Case: Document: 518 Page: 1 12/03/ cv(L) United States Court of Appeals. for the. Second Circuit

Transcription

1 Case: Document: 518 Page: 1 12/03/ cv(L) cv (CON), cv (CON), cv (CON), cv (CON), cv (CON), cv (CON), cv (CON), cv (CON), cv (CON), cv (CON), cv (CON), cv (CON), cv (CON), cv (CON), cv (CON), cv (CON), cv (CON), cv (CON), cv (CON), cv (CON), cv (CON), cv (CON), cv (CON), cv (CON) United States Court of Appeals for the Second Circuit NML CAPITAL, LTD., AURELIUS CAPITAL MASTER, LTD., Plaintiffs-Appellees, (continued on inside cover) v. REPUBLIC OF ARGENTINA, Defendant-Appellant, EXCHANGE BONDHOLDER GROUP, Intervenor. ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK OPPOSITION OF DEFENDANT-APPELLANT THE REPUBLIC OF ARGENTINA TO PLAINTIFFS-APPELLEES MOTION TO AMEND STAY Of Counsel: Jonathan I. Blackman Carmine D. Boccuzzi Sara A. Sanchez Michael M. Brennan CLEARY GOTTLIEB STEEN & HAMILTON LLP Attorneys for Defendant-Appellant One Liberty Plaza New York, New York (212)

2 Case: Document: 518 Page: 2 12/03/ (Plaintiffs-Appellees Continued) ACP MASTER, LTD., BLUE ANGEL CAPITAL I LLC, AURELIUS OPPORTUNITIES FUND II, LLC, 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, OLIFANT FUND, LTD.,

3 Case: Document: 518 Page: 3 12/03/ TABLE OF CONTENTS Page TABLE OF AUTHORITIES... ii PRELIMINARY STATEMENT... 1 ARGUMENT... 5 I. PLAINTIFFS REQUEST TO CONDITION THE STAY ON THE REPUBLIC S POSTING OF SECURITY IS THE EQUIVALENT OF THE DISTRICT COURT S IMPROPER ESCROW REQUIREMENT THAT THIS COURT STAYED... 5 II. PLAINTIFFS PROVIDE NO BASIS WHATEVER FOR THEIR DEMAND THAT THE COURT REVERSE ITS STAY ORDER OR SPEED THIS CASE TO JUDGMENT IN UNDER TEN BUSINESS DAYS CONCLUSION... 14

4 Case: Document: 518 Page: 4 12/03/ TABLE OF AUTHORITIES Cases Page(s) Morgan Guar. Trust Co. of New York v. Republic of Palau, 702 F. Supp. 60 (S.D.N.Y. 1988)... 8 Richmark Corp. v. Timber Falling Consultants, 959 F.2d 1468 (9th Cir. 1992)... 8 Sales v. Underwriters Ins. Co., No. 90 Civ (CSH), 1995 WL (S.D.N.Y. Apr. 3, 1995)... 8 Stephens v. Nat l Distillers & Chem. Corp., 69 F.3d 1226 (2d Cir. 1996)... 7 Texaco Inc. v. Pennzoil Co., 784 F.2d 1133 (2d Cir. 1986), rev d on other grounds, 481 U.S. 1 (1987)... 8 Rules and Statutes 28 U.S.C U.S.C ii

5 Case: Document: 518 Page: 5 12/03/ The Republic submits this memorandum in opposition to plaintiffs motion, dated November 30, 2012, seeking to have this Court reverse its November 28 Order (the Stay ) staying the district court s November 21 Orders. 1 PRELIMINARY STATEMENT In issuing its Stay of the district court s November 21 Orders, this Court properly averted the irreparable injury otherwise facing not only the Republic of Argentina but also exchange bondholders holding some $24 billion in restructured debt and countless financial institutions. That imminent, irreparable injury arose from the unprecedented November 21 Orders, which conditioned the Republic s payment on its restructured debt on payment by the Republic of over $1.3 billion (the full face amount of plaintiffs defaulted debt, plus interest), including the immediate turnover of that sum into an escrow account, thereby imperiling service of the Republic s performing debt. Moreover, the November 21 Orders enjoined numerous third parties from transferring or receiving payment of restructured debt, without giving either those third parties or the Republic any opportunity for appellate review of the Orders. By requiring the Republic immediately to turn over 1 Unless otherwise specified, defined terms have the meaning assigned in the Republic s emergency motion for stay, dated November 26, 2012 ( Republic Br. ), and referenced exhibits are those attached to the Declaration of Carmine D. Boccuzzi, dated November 26, Additional exhibits are being submitted today as attachments to the Declaration of Carmine D. Boccuzzi, dated December 3, 2012 ( 12/3 Boccuzzi Decl. ). The Declaration of Matthew D. McGill, dated November 30, 2012, is referred to as McGill Decl. and the Declaration of Sean O Shea, dated December 3, 2012, is referred to as O Shea Decl.

