Opinion ID: 796447
Heading Depth: 4
Heading Rank: 2

Heading: Control over BCRA

Text: 35 To the extent that plaintiffs' claim on the FRBNY Funds is based on the Republic's control over BCRA, as demonstrated by the Decrees, see, e.g., Br. of Appellant EM 27-28 (arguing that the Republic's ability to appropriate BCRA's assets with the stroke of a pen ... proves beyond question that the Argentine state controls not only the Unrestricted Reserves, but all of the Central Bank's assets), plaintiffs have failed to avail themselves of well-established legal principles that might permit attachment. In Banco, the Supreme Court stated that government instrumentalities established as juridical entities distinct and independent from their sovereign should normally be treated as such. 462 U.S. at 626-27, 103 S.Ct. 2591. According to the Court, 36 [f]reely ignoring the separate status of government instrumentalities would result in substantial uncertainty over whether an instrumentality's assets would be diverted to satisfy a claim against the sovereign, and might thereby cause third parties to hesitate before extending credit to a government instrumentality without the government's guarantee. As a result, the efforts of sovereign nations to structure their governmental activities in a manner deemed necessary to promote economic development and efficient administration would surely be frustrated. 37 Id. at 626, 103 S.Ct. 2591 (footnote omitted). 38 The Court found support for this proposition in the legislative history of 28 U.S.C. § 1610(b), see note 6, ante (quoting § 1610(b)), the provision of the FSIA addressing the circumstances under which a judgment creditor may execute upon the assets of an instrumentality of a foreign government: 39 Section 1610(b) will not permit execution against the property of one agency or instrumentality to satisfy a judgment against another, unrelated agency or instrumentality. There are compelling reasons for this. If U.S. law did not respect the separate juridical identities of different agencies or instrumentalities, it might encourage foreign jurisdictions to disregard the juridical divisions between different U.S. corporations or between a U.S. corporation and its independent subsidiary. However, a court might find that property held by one agency is really the property of another. 40 Banco, 462 U.S. at 627-28, 103 S.Ct. 2591 (quoting FSIA House Report at 29-30, as reprinted in 1976 U.S.C.C.A.N. at 6628-29). 41 In Banco, the Court held that the presumption that a foreign government's determination that its instrumentality is to be accorded separate legal status will be honored, id. at 628, 103 S.Ct. 2591, could be overcome under certain circumstances, including where the instrumentality is so extensively controlled by its owner that a relationship of principal and agent is created, id. at 629, 103 S.Ct. 2591, and where recognizing the instrumentality's separate juridical status would work fraud or injustice, id. (quoting Taylor v. Standard Gas Co., 306 U.S. 307, 322, 59 S.Ct. 543, 83 L.Ed. 669 (1939)) (internal quotation mark omitted); see also Letelier v. Republic of Chile, 748 F.2d 790, 794 (2d Cir.1984) (The Banco Court held that a foreign state instrumentality is answerable just as its sovereign parent would be if the foreign state has abused the corporate form, or where recognizing the instrumentality's separate status works a fraud or an injustice.). 42 Our respect for the separate juridical status of government instrumentalities led us to conclude in Letelier that the assets of Chile's state-owned airline, LAN, could not be executed upon to satisfy a judgment obtained against the Republic of Chile. See Letelier, 748 F.2d at 792, 799. We interpreted Banco to establish a presumption that assets of a foreign government instrumentality could not be executed upon to satisfy a judgment against a parent foreign government. That presumption could be overcome only if the party seeking attachment carried its burden of demonstrating that the instrumentality's separate juridical status was not entitled to recognition. See id. at 794-95. 