{"id":2283,"date":"2012-05-08T19:12:01","date_gmt":"2012-05-08T23:12:01","guid":{"rendered":"http:\/\/journals.law.harvard.edu\/hblr\/?p=2283"},"modified":"2016-07-04T21:55:11","modified_gmt":"2016-07-05T01:55:11","slug":"retrofit-collective-action-clauses","status":"publish","type":"post","link":"https:\/\/journals.law.harvard.edu\/hblr\/retrofit-collective-action-clauses\/","title":{"rendered":"Restructuring Sovereign Debt Under Local Law: Are Retrofit Collective Action Clauses Expropriatory?"},"content":{"rendered":"

Download PDF<\/a><\/p>\n

Melissa A. Boudreau*<\/a><\/p>\n

The European sovereign debt crisis has generated a number of controversial restructuring proposals that would have seemed appropriate only for emerging markets just a few years ago, but now are among the few options available to sustain the Eurozone. The leading proposal involves legislation that would mandate collective action clauses in untendered bonds governed under local law.\u00a0 This Note evaluates whether enacting this legislation and utilizing it in a debt restructuring would engender successful investor claims of invalid expropriation against the sovereign in American courts, and concludes that a successful claim of invalid expropriation is unlikely.<\/em><\/p>\n

Introduction<\/strong><\/span><\/p>\n

On April 23, 2010, Prime Minister of Greece George Papandreou called his country\u2019s economy a \u201csinking ship\u201d and requested an international bailout package.[1]<\/sup><\/sup><\/a>\u00a0 If he had revisited the maritime analogy two years later, Papandreou likely would have described Greece\u2019s economy in early 2012 as resting upon a fragile life raft.\u00a0 Despite receiving two separate bailout packages and implementing austerity measures, Greece has been unable to get its deficit under control.[2]<\/sup><\/sup><\/a>\u00a0 This sovereign debt crisis is not unique to Greece,[3]<\/sup><\/sup><\/a> and many believe that the solution to the Eurozone\u2019s economic woes must involve persuading bond investors to accept less than the obligation owed to them.[4]<\/sup><\/sup><\/a>\u00a0 Sovereigns could use a number of different methods to achieve this result, all with varying levels of state coercion.[5]<\/sup><\/sup><\/a>\u00a0 One such method is examined below.<\/p>\n

Greece will be used as a case study in this paper, but the analysis presented here is by no means limited to Greek bonds.\u00a0 Indeed, a surprising number of Eurozone periphery countries have significant amounts of local-law debt.[6]<\/sup><\/sup><\/a>\u00a0 Therefore, the applicability of the analysis presented below should be far-reaching in the Eurozone crisis, as the outcome in Greece may establish a template for future Eurozone restructurings.[7]<\/sup><\/sup><\/a>\u00a0 As one insider acknowledged, \u201cIt is not about Greece.\u00a0 It is not about the money.\u00a0 Most banks have written down their Greek bonds.\u00a0 It is about a precedent for the rest of Europe and how the rules will be set going ahead.\u201d[8]<\/sup><\/sup><\/a><\/p>\n

I.\u00a0\u00a0 Background<\/strong><\/span><\/p>\n

After much media speculation throughout January 2012,[9]<\/sup><\/sup><\/a> the Greek Parliament approved Law 4050\/2012 on February 23, 2012.[10]<\/sup><\/sup><\/a>\u00a0 This law, known as the Greek Bondholder Act,[11]<\/sup><\/sup><\/a> closely mirrors the model outlined in a 2010 paper by Lee C. Buchheit and G. Mitu Gulati.[12]<\/sup><\/sup><\/a>\u00a0 This similarity is unsurprising, for Buchheit is the head of the legal team retained by Greece to navigate the restructuring.[13]<\/sup><\/sup><\/a>\u00a0 Because the Greek government has not yet released an official English translation of the Greek Bondholder Act,[14]<\/sup><\/sup><\/a> this Note will reference the issues presented in the Buchheit and Gulati model along with its so-called \u201cMopping-Up Law.\u201d[15]<\/sup><\/sup><\/a><\/p>\n

A.\u00a0\u00a0 Relevant Aspects of Greek Bonds<\/em><\/strong><\/p>\n

The critical aspect of Greek bonds for the purposes of this analysis is the governing law.\u00a0 \u201cLocal law\u201d governs an estimated 90% of these bonds.[16]<\/sup><\/sup><\/a>\u00a0 Generally, investors are wary of bonds with local-law clauses because they present the possibility for the sovereign to change its law to facilitate a restructuring of its own debt.[17]<\/sup><\/sup><\/a>\u00a0 In the past, these doubts predominantly have been associated with bonds in emerging markets; investors have not had similar misgivings with bonds issued under local law in industrial markets because the reputational sanctions that inevitably would result have offered sufficient deterrence.[18]<\/sup><\/sup><\/a>\u00a0 Even with the threat of reputational sanctions, however, countries have restructured under local law,[19]<\/sup><\/sup><\/a> but in none of these instances were the stakes as high as those in the Greek restructuring.[20]<\/sup><\/sup><\/a>\u00a0 In fact, according to Buchheit and Gulati, \u201cNo other debtor country in modern history has been in a position significantly to affect the outcome of a sovereign debt restructuring by changing some feature of the law by which the vast majority of the instruments are governed.\u201d[21]<\/sup><\/sup><\/a><\/p>\n

Additionally, the bonds governed under Greek law were not drafted with a collective action clause (\u201cCAC\u201d).[22]<\/sup><\/sup><\/a>\u00a0 CACs are clauses in loan agreements that provide a supermajority of investors with the power to modify essential payment terms of the agreement.[23]<\/sup><\/sup><\/a>\u00a0 Because\u00a0this provision was absent from the original local-law bonds, Greece was not given the power to amass a supermajority of investors to facilitate a debt restructuring for these particular bonds.<\/p>\n

B.\u00a0\u00a0\u00a0 <\/em>\u00a0\u00a0Overview of the Mopping-Up Law<\/em><\/strong><\/p>\n

The Greek restructuring proposed by Buchheit and Gulati is a bond exchange offer with a state-mandated collective action clause.\u00a0 It likely drew inspiration from a bond exchange offer with exit consents, so a brief explanation of exit consent restructuring is helpful.[24]<\/sup><\/sup><\/a>\u00a0 In a bond-exchange offer with exit consents, the debtor offers investors the option to swap their bonds with bonds having more flexible payment terms.[25]<\/sup><\/sup><\/a>\u00a0 To encourage other bondholders to take part in the exchange, the sovereign will require consenting bondholders to waive certain protections in the old bond that do not require unanimity for amendment.[26]<\/sup><\/sup><\/a>\u00a0 In this way, holdout bondholders could be left with bonds lacking certain contractual protections.[27]<\/sup><\/sup><\/a>\u00a0 Unfortunately, because the Greek local-law bonds disallow amending the terms of the bonds after issuance,[28]<\/sup><\/sup><\/a> restructuring via traditional exit consents is unworkable in this instance.[29]<\/sup><\/sup><\/a><\/p>\n

