Must Be Affirmed Under Any Construction Of That Provision .......................................................................................... 24

A. Argentina Violated Its Own Construction Of The Equal Treatment Provision By Enacting Laws That Relegate Its Payments Obligations Under The FAA Bonds To A Non-Paying Class .................................................................................................... 24

B. Argentina Lowered The Rank Of Its Payment Obligations Under The FAA Bonds Through An Extended Pattern Of Discrimination In Favor Of Preferred Creditors ................................. 31

C. Argentina�’s Public Policy Arguments Fail ......................................... 38

II. The District Court Properly Exercised Its Discretion In Ordering Specific Performance Of The Equal Treatment Provision ............................ 42


Table of Contents (Continued)

Page

ii

A. Argentina�’s Extraordinary Continuing Breach Of The Equal Treatment Provision In Spite Of Its Ability To Pay Warrants Equitable Relief ................................................................................... 42

1. There Is No Adequate Remedy At Law .................................... 43

2. The Equities Weigh Decisively In Favor Of Relief .................. 48

3. The Public Interest Supports Specific Performance ................. 51

B. The Specific Performance Order Does Not Attach Argentina�’s Assets In Violation Of The FSIA ........................................................ 58

C. The Specific Performance Order Does Not �“Execute Upon�” Funds Belonging To Third Parties Or Attach Fund Transfers In Violation Of The U.C.C. ..................................................................... 64

D. Argentina�’s Invocation Of The Equitable Doctrine Of Laches Lacks Merit .......................................................................................... 66

E. The District Court Properly Exercised Its Broad Discretion In Fashioning The Specific Performance Order ...................................... 69

III. The District Court Properly Exercised Its Discretion To Grant Preliminary Relief To Prevent Argentina From Evading Its Jurisdiction ..................................................................................................... 73

CONCLUSION ........................................................................................................ 75


iii

TABLE OF AUTHORITIES

Page(s)

Cases

10 Ellicott Square Court Corp. v. Mt. Valley Indem. Co., 634 F.3d 112 (2d Cir. 2011) ................................................................................. 34

Adickes v. S.H. Kress & Co., 398 U.S. 144 (1970) ............................................................................................. 33

Alliance Bond Fund v. Grupo Mexicano de Desarrollo, S.A., 143 F.3d 688 (2d Cir. 1998), rev�’d on other grounds, 527 U.S. 308 (1999) ...................................................... 45

Autotech Techs. LP v. Integral Res. & Dev. Corp., 499 F.3d 737 (7th Cir. 2007) ................................................................................ 73

Bank Midwest, N.A. v. Hypo Real Estate Capital Corp., No. 10 Civ. 232(WHP), 2010 WL 4449366 (S.D.N.Y. Oct. 13, 2010) ............... 45

BDO Seidman v. Hischberg, 93 N.Y.2d 382 (1999) ........................................................................................... 39

Berger v. Iron Workers Reinforced Rodmen Local 201, 843 F.2d 1395 (D.C. Cir. 1988) ........................................................................... 72

BIB Constr. Co. v. Fireman�’s Ins. Co., 214 A.D.2d 521 (N.Y. App. Div. 1995) ............................................................... 45

Caribbean Trading & Fid. Corp. v. Nigerian Nat�’l Petroleum Corp., 948 F.2d 111 (2d Cir. 1991) ................................................................................. 63

Centauri Shipping Ltd. v. W. Bulk Carriers KS, 528 F. Supp. 2d 186 (S.D.N.Y. 2007), aff�’d, 323 Fed. App�’x 36 (2d Cir. 2009) .............................................................. 47

Charlesbank Equity Fund II v. Blinds To Go, Inc., 370 F.3d 151 (1st Cir. 2004) ................................................................... 62, 63, 64


Table of Authorities (Continued)

iv

Citigroup Global Mkts., Inc. v. VCG Special Opportunities Master Fund Ltd., 598 F.3d 30 (2d Cir. 2010) ................................................................................... 48

Claren Corp. c/ Estadio Nacional, CFed, sala X, 2010 ................................... 25, 30

Cohen v. Krantz, 227 A.D.2d 581 (N.Y. App. Div. 1996) ........................................................ 66, 68

Conopco, Inc. v. Campbell Soup Co., 95 F.3d 187 (2d Cir. 1996) ................................................................................... 67

Cooter & Gell v. Hartmax Corp., 496 U.S. 384 (1990) ............................................................................................. 48

Crostelli c/ Estadio Nacional, CFed, sala II, 2011 ........................................... 25, 30

Duhon v. Texaco, Inc., 15 F.3d 1302 (5th Cir. 1994) ................................................................................ 50

eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006) ............................................................................................. 43

EEOC v. Johnson & Higgins, Inc., 91 F.3d 1529 (2d Cir. 1996) ................................................................................... 6

Elliott Assocs. L.P. v. Banco de la Nacion, 194 F.3d 363 (2d Cir. 1999) ............................................................................ 9, 49

EM Ltd. v. Republic of Argentina, 473 F.3d 463 (2d Cir. 2007) ................................................................ 9, 39, 40, 55

EM Ltd. v. Republic of Argentina, 720 F. Supp. 2d 273 (S.D.N.Y. 2010), rev�’d on other grounds, 652 F.3d 172 (2d Cir. 2011), petition for cert. filed, No. 11-604 (U.S. Nov. 15, 2011) .................... 3, 13, 47, 69

FG Hemisphere Assocs., LLC v. Democratic Republic of Congo, 637 F.3d 373 (D.C. Cir. 2011) ..................................................................... passim

Fin. One Pub. Co. v. Lehman Bros. Special Fin., Inc., 414 F.3d 325 (2d Cir. 2005) ................................................................................. 71



v

FTC v. H.N. Singer, Inc., 668 F.2d 1107 (9th Cir. 1982) .............................................................................. 62

Greenspahn v. Joseph E. Seagram & Sons, 186 F.2d 616 (2d Cir. 1951) .......................................................................... 69, 73

Guinness Harp Corp. v. Jos. Schlitz Brewing Co., 613 F.2d 468 (2d Cir. 1980) ................................................................................. 42

Higgins v. Cal. Prune & Apricot Growers, Inc., 282 F. 550 (2d Cir. 1922) .............................................................................. 51, 55

Inter-Regional Fin. Grp. v. Hashemi, 562 F.2d 152 (2d Cir. 1977) ................................................................................. 63

Karaha Bodas Co. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 500 F.3d 111 (2d Cir. 2007) ................................................................................. 58

Kensington Int�’l Ltd. v. Republic of Congo, 461 F.3d 238 (2d Cir. 2006) .................................................................... 61, 62, 63

Kraut v. Morgan & Brother Manhattan Storage Co., 38 N.Y.2d 445 (1976) ........................................................................................... 39

Leasco Corp. v. Taussig, 473 F.2d 777 (2d Cir. 1972) .......................................................................... 70, 71

Marine Midland Trust Co. v. Allegheny Corp., 28 F. Supp. 680 (S.D.N.Y. 1939) ......................................................................... 45

Monell v. Dep�’t of Soc. Servs., 436 U.S. 658 (1978) ............................................................................................. 32

Muschany v. United States, 324 U.S. 49 (1945) ............................................................................................... 39

Nacional Financiera S.N.C. v. Chase Manhattan Bank, N.A., No. 00 Civ. 1571(JSM), 2003 WL 1878415 (S.D.N.Y. Apr. 14, 2003) .............................................................................. 46, 73



vi

Nemer Jeep-Eagle, Inc. v. Jeep-Eagle Sales Corp., 992 F.2d 430 (2d Cir. 1993) ................................................................................. 43

NLRB v. Amax Coal Co., 453 U.S. 322 (1981) ............................................................................................. 60

Norton v. Sam�’s Club, 145 F.3d 114 (2d Cir. 1998) ................................................................................. 66

Pashaian v. Eccelston Props., Ltd., 88 F.3d 77 (2d Cir. 1996) ........................................................................ 46, 47, 74

Patsy�’s Italian Rest., Inc. v. Banas, 658 F.3d 254 (2d Cir. 2011) ................................................................................. 69

Plenum Fin. & Invs. Ltd. v. Bank of Zambia, No. 95 CV 8350(KMW), 1995 WL 600818 (S.D.N.Y. Oct. 11, 1995) ............... 48

Porter v. Warner Holding Co., 328 U.S. 395 (1946). ............................................................................................ 59

Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806 (1945) ............................................................................................. 69

RBC Nice Bearings, Inc. v. Peer Bearing Co., 410 Fed. App�’x 362 (2d Cir. 2010) ...................................................................... 69

Republic of Austria v. Altmann, 541 U.S. 677 (2004) ............................................................................................. 58

Rubinstein v. Rubinstein, 23 N.Y.2d 293 (1968) ........................................................................................... 44

S & S Mach. Co. v. Masinexportimport, 706 F.2d 411 (2d Cir. 1983) ................................................................................. 62

Safeco Ins. Co. of Am. v. Schwab, 739 F.2d 431 (9th Cir. 1984) ................................................................................ 45

Seller Agency Council, Inc. v. Kennedy Ctr. for Real Estate Educ., Inc., 621 F.3d 981 (9th Cir. 2010) ................................................................................ 69



vii

Stephens v. Nat�’l Distillers & Chem. Corp., 69 F.3d 1226 (2d Cir. 1995) ................................................................................. 59

Tolbert v. Queens Coll., 242 F.3d 58 (2d Cir. 2001) ............................................................................ 50, 74

Travelers�’ Ins. Co. v. Brass Goods Mfg. Co., 146 N.E. 377 (N.Y. 1925) .................................................................................... 49

Tri-Star Pictures, Inc. v. Leisure Time Prods., B.V., 17 F.3d 38 (2d Cir. 1994) ..................................................................................... 66

Trustees of Hosp. Mtg. Grp. v. Compania Aseguradora, 672 F.2d 250 (1st Cir. 1982) ......................................................................... 61, 63

United States v. Peterson, 394 F.3d 98 (2d Cir. 2005) ................................................................................... 59

United States v. Ross, 302 F.2d 831 (2d Cir. 1962) ................................................................................. 51

United States v. Va Lerie, 424 F.3d 694 (8th Cir. 2005) ................................................................................ 60

Universal City Studios, Inc. v. Corley, 273 F.3d 429 (2d Cir. 2001) ................................................................................. 57

Vacold LLC v. Cerami, 545 F.3d 114 (2d Cir. 2008) ................................................................................. 44

Verlinden B.V. v. Cent Bank of Nigeria, 461 U.S. 480 (1983) ............................................................................................. 58

Vt. Teddy Bear Co. v. 538 Madison Realty Co., 1 N.Y.3d 470 (2004) ............................................................................................. 34

Wal-Mart Stores, Inc. v. Visa U.S.A. Inc., 396 F.3d 96 (2d Cir. 2005) ................................................................................... 29



viii

Weston Compagnie Finance et D�’Investissement, S.A. v. La Republica del Ecuador, No. 93 Civ. 2698 (LMM), 1993 WL 267282 (S.D.N.Y. July 14, 1993) ............................................................................... 48, 62

Wisdom Import Sales Co., L.L.C. v. Labatt Brewing Co., Ltd., 339 F.3d 101 (2d Cir. 2003) ................................................................................. 43

Zervos v. Verizon New York, Inc., 252 F.3d 163 (2d Cir. 2001) ................................................................................. 43

Statutes

11 U.S.C. § 510 ........................................................................................................ 29

28 U.S.C. § 1291 ........................................................................................................ 6

28 U.S.C. § 1292 ........................................................................................................ 6

28 U.S.C. § 1602 ...................................................................................................... 57

28 U.S.C. § 1609 ...................................................................................................... 59

28 U.S.C. § 1610 ...................................................................................................... 57

28 U.S.C. § 1611 ...................................................................................................... 59 Other Authorities

30 Am. Jur. 2d Executions § 177 ............................................................................. 60

6 Am. Jur. 2d Attachment and Garnishment § 1 ..................................................... 60

American Heritage Dictionary 1497 ....................................................................... 34

Black�’s Law Dictionary (8th ed. 2004) .................................................................... 60

C. S. Lewis, The Problem of Pain (1944) ................................................................ 29

H.R. Rep. No. 94-1487, reprinted in 1976 U.S.C.C.A.N. 6604 ................... 6, 57, 64

Hal Scott, Sovereign Debt Default: Cry for the United States, Not Argentina (Wash. Legal Found., Working Paper No. 140, 2006)......................................... 11



ix

Michael Bradley & Mitu Gulati, Collective Action Clauses for the Euro Zone: An Empirical Analysis (Oct. 24, 2011) (unpublished manuscript), available at http://ssrn.com/abstract=1948534 .................................................... 41

Mitu Gulati & Robert E. Scott, The Three and a Half Minute Transaction: Boilerplate and the Limits of Contract Design (forthcoming University Of Chicago Press 2012) ......................................... 27, 34

Piggy Bank: Rootling Around For Cash, THE ECONOMIST (Mar. 31, 2012) ......................................................................... 14

Republic of Argentina, Annual Report (Form 18-K) (Sept. 30, 2011) .................................................................................................... 25

Restatement (Second) of Contracts § 358(1) ........................................................... 69

Stephen J. Choi & G. Mitu Gulati, Contract As Statute, 104 Mich. L. Rev. 1129 (2006) ............................................................................ 34

William W. Bratton, Pari Passu and a Distressed Sovereign�’s Rational Choices, 53 Emory L.J. 823 (2004) ....................................................... 33


PRELIMINARY STATEMENT

Appellees hold bonds issued by the Republic of Argentina that have been

�“nonperforming,�” as Argentina puts, it since 2001. Appellees include investors

who purchased Argentina�’s bonds upon their original issue as well as investors

who purchased them in the secondary market. Argentina, a G-20 nation with more

than $46 billion in unrestricted reserves, has ample resources to pay those �“nonper-

forming�” obligations just as it now pays its other obligations. It simply refuses to

do so�—despite years of litigation and the entry of multiple judgments against it.

Appellees sued Argentina and sought specific performance of Argentina�’s

promise in the bonds that �“[t]he payment obligations of the Republic under the Se-

curities shall at all times rank at least equally with all its other present and future

unsecured and unsubordinated External Indebtedness.�” SPA-10-11 (�“Equal

Treatment Provision�”). Appellees urged that Argentina has breached the Equal

Treatment Provision continuously since 2005 by according the payment obliga-

tions under certain later-issued unsecured external debt�—the so-called Exchange

Bonds�—a rank higher than that accorded to Appellees�’ �“nonperforming�” bonds.

After considering Appellees�’ claim for more than a year and hearing two

oral arguments, the district court granted the orders of specific performance. This

appeal presents two basic questions:


2

(1) Is Argentina breaching the Equal Treatment Provision?

(2) If so, did the district court abuse its discretion by ordering specific per-formance to remedy that breach?