43 In Letelier, the district court had held that Chile's direct control of LAN's assets and facilities, its power to use LAN's assets, its ability to have decreed LAN's dissolution and taken over property interests held in LAN's name, and its use of the instrumentality's facilities and personnel to plan and carry out an assassination that gave rise to the judgment at issue in the case amounted to an abuse of corporate form justifying disregard of the instrumentality's separate juridical status. Id. at 794. We reversed, holding that 44 [p]laintiffs had the burden of proving that LAN was not entitled to separate recognition. A creditor seeking execution against an apparently separate entity must prove the property to be attached is subject to execution. The evidence submitted by the judgment creditors does not reveal abuse of corporate form of the nature or degree that Banco found sufficient to overcome the presumption of separate existence. As both Banco and the FSIA legislative history caution against too easily overcoming the presumption of separateness, we decline to extend the Banco holding to do so in this case. 45 Id. at 795 (citations and internal quotation marks omitted). 46 In a recent case, LNC Invs., Inc. v. Republic of Nicaragua, 115 F.Supp.2d 358 (S.D.N.Y.2000), aff'd sub nom. LNC Invs., Inc. v. Banco Central De Nicaragua, 228 F.3d 423 (2d Cir.2000), a district court applied Banco to defeat the efforts of LNC Investments (LNC), a judgment creditor of the Republic of Nicaragua (Nicaragua), to execute on assets of Nicaragua's central bank held in the FRBNY. In that case, LNC obtained a judgment against Nicaragua based on its holdings of defaulted debt instruments issued by Nicaragua. To satisfy the judgment, LNC sought to execute on assets of Banco Central de Nicaragua—Nicaragua's central bank—held in the FRBNY, contending that Nicaragua had waived immunity from attachment of its central bank's assets and, in the alternative, that the central bank could be required to satisfy the judgment against Nicaragua. See id. at 360-63. 47 The district court rejected LNC's waiver argument, see id. at 361-63, and held that the central bank could be required to satisfy the judgment against its parent sovereign government only if LNC could overcome the Banco presumption that the central bank's separate juridical status must be respected, see id. at 363. It concluded that LNC failed to prove that Nicaragua abused the central bank's corporate form ( i.e., that the central bank was the alter ego of Nicaragua), or that respecting the central bank's separate juridical status would work a fraud or injustice. See id. at 363-66. 48 We affirmed in a brief opinion in which we expressed our agreement with the district court's reasoning. See LNC Invs., 228 F.3d at 423 (The district court held that the Central Bank's assets could not be reached to satisfy the judgment against Nicaragua. We agree and affirm for substantially the reasons stated by the district court.). This result has been described by a commentator as consistent with the outcome in a series of prior appellate decisions that had shown a strong aversion to overriding the presumption of independent status for separate corporate agencies or instrumentalities. Paul L. Lee, Central Banks and Sovereign Immunity, 41 Colum. J. Transnat'l L. 327, 364 (2003). 14 See also First City, Texas-Houston, N.A. v. Rafidain Bank, 150 F.3d 172, 176 (2d Cir.1998) (using Banco to analyze claim that central bank of Iraq should be held liable for Iraq-owned commercial bank's repudiation of debts as commercial bank's alter ego); Olympic Chartering S.A. v. Ministry of Indus. and Trade of Jordan, 134 F.Supp.2d 528, 530 (S.D.N.Y.2001) (rejecting claim by judgment creditor of Jordan's Ministry of Industry and Trade for jurisdictional discovery concerning the Central Bank of Jordan (CBJ) because petitioner has made no allegation that CBJ is an alter ego of the judgment debtor nor of `fraud or injustice' involving CBJ (quoting Banco, 462 U.S. at 629, 103 S.Ct. 2591)). 49 We see no reason why the presumption of separateness required by Banco and applied in Letelier and LNC Investments should not apply here to shield the FRBNY Funds from attachment. The separate juridical status of BCRA is not disputed by plaintiffs, 15 and plaintiffs expressly elected not to argue in support of attachment that BCRA's separate juridical status should be disregarded because BCRA is the alter ego of the Republic. See, e.g., Jan. 12, 2006 Hr'g Tr. 8, Special Appendix of Appellant EM 13 (counsel for EM acknowledging that the FRBNY Funds were the central bank's property before the decree, subject to arguments which we think are legitimate arguments of ours that the central bank is the alter ego of the government. But that would still make it the central bank's property.); NML Reply Br. 21-22: 50 The reason Central Bank assets were not available before December 15, 2005, [the date on which the Decrees were issued,] to be attached by Argentina's creditors is that the relevant debts are Argentina's and not the Central Bank's. Before President Kirchner decreed funds held by the Central Bank available to pay a debt of Argentina, appellants had no basis— other than an alter ego argument, which they have not yet made in the District Court —to argue that they were entitled to attach Central Bank funds to pay a debt of Argentina. 