arg response to ebh

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

AURELIUS OPPORTUNITIES FUND II, LLC, AURELIUS CAPITAL MASTER, LTD., PABLO ALBERTO VARELA, LILA INES BURGUENO, MIRTA SUSANA DIEGUEZ, MARIA EVANGELINA CARBALLO, LEANDRO DANIEL POMILIO, SUSANA AQUERRETA, MARIA ELENA CORRAL, TERESA MUNOZ DE CORRAL, NORMA ELSA LAVORATO, CARMEN IRMA LAVORATO, CESAR RUBEN VAZQUEZ, NORMA HAYDEE GINES, MARTA AZUCENA VAZQUEZ, NML CAPITAL, LTD., OLIFANT FUND, LIMITED, ACP MASTER, LTD., BLUE ANGEL CAPITAL I LLC,

Plaintiffs-Appellees, v.

THE REPUBLIC OF ARGENTINA, Defendant-Appellant.

No. 15-1060-cv (L) No. 15-1047-cv (con.) No. 15-1052-cv (con.) No. 15-1056-cv (con.) No. 15-1059-cv (con.) No. 15-1061-cv (con.) No. 15-1067-cv (con.) No. 15-1074-cv (con.) No. 15-1073-cv (con.) No. 15-1075-cv (con.) No. 15-1095-cv (con.) No. 15-1084-cv (con.) No. 15-1106-cv (con.)

THE REPUBLIC OF ARGENTINAS OPPOSITION TO PLAINTIFFS MOTION TO DISMISS

Case 15-1047, Document 27, 05/11/2015, 1507447, Page1 of 366

TABLE OF CONTENTS

TABLE OF AUTHORITIES ................................................................................. ii INTRODUCTION ................................................................................................. 1 BACKGROUND ................................................................................................... 2

A. The District Court Enters Injunctions Interfering With Payment On New York And English Law-Governed Exchange Bonds ................... 2

B. The District Court Clarifies That The Injunctions Do Not Apply To The Argentine Law Bonds, And Then Reverses Itself Without Explanation ......................................................................................... 4

C. The District Court Extends The Injunctions By Divorcing Them From The Pari Passu Clause And Denies The Motion To Modify The Injunctions To Exclude The Argentine Law Bonds ...................... 6

ARGUMENT......................................................................................................... 9 A. THE MARCH 12 ORDER IS APPEALABLE UNDER 28 U.S.C.

1292(a)(1) BECAUSE IT MODIFIED THE INJUNCTIONS .......... 9 B. THE MARCH 12 ORDER IS APPEALABLE UNDER 28 U.S.C.

1292(a)(1) BECAUSE IT OTHERWISE REFUSED TO MODIFY THE INJUNCTIONS TO EXCLUDE THE ARGENTINE LAW BONDS ........................................................... 12

CONCLUSION ....................................................................................................19


ii

TABLE OF AUTHORITIES

Page(s) Cases

Aurelius Capital Master, Ltd. v. Republic of Argentina, No. 14-2689(L), slip op. (2d Cir. Sept. 19, 2014) ......................................... 5

Buckhanon v. Percy, 708 F.2d 1209 (7th Cir. 1983), cert. denied, 465 U.S. 1025 (1984) .............. 13

EM Ltd. v. Republic of Argentina, 131 F. Appx 745 (2d Cir. 2005) .................................................................. 3

Grace v. Rosenstock, 228 F.3d 40 (2d Cir. 2000) ........................................................................... 8

Kapco Mfg. Co. v. C & O Enterprises, Inc., 773 F.2d 151 (7th Cir. 1985) ........................................................................ 14

Lightwater Corp. v. Republic of Argentina, No. 02 Civ. 3804 (TPG), 2003 WL 1878420 (S.D.N.Y. Apr. 14, 2003) ....... 2

Mikel v. Gourley, 951 F.2d 166 (8th Cir. 1991) ........................................................................ 12

NML Capital, Ltd. v. Republic of Argentina, 699 F.3d 246 (2d Cir. 2012) ......................................................................... 10-11

Pimentel & Sons Guitar Makers, Inc. v. Pimentel, 477 F.3d 1151 (10th Cir. 2007) .................................................................... 12

Republic of Argentina v. NML Capital, Ltd., 134 S. Ct. 2819 (2014) ................................................................................. 4

Republic Supply Co. of Cal. v. Richfield Oil Co. of Cal., 74 F.2d 909 (9th Cir. 1935) .......................................................................... 14

Transaero, Inc. v. La Fuerza Aerea Boliviana, 99 F.3d 538 (2d Cir. 1996) ........................................................................... 14

United States v. LoRusso, 695 F.2d 45 (2d Cir. 1982) ........................................................................... 8


iii

Page(s) United States v. ORourke, 943 F. 2d 180 (2d Cir. 1991) ........................................................................ 9-10, 11

Weight Watchers Intl, Inc. v. Luiginos, Inc., 423 F. 3d 137 (2d Cir. 2005) ........................................................................ 12, 13

Wilder v. Bernstein, 49 F. 3d 69 (2d Cir. 1995) ............................................................................ 9, 11

Rules and Statutes

28 U.S.C. 1292(a)(1) ................................................................................. passim

Fed. R. Civ. P. 54(b) .................................................................................... 8

Fed. R. Civ. P. 60(b) .................................................................................... 8


The Republic of Argentina (the Republic) respectfully opposes plaintiffs

motion to dismiss the above-captioned appeals (the Motion).

INTRODUCTION

In the March 12, 2015 order at issue in these appeals (the March 12 Order)

(Ex. A),1 the district court both extended and otherwise refused to modify the so-

called pari passu injunctions, holding that the Republic is enjoined from making

payment on approximately $8.4 billion of outstanding aggregate principal amount

of U.S. dollar-denominated bonds governed by Argentine law and payable in

Argentina (Argentine Law Bonds), regardless of whether that debt is even

subject to the pari passu clause that the injunctions purport to enforce. In so

extending the injunctions, the district court also held that certain of the Argentine

Law Bonds do not constitute Domestic Foreign Currency Indebtedness (DFCI),

which is expressly excluded from the scope of the pari passu provision. Those

questions are different from any question answered by the district court in issuing

the original injunctions, and are reviewable by this Court on appeal.

Because it extends and misconstrues the injunctions to apply to the

Argentine Law Bonds regardless of whether those bonds are subject to the pari

passu clause, the March 12 Order is appealable under the plain language of Section

1292(a)(1), which provides for appellate jurisdiction over all orders modifying 1 All Exhibits are attached to the accompanying Declaration of Kristin A. Bresnahan, dated May 11, 2015.

Sebastian MarilSebastian MarilSebastian MarilSebastian MarilSebastian MarilSebastian Maril

2

injunctions. The March 12 Order is also expressly appealable under Section

1292(a)(1) on the separate ground that it rejected Citibank N.A.s (Citibank)

motion joined by the Republic to modify the injunctions to exclude the

Argentine Law Bonds because they are DFCI.

In an attempt to shield the district courts erroneous, substantive rulings

from appellate review, plaintiffs ask the Court to equate the March 12 Order with

the district courts clarification in a July 28, 2014 order that the injunctions apply

to the Argentine Law Bonds. The Court should reject plaintiffs invitation.

Neither the substance of the March 12 Order, the record below where plaintiffs

took the opposite position, that the Republic and Citibank were seeking to modify

the injunctions nor the case law support plaintiffs contention. Plaintiffs Motion

should be denied.

BACKGROUND

A. The District Court Enters Injunctions Interfering With Payment On New York And English Law-Governed Exchange Bonds

Plaintiffs, primarily hedge funds that specialize in purchasing and suing on

defaulted sovereign debt, commenced litigation against the Republic in the wake of

the worst economic crisis in its history, after which payment on the Republics

unsustainable $80 billion external debt burden was suspended. Lightwater Corp.

v. Republic of Argentina, No. 02 Civ. 3804 (TPG), 2003 WL 1878420, at *2

(S.D.N.Y. Apr. 14, 2003). Because foreign states, like the Republic, cannot

Sebastian MarilSebastian MarilSebastian MarilSebastian Maril

3

invoke the protection of a bankruptcy regime, the Republic sought, consistent

with international norms and United States policy, to restructure in 2005 and

2010 its external debt on an entirely voluntary basis (the Exchanges). See EM

Ltd. v. Republic of Argentina, 131 F. Appx 745, 747 (2d Cir. 2005) (summary

order) (successful conclusion of the Republics 2005 restructuring [was]

obviously of critical importance to the economic health of a nation). Holders of

approximately 92% of the Republics debt chose to exchange their defaulted bonds

for new, performing bonds.