Thus enters the Mopping-Up Law.\u00a0 Instead of directly modifying contractual language, the Mopping-Up Law would change local law to effectively incorporate a collective action clause in all untendered local-law bonds.[30]<\/sup><\/sup><\/a>\u00a0 Buchheit and Gulati suggest that the law could work as follows:<\/p>\n

[L]ocal law would be changed to say that if the overall exchange offer is supported by a supermajority of affected debtholders (say, 75%, to use the conventional CAC threshold), then the terms of any untendered local law bonds would automatically be amended so that their payment terms (maturity profile and interest rate) match those of one of the new instruments being issued in the exchange.[31]<\/sup><\/sup><\/a><\/p>\n

The incorporation of this clause via the contract\u2019s governing law does not result in the sovereign directly taking tangible assets from investors.\u00a0 Instead, it leaves the dirty work to the consenting bondholders.[32]<\/sup><\/sup><\/a>\u00a0 In this way, it is comparable to an exit consent restructuring.[33]<\/sup><\/sup><\/a>\u00a0 Similarly, the sovereign is still tasked with convincing a supermajority of investors to support the overall exchange offer.\u00a0 This is \u201cconsistent with the fundamental principle that a sovereign debtor bears the burden of persuading its creditors that a debt restructuring is essential, that the terms of the restructuring are proportional to the debtor\u2019s needs, and that the sovereign is implementing economic policies designed to restore financial health.\u201d[34]<\/sup><\/sup><\/a>\u00a0 The central question is whether the sovereign must convince all investors or just a supermajority.[35]<\/a><\/sup><\/sup><\/p>\n

C.\u00a0\u00a0 <\/em>\u00a0\u00a0Scope of This Inquiry<\/em><\/strong><\/p>\n

The scope of this Note is narrow.\u00a0 It examines whether American courts would find the Mopping-Up Law to be an invalid expropriation under international law.\u00a0 This is certainly not the extent of a general inquiry into the Mopping-Up Law\u2014other questions of international law will remain, such as those raised under Article 17 of the Greek Constitution, the European Convention on Human Rights and its Protocols, and unfair or inequitable treatment[36]<\/sup><\/sup><\/a>\u2014but addressing this particular element is far more manageable for one short paper.<\/p>\n

Moreover, the American legal system is among the most protective systems in the world with regard to private property rights.[37]<\/sup><\/sup><\/a>\u00a0 Therefore, \u201c[W]hile a U.S. court\u2019s interpretation of the international law of expropriation may not be representative of the views of all or even most countries, a U.S. court\u2019s interpretation does represent a kind of floor for assessing the legality of government action under international law.\u201d[38]<\/sup><\/sup><\/a>\u00a0 Assuming that U.S. courts are highly protective of bondholder rights, this analysis presents a perspective of what government actions are \u201cclearly permissible\u201d within the context of international law.[39]<\/sup><\/sup><\/a><\/p>\n

II. \u00a0\u00a0Potential Sovereign Immunity<\/strong><\/span><\/p>\n

Before embarking on an expropriation analysis, courts must address the threshold issue of sovereign immunity.\u00a0 Sovereign immunity stems from two sources in U.S. law: the Foreign Sovereign Immunities Act and the act of state doctrine.<\/p>\n

A.\u00a0\u00a0 Foreign Sovereign Immunities Act<\/em><\/strong><\/p>\n

The Foreign Sovereign Immunities Act (\u201cFSIA\u201d)[40]<\/sup><\/sup><\/a> provides the \u201csole basis\u201d to bring claims in the United States against a foreign state.[41]<\/sup><\/sup><\/a>\u00a0 Under the FSIA, foreign states are immune from the jurisdiction of U.S. courts, subject to certain exceptions.[42]<\/sup><\/sup><\/a>\u00a0 Therefore, if a claim does not fall within a statutory exception, U.S. courts lack jurisdiction and will dismiss the claim.[43]<\/sup><\/sup><\/a>\u00a0 These statutory exceptions range from waivers of immunity to terrorism.[44]<\/sup><\/sup><\/a><\/p>\n

Most relevant to the immediate inquiry, a sovereign may be haled to U.S. court if its actions constitute an expropriation.[45]<\/sup><\/sup><\/a>\u00a0 For this exception to apply, \u201crights in property\u201d must be taken \u201cin violation of international law,\u201d and that property must be related to \u201ccommercial activity\u201d carried on in the United States by the sovereign.[46]<\/sup><\/sup><\/a>\u00a0 In interpreting this particular provision, U.S. courts have attempted to square their interpretations with the law of expropriation under international law.[47]<\/sup><\/sup><\/a>\u00a0 Unfortunately for investors, many courts have interpreted the term \u201cproperty\u201d in this provision to be tangible property only, not including contractual rights.[48]<\/sup><\/sup><\/a>\u00a0 Part III provides an in-depth discussion of U.S. courts\u2019 expropriation analyses arising under the FSIA.<\/p>\n

B.\u00a0\u00a0 Act of State Doctrine<\/em><\/strong><\/p>\n

If investors persuade the court that a FSIA exception applies, they still must overcome the act of state doctrine to proceed with their claims.\u00a0 Put simply, the act of state doctrine \u201cprovides . . . that United States courts will not judge the validity of official acts of a foreign government carried out within its own territory.\u201d[49]<\/sup><\/sup><\/a>\u00a0 The Supreme Court articulated this doctrine in Underhill v. Hernandez<\/em>[50]<\/sup><\/sup><\/a>:<\/p>\n

Every sovereign State is bound to respect the independence of every other sovereign State, and the courts of one country will not sit in judgment on the acts of the government of another done within its own territory. Redress of grievances by reason of such acts must be obtained through the means open to be availed of by sovereign powers as between themselves.[51]<\/sup><\/sup><\/a><\/p>\n

More recently, the Court has declared that the act of state doctrine applies when \u201cthe relief sought or the defense interposed would . . . require[] a court in the United States to declare invalid the official act of a foreign sovereign performed within its own territory.\u201d[52]<\/sup><\/sup><\/a>\u00a0 The foundation for this doctrine lies in the separation of powers inherent in the U.S. federal government.[53]<\/sup><\/sup><\/a>\u00a0 To ensure harmony in conducting foreign affairs, decisions of the judicial branch cannot be in conflict with those of the executive branch.[54]<\/sup><\/sup><\/a>\u00a0 Courts commonly fail to reach the merits of an expropriation claim because of the act of state doctrine.[55]<\/sup><\/sup><\/a><\/p>\n

But there are exceptions to this broad doctrine.\u00a0 In 1964, Congress passed the Second Hickenlooper Amendment[56]<\/sup><\/sup><\/a> in an effort to limit the application of the act of state doctrine in expropriation claims.\u00a0 It states, in relevant part:<\/p>\n

[N]o court in the United States shall decline on the ground of the federal act of state doctrine to make a determination on the merits giving effect to the principles of international law in a case in which a claim of title or other right to property is asserted by any party including a foreign state (or a party claiming through such state) based upon (or traced through) a confiscation or other taking . . . by an act of that state in violation of the principles of international law . . . .[57]<\/sup><\/sup><\/a><\/p>\n