51 (citation omitted) (second emphasis added). Nor have they argued that the Banco presumption should be overcome based on a finding that disregarding BCRA's separate juridical status is necessary to prevent fraud or injustice. 16 In fact, neither EM nor NML even so much as mentions Banco in its briefs. 52 We reject plaintiffs' effort to circumvent Banco and our decisions in Letelier and LNC Investments by characterizing the Republic's ability and willingness to control BCRA as a transfer of property rights sufficient to give the Republic an attachable interest in the FRBNY Funds. Under Banco and its progeny, plaintiffs bear the burden of overcoming the presumption that the FRBNY Funds are not available to satisfy a judgment against the Republic. Banco indicates two circumstances in which the presumption may be overcome—if BCRA were proven to be the alter ego of the Republic, or if disregarding BCRA's separate juridical status were necessary to avoid fraud or injustice. Plaintiffs chose not to argue that either of these circumstances existed here, even though the Republic's alleged misdeeds cited in plaintiffs' briefs might have lent some credence to these arguments. 17 Banco forecloses any argument that all of BCRA's $26.8 billion in reserves are attachable interests of the Republic merely because the Republic hypothetically could have ordered (but in the Decrees did not order) BCRA to assign or transfer the FRBNY Funds. See Letelier, 748 F.2d at 794 (findings that assets and facilities of Chile's instrumentality LAN were under the direct control of Chile, which had the power to use them; [and that] Chile could have decreed LAN's dissolution and taken over property interests held in LAN's name did not support allowing creditor to attach LAN's assets in order to satisfy judgment against Chile). 53 C. Use of Funds To Repay the IMF Is Not a Commercial Activity 54 Even if we agreed that the Decrees effectively converted all of BCRA's reserves—including the reserves held in the FRBNY Account—into attachable assets of the Republic, we could not authorize the pre—or postjudgment attachment of the FRBNY Funds unless we found that the account had become property of the Republic used for a commercial activity in the United States. 18 28 U.S.C. §§ 1610(a) & (d); see note 6, ante (quoting relevant portions of § 1610). Plaintiffs essentially concede as much by arguing that the Unrestricted Reserves are attachable because they were used for a commercial activity. See Br. of Appellant EM 32-36 (arguing that Unrestricted Reserves are attachable because they have been used for a commercial activity); Br. of Appellant NML 37-47 (same). 19 55 Plaintiffs contend that the Republic's use of the FRBNY Funds constituted a commercial activity in the United States under 28 U.S.C. § 1610(a) because the funds could have been used to repay the Republic's debt to the IMF. They rely on Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 112 S.Ct. 2160, 119 L.Ed.2d 394 (1992), in which the Supreme Court held that Argentina's issuance of commercial bonds constituted commercial activity under the FSIA, see id. at 615-17, 112 S.Ct. 2160, to argue that a government's repayment of debt always constitutes commercial activity within the meaning of the FSIA. Under this reasoning, the Republic engaged in commercial activity when BCRA repaid the Republic's debt to the IMF. 56 We disagree with plaintiffs' argument on two separate and independent grounds. First, we hold that the Republic's relationship with the IMF is not commercial in nature; thus, use of Unrestricted Reserves to repay the IMF did not constitute commercial activity. Second, even if we assumed that the Republic's relationship with the IMF was commercial in nature, plaintiffs have failed to show on the present record that any of the FRBNY Funds were to be used to pay the IMF. 57 The FSIA's definition of commercial activity states that [t]he commercial character of an activity shall be determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose. 28 U.S.C. § 1603(d). According to the Supreme Court in Weltover, [a] foreign state engaging in `commercial' activities `do[es] not exercise powers peculiar to sovereigns'; rather, it `exercise[s] only those powers that can also be exercised by private citizens.' 