6 Case: Document: 518 Page: 6 12/03/ into that escrow 100% of plaintiffs monetary claims as a condition to making a single installment payment of interest on discounted debt to restructured debt holders, the district court s Orders, when unstayed, put the Republic in an impossible position. The Orders would strip the Republic of its appellate rights while requiring the Republic to take steps in violation of the FSIA, as well as the Republic s own internal law and public policy. This imminent danger was sufficient to warrant this Court s action in granting the Stay. The Court, however, was presented with much more namely, the emergency motions of the performing bondholders themselves, 2 as well as the papers submitted (and ignored) in the district court by The New York Clearing House Association (Ex. N), The Federal Reserve Bank of New York (Ex. L), The Bank of New York Mellon (Ex. K) and The Depository Trust Company (Ex. M). In contrast to the irreparable injury identified by these third parties, plaintiffs offered no basis for finding that they would suffer any harm if a stay issued. The filings of numerous third parties, as well as the tide of materials submitted with the three stay petitions, uniformly and clearly demonstrated the harm facing these institutions, and the even broader crisis of unprecedented proportions that will be provoked by the requirement that the Republic make an immediate 2 The Emergency Motion of the Exchange Bondholder Group, dated November 26, 2012, is referred to here as EBG Br. ; and the Emergency Motion of Fintech Advisory, dated November 27, 2012, is referred to as Fintech Br. 2

7 Case: Document: 518 Page: 7 12/03/ payment it cannot fulfill. The unprecedented Orders imperiled not just numerous institutions, but also the process of orderly sovereign debt restructuring, the standing of New York as a financial center, and New York law. See also Joe Leahy, Brazil warns on Argentina debt ruling, Fin. Times, Nov. 29, 2012 ( Brazil s central bank governor[] has warned that [the injunctions] ordering Argentina to pay so-called holdout creditors sets a negative precedent that could hurt sovereign debt negotiations elsewhere. ) (12/3 Boccuzzi Decl. Ex. A); Stephen M. Davidoff, In Court Battle, a Game of Brinksmanship with Argentina, N.Y. Times, Nov. 27, 2012 ( The ability of a country to achieve a workout and avoid this type of guerrilla action just got harder and more uncertain at a time of debt restructuring in Europe. This is not supposed to happen.... [T]he spirit of the [FSIA] seems violated. ) (12/3 Boccuzzi Decl. Ex. B). By entering the Stay, this Court has allowed for an appropriate review of the interests and arguments of all of these parties interests about which the Court expressed specific and pointed concerns in its October 26 Decision. See Oct. 26 Decision at 28 (Ex. Q). Plaintiffs motion should be denied because it demands, as a condition to the continuation of the Stay, a bond that the Republic cannot and should not be required to post. Plaintiffs improper demand (rejected by the district court itself both in this case and all other cases involving the Republic) for security as a condition of the Stay is no different than the improper escrow requirement in the 3

