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UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
TECO GUATEMALA HOLDINGS, LLC
)
Petitioner,
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v.
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)
REPUBLIC OF GUATEMALA.
)
)
Respondent.
)
Civ. No. _______________
MEMORANDUM IN SUPPORT OF RESPONDENT'S
EMERGENCY MOTION TO VACATE RESTRAINING NOTICE
Respondent, the Republic of Guatemala (“Guatemala" or the "Republic”), by and through
its undersigned counsel, hereby files this memorandum of law in support of its Emergency Motion
to Vacate the Restraining Notice to the Garnishee (“Restraining Notice”), issued on the Bank of
New York Mellon Corporate Trust Administration (“BNYM”) on November 2, 2020, and in
support thereof, states as follows:
INTRODUCTION
Under N.Y. C.P.L.R. § 5201(b), a money judgment may only be enforced against property
“which could be assigned or transferred” by the judgment debtor. The Restraining Notice issued
by TECO Guatemala Holdings LLC. (“TECO”) fails this basic standard and numerous others,
requiring vacatur:
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In addition, this Court should decide this Motion on an emergency basis. TECO knows (or should
know) that bond payments held in trust are not subject to attachment, yet TECO delivered the
Restraining Notice less than 24 hours before an interest payment came due, creating unnecessary
hardship on Guatemala. Now, as shown in the Ortega Declaration, Guatemala faces the risk of a
default, cross-defaults, and cascading effects both domestic and foreign. The situation calls for an
urgent decision vacating the Restraining Order in full.
FACTUAL AND PROCEDURAL BACKGROUND
1. On November 4, 2019, the District Court for the District of Columbia entered a
judgment in favor of Petitioner TECO Guatemala Holdings LLC. (“TECO”) in the amount of
$35,462,237, plus interest (“Judgment”). Case No. 17-cv-102, ECF No. 50. Guatemala appealed
the judgment to the United States Court of Appeals for the D.C. Circuit on December 4, 2019.
Case. Case No. 19-7153. That appeal remains pending.
2. On June 2, 2020, the District Court for the District Court of Columbia granted
TECO's motion under 28 U.S.C. § 1610(c), permitting TECO to “pursue all permissible method
of attachment or execution of Guatemala's property to satisfy" the judgment. Case No. 17-cv-102,
ECF No. 68.
3. On October 28, 2020, TECO registered the Judgement with the Supreme Court of
the State of New York, New York County. Subsequently, it sent the Restraining Notice to BNYM,
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forbidding it from making “any sale, assignment, transfer, or interference with any such property”
that is owed to Guatemala or “in which [Guatemala] has an interest.” According to TECO, BNYM
has "possession or custody” of (1) unidentified “bank accounts, deposits, and/or depository
accounts owned or controlled by" the Republic, as well as (2) "funds of the Republic...transmitted
for the purpose of making [identified] interest and principal payments on the sovereign bonds
issued by the Republic[.]" See Exhibit 2.
DISCUSSION
4. The “interest and principal payments on the sovereign bonds” identified by TECO
do not belong to the Republic and therefore cannot be used to satisfy the judgment. Before any
sovereign assets can be attached under 28 U.S.C. 1610(a), they must first be owned by the
sovereign debtor. The principle is obvious from the text of the statute, which limits attachment to
property "of a foreign state." See 28 U.S.C. § 1610(a). This Court has made rulings to the same
effect. See EM Ltd v. Republic of Argentina, 865 F. Supp. 2d 415, 424 (S.D.N.Y. 2012) (“The
funds are not property of the Republic and therefore cannot be attached under § 1610.”).
5. New York Law agrees.1 Under N.Y. C.P.L.R. § 5201(b), a money judgment may
only be enforced against property “which could be assigned or transferred” by the judgment debtor,
in this case Guatemala. See also CIMC Raffles Offshore (Singapore) Limited v. Schahin Holding
S.A., 2013 WL 12305899, at *3 (S.D.N.Y. May 1, 2013); Karaha Bodas Co., L.L.C. v. Perusahaan
Pertambangan Minyak Dan Gas Bumi Negara, 313 F.3d 70, 83 (2d Cir. 2002) (“A determination
1 Pursuant to Federal Rule 69(a)(1), enforcement proceedings concerning money judgments “must ↩
accord with the procedure of the state where the court is located.” Here, TECO has invoked Article
52 of the CPLR, which governs the use of a restraining notice in post-judgment enforcement
proceedings. Such restraining notices are subject to challenge and may be vacated or modified
upon an appropriate motion. See CPLR Section 5240.
