Appendix — Republic of Argentina v. EM Ltd.

APPENDIX

TABLE OF CONTENTS

Appendix A Summary Order, United States

Court of Appeals for the Second

Circuit

(August 3, 2010) ...... reggie > a

Appendix B Opinion, United States District

Court for the Southern District of

New York

(August 18, 2009) ... . lda

Appendix C Statute

28 U.S.C. § 1610(a) & (d) 22... 38a

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

[Filed August 3, 2010)

09-3908-cv, 09-3928-cv

EM Ltd.,

Plaintif{f-Appellee,

The Republic of Argentina,

Defendant-Appellant,

Banco de la Nacion Argentina,

Interested-Non-Party-Appellant.

Se a ee ee ee ee ee ee ~— eT ee ee

09-3910-cv, 09-3934-cv

NML Capital, Lid., > ae )

)

Plaintiff- Appellee, )

)

v

The Republic of Argentina,

Defendant-Appellant,

Banco de la Nacion Argentina,

Interested-Non-Party-Appellant.

09-3926-cv, 09-3937-cv

NML ( ‘apital, Ltd.,

Plaintiff-Appellee,

The Republic of Argentina,

Defendant-Appellant,

Banco de la Nacién Argentina,

Interested-Non-Party-Appellant.

09-3927-cv, 09-393 1-cv

NML ¢ ‘apital, Ltd.,

Plaintiff-Appellee,

— —_— — — — ee — ee” — — —

)

)

)

)

)

3a

The Republic of Argentina, )

)

Defendant-Appellant, )

)

Banco de la Nacion Argentina, )

)

Interested-Non-Party-Appellant. )

)

09-3929-cv, 09-3932-cv

NMLCapital, Ltd, = ~~)

)

Plaintiff Appellee, )

)

V. )

)

The Republic of Argentina, )

)

Defendant-Appellant, )

)

Banco de la Nacion Argentina, )

)

Interested-Non-Party-Appellant. )

)

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE

PRECEDENTIAL EFFECT. CITATION TO A

SUMMARY ORDER FILED ON OR AFTER

JANUARY 1, 2007, IS PERMITTED AND IS

GOVERNED BY FEDERAL RULE OF

APPELLATE PROCEDURE 32.1 AND THIS

COURT’S LOCAL RULE 32.1.1. WHEN CITING A

SUMMARY ORDER IN A DOCUMENT FILED

4a

WITH THIS COURT, A PARTY MUST CITE

EITHER THE FEDERAL APPENDIX OR AN

ELECTRONIC DATABASE (WITH THE

NOTATION “SUMMARY ORDER”). A PARTY

CITING A SUMMARY ORDER MUST SERVE A

COPY OF IT ON ANY PARTY NOT

REPRESENTED BY COUNSEL.

At a stated term of the United States Court of

Appeals for the Second Circuit, held at the

Daniel Patrick Moynihan United States

Courthouse, 500 Pear! Street, in the City of New

York, on the 3" day of August, two thousand ten.

PRESENT:

BARRINGTON D. PARKER,

DEBRA ANN LIVINGSTON,

DENNY CHIN,

Circuit Judges.

FOR APPELLANT:

CARMINE D. BOCCUZZI (JONATHAN I.

BLACKMAN, CHRISTOPHER P. MOORE, on the

brief), Cleary Gottlieb Steen & Hamilton LLP, New

York, NY

FOR INTERESTED-NON-

PARTY-APPELLANT:

MARK 8. SULLIVAN (LAURA M. LESTRADE, on

the brief), Dorsey & Whitney LLP, New York, NY

FOR APPELLEE EM LTD.::

DAVID W. RIVKIN, JOHN B. MISSING,

SUZANNE M. GROSSO, on the brief, Debevoise &

Plimpton LLP, New York, NY

FOR APPELLEE

NML CAPITAL, LTD.:

DENNIS H. HRANITZKY (ROBERT A. COHEN ,

DAVID M. BIGGE, on the brief), Dechert LLP, New

York, NY

UPON DUE CONSIDERATION IT IS HEREBY

ORDERED, ADJUDGED, AND DECREED that the

judgment of the district court be AFFIRMED.

Defendant-Appellant the Republic of Argentina

(“Republic”) and _ Interested-Non-Party-Appellant

Banco de la Nacién Argentina (“BNA”) (together,

“Appellants”) appeal from an August 18, 2009 opinion

and order of the United States District Court for the

Southern District of New York (Griesa, J.) granting

the motions of Plaintiffs-Appellees EM Ltd. and NML

Capital, Ltd. “Appellees”) to confirm ex parte orders

dated May 22, 2007 restraining and attaching certain

assets of the Republic in a trust (the “BH Trust”)

administered by the U.S. Bank Trust National

Association (“U.S. Bank Trust”) and denying BNA’s

motion to vacate these orders. We assume the parties’

familiarity with the underlying facts, procedural

history, and the tssues on appeal. For the reasons that

follow, we reject the Appellants’ arguments and affirm

the opinion and order of the district court.

1. Availability of Assets for Attachment and

Restraint

As the district court explained—and as the parties

do not challenge—a federal court employs the

attachment and execution procedures provided by the

law of the state in which the court sits. Fed. R. Civ. P.

69(a); see Alliance Bond Fund, Inc. v. Grupo Mexicano

6a

De Desarrollo, S.A., 190 F.3d 16, 20 (2d Cir. 1999)

(applying Federal Rule of Civil Procedure 69(a) and,

hence, New York law, in an Foreign Sovereign

Immunities Act (“FSIA”), 28 U.S.C. §§ 1602-11, action).