8 Case: Document: 518 Page: 8 12/03/ November 21 Orders, which similarly compels the Republic to transfer into the United States assets immune from execution so that they are available to satisfy the full amount of plaintiffs money damages claims. Under this Court s precedent, such measures regardless of whether they are styled as pre-judgment security or an escrow are plainly barred by the FSIA. The posting of a bond as security for plaintiffs demanded payment in full is also, like the payment into an escrow, improper under Argentine law, which, based on principles of inter-creditor equity, forbids payment to plaintiffs on better terms than the restructured debt. Plaintiffs in any event can point to no facts warranting an amendment to the Stay. There is certainly no basis for the claim that anything that occurred in the 48 hours after the issuance of the Stay (i.e., the time it took plaintiffs to file their motion) warrants this Court essentially reversing itself. Plaintiffs motion does nothing more than repeat their arguments before the district court based on hearsay newspaper articles which the Republic has refuted in a sworn declaration and claim that this constitutes an emergency. The Republic has not violated the conditions of the district court s original March 5 stay order (enjoining it from changing the method by which the exchange bonds are paid), and in fact has just made its scheduled December 2 interest payment in the same manner as its previous payments, and will continue to service its restructured debt up until Plaintiffs claim of urgency and demand that the Republic be forced to post a bond in the 4

9 Case: Document: 518 Page: 9 12/03/ amount of over $1.4 billion as a condition to making the December 15 payment on the restructured debt is yet another attempt to shield from appellate review, inter alia, the fact that such a requirement, whether phrased as an escrow or a bond, blatantly violates the FSIA, and is not based on any actual emergency that will result in harm to plaintiffs. Plaintiffs demand, in the alternative, that the Court somehow resolve this appeal by December 15 (the date of the next payment on performing debt with which plaintiffs hope to interfere) is equally artificial. This is an attempt to create an erroneous rush to judgment that is unnecessary, unfair, and unworkable. ARGUMENT I. PLAINTIFFS REQUEST TO CONDITION THE STAY ON THE REPUBLIC S POSTING OF SECURITY IS THE EQUIVALENT OF THE DISTRICT COURT S IMPROPER ESCROW REQUIREMENT THAT THIS COURT STAYED This Court s Stay of the November 21 Orders was entered in the wake of three separate emergency motions by the Republic, the Exchange Bondholder Group, and Fintech Advisory Inc., each of which sought to prevent immense, immediate irreparable harm to themselves and numerous other third parties. As the Republic explained in its motion, the Court s Stay of these Orders is necessary to protect those interests. First, the Stay is needed to preserve the Republic s appellate rights. See Republic Br. at 8. Second, the Stay protects the Republic from being placed in an impossible position whereby it faces Orders threatening the service of 5

10 Case: Document: 518 Page: 10 12/03/ its legitimate debts unless the Republic simultaneously satisfies a bond payment requirement with which it cannot legally comply. Id. at 8-9. Third, the Stay prevents the Orders from interfering prior to full appellate review with the rights of the holders of over $24 billion of the Republic s restructured debt. See id. at 9; EBG Br. at 16-18; Fintech Br. at 5-6, 9. Finally, the Stay protects the public interest, because the Amended Injunctions would result in increased litigation and inject more confusion and uncertainty into New York s payment system and future sovereign debt restructurings. See Republic Br. at The Court should reject plaintiffs request to amend the Stay because it amounts to a demand that the Court reverse itself, and permit to go into immediate effect the district court s unprecedented command that the Republic pay into an escrow account over $1.3 billion prior to a December 15 scheduled interest payment on its restructured debt. See Stay Op. at 5 (Ex. F). Plaintiffs in fact demand a $1.45 billion bond, i.e. a larger amount than that required by the district court in the November 21 Orders. See Pls. Mot. at 18 (requesting that the Republic post security that would be available to plaintiffs). For all of the reasons set forth in the Republic s original Stay motion in this Court, as well as the Stay motions of the 3 As set forth in the emergency Stay petitions, the other factors supporting the Stay were satisfied as well. See Republic Br. at 10-20; EBG Br. at 5-14, 18-20; Fintech Br. at 4-9. Rather than burden the Court with additional briefing on these points, the Republic incorporates them here as further refutation of plaintiffs arguments in support of their meritless motion. 6

