DOJ Argues Against Turnover of Argentina’s Assets
November 19, 2024
On November 6, 2024, the U.S. Attorney for the Southern District of New York sent a letter to Judge Loretta A. Preska arguing against turnover of Argentina’s interests in YPF S.A., a state-owned energy company, to satisfy a breach of contract judgment. The $16.1 billion judgment in Petersen Energia Inversora, S.A.U. v. Argentine Republic arose from Argentina’s failure to make a tender offer to foreign investors in YPF, as required by YPF’s bylaws, when Argentina renationalized the company in 2012. (Disclosure: Maggie Gardner and I have filed an amicus brief with the Second Circuit addressing other issues in the case.)
Federal Rule of Civil Procedure 69 provides that the procedure for executing a judgment must accord with the procedure of the state where the federal court is located (unless a federal statute provides measures for execution). New York’s turnover statute, CPLR 5225, authorizes a court to order a judgment debtor to deliver property sufficient to satisfy the judgment to a designated sheriff. The New York Court of Appeals held in Koehler v. Bank of Bermuda Ltd. (2009) that this provision applies extraterritorially, allowing a court to order the debtor to turn over property located outside New York. The plaintiffs in Petersen have asked Judge Preska to order Argentina to turn over its shares in YPF located in Argentina.
In its November 6 letter, the Department of Justice (DOJ) opposes this request on two grounds. First, it argues that such an order would violate Argentina’s sovereign immunity from execution. Second, it argues that New York’s turnover statute must be construed not to reach the property of foreign states outside the United States on grounds of international comity. It seems to me that DOJ may be right on the first argument (though perhaps for different reasons than it gives), but it is dead wrong on the second.
Sovereign Immunity
The Foreign Sovereign Immunities Act (FSIA) governs the immunity of foreign states and their agencies or instrumentalities in federal and state courts. The FSIA separately addresses foreign states’ immunity from suit and their immunity from execution against their property. Section 1609 says that “the property in the United States of a foreign state shall be immune from attachment, arrest, and execution except as provided in sections 1610 and 1611.” The FSIA says nothing about the immunity of a foreign state’s property abroad.
According to the letter, before Congress passed the FSIA in 1976, the property of foreign states enjoyed complete immunity from execution in U.S. courts as a matter of federal common law. DOJ argues that the FSIA created limited exceptions to immunity from execution for property located in the United States but left immunity for property located outside the United States untouched. The problem with this argument is the Supreme Court’s decision in Republic of Argentina v. NML Capital, Ltd. (2014), which rejected a claim of immunity from discovery of assets located outside the United States because the text of the FSIA does not expressly provide for immunity from discovery. “[A]ny sort of immunity defense made by a foreign sovereign in an American court must stand on the Act’s text,” the Court reasoned. “Or it must fall.”
As noted, Section 1609’s text provides immunity from attachment, arrest, or execution only for “property in the United States.” Relying on NML Capital, the Second Circuit has held that the property of a foreign state outside the United States is not immune from execution under the FSIA. Judge Preska followed that holding in Bainbridge Fund Ltd. v. Republic of Argentina (2023), a different turnover action against Argentina.
Relying on Samantar v. Yousuf (2010), DOJ’s letter reasons that when the FSIA does not apply, the federal common law of sovereign immunity continues to govern and, in this case, to provide absolute immunity with respect to foreign state property outside the United States. Samantar held that federal common law governs foreign official immunity because the FSIA did not address the immunity of foreign officials. More recently, Turkiye Halk Bankasi A.S. v. United States (Halkbank) (2023) held that federal common law governs foreign state immunity from criminal prosecution because the FSIA did not address criminal prosecutions.
But Samantar and Halkbank are distinguishable from the present situation because the FSIA does address the immunity of foreign state property from execution and recognizes immunity from execution only for “property in the United States.” It may well be that Congress did not consider immunity from execution for property abroad. But the same was true for the immunity from discovery claimed in NML Capital, and the Supreme Court declined to save Congress from its oversight by recognizing rules of sovereign immunity not found in the FSIA’s text.