On the first question, Argentina argues at length that the concededly unequal

treatment it accords to Appellees�’ �“non-performing�” bonds vis-à-vis the �“perform-

ing�” Exchange Bonds does not breach the provision because Argentina�’s promise

to �“rank�” its payment obligations �“equally�” prohibits only the �“legal subordina-

tion�” of its payment obligations to Appellees. Argentina Br. 17, 31-45. Even if

Argentina were correct that under New York contract law the word �“rank�” means

�“legal subordination�”�—and it is not�—neither Argentina nor its amici present a se-

rious argument that the policy codified by Argentina�’s annually renewed moratori-

um on payments and infamous Lock Law does not effect exactly that �“legal subor-

dination.�” Though the Lock Law was central to the district court�’s conclusion that

Argentina had breached the provision, Argentina�’s amici decline to address it. The

United States conspicuously �“takes no position�” as to whether �“the enactment of

the Lock Law constituted a breach,�” and the Clearing House also �“do[es] not ad-

dress�” the issue. U.S. Br. 7 n.*; Clearing House Br. 5.

Friendless on this critical point, Argentina responds with the bizarre conten-

tion that, despite the Lock Law, Appellees�’ bonds �“are now�—just as they have al-

ways been�—enforceable against the Republic.�” Argentina Br. 46. In addition to

being deeply ironic�—it comes, after all, in the midst of Argentina�’s decade-long


3

campaign of defiance of U.S. court judgments and international arbitration

awards�—that argument fails: The argument was not raised below; wrongly as-

sumes that the sole measure of legal subordination is whether a court recognizes

the creditor�’s right of repayment; and is demonstrably false as a factual matter. As

the district court has aptly observed, through the Lock Law, �“the Republic has lit-

erally proclaimed its repudiation of its legal obligations.�” EM Ltd. v. Republic of

Argentina, 720 F. Supp. 2d 273, 279 (S.D.N.Y. 2010), rev�’d on other grounds, 652

F.3d 172 (2d Cir. 2011), petition for cert. filed, No. 11-604 (U.S. Nov. 15, 2011).

Because Argentina�’s efforts to explain away the Lock Law are so weak, it

takes great pains to change the subject. Page after page of its brief attacks not the

district court�’s finding of breach, but rather an �“interpretation�” of the Equal Treat-

ment Provision under which it is violated any time �“one creditor is paid ahead of

another.�” Argentina Br. 37. But the district court did not hold that Argentina

breached the Equal Treatment Provision simply by deciding on a one-off basis to

pay one creditor ahead of another, it held that Argentina breached the provision by:

(i) demarcating a particular class of its unsecured external obligations�—those held

by creditors who declined Argentina�’s exchange offer; (ii) repudiating those obli-

gations in toto; (iii) codifying that policy in a law that makes it illegal for Argenti-

na to repay those debts; and (iv) persisting in its refusal to honor those obligations

for six years, all the while timely paying other external indebtedness.


4

Misdirection similarly is Argentina�’s principal tactic for addressing the se-

cond question�—whether the district court abused its discretion in requiring it to

abide by its equal treatment promise. At the outset, Argentina repeatedly attempts

to exploit the district court�’s acknowledgement that its specific performance orders

present certain �“problems�” (see, e.g., Argentina Br. 1), but Argentina fails to men-

tion that �“the problem�” the district court referenced is �“the failure of the Republic

to do what it is legally obligated to do�” and what that might mean for enforcement

of the orders were Argentina to violate them (JA-2339).

The �“problems�” Argentina conjures are manufactured for this appeal. While

it asserts that the district court�’s orders �“will injure the holders of the billions of

dollars of restructured Republic debt,�” and even �“plunge the Republic into a new

financial and economic crisis�” (Argentina Br. 2, 61), Argentina never presented

any evidence that this calamity would occur. It never disputed that it has financial

resources sufficient to pay all of its outstanding obligations. That is why the dis-

trict court found that �“the Republic really can�’t in any good conscience say that the

court . . . [is] jeopardizing the rights of the exchangers.�” JA-2339.

Argentina similarly argues that the order will �“imperil payments to lenders

of last resort�” like the IMF. But the order only requires Argentina to satisfy its ob-

ligations to Appellees to the same extent it satisfies its obligations under the Ex-

change Bonds. It thus does not in any way affect, much less imperil, obligations


5

to multilaterals. And Argentina�’s claim that the district court�’s order will �“make

impossible debt restructurings by Greece, Portugal, Ireland, Spain and other

states,�” is ludicrous�—as demonstrated by the fact that Greece successfully restruc-

tured 97 percent of its debt (exceeding even Greece�’s expectations) after the dis-

trict court issued its order.

Argentina�’s implausible interpretation of the FSIA fares no better. Argenti-

na (joined on this point by the United States) concedes that the district court can

enter specific performance orders consistent with the FSIA but urges that the or-

ders issued in this case run afoul of the FSIA because they �“have the practical ef-

fect of�” attaching property immunized from such process by FSIA Section 1609.

Argentina Br. 49-53; U.S. Br. 25. This argument is flawed on every level�—most

obviously because the district court�’s orders do not seize any specific property of

Argentina in the manner of an attachment. Rather, it requires Argentina to accord

its obligations to Appellees treatment as favorable as that accorded to its obliga-

tions under the Exchange Bonds. Requiring a defendant to engage in certain con-

duct is the hallmark of injunctive relief�—not an attachment. That distinction has

jurisdictional significance because, while injunctions are appealable orders, at-

tachments are not.

With no answer to this jurisdictional quandary, the United States appeals for

deference to its newly announced view that the district court�’s order �“could cause


6

heightened tensions in our foreign relations.�” U.S. Br. 28. But the United States

never communicated that highly caveated view to the district court. In any event,

this policy concern would prohibit any injunction against any sovereign, in direct

contradiction to the conclusion reached by Congress when it enacted the FSIA and

provided not just for orders of attachment and execution but also remedies of �“an

injunction or specific performance.�” H.R. Rep. No. 94-1487, at 22.

COUNTER-STATEMENT OF JURISDICTION

This Court has jurisdiction to review the district court�’s orders of specific

performance under 28 U.S.C. § 1292(a)(1). EEOC v. Johnson & Higgins, Inc., 91

F.3d 1529, 1534 (2d Cir. 1996). There is no jurisdiction under 28 U.S.C. § 1291

because the Appellees�’ claims for principal and interest on the FAA Bonds remain

outstanding. Accordingly, as explained in Appellees�’ Motion To Dismiss The

Premature Appeals, Dk. 61 (Mar. 15, 2012), this Court lacks jurisdiction over Ar-

gentina�’s appeals numbered 12-105, 12-109, 12-111, 12-157, 12-158, 12-163, 12-

164, 12-170, 12-176, 12-185, 12-189.

COUNTER-STATEMENT OF THE ISSUES

The Equal Treatment Provision requires Argentina �“to rank�” its �“payment

obligations�” on the FAA Bonds �“at least equally�” �“with all its other present and fu-

ture unsecured and unsubordinated External Indebtedness.�” Argentina has issued

new External Indebtedness which it treats as a �“performing�” class, while relegating


7

its obligations on the FAA Bonds to a �“non-paying class�” through both formal leg-

islation and a six-year course of repudiation. To restore Argentina�’s obligations to

Appellees to the equal rank Argentina promised, the district court ordered Argenti-

na to honor its obligations to Appellees to the extent that it honors its obligations to

the Exchange Bondholders.

The questions presented are:

1. Does Argentina�’s entrenched and codified policy of repudiating its

obligations under the FAA Bonds, while ranking its obligations under the Ex-

change Bonds as �“performing,�” constitute a reduction of �“rank�” in violation of the

Equal Treatment Provision?

2. Did the district court abuse its discretion by granting an order of spe-

cific performance that requires Argentina to honor its obligations to Appellees to

the extent it honors obligations to the Exchange Bondholders?

COUNTER-STATEMENT OF THE FACTS

A. Argentina Induces Investors To Purchase Its Bonds With A Promise Of Equal Treatment

Beginning in 1994, Argentina issued bonds pursuant to a fiscal agency

agreement (�“FAA Bonds�”). One protection that Argentina placed in the FAA

Bonds to induce investors to loan it money is set forth in Paragraph 1(c) of the

FAA:


8

The Securities will constitute . . . direct, unconditional, unsecured and unsubordinated obligations of the Republic and shall at all times rank pari passu and without any preference among themselves. The pay-ment obligations of the Republic under the Securities shall at all times rank at least equally with all its other present and future unse-cured and unsubordinated External Indebtedness . . . .

SPA-10-11 (emphasis added).

The first sentence of this section prohibits Argentina from creating preferred

classes �“among�” the FAA Bonds �“themselves.�” That pari passu clause is not at

issue here because Appellees do not allege that Argentina is holding other FAA

Bonds on a footing different from Appellees�’ FAA Bonds. The relevant clause is

the second sentence, in which Argentina promises that it will �“rank�” �“payment ob-

ligations�” under the FAA Bonds �“at least equally�” with obligations under its other

�“unsubordinated External Indebtedness.�”1 To distinguish this undertaking from the

irrelevant pari passu clause in the previous sentence, Appellees refer to it as the

�“Equal Treatment Provision.�”

The Equal Treatment Provision provided a meaningful protection to inves-

tors; it guaranteed that investors in the FAA Bonds would enjoy at least the same

rank as any similar debt Argentina issued in the future. This was hardly a hypo-

1 The FAA generally defines �“External Indebtedness�” to mean �“obliga-tions . . . for borrowed money or evidenced by securities, debentures, notes or other similar instruments denominated or payable . . . in a currency other than the lawful currency of the Republic.�” JA-171.


9

thetical concern. As this Court has recognized, �“Argentina has made many contri-

butions to the law of foreign insolvency through its numerous defaults on its sover-

eign obligations, as well as through what we might term a diplomacy of default.�”

EM Ltd. v. Republic of Argentina, 473 F.3d 463, 466 n.2 (2d Cir. 2007).

Appellees Varela, et al., are individuals who purchased most of their FAA

Bonds directly upon their issuance as far back as December 1998. JA-3457. The

other Appellees are institutions who purchased FAA Bonds on the secondary mar-

ket as recently as June 2010. JA-3098. This willingness of investors such as Ap-

pellees to make purchases on the secondary market is essential to facilitating sov-

ereigns�’ ability to issue their debt in the first instance. See Elliott Assocs. L.P. v.

Banco de la Nacion, 194 F.3d 363, 380 (2d Cir. 1999) (noting the importance of

�“[a] well-developed market of secondary purchasers of defaulted sovereign debt�”

as providing �“incentives for primary lenders to continue to lend to high risk coun-

tries�”).

Collectively, Appellees�’ unpaid principal and interest amount to approxi-

mately $1.3 billion. JA-2315.

In 2001, Argentina declared a moratorium on payments on its outstanding

external debt, commencing the largest sovereign default in history. Argentina has


10

renewed that moratorium on paying principal or interest on the FAA Bonds held by

Appellees in its budget laws each year since.2

B. Argentina And The United States Admit That Enacting A Law That Reduces The Rank Of Its Payment Obligations Under The FAA Bonds Would Breach The Equal Treatment Provision

In 2003, as Argentina was pushing creditors to accept an unfavorable ex-

change offer, it sought to litigate preemptively the meaning of the Equal Treatment

Provision in two actions brought by creditors not before the Court in this appeal.

See JA-221-57. At that time, Argentina argued that the �“function of the clause is to

provide . . . protection from subordinate or other discriminatory legal ranking by

preventing the creation of legal priorities by the sovereign in favor of creditors

holding particular classes of debt.�” JA-245. The clause, Argentina reasoned, thus

did not prohibit all discriminatory treatment among creditors, but rather only that

which resulted in the subordination of the obligations owed to a class of creditors.

The paradigmatic violation, Argentina explained, �“would be if the state adopted

legislative measures that created a legal priority for certain creditors.�” JA-253.

�“That,�” Argentina claimed in 2003, �“has no application to the Republic�’s situation,

2 See Claren Corp. c/ Estadio Nacional, CFed, sala X, 2010 (SA-1) (referenc-ing Law Nos. 25,725, 25,827, 25,967, 26,078, 26,198, 26,337, 26,422, and 26,546). The most recent budget law, Law 26,728, again proclaimed the �“[r]eaffirmation of the deferral of payments for the services of the national government debt.�” SA-267-68. �“SA�” refers to the supplemental appendix filed with Appellees�’ Motion to Supplement the Record.


11

where no such measures have been taken.�” JA-253. Indeed, at that time, all of

Argentina�’s external debt remained subject to its annually-renewed moratorium on

payments.

The United States and the Clearing House Association each filed briefs urg-

ing that �“pari passu�” language should not be construed broadly to prohibit a debtor

from paying one creditor ahead of another. Instead, they argued that clauses like

the Equal Treatment Provision should be interpreted to �“requir[e] equal ranking of

obligations�” (JA-1778) and �“protect creditors from involuntary subordination�”

(JA-1814).

The parties (including Appellee NML Capital Ltd., after it intervened in the

other creditors�’ cases) then entered into a joint stipulation in which the creditors

promised to give Argentina 30 days�’ notice before seeking relief under the Provi-

sion. JA-218-19.

C. Argentina Breaches The Equal Treatment Provision By Relegating Its Payment Obligations Under The FAA Bonds To A �“Non-Paying�” Class

In 2005, Argentina put forward a so-called �“exchange offer,�” which allowed

bondholders to extinguish defaulted FAA Bonds and receive newly issued �“per-

forming�” bonds at a rate of 25 to 29 cents-on-the-dollar (�“Exchange Bonds�”). See

Hal Scott, Sovereign Debt Default: Cry for the United States, Not Argentina 3

(Wash. Legal Found., Working Paper No. 140 , 2006). The exchange offer docu-


12

ments provided that Argentina would honor its obligations under these Exchange

Bonds with the assistance of agents in New York. For example, under Argentina�’s

new payment scheme in the 2005 Exchange Bonds, Argentina must direct funds

for the payment of principal and interest to the designated indenture trustee, Bank

of New York (�“BNY�”), an owner bank of the Clearing House, or a trustee paying

agent acting on BNY�’s behalf. BNY then must send funds to the holder of the

Note, Cede & Co. (also of New York), which then finally distributes funds to the

Exchange Bondholders through its participant banks (many of whom are in New

York). JA-1195; see also JA-1233.

To pressure creditors to accept this swap, Argentina stated in the transaction

prospectus that �“it has no intention of making payment on any bonds eligible to

participate in the exchange offer that have not tendered.�” JA-465; see also JA-705

(similar statement in the 2010 exchange prospectus).

Argentina then codified that policy, bolstering its moratorium legislation

with Law 26,017 (SPA-12), the so-called �“Lock Law.�” The Lock Law provides

that bonds eligible for the Exchange �“but that have not been submitted for the swap

offered�” would be subject to �“additional�” provisions. Those provisions prohibited

both �“reopen[ing]�” the swap process and �“any type of in-court, out-of-court or pri-

vate settlement with respect to�” FAA Bonds that were not exchanged. SPA-12.

While the payment moratorium banned ordinary payments on the FAA Bonds, the


13

Lock Law legislatively cut off any alternative means Argentina might have had to

make payments on unexchanged bonds. Thus the district court observed that,

through the Lock Law, �“the Republic has literally proclaimed its repudiation of its

legal obligations.�” EM Ltd., 720 F. Supp. 2d at 279.

