NML Capital, Ltd., et al. v. Banco Central de la Republica Argentina (BCRA), et al., Dkt. Nos. 10-1487-cv-L, et al. (2d Cir. July 2011) addresses what the Court of Appeals describes as matters of first impression in the Circuit:  1) whether funds held at the Federal Reserve Bank of New York in an account of BCRA (the central bank of Argentina) are immune from attachment and execution under the Foreign Sovereign Immunities Act, an issue requiring the Court to determine whether the presumption of independence standard adumbrated by the Supreme Court in First National City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611 (1983) (Bancec), applies to these assets; and 2) what is the proper meaning of “property . . . of a foreign central bank or monetary authority held for its own account” in Section 1611(b)(1) of the FSIA.  (In a ruling by the District Court subsequent to the orders on appeal here but prior to the Second Circuit’s decision (discussed here), the District Court held immune the assets there under attack.)   The Second Circuit’s decision addresses the general issue of the principal-agent conundrum but does so on the basis of a specific statute that permitted it to avoid the thorny analysis usually entailed.  Readers of this blog will recall our recent four-part treatment of this issue (the most recent of which is here).

In this decision, the Second Circuit holds:

First, the Court of Appeals affirms the District Court’s determination that an earlier appeal seeking the same relief but on different factual and legal grounds was not preclusive of the current action.

Second, even under an abuse of discretion standard, the Circuit finds that the District Court erred — because of an error of law.  The District Court had determined that the bank’s immunity under the FSIA was dependent on its independence from the non-U.S. sovereign — that is, based on an application of the Bancec standard.  That was error, says the Court of Appeals; “the plain langugage, history, and structure of [section] 1611(b)(1) immunizes property of a foreign central bank or monetary authority held for its own account without regard to whether the bank or authority is independent from its parent state under Bancec“. 

Third, with respect to the meaning of the phrase, “held for its own account”, the Court of Appeals considered three candidates:  if the property is used for “traditional central banking activities”; if the property is in an account “in the central bank’s name”; and if the property is held for the central bank’s “own profit of advantage”.  The Court adopted none of these but instead adopted a modified test:  “property of a central bank is immune from attachment if the cental bank uses the property for central banking functions as such functions are normally understood, irrespective of their commercial nature”.

Having decided the issues, the Court of Appeals then recalled Argentina’s “appalling record of keeping its promises to its creditors”, the Court quoting Jorge Luis Borges’s phrase that one did not need a “prodigous memory” to share the District Court’s “understandable irritation” at Argentina’s “willful defiance of [its] obligations to honor the judgments of a federal court”.