11 Case: Document: 518 Page: 11 12/03/ Exchange Bondholder Group and Fintech Advisory Inc., the Court should deny plaintiffs request. See Republic Br. at 7-20; EBG Br. at 3-20; Fintech Br. at As an initial matter, plaintiffs demand that the Republic post a $1.45 billion security (again, their version of the district court s escrow ) as a condition of maintaining the Stay clearly violates the FSIA, which immunizes sovereign assets from attachment and restraint unless they are located in the United States and used for a commercial activity here. See 28 U.S.C Requiring the Republic to post a security, and thus to turn over immune funds, plainly infringes on the immunity afforded sovereign assets not located in the United States and not used for a commercial activity here. See Oct. 26 Decision at (injunctions that subject otherwise immune sovereign property to court dominion or control violate the FSIA). Indeed, the Court has previously recognized that the FSIA prohibits such pre-judgment security requirements. See, e.g., Stephens v. Nat l Distillers & Chem. Corp., 69 F.3d 1226, (2d Cir. 1996) (order directing foreign state to pay pre-answer security requirement violates FSIA; the prohibition against attachments should apply broadly ). Thus when plaintiffs first asked that the district court condition its stay on the Republic s posting of a bond, the court appropriately denied that request, see Feb. 23 Tr. at 52:9-10 (A-2341) as it has denied all such previous requests in the Republic s debt litigation. Plaintiffs motion must be denied for this reason alone. 7

12 Case: Document: 518 Page: 12 12/03/ The few cases plaintiffs cite to support the proposition that the posting of security is not prohibited by the FSIA are inapposite. Aside from being from outside of this Circuit or otherwise lower court decisions pre-dating Stephens, they involve parties that had already obtained money judgments something that plaintiffs have not done and refuse to do in the cases where they have asserted their pari passu claim. See Pls. Mot. at 19 (citing Richmark Corp. v. Timber Falling Consultants, 959 F.2d 1468 (9th Cir. 1992); Sales v. Underwriters Ins. Co., No. 90 Civ (CSH), 1995 WL , at *1 (S.D.N.Y. Apr. 3, 1995); Morgan Guar. Trust Co. of New York v. Republic of Palau, 702 F. Supp. 60 (S.D.N.Y. 1988)). 4 Plaintiffs request for security is thus nothing more than an attempt to recast their injunctive remedy as the equivalent of a money judgment and then obtain the equivalent of an attachment on immune assets to collect it. Moreover, because the Republic cannot pay a bond under Argentine law, plaintiffs requested security requirement would be impracticable and lead to the same chain of events that would have caused irreparable harm if the Court had not issued the Stay. As the Republic stated in its emergency motion for a Stay, 4 Even where a plaintiff has obtained a money judgment, this Court has found that the posting of a bond is not necessarily required for a stay. See, e.g., Texaco Inc. v. Pennzoil Co., 784 F.2d 1133, (2d Cir. 1986), rev d on other grounds, 481 U.S. 1 (1987) (the inflexible requirement for denial of a stay of execution unless a supersedeas bond is posted can be irrational, unnecessary and selfdefeating, amounting to a confiscation of the judgment debtor s property without due process. ). 8

13 Case: Document: 518 Page: 13 12/03/ under Argentine law and public policy the Republic cannot pay plaintiffs on better terms than participants in the 2010 Exchange Offer, and accordingly it cannot post a bond that is based on paying plaintiffs on better terms. Nor would the Republic be able to make a payment on a bond from one day to the next without any budgetary basis. Because the Republic cannot post a bond, plaintiffs know that this conditioning of the Stay would lead to the same kind of crisis that had been previously averted by the Court s granting of the Stay. Plaintiffs recasting of the district court s escrow requirement as the posting of a bond thus does not solve any of the significant problems raised by the November 21 Orders. 5 5 Plaintiffs request that [a]t the very least, Argentina should be called upon to post security of $250 million, and that if Argentina refuses to post even that minimal security... that will amply demonstrate its intention not to comply with this Court s mandates and that the stay should be lifted [] as to Argentina itself should be denied as well. Pls. Mot. at 4. It is not the magnitude of the payment, but the legal impropriety both under the FSIA and Argentine law and policy of plaintiffs proposed turnover order that prevents Argentina from complying with it. Plaintiffs contention that this Court has finally ruled on the propriety of the district court s Orders under the FSIA is wrong. The Republic s petition for panel rehearing and rehearing en banc is still pending, and in any event, the Court has not yet reviewed the November 21 Orders, including whether their requirement that the Republic pay over $1.3 billion into a court-controlled escrow violates the FSIA - which it clearly does. 9