Argentina�’s exchange offer closed in June 2005 with only 76% participa-

tion�—a record low that reflected the unfavorable terms of Argentina�’s offer. Ar-

gentina thereafter notified the district court it was �“content to leave in suspense�”

issues concerning the Equal Treatment Provision �“unless NML takes some action

that would require us to activate it.�” JA-2909 (emphasis added).

Since 2005, Argentina has timely honored its obligations under the 2005 Ex-

change Bonds, while annually extending its moratorium on payments. As Argenti-

na itself explained, it has relegated obligations on the FAA Bonds to permanent

�“non-performing�” status, while creating a new class of external debt that Argentina

has ranked as �“performing.�” Argentina Br. 1, 17. And it has continued that

scheme despite an economic boom that, by 2010, allowed Argentina to accumulate

more than $50 billion in liquid foreign currency reserves. JA-1676.

But rather than return the FAA Bonds to a �“performing�” rank, Argentina ini-

tiated a second exchange offer with a payment scheme substantially identical to

that of the 2005 Exchange. To overcome the Lock Law�’s prohibition against re-

opening the bond swap, Argentina enacted Law 26,547, which temporarily sus-


14

pended the Lock Law for the duration of the 2010 exchange process. SPA-12.

Thus, Argentina created a second set of preferred �“performing�” external payment

obligations that it ranked ahead of its �“nonperforming�” payment obligations under

the FAA Bonds.

Even after making interest payments on the Exchange Bonds in December

totaling more than $2.4 billion (JA-2315)�—substantially more than the $1.35 bil-

lion Argentina owes on all the bonds at issue in this appeal�—Argentina still holds

over $47 billion in foreign-currency reserves, which it uses to pay its other debts

(SA-334; see also JA-1676, 1696). In fact, just this month Argentina amended the

Argentine Central Bank�’s charter to permit the government greater access to the

Bank�’s reserves to service its debt. See Piggy Bank: Rootling Around For Cash,

THE ECONOMIST (Mar. 31, 2012). Even still, Argentina�’s Minister of Economy and

Public Finance recently bragged that Argentina �“would never make a payment�” to

the holders of FAA Bonds. SA-335.

D. The District Court Concludes That Argentina Is Breaching The Equal Treatment Provision

Appellees sued Argentina on the defaulted FAA Bonds at issue in these cas-

es at various points from 2009 to 2011. Appellees amended their complaints to

add claims for specific performance of the Equal Treatment Provision and moved

for partial summary judgment on their claims, starting with NML�’s motion in Oc-

tober 2010. JA-1601, 1623, 1633.


15

The district court granted NML partial summary judgment on its claim that

Argentina breached the Equal Treatment Provision. SPA-10-14. The court held

that Argentina was violating the Provision by �“relegating NML�’s bonds to a non-

paying class�” and �“persisting in its refusal to satisfy its payment obligations cur-

rently due under NML�’s Bonds�” while �“ma[king] payments currently due under

the Exchange Bonds.�” SPA-13. The court further held that Argentina violated the

Provision �“when it enacted Law 26,017 and Law 26,547,�” codifying Argentina�’s

repudiation of the FAA Bonds and its entrenched policy of nonpayment. SPA-14.

As the court explained, �“it�’s hard for me to believe that there is not a violation of

the pari passu clause accomplished by the congressional legislation in �’05 and �’10,

simply saying that the Republic will not honor these judgments. It is difficult to

imagine anything would reduce the rank, reduce the equal status or simply wipe

out the equal status of these bonds [more than the Lock Law and Law 26,547].�”

JA-2124. The court, however, deferred ruling on NML�’s remedy for this breach

�“to permit further consideration by the court regarding the means of enforcement

of the present ORDER.�” SPA-14.3

3 The district court granted partial summary judgment for the other Appellees�’

equal treatment claims in separate orders and similarly deferred ruling on a remedy if one was specifically requested. See, e.g., SPA 21, 25.


16

After additional briefing, the district court held a hearing on Appellees�’ re-

quests for specific performance. The Appellees proposed an order that would re-

quire Argentina to honor its payment obligations to Appellees only to the same ex-

tent it honors its payment obligations under the Exchange Bonds. JA-2236-37. To

accommodate the possibility that Argentina might choose not to satisfy its obliga-

tions under the Exchange Bonds in full, Appellees�’ proposed order provided,

through its definition of �“Ratable Payment,�” that Argentina need satisfy its obliga-

tions to Appellees only in a proportionate amount. JA-2237. Because (as the dis-

trict court recognized) Argentina �“basically [is] a lawbreaker�” that has �“flagrantly

violated its legal obligations�” (JA-2303, 2319), Appellees proposed additional pro-

visions to ensure that the court�’s order could be enforced. As noted above, Argen-

tina makes payments on the Exchange Bonds only with the assistance of agents lo-

cated in New York (who are bound under Federal Rule of Civil Procedure 65 not

to aid a violation of a court order). The proposed prohibitory language thus pro-

vided the district court with a means of enforcing the mandatory aspect of its order

without resorting to contempt sanctions against Argentina.

At the hearing, the district court questioned NML�’s counsel extensively

about the practical problems that may arise should Argentina attempt to violate the

order, including the potential impact of the prohibitory provisions on the Exchange

Bondholders. E.g., JA-2303-04. The court recognized that, �“if there was any be-


17

lief that the Republic would honestly pay its obligations, there wouldn�’t be any

need for these kind of paragraphs . . . there could be a court order against Argenti-

na, not in any way conditioned on anything about the exchange.�” JA-2319. But

the court also recognized such is not the case given �“the lawlessness of the Repub-

lic.�” JA-2337. Even with those prohibitory provisions, the court concluded, the

Order does not �“jeopardiz[e] the rights of the exchanges.�” JA-2339. �“[A]ll that

the Republic has to do,�” the court reasoned, is �“honor its legal obligations.�” Id.

Argentina refused to suggest any alternative equitable remedy that might

correspond to Argentina�’s view of the equities, even after the district court sug-

gested that �“there could be a plan worked out to make such payments.�” JA-2322.

It never introduced any evidence suggesting that it lacked the resources, or would

suffer economic hardship, if it were required to satisfy both sets of obligations.

And, although they appeared in 2004 before a plaintiff even had raised a claim un-

der the Equal Treatment Provision, and were monitoring the district court�’s pro-

ceedings on Appellees�’ claims, neither the United States nor the Clearing House

Association (whose counsel attended the remedy hearing) raised any objections or

concerns before the district court. The district court thus entered orders of specific

performance in accordance with Appellees�’ proposal (�“Specific Performance Or-

der�”).

Argentina now appeals.


18

SUMMARY OF ARGUMENT

I. The Equal Treatment Provision guarantees that: �“The payment obliga-

tions of the Republic under the [FAA Bonds] shall at all times rank at least equally

with all its other present and future unsecured and unsubordinated External Indebt-

edness.�” SPA 10-11. Argentina has continuously breached this Provision since

2005 by holding Appellees�’ bonds in a non-performing class while holding the Ex-

change Bonds in a performing class.

A. In 2005, Argentina followed up its renewal of its formal �“moratori-

um�” on payments under the FAA Bonds with the Lock Law, which operated with

�“force of Law�” to impose additional provisions on the FAA Bonds that made it il-

legal for Argentina to repay them. The Lock Law relegated the FAA Bonds to

�“non-performing�” status (JA-1325)�—or, as one Argentine legislator put it, the

�“garbage circuit�” (SA-320).

Prior to its enactment of the Lock Law, Argentina urged that the Equal

Treatment Provision prohibited only discriminatory laws or contracts that subordi-

nated existing payment obligations. Having enacted precisely that sort of discrim-

inatory law, Argentina now changes tack and argues that even formal legislation

will not violate the Equal Treatment Provision so long as the payment obligations

protected by the Provision are not made �“unenforceable in any court.�” Argentina

Br. 46. This reading�—conveniently for Argentina�—would find no breach of the


19

Provision where the sovereign is willing to defy court judgments. But neither of

Argentina�’s amici is willing to join that argument. And ultimately, Argentina

breaches the Provision under even this absurdly narrow construction because, at

Argentina�’s strong urging, courts in Argentina have construed the Lock Law to

make judgments on the FAA Bonds unenforceable in Argentine courts. Argentina

thus (once again) has violated the Equal Treatment Provision even under its own

construction.

B. While the Lock Law certainly is sufficient to demonstrate Argentina�’s

breach of the Provision, an enactment of positive law is not necessary to do so.

Argentina�’s argument that the contractual term �“rank�” requires a legislative enact-

ment contradicts the plain meaning of the text and the well-settled principle that a

policy as reflected in the patterns and practices of governmental actors can be suf-

ficient to establish governmental liability. Furthermore, the requirement of a legis-

lative enactment also would defeat the central purpose of the Equal Treatment Pro-

vision of protecting creditors from discriminatory acts of subordination since sov-

ereign acts of subordination most typically are de facto rather than de jure. But the

Court need not resolve this controversy because, as shown above, Argentina took

the extraordinary step of codifying its subordination of its obligations to Appellees

into law.


20

Unable to defend Argentina�’s conduct even under their crabbed interpreta-

tion of the Equal Treatment Provision, Argentina and its amici criticize the district

court for reasoning it did not adopt, namely that the Lock Law requires �“ratable

payment�” to Appellees if Argentina makes even a single payment to other unse-

cured creditors. But the district court never held that an isolated payment to a sin-

gle creditor would violate the Provision. It concluded that Argentina breached its

obligations through a sustained course of discriminatory conduct ultimately codi-

fied in the Lock Law and related legislation.

C. There is no public policy rationale that even remotely dictates a find-

ing that Argentina�’s extraordinary conduct satisfies its promise of equal treatment.

The United States raises the specter that a creditor might assert that repaying a

multilateral financial institution ahead of other creditors would violate the Provi-

sion. But, as the United States itself argues, the market understands that these mul-

tilaterals are preferred creditors�—which is to say they are not on equal footing with

commercial creditors. And Argentina�’s assertion that a finding of breach on these

facts will bring all sovereign restructurings to a halt likewise is misplaced. In-

deed, in spite of its stated concerns, the United States ultimately acknowledges that

the Lock Law might violate the provision. U.S. Br. 6-7 n.*.

II. The district court acted well within its broad discretion to award equita-

ble relief by ordering Argentina to specifically perform the Equal Treatment Provi-


21

sion. The district court presided over every twist in this litigation assiduously for

more than a decade; it understands the facts and parties in greater depth than any-

one. After holding that Argentina had breached the Provision, the district court re-

served judgment on the remedy, affording Argentina every opportunity to propose

alternatives to the relief Appellees sought. Argentina abandoned that opportunity

in favor of arguing that the Equal Treatment Provision cannot be enforced. Argen-

tina�’s arguments are meritless.

A. Every requirement for equitable relief is satisfied here. First, there is no

adequate remedy at law because Argentina�’s breach of contract deprives Appellees

of their right to hold a guaranteed status among creditors. Courts have long recog-

nized that equitable relief is appropriate to remedy such positional injuries. And

despite Argentina�’s attempt to manufacture the appearance of a settled understand-

ing to the contrary, every court that has analyzed equal treatment provisions also

indicated that equitable relief is the proper means of enforcing them. Moreover,

Argentina�’s record of defiance of court judgments suffices to demonstrate that

monetary relief is inadequate.

Second, the balance of the equities strongly supports the district court�’s

award of equitable relief. The Specific Performance Order requires Argentina to

do no more than what it promised to do, and the record is clear that Argentina has


22

the financial capability to fulfill that promise without defaulting on its obligations

to the Exchange Bondholders or others.

Third, the public interest supports holding Argentina to its promise. Particu-

larly in the context of sovereign debt, guarantees like the Equal Treatment Provi-

sion are vital because creditors cannot protect themselves through the normal bank-

ruptcy regime. Argentina�’s contention that the Specific Performance Order will

interfere with future sovereign restructurings is baseless because bond agreements

can be drafted�—and overwhelmingly are drafted�—to allow restructuring with ap-

proval from far fewer than all bondholders. Thus, the district court correctly con-

cluded that every requirement for equitable relief has been met.

Argentina fails in its efforts to argue that laws beyond its contractual obliga-

tions impede the district court�’s discretion to award equitable relief.

B. The FSIA is irrelevant because the Specific Performance Order is not an

attachment. That Order does not exercise dominion over any Argentine assets,

much less assets abroad. And the fact that it requires Argentina to perform its con-

tract, even if outside New York, is not prohibited by the FSIA. Argentina compre-

hensively waived its jurisdictional immunity and submitted to in personam juris-

diction before the district court. It is therefore subject to equitable orders.


23

C. The U.C.C. is likewise irrelevant because it only bars injunctions against

intermediary banks, and neither Argentina nor its agents may be viewed merely as

�“an intermediary bank�” under that provision.

D. Finally, the district court properly found that laches does not bar Appel-

lees�’ equitable relief. Once �“content�” to leave the issue of the Equal Treatment

Provision unresolved (JA-2908-10), Argentina cannot argue that Appellees�’

claims�—which were unquestionably filed within the statute of limitations�—are un-

timely.

E. Having properly applied the test for the award of equitable relief, the dis-

trict court had broad discretion to fashion a remedy for Argentina�’s breach of con-

tract. It acted well within that discretion by ordering Argentina to pay Appellees

when, and to the same extent, that it pays the Exchange Bondholders. The Specific

Performance Order should be affirmed.

III. The Preliminary Injunction should be affirmed if the Specific Perfor-

mance Order is not. Argentina should not be permitted to alter the status quo�—

such as by moving its payment agents offshore�—before the district court has the

opportunity to consider other avenues of relief.


24

ARGUMENT

I. The District Court�’s Holding That Argentina Is Violating The Equal Treatment Provision Must Be Affirmed Under Any Construction Of That Provision

A. Argentina Violated Its Own Construction Of The Equal Treatment Provision By Enacting Laws That Relegate Its Payments Obligations Under The FAA Bonds To A Non-Paying Class

1. Argentina admits that it would violate the Equal Treatment Provision

if it �“rank[ed]�” obligations under the Exchange Bonds higher than obligations un-

der the FAA Bonds through a formal, legislative act. Argentina Br. 10, 34, 47. As

Argentina explained in 2003, the paradigmatic violation of the Equal Treatment

Provision under its own theory �“would be if the state adopted legislative measures

that created a legal priority for certain creditors.�” JA-253. Argentina�’s amici are

in accord. U.S. Br. 11-12; Clearing House Br. 5 n.5, 15 n.21.

In this case, Argentina has done precisely what everyone (including Argen-

tina) agrees is proscribed: It enacted the Lock Law and a moratorium on paying its

obligations under the FAA Bonds, lowering the rank of its obligations under the

FAA Bonds vis-à-vis other External Indebtedness.