This would suggest that claims of expropriation are within the purview of U.S. courts, without regard to the act of state doctrine.\u00a0 However, most courts have found the Second Hickenlooper Amendment to be a very narrow exception to the doctrine.[58]<\/sup><\/sup><\/a><\/p>\n

One case that solidly supports a limited reach of the act of state doctrine is Allied Bank International v. Banco Credito Agricola de Cartago<\/em>.[59]<\/sup><\/sup><\/a>\u00a0 The facts of Allied Bank<\/em> are somewhat analogous to the current events in Greece.\u00a0 In the midst of a financial crisis, the Central Bank of Costa Rica issued regulations that effectively suspended all external debt payments.[60]<\/sup><\/sup><\/a>\u00a0 This constituted an event of default under the terms of the relevant notes, and investors sued for the full amount outstanding.[61]<\/sup><\/sup><\/a>\u00a0 The district court had held that the act of state doctrine applied, noting that to hold otherwise would \u201cput[] the judicial branch of the United States at odds with policies laid down by a foreign government on an issue deemed by that government to be of central importance.\u201d[62]<\/sup><\/sup><\/a>\u00a0 On appeal, the Second Circuit first held that the actions of the Costa Rican government were \u201cfully consistent with the law and policy of the United States,\u201d[63]<\/sup><\/sup><\/a> but on rehearing en banc<\/em>, the court reversed its prior decision on policy grounds.[64]<\/sup><\/sup><\/a>\u00a0 In arriving at this determination, the Second Circuit relied upon the policy outlined in the amicus brief proffered by the Department of Justice.[65]<\/sup><\/sup><\/a>\u00a0 The government\u2019s brief noted that the court\u2019s prior interpretation of U.S. policy was incorrect, and that the proper means for restructuring this debt was in an International Monetary Fund (\u201cIMF\u201d)-approved economic adjustment program.[66]<\/sup><\/sup><\/a>\u00a0 The brief then remarked that U.S. policy was \u201cstrongly supportive of this approach to resolve the current international debt problem.\u201d[67]<\/sup><\/sup><\/a>\u00a0 Persuaded by the Justice Department\u2019s policy argument, the Second Circuit concluded that investors\u2019 \u201cextinguished\u201d right to receive interest payments constituted a \u201ctaking\u201d[68]<\/sup><\/sup><\/a> and therefore that the act of state doctrine was inapplicable.[69]<\/sup><\/sup><\/a><\/p>\n

However, the Second Circuit\u2019s subsequent rulings caution against drawing broad conclusions about expropriation and the act of state doctrine from Allied Bank<\/em>.\u00a0 Just a few months after deciding Allied Bank<\/em>, the Second Circuit held that the act of state doctrine applied in another expropriation analysis.[70]<\/sup><\/sup><\/a>\u00a0 Indicating that the doctrine was still strong in light of Allied Bank<\/em>, the court noted that \u201ceach case [must] be analyzed individually to determine the need for a separation of powers.\u201d[71]<\/sup><\/sup><\/a>\u00a0 Thus, absent an explicit request from the Executive Branch\u2014which is especially unlikely for the immediate inquiry, as the IMF has signaled its approval of a retrofit collective action clause[72]<\/sup><\/sup><\/a>\u2014it seems clear that courts tend to err on the side of deference to the sovereign.<\/p>\n

Although scholars have argued that courts\u2019 unwillingness to scrutinize expropriation claims is contrary to the plain language and congressional intent of the Second Hickenlooper Amendment,[73]<\/sup><\/sup><\/a> courts continue to apply the act of state doctrine frequently and with little regard to expropriation limitations.[74]<\/sup><\/sup><\/a><\/p>\n

III. \u00a0Would the Mopping-Up Law Be an Expropriation Under International Law?<\/strong><\/span><\/p>\n

If investors manage to overcome sovereign immunity, the court would then move into an expropriation analysis.\u00a0 U.S. courts have not developed a consistent framework with which to analyze questions of expropriation.[75]<\/sup><\/sup><\/a>\u00a0 In fact, as exemplified above within the Second Circuit, even the same courts vary in their analyses of expropriation claims.[76]<\/sup><\/sup><\/a>\u00a0 Oftentimes, the facts of the case are more determinative of the ultimate result than the absence or presence of specific criteria.[77]<\/sup><\/sup><\/a>\u00a0 However, courts have tended to focus on four key factors: the coerciveness of the state\u2019s action with regard to renegotiating or repudiating contracts, the underlying purpose of the action, whether the action was discriminatory, and the amount of loss to the claimant.[78]<\/sup><\/sup><\/a>\u00a0 This Part will examine each of these factors in turn.<\/p>\n

A.\u00a0\u00a0\u00a0 <\/em>What Degree of Coercion in Repudiating or Renegotiating a Contract Warrants a Finding of Expropriation?<\/em><\/strong><\/p>\n

Most courts that have examined whether a repudiated contract is an expropriation under international law have determined that repudiation does not constitute expropriation.[79]<\/sup><\/sup><\/a>\u00a0 The few courts that have held that breach of contract is an expropriation have done so only upon finding that another prong of the expropriation analysis has been violated.[80]<\/sup><\/sup><\/a>\u00a0 One exception to this general rule is the Ninth Circuit\u2019s finding in West v. Multibanco Comermex, S.A.<\/em>[81]<\/sup><\/sup><\/a> that contracts constitute property under international law, and the taking of contract rights alone constitutes an expropriation.[82]<\/sup><\/sup><\/a>\u00a0 However, even with this broad finding, the Ninth Circuit held in favor of the defendants, concluding that \u201c[a] state has a strong interest in its monetary policy\u201d and that \u201c[u]nder international law, the legislature generally is free to impose exchange controls.\u201d[83]<\/sup><\/sup><\/a>\u00a0 This interest in regulating monetary policy is discussed further in Part IV.<\/p>\n

The analysis is slightly different for a renegotiated contract.\u00a0 At what point does a coercive restructuring become expropriatory?\u00a0 The question of what constitutes a \u201cvoluntary\u201d restructuring has been a major point of disagreement throughout the Greek crisis.[84]<\/sup><\/sup><\/a>\u00a0 Although scholars differ on what \u201cshould\u201d qualify as an expropriation,[85]<\/sup><\/sup><\/a> the only consensus is that the threat or use of physical force in a renegotiation is expropriatory.[86]<\/sup><\/sup><\/a>\u00a0 Short of that, the law is hazy.[87]<\/sup><\/sup><\/a>\u00a0 Therefore, because much of the inquiry would likely be fact-based,[88]<\/sup><\/sup><\/a> the court probably would look to the other prongs of the expropriation analysis to determine whether a coercive\u2014but nonviolent\u2014restructuring would be an expropriation.<\/p>\n

B.\u00a0\u00a0\u00a0 <\/em>\u00a0What Is the Purpose of the Mopping-Up Law?<\/em><\/strong><\/p>\n

