Property protected by Foreign Sovereign Immunities Act
"Single, narrow question" before Supreme Court
Foreign Sovereign Immunities Act does not alter post-judgment discovery rules
Other potential limits to post-judgment discovery
In its latest decision interpreting the Foreign Sovereign Immunities Act, the Supreme Court made clear that any claim of immunity by a foreign state must rise or fall based on the text of the act. Because the act does not spell out any immunity or special protections for foreign states that have already lost civil suits and are the target of post-judgment discovery, foreign states cannot rely on the act to resist such discovery.
In 2001, amid a severe economic downturn, Argentina defaulted on its debt obligations. NML Capital, Ltd, a bondholder, sued Argentina for its unpaid debts in federal district court in New York. The Foreign Sovereign Immunities Act did not shield Argentina from suit in federal court because the bond indenture agreement between Argentina and NML contained a broad waiver of Argentina's immunities. NML prevailed in each of its 11 actions against Argentina, yielding judgments of $2.5 billion.
After Argentina failed to pay, NML sought to execute its judgments against Argentina's property, initiating attachment proceedings in federal district court. For more than a decade, NML pursued discovery regarding Argentina's property and assets, including through third-party discovery of banks where Argentina maintained accounts. In particular, NML subpoenaed two banks with operations in New York City, requesting information about Argentina's balances and transaction history.
Argentina and the banks sought to quash the subpoenas, claiming that they sought information about property that was immune from attachment under the Foreign Sovereign Immunities Act. The district court denied the motions to quash and the US Court of Appeals for the Second Circuit affirmed that decision.
The Foreign Sovereign Immunities Act significantly limits the types of property that may be attached or executed in satisfaction of a judgment obtained in the United States against a foreign state. Critically, a foreign state's property is immune from attachment or execution unless it is "property in the United States" and meets other enumerated requirements.
Argentina petitioned the Supreme Court to decide whether post-judgment discovery is limited to those assets that are potentially subject to execution under the Foreign Sovereign Immunities Act or, rather, whether such discovery may be ordered with respect to all assets of the foreign state regardless of their location or use.
Argentina's petition, according to the court, raised a "single, narrow" question: do the usual rules of post-judgment discovery apply to discovery targeting the property of a foreign state, or does the Foreign Sovereign Immunities Act specify a different rule?
The court held that the Foreign Sovereign Immunities Act does not limit or alter post-judgment discovery and, as a result, the federal discovery rules applied to NML's discovery requests.
The court's holding was based on its longstanding deference to the political branches in determining when to exercise judicial power over foreign states. The court explained that the Foreign Sovereign Immunities Act is intended to be a "comprehensive set of legal standards governing claims of immunity in every civil action against a foreign state". As a result, the court refused to glean from the Foreign Sovereign Immunities Act any additional immunities or protections that are not clearly set forth in the text of the statute itself. Because the act does not forbid or limit post-judgment discovery, and contains no "plain statement" deviating from the federal discovery rules, the court refused to find that the act limits post-judgment discovery in any way.
Looking beyond the Foreign Sovereign Immunities Act, the court acknowledged the possibility of other limitations on post-judgment discovery against foreign states, including, for example, arguments based on privilege, burden and comity. However, the court found that none of those other potential limits on discovery was properly presented or preserved by Argentina in its appeal. While the court offered little guidance as to the merits of such arguments, the decision confirms that litigants should look to all applicable federal and state law principles when litigating their discovery disputes, and should be sure to preserve those issues for appeal as well.
For further information on this topic please contact Barbara R Mendelsohn or J Alexander Lawrence at Morrison & Foerster LLP by telephone (+1 212 468 8000), fax (+1 212 468 7900) or email (email@example.com or firstname.lastname@example.org). The Morrison & Foerster website can be accessed at www.mofo.com.