Plaintiffs elected not to participate in the Republics Exchanges. Instead,

they brought a series of actions against the Republic seeking full principal and

interest on their bonds, notwithstanding that they purchased almost all of these

bonds for pennies on the dollar and that the overwhelming majority of the

Republics creditors accepted lower interest rates and reduced principal to enable

the Republic to escape from economic collapse and recommence payments to its

creditors. Among other tactics, plaintiffs encouraged the district court to interpret

a clause in the 1994 Fiscal Agency Agreement (FAA) governing their bonds

the so-called pari passu clause to require the Republic to pay them all past due

principal and interest in full any time the Republic sought to make a scheduled

interest payment to the holders of New York and English law-governed bonds that

were issued pursuant to the 2005 and 2010 Exchanges (the Exchange Bonds).


4

The district court entered unprecedented injunctions (the Injunctions) to

this effect on February 23, 2012, which were later amended on November 21,

2012. See Injunctions (Ex. I). After two appeals in which the Court affirmed the

rulings of the district court, the Supreme Court denied the Republics petition for

certiorari on June 16, 2014. Republic of Argentina v. NML Capital, Ltd., 134 S. Ct.

2819 (2014). Two days later, the Injunctions stay terminated and they took effect.

B. The District Court Clarifies That The Injunctions Do Not Apply To The Argentine Law Bonds, And Then Reverses Itself Without Explanation

In advance of a scheduled June 30, 2014 interest payment on the Argentine

Law Bonds, Citibank, whose Argentine branch served as custodian for the

Argentine Law Bonds, renewed a previous motion for clarification of the

Injunctions, asking the district court to confirm that the Argentine Law Bonds were

not subject to those orders. The Republic joined, arguing that the Argentine Law

Bonds are fundamentally different from the Exchange Bonds covered by the

Injunctions, had never been the subject of these proceedings, and, with respect to

approximately 72% of the Argentine Law Bonds, were not issued in the context of

any exchange.2 On June 27, 2014, the district court granted Citibanks motion and

held that the Injunctions do not as a matter of law prohibit payments by Citibank, 2 This majority of Argentine Law Bonds were issued pursuant to local directives, including approximately $1.75 billion in principal outstanding amount issued in connection with the Republics resolution of its disputes with Spanish oil company, Repsol, S.A. (Repsol). Resolution 26/2014, Apr. 30, 2014 (Ex. H).


5

N.A.s Argentine branch on Argentine Law Bonds, i.e., Peso- and U.S. Dollar-

denominated bondsgoverned by Argentine law and payable in Argentinathat

were issued by the Republic of Argentina in 2005 and 2010. Ex. G.

Shortly thereafter, plaintiffs asked the district court to reconsider that ruling

with respect to the U.S. dollar-denominated Argentine Law Bonds, arguing that

they should be subject to the Injunctions because they constitute External

Indebtedness covered by the pari passu clause. On July 28, 2014, the district

court granted plaintiffs motion and reversed itself without explanation (the July

28 Order). However, recognizing the lack of any basis to interfere with bonds

issued outside the context of any exchange, the July 28 Order instructed the parties

to devise a way to distinguish between the Repsol bonds and the exchange bonds

before their next payment is due in September. July 28 Order at 4 (Ex. F).

Citibanks and the Republics appeals from the July 28 Order were

dismissed on September 19, 2014 for lack of appellate jurisdiction, based on this

Courts finding that the July 28 Order was a clarification, rather than a

modification, of the Injunctions. Aurelius Capital Master, Ltd. v. Republic of

Argentina, No. 14-2689(L), slip op. at 2 (2d Cir. Sept. 19, 2014). The Court stated

that its dismissal of the appeals was not intended to preclude Citibank from

seeking further relief from the district court. Id.

Sebastian MarilSebastian MarilSebastian MarilSebastian MarilSebastian Maril

6

C. The District Court Extends The Injunctions By Divorcing Them From The Pari Passu Clause And Denies The Motion To Modify The Injunctions To Exclude The Argentine Law Bonds

After the Courts September dismissal, Citibank promptly moved to modify

the Injunctions on the grounds that, inter alia, the Argentine Law Bonds could not

be subject to the Injunctions as a matter of law because, under the plain language

of the FAA, they are excluded from the scope of the pari passu clause that the

Injunctions enforce. As Citibank and the Republic explained, in order to be subject

to the pari passu clause, performing Republic debt must constitute External

Indebtedness under the FAA. See FAA 1(c) (Ex. O) (The payment obligations

of the Republic under the Securities shall at all times rank at least equally with all

its other present and future unsecured and unsubordinated External Indebtedness

(as defined in this Agreement). (emphasis added)). And the Argentine Law

Bonds are instead DFCI, which is expressly excluded from the definition of

External Indebtedness. Id. at 16 (no [DFCI] . . . shall constitute External

Indebtedness); id. at 17 (DFCI consists of: (1) seven listed categories of Republic

debt offered and issued in Argentina, (2) any indebtedness issued in exchange for

such debt, (3) any debt payable in a foreign currency which is . . . offered

exclusively within the Republic of Argentina, and (4) any debt payable in a

foreign currency which is . . . issued in payment, exchange, substitution,

discharge or replacement of indebtedness payable in the [Republics] currency.).


7

At a September 26, 2014 hearing, the district court stated that the Injunctions

should apply only to the [FAA] bonds and the bonds that were issued in exchange

for those bonds in 2005, 2010. Sept. 26, 2014 Hrg Tr. at 48:8-9, 11-13 (Ex. C);

accord Sept. 10, 2014 Hrg Tr. at 12:10-13 (Ex. E) ([W]hat I was dealing with,

[in] the proceedings this summer was bonds issued in Argentina expressly subject

to Argentine law, something completely different from what was covered in the

injunction.); Sept. 19, 2014 Hrg Tr. at 7:16-20 (Ex. D) (It was my view and still

is my view that the Argentine law bonds issued in Argentina, payable in Argentina,

[and] subject to Argentine law, are different from the bonds subject to the

[Injunctions]. And whether theyre payable externally or not, the factors Ive

talked about make them different.). However, notwithstanding that it is

undisputed that the Argentine Law Bonds are not FAA bonds and were not issued

in exchange for FAA bonds, the district court deferred ruling on the motion.

Conceding that the existing record provided no basis for the Injunctions to

cover the Argentine Law Bonds, plaintiffs emphasized at the hearing that the

record is not complete, and that there was a need to conduct discovery with

respect to the difference between these [Argentine Law] bonds and the other

bonds. Sept. 26, 2014 Hrg Tr. at 22:18-19, 45:8 (Ex. C). The district court

accordingly ordered discovery and supplemental briefing in order to allow the

parties and nonparty Citibank the time necessary to present a sufficient record, id.

Sebastian MarilSebastian MarilSebastian Maril

8

at 51:22-24, and over the next several months, the parties exchanged tens of

thousands of pages of documents.3

After further briefing and another hearing, the district court issued the March

12 Order, rejecting the motion to modify the Injunctions and extending the

Injunctions to apply to all bonds that the Republic issued in connection with a

restructuring, regardless of whether they constitute External Indebtedness i.e.,

regardless of whether they are subject to the pari passu clause that the Injunctions

enforce.4 Beyond its remarkable conclusion that it is irrelevant whether the

3 Citibank was permitted to process the September 30, 2014 and December 31, 2014 interest payments pending resolution of its motion. See Order, NML Capital, Ltd. v. Republic of Argentina, No. 08 Civ. 6978 (S.D.N.Y. Nov. 10, 2014), Dkt. #714; Order, NML Capital, Ltd. v. Republic of Argentina, No. 08 Civ. 6978 (S.D.N.Y. Sept. 26, 2014), Dkt. #683. 4 Plaintiffs argued below (but not in their motion to dismiss) that Citibank, as a non-party, lacked standing to move to modify the Injunctions. See Pls. Feb. 17 Br. at 28, NML Capital, Ltd. v. Republic of Argentina, No. 08 Civ. 6978 (TPG) (S.D.N.Y. Feb. 17, 2015), Dkt. #745 (claiming that motions to modify must be made via Fed. R. Civ. P. 60(b) and that non-parties cannot bring such motions). The district court correctly rejected that argument: the Injunctions are interlocutory orders, which the district court has the plenary power to amend prior to the entry of final judgment. See Fed. R. Civ. P. 54(b); Grace v. Rosenstock, 228 F.3d 40, 51 (2d Cir. 2000) (All interlocutory orders remain subject to modification or adjustment prior to the entry of a final judgment adjudicating the claims to which they pertain.); United States v. LoRusso, 695 F.2d 45, 53 (2d Cir. 1982) ([T]he power to grant relief from erroneous interlocutory orders, exercised in justice and good conscience, has long been recognized as within the plenary power of courts until the entry of final judgment and is not inconsistent with any of the Rules.); Corrected Br. of NML Capital, Ltd., et al. at 6, NML Capital, Ltd. v. Argentina, 12-105-cv(L) (2d Cir. Apr. 20, 2012), Dkt. #308 (Injunctions not final decisions because claims for principal and interest on the FAA bonds remain outstanding).

