Opinion
Nos. 02 Civ. 3804, 02 Civ. 3808, 02 Civ. 4124, 02 Civ. 5432, 02 Civ. 2507, 02 Civ. 8528, 02 Civ. 8845 (TPG).
March 29, 2005
OPINION
THE COURT: I would like to make a ruling. I will do so from the bench, somewhat briefly and informally. The reason for this is that the time is very, very much of the essence. It may very well be that whoever does not succeed here will wish to fly to the Court of Appeals, and that is to be done and is to be done quickly.
What I have before me is a motion which arises from the fact that a few days ago I signed an order of attachment on behalf of one of the plaintiffs in the Argentine bond cases. That attachment was to cover $7 billion worth of Argentine bonds.
It was represented to me, truthfully, that pursuant to the exchange offer which the Republic of Argentina has made, some $60 billion or more of Argentine bonds were now tendered to The Bank of New York subject to the remaining processes of the exchange offer. Subsequent to that order, I have signed other similar orders.
In addition, I have approved certain applications relating to restraining notices under state law. Restraining notices under state law are different from attachments in that they can have prospective effect, whereas my understanding is that an attachment is only valid as to property which is subject to attachment at the time of the service of the order of attachment on the party holding the property or party supposedly holding the property.
The republic, by order to show cause, brought on a motion to vacate the original order of attachment. The republic has now filed papers which are sufficient to raise an issue about the validity of all orders of attachment and the validity of the restraining notices or applications relating to restraining notices.
Various lawyers have, in quick order, filed excellent papers and voluminous papers dealing with the issues before the Court, and tonight we have had a lengthy oral argument. As I indicated earlier, both sides have raised serious issues, good faith issues. There are merits to the arguments of both sides and there are difficulties to the arguments on both sides.
After weighing the issues as well as I can, I have decided to grant the motions of the republic, and I am vacating the orders of attachment. I am also vacating and denying the applications with regard to restraining notices.
Let us start with the attachments. The plaintiffs, who have used the attachment method, have been asked what property is being attached. The bonds are still admittedly the property of the bondholders. They are not yet the property of the Republic of Argentina. They can only become the property of the Republic of Argentina if the exchange offer closes on April 1, the scheduled date.
What is contemplated is that the bonds would be surrendered to the republic, and at that time the republic would become the owner of the bonds. But as of the time of the service of the orders of attachment, and indeed as of the present time, the bonds are still the property of the bondholders and are not the property of the republic.
My question was, what is it that has been attached? The answer was a very cogent one and had validity. The answer was that what is being attached is the contractual right of the republic to receive the bonds at the time of the closing. Indeed, the law surely is that such a contractual right can be attached.
This leads to the fundamental problem which causes me to vacate the attachments. Counsel for the attaching plaintiffs have pointed out, with perfect accuracy, language in the exchange offer prospectus which expresses the idea that upon acceptance of the exchange offer, the bondholders have an irrevocable obligation to tender their bonds. The terms of the exchange offer also express the idea that the republic will have an obligation to issue the new bonds in place of the old ones which have been tendered and which would be surrendered at the time of the closing.
It is perfectly true, based on what I have just said and what the attaching plaintiffs have argued, that there would be contractual right on the part of the republic to receive those bonds, and the time would come at the closing when those bonds would be surrendered to the republic and become the property of the republic.
The problem is that part of the contractual right of the republic and an essential part of the contractual right of the republic is the right to cancel those bonds which it receives at the closing. Indeed, the foundation of the exchange offer is to do what the name states, to have an exchange. And pursuant to that concept, that foundational concept, the republic has a right to cancel. So the republic's contractual rights under the exchange offer are not merely to receive the bonds but to receive the bonds and to cancel those bonds.
Of course, the attaching plaintiffs do not contemplate utilizing or taking over the full contractual right of the republic. The attaching plaintiffs have no power to cancel the bonds and, of course, no intention. They contemplate the idea that the bonds would remain in effect and would have a market value. That is the whole purpose of the attachment.
One flaw in the position of the attaching plaintiffs is what I have just said, and that is that there is a contractual right of cancellation. That right of cancellation would be defeated if the attachments were allowed to remain, and that is one reason why the attachments cannot stand.
What I have said is really perhaps only an indication of a more basic problem which I have alluded to, and that is that aside from any technical view of contractual rights, the whole purpose of the exchange offer is, as I have said, to provide for an exchange whereby the bondholders receive new bonds and whereby the republic is relieved of its obligations under the old bonds and can cancel the old bonds.
This purpose is so foundational that it can hardly be said that the republic and the old bondholders are bound by the obligations stated in the documents unless the exchange can take place as contemplated, that is, unless the republic can receive the bonds and cancel them.
The existence of these attachments, which affect many billions of dollars worth of the bonds, if those attachments are allowed to stand, those bonds will not be canceled. It is difficult to see how the republic could be considered to be obligated to go forward with the exchange offer with that fundamental circumstance lacking. Indeed, the republic has stated, through affidavits and through a representation by counsel here, that if these attachments are in effect, it will not go forward with the exchange offer.
This Court surely has no power to force the republic to go forward with the exchange offer under these circumstances. No case of that kind is before me. And I have no ability, no right, to challenge the representation of the republic that it will simply not close if these attachments are still in effect. The position is indeed quite understandable as far as the bondholders. If these attachments are still in effect, we throw into doubt, to say the least, the conclusion of the exchange offer.
It is difficult, if not if not impossible, to contemplate that The Bank of New York would effectuate a surrender of the bonds on the scheduled closing date. Therefore, there is no realistic basis for this Court to assume that there is some ironclad contractual right of the republic to receive the bonds on the closing date if these attachments are in effect.
