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NEW YORK, Dec 5 (Reuters) - 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 Ivory Coast.
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 restructurings.
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 commercial lawsuits.
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 cases.
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 and 2010.
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 U.S. courts.
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 economy.
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 the line."
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.