The Lock Law identifies a class of Argentina�’s obligations�—those eligible

for the 2005 Exchange but that did not participate�—and states that this class of ob-

ligations will be subject to certain �“additional�” provisions. Chief among those

provisions is the prohibition upon the Argentine �“national State�” �“from conducting


25

any type of in-court, out-of-court or private settlement with respect to�” the out-

standing FAA Bonds. JA-436. The law further provides that this class of bonds

would be removed from all domestic foreign markets and exchanges. It specifies

without qualification that the unexchanged FAA Bonds �“shall be subject . . . to the

provisions of this law.�” JA-436.

Argentina�’s legislators and other public statements have made the Lock

Law�’s purpose clear. The legislators supporting it explained that it seeks to rele-

gate the FAA Bonds to a �“peripheral garbage circuit�” �“at the end of the line�” of

Argentina�’s creditors. SA-296, 320. In filings with the Securities & Exchange

Commission, Argentina admits that it �“classified Untendered Debt [the FAA

Bonds] as a separate category from its regular debt�” and after 2005 was �“not in a

legal . . . position to pay�” FAA Bondholders. Republic of Argentina, Annual Re-

port (Form 18-K), at 2, 11 (Sept. 30, 2011). Indeed, coupled with Argentina�’s an-

nually-renewed moratorium on payments of its legacy debts, the Lock Law estab-

lishes a class of Argentina�’s debt that it is illegal for the �“national State�” to repay.

That is exactly how the courts of Argentina view the law. At Argentina�’s in-

sistence, those courts have held that the Lock Law disables them from recognizing

New York law judgments under the FAA Bonds. See Claren Corp. c/ Estadio

Nacional, CFed, sala X, 2010 (SA-1); Crostelli c/ Estadio Nacional, CFed, sala II,

2011 (SA-45). According to those courts, the Lock Law and Argentina�’s renewed


26

moratorium on payments of legacy debt constitute Argentine �“public policy�” that

would conflict with any decision to recognize Argentina�’s obligations under the

FAA Bonds. E.g., Claren Corp., SA-10. Argentina�’s briefs in those cases explain

that these policies�—including the Lock Law�—�“embody a mandate that is binding

on judges and officials of the State�” (SA-84), and have �“mandatory application . . .

in all cases judged during their validity�” (SA-211).

There can be no doubt that the Lock Law violates the Equal Treatment Pro-

vision. Argentina now has at least two classes of external indebtedness. There are

�“performing�” obligations�—including, the 2005 and 2010 Exchange Bonds Argen-

tina that can and will pay. And there are the non-performing FAA Bonds that Ar-

gentina legally cannot and will not pay�—the end-of-the-line garbage. Argentina

Br. 1, 17. The FAA Bonds thus do not rank �“at least equally�” to the Exchange

Bonds. As the district court explained, it is �“difficult to imagine�” anything that

would reduce the legal rank of the payment obligations under the FAA Bonds more

than consigning them to non-paying status while treating others as paying. JA-

2124.

Even the academic commentators that Argentina has long cited in defense of

its misconduct agree that the Lock Law violates the Equal Treatment Provision. In

his most recent works, Professor Mitu Gulati�—whom Argentina cites three times

in its brief (Argentina Br. 12, 15, 33)�—has singled out the Lock Law as the sort of


27

law that would achieve �“legal subordination�” of a sovereign debt, potentially vio-

lating an equal treatment provision. See Mitu Gulati & Jeromin Zettelmeyer, Mak-

ing a Voluntary Greek Debt Exchange Work 8 (forthcoming, Capital Markets Law

Journal (2012)). That author has also noted that Argentina�’s attempt to explain

how it could have possibly complied with the Equal Treatment Provision in light of

the Lock Law involved �“issuer�’s counsel fumbling around to offer an alternative

meaning and being unconvincing.�” Mitu Gulati & Robert E. Scott, The Three and

a Half Minute Transaction: Boilerplate and the Limits of Contract Design 191

(forthcoming University Of Chicago Press 2012). Similarly, Dr. Rodrigo Olivares-

Caminal, also cited by Argentina (Argentina Br. 44, n.14), determined that because

�“Argentina expressly stated that bonds of the holdout creditors will remain �‘non-

performing�’ and then passed a law by which the exchange offer was locked . . .

Argentina indirectly granted a legal priority to those creditors that entered the ex-

change offer.�” JA-1325. Dr. Olivares-Caminal added that, through the Lock Law,

�“a legal subordination of the holdout creditors was formally made, and this might

give scope to a breach of the pari passu clause.�” JA-1330.

Tellingly, none of the amici that previously supported Argentina�—and none

that support it now�—deny that Argentina breached the Equal Treatment Provision

by enacting the Lock Law. See U.S. Br. 7 n.*; Clearing House Br. 5. Although the

United States expends many pages urging this Court to issue a ruling that will


28

promote its current policy objectives, it nowhere argues that holding the Lock Law

to be a violation of the Equal Treatment Provision would undercut those objec-

tives. And the Clearing House offers only an unsupported assertion that the �“Lock

Law appears to be nothing more than an expression of a sovereign�’s intent.�”

Clearing House Br. 5 n.5. When a sovereign�’s �“intent�” to subordinate the rank of

certain payment obligations is codified into law, that is the quintessential embodi-

ment of legal subordination.

2. Argentina�’s attempts to redefine the Lock Law as failing to achieve a

formal subordination of payment obligations are indefensible.

First, Argentina absurdly contends that the Lock Law does not violate the

Equal Treatment Provision because �“[t]he Argentine Congress . . . continues to

hold . . . the ability to permit future exchange offers and settlements.�” Argentina

Br. 45. Argentina suggests that, because it can be amended or repealed, the Lock

Law really is just an �“announcement�” of repudiation that restructuring sovereigns

supposedly make �“commonly.�” Id. at 45-46; see also Clearing House Br. 5 n.5.

But neither Argentina nor its amici cite a single example of such a �“statement,�” and

certainly do not cite one that, as the Lock Law provides, �“shall have the force of

Law.�” JA-436 (emphasis added). And a law is no less a law just because it can be

amended or repealed later. For Argentina to suggest that Law 26,017 could not

impose a �“legal subordination�” unless Argentina somehow placed its law beyond


29

its power to amend is utter nonsense. The term �“rank�” does not require a debtor to

solve the �“omnipotence paradox�” by creating a law so powerful that the sovereign

cannot change it. See C. S. Lewis, The Problem of Pain (1944).4

Second, Argentina belatedly asserts that �“[n]either the Lock Law nor Law

26,547 rendered the claims of plaintiffs . . . unenforceable in any court.�” Argentina

Br. 46. According to Argentina, the Lock Law did not create a �“preferred class of

creditors�” because �“any claims that may arise from the Republic�’s restructured

debt have no priority in any court of law over claims arising out of the Republic�’s

unrestructured debt.�” Id. at 46-48. But Argentina never raised these arguments be-

low and not even its expert Stephen Choi remotely endorses any argument resem-

bling it. See JA-2087. This argument has, therefore, been waived. See Wal-Mart

Stores, Inc. v. Visa U.S.A. Inc., 396 F.3d 96, 124 n.29 (2d Cir. 2005).5

4 The U.S. Bankruptcy Code contains a provision expressly subordinating claims involving rescission of a purchase or sale of a security. 11 U.S.C. § 510(b). By Argentina�’s logic, that express subordination would not, in fact, be a �“legal�” subordination because Congress could at some point choose to amend the Code.

5 Instead, Argentina argued below that the Equal Treatment Provision �“only prohibits the creation of a preferred class of creditor claims after default, not the cancellation of existing claims and subsequent issuance of additional performing debt.�” Opp�’n Mot., No. 08 Civ. 6978, Dk. 274, at 30 (Dec. 10, 2010). To its credit, Argentina has abandoned this incomprehensible argu-ment on appeal.


30

Argentina offers nothing but ipse dixit to support its theory. No court has

held that subordination is not subordination if some court will still recognize the

creditors�’s right to be paid (by issuing liability judgments that Argentina has pro-

claimed by statute that it will disregard). Such a perverse rule would strip the

promise of equal ranking of any meaning. Under it, debtors seeking to subordinate

a creditor need only repudiate the debt. If a court later recognizes that the creditor

has a right to be paid, the Equal Treatment Provision is not violated. But if the

court gives the repudiation the effect of subordinating the debt, the creditor still

loses since the court reduces his right to be paid relative to other creditors. On that

view, there would never be a violation of the Equal Treatment Provision.

Argentina�’s Catch-22 unravels when one looks to how Argentina�’s courts

view the Lock Law. Argentina�’s claim that, despite the Lock Law, all courts nev-

ertheless view Argentina�’s legacy debt as enforceable is false. Argentine courts of

appeals have rejected attempts by creditors to register U.S. court judgments under

defaulted FAA Bonds. See Claren Corp., SA-1; Crostelli c/ Estadio Nacional,

SA-49-51. These courts reasoned that Argentine �“public policy�”�—as embodied in

the Lock Law and Argentina�’s yearly moratoriums�—�“established the procedure to

be followed with respect to�” the still-outstanding FAA Bonds, and thus judgments

based upon those bonds are �“not eligible for enforcement.�” Claren Corp. (SA-15)

(emphasis added). Indeed, Argentina urged this result, explaining in its briefs to


31

those courts that the Lock Law �“established, without prejudice to the validity of the

applicable rules, the provisions that would also govern the national State bonds

found eligible for the exchange.�” SA-70. Argentina thus argued that the Lock

Law and its moratoriums and grants of emergency power to the Executive have a

�“mandatory application�” in �“all cases�” such that �“there is no possibility of any

measure for�” holders of FAA Bonds. SA-211. This is the opposite of the represen-

tation that Argentina has made before this Court. Argentina Br. 46-48. The Lock

Law unquestionably �“renders the claims of plaintiffs . . . unenforceable in�” Argen-

tine courts (id. 46), a direct violation of the Equal Treatment Provision even on

Argentina�’s newly-minted view.6

B. Argentina Lowered The Rank Of Its Payment Obligations Under The FAA Bonds Through An Extended Pattern Of Discrimination In Favor Of Preferred Creditors

The Lock Law establishes Argentina�’s violation of the Equal Treatment

Provision. Accordingly, this Court need not go further. But because Argentina

previously has amended its legislation to further its scheme (see Law 26,547, JA-

440), Appellees argued in the district court that, even in the absence of the Lock

6 There is also nothing �“ironic�” (Argentina Br. 48) about the district court�’s reliance on Law 26,547, which lifted and then reinstated the Lock Law. By reinstating the Lock Law, Law 26,547 also formally repudiated the obliga-tions under the FAA Bonds. This obviously violated the Equal Treatment Provision.


32

Law, Argentina�’s prolonged and systematic disregard of its obligations under the

FAA Bonds while paying the Exchange Bondholders was also sufficient to demon-

strate a violation of the Equal Treatment Provision. The district court did not ad-

dress whether the Equal Treatment Provision could be violated by a single pay-

ment, sooner in time, to a preferred creditor, or whether such a payment would re-

quire a �“ratable payment�” to all other unsecured creditors. The district court in-

stead looked to the case before it�—which did not involve a �“single payment�”�—and

held that Argentina�’s relegation of its obligations to Appellees to a �“non-paying

class�” and its �“persist[ence] in its refusal�” to meet its legal obligations breached the

Equal Treatment Provision. As the district court correctly held, Argentina�’s en-

trenched national policy of repudiating its legacy debts, vowing to �“never make a

payment�” (SA-335), and officially classifying the FAA Bonds as �“nonpaying�”

(SPA-13) demonstrates that Argentina is not holding its obligations to Appellees at

a rank equal to that of the Exchange Bonds.

1. The district court�’s holding comports with the settled understanding

that an unwritten but established government policy can be the equivalent of a leg-

islative act for purpose of governmental liability. In the municipal liability con-

text, a government�’s conduct is actionable �“even though such a custom has not re-

ceived formal approval through the body�’s official decisionmaking chan-

nels�” (Monell v. Dep�’t of Soc. Servs., 436 U.S. 658, 690 (1978)), where that prac-


33

tice is �“so permanent and well settled as to constitute a �‘custom or usage�’ with the

force of law�” (Adickes v. S.H. Kress & Co., 398 U.S. 144, 168 (1970)). This is be-

cause �“settled practices of state officials�” can have an impact �“no less than legisla-

tive pronouncements.�” Id.

The same reasoning applies here. It would make no sense for a creditor to

contract for protection against subordination accomplished by a legislative act that

is easily avoided but agree that the sovereign�’s executive branch is free to impose

the exact same subordination by policy, practice, and custom. Restricting the pro-

tection of the Equal Treatment Provision to a mere bar against legislative or con-

tractual acts of discrimination would �“denude[] it of most real world value because

the economically pertinent priorities in sovereign debt are de facto.�” William W.

Bratton, Pari Passu and a Distressed Sovereign�’s Rational Choices, 53 Emory L.J.

823, 846 (2004).

2. Argentina�’s contrary argument is, of course, irrelevant: Argentina has

enacted legislation in violation even of its unduly narrow construction of the Equal

Treatment Provision. See supra Part I.A. That alone is sufficient grounds for af-

firmance. But Argentina�’s claim that de facto subordination through official cus-

tom and policy is permitted�—and only express contractual or legislative de jure

subordination is proscribed�—fails in any event.


34

Argentina�’s attempt to displace the textual prohibition against any lowering

of �“rank�” with a supposed contrary �“market�” understanding is not credible. Argen-

tina Br. 32-35; see also U.S. Br. 11-16. It cites only an ongoing debate in law re-

views that most recently aptly described Argentina�’s counsel as �“fumbling around

to offer an alternative meaning and being unconvincing.�” Gulati & Scott, supra, at

191. Argentina correctly notes that �“rank�” means �“�‘[t]o place in a row or rows�’ or

�‘[t]o give a particular order or position to; to classify.�’�” Argentina Br. 31-32 (quot-

ing American Heritage Dictionary 1497). But Argentina�’s argument that a

�“rank[ing]�” of �“payment obligations�” must always be codified in a statute finds no

support in Argentina�’s favored dictionary definition or in the terms of the FAA.

Under New York law, �“�‘courts may not by construction add . . . terms . . . under

the guise of interpreting the [contract].�’�” 10 Ellicott Square Court Corp. v. Mt.

Valley Indem. Co., 634 F.3d 112, 125 (2d Cir. 2011) (quoting Vt. Teddy Bear Co.

v. 538 Madison Realty Co., 1 N.Y.3d 470, 475 (2004)).

Argentina�’s claim that �“rank�” means legal rank, formalized in legislation, is

so at odds with the text of the Equal Treatment Provision that it �“ha[s] not found

favor [in any court] as yet.�” JA-1930 (Stephen J. Choi & G. Mitu Gulati, Contract

As Statute, 104 Mich. L. Rev. 1129, 1137 (2006)). Even Stephen Choi�—

Argentina�’s expert in the district court�—and Professor Mitu Gulati�—a scholar Ar-

gentina relies on extensively�—concede as much (id.), as does at least one of the


35

articles by Argentine counsel Lee Buchheit that Argentina cited below (JA-1882-

83). Indeed, every single court to interpret similar contractual prohibitions has

recognized that a breach may occur absent a formal or legal change in rank. See

Red Mountain Fin., Inc. v. Democratic Republic of Congo, No. CV 00-0164 R

(BQRx) (C.D. Cal. May 29, 2001) (ordering relief under an equal treatment provi-

sion where no legal subordination had taken place) (JA-1369-72); Elliott Assocs.

