Second Circuit Reestablishes Attachments against Argentina

By: Louis M. Solomon

Capital Ventures International (CVI) v. Republic of Argentina, Dkt. Nos. 10-4520-cv (Lead) (2d Cir. July 2011) [enhanced version available to lexis.com subscribers / unenhanced version available from lexisONE Free Case Law], is, by the Court's own count, roughly the nineteenth time the Second Circuit has had to deal with issues arising from Argentina's default on its debt.

On this appeal the Court modifies the District Court's own modification of prior attachments of assets granted to CVI in a prior trip to the Second Circuit. In the earlier appeal, the Second Circuit found that CVI was entitled to attach assets of Argentina - the assets at the time were the collateral on "Brady Bond", replacement debt that Argentina had issued, Because of what the Court of Appeals calls a "quirk in the original Collateral Pledge Agreement", a risk was created that early retirement of the Brady Bond debt would cause the release of collateral to Argentina, and it was this collateral that might in the future be returned to Argentina that created an attachable interest.

The international practice issues of pertinence are:

First, the Court of Appeals applied settled New York law that an attachment bars any sale, assignment, or transfer of, or any interference with, the property so attached.

Second, the Court of Appeals held that, when the requirements for an attachment are met under New York law, "a district court has little if any discretion to deny the attachment". The earlier Second Circuit decision had held, and the current decision re-affirms, that attachment relief cannot be denied merely "because [the Court] considered CVI's chances of realizing on the Principal Collateral to be remote". CVI showed that Argentina is not domiciliary of New York, that CVI has an action for breach of contract, and that there was no evidence of any counterclaim. The District Court had found that CVI was likely to succeed on the merits, and the interest that CVI sought to attach was "attachable property" (i.e., the interest was assignable and transferable).

Third, the Court of Appeals was willing to entertain the possibility of an extraordinary case where satisfaction of the statutory requisites could still result in denial of the attachment remedy. This case, however, was not one of them. Not even Argentina's "interests as a sovereign country trying to clean up its balance sheet in the wake of an economic crisis" fit the "extraordinary circumstances" bill, since given the amounts at stake there was no showing that failure to retire the Brady Bonds early "will have a substantial effect on its finances or its ability to access the capital markets".

Fourth, that the attaching creditor is put in a position of leverage - to play the spoiler, says the Court - is exactly what an attachment is designed to achieve. The Court rejected Argentina's attempt to modify the underlying agreement after the attachment, though the Court of Appeals said that: "We do not mean to imply that attachment of an interest in any executory contract thereby prohibits any amendment to that contract".

Judge Leval's concurrence focuses on two issues that, from a corporate drafting point of view, might be used to modify the result of the decision in the future.

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