14 Case: Document: 518 Page: 14 12/03/ II. PLAINTIFFS PROVIDE NO BASIS WHATEVER FOR THEIR DEMAND THAT THE COURT REVERSE ITS STAY ORDER OR SPEED THIS CASE TO JUDGMENT IN UNDER TEN BUSINESS DAYS Having granted the Stay, this Court has already recognized that the rights and interests it protects justify its entry. Plaintiffs provide no basis to support their request that the Court now just days later essentially reverse the Stay, or, in the alternative, enter an unreasonably expedited schedule. Plaintiffs recycled accusations that the Republic is developing a scheme to pay the exchange debt through an alternate structure, Pls. Mot. at 1-2, were not only already before this Court when it issued its Stay ruling, but are also flat wrong and provide no basis for amending the Court s Stay. Contrary to plaintiffs assertion, there is simply no scheme to pay the exchange bonds through some other method. In support of their motion, plaintiffs once again rely only on press statements that express alarm at the actions of the district court and engage in speculation about what could possibly happen next. The vast majority of these unsupported out-of-court statements are the very same statements plaintiffs used before the district court in obtaining the November 21 Orders, and the new articles plaintiffs cite say nothing credible about the Republic changing how exchange bonds will be paid. Plaintiffs have used this tactic of citing unsubstantiated newspaper reports since they were originally before this Court in July, in an effort to create a 10

15 Case: Document: 518 Page: 15 12/03/ false sense of emergency so that the merits of the case are rushed along. The facts are that nothing has changed and nothing will change with respect to how the exchange bondholders are paid. The Republic has been litigating these issues since the February 23 Orders were entered, and in the 9 months since then, nothing has changed with regards to the payment of exchange bondholders. The Bank of New York Mellon ( BNYM ) is the trustee for holders of exchange debt, and would of course know of any planned change to its role or duties. There is no such change; BNYM indisputably remains the trustee for holders of restructured debt, a fact evidenced by its entreaties to the district court (which the district court ignored) that it be permitted to fulfill its obligations to the exchange bondholders, as opposed to being caught up in plaintiffs dragnet injunctions. See BNYM Brief, dated Nov. 16, 2012 (Ex. K). The maintenance of the status quo (which in fact this Court s Stay accomplishes) is further confirmed by the only piece of competent evidence in the record on this point, which is the sworn declaration submitted to the district court by the Republic. As the director of the Republic s National Bureau of Public Credit of the Ministry of Economy, Francisco Guillermo Eggers, unequivocally confirmed, the Republic has complied, is complying, and will comply with the terms of the district court s stay order of March 5, See Eggers Decl. 4, (emphasis added) (Ex. H). There can be no clearer refutation of plaintiffs 11

16 Case: Document: 518 Page: 16 12/03/ allegation that the Republic is currently devising schemes to evade the injunctions than the Republic s statement that it has and will comply with the requirement that the Republic shall not during the pendency of the appeal to the Second Circuit take any action to evade the directives of the February 23, 2012 Orders in the event they are affirmed. Mar. 5, 2012 Stay Order 2 (Ex. U). While plaintiffs claim that the newspaper articles they cite demonstrate the Republic s subversive plans, the ongoing speculation found in these articles is just that: guesswork that reflects the continuing concern and fear created in the financial markets by the plaintiffs unprecedented actions. See, e.g., The Government discusses to continue paying as usual in New York, Ambito Financiero, dated Nov. 13, 2012, with an English translation (McGill Decl. Ex. R). 6 The Court should also deny plaintiffs request to further expedite briefing and consideration of the appeal such that it be concluded prior to December 15. See Pls. Mot. at 19. The Court has already provided for an expedited appeal, which will have briefing done in under two months. The unrealistic expedited schedule that plaintiffs demand would unnecessarily force the 6 Moreover, [t]here is no mechanism whereby the Republic could pay the Exchange Bondholders directly outside of the existing payment system; indeed, the Republic has no means to know the identities and holdings of all Exchange Bondholders even if it wanted to pay them through some other mechanism. Supplemental Decl. of Stephen Choi 5, dated Nov. 26, 2012 (O Shea Decl. Ex. 23). 12