When addressing a claim of expropriation against a sovereign, courts often focus on the purpose of the state\u2019s action to determine whether the taking is improper.[89]<\/sup><\/sup><\/a>\u00a0 An important distinction to make here is whether the purpose inquiry is used as an affirmative defense[90]<\/sup><\/sup><\/a> or as part of the analysis to determine whether an expropriation has occurred.\u00a0 The purpose analysis within an affirmative defense is discussed at length in Part IV; in this Section, the purpose analysis is limited to ascertaining whether an expropriation has occurred.<\/p>\n

In determining whether an expropriation has occurred, courts tend to distinguish between commercial and governmental purposes in state action.[91]<\/sup><\/sup><\/a>\u00a0 Typically, international law is not implicated if the state acts pursuant to a commercial purpose only, whereas international law may be implicated if the state acts pursuant to a governmental purpose.[92]<\/sup><\/sup><\/a>\u00a0 At first, this may seem counterintuitive; one would think that the sovereign should be given more leeway when acting pursuant to a governmental purpose.\u00a0 However, because expropriation is a \u201cquintessentially sovereign act,\u201d[93]<\/sup><\/sup><\/a> the state must \u201cslip[] into its . . . sovereign shoes\u201d to be liable to investors.[94]<\/sup><\/sup><\/a>\u00a0 Therefore, if the state took only actions that a commercial entity could also take, then its breach would not be an expropriation under international law.[95]<\/sup><\/sup><\/a>\u00a0 Because a retrofit CAC requires the sovereign to take legislative action, further inquiry into this point of the expropriation analysis is unnecessary: the Mopping-Up Law undoubtedly would be recognized as the state working within its governmental capacity, and therefore the sovereign would not be granted the \u201ccommercial activity\u201d exception in this prong of the expropriation analysis.[96]<\/a><\/sup><\/sup><\/p>\n

C.\u00a0\u00a0 <\/em>\u00a0Would the Mopping-Up Law Be Discriminatory?<\/em><\/strong><\/p>\n

Some courts have concluded that a sovereign\u2019s action is expropriatory only if it is discriminatory.[97]<\/sup><\/sup><\/a>\u00a0 Though not all courts adhere to this reasoning,[98]<\/sup><\/sup><\/a> a court is more likely to find an expropriation if it senses some inherent unfairness in the way a sovereign is treating foreign nationals.[99]<\/sup><\/sup><\/a>\u00a0 The Mopping-Up Law would not raise such questions of discrimination against foreign nationals.\u00a0 It would treat all investors holding local law bonds\u2014including Greek investors\u2014the same.[100]<\/sup><\/sup><\/a>\u00a0 Therefore, if a court were to consider discrimination only to the extent of unfairness toward foreign nationals, then it is highly unlikely that it would find the Mopping-Up Law to be discriminatory; indeed, a court might not even consider this particular factor in its analysis.<\/p>\n

However, it is possible that a court could view the Mopping-Up Law as discriminatory toward holdout creditors, regardless of nationality.\u00a0 Although U.S. courts have not yet extended the concept of discrimination to bondholder status, at least one scholar believes that it is within the realm of possibility\u2014but unlikely\u2014for international law to recognize this particular form of discrimination.[101]<\/sup><\/sup><\/a>\u00a0 Interestingly, the actions of officials inside the Greek restructuring have not indicated any concern about violating this particular factor in the expropriation analysis.\u00a0 On February 17, 2012, the European Central Bank (“ECB”) announced a swap of its Greek bond holdings for new bonds that are exempt from collective action clauses.[102]<\/sup><\/sup><\/a>\u00a0 Other bondholders were not offered this option, prompting some to question whether the preferential treatment granted to the ECB\u2014or, put less favorably, the subordination of the non-ECB bondholders\u2014would trigger credit-default swaps.[103]<\/sup><\/sup><\/a>\u00a0 While this factor is not dispositive in the expropriation analysis, officials guiding the Greek restructuring certainly are not helping their case.[104]<\/a><\/sup><\/sup><\/p>\n

D.\u00a0\u00a0 <\/em>\u00a0What Degree of Economic Loss Would Result from the Mopping-Up Law?<\/em><\/strong><\/p>\n

The final prong of the analysis concerns the degree of economic loss without compensation borne by the potential creditors.[105]<\/sup><\/sup><\/a>\u00a0 As with the other factors in the expropriation analysis, this particular prong does not provide a clear framework for judicial scrutiny.\u00a0 Courts have recognized that a total deprivation of property would violate international law, but short of that, the law is unclear.[106]<\/sup><\/sup><\/a><\/p>\n

In analyzing this particular factor, the structure of the Mopping-Up Law is important to keep in mind: the effect of the law on investors would be to allow other bondholders to execute a \u201ctake\u201d in the future.[107]<\/sup><\/sup><\/a>\u00a0 There are two related points here.\u00a0 First, by enacting and utilizing the Mopping-Up Law, the sovereign itself would not be taking directly from investors\u2014at least, not in the traditional sense.\u00a0 Instead, unwilling or uncooperative holdouts would be forced to participate in the bond exchange only if<\/em> a requisite supermajority of investors willingly participated.[108]<\/sup><\/sup><\/a>\u00a0 Second, questions would remain as to whether any rights had been \u201ctaken\u201d at all.[109]<\/sup><\/sup><\/a>\u00a0 The legislation is designed to work within the agreed-upon terms of the bonds to facilitate a restructuring.[110]<\/sup><\/sup><\/a>\u00a0 Therefore, a claim that the Mopping-Up Law somehow removed valuable protections from the bonds is dubious, as those protections are not guaranteed in the first instance.[111]<\/sup><\/sup><\/a><\/p>\n

If a court were to determine that the sovereign had taken action that resulted in economic loss, valuation of that loss would still be a problem for investors.\u00a0 Greek bonds have been downgraded to junk status,[112]<\/sup><\/sup><\/a> and courts have taken into account the \u201cacknowledged state of the [sovereign\u2019s] economy\u201d when valuing a loss.[113]<\/sup><\/sup><\/a>\u00a0 Therefore, if the bonds\u2019 value decreased as a result of a restructuring that took advantage of the Mopping-Up Law, any resulting economic loss might be measured against the bonds\u2019 junk status today.[114]<\/sup><\/sup><\/a>\u00a0 Thus, it is possible that the investors\u2019 economic loss could be considered de minimis.<\/p>\n

E.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/em>So . . . Would Courts Find the Mopping-Up Law To Be an Invalid Expropriation?<\/em><\/strong><\/p>\n

It is unclear whether a court would find the Mopping-Up Law to be an invalid expropriation, although the lack of physical force in the restructuring, the equal treatment of foreign nationals, and the junk status of the bonds weigh against potential creditors\u2019 claims.\u00a0 Moreover, courts often rely upon a fact-specific analysis,[115]<\/sup><\/sup><\/a> so the apparent restraint of the Mopping-Up Law might sway the court in favor of the sovereign.[116]<\/sup><\/sup><\/a><\/p>\n

The most important point to stress here is that the critical aspects of the court\u2019s analysis are not in the expropriation test itself, but in determining whether sovereign immunity applies or an affirmative defense is available.\u00a0 The majority of expropriation claims are adjudicated at the threshold questions or the finding of an affirmative defense.[117]<\/sup><\/sup><\/a><\/p>\n