In this case, therefore, the district court properly

employed the procedures provided under New York

law.

Some of the orders confirmed by the district court

were pre-judgment attachments and some were

post-judgment restraints; the requirements under New

York law are similar for both. See N.Y. C.P.L.R.

§§ 5201(b), 6202. At issue here is the requirement that,

if the attachment or restraint is served on a person

other than the defendant, that entity must, at the time

of attachment be “in the possession or custody of

property in which [such person] knows or has reason

to believe” the defendant or judgment debtor has an

interest. N.Y. C.P.L.R. §§ 5222(b), 6214(b). We review

the district court’s ruling on a request for order of

attachment for abuse of discretion. Aurelius Capital

Partners, LP v. Republic of Argentina, 584 F.3d 120,

129 (2d Cir. 2009). “The district court abuses its

discretion if it applies legal standards incorrectly,

relies on clearly erroneous findings of fact, or proceeds

on the basis of an erroneous view of the applicable

law.” Jd. We review de novo the district court’s

determination of Argentine law, Norwind v. Rowland,

584 F.3d 420, 429 (2d Cir. 2009), and choice of law

decision, Curley v. AMR Corp., 153 F.3d 5, 11 (2d Cir.

1998).

The district court determined that, after

“weighling] plaintiffs’ offer of proof against the

contrary evidence offered by BNA,” see Capital

Ventures Int'l v. Republic of Argentina, 443 F.3d 214,

Va

222 (2d Cir. 2006) (explaining that a “court presented

with an application for an order of attachment must

determine whether a statutory ground for attachment

exists” by “weighing .. . [the] evidence”), the Public

Funds, which have the right to receive distributions

from the BH Trust, are “part of the Republic” and their

rights to receive distributions from the BH Trust were

therefore properly attached. The court also concluded

that the corpus of the BH Trust was properly attached.

Appellants have not pointed to anything in the record

that leads us to conclude that the district court abused

its discretion when it found that the evidence weighed

in favor of Appellees here. For the reasons articulated

by the district court, therefore, we agree that the

record shows that the Republic, on numerous

occasions, took action consistent with discretionary use

of the Public Funds as part of the Republic itself and

that the Funds were properly attached and restrained

to satisfy the debts of the Republic.

We further affirm the district court’s decision to

confirm the orders attaching or restraining the assets

in the BH Trust. Appellants’ primary argument that

attachment and restraint of these assets was in error

is that the BH Trust is a valid trust under Argentine

law and the assets in the trust belong to the trust

itself, not to the Republic. “[T]he FSIA implicitly

requires courts to apply the choice of law provisions of

the forum state with respect to all issues governed by

state substantive law.” Barkanic v. Gen. Admin. of

Civil Aviation of the People’s Republic of China, 923

F.2d 957, 959 (2d Cir. 1991); see also Karaha Bodas

Co., L.L.C. v. Perusahaan Pertambangan Minyak Dan

Gas Bumi Negara, 313 F.3d 70, 85 (2d Cir. 2002) (“[{I]n

FSIA cases, we use the forum state’s choice of law

rules to resolve all issues, except jurisdictional ones.”

Sa

(internal quotation marks omitted)). Under New York

law, “|t}he first step in any case presenting a potential

choice of law issue is to determine whether there is an

actual conflict between the laws of the jurisdictions

involved.” Jd. If a conflict is identified, New York

requires application of an “interests analysis” in which

“the law of the jurisdiction having the greatest interest

in the litigation [is] applied and .. . the facts or

contacts which obtain significance in defining State

interests are those which relate to the purpose of the

particular law in conflict.” Jd. Finally, “New York law

requires the court to honor the parties’ choice [of law

provision] insofar as matters of substance are

concerned, so long as fundamental policies of New

York law are not thereby violated.” Woodling v.

Garrett Corp., 813 F.2d 543, 551 (2d Cir. 1987).

We therefore look to New York law to determine

whether the BH Trust is a valid trust. Here, the record

supports the conclusion that, despite the choice of law

provision in the BH Trust agreement purporting to

establish a trust pursuant to Argentine law, New York

law would not recognize it as such since enforcing the

trust agreement would violate “fundamental policies”

of New York law. Both parties agree that, under

Argentine law, the BH Trust is a valid trust that

would be protected from the Republic’s creditors.

However, in New York, “ijt is against public policy to

permit the settlor-beneficiary to tie up her own

property in such a way that she can still enjoy it but

can prevent her creditors from reaching it.” Vanderbilt

Credit Corp. v. Chase Manhattan Bank, NA, 100

A.D.2d 544, 546, 473 N.Y.S.2d 242, 246 (2d Dep't

1984). For instance, “a judgment creditor may reach

the corpus of the trust if the trust agreement grants

the trustee the power to invade the corpus and pay the

Qa

entire principal to the settlor.” Jn re Portnoy, 201 B.R

685, 698 (S.D.N.Y. 1996).

According to the trust agreement, the corpus of the

BH Trust is to be sold and distributed by order of the

BH Trust trustee. However, it is the Assistance

Fund—through its Executive Committee, members of

which are appointed by the federal government—that

directs the trustee of the BH Trust when to sell

American Depository Shares (“ADSs”) so that the

proceeds can be distributed to the Assistance Fund

and then used to capitalize the Infrastructure Fund.

As the district court determined, the Assistance Fund

is actually part of the Republic. In effect, then, the

assets that comprise the corpus of the BH Trust are

controlled directly by the Republic. Because the

Republic has thecurrent authority to direct disposition

of the corpus of the BH Trust for its own benefit,

believe that, for reasons of long-standing public pol...