504 U.S. at 614, 112 S.Ct. 2160 (second and third alterations in original) (quoting Alfred Dunhill of London, Inc. v. Republic of Cuba, 425 U.S. 682, 704, 96 S.Ct. 1854, 48 L.Ed.2d 301 (1976) (plurality opinion)). This led the Court to conclude that when a foreign government acts, not as regulator of a market, but in the manner of a private player within it, the foreign sovereign's actions are `commercial' within the meaning of the FSIA. . . . [T]he issue is whether the particular actions that the foreign state performs (whatever the motive behind them) are the type of actions by which a private party engages in `trade and traffic or commerce.' Id. (quoting Black's Law Dictionary 270 (6th ed.1990)). The Court concluded in Weltover that Argentina engaged in commercial activity within the meaning of the FSIA when it issued commercially-available debt instruments, because the instruments were in almost all respects garden-variety debt instruments: They may be held by private parties; they are negotiable and may be traded on the international market (except in Argentina); and they promise a future stream of cash income. Id. at 615, 112 S.Ct. 2160. 58 The Republic's borrowing relationship with the IMF, and the repayment obligations assumed thereunder, are not similarly commercial for several reasons. First, when the Republic borrows from the IMF, it exercise[s] powers peculiar to sovereigns. Id. at 614, 112 S.Ct. 2160. The IMF is a unique cooperative international institution established by treaty — the Bretton Woods Agreement — following the end of the Second World War. See Articles of Agreement of the IMF, 60 Stat. 1401, T.I.A.S. 1501 (Dec. 27, 1945). The Bretton Woods Agreement has since been amended twice, most recently in 1976, see Second Amendment of Articles of Agreement of the International Monetary Fund, Apr. 30, 1976, 29 U.S.T. 2203, T.I.A.S. No. 8937 (IMF Agreement), available at http://www.imf.org/external/pubs/ft/aa/aa. pdf. 20 Only sovereign nation states can become members of the IMF, see IMF Agreement art. II, 29 U.S.T. at 2205-06, and only members can avail themselves of IMF financing, see id. arts. IV-V, 29 U.S.T. at 2208-20. The Republic is one of 184 sovereign nations that are members of the IMF. See IMF, Members' Quota and Voting Power, http://www.imf.org/external/ np/sec/memdir/members.htm. 59 Second, the IMF's borrowing program is part of a larger regulatory enterprise intended to preserve stability in the international monetary system and foster orderly economic growth. See IMF Agreement art. IV § 1, 29 U.S.T. at 2208 (describing requirement that each member undertakes to collaborate with the Fund and other members to assure orderly exchange arrangements and to promote a stable system of exchange rates); id. § 3, 29 U.S.T. at 2209 (granting the IMF the power to oversee the international monetary system in order to ensure its effective operation by exercis[ing] firm surveillance over the exchange rate policies of members). The Republic's borrowing relationship with the IMF is regulatory in nature because the IMF's provision of foreign currency or IMF-specific assets in exchange for domestic currency, see post (discussing unique nature of IMF loan arrangements), generally requires regulatory action by the Republic. See Fact Sheet — IMF Lending, http://www.imf.org/ external/np/exr/facts/howlend.htm (An IMF loan is usually provided under an `arrangement,' which stipulates the specific policies and measures a country has agreed to implement to resolve its balance of payments problem.); see also Sandra Blanco & Enrique Carrasco, The Functions of the IMF and the World Bank, 9 Transnat'l L. & Contemp. Probs. 67, 75 (1999) (describing IMF loans beyond a minimum size as entailing the explicit commitment by the member country to implement remedial measures in return for IMF assistance . . . . Those measures typically have related to the domestic money supply, budget deficits, international reserves, external debt, exchange rates, and interest rates.). The Republic agreed to many economic policy and regulatory reform measures in exchange for the IMF loans that were ultimately repaid in 2005. See IMF Independent Evaluation Office, The IMF and Argentina, 1991-2001 17-38 (2004) (describing and evaluating IMF's efforts to influence Argentina's exchange rate and fiscal policies, and to encourage structural reforms, in exchange for providing Argentina access to IMF capital); see also Weltover, 504 U.S. at 614, 112 S.Ct. 2160 (concluding that a foreign government's issuance of regulations limiting foreign currency exchange is a sovereign activity, because such authoritative control of commerce cannot be exercised by a private party). 