IV.\u00a0\u00a0 Is an Affirmative Defense Available?<\/strong><\/span><\/p>\n

If the court were to find for the investors in its expropriation analysis, Greece could still present an affirmative defense that would excuse an otherwise invalid expropriation: a compelling public need for action in light of a financial crisis.[118]<\/sup><\/sup><\/a>\u00a0 Both U.S. courts and international tribunals have recognized that an attempt to mitigate a financial crisis serves an important public purpose and is a qualifying affirmative defense.<\/p>\n

A.\u00a0\u00a0 Precedent from U.S. Courts<\/em><\/strong><\/p>\n

The relevant precedent from U.S. courts is derived from both cases that interpret international sovereign actions and cases that interpret domestic sovereign actions.<\/p>\n

1. \u00a0 Actions Concerning International Sovereigns<\/p>\n

\u00a0 U.S. courts generally offer wide latitude to sovereigns dealing with fiscal crises.[119]<\/sup><\/sup><\/a>\u00a0 For example, in West v. Multibanco Comermex S.A.<\/em>,[120]<\/sup><\/sup><\/a> the Ninth Circuit concluded that although Mexico\u2019s exchange control regulations were expropriatory[121]<\/sup><\/sup><\/a> and therefore the claim could be adjudicated on its merits,[122]<\/sup><\/sup><\/a> Mexico\u2019s strong public purpose rendered its actions lawful.[123]<\/sup><\/sup><\/a>\u00a0 Because \u201cMexico\u2019s institution of exchange controls was an exercise of its basic authority to regulate its economic affairs,\u201d[124]<\/sup><\/sup><\/a> its actions did not \u201cconstitute takings under international law.\u201d[125]<\/sup><\/sup><\/a>\u00a0 The Second Circuit came to a similar finding in Braka v. Bancomer, S.A.<\/em>[126]<\/sup><\/sup><\/a> on affirming the district court\u2019s dismissal on act of state grounds.\u00a0 The district court concluded, \u201cMexico\u2019s act in this instance cannot be construed as a simple repudiation of a government entity\u2019s commercial debt [because] the mechanisms used by Mexico are conventional devices of civilized nations faced with severe monetary crises, rather than the crude and total confiscation by force of a private person\u2019s assets.\u201d[127]<\/sup><\/sup><\/a>\u00a0 The Mopping-Up Law not only would be enacted in response to a fiscal crisis, but in fact would be attempting to mitigate such a crisis.[128]<\/sup><\/sup><\/a>\u00a0 Therefore, courts may afford the same deference to Greece that Mexico enjoyed in West<\/em> and Braka<\/em>.<\/p>\n

Another important consideration for this prong of the analysis concerns the nature of the investment.\u00a0 If the investor was aware of the credit risk upon entering the investment and was receiving higher yields as a result, why should the court bail out potential creditors when the investment does not deliver as expected?\u00a0 As the Ninth Circuit observed, \u201cThe courts of this country should not operate as an international deposit insurance company . . . .\u00a0 The actions of the [sovereign] and the losses [it] occasioned were within the purview of the risks associated with those potentially extraordinary returns.\u201d[129]<\/sup><\/sup><\/a>\u00a0 International tribunals have noted similar sentiments.[130]<\/sup><\/sup><\/a>\u00a0 These comments are especially relevant for analysis of the Mopping-Up Law, as scholars have assessed the local-law Greek bonds to have higher yields than the Greek bonds governed by English law.[131]<\/sup><\/sup><\/a>\u00a0 One particular study concluded, \u201c[T]he markets seem to recognize the greater vulnerability of local-law governed bonds to debtor misbehavior as compared to bonds governed by foreign law. The evidence shows that Greek bonds governed by different laws were priced differently even prior to the crisis.\u201d[132]<\/sup><\/sup><\/a>\u00a0 This study continues on to note that the pricing premiums likely reflected the price that investors were willing to pay for holdout protections.[133]<\/sup><\/sup><\/a>\u00a0 Therefore, courts may be skeptical of investors\u2019 cries for fairness when the investors had assumed a greater risk when they had invested in local-law governed bonds.[134]<\/a><\/sup><\/sup><\/p>\n

2. \u00a0 Actions Concerning Domestic Sovereigns<\/p>\n

U.S. courts have shown similar deference to important public purposes in cases concerning domestic sovereign entities.\u00a0 The central case about the protection of public contracts from legislative interference is United States Trust Co. v. New Jersey<\/em>.[135]<\/sup><\/sup><\/a>\u00a0 The case arose when New York and New Jersey attempted to repeal a statutory covenant enacted a decade earlier to protect the holders of bonds issued by the Port Authority of New York.[136]<\/sup><\/sup><\/a>\u00a0 The Supreme Court held that the repeal of the covenant was unconstitutional because it violated the Contract Clause,[137]<\/sup><\/sup><\/a> but the critical aspect of the Court\u2019s decision for purposes of the present analysis lies in the test that U.S. Trust<\/em> set forth.[138]<\/sup><\/sup><\/a>\u00a0 The third step in the U.S. Trust<\/em> test asks whether the legislative modification was \u201creasonable and necessary to serve an important public purpose.\u201d[139]<\/sup><\/sup><\/a>\u00a0 This \u201cimportant public purpose\u201d test has validated legislation ranging from imposing price controls on intrastate gas markets[140]<\/sup><\/sup><\/a> to legislatively reducing the annual salaries of state employees.[141]<\/sup><\/sup><\/a><\/p>\n

Similarly, in the Gold Clause Cases<\/em>,[142]<\/sup><\/sup><\/a> the Supreme Court deferred to the federal government\u2019s interest in regulating the nation\u2019s monetary policy.\u00a0 In 1933, Congress passed a joint resolution declaring that all clauses that stipulated payment in gold in public and private contracts were against public policy.[143]<\/sup><\/sup><\/a>\u00a0 This effectively forced all payments on contract obligations to be made in devalued currency, regardless of the terms of the contract.[144]<\/sup><\/sup><\/a>\u00a0 The Court concluded that Congress\u2019s comprehensive power over monetary policy, especially in a financial crisis, outweighed any fairness concerns.[145]<\/sup><\/sup><\/a>\u00a0 Most relevant to the immediate inquiry is the particular Gold Clause Case of Perry v. United States<\/em>,[146]<\/sup><\/sup><\/a> which concerned government bonds.\u00a0 The Court held that the joint resolution as it applied to government bonds was unconstitutional, as the government was impairing its own obligations.[147]<\/sup><\/sup><\/a>\u00a0 However, in determining actual loss, the Court concluded that the nation\u2019s economic conditions must be taken into account.[148]<\/sup><\/sup><\/a>\u00a0 Because the damages would be \u201cnominal,\u201d[149]<\/sup><\/sup><\/a> the plaintiff \u201cfail[ed] to show a cause of action for actual damages.\u201d[150]<\/sup><\/sup><\/a>\u00a0 This would be similar to a court finding that the Mopping-Up Law was, in fact, expropriatory, but that any economic loss would be considered de minimis and therefore not recoverable.[151]<\/sup><\/sup><\/a><\/p>\n