New York law would not recognize the BH ‘Trust as a

valid trust entitled to protection against creditors.

Thus, it was not error for the district court to confirm

the orders attaching and restraining the corpus of the

BH Trust.

Appellants additionally argue, with regard to the

Public Funds, that the district court erred in

performing a choice of law analysis and determining

that neither Argentine or New York law would

consider them to be valid trusts. We need not opine on

the choice of law question with regard to the Public

Trusts because even under Appellants’ suggested

analysis pursuant to Argentine law, for the reasons

articulated in the district court’s opinion, which we

have reviewed de novo, we agree with the district court

10a

that the Public Funds are not valid trusts protected

from attachment and restraint.

Finally, we agree with the district court that the

Public Funds are not protected by First National City

Bank v. Banco Para El Comercio Exterior de Cuba

(“Bancec”), 462 U.S. 611 (1983), in which the Supreme

Court held that “duly created instrumentalities of a

foreign state are to be accorded a presumption of

independent status.” Jd. at 627. Whether an entity is

an instrumentality or an agency of the foreign state is

determined by considering “whether the core

functions” of the entity “are predominately

governmental or commercial.” Garb v. Republic of

Poland, 440 F.3d 579, 594 (2d Cir. 2006) (internal

quotation marks omited). If the entity at issue is an

instrumentality of the foreign state, its property

cannot be used to satisfy the judgments of that state.

See De Letelier v. Republic of Chile, 748 ¥.2d 790, 795

(2d Cir. 1984). The Bancec presumptien can be

overcome if, under the principies of corporate law, the

separate juridical status of the instrumentality should

be disregarded. /d. at 794; EM Ltd. v. Republic of

Argentina, 473 F.3d 463, 477 (2d Cir. 2007).

Here, we need not decide whether the Funds are or

are not entitled to the Bancec presumption as

instrumentalities of the Republic since, even if they

are, we would determine that the Funds are “so

extensively controlled by [their] owner that a

relationship of principal and agent is created” such

that the presumption would be overcome. See Bancec,

462 U.S. at 629. The Assistance Fund is controlled by

state appointees who make decisions about when to

access the assets in the BH Trust in order to effectuate

the goals of the Infrastructure Fund. And as previously

lla

discussed, the Republic has repeatedty treated the

Funds as its own. This is sufficient for us to conclude

that, even if the Funds are properly considered

instrumentalities, any presumption of a separate

juridical status has been overcome.

2. Foreign Sovereign Immunities Act

Pursuant to the FSIJA, “property in the United

States of a foreign state shall be immune from

attachment arrest and execution,” except as otherwise

provided by exceptions set forth in 28 U.S.C. §§ 1610

and 1611. 28 U.S.C. § 1609. At issue here are sections

1610(a) and (d), which authorize pre- or post-judgment

attachment of “property in the United States of a

foreign state... used for a commercial activity in the

United States.” Jd. § 1610(a), (d). “[T]he property that

is subject to attachment and execution must be

‘property in the United States of a foreign state’ and

must have been ‘used for a commercial activity’ at the

time the writ of attachment or execution is issued.”

Aurelius Capital Partners, LP, 584 F.3d at 130

(quoting 28 U.S.C. § 1610) (italics omitted). The FSJA

defines “commercial activity” as “either a regular

course of commercial conduct or a_ particular

commercial transaction or act.” 28 U.S.C. §& 1603(d).

“The commercial character of an activity shall be

determined by reference to the nature of the course of

conduct or particular transaction or act, rather than by

reference to its purpose.” Jd. The Supreme Court

explained that a foreign state engages in commercial

activity “when a foreign government acts, not as a

regulator of a market, but in the manner of a private

player within it.” Republic of Argentina v. Weltover,

Inc., 504 U.S. 607, 614 (1992): see also De Letelier, 748

F.2d at 797 (explaining the inquiry focuses on

I2a

“whether the activity is of the type an individual would

customarily carry on for profit”).

Appellants contend that, contrary to the

determination of the district court, the Public Funds’

beneficial interests in the BH Trust are not located in

the United States and, in any event, none of the

attached or restrained property was being used for a

commercial activity at the time of attachment. We

disagree. As the district court—and Appellants—

recognize, the situs of intangible property, such as

beneficial interests, is “the location of the party of

whom perforrnance is required by the terms of the

contract.” ABKCO Indus., Inc. v. Apple Films, Inc. , 39

N.Y.2d 670, 675, 385 N.Y.S.2d 511, 513 (1976). There

is ample evidence in the record to support the district

court’s determination that the property is located in

New York, not Argentina. The BH ‘Trust trust

agreement specifies that the trustee of the BH Trust

“shall dispose of any Option ADSs or Option Shares

. remaining tn the Trust Property pursuant to the

instructions received by the Trustee from” the trustee

of the Assistance Fund. Thus, in order to effectuate

capitalization of the Public Funds, by the terms of the

trust agreement, U.S Bank Trust is required to

perform as ordered by the Assistance Fund. The record

supports the conclusion that U.S. Bank Trust—the

party of whom performance is required——is located in

New York. The Garnishee’s Statement shows that the

BH Trust is held in New York State by U.S. Bank

Trust and the United States address of the BH Trust

is on Wall Street, which the trust agreement

designates as the address of the “principal corporate

trust office.” Thus, the Public Funds’ beneficial

interests in the BH Trust are located in New York and

l3a

are thus “property in the United States” that were

properly attached or restrained by the district court.