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of [the debtor's] property interest in the disputed funds—i.e., whether [the debtor] can ‘assign or
transfer' any of these funds is therefore dispositive...."). If the judgment debtor is not in
possession of the property at issue or does not have a beneficial interest in the same, then that
property is not available for attachment.
6. This issue frequently arises in the context of trusts and bond payments reserved for
third parties the situation presented here. Each time, this Court and the New York state courts
have ruled that those funds are unavailable for attachment. EM Ltd v. Republic of Argentina, 865
F. Supp. 2d 415, 423 (S.D.N.Y. 2012); Petrohawk Energy Corp. v. Law Debenture Trust Co. of
New York, 2007 WL 211096, *4 (S.D.N.Y. January 29, 2007) (“[F]unds held by a trustee or paying
agent for the purpose of paying principal or interest to noteholders obtain the character of trust
funds.") (citing cases); Brown v. Morgan & Co., Inc., 40 N.Y.S. 2d 229 (1st Dep’t 1943).
7. In the 1940s, a creditor of an Italian corporation tried to seize money held at the
corporation's bank, which was acting as “fiscal agent” for the corporation. Brown, 40 N.Y.S. at
230. The money was “earmarked” as a payout on bonds previously issued by the company. Id. at
233. The New York Appellate Division ruled that the bond payments could not be seized because
they were being held in “trust for the benefit of the bondholders.” Id.
8. In a much more recent case, a note issuer deposited funds at the Bank of New York
(acting as "paying agent"). Petrohawk Energy, 2007 WL 211096, *1. The funds were to be used
for the "sole and exclusive purpose” of making payments on the notes issued. Id. For reasons not
relevant, the issuer tried to get the funds back by filing a claim of conversion; but this Court denied
the claim because the issuer no longer had ownership. Id. at 4 (“Once the funds were deposited to
be held in trust for the purpose of paying the Noteholders, Petrohawk no longer had control over
the funds.").
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9. The principle is the same when a sovereign is involved. When a creditor of
Argentina tried to attach funds paid to satisfy the State's bond obligations, this Court ruled, same
as above, that Argentina lost possession and interest in those funds once they passed to a third
party. EM Ltd, 865 F. Supp. 2d at 424 ("[T]he Republic had no further interest in the funds
designated to pay the BODEN 12 bonds once it transferred those funds to CRYL.”). A creditor of
Romania, represented by TECO's current counsel, was most recently denied a similar attachment
because the State “simply [did] not have an interest in any property” held by the third party. Micula
et al v. Romania, 15-mc-107, ECF No. 122, Hr'g Tr. 21:9 (S.D.N.Y January 21, 2016).
10. There is no difference in the restraining notice issued here. TECO has identified
funds purportedly held by BNYM that are earmarked as “interest and principle payments on the
sovereign bonds” issued by Guatemala. The fact that BNYM has purported possession of the funds
means that Guatemala does not have the possession needed for attachment. Brown, 40 N.Y.S. at
233; EM Ltd, 865 F. Supp. 2d at 424. Nor does Guatemala retain any beneficial interest in the
funds since they are being held in trust for the benefit of the bondholders. See Fiscal Agreement,
para. 7(b) (Exhibit 3) (“The Fiscal Agent shall make amounts received by it available to the Paying
Agent and the Paying Agent shall hold such funds in trust and apply them to the payment of such
principal and interest (including any Additional Amounts) on such Scheduled Payment Date.").
Quite simply, the Restraining Notice targets property that does not belong to Guatemala.
11. The Foreign Sovereign Immunity Act (FSIA) shields a foreign state and its
instrumentalities against attachment and execution. See 28 U.S.C. § 1609. Such immunity could
only be lifted if one of the exceptions under the FSIA applies. See Letelier v. Republic of Chile,
748 F.2d 790, 793 (2d Cir. 1984) (“[U]nder [28 U.S.C.] § 1609 foreign states are immune from
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execution upon judgments obtained against them, unless an exception set forth in §§ 1610 or 1611
of the FSIA applies.").