Granted, courts\u2019 overall analyses of actions by domestic sovereign entities are far from analogous with their analyses of actions by international sovereigns.\u00a0 Nevertheless, the examination of an important public purpose in domestic legislation lends credence to the notion that international sovereigns will be afforded similar deference if their actions further an important public purpose.<\/p>\n

B.\u00a0\u00a0\u00a0 <\/em>\u00a0Precedent from International Tribunals<\/em><\/strong><\/p>\n

Because U.S. courts often derive guidance from international law,[152]<\/sup><\/sup><\/a> the reasoning in international tribunals and arbitral bodies can be illuminating.\u00a0 The International Centre for Settlement of Investment Disputes (\u201cICSID\u201d) provides arbitration for public debt disputes,[153]<\/sup><\/sup><\/a> and in some cases has found that a compelling public need may trump the interests of a private entity or investor.[154]<\/sup><\/sup><\/a>\u00a0 For example, in Olgu\u00edn v. Republic of Paraguay<\/em>,[155]<\/sup><\/sup><\/a> the tribunal noted that the taking \u201coccur[ed] within the broader context of a national financial crisis,\u201d[156]<\/sup><\/sup><\/a> and ultimately concluded\u2014albeit on different grounds\u2014that the sovereign default was not an expropriation.[157]<\/sup><\/sup><\/a>\u00a0 In another international case, the Italian Corte di Cassazione focused only on whether the sovereign acted in response to a financial crisis, and\u2014finding in the affirmative\u2014consequently declined jurisdiction.[158]<\/sup><\/sup><\/a><\/p>\n

A more recent example of public necessity trumping investors\u2019 rights is in Iceland.\u00a0 When Iceland\u2019s three largest banks collapsed in 2008, its legislature passed emergency legislation that put the interests of ordinary account holders ahead of the banks\u2019 bondholders.[159]<\/sup><\/sup><\/a>\u00a0 The bondholders challenged the legislature\u2019s action, but Iceland\u2019s Supreme Court upheld the emergency law in light of the financial crisis that the legislation was intended to alleviate.[160]<\/sup><\/sup><\/a>\u00a0 The Court concluded:<\/p>\n

[A] major threat was present to the whole society because of the catastrophic effect of the collapse of the largest commercial banks, which could end with the collapse of economic life in the country.\u00a0 The legislature, for these reasons, had not only a right but above all a constitutional duty to protect the welfare of the public.[161]<\/sup><\/sup><\/a><\/p>\n

Ragnhildur Helgad\u00f3ttir, Professor of Constitutional Law at Reykjavik University, was likely unsurprised at this ruling, as she concluded in an October 2011 presentation that a financial crisis could fall into the scope of emergency powers when \u201cmore than financial interest[s] [are] at stake,\u201d such as the consequences that inevitably would accompany a systemic economic collapse.[162]<\/sup><\/sup><\/a>\u00a0 Similarly, Prime Minister of Iceland, J\u00f3hanna Sigur\u00f0ard\u00f3ttir, said that there was \u201cno other option\u201d than to have the majority of the banking collapse borne by the bondholders.[163]<\/sup><\/sup><\/a>\u00a0 Therefore, recent international precedent indicates that when a sovereign is left with few options, courts will not stand in the way of a proportional legislative response that infringes upon private investors\u2019 economic rights.<\/p>\n

Conclusion<\/strong><\/span><\/p>\n

Decades ago, a prominent international law scholar concluded that sovereign bond default does not necessarily trigger international responsibility:<\/p>\n

[A]s international law stands today, a debtor state commits an international delinquency by annihilating a debt entirely through repudiation, confiscation, or virtual destruction (interference with the substance of the debt), but . . . international law has not yet reached the point where all lesser acts causing defaults and damage to creditors give rise to legal protests based on international law.[164]<\/sup><\/sup><\/a><\/p>\n

International law has developed for nearly eighty years since Professor Feilchenfeld\u2019s conclusion, and the law has, in fact, reached the point at which legal protests arise from sovereign actions that fall short of a complete taking; yet the success of such claims is still largely fact-specific and unpredictable.\u00a0 However, two conclusions from this Note\u2019s analysis are quite clear: U.S. courts are hesitant to take potentially controversial stands in foreign policy without unequivocal support from another government branch, and courts are deferential to sovereigns whose actions are proportional and in response to apparent crises.<\/p>\n

Normative questions remain.\u00a0 Should courts grant immunity to a sovereign nation because the sovereign\u2019s actions precipitated a financial crisis?\u00a0 Why should private investors shoulder a disproportionate amount of a sovereign\u2019s debt burden?\u00a0 Greece is far from faultless in its role in the current debt crisis.[165]<\/sup><\/sup><\/a>\u00a0 However, no one is likely to argue that Greece is getting off scot-free.\u00a0 It has implemented a series of severe austerity measures and is fighting simply to keep its head above water.[166]<\/sup><\/sup><\/a>\u00a0 An exchange offer with a retrofit collective action clause would be painful, yes, but it also would be proportional and restrained in light of the crisis in the Eurozone.\u00a0 Courts likely will take note of this restraint, and so should investors.<\/p>\n

 <\/p>\n

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\n
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Preferred citation: Melissa A. Boudreau, Restructuring Sovereign Debt Under Local Law: \u00a0Are Retrofit Collective Action Clauses Expropriatory?<\/em>, 2 Harv. Bus. L. Rev. Online 164<\/abbr>\u00a0(2012), https:\/\/journals.law.harvard.edu\/hblr\/\/?p=2283.<\/p>\n<\/div>\n

\n

<\/a>* Duke University School of Law, J.D. expected 2013; University of Maryland, B.A. 2007.\u00a0 Many thanks to Professor Mitu Gulati for his invaluable assistance throughout the Note-writing process. Copyright \u00a9 2012 by Melissa A. Boudreau.<\/p>\n<\/div>\n

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<\/a>[1] Niki Kitsantonis & Matthew Saltmarsh, Greece, Out of Ideas, Requests Global Aid<\/em>, N.Y. Times, Apr. 23, 2010, http:\/\/www.nytimes.com\/2010\/04\/24\/business\/global\/24drachma.html.<\/p>\n<\/div>\n

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<\/a>[2] Q&A: Greek Debt Crisis<\/em>, BBC News, Nov. 10, 2011, http:\/\/www.bbc.co.uk\/news\/business-13798000.<\/p>\n<\/div>\n

\n

<\/a>[3] See generally<\/em> Euro in Crisis<\/em>, Fin. Times, http:\/\/www.ft.com\/indepth\/euro-in-crisis (last visited May 6, 2012).<\/p>\n<\/div>\n

\n

<\/a>[4] See <\/em>Douwe Miedema, Europe Might Force Greek Deal on Creditors \u2013 Source<\/em>, Reuters, Nov. 2, 2011, http:\/\/www.reuters.com\/article\/2011\/11\/02\/idUSL5E7M23PA20111102.<\/p>\n<\/div>\n