17 Case: Document: 518 Page: 17 12/03/ Court to resolve in under 10 business days numerous complicated issues that will have wide-ranging, precedential effects going forward, and would prevent numerous third parties from submitting their views to this Court (the very parties this Court expressed concerns about in the October 26 Decision). See Oct. 26 Decision at 28 ( Our concern about the Injunctions application to third parties does not end [with banks acting as intermediaries].... [W]e believe the district court should more precisely determine the third parties to which the Injunctions will apply before we can decide whether the Injunctions application to them is reasonable. ) (Ex. Q). It would be impossible for the parties to appropriately brief the serious and substantial issues raised by the November 21 Orders in the short period of time requested by plaintiffs. The current briefing schedule, which is already expedited, expressly contemplates the filing of amicus briefs by interested third parties in recognition of the issues and interests at stake in this appeal. Plaintiffs should not be permitted to silence those third parties by imposing a schedule that prohibits them from expressing their views. 13

18 Case: Document: 518 Page: 18 12/03/ CONCLUSION For the foregoing reasons, this Court should deny plaintiffs motion. Dated: New York, New York December 3, 2012 Respectfully submitted, CLEARY GOTTLIEB STEEN & HAMILTON LLP By: /s/ Carmine Boccuzzi Jonathan I. Blackman Carmine D. Boccuzzi One Liberty Plaza New York, New York (212) Attorneys for the Republic of Argentina 14

19 Case: Document: 518 Page: 19 12/03/ UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT X : NML CAPITAL, LTD., : Plaintiff-Appellee, : : - v. - : : THE REPUBLIC OF ARGENTINA, : Defendant-Appellant. : : : : X cv(L) DECLARATION OF CARMINE D. BOCCUZZI Pursuant to 28 U.S.C. 1746, Carmine D. Boccuzzi declares as follows: 1. I am an attorney admitted to practice before this Court and a partner at Cleary Gottlieb Steen & Hamilton LLP, counsel for defendant-appellant the Republic of Argentina (the Republic ) in these matters. I submit this declaration on behalf of the Republic in opposition to Plaintiffs Emergency Motion to Amend Stay Order. 2. Attached to this declaration as Exhibits A-B are true and correct copies of the following documents: Ex. A Document Joe Leahy, Brazil warns on Argentina debt ruling, Fin. Times, Nov. 29, 2012;

20 Case: Document: 518 Page: 20 12/03/ Ex. B Document Stephen M. Davidoff, In Court Battle, a Game of Brinksmanship with Argentina, N.Y. Times, Nov. 27, I declare under penalty of perjury that the foregoing is true and correct. Executed on December 3, 2012, in New York, New York. /s/ Carmine Boccuzzi CARMINE D. BOCCUZZI 2

21 Case: Document: 518 Page: 21 12/03/ EXHIBIT A

22 Case: Document: 518 Page: 22 12/03/ November 29, :04 pm Brazil warns on Argentina debt ruling By Joe Leahy in Brasília Alexandre Tombini, Brazil s central bank governor, has warned that a US court decision ordering Argentina to pay so-called holdout creditors sets a negative precedent that could hurt sovereign debt negotiations elsewhere. He said eurozone countries, which are struggling with their own sovereign debt crises, could eventually be hit by the ruling, in which a New York judge ordered Argentina to pay $1.3bn to bondholders who refused to participate in credit restructurings after the country defaulted on almost $100bn in debt in country. This is not a good development for anyone, Mr Tombini said. Today it is Argentina, tomorrow it could be a European Argentina, which has averted an immediate default by winning a stay on the ruling, has attacked the decision and refused to pay the holdouts. Brazil, a close neighbour of Argentina and a major commercial partner as a fellow member of the Mercosul trading bloc, has not expressed formal support for Buenos Aires on the sovereign debt issue. But Mr Tombini said the order to pay the holdouts was worrying for all sovereign debt restructuring processes. It s not only concerning for Argentina but it could open a very sensitive precedent If the holdouts were to be treated the way the decision has pointed in the US courts, because then the debt restructuring that was undertaken a few years ago would be put into question, he told a press briefing in Brasilia. Hopefully this will be resolved. On other matters, Mr Tombini said Brazil s belief was that the fiscal cliff in the US would be resolved in time for the deadline later next month.