A stronger argument is the one Judge Preska adopted in the Bainbridge case mentioned above. As Ingrid Brunk has discussed, Bainbridge held that, even if the FSIA does not immunize property outside the United States from execution, a court considering a turnover order must still consider whether that property would be immune from execution once it is brought to the United States. Section 1610(a) creates exceptions to the immunity from execution of a foreign state’s property in the United States that generally track Section 1605’s exceptions to immunity from suit. But each of Section 1610(a)’s exceptions requires that the property be “used for a commercial activity in the United States.” It is not clear that property brought to the United States by court order simply to satisfy a U.S. judgment meets this requirement. DOJ’s letter hints at this argument at the very end of its letter, and the letter might have been stronger if it had made the argument more directly.
International Comity
DOJ also argues that New York’s turnover statute must be interpreted not to reach the property of foreign states abroad on grounds of international comity. Invoking Section 403 of the Restatement (Third) of Foreign Relations Law (1987), the letter argues that applying the turnover statute would not be reasonable. Quoting a comment in the Restatement (Third) in a footnote, DOJ further asserts that because foreign relations law is federal law, an application of state law that violates Section 403 is preempted.
The letter argues that applying the turnover statute to foreign state property abroad would violate customary international law rules on jurisdiction to enforce, this time citing the Restatement (Fourth) of Foreign Relations Law (2018). It argues that applying the turnover statute to state-owned property abroad would create a high likelihood of conflict with the laws of foreign states and would implicate the foreign policy interests of the United States with respect to reciprocity.
There are so many problems with this argument that it is hard to know where to begin. First, DOJ’s letter neglects to mention that Section 403 of the Restatement (Third) has been rejected by the Restatement (Fourth) as unsupported by international law. See Restatement (Fourth) § 407 reporters’ note 3. The letter relies on Justice Scalia’s dissent in Hartford Fire Insurance v. California (1993) as support for Section 403, while ignoring the majority opinion in that case that declined to embrace this balancing approach for international comity. The letter also ignores Second Circuit precedent on prescriptive comity, which (based the majority opinion in Hartford) limits the doctrine to cases of “true conflict” with foreign law. DOJ makes no argument that an order to bring YPF’s shares to the United States would violate the law of Argentina.
Second, the doctrine of “prescriptive comity” recognized by the Second Circuit is a principle of “statutory interpretation.” Federal principles of statutory interpretation apply only to federal statutes. As the Restatement (Fourth) recognizes, “the geographic scope of State statutes is a question of State law.” See § 404 reporters’ note 5. New York’s highest court decided in Koehler that New York’s turnover statute applies extraterritorially to property located outside of New York. Under Erie, federal courts are bound to follow that interpretation. There is no free-floating federal doctrine of international comity that limits the geographic scope of state law.
Third, applying New York’s turnover statute does not violate customary international law on jurisdiction to enforce. It is true, as the letter says citing Restatement (Fourth) § 432, that customary international law does not allow a state to exercise enforcement jurisdiction in the territory of another state without its consent. But Judge Preska would not be ordering state or federal authorities to seize Argentina’s property abroad. She would instead be ordering Argentina to bring its property to the United States. That is not an exercise of jurisdiction to enforce.
Finally, neither the possibility of conflict with foreign law nor the possibility that other countries might reciprocate with turnover orders of their own justifies limiting the application of New York’s statute. The United States has a federal system. State law frequently applies in transnational litigation. Of course, federal law sometimes preempts state law. But DOJ’s letter makes no argument for foreign affairs preemption—or, indeed, for any other sort of preemption.
Conclusion
It is hard for me to see what good DOJ’s letter will do. Its international comity arguments are full of holes. And its sovereign immunity arguments are in tension with the Supreme Court’s decision in NML and the text of the FSIA. Argentina’s strongest argument appears to be that Judge Preska should not order it to turnover its shares in YPF because those shares would be immune from execution once they are brought to the United States. And, judging from her decision in Bainbridge, that seems to be an argument to which she is already open.