L.P. v. Banco de la Nacion, General Docket No. 2000/QR/92 (Court of Appeals of

Brussels, 8th Chamber, Sept. 26, 2000) (same); LNC Invs. LLC v. Republic of Nic-

aragua, Folio 2000 No. 1061, R.K. 240/03 (Commercial Ct. of Brussels Sept. 11,

2003) (same). Argentina never explains how the �“market�” possibly could have

adopted its empty construction of the Equal Treatment Provision when every court

to have addressed the issue has reached a conclusion at odds with that provision.

3. Argentina�’s arguments regarding other types of contractual provisions

(Argentina Br. 37-39) do nothing to undermine the district court�’s construction of

the Equal Treatment Provision. For example, a �“sharing clause�”�—not even includ-

ed in the FAA�—is a protection that lenders agree to among themselves for the di-

vision of any payments the debtor makes (or are obtained by other means, such as

offsets). It is not a promise made by the borrower like the Equal Treatment Provi-

sion. The fact that lenders might agree to the distribution of proceeds among

themselves by no means precludes them from seeking assurances that the borrower


36

will not subordinate their payment rights to the rights of others. Indeed, a sharing

clause, unlike an Equal Treatment Provision, could not ensure against the debtor�’s

discrimination in favor of other, non-sharing creditors. Moreover, the prevalence

of sharing clauses in �“syndicated loan agreements�” among banks (Clearing House

Br. 12-13), implies nothing about the significance of their absence in the FAA

Bonds; the numerosity and anonymity of bondholders likewise render a sharing

clause unworkable. In such circumstances, the only way to avoid preferences is to

impose the obligation on the debtor�—which the Equal Treatment Provision does.

Argentina�’s argument about the FAA�’s �“repurchase�” provision is equally

flawed. Argentina Br. 39. The repurchase provision merely allows Argentina to

buy back its own securities in separate market transactions. JA-169 (�“The Repub-

lic may at any time purchase Securities at any price in the open market . . . .�”).

When it does so, Argentina is not fulfilling those payment obligations; the FAA

provides that the securities are not �“redeemable prior to maturity.�” Rather, it is

purchasing those obligations (potentially at a discount or premium that reflects the

market�’s expectations concerning the low likelihood that Argentina will fulfill the

payment obligations). Nothing in the repurchase provision even remotely suggests

that Argentina may fulfill some payment obligations while relegating others to a

�“non-paying class.�”


37

It is Argentina�’s (and the United States�’) interpretation of the Equal Treat-

ment Provision that would render collective action clauses largely meaningless.

Those clauses allow a sovereign to amend a bond�’s terms if a percentage of bond-

holders agree. But if a sovereign could refuse to pay bondholders who chose not to

restructure their bonds, there would be no need for collective action rights. Rather

than paying the same reduced payment to dissenting bondholders via a collective

action clause, Argentina could reduce its payments to the Exchange Bondholders

and not pay the dissenting FAA Bondholders.

4. Ultimately, Argentina (as well as its amici) is reduced to mischarac-

terizing Appellees�’ arguments�—and imputing to the district court a construction

that it did not adopt. In particular, they take issue with Elliott Associates (JA-

1360) which Argentina argues held that a debtor violated the Equal Treatment Pro-

vision whenever it honored �“any single obligation�” due to any external creditor

while failing to make a proportionate payment due on the FAA Bonds. Argentina

Br. 12-13, 31-36, 41; U.S. Br. 13-17; Clearing House Br. 2, 4-5, 10-11.

Though Appellees had urged that the construction in Elliot Associates is cor-

rect and broadly prohibits preferred payments to similar creditors, the district court

did not go that far. It never held that a �“single payment�” could violate the Equal

Treatment Provision. Nor did it hold that the Equal Treatment Provision requires

that, as soon as Argentina pays one creditor, a ratable payment must be made to all.


38

Instead, it held that Argentina�’s official, entrenched, and codified scheme�—

including six years of non-payment, annual extensions of the moratorium on pay-

ments, and the enactment of the Lock Law, coupled with the official policy of pay-

ing and recognizing its legal obligation to pay other External Indebtedness�—

constituted subordination of the payment obligations to a �“non-paying class�” infe-

rior in rank to other classes of �“performing�” securities. SPA-13. That is the only

holding on review before this Court.

For similar reasons, Argentina�’s claim of �“absurd�” results is unfounded. See

Argentina Br. 40-42. The district court did not hold that a �“temporary�” shortfall of

funds resulting in a single missed payment would violate the provision. Id. at 41.

And there is nothing absurd about construing the provision to mean that, in the

event of sustained inability to pay its debts, Argentina must allocate the resulting

losses evenhandedly across its unsecured creditors of equal rank (contrary to the

facts of the present case). That is, after all, the point of the Equal Treatment Provi-

sion: To provide a meaningful protection to holders of the FAA Bonds in the event

of default.

C. Argentina�’s Public Policy Arguments Fail

Unable to mount a plausible claim that it has complied with its contractual

obligations, Argentina invokes the public interest. But New York law�—which

governs this issue�—is clear that a court may refuse to enforce a contractual prom-


39

ise based upon public policy only when (1) that policy is enshrined in �“�‘laws and

legal precedents and not from general considerations of supposed public interests�’�”

(Kraut v. Morgan & Brother Manhattan Storage Co., 38 N.Y.2d 445, 451-52

(1976) (quoting Muschany v. United States, 324 U.S. 49, 66 (1945))), and (2) en-

forcing the contract would immediately, directly, and seriously injure that well-

established public policy (BDO Seidman v. Hischberg, 93 N.Y.2d 382, 392

(1999)). Argentina and its amici fail to identify any legally recognized policy in-

terest that would be offended by interpretation of the Equal Treatment Provision

adopted by the district court.

1. The assertion that holding Argentina to its equal treatment promise

would imperil policies favoring preferential payments to multilateral organizations

is baseless. Argentina Br. 2, 11, 43; U.S. Br. 19-22. As explained by the United

States, prospective bondholders understand that loans from multilateral institutions

are preferred creditors that must be repaid even when debtors �“lack the resources to

pay their other obligations.�” U.S. Br. 21; see also Br. of United States as Amicus

Curiae 20, NML Capital v. Banco Central de la Republica Argentina, No. 10-1487

(multilaterals like the IMF �“rightly expect[] to be paid even when other creditors

are not�”). Multilateral organizations�’ preferred status among creditors follows

from the unique role those organizations play in sovereign finance as lenders of

last resort, which this court has recognized. See EM Ltd., 473 F.3d at 480-85. Ac-


40

cordingly, a sovereign�’s de jure or de facto policy that subordinated obligations to

commercial unsecured creditors beneath obligations to multilateral institutions like

the IMF would not violate the Equal Treatment Provision for the simple reason

that the commercial creditors never were nor could be on equal footing with the

multilateral organizations. The Equal Treatment Provision requires equal treat-

ment of similar commercial creditors; it does not require that creditors with differ-

ing priority be treated equally. Affirming the district court�’s finding of a breach of

the Equal Treatment Provision thus in no way jeopardizes payments to multilateral

organizations.

2. The argument that enforcing the Equal Treatment Provision on these

facts would make future sovereign debt restructurings impossible also is meritless.

Argentina Br. 2; U.S. Br. 17-19. Apart from the fact that there is no legally recog-

nized policy in favor of restructuring (at the expense of enforcing contracts), future

restructurings would be unaffected by the outcome of this case for at least three

reasons.

First, there is nothing to suggest that other sovereigns would follow Argen-

tina�’s course and codify a policy of repudiation of obligations to those who de-

clined an exchange offer. No other sovereign has matched Argentina�’s unique �“di-

plomacy of default.�” EM Ltd., 473 F.3d at 466 n.2.


41

Second, unlike the bonds at issue here, 99% of the aggregate value of New

York-law bonds issued since January 2005 have included collective action clauses.

In fact, only 5 of 211 issuances under New York law during that period did not in-

clude collective action clauses, and all of those issuances came from a single na-

tion, Jamaica.7 Such clauses are examples of the market adapting to the current

state of the law and expressly permit restructurings of sovereign debt even if not all

bondholders consent. So provisions like the Equal Treatment Provision would not

allow a small percentage of holdouts to obstruct an otherwise favorable and eco-

nomic restructuring.8

Third, many sovereign bond contracts do not include language similar to that

of the Equal Treatment Provision, which expressly requires an equal ranking not

only among the offered securities, but also among the �“payment obligations�” aris-

ing from them and the issuer�’s other present and future debts. While Argentina at-

7 These figures were derived from Datalogic, Bloomberg, and publicly-available sources. Although this analysis identified 221 issuances, data on the presence of collective action clauses was available only for 211 of those issuances (96% of the aggregate value of all issuances); the figures above are compared against those 211 issuances with sufficient data. See also Mi-chael Bradley & Mitu Gulati, Collective Action Clauses for the Euro Zone: An Empirical Analysis 11-12 (Oct. 24, 2011) (unpublished manuscript), available at http://ssrn.com/abstract=1948534; U.S. Br. 5, 8-9.

8 Moreover, none of the bonds issued by Greece, Portugal or Spain�—nations identified by Argentina as the next in line for restructuring�—are governed by New York law at all.


42

tempts to dismiss the entire broad range of �“pari passu clauses�” as mere �“boiler-

plate�” that �“lawyers would understand�” all have a uniform meaning (Argentina Br.

33), an analysis of sovereign bond contracts, conducted by Harvard Law School

Professor Hal S. Scott, found that less than 60% of sovereign bonds include lan-

guage of the type that requires equality among �“payment obligations�” (JA-1574).

Most notably, Argentina�’s 2005 and 2010 Exchange Bonds contain different pari

passu clauses than are set forth in the FAA, and those clauses omit the �“payment

obligations�” language. That distinction is significant, as Argentina evidently ap-

preciates. Id.

II. The District Court Properly Exercised Its Discretion In Ordering Specific Performance Of The Equal Treatment Provision

As demonstrated below, the district court�’s Specific Performance Order�—

issued after nearly a decade of litigation and defiance of court judgments in spite of

its ability to meet its legal obligations�—is clearly appropriate.

A. Argentina�’s Extraordinary Continuing Breach Of The Equal Treatment Provision In Spite Of Its Ability To Pay Warrants Equitable Relief

Specific performance is an available remedy where (1) �“there is no adequate

monetary remedy�” for the contractual breach; (2) the balance of the equities favors

specific enforcement of the provision; and (3) the public interest favors the reme-

dy. Guinness Harp Corp. v. Jos. Schlitz Brewing Co., 613 F.2d 468, 473 (2d Cir.

1980); Nemer Jeep-Eagle, Inc. v. Jeep-Eagle Sales Corp., 992 F.2d 430, 433


43

(2d Cir. 1993); see also eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391

(2006) (stating similar test for permanent injunctive relief).9 A district court�’s de-

cision to grant equitable relief is reviewed for abuse of discretion and, �“due to that

court�’s �‘expertise�’ as a fact-finder,�” its factual conclusions will not be set aside un-

less they are clearly erroneous.�” See Wisdom Import Sales Co., L.L.C. v. Labatt

Brewing Co., Ltd., 339 F.3d 101, 108 (2d Cir. 2003) (quoting Zervos v. Verizon

New York, Inc., 252 F.3d 163, 168 (2d Cir. 2001)). Here, the district court acted

well within its discretion when it found that all of these factors were satisfied.

1. There Is No Adequate Remedy At Law

Contrary to Argentina�’s assertion (Argentina Br. 56 n.20), the district court

explicitly found that the Appellees had no adequate remedy at law for Argentina�’s

ongoing breach of the Equal Treatment Provision. Indeed, the district court found

two independently sufficient reasons, and Argentina rebuts neither.10

9 To be eligible for specific performance of a contractual provision, a party

also needs to show that �“(1) a valid contract exists between the parties, (2) the plaintiff has substantially performed its part of the contract, and (3) plaintiff and defendant are each able to continue performing their parts of the agreement.�” Nemer Jeep-Eagle, 992 F.2d at 433. There is no dispute that these factors are satisfied here.

10 At the threshold, Argentina�’s argument (Argentina Br. 48-49) that the FAA limits Appellees to the legal remedy of acceleration of principal is frivolous. As this Court has explained, in order to preclude specific performance under

[Footnote continued on next page]


44

The district court concluded that Appellees�’ legal remedies (including accel-

eration) were inadequate in the instant circumstances. First, the district court

found that �“[a]bsent equitable relief, [Appellees] would suffer irreparable harm be-

cause the Republic�’s payment obligations to [Appellees] would remain debased of

their contractually-guaranteed status, and [Appellees] would never be restored to

the position [they were] promised that [they] would hold relative to other creditors

in the event of default.�” SPA-37. This was correct because the Equal Treatment

Provision entitles the Appellees not to a sum-certain but rather to a particular

�“rank�” among payment obligations. As this Court explained in Alliance Bond

Fund v. Grupo Mexicano de Desarrollo, S.A., where creditors have the right to

equal treatment among those owed money, a plaintiff�’s plan �“to satisfy [some]

creditors to the exclusion of [others]�” imposes irreparable harm on excluded credi-

[Footnote continued from previous on next page]

New York law, a contract must contain an �“express provision�” that the con-tractual remedy is the �“sole or exclusive remedy.�” See Vacold LLC v. Cerami, 545 F.3d 114, 130 (2d Cir. 2008). Under New York law, even a liquidated damages provision�—which specifically provides how much mon-ey a party is entitled to upon a breach�—does not deprive the court of the au-thority to grant specific performance. See Rubinstein v. Rubinstein, 23 N.Y.2d 293, 297-98 (1968). Here, Argentina points to nothing in the FAA that can be read as an �“express provision�” that acceleration is the �“sole or exclusive remedy�” for a breach of the Equal Treatment Provision. Before the district court, Argentina�’s counsel conceded that the limitation it advo-cates �“is not explicit�” in the FAA. JA-2141.


45

tors. 143 F.3d 688, 697 (2d Cir. 1998), rev�’d on other grounds, 527 U.S. 308

(1999).

That conclusion follows from the well-established principle that a right to a

position vis-à-vis other creditors cannot be remedied at law. Courts thus regularly

order specific enforcement of contracts providing for a security interest because

security interests establish relative rights among creditors. See BIB Constr. Co. v.

Fireman�’s Ins. Co., 214 A.D.2d 521, 523 (N.Y. App. Div. 1995); Marine Midland

Trust Co. v. Allegheny Corp., 28 F. Supp. 680, 683-84 (S.D.N.Y. 1939), quoted in

Safeco Ins. Co. of Am. v. Schwab, 739 F.2d 431, 433 (9th Cir. 1984).