23 Case: Document: 518 Page: 23 12/03/ There is no option other than for the fiscal cliff to be addressed, he said. It s a US problem but (also) a global problem. Brazil is always preparing hope for the best and prepare for the worst. For the time being our view is that it s going to be addressed. He said the eurozone remained concerning for Brazil but the crisis there had stabilised. As far as that feeling we had second half last year, the beginning of this year that a collapse was in the making; that has been dissipated quite significantly, he said. He said this was because Europe had undertaken measures to capitalise its banking system and refinance sovereign debt. It doesn t mean growth will be revived quite quickly it will take time, he said, predicting a contraction in the eurozone economy this year and a slight contraction in Brazil s central bank on Wednesday evening voted to keep rates on hold, ending a year-long continuous easing cycle in which the benchmark Selic rate fell to a record low of 7.25 per cent. Mr Tombini said he believed the Brazilian economy had recovered to an annual growth rate of more than 4 per cent in the third quarter. You may be interested in Sovereign debt after Judge Griesa Markets: An unforgiven debt Argentina debt repayment order frozen 'Reckless' Argentina risks threat to growth Argentina angry at hedge fund court win Printed from: Print a single copy of this article for personal use. Contact us if you wish to print more to distribute to others. THE FINANCIAL TIMES LTD 2012 FT and Financial Times are trademarks of The Financial Times Ltd.

24 Case: Document: 518 Page: 24 12/03/ EXHIBIT B

25 Case: Document: 518 Page: 25 12/03/ NOVEMBER 27, 2012, 5:02 PM In Court Battle, a Game of Brinkmanship With Argentina By STEVEN M. DAVIDOFF Foreclose on a country? It sounds far-fetched, but a United States court is saying that Argentina must set aside $1.33 billion for some American hedge funds and others. That decision is threatening to throw the South American country and the entire sovereign debt market into turmoil. This game of chicken is a lesson on the hazards of United States courts' interfering in international affairs. The origins of the mess arise from Argentina's status as a sometime deadbeat debtor. In 2001, the country defaulted on more than $80 billion worth of sovereign bonds. Historically, a default like this leaves bondholders with few options. There is no global bankruptcy process and individuals can't force a country to pay. A century or so ago, creditor countries would sometimes send in gunboats and troops to force payment. These days, the lawyers and bankers are sent in, as a default usually leads to a restructuring of the country's debt. Typically, the creditors are forced to take a haircut while the country pays something to try to maintain access to the global credit markets. This is what happened in Argentina. In 2005 and 2010, Argentina restructured its debt offering to exchange the old bonds for new bonds at the paltry sum of 25 to 29 cents on the dollar. Argentina was able to push bondholders to accept such a low price because the offer was coupled with a new law passed by its Legislature making it illegal for the country to pay the old bonds. In other words, it was either the new bonds or nothing. But there were holdouts, including thousands of Italian pensioners, who own what is now about $11 billion in debt. The holdouts also included a number of hedge funds, some of which had acquired this debt as far back as the 1990s, seeing an opportunity for a big return, despite the risk. The group also includes Elliott Management and Aurelius Capital Management. Elliott, a $20 billion hedge fund founded by Paul Singer, is one of the leaders in this field. It previously made outsize returns investing in defaulted sovereign debt and trying to force the country to pay by seizing its assets. For about $2 million, for example, Elliott bought sovereign debt with a face value of more than $30 million that was issued by the

