In Republic of Argentina v. NML Capital Ltd., the US Supreme Court held that the Foreign Sovereign Immunities Act (FSIA) does not bar discovery into a foreign sovereign’s assets and allowed a judgment creditor broad, worldwide discovery in aid of execution. The Court held that so-called “execution immunity” does not protect a sovereign from discovery. Instead, only after discovery should a district court determine whether any assets are immune.
The case arose out of efforts by creditors of Argentina to collect on bonds on which Argentina had defaulted in 2001. Although most bondholders agreed to exchange their bonds for restructured debt after Argentina’s 2001 default, several hedge funds bought up defaulted bonds and chose to pursue collection remedies in New York rather than participate in the exchange. The respondent, NML Capital, prevailed in eleven debt-collection actions in the US District Court for the Southern District of New York. It then sought global discovery of Argentina’s assets by serving subpoenas on nonparty banks, and the district court granted a motion to compel. The US Court of Appeals for the Second Circuit held that granting the motion to compel did not violate the FSIA. The Supreme Court affirmed, ruling that the FSIA does not immunize a foreign-sovereign judgment debtor from post-judgment discovery of information concerning extraterritorial assets.
The Supreme Court’s decision resolves a split between the Second Circuit and several other courts of appeals, particularly a Seventh Circuit decision that read the FSIA to prohibit broad post-judgment discovery of a foreign sovereign’s assets. Siding with the Second Circuit, the high court reasoned that the FSIA has no “provision forbidding or limiting discovery in aid of execution of a foreign-sovereign judgment debtor’s assets.” (Slip op. at 8.) And it held that Argentina’s argument that the FSIA contains an implied limitation on discovery “founders at each step.” Id. at 9.
Though the decision focuses on discovery, the Court’s reasoning may have a broader impact on the interpretation of the FSIA. The Court held that the FSIA “comprehensive[ly]” sets out the scope of foreign sovereign immunity and that “any sort of immunity defense made by a foreign sovereign in an American court must stand on the Act’s text.” (Slip op. at 6-7.) Thus, the decision can be understood to reject implied extensions of immunity or interpretations of the FSIA that would expand immunity beyond the strict language of the text. For example, the Court rejected Argentina’s effort to invoke a supposed pre-existing common law immunity because it is “obvious that the terms of § 1609 execution immunity are narrower” than the supposed “common-law execution-immunity rule.” (Slip op. at 9.)
The decision should make it easier for creditors to discover assets held in the United States and abroad by sovereign debtors and to collect on their judgments.