Sebastian MarilSebastian Maril

9

Argentine Law Bonds constitute DFCI, the district court erroneously held that the

majority of the bonds issued in exchanges are not in fact DFCI (although the court

did acknowledge that up to 17% of such bonds are DFCI). March 12 Order at 7

(Ex. A). The district court further erred by once again ignoring that approximately

72% of the Argentine Law Bonds at issue all of which bear ISIN

ARARGE03E113 (the 113 Bonds) were not issued in the context of any

exchange, but are still threatened by the Injunctions because they are

indistinguishable from Argentine Law Bonds that were issued in exchanges.

The Republic timely appealed from the March 12 Order on April 6, 2015.

Plaintiffs filed the Motion on April 27, 2015.

ARGUMENT

A. THE MARCH 12 ORDER IS APPEALABLE UNDER 28 U.S.C. 1292(a)(1) BECAUSE IT MODIFIED THE INJUNCTIONS

Appellate jurisdiction over these appeals exists under Section 1292(a)(1)

because, by extending the Injunctions to apply to all Republic bonds issued in the

context of any exchange, regardless of whether they are even subject to the pari

passu clause that the Injunctions enforce, the district court plainly misconstrued

and thus modified the Injunctions. See 28 U.S.C. 1292(a)(1) (appellate

jurisdiction exists where interlocutory order of district court modifies injunction);

Wilder v. Bernstein, 49 F. 3d 69, 72 (2d Cir. 1995) (if the Judge . . . erred in his

construction [of the Injunctions], he did modify [them]); United States v.


10

ORourke, 943 F. 2d 180, 186 (2d Cir. 1991) (Since we hereinafter conclude that

the district court misconstrued the injunctive mandate . . ., the court was

modifying that injunction, within the meaning of section 1292(a)(1), by ordering

compliance with its misinterpretation.).

Until the March 12 Order was entered below, the specific performance

Injunctions have necessarily always been limited by the scope of the pari passu

clause. Injunctions 2 (Ex. I) (The Republic accordingly is permanently

ORDERED to specifically perform its obligations to NML under [the pari passu

clause]); id. 2(d) (The Republic is ENJOINED from violating [the pari passu

clause]). That is because the basis for the Injunctions is the district courts

finding that the pari passu clause had been breached, id. at 1, that the breach

caused plaintiffs irreparable harm for which there is no adequate remedy at

law, and that the balance of the equities strongly supports [the Injunctions] in

light of the clear text of the [pari passu clause], id. 1. As the Injunctions state,

they are a purported remedy for [] violations of that contract provision. Id. at 2.

Moreover, as this Court recognized in reviewing the Injunctions in October

2012, the relevant portion of the pari passu clause provides that the Republics

payment obligations . . . shall at all times rank at least equally with all its other

present and future unsecured and unsubordinated External Indebtedness. NML

Capital, Ltd. v. Republic of Argentina, 699 F.3d 246, 251 (2d Cir. 2012) (quoting


11

FAA 1(c)) (emphasis added). In order to be subject to the pari passu clause

and the district courts Injunctions that enforce it Republic debt must therefore

constitute External Indebtedness. Otherwise, there is no contractual basis for

subjecting such debt to the Injunctions, no finding that payment on that debt causes

plaintiffs irreparable harm for which they have no adequate remedy at law, and

no determination that the balance of the equities supports the entry of equitable

relief with respect to that debt.

Notwithstanding the clear language of the pari passu clause, the Injunctions,

and the decisions of this Court, the district court held for the first time in the March

12 Order that the Injunctions apply to all Republic bonds issued in the context of

an exchange offer whether or not [they] are external indebtedness. March 12

Order at 9 (Ex. A) (emphasis added). The March 12 Order thus divorces the

specific performance Injunctions from the contract provision and judicial

determinations to which they are bound, and erroneously extends the Injunctions to

an entirely new category of debt. That substantive misconstruction and extension

of the Injunctions plainly modified them for purposes of Section 1292(a)(1), and

gives this Court jurisdiction to review and reverse this plain error. Wilder, 49 F. 3d

at 72; ORourke, 943 F. 2d at 186.


12

B. THE MARCH 12 ORDER IS APPEALABLE UNDER 28 U.S.C. 1292(a)(1) BECAUSE IT OTHERWISE REFUSED TO MODIFY THE INJUNCTIONS TO EXCLUDE THE ARGENTINE LAW BONDS

Separate and apart from the fact that the March 12 Order modified the

Injunctions, jurisdiction exists over these appeals under Section 1292(a)(1) because

the March 12 Order also refus[ed] to . . . modify [the pari passu] injunctions. 28

U.S.C. 1292(a)(1); Weight Watchers Intl, Inc. v. Luiginos, Inc., 423 F. 3d 137,

141-42 (2d Cir. 2005). Specifically, the district court denied Citibank and the

Republics request that it modify the Injunctions to exclude from their scope the

Argentine Law Bonds because they constitute DFCI, which is not subject to the

pari passu clause, and because they are not otherwise Exchange Bonds.

Here, Citibank and the Republics request which followed this Courts

ruling that the July 28 Order was a clarification that the Injunctions apply to the

Argentine Law Bonds plainly sought a modification for purposes of Section

1292(a)(1), because had the district court granted it, the court would have

alter[ed] the terms and force of the Injunctions by excluding that category of

debt. Weight Watchers, 423 F.3d at 143; see also Pimentel & Sons Guitar Makers,

Inc. v. Pimentel, 477 F.3d 1151, 1154 (10th Cir. 2007) (modification substantially

changes the terms and force of the injunction); Mikel v. Gourley, 951 F.2d 166,

169 (8th Cir. 1991). Plaintiffs themselves repeatedly asserted that Citibank and the

Republic sought to modify the Injunctions. See, e.g., Pls. Feb. 17 Br. at 10 (This


13

means, necessarily, that granting Citibanks motion . . . would entail a modification

of the Injunction.); id. at 28 (Because the U.S. Dollar Argentine Law Exchange

Bonds are unambiguously covered by the Injunction, Citibank is necessarily

seeking a modification of the Injunction. (emphasis in original)); Sept. 26, 2014

Hrg Tr. at 16:17-18 (Ex. C) (counsel for NML: [w]hat we are here today about is

an application by Citibank to modify the injunction). The March 12 Order and

record below thus make clear that there is jurisdiction to hear these appeals.

Plaintiffs now seek to shield the district courts erroneous rulings from

appellate review by claiming contrary to their position below that the March 12

Order, like the July 28 Order, constituted a clarification of the Injunctions, as

opposed to a refusal to modify them. Motion at 5-6. Plaintiffs are wrong.

Unlike clarifications, which interpret existing injunctions, motions to modify

[seek] to alter the terms and force of the injunction by raising a different

question. Weight Watchers, 423 F.3d at 143 (citation omitted); accord

Buckhanon v. Percy, 708 F.2d 1209, 1213 (7th Cir. 1983), cert. denied, 465 U.S.

1025 (1984) (appellate jurisdiction lies where a motion raises new substantive

issues or material which has not been argued or presented).

As the district court itself made clear on several occasions, the motion below

raised an entirely different question because it sought to exclude the Argentine

Law Bonds on the basis that they are DFCI, which the court had not previously


14

considered. See, e.g., Sept. 26, 2014 Hrg Tr. at 34:1-4 (Ex. C) ([A]s I understand

it, the precise issue is whether a payment of interest on [the Argentine Law Bonds]

would invoke the pari passu provision of the 1994 [FAA]. . . . [T]hat is the issue

now.); id. at 34:12-20 ([T]o resolve the issue you look to the 1994 [FAA] . . . .

We look to a provision that defines domestic foreign currency indebtedness.).

Indeed, the district court ordered extensive discovery and supplemental briefing on

this new, substantive issue precisely to allow the parties and nonparty Citibank

the time necessary to present a sufficient record for the court to consider. Id. at

51:22-24.

The cases relied on by plaintiffs, see Motion at 6, do not support their claim

that the March 12 Order is rendered unappealable simply because the motion to

modify the Injunctions was also styled as a motion to vacate the July 28 Order.

None of those decisions involves appeals from refusals to modify injunctions,

which unlike the orders at issue in the cases cited by plaintiffs are expressly

appealable under Section 1292(a)(1).5 The Republic is not seeking to

5 Plaintiffs cases all involve appeals from motions to vacate otherwise unappealable interlocutory orders. Transaero, Inc. v. La Fuerza Aerea Boliviana, 99 F.3d 538, 541 (2d Cir. 1996) (dismissing appeal from denial of motion to vacate judgment that left non-ministerial issues remaining); Kapco Mfg. Co. v. C & O Enterprises, Inc., 773 F.2d 151, 153 (7th Cir. 1985) (dismissing appeal from denial of motion to vacate order that contemplated further proceedings); Republic Supply Co. of Cal. v. Richfield Oil Co. of Cal., 74 F.2d 909, 910 (9th Cir. 1935) (dismissing appeal from denial of motion to vacate order approving procedural steps to be taken in reorganization proceeding).