26 Case: Document: 518 Page: 26 12/03/ Republic of Congo. The fund was able to win a $100 million judgment in England and intercept $39 million worth of oil owned by the Republic of Congo. In the case of Argentina, Elliott recently was able to get a Ghanaian court to order the seizure of an Argentine frigate. While the standoff over the frigate is embarrassing for Argentina, it is a sideshow to the litigation by Elliott and Aurelius in New York A few years ago, Elliott and Aurelius changed their legal tack. They argued in court that the pari passu clause in the bond documents - common language in such documents that says that the investors cannot be treated differently - required that if Argentina paid any money on its new bonds it also had to pay the old defaulted holders. "Pari passu" is a Latin phrase that roughly means "on equal footing." It is intended to ensure that if a debtor issues new debt, it cannot be superior to the old debt. Argentina showed up in Federal Distric Court for the Southern District of New York and through its lawyers heatedly argued that these clauses merely required Argentina to treat bondholders legally the same, not make equal payments, as the funds argued. It's an arcane legal argument, and most legal scholars and those in the market sided with Argentina, stating that this was how debt restructuring had worked for decades. But in October, the United States Court of Appeals for the Second Circuit disrupted this precedent, siding with the hedge funds. The court held that the pari passu clause required Argentina to pay the hedge funds on the old debt any time it made a payment on the new debt. Argentina has a $3 billion payment on its new bonds due on Dec. 15. Last week, Judge Thomas P. Griesa of Federal District Court piggybacked on the Court of Appeals decision, ordering that if Argentina made this payment, it and any third parties through which this money was transferred would also have to set aside $1.33 billion, the entire amount owed to the hedge funds, to pay the old debt equally. It's now chaos. Many believe that Argentina will simply default on all of its debt, refusing to pay the new debt to avoid paying the hedge funds - which have been deemed "vultures" by the country's politicians. Hernán Lorenzino, Argentina's economy minister, reacted angrily to the court decisions, saying that they were "a kind of legal colonialism" and that all "we need now is for Griesa to send us the Fifth Fleet." The uncertainty has affected Argentina's capital markets. Its stock market fell on the news, and credit-default swaps on Argentine debt have skyrocketed in price as the markets worry about yet another Argentine default.

27 Case: Document: 518 Page: 27 12/03/ Elliott and Aurelius are no doubt giddy. The current bondholders are wondering how they got dragged into this dispute. This decision will also have real effects on global finance. Most bonds issued by sovereigns contain pari passu clauses, and this type of exchange was par for the course for country debt restructuring. (Just think of Greece.) And while bonds have changed in recent years to accommodate workouts and may be under the laws of different countries, it is still unclear whether these circumstances will affect the Court of Appeals ruling, as Anna Gelpern, a noted scholar in this area, has written. The ability of a country to achieve a workout and avoid this type of guerrilla action just got harder and more uncertain at a time of debt restructuring in Europe. This is not supposed to happen. The Foreign Sovereign Immunities Act of 1976, which exempts sovereign nations from litigation, was enacted to avoid this. It prevents United States courts from attaching the property of foreign countries, a reason you don't see American creditors seizing Argentine frigates in New York harbor. But in the suit by Elliott and Aurelius, the courts sidestepped this act by ruling that their decision reflected how Argentina should act, without requiring it to pay. If Argentina decides not to pay the new debt, it does not have to pay the old debt. Still, the spirit of the act seems violated. And it is bad news when United States judges are seen as controlling the destinies of foreign countries. Argentina is no angel. It is deliberately avoiding repaying these bondholders, and it used its sovereign immunity to force a disadvantageous situation. And the country is busy nationalizing other assets, including the energy company YPF, signaling increasingly that it is a bad global citizen. But the Federal District Court overseeing this case through a decade of tiring litigation seems more focused on cramped legal interpretations and the morality of debt than on the wider consequences of its rulings. The judge in the matter even called Argentina's actions "immoral" - whatever that means to hedge funds and to other investors in a world of finance where only numbers matter. And the federal courts willfully entered into this quicksand, overturning decades of custom and practice in these deals. For a few federal judges to take such an extreme step and upset the entire debt market, not just Argentina's capital markets, seems a bit risky. The next move belongs to Argentina, which is entering another court appeal. But whatever happens on appeal, it is unlikely that the country will pay the hedge funds anytime soon, meaning that this battle between the federal courts and the country is likely to intensify. What a mess.

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