The same logic applies here. The promise of equal treatment ensures that a

creditor will enjoy a specified position with regard to the debtor�’s other payment

obligations, just as the promise of a security interest similarly ensures that the

creditor will enjoy a specified position with regard to specific property. The

�“[i]mpairment of a security interest,�” no more than the impairment of the right to

equal payment status, constitutes �“a shift in bargained-for risk�” and �“may consti-

tute irreparable harm where the lender�’s only recourse is against the borrower.�”

Bank Midwest, N.A. v. Hypo Real Estate Capital Corp., No. 10 Civ. 232(WHP),

2010 WL 4449366, at *6 (S.D.N.Y. Oct. 13, 2010).

Every court that has considered the remedies available for breaches of equal

treatment provisions or pari passu clauses has found�—without exception�—that


46

those provisions are enforceable through orders awarding equitable relief. See Red

Mountain Fin., Inc. v. Democratic Republic of Congo, No. CV 00-0164 R (BQRx)

(C.D. Cal. May 29, 2001); Nacional Financiera S.N.C. v. Chase Manhattan Bank,

N.A., No. 00 Civ. 1571(JSM), 2003 WL 1878415, at *2 (S.D.N.Y. Apr. 14, 2003)

(creditors with an equal treatment provision �“may . . . [have] the right to obtain an

injunction to bar [the debtor] from making preferential payments to some of its

note holders�”); Elliott Assocs. L.P. v. Banco de la Nacion, General Docket No.

2000/QR/92 (Court of Appeals of Brussels, 8th Chamber, Sept. 26, 2000); LNC

Invs. LLC v. Republic of Nicaragua, Folio 2000 No. 1061, R.K. 240/03 (Commer-

cial Ct. of Brussels Sept. 11, 2003).

Even if a breach of the Equal Treatment Provision might sometimes be re-

mediable through a money judgment, there could be no adequate remedy at law

here because Argentina has demonstrated that it will defy any such judgment. Alt-

hough Argentina characterizes its obstruction of the Appellees�’ recovery as mere

�“difficulty in collecting on money judgments�” (Argentina Br. 57), �“the irreparable

harm requirement is satisfied�” where the defendant would �“frustrate a judgment�”

for the collection of money, such as by �“continuing an unrelenting campaign to

avoid paying obligations�” (Pashaian v. Eccelston Props., Ltd., 88 F.3d 77, 87 (2d

Cir. 1996); see also Restatement (Second) of Contracts § 360 cmt. d; accord Cen-

tauri Shipping Ltd. v. W. Bulk Carriers KS, 528 F. Supp. 2d 186, 194-95 (S.D.N.Y.


47

2007), aff�’d, 323 Fed. App�’x 36 (2d Cir. 2009) (finding equitable relief appropriate

if defendant is in danger of becoming judgment-proof)).

Here, Argentina is in the midst of an �“unrelenting campaign to avoid paying

obligations�” that dwarfs the campaign before this Court in Pashaian. As the dis-

trict court observed, Argentina is engaged in an �“exercise of sheer willful defiance

of the obligations of the Republic to honor the judgments of a federal court.�” EM

Ltd., 720 F. Supp. 2d at 304. Though it promised in its bond documents never to

claim immunity from attachment or execution, Argentina has vexatiously opposed

all such efforts and has advanced �“disingenuous�” arguments in this Court to further

its scheme. NML Capital v. Republic of Argentina, 621 F.3d 230, 237 (2d Cir.

2010). And then there is the Lock Law, which Argentina enacted to punish credi-

tors that declined its �“offers�” and that Argentina itself has argued prohibits the en-

forcement of judgments on the FAA Bonds. See supra 25. Against this backdrop,

Argentina cannot credibly dispute the district court�’s factual finding that entry of

another monetary judgment against Argentina will not adequately remedy Argenti-

na�’s disregard of its promise of equal ranking.11

11 The remaining cases Argentina relies upon are in accord with the conclusion that there is no adequate remedy at law here, especially in light of the hold-ings of Argentine courts that any judgment on the FAA Bonds will not be recognized in Argentina. Compare supra 25, with Weston Compagnie Fi-

[Footnote continued on next page]


48

2. The Equities Weigh Decisively In Favor Of Relief

Argentina baselessly asserts that �“[t]he district court failed to conduct any

weighing of the relevant hardships.�” Argentina Br. 60. In fact, the district court

concluded that �“[t]he balance of the equities strongly supports this Order�” because,

absent equitable relief, �“the Republic will continue to violate [the Equal Treatment

Provision] with impunity,�” while the ordered relief will cause no harm to Argenti-

na �“[b]ecause the Republic has the financial wherewithal to meet its commitment

of providing equal treatment to both [Appellees] and those owed under the terms of

the Exchange Bonds.�” SPA-37-38. A district court�’s balancing of the hardships is

reviewed only for �“abuse of discretion�” (Citigroup Global Mkts., Inc. v. VCG Spe-

cial Opportunities Master Fund Ltd., 598 F.3d 30, 40 (2d Cir. 2010)), which re-

quires either an error of law or a clearly erroneous view of the facts (see Cooter &

Gell v. Hartmax Corp., 496 U.S. 384, 401 (1990)). Argentina establishes neither.

[Footnote continued from previous on next page]

nance et D�’Investissement, S.A. v. La Republica del Ecuador, No. 93 Civ. 2698 (LMM), 1993 WL 267282, at *2 (S.D.N.Y. July 14, 1993) (equitable relief improper only because unclear that a money judgment �“would not be recognized, and enforced, in Ecuador�”), and Plenum Fin. & Invs. Ltd. v. Bank of Zambia, No. 95 CV 8350(KMW), 1995 WL 600818, at *3 (S.D.N.Y. Oct. 11, 1995) (no equitable relief where plaintiff did not argue �“that the English judgment would otherwise be unenforceable�”).


49

On one side of the scale, Argentina nowhere denies that, in the absence of

equitable relief, it will continue to violate Appellees�’ rights under the Equal Treat-

ment Provision. The legislation that holds Appellees�’ bonds in a non-paying class

will remain in effect while Argentina continues to satisfy in full its payment obli-

gations on its Exchange Bonds. Because Argentina�’s pattern of defiance of court

judgments has rendered monetary relief ineffective, Argentina threatens to cause

Appellees irreparable harm in perpetuity.

Argentina�’s only answer is to suggest that Appellees have brought this injury

upon themselves by buying Argentina�’s debt when Argentina was near default.

That is no answer to the Varela appellees who bought Argentina�’s bonds upon their

original issue. Besides, even Argentina�’s amici acknowledge that Argentina must

honor its contractual commitments no matter when the rights thereunder were as-

signed. See U.S. Br. 3; see also Travelers�’ Ins. Co. v. Brass Goods Mfg. Co., 146

N.E. 377, 378 (N.Y. 1925). If the law were otherwise, there would be no second-

ary markets, and bonds would consequently be far less valuable in the primary

markets, or would not be issued at all. See Elliott Assocs., 194 F.3d at 380 (noting

the importance of �“[a] well-developed market of secondary purchasers of defaulted

sovereign debt�” as providing �“incentives for primary lenders to continue to lend to

high risk countries�”).


50

On the other side of the scale, Argentina�—a G-20 nation�—never disputed in

the district court that it has resources sufficient to meet its obligations to both Ap-

pellees and to the Exchange Bondholders. JA-1676, 1696. Indeed, Argentina

holds more than $47 billion in foreign currency reserves in Switzerland, which re-

cent legislation makes even more readily available for debt repayment. SA-334;

see supra 15. Argentina�’s assertion that the Specific Performance Order would

�“plunge the Republic into a new financial and economic crisis,�” Argentina Br. 61,

appears out of the blue for the first time on appeal. It is thus forfeited. See Tolbert

v. Queens Coll., 242 F.3d 58, 75 (2d Cir. 2001). And Argentina cites no evidence

in support of it, so it could not possibly demonstrate that the district court�’s contra-

ry finding is clearly erroneous. See Duhon v. Texaco, Inc., 15 F.3d 1302, 1307 n.3

(5th Cir. 1994).

More fundamentally, the assertion has no basis in reality. To satisfy its obli-

gations on the FAA bonds at issue in this appeal�—bonds that represent substantial-

ly all of Argentina�’s legacy debt that has not already proceeded to final judg-

ment�—Argentina would have to pay Appellees a total of approximately $1.35 bil-

lion. That is substantially less than the $1.8 billion that, according to Argentina�’s

Ministry of Economy, Argentina will pay on the Exchange Bonds in 2012. Taken

together, full satisfaction of the payment obligations on both Appellees�’ Bonds and

the Exchange Bonds would require less than seven percent of Argentina�’s cash re-


51

serves. The district court�’s conclusion that Argentina has ample financial re-

sources to meet all its debt obligations was correct.

Argentina�’s thinly veiled threats to default on its Exchange Bond obliga-

tions�—rather than meet its other payment obligations�—does not remotely suggest

an abuse of discretion by the district court. As this Court has explained, in review-

ing whether a district court abuses its discretion in equity, �“[w]e cannot assume

that the order of the court will be disregarded. On the contrary, we assume it will

be obeyed.�” Higgins v. Cal. Prune & Apricot Growers, Inc., 282 F. 550, 559 (2d

Cir. 1922); see also United States v. Ross, 302 F.2d 831, 834 (2d Cir. 1962). Par-

ticularly given that it has more than enough resources to comply, Argentina cannot

wield a threat to either breach the Specific Performance Order or its obligations to

the Exchange Bondholders as an equitable factor in its favor.

3. The Public Interest Supports Specific Performance

The district court determined that its Order would serve �“[t]he public interest

of enforcing contracts and upholding the rule of law,�” an interest which takes on

added importance in the sovereign context �“where creditors of the Republic have

no recourse to bankruptcy regimes to protect their interests and must rely upon

courts to enforce contractual promises.�” SPA-38; Certified Restoration, 511 F.3d

at 551.


52

Argentina, however, asserts that the district court �“failed to consider the pub-

lic interests at issue.�” Argentina Br. 60. Before the district court, Argentina�’s ar-

gument regarding the public interest consisted of one sentence: �“[T]he same poli-

cy concerns that weigh in favor of encouraging sovereign restructurings to take

place also weigh in favor of rejecting NML�’s motion in order to provide certainty

that completed restructurings cannot be upset by holdout creditors.�” Mem. of Law

Opp�’n 21-22, No. 08 Civ. 6978, Dk. 368 (Feb. 1, 2012). That concern�—that the

Order might �“upset�” Argentina�’s �“completed restructuring[]�”�—was addressed

squarely by the district court at the hearing: �“The rights of the exchange bond-

holders need not be interfered with at all if the Republic will honor its legal obliga-

tions. That�’s all that the Republic has to do.�” JA-2339.

On appeal, Argentina invokes various concerns raised by the United States,

the Clearing House, and the Federal Reserve Bank of New York in filings in 2004,

before any plaintiff had brought a claim under the Equal Treatment Provision. Ar-

gentina Br. 61-63. But none of those entities ever raised any concerns about Ap-

pellees�’ proposed relief with the district court�—though the United States and the

Clearing House now have emerged to do so in this Court. In similar circumstanc-

es, the D.C. Circuit declined to entertain an argument of the United States �“because

it was not raised before the district court�” and to permit it to �“raise a new issue as

amicus in the court of appeals�” would be �“patently unfair�” and �“disrespectful to the


53

district judge.�” FG Hemisphere Assocs., LLC v. Democratic Republic of Congo,

637 F.3d 373, 379 (D.C. Cir. 2011). The same result is appropriate here.

In any event, the various concerns advanced by Argentina and its amici are

insubstantial.

a. The Order Will Not Disrupt Future Sovereign Restructurings

Argentina and the United States argue that the Order will impede �“voluntary

debt restructurings�” and indeed �“could enable a single creditor to thwart the im-

plementation of an internationally-supported restructuring plan.�” U.S. Br. 17, 5;

see also Argentina Br. 61. This is wrong for at least three reasons.

First, it is up to the sovereign�—not any �“single creditor�”�—whether it will

repudiate that creditor�’s debt in a manner that violates the Equal Treatment Provi-

sion, as Argentina has done here, or recognize that debt and negotiate in good faith.

For better or worse, Argentina�’s conduct toward its legacy creditors is sui generis.

Second, in large part because of the United States�’ efforts, the vast majority

of sovereign bonds now contain collective action clauses that effectively eliminate

the possibility of holdout litigation. See supra 36. The United States vaguely ref-

erences �“recent developments in sovereign debt contracts that promote collective

action by creditors�” (U.S. Br. 5), but it knows that 90% of New York law sover-

eign debt issues over the last decade�—comprising more than 80% of all outstand-

ing New York-law sovereign debt�—include collective action clauses (see supra 40.


54

Its assertion that the Order will make �“sovereign restructurings substantially more

difficult, if not impossible�” is incorrect.

Third, the notion that the Order will impede future restructurings is belied by

the fact that Greece successfully restructured more than 97 percent of its outstand-

ing debt after the district court issued its Order. If the United States were correct

that the Order will �“dramatically tilt the incentives away from consensual, negoti-

ated restructuring�” (U.S. Br. 17), then Greece�’s restructuring would not have

achieved the result that it did. This was not a surprise: For twelve years courts

have recognized that creditors may enforce their rights to equal treatment through

injunctive relief, yet neither the United States nor Argentina can point to any in-

stance in which a creditor wielded its equal treatment rights to �“thwart�” a sovereign

restructuring. Because no such example exists. U.S. Br. 5.

b. The Order Will Not Prevent Repayment To International Financial Institutions

The United States recognizes that the Order �“by its terms is limited to Ar-

gentina�’s . . . exchange bonds,�” but nevertheless argues that it could �“prevent states

from continuing to service its [multilateral] debt.�” U.S. Br. 19-20, 22. Neither Ar-

gentina nor the United States made this argument below, so this Court should not

entertain it now. See FG Hemispheres, 637 F.3d at 379. In any event, the United

States is wrong. Apart from the fact that paying a multilateral with a recognized

�“preferred creditor status�” would not violate a private creditor�’s rights under an


55

equal treatment provision, a creditor�’s request for an order compelling equal treat-

ment vis-à-vis multilaterals would present an entirely different equitable analysis.

The unique position these institutions occupy and their systematic importance to

the global economy (see EM Ltd., 473 F.3d at 480-85), would counsel strongly

against, if not foreclose, entry of such an order.

c. The Order Does Not Unduly Burden Payment Systems

Argentina and the Clearing House invoke the 2004 amicus brief of the Fed-

eral Reserve to argue that the Order will impose undue burdens on banks and dis-

rupt the speed of the payment system. Argentina Br. 63; Clearing House Br. 22-

23. This argument, too, is forfeited because neither Argentina nor the Clearing

House bothered to present it to the district court.

It is also completely unfounded (which is perhaps why the Federal Reserve

saw no need to participate as an amicus here, as it did in 2004). At the threshold,

the argument assumes that Argentina will not comply with the Order, but this

Court does not. See Higgins, 282 F.2d at 560-61. If Argentina complies with the

Order, these banks only need to receive the court-approved certification that Ar-

gentina has complied with the Order (SPA-40). They can then process the pay-

ments to the Exchange Bondholders just as they have done for years.