21 60 Third, the terms and conditions of the Republic's borrowing relationship with the IMF are not governed by a garden-variety debt instrument[ ], id. at 615, 112 S.Ct. 2160, but instead by the Republic's treaty obligations to the international organization, as supplemented by the terms and conditions contained in agreements associated with individual loans. If the Republic failed to comply with these obligations, it would be in breach of the IMF Agreement and as a result could lose its rights to use IMF borrowing facilities, participate in IMF governance, and ultimately, remain a member of the IMF. See IMF Agreement art. v. § 5, 29 U.S.T. at 2213; id. art. XXVI § 2, 29 U.S.T. at 2254. The vehicle for enforcing the Republic's obligations to the IMF is diplomatic and thus sovereign, not commercial. See MCI Telecommunications Corp. v. Alhadhood, 82 F.3d 658, 663 (5th Cir.1996) (We find that alleged promises made through diplomatic channels do not constitute commercial activity.). 61 Fourth, IMF loans are structured in a manner unique to the international organization, and are not available in the commercial market. Instead of obtaining currency in exchange for debt instruments, IMF debtors purchase Special Drawing Rights (SDRs) or other currency from the IMF in exchange for their own currency. See IMF Agreement art. V § 2(a), 29 U.S.T. at 2210 (stating that, with certain exceptions, transactions on the account of the Fund shall be limited to transactions for the purpose of supplying a member, on the initiative of such member, with special drawing rights or the currencies of other members from the general resources of the Fund . . . in exchange for the currency of the member desiring to make the purchase); id. art. XVII §§ 2-3, 29 U.S.T. at 2239-40 (discussing who may hold SDRs); see also Blanco & Carrasco, ante, at 74 (Although the IMF's assistance is usually referred to as `lending' or `loans,' a member country actually `purchases' SDRs or other currencies from the Fund in exchange for its own currency and agrees to `repurchase' (buy back) its own currency at a later date.). Because a nation state's borrowing relationship with the IMF takes place outside of the commercial marketplace, it cannot be considered commercial in nature. Compare Weltover, 504 U.S. at 617, 112 S.Ct. 2160 (holding that Argentina participated in the bond market in the manner of a private actor when it issued bonds). 62 Even if we were to regard repayment of IMF debts as commercial activity within the meaning of §§ 1610(a) and (d), we would be required to hold that, on the present record, the FRBNY Funds are not available for attachment under § 1610 because the FRBNY Funds were never  used for commercial activity, and plaintiffs presented no evidence to the District Court that the Republic or BCRA intended the FRBNY Funds to be so designated. See 28 U.S.C. § 1610(a) (requiring attachable property to be  used for a commercial activity (emphasis added)); id. § 1610(d) (same as to prejudgment attachment). We need not define the precise contours of used for within the contemplation of § 1610 because there is no evidence that either actual use or designation for use occurred here with respect to the FRBNY Funds. The mere fact that the FRBNY Funds could have been used to repay the Republic's debts to the IMF after the Decrees does not, standing alone, render those funds attachable. See Conn. Bank of Commerce v. Republic of Congo, 309 F.3d 240, 254 (5th Cir.2002) (noting that the phrase used for in § 1610(a) means what it says: property of a foreign sovereign . . . may be executed against only if it is `used for' a commercial activity). The plain language of the statute suggests that the standard is actual, not hypothetical, use. See Walker Int'l Holdings Ltd. v. Republic of Congo, 395 F.3d 229, 236 (5th Cir.2004) (property not used for reimbursement of legal expenses where agreements never moved beyond negotiation stage). Even if actual use were not required, at least specific designation for such use would be necessary. Cf. Af-Cap Inc. v. Republic of Congo, 383 F.3d 361, 370 (5th Cir.2004) (Although . . . contemplated use is not actual use, it is strongly suggestive that the [funds at issue] were not cordoned off for use of [the state] in its sovereign capacity. (footnote omitted)). 