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Where Do We Go Now?
Axl Rose may have said it best, but "where do we go now" was the theme of today's Argentina hearing. There wasn't really any official business to conduct. Unless you count all those pending motions about whether Bank of New York Mellon should keep or return the money, the Euro bondholders should get paid, etc. But such mundane matters were not on today's agenda. The judge had issued an order scheduling a hearing "regarding the recent default" by the country. (Wait, was it a default? ISDA's determinations committee thinks so.) When everyone was assembled in the courtroom (and the overflow room) the judge announced that the hearing's purpose was "to clarify where we go from here." And then... not much of substance happened, but there were plenty of fireworks. Recap follows. The transcript isn't ready yet, so I'm relying on my notes for both the substance and the quotations.
After making some initial remarks in which he pointedly refused to use the word "default" (despite having used it in the order setting the hearing), the judge excoriated Argentine officials for publicly saying that the country is willing to pay its debts, when the country really only wants to pay exchange bondholders and not holdouts. According to the judge: "The Republic has issued public statements that have been highly misleading and that must stop... [I]n those public statements, only one of the debts is talked about..." The judge continued, remarkably: "Any disclosure of facts about the obligations of the Republic of Argentina must talk about the two obligations..." The judge further noted that he is "counting on counsel for the Republic to take steps to stop... factual misrepresentations [by Argentina]..."
This is pretty extraordinary. First of all, factual misrepresentations? Argentina has not exactly kept it a secret that there are holdouts and that it considers their claims illegitimate. Its rhetoric might be disrespectful to the court, even petulant at times, but it isn't within shouting distance of misrepresentation. Second, the judge's comments come close to (but stop short of) ordering Argentine officials to acknowledge the legitimacy of holdout claims in their public statements. (See the italicized bit in the last paragraph.) He has no power to do that, but his tone and the content of his comments made clear the extent of his displeasure.
The judge then described, at length, the decade-plus history of the litigation. If you attended the July 22 hearing, or read the transcript, you know this part already. If you want to recreate the experience, I suggest reading pages 44-49 aloud, very slowly, in a crowded room. Twice.
During the judge's recap of the litigation history, one unfortunate thing did come to light. After praising the efforts of the special master (more on him in a moment), the judge blamed Argentina for not settling, saying that "we're not dealing with new lawsuits" and that a settlement "would have ended things there." Except that it wouldn't have, right? Because of the other holdouts? The context of the judge's statements implied that he didn't believe there were any other holdouts, but that is definitely not the case. Of course, some may be happy to wait in the wings for now. But that doesn't mean they aren't there. Even if RUFO isn't that big of a deal, a settlement isn't just a matter of writing a check.
Argentina's counsel tried to correct the judge's misunderstanding of the real holdout dynamic, to no obvious effect. The real substance of counsel's comments, however, addressed the special master and the press release he issued on July 30. Now, the special master is basically a mediator, and it isn't exactly unheard of for mediators to issue public statements. But it isn't exactly routine, either. What is routine is for mediators to consult with the parties before disclosing anything about the mediation, and certainly before issuing a public statement. Especially a statement that directly contradicts one party's position on the merits of an important issue - say, by using the word "default" six times to characterize Argentina's status after failing to reach a settlement.
After making clear that he had been instructed to convey the country's views, Argentina's counsel asserted that the special master had never consulted the country about the statement and called it "harmful and prejudicial." Argentina, he said, "no longer has ... confidence in the process as currently constituted under the Special Master." That's a pretty large bottle of gasoline to throw on this particular fire. Argentina made no formal request to have the master removed, and the judge made clear he wouldn't consider doing so. So why raise the issue? Perhaps Argentine officials are so upset they couldn't help themselves. Or perhaps they hope that the special master will be suitably chastened and might.... what? He has no official power, and he can't make NML compromise. So I'm a bit stuck here. Anyway, the judge not only refused to remove the special master, he added that, if the special master used the word "default," well "it can hardly be said to be inaccurate..." Ouch.
As I said, a lot of fireworks, but not much new. The judge was mad at Argentina before July 30 but seems madder now. So that's new. And Argentina, while still mad at the plaintiffs, is now also mad at the special master. So that's new, too. And we can guess that the special master, who may or may not have been mad at Argentina before, is at least a little mad now. Maybe he'll tell us in his next press release. Basically, everyone needs a time out. A ruling on those pending motions would be nice, too.
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