12. The FSIA provides a “commercial activity” exception to immunity. To attach a
property of a foreign state, a judgment creditor must first establish that the property in question is
“used for a commercial activity in the United States.” See 28 U.S. Code § 1610(a). The FSIA
provides a similar condition for attaching a property of an agency or instrumentality of a foreign
state. See 28 U.S. Code § 1610(b) (“any property in the United States of an agency or
instrumentality of a foreign state engaged in a commercial activity in the United States.").
13. The burden of proving these exceptions rests on a judgment creditor. Virtual
Countries, Inc. v. Republic of S. Africa, 300 F.3d 230, 241 (2d Cir. 2002) citing to Cargill Int'l
S.A. v. M/T Pavel Dybenko, 991 F.2d 1012, 1016 (2d Cir. 1993) (the plaintiff has the burden of
going forward with evidence showing that, under exceptions set forth in the FSIA, immunity
should not be granted) (internal quotations omitted). A claimant cannot evade this burden by filing
a restraining notice. See e.g., Walker Int'l Holdings Ltd. v. Republic of Congo, 395 F.3d 229, 232
(5th Cir. 2004) (the court affirmed the district court's decision to vacate the temporary restraining
order and dissolve the writs of attachment because the property was not “used for commercial
activity.").
14. Here, the Restraining Notice casts a wide net. It freezes the following assets held
in the Bank of New York: “1) bank accounts, deposits, and/or depositary accounts owned or
controlled by, or for the benefit of, the Republic of Guatemala, or any subdivisions, agencies or
instrumentalities of the Republic of Guatemala and 2) funds of the Republic of Guatemala, or its
agents and employees, or any subdivisions, agencies or instrumentalities of the Republic of
Guatemala, transmitted for the purpose of making interest and principal payments on the sovereign
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bonds issued by the Republic of Guatemala...” See Exhibit 2. But TECO has neither alleged nor
established that these assets fall under the exceptions enumerated under §§ 1610(a) or 1610(b).
Accordingly, the Court should vacate the Restraining Notice.
15. Before a foreign state's property can be attached to satisfy a judgment, the court
ordering such attachment must first determine that (i) a “reasonable period of time has elapsed
following the entry of judgment,” and that (ii) the state has received the required notices under 28
U.S.C. 1608(e). See 28 U.S.C. § 1608(c). The purpose of § 1610(c) is two-fold: first, to ensure that
the attachment is proper under subsections (a) and (b); and second to ensure that each state has a
"fair and adequate opportunity to appear and contest any attachment or execution." Agudas
Chasidei Chabad of U.S. v. Russian Federation, 798 F.Supp.2d 260, 271 (D.D.C. 2011).
16. Section 1608(c) limits which court can determine whether a reasonable amount of
time has passed. The only court authorized to make this determination for TECO is the court
charged with attaching the assets—this Court; not the D.C. District Court. Section 1608(c) reads:
No attachment or execution referred to in subsections (a) and (b) of
this section shall be permitted until the court has ordered such
attachment and execution after having determined that a reasonable
period of time has elapsed following the entry of judgment....
17. The statute's reference to “the court” authorizes only one court to make the
determination at issue—the court ordering the attachment. Northrop Grumman Ship Systems Inc
v. Ministry of Defense of the Republic of Venezuela, Case No. 02-cv-785, ECF No. 441, at 7 (S.D.
Miss. July 23, 2020) (“Because this Court is not the one that will order any such attachment, it
follows that it also is not the proper court to determine if a reasonable period of time has elapsed
following the entry of the Judgment in this case.”); see also American Bus Ass’n v. Slater, 231
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F.3d 1, 4-5 (D.C. Cir. 2000) (“The definite article ‘the' particularizes the subject which it precedes.
It is a word of limitation as opposed to the indefinite or generalizing force of ‘a' or 'an.”); Freytag
v. Commissioner, 501 U.S. 868, 902 (1991) (Scalia, J., concurring) (contending that use of the
definite article the Constitutional phrase “the Courts of Law” “obviously narrows the class of
eligible 'Courts of Law' to those courts of law envisioned by the Constitution”). Had Congress
intended to open the determination to any court, it would have used an indefinite article such as “a
court," as it did throughout Section 1610. See, e.g., 28 U.S.C. § 1610(g)(3) (“Nothing in this
subsection shall be construed to supersede the authority of a court to prevent appropriately....").