Even if Argentina were bent on defying the Order, in no event would the

Order require �“intermediary banks�” to investigate �“free text�” or to implement bur-


56

densome screening procedures. Contra Clearing House Br. 20. The Order binds

only those banks that are �“persons bound�” under Fed. R. Civ. P. 65(d)(2)�—

specifically, Argentina�’s �“agents,�” �“servants,�” and those �“who are in active concert

of participation�” with them in furtherance of Argentina�’s scheme. SPA-33-34.

Here, that includes Argentina�’s indenture trustee Bank of New York, and the

Global Note Holder, DTC. Appellees do not believe that Rule 65(d)(2) would bind

other �“intermediary banks�” that merely process payments from the indenture trus-

tee to the Exchange Bondholders, but otherwise have no business relationship with

Argentina. The Clearing House�’s claims of crippling �“logistical difficulties�” there-

fore are a straw man.

d. The Order Will Not Result In A �“Web Of Claims�”

Quoting the Clearing House�’s 2004 brief, Argentina asserts that the Order

will result in a �“web of claims�” that will place �“an enormous burden on courts.�”

Argentina Br. 62; see also Clearing House Br. 25. The assertion is ironic coming

from a party whose defiance of judgments has clogged court dockets for a decade.

It also is forfeited by Argentina�’s and the Clearing House�’s failure to raise it be-

low. And it is entirely misplaced because it depends on a �“single payment�” theory

of liability that the district court did not adopt.


57

e. The Foreign Relations Concerns Raised By The United States Are Waived And Insubstantial

Finally, the United States complains that the Order �“could cause heightened

tensions in our foreign relations�” because of �“the strongly held view of many for-

eign states that they are not subject to coercive orders of U.S. courts.�” U.S. Br. 28.

The argument is doubly defaulted�—first by Argentina�’s and the United States�’

failure to raise it before the district court (see FG Hemispheres, 637 F.3d at 379)

and moreover by Argentina�’s failure to raise it in this Court (see Universal City

Studios, Inc. v. Corley, 273 F.3d 429, 445 (2d Cir. 2001) (�“[A]n amicus brief . . . is

normally not a method for injecting new issues into an appeal, at least in cases

where the parties are competently represented by counsel.�”)).

The argument fails on the merits as well. As the D.C. Circuit has recog-

nized, the fact that other nations have viewed themselves as immune from coercive

orders of U.S. courts is �“quite irrelevant because our Congress has not.�” See FG

Hemispheres, 637 F.3d at 380. The Congress determined�—as the United States

acknowledges (U.S. Br. 25)�—that courts �“may order an injunction or specific per-

formance�” against a sovereign. H.R. Rep. No. 94-1487, at 22; see also 28 U.S.C.

§ 1610 (providing for coercive orders of attachment and execution). The FSIA�’s

command that sovereign claims of immunity �“should henceforth be decided by

courts . . . in conformity with the principles set forth in this chapter�” (28 U.S.C.

§ 1602) would be meaningless if an invocation of possible �“tensions�” sufficed to


58

supplant it. The central point of the FSIA was to �“free the Government from the

case-by-case diplomatic pressures�” and to ensure instead that decisions concerning

sovereigns are made on �“purely legal grounds.�” See Verlinden B.V. v. Cent. Bank

of Nigeria, 461 U.S. 480, 488 (1983).

The United States also suggests that the Order �“could have adverse conse-

quences for the treatment of the United States and its property,�” but it gets no more

specific than that. As the D.C. Circuit recognized, courts only defer to the Gov-

ernment�’s views �“if reasonably and specifically explained.�” FG Hemispheres, 637

F.3d at 379-80 (citing Republic of Austria v. Altmann, 541 U.S. 677, 702 (2004)).

The United States has not even attempted to explain its views, and its �“broad, ge-

neric argument�” is insufficient to displace the remedies available under New York

law and the FSIA. FG Hemispheres, 637 F.3d at 380.

B. The Specific Performance Order Does Not Attach Argentina�’s Assets In Violation Of The FSIA

Argentina does not dispute that as a sovereign that has consented to the dis-

trict court�’s jurisdiction, the district court is authorized to issue orders that bind

Argentina�’s conduct anywhere in the world. See Karaha Bodas Co. v. Perusahaan

Pertambangan Minyak Dan Gas Bumi Negara, 500 F.3d 111, 119-20 (2d Cir.

2007). Argentina and the United States nevertheless argue that the Specific Per-

formance Order violates the FSIA. Even though the Specific Performance Order

does not �“effectuate a transfer of property interests,�” they argue, it is unlawful be-


59

cause its �“practical effect�” is to �“interfere with the Republic�’s use of its property

outside the United States.�” U.S. Br. 25; Argentina Br. 50. That is incorrect.

�“Unless a statute in so many words, or by a necessary and inescapable infer-

ence, restricts the court�’s jurisdiction in equity, the full scope of that jurisdiction is

to be recognized and applied.�” Porter v. Warner Holding Co., 328 U.S. 395, 398

(1946). The only relevant �“restrict[ion]�” on the court�’s equity jurisdiction here is

that imposed by Section 1609 of the FSIA, which provides that �“the property in the

United States of a foreign state shall be immune from attachment arrest and execu-

tion.�” 28 U.S.C. § 1609.

Argentina suggests that this provision generally bars �“interference with the

Republic�’s use of its property,�” but that view conflicts with the structure of the

FSIA. When Congress desired to immunize sovereign entities not just from �“at-

tachment[s]�” but also from �“other judicial process impeding�” uses of sovereign

property, it did so explicitly. See 28 U.S.C. § 1611(a). Consistent with the pre-

sumption that Congress�’s use of �“particular language in one section of a statute and

different language in another�” is �“intentional�” (United States v. Peterson, 394 F.3d

98, 107 (2d Cir. 2005)), this Court will deem an equitable order to be an attach-

ment only when it achieves �“precisely the same result that would obtain if the for-

eign sovereign�’s assets were formally attached�” (Stephens v. Nat�’l Distillers &

Chem. Corp., 69 F.3d 1226, 1229 (2d Cir. 1995)).


60

The Specific Performance Order, however, quite plainly does not achieve

the �“same result�” as an �“attachment arrest [or] execution�” of Argentina�’s property.

�“Where Congress uses terms that have accumulated settled meaning un-

der . . . the common law, a court must infer, unless the statute otherwise dictates,

that Congress means to incorporate the established meaning of these terms.�”

NLRB v. Amax Coal Co., 453 U.S. 322, 329 (1981). As they relate to interests in

property, �“execution�” and �“attachment�” have well-settled meanings in the common

law. �“Execution�” is �“an act of dominion over specific property by an authorized

officer of the court . . . which results in the creation of a legal right to subject the

debtor�’s interest in the property to the satisfaction of the debt of his or her judg-

ment creditor.�” 30 Am. Jur. 2d Executions § 177; see also Black�’s Law Dictionary

609 (8th ed. 2004) (�“Judicial enforcement of a money judgment, usu. by seizing

and selling the judgment debtor�’s property.�”). An �“attachment�” similarly entails

the �“seizing of a person�’s property to secure a judgment or to be sold in satisfaction

of a judgment.�” Black�’s Law Dictionary 123; see also 6 Am. Jur. 2d Attachment

and Garnishment § 1. The hallmarks of any attachment or execution are the sei-

zure by the court of specific interests in property of the debtor. Thus, courts have

deemed an order to be an attachment only when it effects a seizure of specific

property that deprives the owner of meaningful possessory interest in that property.

See United States v. Va Lerie, 424 F.3d 694, 702 (8th Cir. 2005) (�“[N]ot every


61

governmental interference with a person�’s property constitutes a seizure of that

property . . . . [Rather, there must be] some meaningful interference with an indi-

vidual�’s possessory interest in that property.�”).

In Stephens, for instance, this Court found that a pre-judgment security re-

quirement �“was the equivalent of an attachment�” where it forced sovereign entities

�“to place some of their assets in the hands of United States courts for an indefinite

period,�” during which the sovereigns �“would have no access to those assets.�” 69

F.3d at 1229; see also Tr. of Hosp. Mortg. Grp. v. Compania Aseguradora Intera-

mericana S.A., 672 F.2d 250, 251 (1st Cir. 1982) (per curiam) (holding that a re-

quirement that defendant post a security was �“indistinguishable from that of the

subject of an attachment order�” and thus not appealable under 28 U.S.C. §

1292(a)(1)). And in Kensington International Ltd. v. Republic of Congo, 461 F.3d

238 (2d Cir. 2006), the court explained that an order to �“produce $450,000 in secu-

rity�” �“or come forward with some reason for noncompliance�” �“d[id] not purport to

reach beyond the FSIA limitations.�” Id. at 242. Consistent with these principles,

this Court similarly held that an injunction that �“immobilize[d]�” an irrevocable let-

ter of credit in favor of the sovereign defendants by enjoining �“any and all negotia-

tion of drafts or other negotiable paper�” pursuant to the letter of credit amounted to

a �“prejudgment attachment of its assets.�” S&S Mach. Co. v. Masinexportimport,


62

706 F.2d 411, 412, 413 (2d Cir. 1983).12 Sister circuits have found that orders

were injunctions rather than attachments when they �“did not involve posting a

bond or surrendering specified property.�” Charlesbank Equity Fund II v. Blinds To

Go, Inc., 370 F.3d 151, 157 (1st Cir. 2004); see also FTC v. H.N. Singer, Inc., 668

F.2d 1107, 1112 (9th Cir. 1982) (freeze order directed at unspecified assets �“is not

an attachment�”).

Here, the Specific Performance Order does not deprive Argentina of posses-

sory interest in any of its property. The Specific Performance Order commands

Argentina to hold its obligations to Appellees at a rank equal to the Exchange

Bonds by requiring Argentina to satisfy its obligations to Appellees to the same ex-

tent Argentina satisfies its obligations under the Exchange Bonds. The Specific

Performance Order does not instruct Argentina to use any particular asset, or set of

assets, to come into compliance. That decision is left entirely to Argentina, which

means that the Order is consistent with the FSIA. Kensington, 461 F.3d at 238,

242-44. Indeed, Argentina may comply with the Specific Performance Order

without using any assets at all�—by reducing its obligations under the Exchange

12 Weston Compagnie de Finance et D�’Investissement, S.A. v. Republic del Ec-uador, 823 F. Supp. 1106 (S.D.N.Y. 1993), which involved an order requir-ing the sovereign to return specific property to the United States to enable the attachment of those funds, similarly deprived the sovereign of all uses of the property and therefore is in accord.


63

Bonds to the same rank Appellees�’ obligations now suffer. In �“restraining [a de-

fendant�’s] conduct (i.e., commanding it to take certain actions and prohibiting it

from taking others),�” the district court�’s order reflects not an attachment, but rather

the �“classic modus operandi of injunctive relief.�” Charlesbank, 370 F.3d at 157.

Indeed, that the district court�’s order is an injunction rather than an attach-

ment is conceded by Argentina�’s own jurisdictional statement, which states that

�“[t]his Court has jurisdiction over the appeals of the Permanent Injunctions . . . un-

der 28 U.S.C. § 1292(a)(1).�” That statement is significant because if the Specific

Performance Order was an attachment, or the functional equivalent of an attach-

ment, there could be no jurisdiction under Section 1292(a)(1) (see Inter-Regional

Fin. Grp. v. Hashemi, 562 F.2d 152, 154 (2d Cir. 1977); Trs. of Hosp., 672 F.2d at

251) and probably no appellate jurisdiction at all (see Kensington Int�’l Ltd., 461

F.3d at 242; Caribbean Trading & Fid. Corp. v. Nigerian Nat�’l Petroleum Corp.,

948 F.2d 111, 115 (2d Cir. 1991)). That explains why Argentina framed its appeal

as the parties had framed the case in the district court�—as a proceeding on Appel-

lees�’ request for injunctive relief. But Argentina cannot simply walk away from

that characterization of the relief granted when it is ready to invoke the FSIA. A

party�’s �“characterizations�” of the proceedings �“are relevant�” to determining wheth-

er the relief ordered is �“akin to . . . attachment.�” Charlesbank, 370 F.3d at 156-57.


64

Most tellingly, Argentina points to no case�—and we are aware of none�—

where a court has found an order to constitute an attachment even though the de-

fendant retains possessory interests in the property that allegedly has been at-

tached. If this Court were to break new ground and establish a contrary rule in the

FSIA context, that would make a mockery out of Congress�’ insistence that a court

may issue an �“order an injunction or specific performance�” against a sovereign

where �“clearly appropriate.�” H.R. Rep. No. 94-1487, at 22. Many orders of equi-

table relief�—and nearly all orders of specific performance�—�“interfere�” with the

defendant�’s disposition of some of its property in some way. And even an injunc-

tion that simply prohibits the defendant from engaging in injurious conduct could

be characterized also as an order that prohibits the defendant from using its proper-

ty in the manner of the defendant�’s choosing. Such an order�—just as the Specific

Performance Order�—is the �“classic modus operandi of injunctive relief�” (Charles-

bank, 370 F.3d at 157) and not even arguably prohibited as an attachment under

the FSIA.

C. The Specific Performance Order Does Not �“Execute Upon�” Funds Belonging To Third Parties Or Attach Fund Transfers In Viola-tion Of The U.C.C.

There is no merit to Argentina�’s argument that the Specific Performance Or-

der violates the New York trust or attachment law because it �“execute[s] upon�”

funds that do not belong to Argentina. Argentina Br. 53-54. As shown above,


65

nothing in the Specific Performance Order suggests that the Plaintiffs would �“exe-

cute upon�” any funds (id.), much less those held in trust for the Exchange Bond-

holders. The Specific Performance Order does not seize funds transferred to pay

those Bondholders in satisfaction of Argentina�’s many outstanding obligations.

See supra 60.

There is similarly no merit to the Clearing House�’s argument that the Specif-

ic Performance Order runs afoul of U.C.C. Article 4-A because it would purported-

ly �“force intermediary banks to stop payments�” mid-stream in the wire transfer

process. Clearing House Br. 18. The Specific Performance Order is not directed at

banks whose sole role is as an �“intermediary�” effectuating a wire transfer. Rather,

in accordance with Federal Rule of Civil Procedure 65(d)(2)(C), the Specific Per-

formance Order binds certain banks, not because they are �“intermediaries,�” but be-

cause they play some other, more substantial role�—such as trustee or paying

agent�—and thus, act in concert with the Republic to make payments on the Ex-

change Bonds. For example, there is no evidence that BNY is an �“intermediary�”

bank with respect to payments to the Exchange Bondholders; the Exchange Bond

Indenture clearly identifies BNY as a trustee. Nothing in Article 4-A limits the

power of a court to compel BNY in its capacity as trustee to comply with the Spe-

cific Performance Order.


66

D. Argentina�’s Invocation Of The Equitable Doctrine Of Laches Lacks Merit

Under New York law, the equitable defense of laches requires: �“(1) conduct

by an offending party giving rise to the situation complained of, (2) delay by the

complainant in asserting his or her claim for relief despite the opportunity to do so,

(3) lack of knowledge or notice on the part of the offending party that the com-

plainant would assert his or her claim for relief, and (4) injury or prejudice to the

offending party in the event that relief is accorded the complainant.�” Cohen v.

