One More Obstacle For Argentina In Debt Case: Possible U.S. Supreme Court Recusal

Argentina is rapidly running out of options in its efforts to overturn court decisions requiring it to meet its contractual obligation to treat its bondholders equally

In June 2013, Argentina filed a certiorari petition with the U.S. Supreme Court, seeking review of an October 2012 Second Circuit Court of Appeals ruling that Argentina breached the pari passu provision in its debt contract with bondholders.  The Supreme Court will rule on whether to take the matter in just a few weeks.

It is worth noting that the October 2012 ruling was only a preliminary decision. The final ruling against Argentina was filed by the Second Circuit on August 23, 2013 (see an earlier Legal Pulse blog post on it here). The August 2013 ruling, like the ruling of October 2012, decisively rejected all of the Argentine government’s arguments that a district court overstepped its bounds in ordering the government to comply with its obligations to rank its payments to “hold-outs” equally to other bondholders. Argentina will almost certainly file a second certiorari petition in late 2013 or early 2014 on the final ruling.

But the odds that the High Court will agree to hear the first or second certiorari petitions are quite slim. The Supreme Court generally limits its review to cases raising issues of federal law that have divided the lower courts. Argentina cannot meet those criteria. It not only has been unable to identify any court decisions that conflict with the Second Circuit’s ruling, but it also has raised objections that focus primarily on New York state law (e.g., how should specific language in bond agreements be interpreted) rather than federal law.  Further, in response to Argentina’s complaint that this ruling will affect other sovereign restructurings, the August 23 ruling clarified that the judgment was narrowly tailored to address the very specific “extraordinary behavior” of a “uniquely recalcitrant debtor.”

Counting to Four.  In order to get a full hearing before the High Court on either of its two petitions, Argentina will need to attract the votes of at least four of the nine justices.  The likelihood that Argentina could attract the necessary four votes would become just that much slimmer if, as appears possible, one or more of the nine justices decides to recuse her or himself from the case.

Federal law leaves it up to each justice to decide for her or himself whether recusal is appropriate in any particular case.  One justice, Justice Sonia Sotomayor, appears to have established a policy of recusing herself from any case in which she had any involvement before joining the Supreme Court. (I say “appears” because justices virtually never explain why they have recused themselves from a case.) Before being elevated to the Supreme Court in 2009, Sotomayor sat on the Second Circuit; during her tenure there, the court heard dozens of cases arising from Argentina’s various debt defaults. On at least four occasions as a Supreme Court justice, Justice Sotomayor disqualified herself from Argentine debt cases in which she had had some involvement while sitting on the Second Circuit

One of those four cases was Aurelius Capital Partners, LP v. Republic of Argentina, No. 09-723, a case that came to the Supreme Court from the Second Circuit and on which then-Judge Sotomayor had sat as a member of the three-judge panel hearing the case. On two occasions since then, Justice Sotomayor recused herself from Argentinian debt cases that came to the Court from the Second Circuit even though she had not been part of the three-judge panel. Her apparent reason for doing so was that the “lead” district court case in each of those two certiorari petitions had been one of the district court cases involved in Aurelius Capital.

If that was Justice Sotomayor’s rationale for recusal, then she is likely to recuse herself from Argentina’s latest petitions for review as well. The “lead” district court case in those petitions, District Court No. 08-6978, was also at issue in the Aurelius Capital case. Indeed, many of the bondholders who were parties to Aurelius Capital are the same “hold-out” bondholders whose Second Circuit victory Argentina is now trying to overturn.  On the other hand, there have been a number of sovereign debt cases involving Argentina where she has not recused herself.  For example, earlier this year Justice Sotomayor did not recuse herself from Case No. 12-842, a certiorari petition in which Argentina is seeking High Court review of yet another Second Circuit decision involving efforts by “hold-out” bondholders to enforce their rights.

Justice Sotomayor and President Kirchner.  Separately, Justice Sotomayor may also decide to recuse herself because over the years she has met on a number of occasions with Argentina’s president, Cristina Fernández de Kirchner, and other high-ranking Argentine officials.  Indeed, the Argentine government seems to have made a concerted effort to forge close relations with the Justice.  It would be ironic if those efforts resulted in a decision by Justice Sotomayor to disqualify herself from hearing Argentina’s certiorari petitions.

Justice Sotomayor made an official visit to Argentina on August 27-29, 2012.  According to U.S. State Department press releases, while in the country she met one-on-one with President Kirchner. The two also had a meeting when Kirchner was in Washington, D.C. in April 2010.  Kirchner has taken an extremely active role in the Second Circuit litigation and has repeatedly and publicly denounced the “hold-outs” who are suing Argentina for payment on their bonds. This may provide Justice Sotomayor with an additional reason to disqualify herself from considering Argentina’s certiorari petitions.

In sum, Argentina faces a daunting task in convincing four Supreme Court justices to vote to grant its certiorari petitions.  The task is made even more difficult by the possibility that Justice Sotomayor may recuse herself, thereby reducing the pool of justices from which it needs to find four votes.