\n

<\/a>[5] Id.<\/em><\/p>\n<\/div>\n

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<\/a>[6] Unilateral Action Threatened by Greece Is Also Available to Other Sovereigns<\/em>, Weekly Credit Outlook (Moody\u2019s Investors Service, London), February 6, 2012, at 2 (noting that local law governs 88%\u2013100% of the outstanding sovereign debt of eleven Eurozone member states); Stephen J. Choi, Mitu Gulati & Eric A. Posner, Pricing Terms in Sovereign Debt Contracts: A Greek Case Study with Implications for the European Crisis Resolution Mechanism<\/em> 3 (The Chicago Working Paper Series Index, John M. Olin Law & Economics Working Paper No. 541, 2010), available at <\/em>http:\/\/www.law.uchicago.edu\/files\/file\/541-eap-Greek.pdf (\u201c[R]eports suggest that a similar pattern [in local-law governed bonds] emerged with a number of the other Eurozone periphery countries that are in crisis today, including Spain, Portugal and Ireland.\u201d (citation omitted)). See generally <\/em>Jens Nordvig, Currency Risk in the Eurozone: Accounting for breakup and redenomination risk<\/em>, Nomura Securities International (Jan. 2012).<\/p>\n<\/div>\n

\n

<\/a>[7] Richard Milne, Deal Over Greek Bonds to Set Template<\/em>, Fin. Times, Nov. 21, 2011, http:\/\/www.ft.com\/cms\/s\/0\/ff8b3d14-1463-11e1-85c7-00144feabdc0.html#ixzz1gS4gtsVP.<\/p>\n<\/div>\n

\n

<\/a>[8] Id.<\/em> (internal quotation marks omitted).<\/p>\n<\/div>\n

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<\/a>[9] See<\/em> Matina Stevis, Greece to Introduce Retroactive Collective Action Clauses to Bonds \u2013 Troika Source<\/em>, Wall St. J., Jan. 9, 2012, http:\/\/online.wsj.com\/article\/BT-CO-20120109-704688.html (\u201cThe Greek government will retroactively introduce collective-action clauses (CACs) to its existing bonds, a source from the troika of Greece’s creditors\u2014the International Monetary Fund, the European Central Bank and the European Union\u2014told Dow Jones Newswires Monday.\u201d); Patrick Jenkins & Richard Milne, Greek Bondholders Poised to Accept Higher Losses<\/em>, Fin. Times, Jan. 8, 2012, http:\/\/www.ft.com\/intl\/cms\/s\/0\/acaa7900-3891-11e1-9ae1-00144feabdc0.html#axzz1ipczGdVy (\u201cCollective action clauses are likely to be introduced into Greek bonds by the PSI deal . . . .\u201d); Yiannis Papadoyiannis, PSI Agreement Draws Ever Closer<\/em>, Kathimerini, Dec. 20, 2011, http:\/\/www.ekathimerini.com\/4dcgi\/_w_articles_wsite2_1_20\/12\/2011_419381 (\u201cThere already are some alternative solutions on the table in case the private sector participation rate is limited. One of these options . . . is the forced participation of the minority that wanted to abstain from the PSI through a collective action clause (CAC).\u201d). See also<\/em> John Dizard, Greek Debt Crisis No Nearer Resolution<\/em>, Fin. Times, Dec. 11, 2011, http:\/\/www.ft.com\/intl\/cms\/s\/0\/4b931eec-1f5a-11e1-ab49-00144feabdc0.html#axzz1hHvrJOY5 (\u201cI\u2019ve been suggesting for over a year that the only way to make sure that over 90 per cent of the existing bondholders are pushed into making the exchange will be through the passage through the Greek parliament of a \u2018retrofit collective action clause\u2019 covering the roughly 93 per cent of Greek debt that is governed by Greek law.\u201d).<\/p>\n<\/div>\n

\n

<\/a>[10] Greek Government\u2019s Terms for Bond Swap with Creditors: Statement<\/em>, Bloomberg, Feb. 24, 2012, http:\/\/www.businessweek.com\/news\/2012-02-27\/greek-government-s-terms-for-bond-swap-with-creditors-statement.html.<\/p>\n<\/div>\n

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<\/a>[11] Rules for the amendment of securities, issued or guaranteed by the Greek Government by consent of the Bondholders (36 \u0391’\/23.02.2012) (Gr.) available at<\/em> http:\/\/www.hellenicparliament.gr\/UserFiles\/bcc26661-143b-4f2d-8916-0e0e66ba4c50\/k-omolog-pap.pdf.<\/p>\n<\/div>\n

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<\/a>[12] Lee C. Buchheit & G. Mitu Gulati, How to Restructure Greek Debt<\/em> (Duke Law Working Papers, Paper No. 47, 2010), available at<\/em> http:\/\/scholarship.law.duke.edu\/working_papers\/47.\u00a0 This paper was published under a slightly different name in the International Financial Law Review (Restructuring a Nation\u2019s Debt<\/em>, 29 Int\u2019l Fin. L. Rev. 46 (2010-2011)).\u00a0 However, because the current volume is available only to IFLR subscribers, this Note will cite to the Duke Law Working Papers version that is readily available to all online.<\/p>\n<\/div>\n

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<\/a>[13] John Dizard, Opinion, In an Ideal World, Kafka Would Restructure Greece<\/em>, Fin. Times, July 31, 2011, http:\/\/www.ft.com\/intl\/cms\/s\/0\/da876352-b9c9-11e0-8171-00144feabdc0.html#axzz1hHvrJOY5.<\/p>\n<\/div>\n

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<\/a>[14] See<\/em> Rules for the amendment of securities, issued or guaranteed by the Greek Government by consent of the Bondholders (36 \u0391’\/23.02.2012) (Gr.) available at<\/em> http:\/\/www.hellenicparliament.gr\/UserFiles\/bcc26661-143b-4f2d-8916-0e0e66ba4c50\/k-omolog-pap.pdf.<\/p>\n<\/div>\n

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<\/a>[15] Buchheit & Gulati, supra<\/em> note 12, at 12.<\/p>\n<\/div>\n

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<\/a>[16] Id.<\/em> at 2.<\/p>\n<\/div>\n

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<\/a>[17] Id.<\/em> at 5\u20136.<\/p>\n<\/div>\n

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<\/a>[18] See id.<\/em> at 10\u201311 (\u201c[I]ndustrialized countries are less likely than some of their emerging market brethren to risk eroding future investor confidence by opportunistically changing their own law in order to reduce government debt service burdens.\u201d).<\/p>\n<\/div>\n

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<\/a>[19] Russia and Uruguay, for example, both restructured local-law bonds.\u00a0 Id.<\/em> at 6.<\/p>\n<\/div>\n

\n

<\/a>[20] See id.<\/em> (\u201cIn each of these prior cases, however, the local law bonds were also denominated in local currency and formed only part of the overall stock of the debt being restructured. While the Euro is certainly now the local currency of Greece, it is a good deal more besides that.\u201d).<\/p>\n<\/div>\n

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<\/a>[21] Id.<\/em><\/p>\n<\/div>\n

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<\/a>[22] Id.<\/em> at 2.<\/p>\n<\/div>\n