Krantz, 227 A.D.2d 581, 582 (N.Y. App. Div. 1996). The district court found that

Argentina�’s invocation of laches �“has no merit�” because any delay by Appellees in

advancing their claim for equitable relief was due only to the fact that Appellees

�“were trying to do other things�”�—specifically, accumulating money judgments and

attempting to enforce them in an effort to compel Argentina to negotiate the status

of the defaulted debt. JA-2321. Because that determination is a �“factual one�”

�“based on the circumstances peculiar to each case,�” it is �“entirely within the discre-

tion of the trial court.�” Tri-Star Pictures, Inc. v. Leisure Time Prods., B.V., 17 F.3d

38, 44 (2d Cir. 1994).

Argentina does not even mention that standard of review much less present

an argument that the district court�’s rejection of its laches defense was premised on

an error of law or a clearly erroneous view of the facts. Its laches challenge is thus

forfeited. See Norton v. Sam�’s Club, 145 F.3d 114, 117 (2d Cir. 1998) (�“[i]ssues


67

not sufficiently argued in the briefs are considered waived . . . .�”). It is also merit-

less for four reasons.

First, Appellees did not delay at all�—and certainly not unreasonably�—in

bringing their claims for specific performance. The Varela plaintiffs filed their

complaint in mid-2010 and have no prior history of litigating against Argentina, so

laches cannot conceivably be asserted against them. Moreover, the earliest point at

which the holder of defaulted bonds possibly could have claimed a breach of the

Equal Treatment Provision was when Argentina closed its first bond swap in June

2005. The fact is that all Appellees brought their claims under the Provision within

the applicable six-year statute of limitations creates a strong presumption that their

claims for equitable relief are not barred by laches. Conopco, Inc. v. Campbell

Soup Co., 95 F.3d 187, 191 (2d Cir. 1996). But even setting aside this �“strong pre-

sumption�” (to which Argentina has no answer other than to say that it is �“wrong�”

(Argentina Br. 68)), the district court properly declined to fault Appellees for at-

tempting to avail themselves of legal remedies before bringing their claim for the

more extraordinary relief of specific performance. If Appellees had brought claims

for equitable relief in 2005, Argentina doubtless would have argued that Appellees

had failed to demonstrate that legal remedies against Argentina are inadequate.

Appellees cannot be faulted for bringing their claim for specific performance relief

only once it was viable, and not before.


68

Second, Argentina cannot claim that it suffered from a �“lack of knowledge�”

that the Appellees could assert their claim at a later date. Cohen, 227 A.D.2d at

582. In 2004, Argentina stipulated to a procedure whereby bondholders could

bring claims under the Equal Treatment Provision with 30 days�’ notice to Argenti-

na. JA-218-19. Argentina�’s stipulation to the notice procedure itself demonstrates

that it had knowledge of the possibility that bondholders might later bring claims

under the Equal Treatment Provision.

Third, Argentina was not and will not be �“injur[ed]�” or �“prejudice[d]�” by

any delay. Cohen, 227 A.D.2d at 582. In 2006, Argentina notified the district

court that it was �“content to leave [issues relating to the Equal Treatment Provi-

sion] in suspense�” until such time as a plaintiff pursued a claim under the provi-

sion. JA-2909-10. Having done so, it cannot now claim prejudice from the period

of �“suspense�” it invited. Nor can Argentina plausibly claim that the alleged delay

will prejudice its restructuring effort by �“imperil[ing] the rights of those creditors

who participated in the Exchange Offers.�” Argentina Br. 69. Argentina has ample

resources to pay all of its outstanding obligations, and it certainly has resources

sufficient to bring its obligations to Appellees onto equal footing with its obliga-

tions to the Exchange Bondholders.

Finally, Argentina�’s extraordinary record of bad faith makes it ineligible to

assert laches. See RBC Nice Bearings, Inc. v. Peer Bearing Co., 410 Fed. App�’x


69

362, 366 (2d Cir. 2010) (�“Laches cannot be raised by �‘one tainted with inequita-

bleness or bad faith relative to the matter in which he seeks relief.�’�” (quoting Pre-

cision Instr. Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806, 814 (1945))); Sell-

er Agency Council, Inc. v. Kennedy Ctr. Real Estate Educ., Inc., 621 F.3d 981, 986

(9th Cir. 2010). Rather than use its ample resources to honor its obligations, Ar-

gentina has instead �“exercise[d] sheer willful defiance of [its] obligations . . . to

honor the judgments of a federal court.�” EM Ltd., 720 F. Supp. 2d at 304. And, in

this case, Argentina�’s only claim to prejudice arises from the threat that Argentina

will once again refuse to honor its obligations. A �“lawbreaker�” cannot invoke the

equitable defense of laches.

E. The District Court Properly Exercised Its Broad Discretion In Fashioning The Specific Performance Order

Since all the requirements for equitable relief are satisfied and there are no

independent obstacles to such relief, the district court had broad discretion to fash-

ion an equitable remedy. See, e.g., Patsy�’s Italian Rest., Inc. v. Banas, 658 F.3d

254, 269 n.6 (2d Cir. 2011). �“The performance required by a decree need not al-

ways be identical with that promised in the contract. The decree may be fashioned

in such terms as justice required.�” Greenspahn v. Joseph E. Seagram & Sons, Inc.,

186 F.2d 616, 620 (2d Cir. 1951); see also Restatement (Second) of Contracts

§ 358(1). A district court facing a difficult situation�—where no ideal solution pre-

sents itself�—is entitled to special deference, and this Court will affirm any order


70

issued in that situation so long as that order achieves a �“fair result�” under the �“to-

tality of the circumstances.�” Leasco Corp. v. Taussig, 473 F.2d 777, 786 (2d Cir.

1972).

It is difficult to conceive of any case in which deference to the discretion of

the district court is more appropriate than it is here. The same district judge, with

nearly three decades of experience on the federal bench, presided over dozens of

similar lawsuits against Argentina for more than one of those decades. He has in-

depth familiarity with the parties, counsel, and facts, and he has borne witness to

virtually every development in the evolving disputes arising from Argentina�’s

2001 default. He has extensively examined the arguments and written more than

100 opinions and orders, many of which favored Argentina.

With respect to the present dispute over the Equal Treatment Provision, the

district court exercised the utmost caution. In NML�’s case alone, the parties sub-

mitted 155 pages of briefing. The court analyzed that briefing for eight months

and then held a lengthy hearing. Upon concluding that Argentina had breached the

Equal Treatment Provision, the district court invited additional briefing and argu-

ment on the remedy. SPA-14; JA-2162. As requested, the Appellees submitted

additional papers focused on the propriety of awarding an order of specific perfor-

mance and proposing an order that conformed to the district court�’s instructions.

Argentina, however, repeated arguments that the district court already had rejected


71

and refused to propose any alternative remedy. JA-2321-23. Only after this pains-

taking examination of the arguments and equities, and after citing the �“abnormal

situation�” caused by Argentina�’s �“lawlessness�” (JA-2304, 2337), did the district

court grant the Specific Performance Order on appeal.

In light of the district court�’s careful deliberations and profound familiarity

with the facts and circumstances, this Court should reject each of Argentina�’s af-

fronts to its discretion.

First, contrary to Argentina�’s assertions, the Specific Performance Order

achieves an eminently �“fair result�” under the �“totality of the circumstances.�” Leas-

co, 473 F.2d at 786. Argentina�’s suggestion that the Appellees�’ recovery should be

limited to the amounts the Exchange Bondholders agreed to accept (Argentina Br.

5) is unfounded. Argentina does not dispute that the full amount on their FAA

Bonds, plus interest, is currently due. Nor would Argentina honoring these obliga-

tions be unfair to the Exchange Bondholders, who are only owed regular interest

payments. The Exchange Bondholders deliberately accepted a reduction in their

recovery in consideration for avoiding the risk and arduous litigation Appellees

have endured for more than a decade. Equity does not require creditors owed dif-

ferent amounts to be paid the same sum. See Fin. One Pub. Co. v. Lehman Bros.

Special Fin., Inc., 414 F.3d 325, 344 (2d Cir. 2005). And with fullest possible un-

derstanding of burdens the Appellees undertook, the district court was well situated


72

to assess the equity of permitting Appellees to recover the amount that is unques-

tionably owed to them.

Second, having had every opportunity to propose alternative remedies and

declining to do so, Argentina should not now be heard to complain that the remedy

the court issued was an abuse of discretion. See Berger v. Iron Workers Rein-

forced Rodmen Local 201, 843 F.2d 1395, 1440 (D.C. Cir. 1988) (explaining that a

defendants�’ �“failure to offer an alternative�” remedy makes a court of appeals �“most

reluctant to conclude that�” the remedy a district court issued was �“outside the

bounds of [its] discretion�”).

Third, the district court�’s decision to strike the equitable balance at requiring

Argentina to make a ratable payment to the Appellees whenever it makes a pay-

ment on the Exchange Bonds is consistent with the remedy granted in each of the

few other cases to have considered this issue. See Red Mountain, JA-1370;13 El-

liott Assocs. L.P. v. Banco de la Nacion, General Docket No. 2000/QR/92 (Court

of Appeals of Brussels, 8th Chamber, Sept. 26, 2000), JA-1360; and LNC Invest-

13 Argentina�’s suggestion that Red Mountain is distinguishable because the dis-trict court �“crossed out the section of the proposed order tendered to him by the plaintiff that referenced and relied on the pari passu clause�” is baseless . Argentina Br. 44. Plaintiffs invite the Court to look at the actual order (JA-1369-73) and compare it to the relief requested by plaintiffs (JA-2881-92). The only �“cross[] out�” is at the top of the order and is non-substantive in na-ture. JA-1369-70.


73

ments, JA-1352-53; see also Nacional Financiera, 2003 WL 1878415, at *2 (citing

Elliott Associates with approval).

Finally, in light of its many years of experience with Argentina�’s defiance of

its money judgments and refusal to participate in discovery (e.g., Contempt Order,

No. 08 Civ. 6978, Dk. 112 (May 29, 2009)), the district court appreciated the need

for carefully crafted but meaningful relief. The district court properly ordered

compliance on pain of contempt, as is clearly permitted under the FSIA. See FG

Hemisphere Assocs, 637 F.3d at 378-79 (�“[S]anctions against a foreign sovereign

are available under the FSIA.�”); accord Autotech Techs. LP v. Integral Res. & Dev.

Corp., 499 F.3d 737, 744 (7th Cir. 2007). And it required Argentina to confirm its

compliance so that third parties could avoid assisting Argentina in evading the Or-

der. SPA-40. Such precautions were thoughtfully �“fashioned . . . as justice re-

quired�” to ensure that the Specific Performance Order would be effective. Green-

spahn, 186 F.2d at 620. As the district court recognized, a weaker order would re-

sult in Argentina �“default[ing] on this obligation the way they have defaulted on

their basic obligation [to pay the FAA Bonds].�” JA-2293.

III. The District Court Properly Exercised Its Discretion To Grant Preliminary Relief To Prevent Argentina From Evading Its Jurisdiction

To prevent Argentina from evading the Specific Performance Order before it

becomes effective, the district court issued a preliminary injunction that prevents

Argentina from �“altering or amending�” the process of payments it uses to pay the


74

Exchange Bondholders. The district court took this precautionary step to ensure

that Argentina would not rearrange its affairs to evade Appellees�’ proposed Specif-

ic Performance Order. Argentina�’s arguments against this narrow injunction are

mere conclusory assertions (Argentina Br. 71), which are insufficient to raise those

issues for this Court�’s review, especially under an abuse of discretion standard (see

Tolbert, 242 F.3d at 75).

All of Argentina�’s arguments against this injunction are meritless in any

event. First, the Specific Performance Order is an appropriate to Argentina�’s con-

tinuous breach of the Equal Treatment Provision. Second, irreparable harm neces-

sary to justify a preliminary injunction exists where the defendant will otherwise

take steps to evade a final judgment. Pashaian, 88 F.3d at 87. Third, regardless of

where Argentina claims it originates its payments, it employs agents and institu-

tions in the United States to complete those payments, and the district court acted

within its discretion in stopping Argentina from removing its conduct further out-

side of the court�’s jurisdiction. Indeed, should the Specific Performance Order not

be affirmed, the status quo should be maintained for the district court to consider

alternative avenues of relief. Finally, Argentina�’s claim that the district court�’s

preliminary injunction was designed �“to create assets that [Appellees] can try to

subject to attachment or restraint in the United States�” (Argentina Br. 70-71) is

baseless; an injunction does not �“create�” assets.


75

CONCLUSION

The Specific Performance Order should be affirmed.

DATED: April 17, 2012 Respectfully submitted,

Robert A. Cohen ([email protected]) CHARLES I. PORET ([email protected]) Eric. C. Kirsch ([email protected]) DECHERT LLP 1095 Avenue of the Americas New York, NY 10036-6796 (212) 698-3500

By: /s/ Theodore B. Olson Theodore B. Olson ([email protected]) Matthew D. McGill ([email protected]) Jason J. Mendro ([email protected]) GIBSON, DUNN & CRUTCHER LLP1050 Connecticut Avenue, N.W. Washington, D.C. 20036-5306 (202) 955-8500

Attorneys for Plaintiff-Appellee NML Capital, Ltd. Michael C. Spencer ([email protected]) MILBERG LLP One Pennsylvania Plaza New York, NY 10119 (212) 594-5300

Attorney for Plaintiffs-Appellees Pablo Alberto Varela et al. Stephen D. Poss ([email protected]) Robert D. Carroll ([email protected]) GOODWIN PROCTER LLP 53 State Street Boston, MA 02109 (617) 570-1000

Attorneys for Plaintiff-Appellee Olifant Fund, Ltd.


CERTIFICATE OF COMPLIANCE

I hereby certify that:

1. This brief complies with Fed. R. App. P. 32(a)(7)(B)(i) and this

Court�’s order because it contains 17,498 words, as determined by the word-count

function of Microsoft Word 2010, excluding the parts of the brief exempted by

Fed. R. App. P. 32(a)(7)(B)(iii); and

2. This brief complies with the typeface requirements of Fed. R. App. P.

32(a)(5) and the type style requirements of Fed. R. App. P. 32(a)(6) because it has

been prepared in a proportionately spaced typeface using Microsoft Word 2010 in

14-point Times New Roman font.

Dated: April 17, 2012

/s/ Matthew D. McGill Matthew D. McGill


CERTIFICATE OF SERVICE

I HEREBY CERTIFY that on this 17th day of April 2012, a true and correct

copy of the foregoing Response Brief was served on the following counsel of rec-

ord in this appeal via CM/ECF pursuant to Local Rule 25.1 (h)(1) & (2).

Carmine D. Boccuzzi, Jr., - Cleary Gottlieb Steen & Hamilton LLP 1 Liberty Plaza New York, NY 10006

Jonathan I. Blackman, - Cleary Gottlieb Steen & Hamilton LLP City Place House 55 Basinghall Street London, EC2V 5EH England

/s/ Matthew D. McGill Matthew D. McGill


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