18. This reading is bolstered by the object and purpose of the statute. Subsection (c) is
designed to ensure that a foreign state's property interests are protected and that the state receives
adequate notice prior to the attachment. Agudas, 798 F.Supp.2d at 271. It is not a routine
determination in any sense. To bifurcate the issue among different courts so that the § 1610
determination is made prior to an attachment request defeats the purpose of the statute because it
fails to guarantee the State notice of the attachment.
19. This is precisely the situation presented here. Prior to any attachment request,
TECO erroneously sought and received a § 1610(c) determination from the D.C. District Court.
Its request was made on January 15, 2020, and district court granted the request on June 2, 2020.
As of June 2, no restraining notice or attachment request had been made, making it impossible for
the district court to determine whether Guatemala had received adequate notice.
20. The statutory language is clear, and until this Court determines that a reasonable
amount of time has passed, any attempt at enforcement is invalid.
21. Should TECO attempt to refile its request now, that request would be in vain
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because a reasonable amount of time has not yet elapsed. What constitutes a “reasonable period of
time" is a matter within the court's discretion. But instead of exercising that discretion by reference
to a number of days or months, the court must consider the foreign state's “procedures, including
legislation, that may be necessary for payment of a judgment by a foreign state.” Owens v. Republic
of Sudan, 141 F.Supp.3d 1, 8 (D.D.C. 2015) (citing H.R. Rep. No. 94-1487, at 30). The analysis
will "of course vary according to the nuances of each case.” Ned Chartering and Trading, Inc. v.
Republic of Pakistan, 130 F.Supp. 2d 64, 67 (D.D.C. 2001).
22. The country is in the midst of recovering from “the deadliest episode of a storm” in
Guatemala's history. Guatemala Rescuers Search for Scores of People Buried in Mudslide Caused
by Eta, N.Y. TIMES (November 7, 2020). Hurricane Eta caused massive flooding and landslides
around the country, leaving over 100 people dead and many others without shelter. The
Government must prioritize the health and safety of its people.
23. Combined with a global pandemic that shut down Guatemala for over six months,
followed immediately by the worst hurricane in the nation's history, any determination on
appropriate time would have to take these two events into account. More time is all the more
appropriate since the final judgment is currently on appeal, with a decision likely rendered soon.
Immediate payment would force Guatemala to take attention away from the health and safety of
its people at this dire time. On the other hand, a short delay does not prejudice TECO since interest
is accruing.
24. In summary, enforcement is improper at this time since this Court has yet to
consider whether a reasonable amount of time has passed pursuant to § 1610(c). Should TECO
make such a request, Guatemala respectfully submits that a reasonable amount of time has not
passed in light of recent events.
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25. As explained above, TECO put the proverbial cart before the horse by restraining
bond payments before a proper § 1610 determination could be made. Not only that, but the great
weight of precedent in this Court and the state courts of New York leave no doubt that the funds
currently restrained are not subject to attachment. Because of TECO's flawed legal strategy, the
funds that were intended to satisfy Guatemala's bond obligations are currently restrained at the
BNYM. And while Guatemala no longer owns or possesses those funds, the bondholders may very
well declare a default on the bonds and cause grave financial consequences for the State. This kind
of tactic is an improper use of the law that generates damages for Guatemala, which are currently
being quantified. Guatemala reserves its rights to claim those damages at a later date.
CONCLUSION
26. For the reasons set out above, Guatemala respectfully requests that the Restraining
Notice issued on BNYM be vacated. In light of the undue prejudice discussed immediately above,
the State respectfully requests that the Court address this matter as a matter of urgency.
Respectfully submitted,
/s/ Mauricio Gomm
GST LLP
Mauricio Gomm
Quinn Smith (pro hace vice pending)
Katherine Sanoja (pro hace vice pending)
1111 Brickell Avenue, Suite 2715
Miami, Florida 33131
Tel. (305) 856-7723
Gary J. Shaw (pro hac vice pending)
Bethel Kassa (pro hac vice pending)
2600 Virginia Ave. NW, Suite 205
Washington DC 20037
Tel. (202) 658-6199
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CERTIFICATE OF SERVICE
I hereby certify that on November 12, 2020, I electronically filed the foregoing document
with the Clerk of the Court using the CM/ECF filing system. I also certify that the foregoing
document is being served this date on all counsel of record or pro se parties on the Service List
below in the manner specified, either via transmission of Notices of Electronic Filing generated
by the CM/ECF system or in some other authorized manner for those counsel or parties who are
not authorized to receive electronically Notices of Electronic Filing.
By: s/ Mauricio Gomm