| NEW YORK, June 19
NEW YORK, June 19 At a hearing Wednesday
afternoon in Manhattan, Argentina's lawyer, Carmine Boccuzzi of
Cleary Gottlieb Steen & Hamilton, informed U.S. District Judge
Thomas Griesa that Argentine officials "will be in New York next
week" in order to begin negotiations with the hedge funds whose
bond litigation has forced the country to the brink of a
sovereign debt crisis.
The very next morning, at a press briefing, Argentine
Cabinet Chief Jorge Capitanich appeared to contradict Cleary's
representations to Griesa: "There is no delegation prepared for
a possible trip to the United States," he said, according to a
Reuters report from Buenos Aires.
Capitanich is the third Argentine official this week whose
public comments seem to be at odds with positions the country's
lawyers have taken in U.S. courts. Earlier this month, Cleary
partner Boccuzzi assured Judge Griesa that Argentina was not
making contingency plans to restructure its debt in the event
that the U.S. Supreme Court upheld Griesa's orders requiring the
country to pay hedge fund holdouts about $1.5 billion at the
same time that it makes coupon payments to exchange bondholders
that participated in previous restructurings. Argentina also
said in a brief to the Supreme Court that it would comply with
U.S. court orders.
Yet hours after the Supreme Court declined on Monday to hear
Argentina's appeal, Argentine President Cristina Fernandez de
Kirchner delivered a speech vowing not to "submit to extortion"
by the hedge funds. The following day, Economy Minister Axel
Kicillof announced that Argentina is developing a process to pay
exchange bondholders without paying the holdouts.
Argentina's lawyers have been careful to couch what they've
said in court. At Wednesday's hearing, for example, Boccuzzi
said he "had been informed" and that "Argentine authorities have
told me" that officials planned to come to New York to
negotiate. Boccuzzi also tried to persuade Judge Griesa that
Argentine politicians are making political speeches, not legal
representations. "Obviously, there is some strong language
because (they are) dealing with quite a large problem and
situation and trying to deal with it in a way that takes into
account all the aspects here," he said.
It's true that Argentine officials have a different audience
than their lawyers. It's also true that Argentina's debt crisis
can't be definitively resolved in U.S. courts. Griesa's
injunctions, which officially took effect Wednesday, bar
Argentina from making a scheduled $900 million payment on June
30 to exchange bondholders through the U.S. banks specified in
the contracts without also paying the hedge fund holdouts.
If Argentina somehow figures out a way to move the payment
mechanism outside of the reach of U.S. courts -- which would
likely put the exchange bonds in default -- it will be violating
Griesa's orders, based on what the judge said at Wednesday's
hearing, and at grave risk of a contempt of court finding and
monetary sanctions. If the dispute really reaches that point,
perhaps the hedge funds' creative lawyers can propose some other
punishment to coerce Argentina into compliance -- though they'd
probably face opposition from the U.S. government, which has
previously opposed any kind of contempt sanctions against
foreign governments. And even sanctions won't help the hedge
funds collect Argentine assets protected under the Foreign
Sovereign Immunities Act.
For Argentine officials, in other words, the political and
economic benefits of defiant public statements may outweigh the
risks to their country of contrary statements to U.S. courts.
But for Cleary Gottlieb, the risk calculus is quite different.
Cleary relies on its reputation and its credibility with U.S.
judges. Argentina's pronouncements, at the very least, have put
the firm in the awkward position of trying to explain to Judge
Griesa why he should disregard the public proclamations of its
client. Griesa wasn't persuaded on Wednesday, when he said that
the Argentine president's reference Monday to "extortion" was
"unfortunate" and "really does not give me confidence in a good
faith commitment to pay all of the obligations of the Republic."
NML's lawyers, meanwhile, seem to be angling for Cleary to
face consequences more dire than awkwardness. At Wednesday's
hearing, NML lawyer Robert Cohen of Dechert came close to
accusing the firm of lying to Griesa. "The representations that
were made about there being no plan were obviously untrue,"
Cohen said, in a reference to Cleary's previous assurances to
Griesa that Argentina wasn't working on a debt restructuring
process designed to evade his orders. "Mr. Boccuzzi and Mr.
Blackman stood up and said that in this court. And on the night
of the denial, the president goes on national television and
announces that plan," Cohen said.
It's also worth pointing out that Gibson, Dunn & Crutcher is
counseling NML along with Dechert -- and Gibson Dunn has used
attacks on its opponents' lawyers as a successful strategy in
other cases, including the environmental litigation against
Chevron, the BP Gulf oil spill class action and injury suits
against Dole Food for using pesticides. The circumstances in the
Argentine bond litigation are different, since Cleary is a
renowned defense firm that's typically on the same side as
Gibson Dunn, unlike the plaintiffs firms Gibson Dunn tried to
discredit in the other cases. But NML's lawyers have proven
themselves to be as relentless as the hedge fund's leader, Paul
Singer of Elliott Management.
At the hearing Wednesday, Aurelius's lawyer, Edward Friedman
of Friedman Kaplan Seiler & Adelman, stopped well short of NML's
accusations of Cleary misrepresentations, though he pointed out
to Griesa the "contrast between what Mr. Boccuzzi is saying
today and the facts that are in the record before your honor and
the public record." After the hearing, Aurelius chair Mark
Brodsky said, "I have learned not to rely on any assurances
Argentina's counsel provide to our courts."
NML and Aurelius representatives declined Reuters' requests
for comment on the apparent contradiction between the Argentine
cabinet official's comments Thursday and Cleary's representation
in court Wednesday that Argentina is sending a delegation to New
York to negotiate.
So far, Judge Griesa hasn't shown any doubts about Cleary's
credibility. On Wednesday, he ignored Cohen's accusation that
Cleary previously made misstatements to the judge, and told
Boccuzzi that he had made "a good statement, as always" when
Boccuzzi tried to explain away Argentine speeches. The judge
hasn't always been so easy-going, though. At a hearing in
September 2011, Griesa told Boccuzzi that Argentina has had "the
assistance of your law firm" in its resistance "to fulfillment
of its obligation."
Lawyers have an ethical duty not to knowingly make
misrepresentations to the court, but contradictory statements in
a situation like the Argentine debt crisis could reflect
changing political calculations. An attorney can request to
withdraw from representing a client that is responsible for
misrepresentations. There has been no indication that Cleary is
contemplating withdrawing from its representation of Argentina
or distancing itself from its client.
A Cleary spokeswoman declined to comment on NML's
accusations or the apparent contradiction between Wednesday's
hearing and Thursday's comments from Argentina.