63 Here, though, the Decrees made all BCRA funds potentially available for the repayment of the Republic's debts, and never specified which funds would be used to back the monetary base and which funds would be designated Unrestricted Reserves. Accordingly, plaintiffs cannot demonstrate on the basis of the Decrees alone that the FRBNY Funds were intended to be used for repaying the IMF. 64 D. The FRBNY Funds Are Immune From Attachment Even Without Reference to Section 1611(b)(1) 65 The parties have offered a variety of interpretations of 28 U.S.C. § 1611(b)(1)'s provision granting immunity from attachment for property of a foreign central bank . . . held for its own account, provided that the central bank's immunity is not explicitly waived. 28 U.S.C. § 1611(b)(1). But because the FRBNY Funds have remained assets of BCRA that cannot be used to satisfy a judgment against the Republic, we need not decide which interpretation of § 1611(b)(1)'s held for its own account language is correct in order to resolve this appeal. Section 1611(b)(1) provides a central bank with special protections from a judgment creditor who would otherwise be entitled to attach the central bank's funds under 28 U.S.C. § 1610. See 28 U.S.C. § 1611(b)(1) (protecting from attachment assets of a central bank [n]otwithstanding the provisions of section 1610). We have already held that plaintiffs have not established their right to attach the FRBNY Funds. Thus, even assuming arguendo that the FRBNY Funds were not held for [BCRA's] own account, or that the Republic explicitly waived BCRA's immunity from attachment, 22 plaintiffs would remain unable to attach the FRBNY Funds. 66 Our interpretation of Section 1611(b)(1) is in accord with the district court's opinion in LNC Investments, which found persuasive the Nicaraguan central bank's argument that its assets could not be attached to satisfy a judgment against Nicaragua even if Nicaragua waived the central bank's immunity from attachment: 67 [a]lthough a parent government may waive the immunity of its central bank pursuant to § 1611, nothing in the clear language of § 1611 remotely suggests that such a waiver automatically renders a central bank liable for a judgment entered against its parent government. Section 1611 simply demonstrates that the assets of a foreign bank can be attached and executed to satisfy a judgment entered against that foreign central bank when, and only when, the central bank or its parent government has made an explicit waiver of the bank's immunity. 68 LNC Invs., Inc. v. Republic of Nicaragua, 115 F.Supp.2d 358, 362-63 (S.D.N.Y.2000) (alteration and emphasis in original), aff'd sub nom. LNC Invs., Inc. v. Banco Central De Nicaragua, 228 F.3d 423 (2d Cir. 2000); see also Paul L. Lee, Central Banks and Sovereign Immunity, 41 Colum. J. Transnat'l L. 327, 395 (2003) ([W]hether or not the central bank has explicitly waived immunity and whether or not the funds constitute funds held for the central bank's own account, property of the central bank will be subject to attachment or execution only for claims against the central bank and not for claims that pertain only to the government or its other agencies and instrumentalities.). 69 E. The District Court Properly Denied EM's Discovery Request 70 We are mindful that a federal trial court has wide latitude over the management of discovery, see Wills v. Amerada Hess Corp., 379 F.3d 32, 41 (2d Cir.2004), but in the FSIA context, discovery should be ordered circumspectly and only to verify allegations of specific facts crucial to an immunity determination. First City, Texas-Houston, N.A. v. Rafidain Bank, 150 F.3d 172, 176 (2d Cir.1998) (quoting Arriba Ltd. v. Petroleos Mexicanos, 962 F.2d 528, 534 (5th Cir.1992) (internal quotation marks omitted)); cf.' Kelly v. Syria Shell Petroleum Dev. B. V., 213 F.3d 841, 849 (5th Cir.2000) (FSIA immunity is immunity not only from liability, but also from the costs, in time and expense, and other disruptions attendant to litigation.). Because the record makes clear that the FRBNY Funds were never an attachable asset of the Republic and that § 1610's commercial activity exception to immunity from attachment does not apply, EM was not entitled to any other discovery, as it has failed to show[ ] a reasonable basis for assuming jurisdiction over BCRA. Rafidain Bank, 150 F.3d at 177 (quoting Filus v. Lot Polish Airlines, 907 F.2d 1328, 1332 (2d Cir.1990)). There is no indication on this record that the District Court improperly calibrated the delicate balancing `between permitting discovery to substantiate exceptions to statutory foreign sovereign immunity and protecting a sovereign's or sovereign agency's legitimate claim to immunity from discovery.' Id. at 176 (quoting Arriba, 962 F.2d at 534).