Judge says Cleary Argentina memo is privileged, he won’t ‘make use of it’

June 10, 2014

The hedge fund NML Capital is going to have to execute some fancy footwork to maintain its argument that Argentina is plotting to evade a ruling by the 2nd U.S. Circuit Court of Appeals that prohibits the foreign sovereign from making payments to holders of its restructured debt before paying off hedge funds that refused to exchange defaulted bonds.

As I told you last week, NML presented U.S. District Judge Thomas Griesa with what it considered smoking-gun evidence: published accounts of a May 2 memo from Argentina’s lawyers recommending that the country’s “best option” if the U.S. Supreme Court refuses to hear Argentina’s appeal of the 2nd Circuit decision would be to default “and then immediately restructure all of the external bonds so that the payment mechanism and the other related elements are outside of the reach of American courts.”

But in a June 3 letter to lawyers for NML and for Argentina, Judge Griesa said that the memo, written by Cleary Gottlieb Steen & Hamilton for Argentina’s Minister of Economy and Public Finance, “is clearly privileged,” based on his assumption that Cleary didn’t intend the document to become public. (It was leaked in the Argentine press, then was reported by the Financial Times’s FT Alphaville blog, which links to an English translation of the entire five-page memo, entitled “Possible Outcomes of the Petition for Certiorari and Issues Regarding the Settlement of the Debt.”) The judge said he would “not make use of” the privileged document.

In a separate letter, NML lawyer Robert Cohen of Dechert assured Griesa that the hedge fund had taken “remedial steps” to redact from its filings any references to websites that link to the Cleary memo and any quotations from the document. (NML’s original filing did not attach the memo out of concern about its privilege but did provide links to Argentine press coverage.) The hedge fund, in other words, won’t be able to say publicly exactly how the document supposedly contravenes Griesa’s own orders, affirmed by the 2nd Circuit, barring Argentina from taking steps to evade his pari passu (or “equal footing”) injunction. That’s what I mean about fancy footwork.

On the other hand (or, I guess I should say, other foot), Griesa didn’t deny NML’s motion for a supplemental order to clarify that Argentina is permanently prohibited from taking any action — making a plan or executing that plan — to change the manner in which the country pays its debt obligations. The judge said he was ruling on the Cleary memo’s confidentiality “to avoid unnecessary briefing,” but he didn’t say whether he just meant briefing on the document’s privilege or briefing on the broader question of NML’s request for a supplemental order. It’s not clear from the judge’s six-sentence letter if he thinks NML is mistakenly inferring bad intentions from the Cleary memo; or if he suspects that the habitually recalcitrant Argentina is planning to defy him and the 2nd Circuit and he intends to consider NML’s arguments — as long as they don’t quote the privileged memo.

Argentina has informed the Supreme Court that if the justices deny its petition for certiorari, it will comply with the lower courts’ orders, though it warned that it may be forced to default on its debt as a consequence. (Argentina’s brief to the Supreme Court did not mention the Cleary memo’s wrinkle on that plan, of immediately restructuring the bonds to move the payment mechanism “outside of the reach of American courts.”) The justices are scheduled to consider Argentina’s appeal at their conference on Thursday.

Representatives for both Cleary Gottlieb and NML declined to comment.

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