15

manufacture appellate jurisdiction, Motion at 6, but to invoke the plain language

of a statute that expressly empowers this Court to hear these appeals.

At bottom, plaintiffs Motion stems from their desire to shield the district

courts rulings from appellate review. Those rulings threaten to interfere with

payment on over $8.4 billion in principal amount of Argentine Law Bonds and are

plainly erroneous:

First, as discussed above, the district court wrongly held in the March 12

Order that the Injunctions bar payment on Argentine Law Bonds regardless of

whether they constitute External Indebtedness the only kind of Republic debt that

is subject to the pari passu clause that the Injunctions enforce. See supra at 9-11.

That ruling was plain error, particularly in light of the fact that the district court

acknowledged that even in its erroneous view up to 17% of Argentine Law

Bonds issued in exchanges are DFCI and therefore not External Indebtedness

subject to the pari passu clause. See March 12 Order at 7 (Ex. A).

Second, the district court erred by holding in the alternative that the bulk of

the Argentine Law Bonds issued in exchange for nonperforming Argentine law

debt do not constitute DFCI. The Argentine Law Bonds do qualify as DFCI under

three separate subsections of the FAAs definition of DFCI:

(i) These bonds were offered exclusively within the Republic of

Argentina. FAA at 17 (Ex. O). In plain English, indebtedness is offered where


16

it is located, i.e., the location where the instrument representing the indebtedness is

held and can be acquired. See, e.g., Offer, Merriam-Webster Online Dictionary

(2015), http://www.merriam-webster.com/dictionary/offer (defining offer as to

make (something) available: to provide or supply (something)). It is undisputed

that the Global Certificates representing each series of the Argentine Law Bonds

have at all times been deposited with, registered in the name of, and cleared and

paid through CRYL in Argentina. See, e.g., 2005 ProSupp at S-19 (Ex. K); 2010

ProSupp at S-5 (Ex. J). Moreover, the means by which a bondholder could tender

beneficial interests in exchange for Argentine Law Bonds further establish that

such indebtedness could only be acquired within, and thus was offered solely

within, the Republic. See 2005 ProSupp at S-19, S-47, S-49 (Ex. K); 2010

ProSupp at S-39-40, S-74, S-76 (Ex. J). Rather than construe the FAA in

accordance with its plain meaning, the district court incorrectly held that the

exchange bonds governed by Argentine law were, like all the other exchange

bonds, offered in many countries. March 12 Order at 8 (Ex. A).6

6 In support of this ruling, the district court cited only pages in the 2005 and 2010 Prospectus Supplements that describe a Global Offering. See id. at 8. But these disclosure documents filed pursuant to the U.S. securities laws do nothing more than describe bonds being offered in Argentina as part of the Republics global restructuring. Of course, such descriptions have no bearing on where the Argentine Law Bonds were offered, which the district court itself had previously recognized. See Sept. 26, 2014 Hrg Tr. at 25:12-16 (Ex. C) (I would not think that the prospectus governs. I would think its a matter of fact where these bonds were offered. . . . I dont think the prospectus answers the question.).


17

(ii) The Argentine Law Bonds were issued in exchange for

indebtedness payable in pesos the lawful currency of the Republic. See FAA at

17 (Ex. O) (all indebtedness issued in payment, exchange, substitution, discharge,

or replacement of indebtedness payable in the lawful currency of the Republic

constitutes DFCI); Presidential Decree No. 471/2002, dated Mar. 8, 2002 (Ex. N);

Resolution 50/2002, dated May 30, 2002 (Ex. L); Resolution 55/2002, dated Apr.

15, 2002 (Ex. M). In finding to the contrary, the district court relied on a single

sentence in the 2005 Prospectus Supplement, see March 12 Order at 9 (Ex. A),

which is inapplicable to the determination of whether bonds constitute DFCI

because it defines the bonds [s]olely for the purposes of the [exchange] Offer

and claims that the bonds will be treated as if they were denominated in the

originally-issued currency, not payable in such. Id. (emphasis added).

(iii) A portion of these Argentine Law Bonds were issued in

exchange, or as replacement, for the indebtedness referred to in [subparagraph]

(i). FAA at 17 (Ex. O). As noted above, the district court acknowledged, and the

parties agree, that up to 17% of the Argentine Law Bonds issued in exchanges

were issued as replacements for one of the seven bonds specified in the definition

of DFCI. March 12 Order at 7 (Ex. A). Nonetheless, the district court

erroneously refused to exempt these bonds from the ambit of the Injunctions.

Sebastian Maril

18

Third, the district court erred because approximately 72% of the Argentine

Law Bonds were not issued in connection with any exchange and therefore cannot

constitute Exchange Bonds subject to the Injunctions. See Injunctions 2(a)

(Ex. I) (Republic must make Ratable Payment to plaintiffs whenever it pays any

amount due on its Exchange Bonds).7 These non-exchange bonds cannot be

distinguished from certain of the Argentine Law Bonds that were issued in

exchange for defaulted debt, and so the inequitable result of the March 12 Order is

to threaten payment on all Argentine Law Bonds, including on those for which

there is no basis to interfere, even in the district courts erroneous view.8

7 Plaintiffs have changed their litigation strategy from recognizing that the Injunctions apply only to Exchange Bonds, see, e.g., Pls. Opp. to Citibanks Mot. for Clarification at 7, Aurelius Capital Master, Ltd. v. Republic of Argentina, No. 09 Civ. 8757 (TPG) (S.D.N.Y. July 2, 2014), Dkt. #396, to seeking to interfere with payments on bonds that were issued pursuant to local issuances with no connection to the Exchanges. The vast majority of the Argentine Law Bonds issued outside the context of the Exchanges were issued before plaintiffs had even moved for pari passu relief, and thus, contrary to plaintiffs prior contentions, their issuance was not an attempt to interfere with the application of the Injunctions. 8 It is not possible to distinguish between payments made on Argentine Law Bonds not issued in the context of the Exchanges and payments made on certain Argentine Law Bonds issued in the Exchanges for defaulted debt, because the former bear the same identifying characteristics as the latter. See Declaration of Federico Elewaut, dated Feb. 13, 2015 22-23 (Ex. B) (Among Argentine Law Bonds that bear the same ISIN, it is operationally impossible to determine . . . when or for what purpose these Argentine Law Bonds were issued, or who their prior owners might have been.).


19

CONCLUSION

For the foregoing reasons, the Court should deny plaintiffs Motion.

Dated: New York, New York May 11, 2015

Respectfully submitted, CLEARY GOTTLIEB STEEN & HAMILTON LLP

By: /s/ Carmine Boccuzzi

Jonathan I. Blackman ([email protected]) Carmine D. Boccuzzi ([email protected])

Of Counsel: Michael M. Brennan Kristin A. Bresnahan

One Liberty Plaza New York, New York 10006 (212) 225-2000

Attorneys for the Republic of Argentina

Sebastian Maril

DECLARATION OF KRISTIN A. BRESNAHAN IN SUPPORT OF THE REPUBLIC OF ARGENTINA'S OPPOSITION TO

PLAINTIFFS' MOTION TO DISMISS

Pursuant to 28 U.S.C. 1746, Kristin A. Bresnahan declares as follows:

1. I am an attorney admitted to practice before this Court and an

associate at Cleary Gottlieb Steen & Hamilton LLP, counsel for defendant the

Republic of Argentina (the "Republic") in these matters. I submit this declaration

on behalf of the Republic in support of the Republic's Opposition to Plaintiffs'

Motion to Dismiss.

2. Attached to this declaration as Exhibits A- 0 are true and

correct copies of the following documents:

Ex. Document

A Order, NML Capital, Ltd. v. Republic of Argentina, No. 08-6978 (TPG) (S.D.N.Y. Mar. 12, 2015);

B Declaration of Federico Elewaut, dated Feb. 13, 2015;

C Hearing Transcript, NML Capital, Ltd. v. Republic of Argentina, No. 08-6978 (TPG) (S.D.N.Y. Sept. 26, 2014);

D Hearing Transcript, NML Capital, Ltd. v. Republic of Argentina, No. 08-6978 (TPG) (S.D.N.Y. Sept. 19, 2014);

E Hearing Transcript, NML Capital, Ltd. v. Republic of Argentina, No. 08-6978 (TPG) (S.D.N.Y. Sept. 10, 2014);

F Order, NML Capital, Ltd. v. Republic of Argentina, No. 08-6978 (TPG) (S.D.N.Y. July 28, 2014);

G Order, NML Capital, Ltd. v. Republic of Argentina, No. 08-6978 (TPG) (S.D.N.Y. June 27, 2014);


Ex. Document

H Secretaria de Hacienda y Secretaria de Finanzas, Resoluci6n [Resolution] No. 26/2014, available at http://www.infoleg. mecon.gov.ar/infolegintemet/anexos/225000-229999/ 229627/norma.htm (with English translation of excerpts);

I Order, NML Capital, Ltd. v. Republic of Argentina, No. 08 Civ. 6978 (TPG) (S.D.N.Y. Nov. 21, 2012);

J U.S. Prospectus Supplement, dated Apr. 28,2010 (excerpts);

K U.S. Prospectus Supplement, dated Jan. 10, 2005 (excerpts);

L Secretaria de Hacienda y Secretaria de Finanzas, Resoluci6n [Resolution] No. 50/2002, available at http://www.infoleg.gob. ar/infolegintemet/anexos/70000-74999/74729/norma.htm (with English translation);

M Secretaria de Hacienda y Secretaria de Finanzas, Resoluci6n [Resolution] No. 55/2002, available at http://www.infoleg.gob. ar/infolegintemet/anexos/70000-7 4999/73 709/norma.htm (with English translation);

N Argentine Presidential Decree No. 47112002, dated Mar. 8, 2002 (with English translation);

0 Fiscal Agency Agreement (FAA), dated Oct. 19, 1994.

I declare under penalty of perjury that the foregoing is true and correct.