We further conclude that, at the time of

attachment, the corpus of the BH Trust and the

beneficial interests which the Public Funds hold in the

BH Trust were being used for a commercial activity. At

the time of attachment, the options on the ADSs in the

BH ‘Trust had expired and the ADSs themselves were

the principal asset forming the corpus of the BH Trust.

The purpose of the Public Funds, at the time of

attachment, was to facilitate the sale of these ADSs at

a time favorable to the Republic. The corpus of the BH

Trust was therefore an investment of the Republic and

the Public Funds’ assets were, as the district court

determined, being used to facilitate the investment

and eventual sale of the securities. An investment of

this sort is the kind of activity that a private player in

the market would carry on for profit and is, therefore,

a “commercial activity” under the FSIA.

We have considered the remainder of the

Appellants’ arguments and find them to be without

merit.

lor the foregoing reasons, the judgment of the

district court is hereby AFFIRMED.

FOR THE COURT:

Catherine O'Hagan Wolfe, Clerk

APPENDIX B

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

03 Civ. 2507 (TPG)

[Filed August 18, 2009]

EM LTD.,

Plaintiff,

-against -

THE REPUBLIC OF ARGENTINA,

Defendant.

— — — — — — — — — ~~

03 Civ. 8845 (TPG)

05 Civ. 2434 (TPG)

06 Civ. 6466 (TPG)

07 Civ. 1910 (FPG)

NML CAPITAL, LTD.,

Plaintiff,

— — — — ~——

-against -

THE REPUBLIC OF ARGENTINA,

Defendant.

we ee eer

OPINION

Plaintiffs in these actions own defaulted bonds

issued by defendant, the Republic of Argentina.

Plaintiffs move to confirm certain orders issued by the

court on May 22, 2007 restraining and attaching

certain assets of the Republic in a trust administered

by the U.S. Bank Trust National Association. Banco de

la Nacion Argentina (“BNA”), as trustee of those

assets, opposes the motion and moves to vacate the

orders. Plaintiffs’ motion to confirm is granted, and

BNA’s motion to vacate is denied.

Background

Procedural History

On May 22, 2007, on plaintiffs’ ex parte motion, the

court issued three orders authorizing plaintiffs’

attorneys to levy upon certain assets said to belong to

the Republic. The orders all directed plaintiffs to

“refrain from taking [the assets] into actual custody

pending further order of this Court.” As described

below, the form of the orders differed slightly based on

the posture of the cases to which they related.

However, all of the orders affected two groups of

assets: any beneficial interest of the Republic in the

“BH Options Trust” (the “BH Trust”), and assets held

by the BH Trust. The orders specifically referred to

interests held by the trust in BNA’s name, which was

done because of BNA’s function as trustee of the Fondo

l6a

Fiduciario Federal de Infraestructura Regional

(“Infrastructure Fund” or “FIR Fund”) and the

Fideicomiso de Asistencia al Fondo Fiduciario Federal

de Infraestructura Regional (“Assistance Fund”). As

disclosed in a Garnishee Statement filed in response to

the orders, these assets are held by the U.S. Bank

Trust National Association.

At the time of the orders, EM Ltd., the plaintiff in

case 03 Civ. 2507, and NML Capital, Ltd., the plaintiff

in case 03 Civ. 8845, had already obtained judgments

against the Republic. Therefore, the court issued

Restraining Orders in those cases. In cases 05 Civ.

2434, 06 Civ. 6466, and 07 Civ. 1910, however,

plaintiff NML had not yet obtained judgments. In

those cases, the court therefore issued an Order of

Attachment and Temporary Restraining Order. NML

subsequently received judgments in cases 05 Civ. 2434

and 06 Civ. 6466 on May 28, 2009; those judgments

were amended on June 12, 2009.

Plaintiffs moved to confirm the orders. The

Republic did not submit any argument with respect to

these orders. However, since BNA is the trustee of the

Infrastructure Fund and Assistance Fund, and

therefore the garnishee under the attachment and

restraining orders, it opposed plaintiffs’ motion and

cross-moved to vacate the orders. BNA is a non-party,

and there is no dispute for the purposes of this motion

that it is an independent entity and that it is not

directly liable for the Republic’s default.

Plaintiffs and BNA have both submitted several

declarations setting forth facts relevant to this dispute.

Although they dispute the nature of the Republic’s

interest in these assets, they generally agree about

l7a

many of the basic facts, including facts about the

provenance of the assets. Therefore, except where

otherwise indicated, the facts set forth below are

undisputed.

The BH Trust

The BH Trust was established in 1999 as part of a

transaction to sell securities in Banco Hipotecario

Nacional, which, at the time, was an Argentine

state-owned bank. The privatization of Banco

Hipotecario involved offerings of shares, American

Depository Shares (“ADSs”), and options to buy shares

or ADSs in the bank. The shares offered to the general

public were called “Class D” shares.

In support of the privatization effort, the BH Trust

held ADSs that corresponded to the Class ID shares.

These ADSs were to be used to satisfy redemptions of

options held by investors in the bank. After those

options expired on February 2, 2004, the trust

continued to hold 9,090,500 ADSs that corresponded to

unexercised options. These securities are now the

principal asset of the BH Trust.

The BH Trust is governed by a trust agreement,

which provides that, upon order of the trustee, the

trust’s proceeds are distributed to the Assistance

Fund. Any residual funds left over after such

distributions are given to the Infrastructure Fund.

BNA is designated as the trustee of the BH Trust, and

therefore has the exclusive power to order these

distributions to occur. Because the Banco Hipotecario

options corresponding to the ADSs have expired, there

are no entities other than the Assistance Fund,

l8a

Infrastructure Fund and, according to plaintiffs, the

Republic, that are beneficiaries of the BH Trust.

