This note examines the impact of the Supreme Court’s decision to deny certiorari and highlights its significance to actions for execution and attachment of assets to satisfy judgments against foreign states. A&O Shearman regularly advises clients on issues of foreign sovereign immunity in the United States.
Factual background
In response to the Latin American debt crises in the 1980s, then United States Treasury Secretary Nicholas F. Brady instituted a sovereign-debt-relief plan which involved an exchange of nearly USD30 billion in unsecured commercial bonds for collateralized bonds due in 2023 (the “Brady Plan”). Argentina renegotiated much of its debt under the Brady Plan, and issued collateralized bonds, which were backed by U.S. Treasury bonds and Deutsche Mark bonds (the “Brady Bonds”). Argentina kept reversionary interests in the collateral, allowing it to regain possession of the collateral if it paid off the bonds in full.
As of March 2023, the Brady Bonds had matured. Given Argentina’s reversionary interests, the Federal Reserve Bank of New York, acting as agent, liquidated the collateral and used the proceeds to pay any outstanding amounts owed to the bond holders, and Argentina became entitled to the remaining collateral.
Holders of other defaulted Argentine bonds sought to attach Argentina’s reversionary interests and collect any remaining collateral to satisfy a judgment against Argentina for its default on other bonds purchased by the judgment creditors in 1994, and which Argentina defaulted in 2001.
Procedural history
The property of a foreign state held within the United States is generally immune from attachment under the FSIA.2 That immunity, however, is subject to several exceptions.3 Relevant here is the commercial activity exception in Section 1610, which provides: “[t]he property in the United States of a foreign state . . . used for a commercial activity in the United States, shall not be immune from attachment. . . .”4
In Attestor Master Value v. Argentina, judgment creditors filed suit in the U.S. District Court for the Southern District of New York to try and attach Argentina’s reversionary interests to satisfy judgments stemming from Argentina’s default on their bonds. The judgment creditors argued that Argentina’s reversionary interests were not immune from attachment under the FSIA because Argentina had used them for commercial activity in the United States. The district court granted the motion for attachment, and once the bonds matured in 2023, granted turnover of Argentina’s reversionary interests.
Argentina appealed from the district court’s orders, arguing that the attachment of the reversionary interests was improper because (1) Argentina’s central bank, not Argentina, owned the reversionary interests and (2) even if it did own them, they are immune from attachment under the FSIA because Argentina did not “use” the reversionary interests in commercial activity and the property was not “in the United States.”
On August 21, 2024, the Second Circuit affirmed the district court’s decisions, determining that neither of Argentina’s arguments had merit.5 First, it found that the reversionary interests belong to Argentina, not the central bank, because the collateral pledge agreements repeatedly stated that all rights in the collateral “shall revert to Argentina.”6 Second, the Second Circuit held that the reversionary interests were not immune from attachment, because they fell within the “commercial activity” exception to immunity under the FSIA.7
In particular, the court found that Argentina “used” the reversionary interests in commercial activity at least twice before their attachment.8 The Second Circuit reasoned that Argentina’s two offers to alter or extinguish its reversionary interests to incentivize bondholders to participate in its exchange orders constituted a “use” in the transactions. It further found that under the totality of the circumstances, Argentina’s uses of the reversionary interests were commercial in nature. It reasoned that the exchange offers were commercial in nature, as “[b]oth involved an offer to exchange old debt for new, as any non-sovereign entity might do” and neither exchange offer depended on the fact that the underlying collateral was a special Treasury bond only available to sovereigns.9
The court also found the commercial activity was “in the United States.”10 Argentina argued, in relation to the collateral on the bonds secured by Deutsche Mark, that the property was not in the United States because the collateral was located in Germany and no transaction involving that collateral occurred in the United States. The court found that Argentina’s argument focused on the wrong property interest. The question was where Argentina’s reversionary interests in the collateral are located, not the collateral itself. It then applied New York state law to determine that for a contractual right, like reversionary interests, the situs of the property is the location of the party who has the obligation to perform. Here, that was the collateral agent located in New York, who was tasked with returning any excess collateral to Argentina on the exercise of the reversionary interests. Accordingly, the Second Circuit held that the reversionary interests were located in the United States.11
On December 11, 2024, Argentina submitted a petition for writ of certiorari to the Supreme Court, challenging the Second Circuit’s holding that the reversionary interests are property “in the United States” of a foreign state and “used for a commercial activity” in the United States under Section 1610(a)(1) of the FSIA. The Supreme Court denied the petition on January 27, 2025.12 Consequently, the Second Circuit’s decision stands, and Argentina’s reversionary interests are now subject to attachment and turnover.
Impact of the Supreme Court’s denial of the petition for certiorari
As noted above, for the commercial activity exception to immunity apply, the property at issue must be (1) “property in the United States of a foreign state” and (2) must have been “used for commercial activity.” The primary impact of the Supreme Court’s denial of the petition is that it leaves unresolved a split between the federal circuit courts on whether state or federal law provides the legal test for determining whether property is “in the United States.” Currently, when analyzing the property’s location under the FSIA, the Second Circuit applies state law, while the Fifth Circuit applies a “context specific” and “common sense appraisal of the requirements of justice and convenience not tied to any one state.”13
For judgment creditors and judgment debtors, this split means uncertainty as to whether certain property, particularly intangible property, will be considered to be “in the United States” for purposes of the FSIA and therefore, potentially subject to attachment. The lack of uniformity in approach means that the same property could be subject to execution in one U.S. court but not in another. However, as was the case in the Fifth Circuit’s decision in Af-Cap Inc. v. Republic of Congo, applying the “common sense” test will, in many cases, lead to the same result as a state law analysis. Similarly, in Attestor Master Value v. Argentina, although the Second Circuit followed its earlier precedent and assumed New York state law applied, it recognized the Fifth Circuit’s different test and noted that “it need not resolve the question [of which law applies] because the result is the same either way.”14
Nonetheless, judgment creditors should be mindful of the differing standards when deciding where to bring an execution action, particularly when seeking to attach intangible property. And judgment debtors should take the likely jurisdiction of an execution action into account when assessing the risk that a certain asset could be subject to attachment.
A&O Shearman has extensive experience advising on issues of foreign sovereign immunity and representing judgment creditors and debtors in proceedings relating to the enforcement and execution of judgments in the United States and other jurisdictions and remains at the disposal of those considering and defending against such actions.
Footnotes
1. Argentina v. Attestor Master Value, No. 24-668, 2025 WL 299527 (U.S. Jan. 27, 2025).
2. 28 U.S.C. § 1609.
3. See 28 U.S.C. §§ 1610-1611.
4. 28 U.S.C. § 1610.
5. Attestor Master Value Fund LP v. Argentina, 113 F.4th 220, 228 (2d Cir. 2024), cert. denied sub nom. Argentina v. Attestor Master Value, No. 24-668, 2025 WL 299527 (U.S. Jan. 27, 2025).
6. Id.
7. Id.
8. Id. at 229.
9. Id. at 232.
10. Id. at 233.
11. Id.
12. Argentina v. Attestor Master Value, No. 24-668, 2025 WL 299527 (U.S. Jan. 27, 2025).
13. Compare Calderon-Cardona v. Bank of New York Mellon, 770 F.3d 993, 1001 (2d Cir. 2014) (applying state law) with Af-Cap Inc. v. Republic of Congo, 383 F.3d 361, 371-72 (5th Cir.), decision clarified on reh'g, 389 F.3d 503 (5th Cir. 2004).
14. Attestor Master Value Fund LP v. Argentina, 113 F.4th 220, 233, n. 9 (2d Cir. 2024).