Executed on May 11,2015 in New York, New York.

2


EXHIBIT A


UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

------------------------------------------------------ NML CAPITAL, LTD.,

Plaintiff,

v. THE REPUBLIC OF ARGENTINA,

Defendant. ------------------------------------------------------

x : : : : : : : : : x

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

AURELIUS CAPITAL MASTER, LTD. and ACP MASTER, LTD.,

Plaintiffs,


Defendant. ------------------------------------------------------

: : : : : : : : : : :: x

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

AURELIUS OPPORTUNITIES FUND II, LLC and AURELIUS CAPITAL MASTER, LTD.,

Plaintiffs,


Defendant. ------------------------------------------------------

: : : : : : : : : : : : x

10 Civ. 1602 (TPG) 10 Civ. 3507 (TPG) (captions continued on

next page)

OPINION

Case 1:10-cv-05338-TPG Document 243 Filed 03/12/15 Page 1 of 16Case 15-1047, Document 27, 05/11/2015, 1507447, Page27 of 366
Sebastian Maril

------------------------------------------------- x AURELIUS CAPITAL MASTER, LTD. and AURELIUS OPPORTUNITIES FUND II, LLC,

Plaintiffs,


Defendant.

: : : : : : : : : : : :

10 Civ. 3970 (TPG) 10 Civ. 8339 (TPG)

------------------------------------------------- x BLUE ANGEL CAPITAL I LLC,

Plaintiff,


Defendant. -------------------------------------------------

: : : : : : : : : x

10 Civ. 4101 (TPG) 10 Civ. 4782 (TPG)

OLIFANT FUND, LTD.,

Plaintiff,


Defendant. -------------------------------------------------

: : : : : : : : : x

10 Civ. 9587 (TPG)

PABLO ALBERTO VARELA, et al.,

Plaintiff,


Defendant. -------------------------------------------------

: : : : : : : : : x

10 Civ. 5338 (TPG)


Citibank, N.A. (Citibank) has a bank branch located in Buenos Aires.

This branch is a custodian for certain exchange bonds issued by the Republic

of Argentina (the Republic) and governed by Argentine law. Citibank has

moved, by order to show cause, to vacate this courts order of July 28, 2014,

which clarified that an injunction issued against the Republic prohibits Citibank

from processing payments on the dollar-denominated exchange bonds. See

Order of July 28, 2014 at 4. For the following reasons, the court denies Citibanks

motion to vacate the July 28, 2014 order.

Background

In 1994, the Republic issued bonds pursuant to a Fiscal Agency

Agreement (FAA). The FAA provided that the Republics payment obligations on

the 1994 bonds shall at all times rank at least equally with all its other present

and future unsecured and unsubordinated External Indebtedness. FAA 1(c).

This clause of the FAA has become known as the Equal Treatment Provision.

The FAA also contained provisions whereby, in the event litigation arose

regarding the 1994 bonds, the Republic agreed to the jurisdiction of any state or

federal court in New York City. Id. 2223.

From 1994 until 2001, it appears the Republic made timely interest

payments on the 1994 bonds. However, in 2001 the Republic experienced a

severe economic crisis. The Republic stopped making interest payments on its

public debt, including the 1994 bonds.

In 2002, holders of the 1994 bonds began filing lawsuits against the

Republic in this court. The court issued judgments in some of these cases in

1


favor of the bondholders, but the bondholders struggled to enforce those

judgments. They were unable to seize the Republics assets or otherwise collect

payment.

A. The 2005 and 2010 Exchanges and Citibanks Role in the Payment Process

In 2005, the Republic issued an exchange offer (the 2005 Exchange)

inviting creditors, including holders of the 1994 bonds, to exchange their old

bonds for newly issued bonds worth 25%29% of the original bonds value.

Approximately 72% of the Republics creditors accepted this offer. In 2010, the

Republic issued another exchange offer (the 2010 Exchange) with terms

substantially identical to the 2005 exchange offer. The 2010 Exchange garnered

some additional interest. All told, an estimated 93% of the Republics creditors

accepted the 2005 or 2010 exchange offers.

The 2005 and 2010 exchange offers created new types of bonds, including:

(1) bonds governed by New York law; (2) bonds governed by English law; and

(3) bonds governed by Argentine law.

The payment process on the dollar-denominated exchange bonds governed

by Argentine law is as follows: the Republic sends the interest payments to an

entity named Central de Registro y Liquidacin de Instrumentos de

Endeudamiento Publico (CRYL). CRYL forwards those payments to another

entity named Caja de Valores, S.A. (Caja). Caja forwards the payments to

Citibanks Argentine branch. Citibanks Argentine branch then transmits the

payments to its customers, including the clearinghouses Euroclear and

2


Clearstream. Euroclear and Clearstream then distribute their portion of the

interest payments to bondholders.

The exchange bonds governed by Argentine law are denominated in U.S.

dollars and in Argentine pesos. Only the dollar-denominated bonds, amounting

to $2.3 billion, are at issue in the instant motion. These bonds were assigned

five International Securities Identification Numbers (ISINs): ARARGE03E097,

ARARGE03E113, ARARGE03E154, ARARGE03G688, and ARARGE03G704.

B. The Injunction and the Orders of June 27, 2014 and July 28, 2014

Plaintiffs in this case hold bonds issued pursuant to the FAA. Plaintiffs

rejected both the 2005 and 2010 exchange offers, opting instead to seek payment

on the terms agreed to in the FAA. Plaintiffs sued the Republic in this court and

obtained judgments. However, like other 1994 bondholders, plaintiffs found it

impossible to collect on their judgments.

On February 23, 2012, this court issued an order prohibiting the Republic

from making payments on the exchange bonds without also making a ratable

payment to plaintiffs on their bonds. This order was amended and supplemented

on November 21, 2012. As amended, the February 23, 2012 order has become

known as the Injunction.

The Injunction provides: Whenever the Republic pays any amount due

under terms of the bonds or other obligations issued pursuant to the Republics

2005 or 2010 Exchange Offers . . . the Republic shall concurrently or in advance

make a Ratable Payment to NML. Injunction 2(a). The Injunction provides

further that: the Republic is ENJOINED from . . . making any payment under

3


the terms of the Exchange Bonds without complying with its obligation . . .

[under] the FAA by concurrently or in advance making a Ratable Payment to

NML. Id. 2(d).

The Injunction also prohibits participants in the payment process of the

Exchange Bonds . . . . from aiding and abetting any violation of this ORDER. Id.

2(e). The term participants refer[s] to those persons and entities who act in

active concert or participation with the Republic, to assist the Republic in

fulfilling its payment obligations under the Exchange Bonds. Id. 2(f) (emphasis

added) (listing several examples of participants). Finally, the Injunction provides

that non-parties may seek clarification from the court of their duties, if any,

under the Injunction. Id. 2(h).

In 2013, Citibank filed a motion asking the court to clarify whether the

Injunction prohibits its handling of payments on the exchange bonds governed

by Argentine law. The court initially deferred action on the motion pending

appeal of the Injunction to the Court of Appeals for the Second Circuit. The Court

of Appeals affirmed the Injunction in August of 2013, and the Supreme Court

denied certiorari in June of 2014.

With the appeals of the Injunction having concluded, the court revisited

Citibanks motion for clarification. On June 27, 2014, the court issued an order

(June 27th Order) providing that the Injunction does not as a matter of law

prohibit payments by Citibank[s] . . . Argentine branch on Peso- and U.S. Dollar-

denominated bondsgoverned by Argentine law and payable in Argentinathat

were issued by the Republic of Argentina in 2005 and 2010 to customers for

4


whom it acts as custodian in Argentina. Order of June 27, 2014. Plaintiffs filed

a motion for partial reconsideration of the June 27th Order.