The Intrastructure and Assistance Funds

The Infrastructure and Assistance Funds were also

set up in connection with the privatization of Banco

Hipotecario. Both are referred to as “fiduciary funds”

or “public trusts.”

The Infrastructure Fund was established by Law

No. 24,855. That law created the fund to finance

“economic and social infrastructure projects” of

Argentina’s nationa! and provincial governments. The

law specified that the fund would “operate within the

environment of the Chief of Cabinet Ministers” and

would be administered by a board of seven individuals

appointed by the federal Executive Branch. The law

also requires BNA to serve as the trustee of the fund

and administer it “in accordance with instructions

received from the administrative’ board.”

Subsequently, presidential decree No. 924/97, which

implements this law, specified that a _ private

association, the Argentine Construction Chamber,

would be asked to nominate individuals to serve on the

board. In decree No. 924/97, the national and

provincial governments are described as_ the

beneficiaries of the trust, with the national

government also described as the residual beneficiary.

The Assistance Fund was_ established by

presidential decree No. 924/97. The “sole purpose” of

the Assistance Fund is “to proceed with capitalizing

the [Infrastructure Fund] through the contribution of

the net proceeds from the sale of the shares of” Banco

Hipotecario. The Assistance Fund is required to “act

19a

according to the instructions” of its Executive

Committee, the members of which are appointed by

officials of the federal government. BNA is appointed

as the “Fiduciary Agent” of the Assistance Fund. The

Assistance Fund principally owns “Class A” shares in

Banco Hipotecario, which, by law, can only be owned

by the Republic itself.

Thus, in_ short, proceeds from the Banco

Hipotecario sale—which include the ADSs now being

held in the BH Trust—accrue to the Assistance Fund,

which then funds the Infrastructure Fund, which then

makes loans to the federal and provincial governments

to support infrastructure development.

The CPLR and the Republic’s Interest

in the Attached Property

Under the Federal Rules of Civil Procedure, a

federal court employs the attachment and execution

procedures provided by the law of the state in which

the court sits. See Fed. R. Civ. P. 64 (referring to state

law for pre-judgment attachment procedures); Fed. R.

viv. P. 69 (referring to state law for post-judgment

execution procedures). The New York Civil Practice

Law and Rules (“CPLR”) therefore govern the

attachment and restraint of assets under these orders.

The CPLR impose similar requirements for both

pre-judgment attachments and_ post-judgment

restraints. First, attachments and restraints must be

issued against “property which could be assigned or

transferred, whether it consists of a present or future

right or interest and whether or not it is vested.”

CPLR 8§ 5201(b); 6202. Second, if the attachment or

restraint is served on a person other than the

20a

defendant, that person must, at the time of service,

owe a debt to the defendant or be “in the possession or

custody of property in which such person knows or has

reason to believe” that the defendant has an interest.

§§ 5222, 6214(b).

For a pre-judgment attachment to be confirmed, a

plaintiff must satisfy three additional requirements.

First, one of five statutory grounds for attachment

must exist. CPLR § 6201. One of these grounds is that

the defendant is not a domiciliary of New York,

§ 6201(1), and another is that “the defendant, with

intent to defraud his creditors or frustrate the

enforcement of a judgment,” has assigned or concealed

property, or removed it from New York, “or is about to

do any of these acts.” § 6201(3). Second, the plaintiff

must establish that it has a cause of action, that it is

likely to succeed on the merits, and that the amount

demanded from the defendant exceeds the defendant’s

known counterclaims against the plaintiff. CPLR

§ 6212. Third, the plaintiff must establish a need for

continuing the attachment. CPLR § 6213.

Plaintiffs have indisputably satisfied most of these

requirements. First, the Republic is a nondomiciliary

residing outside New York. Second, the plaintiffs have

a cause of action and are likely to succeed on the

merits, given the Republic’s undisputed liability in

these actions. Third, since the Republic has not

asserted counterclaims against the plaintiffs, the

amounts sought by plaintiffs exceed the value of the

Republic’s counterclaims. Fourth, there is a need to

continue the attachments, since the funds could be

immediately transferred outside the United States if

the court’s orders were vacated.

Zla

The remaining requirements are more complex

Plaintiffs seek to restrain and attach the corpus of the

BH Trust, as well as the Republic’s “rights to receive

distributions” from the BH Trust “as Certificateholder

through the Assistance Fund, and as Residual

Beneficiary through the [Infrastructure] Fund.” Thus,

for the orders to be confirmed, the court must find that

(1) the Republic has an interest in the corpus of the

BH Trust, as wel] as a right to distributions from the

BH Trust, (2) the Republic’s right to distributions

gives it an interest in the trust assets, and (3) these

interests are “property which could be assigned or

transferred.”

There is no question that the Assistance Fund has

a right to distributions from the BH Trust, and that

the Infrastructure Fund has a right to receive any

residual distributions upon the termination of the BH

Trust. However, the critical question is whether the

Republic’s rights to the BH Trust assets are equivalent

to the Funds’ rights. In essence, plaintiffs argue that

because the Republic has repeatedly treated the

Assistance and Infrastructure Funds as a

discretionary source of revenue, it has shown that the

Republic has the same rights to distributions as the

Assistance and Infrastructure Funds do.

