* Argentina central bank’s funds had been frozen in 2006
* U.S. district judge said bank not independent
By Jonathan Stempel
NEW YORK, Aug 25 (Reuters) - Argentina urged a U.S. appeals court on Wednesday to throw out a lower court judge’s freeze on $100 million of central bank deposits to satisfy claims by two U.S. investment funds arising from the country’s massive 2002 debt default.
“We can’t allow our emotions, or in this case the district judge’s unhappiness about unpaid judgments, to change the law,” said Jonathan Blackman, a lawyer representing Argentina, during oral argument before the U.S. Second Circuit Court of Appeals in New York.
In April, U.S. District Judge Thomas Griesa, who oversees U.S. litigation over the $100 billion default, ruled that Argentina and its central bank should be treated the same way, as “alter egos,” in determining whether to seize assets.
That ruling was a victory for Argentine bondholders EM Ltd, which is controlled by the investor Kenneth Dart, and NML Capital Ltd, an affiliate of the investment firm Elliott Management Corp.
The disputed funds are being held at the U.S. Federal Reserve Bank in New York and have been frozen since 2006.
Argentina argued that its central bank funds could not be used to satisfy judgments won by holders of its defaulted debt, saying that the bank did not waive immunity and that Griesa lacked jurisdiction over its reserves at the New York Fed.
Theodore Olson, the prominent litigator who represents NML in the case, disputed that.
“Argentina has done everything in its power to prevent enforcement of these judgments,” Olson, a partner at Gibson, Dunn & Crutcher LLP, told the three-judge appeals panel.
He added the U.S. Congress did not intend for a defendant to simply “hang a sign on the door” that says “central bank” and use it to claim immunity.
David Rifkin, a partner at Debevoise & Plimpton LLP representing EM, later said Argentina had the ability to pay its creditors.
Argentina has faced years of litigation over its debt default. The lawsuits have impeded the country’s ability to return to world capital markets.
The Second Circuit panel did not say when it would rule, a process that typically takes several weeks or months.
GIANT “EQUALS” SIGN
Much of Wednesday’s argument turned on the meaning of the U.S. Foreign Sovereign Immunities Act of 1976.
One provision allows funds to be tied up when the use of those funds constitutes commercial activity. The other shields a foreign central bank’s funds “held for its own account” unless the bank or a foreign government waives immunity.
“It is simply inconsistent with the scheme Congress enacted” to allow the investment funds to claim an alter ego theory, argued Joseph Neuhaus, a partner at Sullivan & Cromwell LLP representing the central bank.
“The Republic of Argentina has no interest in that money?” Circuit Judge Chester Straub asked him.
“That is correct,” Neuhaus responded.
Blackman, a partner at Cleary Gottlieb Steen & Hamilton LLP, in contrast said “alter ego is not a giant ‘equals’ sign ... It doesn’t mean the properties merge.”
Argentina has also argued that bondholders who did not take part in a big 2005 swap or a similar debt exchange this year do not deserve the face value of their defaulted debt because it would be unfair to bondholders who accepted less.
The New York Fed in a court filing said Griesa’s ruling causes “unnecessary uncertainty in the law” as to foreign central bank immunity, and could result in such banks withdrawing dollar reserves held in New York.
“If central banks perceive the United States as having a hostile legal environment in comparison to other nations,” it said, “this would discourage foreign official deposits in the United States.”
Citing this, Circuit Judge Jose Cabranes asked EM’s lawyer Rifkin whether a ruling for bondholders would harm the United States and New York City’s status as a financial center.
Rifkin said he did not see such policy concerns. “There won’t be a flight to Switzerland,” he said.
The case is NML Capital v. Banco Central de la Republica Argentina et al, U.S. Second Circuit Court of Appeals, No. 10-1487. (Reporting by Jonathan Stempel, editing by Gerald E. McCormick)