On July 28, 2014, the court issued an order (July 28th Order) allowing

Citibank to make a one-time payment on the dollar-denominated exchange

bonds governed by Argentine Law. However, the court clarified that the

Injunction would prohibit Citibank from processing payments on the dollar-

denominated exchange bonds going forward.

Citibank appealed the July 28th Order to the Court of Appeals for the

Second Circuit. The Court of Appeals denied the appeal on jurisdictional

grounds, but noted that nothing in this Courts order is intended to preclude

Citibank from seeking further relief from the district court. Thus, on September

22, 2014, Citibank filed a motion, by order to show cause, to vacate the July

28th Order. It is this motion that is the subject of the present opinion.

The court held hearings on Citibanks motion on September 28, 2014 and

March 3, 2015. The court, on consent of plaintiffs, allowed Citibank to process

payments at the end of September and the end of December on the dollar-

denominated exchange bonds governed by Argentine law. Citibanks Argentine

branch is expected to receive another interest payment on those bonds on March

31, 2015. Plaintiffs have not consented to Citibanks processing of that payment.

Discussion

Citibank and the Republic have advanced three primary arguments in

support of vacating the July 28th Order: (1) the exchange bonds governed by

Argentine law should not be subject to the Injunction because they are not

5


external indebtedness of the Republic; (2) Citibanks Argentine branch should

not be considered a participant in the payment process and therefore its

dealings in Argentina should not implicate the Injunction; and (3) principles of

comity weigh in favor of vacating the July 28th Order.

1. Whether the Injunction Prohibits Citibanks Processing of Payments on the Exchange Bonds Governed by Argentine Law

Citibank argues that the exchange bonds governed by Argentine law

should fall outside the scope of the Injunction because those bonds do not qualify

as external indebtedness of the Republic.

The operative paragraphs of the Injunction do not speak in terms of

external indebtedness. Rather, the Injunction prohibits participants in the

payment process from assisting the Republic in making payments on exchange

bonds. See Injunction 2(a),(d),(e). Thus the Injunction by its terms does not, in

and of itself, refer to external indebtedness as a condition for its application.

However, the Injunction effectuates the Equal Treatment Provision of the

FAA. See, e.g., Injunction 1(d). The Equal Treatment Provision does speak in

terms of external indebtedness, providing that The payment obligations of the

Republic under the Securities shall at all times rank at least equally with all its

other present and future unsecured and unsubordinated External

Indebtedness. FAA (1)(c). Thus there is an issue about whether the Injunction,

in light of the FAA, prohibits the Republic from making, and participants from

assisting in, payments on external indebtedness (unless of course a ratable

payment is made to plaintiffs holding 1994 bonds).

6


The FAA defines external indebtedness as obligations . . . for borrowed

money . . . payable . . . in a currency other than the lawful currency of the

Republic provided that no Domestic Foreign Currency Indebtedness, as defined

below, shall constitute External Indebtedness. FAA at 16. Since the exchange

bonds at issue here are denominated in dollars, they qualify as external

indebtedness of the Republic unless the carve-out for Domestic Foreign

Currency Indebtedness (DFCI) applies.

The FAA defines DFCI in three ways. See FAA at 17. First, DFCI includes

seven specifically named bonds issued between 1991 and 1993. Id. Second, DFCI

includes any debt issued in replacement for one of those seven specific bonds.

Third, DFCI includes any foreign currency indebtedness offered exclusively

within the Republic of Argentina or issued in . . . substitution . . . or

replacement of indebtedness payable in the lawful currency of Argentina. Id.

The first and second types of DFCI do not apply here. No one suggests that

the exchange bonds, issued in 2005 and 2010, could have been specified in the

FAA, which was drafted more than a decade earlier. The parties do, however,

agree that a small fraction (3%-17%) of the exchange bonds governed by

Argentine law were issued as replacements for one of the seven bonds specified

in the definition of DFCI. Thus, if the operative paragraphs of the Injunction

spoke in terms of external indebtedness, it could be argued that this 3%17%

would qualify as DFCI. The vast majority, however, would not qualify as DFCI.

The parties sharply dispute whether the exchange bonds governed by

Argentine law were offered exclusively within the Republic of Argentina and

7


thus qualify as DFCI under the third category. The court has reviewed hundreds

of documents going to this question, and held two hearings where this question

was debated. The evidence produced is overwhelming: the exchange bonds

governed by Argentine law were, like all the other exchange bonds, offered in

many countries, not exclusively in Argentina. See, e.g., 2005 Prospectus

Supplement at (iii), S-95, see also 2010 Prospectus Supplement at (v).

The Republic argues that the exchange bonds governed by Argentine law

were offered locally because they were registered at and payable through CRYL,

an Argentine entity. See Republics Supp. Mem. L. at 19. But this argument goes

to where the transactions were consummated, or in the parlance of contract law,

where the exchanges were accepted. It does not go to where the exchange bonds

were offered.

The final type of DFCI, also falling under the third category, is foreign

currency indebtedness issued in . . . substitution . . . or replacement of

indebtedness payable in the lawful currency of Argentina. FAA at 17. Citibank

argues that in 2002, the Republic passed a series of measures converting all of

its public debts payable in foreign currencies into debts payable in Argentine

pesos. Thus, Citibank contends that the exchange bonds governed by Argentine

law were replacing debts payable in Argentine pesos, and qualify as DFCI under

the third category.

It appears that in 2002 the Argentine President, with authorization from

the Argentine National Congress, pesified its public debts. See Duggan Decl.

6. However, when the exchange bonds were created in 2005, the Republic

8


expressly preserved the foreign currency status of debts that may have been

pesified, stating: Solely for the purposes of the [exchange] Offer, Eligible

Securities originally denominated in a currency other than pesos and governed

by Argentine law will be treated as if they were denominated in the currency in

which they were originally issued. 2005 Prospectus Supplement at S-9, S-40.

Thus, the exchange bonds governed by Argentine law and denominated in dollars

do not qualify as DFCI because they replaced bonds that were treated as payable

in a foreign currency, making the third category inapplicable here.

As discussed, the operative paragraphs of the Injunction do not speak in

terms of external indebtedness, and as a result, Citibanks participation in

making payments on exchange bonds is prohibited. This is true whether or not

the exchange bonds are external indebtedness. Nonetheless, the court finds that

the vast majority of exchange bonds governed by Argentine law and payable in

U.S. dollars would not constitute DFCI, but rather would qualify as external

indebtedness of the Republic. Thus, payment on these exchange bonds would

violate the Equal Treatment Provision of the FAA, providing an additional reason

as to why the Injunction applies.

2. Whether Citibank is a Participant in the Payment Process

Citibank argues that it does not participate in the payment process of the

exchange bonds, and thus should not be subject to the Injunction.

Participant within the meaning of the Injunction refers to persons and

entities who act in active concert or participation with the Republic, to assist the

Republic in fulfilling its payment obligations under the Exchange Bonds.

9


Injunction 2(f) (emphasis added). The Injunction lists a number of entities that

are participants, such as trustees, depositaries, clearing systems, settlement

agents, transfer agents, et cetera. Id. 2(f)(1)(5). This list is illustrative, not

exclusive. NML Capital, Ltd. v. Republic of Argentina, 727 F.3d 230, 244 (2d Cir.

2013), cert. denied, 134 S. Ct. 2819 (2014). As the court made clear in paragraph

two of the Injunction, a participant in the payment process is any entity that

participates with or assists the Republic in fulfilling its exchange bond

obligations.

Citibank asserts that payments on the exchange bonds governed by

Argentine law are complete when those payments reach CRYL, and thus by

processing those payments after they have been transferred, Citibank is not

assisting the Republic in fulfilling its payment obligations. Hrg Tr. Mar. 3, 2015

at 2426. This argument is unavailing. Citibank is not an exchange bondholder,

but rather a financial institution that processes payments initiated by the

Republic and intended for and terminating with exchange bondholders. By

crediting those payments to customer accounts, including the accounts of large

clearinghouses, Citibank is assisting the Republic in fulfilling its payment

obligations on the exchange bonds. To rule otherwise, this court would have to

adopt an overly narrow and technical reading of the term participants, one at

odds with the clear language of the Injunction and at odds with the courts intent

in fashioning that Injunction.

10


3. Whether Principles of Comity Weigh in Favor of Allowing Citibank to Process Payments on the Dollar-denominated Exchange Bonds

Governed by Argentine Law

Citibank argues that principles of comity weigh in favor of allowing it to

process payments on the dollar-denominated exchange bonds governed by

Argentine law.

In Gucci America, Inc. v. Weixing Li, the Court of Appeals considered

whether to uphold an injunction won by luxury goods companies which froze

assets in accounts of the New York branch of the Bank of China, and also

purported to freeze assets in Bank of China accounts worldwide. 768 F.3d 122,

12627 (2d Cir. 2014). The Bank of China, owned in major part by the Chinese

government, was not incorporated or headquartered anywhere in the United

States, and only a small fraction of its thousands of bank branches were located

in the United States. Id.