There is an initial question as to plaintiffs’ burden

of proof on these motions. Plaintiffs argue that they

need only make out a prima facie case and that the

facts they allege must be assumed to be true. Although

this is true when a court is considering whether a

plaintiff has shown that it is lhkely to succeed on the

merits of the case, that is not a disputed question on

this motion. See, e.g., Bank of Leumi Trust Co. of N.Y.

v. Istim, Inc., 892 F. Supp. 478, 482 (S.D.N.Y. 1995)

22a

Plaintiffs have cited no case, and the court has found

none, that applies such a liberal standard with respect

to the other elements that plaintiffs must satisfy. To

the contrary, the Second Circuit has indicated that in

determining whether a plaintiff has satisfied the

statutory grounds for attachment, it must engage in

the “weighing of evidence and also in balancing

competing considerations.” Capital Ventures Int'l v.

Republic of Arg., 443 F.3d 214, 222 (2d Cir. 2006). It is

therefore more appropriate to weigh plaintiffs’ offer of

proof against the contrary evidence offered by BNA,

rather than simply assuming that plaintiffs’

allegations are true.

Even under that standard, however, the evidence

establishes that the Assistance and Infrastructure

Funds are part of the Republic. First, plaintiffs have

demonstrated that the Republic has treated the assets

of the Assistance and Infrastructure Funds as assets

of the Republic itself. In 2004, the Republic issued a

presidential decree, Decree No. 906/2004, which

required the Infrastructure and Assistance Funds

(along with several other fiduciary funds) to invest

their assets in Argentine treasury bills and in financial

instruments issued for the purpose of financing

infrastructure projects. The decree referred to these

funds as “the national government’s trust funds,” and

characterized the measure as part of a strategy to

“reactivate the economy” and satisfy “the public

treasury’s temporary needs for liquid assets” without

resorting to “an increase in public debt.” In 2001,

Decree No. 957/01 lowered the salaries of the

administrators of fiduciary funds, including the

Infrastructure Fund, and required the savings to be

contributed to the national treasury. In 2002, Law No.

25,565 required fiduciary funds, including the

23a

Infrastructure Fund, to together contribute 200 million

pesos “for the payment of debt.” BNA contends that

the Infrastructure Fund was ultimately not required

to make the payments to the treasury that Decree

957/01 and Law 25,565 mandated. Nonetheless, it is

still the case that on at least three occasions, the

Argentine government issued requirements that, in

essence, treated the assets of the Assistance and

Infrastructure Funds as assets of the Republic itself

Second, the principal asset of the Assistance Fund

is Class A shares in Banco Hipotecario. Law No

24,855, which set up the Infrastructure Fund and

instituted the privatization of Banco Hipotecario,

defined Class A shares as shares “owned by the

Federal Government.” Although Class A shares can be

sold to private entities, they are immediately

converted to Class C or D shares when that happens

Moreover, as long as the Class A shares remain the

principal asset of the Assistance Fund, “all the

political rights emerging from them will belong to the

State.” BNA contends that the Assistance Fund merely

holds the Class A shares as an agent of the Republic.

Even assuming that to be true, however, the Republic

is still the owner of the shares, and therefore of the

Assistance Fund’s assets.

The Republic’s own actions therefore establish that

the Assistance and Infrastructure Funds are

essentially used as discretionary funds of the Republic,

and that the Republic has a right to use the assets of

the Funds as it wishes. The Funds are therefore part

of the Republic, and, by extension, the Republic has

the same legal rights as the Funds themselves. Since

itis undisputed that the Assistance and Infrastructure

Funds have a right to distributions from the BH Trust,

24a

and ultimately to the corpus of the Trust, the Republic

has these rights as well. Since the trust agreement

explicitly provides for assignments and transfers of the

interests of the Funds in the BH Trust, the Funds’

interests in the BH Trust constitute “property which

could be assigned or transferred,” as required by the

CPLR.

Protection Under Trust Law

BNA argues that, under Argentine law, the

Assistance and Infrastructure Funds should be viewed

as “trusts,” and their assets should therefore be

considered immune from the Republic’s creditors.

Plaintiffs contend that Argentine law does not extend

such protection to the Assistance and Infrastructure

Funds. They further contend that if Argentine law did

provide such protections, the court could not enforce

that immunity as a matter of New York law.

This dispute presents the preliminary question of

whether to look to New York or Argentine law. New

York’s choice-of-law rules, which govern in this

context, require the court to first determine whether

there is an actual conflict between the laws of New

York and Argentina. Karaha_Bodas, LLC ev.

Perusahaan Pertambangan Minyak Dan Gas Bumi

Negara, 313 F.3d 70, 85 (2d Cir. 2002). If a conflict

does exist, the law of the jurisdiction having the

greatest interest in the litigation is applied. Id. These

interests are determined by identifying the purposes of

the conflicting laws and evaluating the facts of the

case that relate to those purposes. Id. at 87.

WAY

In this case, there is no conflict, since neither

Argentine nor New York law would treat the

Assistance and Infrastructure Funds as valid trusts.

Argentine Law

Argentine trust law is set forth primarily in Law

No. 24,441. That law states that a trust exists when a

settlor “transfers fiduciary ownership of certain assets

to another (trustee), who undertakes to exercise that

ownership in benefit of whoever is designated in the

trust agreement (bencficiary).” The law also provides

that the trustee has the power to “dispose of or

encumber the assets in trust when so required by the

purposes of the trust, without the consent of the settlor

or the beneficiary being necessary, unless otherwise

agreed.” Furthermore, a trustee is legally entitled to

receive a management fee and to resign. Assets in

trust are considered “separate from the assets of the

trustee and the settlor.” Trust assets are then exempt

from legal action by the creditors of either the trustee

or, except in a case of fraud, the settlor. However, a

“beneficiary's creditors may exercise their rights to the

fruits of the assets in trust and subrogate the

beneficiary’s rights.”

