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On June 25, 1996, after a period of standoff between the parties, Elliott formally sent the debtors a notice of default. The notice was sent during the voting period on the term sheet of Perus Brady Plan. And although the Brady Plan negotiations took place from January to June 1996, Elliott did not contact the Bank Advisory Committee to express its views. On October 18, 1996, ten days before the exchange agreement was scheduled to be executed, Elliott filed suit against the debtors in New York and sought a prejudgment attachment order. The exchange agreement was finally executed on November 8, 1996.
That Peru and Banco de la Nacion had defaulted was not the main question of this series of litigation. All courts agreed that when Elliot Associates did not participate in the 1996 exchange offer it remained in full possession of rights under the debt instruments that it had purchased in the secondary market. The heart of the matter, rather, was how would Elliot Associates force the defendants to make good on the default? What assets, within US jurisdiction, were permitted to be attached under the Foreign Sovereign Immunities Act?19 Under section 1610(a) of the statute only sovereign assets used in commercial activity with a nexus to the defaulting instrument in question can be attached.20 Generally speaking, this does not leave much, as most countries keep their property and their assets within their own jurisdictions.
15 See, e.g., Elliott Assoc. L.P. v. Banco de la Nacion, 194 F.R.D. 116 (S.D.N.Y. 2000); Elliott Assoc. L.P. v. Banco de la Nacion, 194 F.3d 363 (2d Cir. 1999) (Elliott V); Elliott Assoc. L.P. v. Banco de la Nacion, 12 F. Supp. 2d 328 (S.D.N.Y. 1998) (Elliott IV); Elliott Assoc. L.P. v. Banco de la Nacion, 176 F.R.D. 93 (S.D.N.Y. 1997); Elliott Assoc. L.P. v. Banco de la Nacion, 961 F. Supp. 83 (S.D.N.Y. 1997); Elliott Assoc. L.P. v. Banco de la Nacion, 948 F. Supp. 1203 (S.D.N.Y. 1996; Elliott Assocs., L.P. v. Banco de la Nacion, 2000 U.S. Dist. LEXIS 14169 (S.D.N.Y. Sept. 29, 2000)). 16 Blacks Law Dictionary, Sixth Edition, pg. 231. Champerty is defined as: A bargain between a stranger and a party to a lawsuit by which the stranger pursues the partys claim in consideration of receiving part of any judgment proceeds; it is one of maintenance, the more general term which refers to maintaining, supporting, or promoting another persons litigation. 17 Appellate decision, see supra note 1, at 379-380. 18 Elliott Assocs., L.P. v. Banco de la Nacion, 2000 U.S. Dist. LEXIS 14169 (S.D.N.Y. Sept. 29, 2000), at 9. 19 Foreign Sovereign Immunities Act (FSIA), 28 U.S.C.S., section 1602 et seq. 20 Sovereign Debt: What Happens if a Sovereign Defaults?, see supra note 3.
Consequently, Elliot also sought attachment of all of Banco de La Nacions assets within the United States. The court granted the attachment under Section 1610(b) of the Sovereign Immunity Statute,21 which provides:
(b) any property in the United States of an agency or instrumentality of a foreign state engaged in commercial activity in the United States shall not be immune from attachment in aid of execution, or from execution, upon a judgment entered by a court of the United States . . . if[. . .] (2) the judgment relates to a claim for which the agency or instrumentality is not immune by virtue of section 1605(a)(2), (3) or (5), or 1605(b) of this chapter, regardless of whether the property is or was used for the activity upon which the claim is based.22
Furthermore, the FSIA defines an agency or instrumentality of a state as an entity which is a separate legal person, corporate or otherwise; an organ of a foreign state or political subdivision thereof; neither a citizen of a State of the United States ., nor created under the laws of any third country.23 In this case, all parties agreed that Nacion was indeed an agency or instrumentality of Peru, the foreign state.24
Conclusion
Given the FSIAs fuzzy verbiage in defining an agency or instrumentality and the fact that most sovereigns have little assets outside of their country, we are likely to see this matter vigorously litigated in the future. Nevertheless, at this point in time it appears that when suing a sovereign a creditor may attach all assets, located in the jurisdiction wherein the suits is brought, of an entity related to the sovereign and somehow involved in the matter, if that entity is: 1. An agency or an instrumentality of the defaulting sovereign and; 2. Engaged in commercial activity in the United States.
21 The Court also referred to the Restatement (Third) of the Foreign Relations Law of the United States, at 460, cmt. b. (For purposes of post-judgment attachment and execution, FSIA draws a sharp distinction between the property of states and the property of state instrumentalities: (i) the property of states may be attached only if it is or was used in commercial activity; (ii) the property of state instrumentalities may be attached without any such limitation, so long as the instrumentality itself is engaged in commercial activity in the United State. These distinctions reflect the premise that state instrumentalities engaged in commercial activities are akin to commercial enterprises, so that immunity is exceptional and limited, whereas the primary function of states is government and, absent waiver, their liability should be limited to particular claims and their amenability to post-judgment attachment should be limited to particular property.) 22 FSIA, see supra note 19, section 1610(b). 23 Id. 24 Sept 29, 2000 decision, see supra note 18, at 8.