| NEW YORK
NEW YORK Dec 5 When nations can't pay their
creditors, the phones start ringing at Cleary Gottlieb Steen &
Hamilton in New York.
Over the past three decades the firm has become the go-to
legal adviser for countries in financials. In the past five
years it has represented Greece, the Republic of Congo and the
Its work often takes place behind closed doors, but a fight
over Argentina's debt that is coming to a head in U.S. courts
has pushed the law firm into the spotlight.
For a decade, Cleary Gottlieb has helped Argentina fend off
nearly all payment demands from a group of bond investors who
refused to go along with the country's steeply discounted debt
But now that strategy may backfire, after a federal district
court judge on Nov. 21 ordered Argentina to put $1.33 billion
into escrow for some of those investors. While the firm scored a
temporary victory last week, when an appeals court put that
order on hold, Argentina may eventually be forced to pay up.
To lose such a high-profile case would be a blow to any law
firm. But legal industry experts said Cleary Gottlieb's position
as the legal adviser of choice for countries renegotiating their
sovereign debt would be secure in any case. In addition to
Cleary, other firms known for their work in the field include
White & Case and Arnold & Porter.
"The firms that have the most experience in planning your
restructuring will still be in demand," said Mark Weidemaier, a
professor at the University of North Carolina School of Law and
an expert in sovereign debt.
Cleary Gottlieb declined to comment for this article.
Founded in 1946, the firm has about 1,200 lawyers in 16
offices around the globe. It brought in $1.12 billion in revenue
last year, according to The American Lawyer magazine, putting it
15th among U.S. law firms.
One of its founders, George Ball, helped advise a French
official on implementation of the Marshall Plan in the 1950s.
I t s first sovereign debt client came in the 1980s, when Mexico
faced a potential default on $80 billion in debt. Soon
afterward, Chile sought its advice on debt restructuring.
More recently the firm has advised Russia, South Korea and
Iraq, and even other law firms view Cleary Gottlieb as the most
active player in the sovereign debt field. "I would say they are
the market leader," said Mark Cymrot, a partner at the law firm
Baker & Hostetler who has represented sovereigns in various
Much of Cleary Gottlieb's success in sovereign debt is based
on the work of partner Lee Buchheit, who has led restructuring
negotiations for 20 countries, including one that cut Greece's
private-sector debt by 100 billion euros in March. His academic
papers, books and legal briefs over the past three decades fill
much of the void where no formal law exists.
In 2002, for example, Buchheit developed a "collective
action" clause, which says that if a supermajority of
bondholders votes in favor of a restructuring, it becomes
legally binding for everyone, even for those who voted against
it. If Argentina's disputed bonds had contained such a
provision, the holdouts may not have been able to bring their
DEFAULT LEADS TO RESTRUCTURINGS
The current proceedings have their roots in 2002, when
Argentina defaulted on its debt. Cleary Gottlieb, Argentina's
adviser since 1989, led two rounds of restructurings, in 2005
A group of hedge funds headed by Elliott Management rejected
the restructurings and sued for full payment in federal court in
New York, which has jurisdiction under the debt covenants.
Cleary Gottlieb has fought the "holdout" funds every step of
the way, succeeding for years in getting rulings that went
against Argentina overturned. But in February, U.S. District
Judge Thomas Griesa ruled that Argentina must treat the holdout
bondholders the same as it treats bondholders who agreed to the
restructurings, and an appeals court panel agreed.
Cleary Gottlieb often takes the heat from those governments'
critics and opponents.
On Nov. 2, opposition lawmakers in Argentina submitted a
resolution in Argentina's Congress trying to force the
government to fire Cleary Gottlieb, saying the firm had failed
to protect the national interest.
"There has been no precise or proper defense of the
interests of the nation," Fabian Rogel, one of the opposition
lawmakers of the Centrist Radical Party, told Reuters. "These
law firms are obliged to defend the interests of the nation."
The resolution is not expected to pass.
At a hearing on Nov. 9, Griesa grilled Cleary Gottlieb
attorney Carmine Boccuzzi about statements by Argentina's
president and economy minister that the country will not pay the
holdout investors, which would potentially violate orders by
Boccuzzi was left to try to explain away the comments,
saying President Cristina Fernandez was only trying to calm
financial markets. "They are not thumbing their nose at your
honor or the orders," Boccuzzi told the judge.
Soon after, on Nov. 21, Griesa ordered Argentina not to pay
its regular bondholders without also paying funds into escrow
for the holdouts, putting Argentina at risk of technical default
on its debt if it did not pay up. Such a default would further
diminish investor confidence in Latin America's third-biggest
It is not known how much money Cleary Gottlieb has earned
from Argentina over the years, but it is likely to have been in
the tens of millions of dollars, based on what it has charged
other clients. Its work for Iraq, for example, which Cleary
Gottlieb must report to the U.S. Justice Department, has made
the firm $20 million since 2004.
According to Monitor Suite, a Thomson Reuters product that
collects data from U.S. state and federal courts, Argentina has
appeared on more court dockets than any other of Cleary
Gottlieb's clients over the past five years.
If Argentina eventually loses the case, Cleary Gottlieb and
others have noted that future sovereign borrowers may avoid
issuing bonds under New York law and may opt for London instead.
But such a development may not affect Cleary Gottlieb, which has
more than 90 lawyers in London. Jonathan Blackman, who leads the
Argentina litigation with Boccuzzi, already splits his time
between New York and London.
Another unknown is whether a loss would affect Cleary
Gottlieb's local work in Buenos Aires, where it opened an office
in 2009 and where it has eight lawyers, according to the firm's
website. The lawyers in that office work with the more than 100
lawyers who make up its Latin America practice in New York,
which serves public and private clients in a variety of
corporate and financial transactions.
While Cleary Gottlieb's reputation as an aggressive
litigator and negotiator may attract clients, in one case the
firm went too far, according to a ruling by U.S. District Judge
Loretta Preska in 2004. In it, she sanctioned the law firm for
trying to dissuade a witness from attending a deposition in a
case over the Republic of Congo's debt. Cleary Gottlieb shows a
willingness to operate in the murky area between zealous
advocacy and improper conduct, Preska said, and "here it crossed
In the Argentina case, Cleary Gottlieb won a last-minute
reprieve on Nov. 28, when the 2nd U.S. Circuit Court of Appeals
stayed the order that Argentina pay $1.33 billion into escrow
for the holdout bondholders. Cleary Gottlieb returns to the
courtroom in February, when the appeals court will hear
arguments on whether to uphold that order.