Law No. 24,855, however, which established the

Infrastructure Fund, explicitly preempts Law No.

24,441, to the extent that they conflict. This is

consistent with the fact that the fiduciary funds are

considered to be distinct from the typical “private”

trust envisioned by Law 24,441. The fiduciary funds

are all created by legislation with the purpose of using

their funds for public purposes, and they do not bear

all of the hallmarks of a conventional private trust.

26a

An initial matter of nomenclature must be resolved.

If the Funds were considered to be trusts, the Republic

would be both their settlor and the beneficiary. The

parties appear to agree that the Republic is properly

considered the settlor of the Infrastructure Fund,

since, by privatizing Banco Hipotecario, it provided the

assets to the funds.

The Republic is also the beneficiary of both Funds,

despite BNA’s argument that the Infrastructure Fund

has no beneficiary and that the beneficiary of the

Assistance Fund is the Infrastructure Fund. BNA’s

position is inconsistent with Decree Nos. 924/97 and

228/98, both of which refer to the Republic as a

beneficiary of the Infrastructure Fund. Moreover, Law

24,441 defines a beneficiary as the entity for whose

benefit a trust is operated, which is clearly the

Republic in this case. In addition, if it were true that

the Infrastructure Fund has no beneficiary, it could

not be considered a trust within the scope of Law

24,441. Since both Funds operate for the benefit of the

Republic—whether as a source for infrastructure

financing or more general financial needs—the

Republic is clearly the beneficiary of the Funds.

For two primary reasons, the Funds do not qualify

as “trusts” for purposes of Law 24,441, and therefore

cannot invoke the protections afforded to trusts by

Argentine law.

First, BNA is forbidden from managing the trust

assets without the Republic’s consent. It is, in fact,

specifically required to follow the instructions of

officials appointed by the Republic. Indeed, by BNA’s

own account, BNA has little involvement in managing

the trust funds, and instead leaves those

2la

responsibilities to the officials appointed by the

government. This is contrary to the requirement of

Law 24,441 that trustees have the power to manage

assets “without the consent of the settler or the

beneficiary.” Similarly, the prohibition on BNA

resigning as trustee or accepting a management fee is

contrary to the typical powers of a trustee under Law

24,441.

BNA’s arguments on this issue are unconvincing.

BNA argues that Law 24,441 allows trustees’ decisions

to be subject to the consent of a settlor or beneficiary,

as long as that is set forth in the trust agreement.

However, plaintiffs have offered persuasive evidence

from experts in Argentine law that this provision is

typically understood to allow a settlor to consult with

the trustee on the use of trust assets, not to control the

trustee’s decisionmaking by requiring the trustee to

adhere to instructions of the settler’s appointees.

Furthermore, as discussed above, the assets of the

Assistance and Infrastructure Funds are not treated

as distinct from the assets of the settlor, the Republic.

To the contrary, the Republic has repeatedly decreed

that the assets of the Assistance and Infrastructure

Funds are a Jegitimate source of funds for the Republic

itself. It may be true, as BNA contends, that the Funds

are nominally “extra-budgetary” entities, and therefore

do not receive any appropriations from the national

treasury. Nonetheless, that fact has not prevented the

Republic from determining that it had the power to

use the Funds’ assets without seeking permission of

the “trustee.”

These conclusions are bolstered by an opinion of

Argentina’s Attorney General, which determined that

28a

because of the “restrictions posed by” Law 24,855 on

BNA, “the term ‘trustee’ is used [with respect to the

Funds] in the sense of [an] agent.” Similar conclusions

have been reached by other Argentine legal experts,

including a law professor who has submitted detailed

affidavits on behalf of plaintiffs. These opinions are

well supported by the facts discussed above, and are

significantly more persuasive than the opinions of

BNA’s experts.

Argentine trust law would therefore not shield the

assets ofthe Assistance and Infrastructure Funds from

the Republic’s creditors.

New York Law

Plaintiffs argue that New York trust law would not

recognize the Funds as trusts. BNA does not address

this argument, and may therefore be deemed to have

conceded it. Irrespective, plaintiffs are correct on the

merits.

CPLR section 5205(c) exempts from attachment

and restraint the principal ofa trust “created by ...a

person other than the judgment debtor.” However,

since the Republic, the judgment debtor, created the

Funds, section 5205(c) facially does not apply.

Furthermore, New York trust law provides that a

trust “for the use of the creator is void as against the

existing or subsequent creditors of the creator.” NY.

Est. Powers & Trusts Law § 7-3.1(a). Thus, “when a

person creates for his own benefit a discretionary

trust, his creditors can reach the maximum amount

which the trustee under the terms of the trust could

pay to him” because it “is against public policy to

29a

permit the settlor-beneficiary to tie up her own

property in such a way that she can still enjoy it but

can prevent her creditors from reaching it.” Vanderbilt

Credit Corp. v. Chase Manhattan Bank, NA, 100

A.D.2d 544, 546 (2d Dep’t 1984). Since, as discussed

above, the Republic created the Funds for its own

benefit (and has subsequently used the assets of the

Funds for its own benefit), New York law does not

protect the assets of the Funds from the creditors of

the Republic.

Finally, it is commonly accepted that “creditors of

a trust beneficiary ... can subject the interest of the

beneficiary to the satisfaction of their claims.”

Restatement (Third) of Trusts § 56; see also N.Y. Est.

Powers & Trusts Law § 7-3.4.

Like Argentine law, New York law would therefore

permit the attachment of these funds.

The Bancec Presumption and the FSIA

BNA’s remaining arguments are unpersuasive.