The Court of Appeals held that the injunction against the defendant was

valid, and operated to forbid non-parties from assisting in its violation. Id. at

130. However, the Court of Appeals reasoned that before the injunction could be

enforced against non-parties such as the Bank of China, the district court must

ensure that it has personal jurisdiction or specific jurisdiction over the foreign

entity. Id. at 134. Since the Bank of China was headquartered outside of the

forum, and because its contacts with the forum appeared remote, the Court of

Appeals held that the district court lacked general jurisdiction over the bank,

and remanded the case to the district court to determine whether it could

exercise specific jurisdiction. Id. at 13637.

11


The Gucci court also suggested that district courts consider notions of

comity in rendering decisions affecting sovereign interests. Id. at 13839.

Comity is . . . the recognition which one nation allows within its territory to the

legislative, executive or judicial acts of another nation, having due regard both

to international duty and convenience, and to the rights of its own citizens, or of

other persons who are under the protection of its laws. Id. at 139 (quoting Hilton

v. Guyot, 159 U.S. 113, 16364 (1895)). In conducting a comity analysis, the

Court of Appeals suggested that lower courts address the factors provided in

403 of the Restatement (Third) of Foreign Relations Law. Id. These factors

include considerations of whether the courts exercise of jurisdiction over a

foreign entity is reasonable; the extent to which an activity takes place within

the regulating states territory; the importance of the regulation to the

international political, legal or economic system; the other states interest in the

regulating activity; and the likelihood of conflict with regulation by another state.

See Restatement (Third) of Foreign Relations Law 403 (a)(h).

The concerns over jurisdiction present in the Gucci case are absent here.

Unlike the Bank of China, which was headquartered outside of the United States

and had only minimal contacts with the forum, Citibanks global headquarters

is located in New York. Citibank merely maintains a branch in Argentina.

Moreover, just as in Gucci, this courts injunction is not directed at Citibank, but

at defendant the Republic of Argentina. Third parties like Citibank are not

directly enjoined, but rather indirectly prohibited from assisting the Republic in

meeting its exchange bond obligations.

12


The court is mindful that considerations of comity play a role when

deciding matters involving foreign sovereigns. See Aurelius Capital Master, Ltd.

v. Republic of Argentina, 589 F. App'x 16, 18 (2d Cir. 2014). The Republic of

Argentina, as a foreign sovereign, is entitled to a degree of grace and comity. Id.

But comity is a two-way street. The Republic, in a contract of its own signing,

irrevocably acceded to the jurisdiction of United States courts for disputes

arising under that contract. See FAA 22 (The Republic hereby irrevocably and

unconditionally waives, to the fullest extent permitted by law, any

objection . . . .). When those courts issued judgments, the Republic refused to

honor them. Comity would have urged the opposite.

By observing the Injunction, Citibank asserts that it risks sanction in

Argentina. However, if Citibank processes payments on exchange bonds, it

violates the Injunction issued by this court. Neither option is appealing. See

Restatement (Third) of Foreign Relations Law 403(2)(h) (referring to the

likelihood of conflict with regulation by another state.). But if Citibanks

predicament is a matter of comity, it is only because the Republic has refused to

observe the judgments of the court to whose jurisdiction it acceded. Comity does

not suggest abrogating those judgments, or creating exceptions to the Injunction

designed to enforce them. Rather, comity suggests that the Republic not penalize

third parties, like Citibank, who must observe the orders of United States courts.

The court has long urged the Republic to participate in negotiating a

resolution to the claims in this case, and has appointed a Special Master to

13


Case 1:10-cv-05338-TPG Document 243 Filed 03/12/15 Page 16 of 16

facilitate that process. The court urges the Republic, once again, to avail itself of

the Special Master's services.

Conclusion

For the reasons given above, the court denies Citibank's motion, by order

to show cause, to vacate the July 28th Order.

SO ORDERED.

Dated: New York, New York March 12, 2015

'Thomas P. Griesa United States District Judge

USDCSDNY . {DOCUMENT l ELECIRONICALLY FILED f DOC#: f DATE FILED:

14


EXHIBIT B



UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF EW YORK

-------- - ---------------- -- ------- X NML CA PITAL, LTD.,

Plainti ff, - against -

THE REPUBLIC OF ARG ENTINA, Defendant.

----------------------- ---- ------- X AURELIUS CAPITAL MASTER, LTD. and ACP MASTER, LTD.,

Pia inti ffs, - against -

THE REPUB LIC OF ARGE TINA, Defendant.

------ - ------------------------- -- X AURELIUS OPPORTUNITI ES FUND rt, LLC and AURELIUS CAPITAL MASTER, LTD.,

Plaintiffs, - against -

THE REPUBLIC OF ARGENT! A, Defendant.

---- ---------- ---------- --- ------- X BLUE ANGEL CAPITAL I LLC,

Plaintiff, - against -

THE REPUBLIC OF ARGENT! A, Defendant.

No. 08 Civ. 6978 (TPG) No. 09 Civ. 1707 (TPG)

o. 09 Civ. 1708 (TPG)

No. 09 Civ. 8757 (TPG) No. 09 Civ. I 0620 (TPG)

No. I 0 Civ. 1602 (TPG) No. I 0 Civ. 3507 (TPG)

o. I 0 Civ. 3970 (TPG) o. I 0 Civ. 8339 (TPG)

No. 10 Civ. 4101 (TPG) o. I 0 Civ. 4782 (TPG)

x (captions continue on following page)

DECLARATION OF FEDERICO ELEWAUT



---------------------------------- X OLIFANT FUND, LTD.,

Plaintiff, - against -

THE REPUBLIC OF ARGENTINA, Defendant.

--------------------------------- - X PABLO ALBERTO VARELA, et al.,

Pia inti ffs, -against-

THE REPUBLIC OF ARGE Tl A, Defendant.

--------------------------------- - X

o. I 0 Civ. 9587 (TPG)

No. I 0 Civ. 5338 (TPG)

Pursuant to 28 U.S.C. 1746, I, Federico Elewaut, declare under penalty of perjury under

the laws of the United States of America that the following is true and correct:

I. I am Head ofCiti Treasury and Trade Solutions, which includes Custody

Services, for Citibank Argentina. Citibank Argentina is the Argentine branch ofCi tibank, N.A.

("Citibank"). I am familiar with the operations ofCitibank Argentina, and in particular with the

functions of its securities custody business.

2. I make this declaration in support ofCitibank's further opposition to injunctive

relief against payment by Citibank Argentina on certain U.S. dollar-denominated bonds issued

by the Republic of Argentina (the "Republic'") that are governed by Argentine law and payable

in Argentina, and that bear the following International Securities Identification Numbers

('' ISINs"): ARARGE03E I62, ARARGE03EI88, ARARGE03E097, ARARGE03EII3,

ARARGE03E 154, ARARGE03G688, and ARARGE03G704 (collectively, the "Argentine Law

Bonds").



Citibank Argentina and Its Limited Role as Custodian

3. Citibank Argentina has been operating as a commercial bank in Argentina for I 00

years. It is licensed to engage in banking activities in Argentina, including the provision of

securities custody services, by Banco Central de Ia Republica Argentina ("BCRA''), the central

bank of Argentina. It is governed in all respects by the laws of the Republic and by the rules and

regulations of BCRA.

4. Citibank Argentina has a number of customers for which it holds securities in

custody, including some customers who hold Argentine Law Bonds. Most of the customers who

own Argentine Law Bonds (about six hundred and fifty Argentine individuals and six Argentine

companies) hold securities for their own account. A few customers who own Argentine Law

Bonds (about seven international institutional customers) generally hold securities in order to

meet obligations to their own customers.

5. Citibank Argentina has entered into a separate custody agreement with each of its

custody account customers. Pursuant to these agreements, Citibank Argentina acts only for its

customers, in a very limited capacity. Citibank Argentina simply accepts for deposit interests in

securities acquired by customers, maintains them safely until they are sold or transferred, and

credits customer accounts with any payments received on their securities.

6. Citibank Argentina does not advi se its customers which securities to buy or hold,

and does not routinely analyze the nature of any particular security, other than to record the

currency, and the agreed dates of payment or maturity.

7. Citibank Argentina is not, and does not act as, an agent for the Republic or any

other securities issuer in respect of its obligations as a custodian.

2



The Securities Held in Custody in Book-Entry Form

8. Most of the securities held by Citibank Argentina for its custody customers are

sovereign or corporate securities issued in Argentina, including bonds issued by the Republic

that are governed by Argentine law and upon which the Republ ic makes payments entirely in

Argentina, like the Argentine Law Bonds.

