You Say Poignant, I Say Depressing

As Anna points out, there are indeed moments of poignancy in the pari passu litigation, largely having to do with the fact that, days from a major sovereign default induced in no small part by their rulings, the US courts only now seem to be discovering basic facts about the case. The transcript of the most recent hearing before the district court contains passages that might have been appropriate two years ago, but are depressing to encounter now.

For example, the court was initially willing to let Citibank Argentina pass along payments it received on USD-denominated, Argentine-law bonds, despite the fact that the injunction doesn't seem to distinguish these payments from those made to other bondholders. But then it turned out the judge was assuming that (i) the relevant bonds were not issued in exchange for defaulted debt (transcript, p. 5), (ii) were held by folks in Argentina who didn't need to be "dragged into this overall difficulty" (p.7), and (iii) in any event comprised only a "minute exception" to the injunction because the amount of money was small (p. 10). Upon learning that each of these assumptions was false, the judge lamented: "There is a lot to do today."

Perhaps the most depressing part of the hearing was how ad hoc many important decisions seem to be. Consider the exchange over whether Bank of New York Mellon should retain or return payments it has already received from Argentina. There is an important context for this decision: Argentina will argue that its only obligation was to transfer funds to BNY Mellon and that it therefore has not defaulted. If accepted, that interpretation will have broad consequences (including, perhaps, for any parties who might happen to have CDS positions on Argentina). The interpretation is weakened, though not fatally, if BNY must return the money.

BNY Mellon wants to keep the money, and its counsel had barely begun to speak when the following exchange took place (p. 40):

THE COURT: What do you believe should be done with the money?

MR. SCHAFFER: Your Honor, [I] think consistent with the existing injunctions we should be holding the money pending whatever further proceedings take place here either with the special master or-

THE COURT: I agree with that. Thank you very much.

And that was that. Until the very next second, when counsel for the plaintiffs spoke briefly in favor of making BNY Mellon return the money. Whereupon this happened (pp. 42-43):

THE COURT: Can I interrupt you again. I want to conclude this and get to something else. I would say to you that I would certainly be willing to sign an appropriate order having that money returned. It should be returned. Maybe there will be objections to the order. Obviously, I don't care. I think the money should be returned. Can we leave it at that?

Understandably puzzled, BNY Mellon's counsel objected along the lines of: What now? Which prompted this (P. 43):

THE COURT: Can you tell me what should be done.

MR. SCHAFFER: Your Honor, I believe the answer is we hold the money right where it is...

THE COURT: I'm completely silent because I have nothing to say. Try to work something out that you can agree on, the thing that will create the least problems, the least potential litigation we want to do. Unfortunately, we are in the soup. I can't help that...

So, to sum up: Keep the money. Return the money. I have nothing to say. Soup.

What has been clear all along, but is now being acknowledged openly, is just how much the rulings in this case have been motivated by pique that Argentina refused to pay money judgments issued by US courts. The passage quoted by Anna makes this relatively clear; the court links pari passu rights, "whatever they were," to the need to recognize the rights of judgment holders. Other passages from the hearing transcript make this even more explicit, including this one (pp. 45-46), which immediately precedes the one quoted by Anna:

THE COURT: We went for about 10 years, 11 years, whatever it was, with the Republic refusing to pay the judgments... The rhetoric that was developed in the Republic during this time was unfortunate, although not as incendiary as recent rhetoric. The Republic took every step it could to indicate it would not pay the judgments, it would not negotiate the judgments... This was unfortunate. Judgments are judgments.

That part, at least, is accurate. Judgments are judgments. No getting around it. I'm not exactly sure how that justifies an injunction that makes satisfaction of the judgments (with, ahem, immune assets) a condition of a government's continued service of its public debt. Be that as it may, it would have been nice if the courts had invested the time necessary to understand the parties, the transactions, and the payment mechanisms first.