Consequently, I am ruling that basically the existence of the attachments would, if allowed to stand, negate the very contractual obligations which are cited as a basis for the attachments, and I am granting the motion to vacate the attachments.
As far as the restraining notices, the restraining notices have a different legal impact under New York law, different from an attachment. Indeed, as far as I know, and it hasn't been challenged, they have prospective effect. They are still designed to attach property of the Republic of Argentina. And the restraining notices have the same problems as the attachments in effectively frustrating the carrying out of the exchange offer.
Therefore, for basically the same reasons that I gave in dealing with the attachments, it is my ruling that there is not, and it is not foreseeable in the future that there will be, property in the form of bonds to be subject to restraining notices. The restraining notices, as I think we all know, and maybe I didn't make it clear, are designed to attach bonds in the same essentially the same way the attachments were designed to do.
That is my ruling. That I hope concludes the evening's proceedings.
MR. RIVKIN: Your Honor, David Rivkin on behalf of EML. I would like to make two motions for you in light of your ruling. One is that you stay the effect of your order until the Second Circuit has had an opportunity to decide these issues. We represent that we will file papers as rapidly as possible, we would expect tomorrow, to ask the Second Circuit to decide this issue.
As you are well aware and as you referred to several times, these are issues that will need to be decided on appeal. As you are well aware, if they do go forward with the exchange offer and then cancel the bonds before the Second Circuit has an opportunity to rule on it, we won't have any opportunity to appeal.
The exchange offer states very clearly that it is to close on April 1st or as soon after that as possible. There is no harm to Argentina in delaying the exchange offer. We would hope perhaps we could even get a ruling from the Second Circuit before then.
In any event, it would only be fair to the plaintiffs in this case who have judgments to maintain the status quo as it exists, as it existed before this hearing, to make sure that the attachable property remains in New York until the Second Circuit has had the opportunity to decide those issues.
So we would make a motion pursuant to Federal Rule of Civil Procedure 7(b)(1) for an appeal pending a decision by the Second Circuit on this issue.
THE COURT: What is the rule?
MR. RIVKIN: A stay. I'm sorry. A stay of your order pending the appeal.
THE COURT: Is it an appellate rule?
MR. RIVKIN: Federal Rule of Civil Procedure 7(b)(1). This is effectively an application made during a hearing under Rule 7(b)(1).
THE COURT: What do you say, Mr. Blackman?
MR. BLACKMAN: I think the standards for a stay pending appeal, and this is really almost an injunction pending appeal, are likelihood of success on the merits, irreparable injury, and of course balance of hardships and public interest.
Under the circumstances, while, as the Court pointed out, the attaching plaintiffs' claims were not frivolous, I believe they don't have a likelihood of success on the merits. I also believe that the public interest, and particularly the interests of the 76 percent of the bondholders, as well as those who are already doing when issued trading in these bonds, militates against a stay.
Finally, with respect to irreparable injury, Mr. Rivkin himself, and I kept the quote, told one of the newspapers some time ago that there were many assets that could be attached, that were ripe for attachment. As the Court knows, the plaintiffs have been pursuing aggressively discovery.
I don't think we are dealing with an irreparable injury situation here to the plaintiffs if they are unable to attach these bonds, which the Court has ruled they have no right to do. Most of the plaintiffs before this Court are speculators who bought these bonds intending to litigate. That is their right. But in weighing the equities for a stay, I think the Court can take that into consideration and, for the reasons that I indicated, deny a stay.
THE COURT: I am going to grant the motion.
MR. RIVKIN: Thank you very much, your Honor.
MR. KALISH: Your Honor, would you also grant the motion as to Lightwater and Old Castle?
THE COURT: I am going to grant the motion as to all processes which have been put into effect.
MR. RIVKIN: Thank you, your Honor.
THE COURT: On the restraining notices, my memory is that one party actually hasn't served a restraining notice on another party, has simply applied for permission.
MR. KALISH: Your Honor, we applied for permission.
THE COURT: I am going to give you permission to serve your notice subject to my ruling and only for the purpose of ensuring your rights in the event that the Court of Appeals overturns me.
MR. KALISH: Thank you.
THE COURT: The reason I am granting the motion for a stay is this. There has been this very large percentage of bondholders that have tendered. That has been done. I have issued a ruling which indicates what the district court thinks, and that can be cited if there is a need, for whatever comfort it is, for the parties involved here.
But it is a little hard to believe that the Court of Appeals could make a ruling by the 1st of April. I think the Court of Appeals will act promptly, but I don't think it can act by the 1st of April. If there is a short delay in the closing of the exchange offer, I see no prejudice from that at all.
MR. BLACKMAN: Could you just condition your stay, your Honor, on the plaintiffs in fact making their appeal and proceeding with a motion for expedited appeal in the Court of Appeals within the next day or so? Otherwise, they —
THE COURT: I thought that was what you were talking about.
MR. BLACKMAN: I think it was what Mr. Rivkin said. But I think it should be included in the Court's order so there is no mistake about it, that the stay is conditioned on in fact their filing a notice for appeal and pursuing it tomorrow.
THE COURT: The stay is conditioned on as prompt as possible appeal and a motion for an expedited appeal, which I think you contemplated.
MR. RIVKIN: Absolutely. We will do it as quickly as possible.
THE COURT: Let's call it a day.
MR. RIVKIN: Your Honor, may I ask one other very quick question, just to clarity? I appreciate it is late. We believe we have appellate jurisdiction both as a collateral order and because an injunction has been denied. But just for the sake of clarity, would the Court also certified under Section 1292(b) the question of whether Argentina is entitled to the —
THE COURT: I so certify.
MR. RIVKIN: Thank you very much, your Honor. (Adjourned)
SO ORDERED.