First, the assets of the Funds are not protected by

the doctrine of First National City Bank v. Banco Para

el Comercio Exterior de Cuba (“Bancec”). In Bancec,

the Supreme Court held that “a presumption of

independent status” attaches to “instrumentalhities

established as juridica) entities distinct and

independent from their sovereign.” 462 U.S. 611,

626-27 (1983). However, nothing in the legislation

creating the Assistance and Infrastructure Funds

indicates that the Funds were established as distinct,

independent entities. As discussed above, the conduct

of the Republic with respect to the Funds establishes

30a

that the Funds are not viewed by the government as

distinct entities. Furthermore, plaintiffs contend that

Argentine law requires that an entity can only be

considered a separate “juridical entity” under

Argentine law if it is explicitly designated one, and

BNA has not disputed this. At most, BNA has offered

evidence that the Funds have the power to contract

and engage in litigation, but the Second Circuit has, in

a related context, noted that it would be inappropriate

to give dispositive weight to such powers. Garb v.

Republic of Pol., 440 F.3d 579, 595.

Second, the assets of the Funds are not immune

from attachment and execution under the Foreign

Sovereign Immunities Act (““FSIA”). The FSIA provides

exceptions to sovereign immunity when (1) the

property is “used for a commercial activity in the

United States,” (2) the sovereign has waived its

immunity from attachment and execution, and, in

cases where a judgment has not yet issued, (3) “the

purpose of the attachment is to secure satisfaction of

a judgment that has been or may ultimately be entered

against the foreign state, and not to obtain

jurisdiction.” 28 U.S.C. § 1610(a), (d). These

requirements are all satisfied here.

The basic inquiry in determining whether an

activity is “commercial” is “whether the activity is of

the type an individual would customarily carry on for

profit.” De Letelier v. Republic of Chile, 748 F.2d 790,

797 (2d Cir. 1984). The FSIA mandates that “the

commercial character of an _ activity shall be

determined by reference to the nature of the course of

conduct or particular transaction or act, rather than by

reference to its purpose.” § 1603(d). Thus, courts must

focus on the “actual,” immediate use of funds, rather

sla

than on why that use is occurring. EM Ltd. v. Republic

of Arg., 473 F.3d 463, 484-85 (2d Cir. 2007). Thus,

“when a foreign government acts, not as regulator of a

market, but in the manner of a private player within

it, the foreign sovereign’s actions are ‘commercial.”

Republic of Arg. v. Weltover, Inc., 504 U.S. 607, 614

(1992).

By using the Funds’ assets to facilitate the sale of

securities, the Republic acted as nothing more than a

“private player” in the market, and therefore used the

property for a commercial activity in the United

States. Although BNA contends that the court should

consider the ultimate use of the Republic’s profits to

fund infrastructure projects, the court is not permitted

to consider the “purpose” of the Republic's activity in

determining whether it was commercial in nature.

With respect to waiver, the second element of the

exception to immunity, it has been repeatedly

recognized that when the Republic issued the

defaulted bonds at issue here, it explicitly waived its

sovereign immunity from suits based on the bonds. See

EM, 473 F.3d at 468, 480 n.18. Since, as discussed

above, the Funds are part of the Republic and are not

distinct entities, that waiver extends to the Funds’

assets as well. Finally, there is no dispute that the

purpose of the attachment in the pre-judgment cases

here was to secure satisfaction of the judgment, and

not to obtain jurisdiction.

Third, the frozen property is located in New York,

and is therefore subject to attachment by the court.

BNA contends that the Republic’s beneficial interests

in the Fund assets can only be located in Argentina.

Under New York law, however, the situs of intangible

property, such as beneficial interests, is “the location

of the party of whom performance is required by the

terms of the contract.” ABKCO Indus., Inc. v. Apple

Films, Inc., 39 N-Y.2d 670, 675 (1976). Here, for the

Republic's interests in the Fund assets to be satisfied,

action must be taken by U.S. Bank, where the BH

Trust 1s located. The situs of those interests is,

therefore, New York, and is within the court’s

jurisdiction.

Conclusion

¢

lor the reasons stated above, plaintiffs’ motion to

confirm the May 22, 2007 orders is granted, and BNA’s

motion to vacate the orders is denied.

SO ORDERED.

Dated: New York, New York

August 19, 2009

/s/ Thomas P. Griesa

Thomas P. Griesa

U.S.D.J.

APPENDIX C

28 U.S.C. § 1610(a) & (d)

(a) The property in the United States of a foreign state,

as defined in section 1603(a) of this chapter, used for

a commercial activity in the United States, shall not be

immune from attachment in aid of execution, or from

execution, upon a judgment entered by a court of the

United States or of a State after the effective date of

this Act, if--

(1) the foreign state has waived its immunity from

attachment in aid of execution or from execution either

explicitly or by implication, notwithstanding any

withdrawal of the waiver the foreign state may

purport to effect except in accordance with the terms

of the waiver, or

(2) the property is or was used for the commercial

activity upon which the claim is based ...

(d) The property of a foreign state, as defined in

section 1603(a) of this chapter, used for a commercial

activity in the United States, shall not be immune

from attachment prior to the entry of judgment in any

action brought in a court of the United States or of a

State, or prior to the elapse of the period of time

provided in subsection (c) of this section, if--

34a

(1) the foreign state has explicitly waived its immunity

from attachment prior to judgment, notwithstanding

any withdrawal of the waiver the foreign state may

purport to effect except in accordance with the terms

of the waiver, and

(2) the purpose of the attachment is to secure

satisfaction of a judgment that has been or may

ultimately be entered against the foreign state, and

not to obtain jurisdiction