9. Most of these securities are held in book-entry form. Thus, Citibank Argentina

does not hold these type of securiti es in physical bonds, certificates, or notes. Rather, ownership

of the security is recorded in the customer's account by its !SIN. Citibank Argentina also obtains

other information about the securi ty, as relevant to its obl igations as custodian, from either the

local clearing system for these securities. Caja de Valores S.A. ("Caja'") , or from the Argentine

stock exchange bulletin, Bolsar. The information relevant to Citibank Argentina includes the

currency denomination, the governing law, the issue date, the payment dates, and the maturity

date.

Citibank Argentina's Obligations to Customers

I 0. The principal services provided by Citibank Argentina as a custodian are to (a)

process payments, when received, and (b) transfer ownership of securities, as directed by

customers.

II . Citibank Argentina 's obl igation to process payments arises only from its contracts

with customers and Argentine law. Pursuant to both, it is my understanding that Citibank

Argentina is obligated to transfer funds received for the benefit of customers as directed by those

customers. I have never understood that funds paid for the benefit of customers may be retained

in a Citibank Argentina account, and I bel ieve holding such funds wou ld be a violation of

Citibank Argentina's duty to customers under its contracts and Argentine law.

3



I 2. Citibank Argentina, as a custodian, has no obligation directly to the Republic-

other than to obey its banking laws. With respect to the Argentine Law Bonds, for example, the

Republic has not assigned Citibank Argentina any role in the payment stream, Citibank

Argentina has no contract with the Republic with respect to the custodial services it provides to

its clients, and Citibank Argentina is not paid by the Republic in connection with its role in

remitting payments to clients. Thus, Citibank Argentina has no obligations comparable to those

of an indenture trustee with respect to the Argentine Law Bonds held in custody for customers.

I 3. Citibank Argentina is only a custodian for bonds issued by the Republic,

including Argentine Law Bonds, because its custody account customers have acquired such

bonds. Citibank Argentina is not the only custodian of Argentine Law Bonds, and if its custody

account customers so ld their holdings of Argentine Law Bonds, Citibank Argentina would cease

to be a custodian of those bonds.

The Processing of Payments

I 4. Processing of payments is done differently depending on customer directi ons.

15. Citibank Argentina receives payments on its customers' securities through Caja.

Caja acts as a securities clearing system, registrar and paying agent for both Argentine

government and corporate securities, and holds "col lective deposits" in the names of

participating institutions and their customers.

I 6. Citibank Argentina, as a participating financial institution in Caja, has entered

into an agreement with Caja, pursuant to which Citibank Argentina informs Caja when its

customers have purchased, transferred, or sold an interest in securities held by Caja, and Caja

makes a corresponding book-entry in the "collective deposit" account denoting whether the

customer has increased or decreased its holdings.

4



17. The collective deposit account at Caja is made in the names of both the

participating financial institution (e.g., a bank like Citibank Argentina), and such institution's

custody account customers.

18. When Caja receives payment on a bond in which a customer of Citibank

Argentina has a beneficial interest, Caja will credit the payment to an account belonging to

C itibank Argentina.

19. Citibank Argentina then credits its customers' accounts as directed by standing

instructions from its customers. Citibank Argentina either credits a customer's account at

C itibank Argentina, which is generally the case for individual Argentine customers and

Argentine companies, or transfers the funds, through various intermediaries, to accounts in other

countries, which is generally the case fo r non-resident institutional customers.

The Argentine Law Bonds Held for Customers

20. I have been advised that Plaintiffs are attempting to prevent Citibank Argentina

from crediting customer accounts with payments made by the Rep ubi icon the Argentine Law

Bonds. As noted above, each of the Argentine Law Bonds is issued by the Republic, is U.S.

dollar-denominated, is governed by Argentine law, and is payab le in Argentina.

2 1. Interests in these bonds have been held or are held in book-entry form in one or

more Citibank Argentina custody accounts for customers. However, the number of Argentine

Law Bonds owned by Citibank Argentina's customers fluctuates over time, as customers trade

these bonds on the market.

The Argentine Law Bonds Are Fungible

22. I have been advised that most of the Argentine Law Bonds were issued in

connection with local transacti ons by the Republic, and that certain of these bonds share the

5



same ISI N as one type of bond issued in connection with the 2005 exchange conducted by the

Republic.

23. Among Argentine Law Bonds that bear the same TSIN, it is operationally

impossible to determine, by reference to the ISTN or any other information available to Citibank

Argentina, when or for what purpose these Argentine Law Bonds were issued, or who their prior

owners might have been. I was advised that the Court had directed the parties to devise a way to

ascertain such information, but in my view there is no possible means for doing so.

Payments on Argentine Law Bonds

24. It is my understanding that, in order to make a principal or interest payment upon

the Argentine Law Bonds, the Republic first transfers the required U.S. dollars to the account of

the Central de Registro y Liquidaci6n de Instrumentos de Endeudamienlo Publico ("'CRYL")

with BCRA. CRYL is a depository fo r securities issued by the Republic and arranges fo r the

clearance and settl ement of transactions in these securities through book-entry changes in its

part icipants ' accounts. CRYL holds all of the global certificates corresponding to the Argentine

Law Bonds and is the registered owner of the Argentine Law Bonds.

25. Caja is a participant in CRYL. I understand that Caja has established a receiving

account at CRYL, in its own name and for the account of third-parties, that corresponds with each

Argentine Law Bond. I also understand that immediately upon receiving the payments from the

Republic on the Argentine Law Bonds, CRYL transfers the entire payment to the corresponding

receiving account held in Caja's name at CRYL. It is my understanding that, once the payment

reaches Caja's acccount at CRYL, the funds belong to customers, and Caja and any intermediary

receiving fu nds downstream from Caja are holding the funds solely for the benefit of customers.

6



26. Upon receiving the funds in its receiving account at CRYL, Caja in turn credits

the amount received to the respective accounts of participants in Caja, including Citibank

Argentina and other custodians or owners of Argentine Law Bonds.

27. Immediately upon the receipt of any payment on the Argentine Law Bonds in its

account, Citibank Argentina either credits the cash accounts of its customers or acts as directed

by any standing instruction. Citibank Argentinas ob ligation to its customers is complete when

the cash accounts of those customers have been cred ited with the amount each such customer is

entitled to receive on that date, or when any standing or specific instructions in respect of such

accounts have been executed.

Dated: February 13, 2015 Buenos Aires, Argentina

Federico Elewaut

7


EXHIBIT C


E9QMREPC

1

1 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

2 ------------------------------x

3 NML CAPITAL, LTD., et al.,

4 Plaintiffs,

5 v. 08 CV 6978 (TPG)

6 THE REPUBLIC OF ARGENTINA,

7 Defendant.

8 ------------------------------x

9 New York, N.Y. September 26, 2014

10 3:05 p.m.

11 Before:

12 HON. THOMAS P. GRIESA,

13 District Judge

14 A P P E A R A N C E S

15 GIBSON DUNN & CRUTCHER Attorneys for Plaintiff NML Capital, Ltd.

16 BY: THEODORE B. OLSON JASON J. MENDRO

17 DECHERT LLP

18 Attorneys for Plaintiff NML Capital, Ltd. BY: ROBERT A. COHEN

19 FRIEDMAN KAPLAN SEILER & ADELMAN LLP

20 Attorneys for Interested Parties Aurelius Capital Partners and Blue Angel

21 BY: EDWARD A. FRIEDMAN

22 CLEARY GOTTLIEB STEEN & HAMILTON Attorneys for Defendant

23 BY: CARMINE BOCCUZZI

24

25

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


E9QMREPC

2

1 APPEARANCES (Cont'd)

2 DAVIS POLK & WARDWELL LLP Attorneys for Citibank

3 BY: KAREN E. WAGNER MATTHEW ROLAND

4 LINDSEY KNAPP JAMES KERR

5 MORGAN LEWIS & BOCKIUS

6 Attorneys for Clear Stream BY: JOHN M. VASSOS

7 LEVI LUBARSKY & FEIGENBAUM

8 Attorneys for JP Morgan Chase BY: HOWARD B. LEVI

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


E9QMREPC

3

1 THE COURT: This will be at 3:00 Monday. This is the

2 first of two hearings. The hearing today will deal with issues

3 about Citibank and Buenos Aires. The hearing Monday will deal

4 with recent conduct by the Republic of Argentina. The hearing

5 today is brought on by a motion which was served on Monday, an

6 order to show cause was signed.

7 Ms. Wagner, would you like to speak to that motion?

8 MS. WAGNER: I would. Thank you, your Honor.

9 Good afternoon, your Honor.

10 First, we thank the Court for hearing us on an

11 expedited basis. As you know, your Honor, Citibank sought an

12 expedited hearing because it faced serious risk if it could not

13 make the September 30 payment on the Argentine law bonds that

14 it holds for its customers. Plaintiffs have now agreed to

15 consent to that payment.

16 So you may ask, why is it that we are having this

17 hearing today. And with your Honor's perm

arg response to ebh

Documents