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<\/a>[23] Steven L. Schwarcz, \u201cIdiot\u2019s Guide\u201d to Sovereign Debt Restructuring<\/em>, 53 Emory L.J. 1189, 1190 n.5 (2004).<\/p>\n<\/div>\n

\n

<\/a>[24] Katz v. Oak Industries Inc., 508 A.2d 873 (Del. Ch. 1986), is the first U.S. case in which exit consents were recognized and validated in commercial bonds.\u00a0 Exit consents have also been used in sovereign debt restructurings, such as those in Ecuador and Uruguay.\u00a0 Dr. Rodrigo Olivares-Caminal, To Rank Pari Passu or Not to Rank Pari Passu: That Is the Question in Sovereign Bonds After the Latest Episode of the Argentine Saga<\/em>, 15 L. & Bus. Rev. Am. 745, 765 (2009).<\/p>\n<\/div>\n

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<\/a>[25] See<\/em> Lee C. Buchheit & G. Mitu Gulati, Exit Consents in Sovereign Bond Exchanges<\/em>, 48 UCLA L. Rev. 59, 71 (2000) (describing the Katz v. Oak Industries<\/em> exchange offer with exit consents).<\/p>\n<\/div>\n

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<\/a>[26] Id.<\/em><\/p>\n<\/div>\n

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<\/a>[27] Id.<\/em><\/p>\n<\/div>\n

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<\/a>[28] Buchheit & Gulati, supra<\/em> note 12, at 2.<\/p>\n<\/div>\n

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<\/a>[29] But see<\/em> Gulati & Zettelmeyer, Making a Voluntary Greek Debt Exchange Work<\/em> (Duke Law Faculty Scholarship, Paper No. 2481, 2011), at 10, available at<\/em> http:\/\/scholarship.law.duke.edu\/faculty_scholarship\/2481\/ (\u201cIn the Greek case, all that needs to be done is for the bondholders in the exchange to be given better<\/em> terms.\u00a0 If the exchanging bondholders are given new contracts that provide the comforting warmth of strong contract protections . . . then that will make it perilous to remain out in the cold with a contract that provides no protection.\u201d).\u00a0 Therefore, while a traditional exit consent structure is infeasible for these local-law bonds, a \u201creverse engineered Exit Exchange offer\u201d effectively could provide similar benefits within the bonds\u2019 limited parameters.\u00a0 Id.<\/em> at 9\u201310.<\/p>\n<\/div>\n

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<\/a>[30] Buchheit & Gulati, supra<\/em> note 12, at 11.<\/p>\n<\/div>\n

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<\/a>[31] Id.<\/em><\/p>\n<\/div>\n

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<\/a>[32] See id.<\/em> at 12 (\u201cOnce the supermajority of creditors is persuaded to support an amendment to the payment terms of the instrument, their decision automatically binds any dissident minority.\u201d).<\/p>\n<\/div>\n

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<\/a>[33] See id.<\/em> (\u201cViewed another way, the Mopping-Up Law would merely replicate at the level of the sovereign borrower the same protection enjoyed by corporate borrowers in many countries, including Greece. For example, we understand that in corporate reorganization proceedings under Greek bankruptcy law, if a plan of reorganization is accepted by two thirds of the affected creditors[,] . . . it will . . . bind all creditors.\u201d).<\/p>\n<\/div>\n

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<\/a>[34] Id.<\/em><\/p>\n<\/div>\n

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<\/a>[35] Id.<\/em><\/p>\n<\/div>\n

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<\/a>[36] Id. <\/em>at 12\u201313.<\/p>\n<\/div>\n

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<\/a>[37] See generally<\/em> Harvey M. Jacobs, U.S. Private Property Rights in International Perspective<\/em>, in<\/em> Property Rights and Land Policies 52 (Gregory K. Ingram & Yu-Hung Hong, eds., 2009).<\/p>\n<\/div>\n

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<\/a>[38] Peter Charles Choharis, U.S. Courts and the International Law of Expropriation: Toward a New Model for Breach of Contract<\/em>, 80 S. Cal. L. Rev. 1, 6 (2006).<\/p>\n<\/div>\n

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<\/a>[39] Id.<\/em> at 7.<\/p>\n<\/div>\n

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<\/a>[40] Foreign Sovereign Immunities Act of 1976 (\u201cFSIA\u201d), 28 U.S.C. \u00a7\u00a7 1602\u201311 (2006).<\/p>\n<\/div>\n

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<\/a>[41] Argentine Republic v. Amerada Hess, 488 U.S. 428, 434 (1989).<\/p>\n<\/div>\n

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<\/a>[42] FSIA, 28 U.S.C. \u00a7 1604 (2006).<\/p>\n<\/div>\n

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<\/a>[43] See<\/em> Argentine Republic<\/em>, 488 U.S. at 434 (\u201cSections 1604 and 1330(a) work in tandem: \u00a7 1604 bars federal and state courts from exercising jurisdiction when a foreign state is entitled to immunity, and \u00a7 1330(a) confers jurisdiction on district courts to hear suits brought by United States citizens and by aliens when a foreign state is not entitled to immunity.\u201d).<\/p>\n<\/div>\n

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<\/a>[44] See generally<\/em> FSIA, 28 U.S.C. \u00a7\u00a7 1605\u201307 (2006).<\/p>\n<\/div>\n

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<\/a>[45] FSIA, 28 U.S.C. \u00a7 1605(a)(3) (2000) (\u201cA foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case in which rights in property taken in violation of international law are in issue and that property or any property exchanged for such property is present in the United States in connection with a commercial activity carried on in the United States by the foreign state.\u201d).<\/p>\n<\/div>\n

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<\/a>[46] Id.<\/em><\/p>\n<\/div>\n

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<\/a>[47] See, e.g.<\/em>, Aquamar S.A. v. Del Monte Fresh Produce N.A., Inc., 179 F.3d 1279, 1294 (11th Cir. 1999) (\u201cWe may look to international law as a guide to the meaning of the FSIA’s provisions.\u201d); Trajano v. Marcos, 978 F.2d 493, 497\u201398 (9th Cir. 1992) (\u201cCongress intended the FSIA to be consistent with international law.\u201d).<\/p>\n<\/div>\n

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<\/a>[48] See, e.g.<\/em>, Peterson v. Royal Kingdom of Saudi Arabia, 416 F.3d 83, 85 (D.C. Cir. 2005) (\u201c[A]n expectation interest in payments[] does not qualify as a right in tangible property and the [FSIA] expropriation exception does not apply . . . .\u201d (internal quotation marks omitted); Brewer v. Iraq, 890 F.2d 97, 101 (8th Cir. 1989) (\u201cDefendants\u2019 breach of contract did not create \u2018rights in property.\u201d\u2019); Daventree Ltd. v. Republic of Azerbaijan, 349 F. Supp. 2d 736, 749\u201350 (S.D.N.Y. 2004) (\u201cAs numerous courts have held, for purpose of the expropriations exception to the FSIA, the property taken . . . means physical property and not the right to receive payment.\u201d (internal quotation marks omitted)).<\/p>\n<\/div>\n

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<\/a>[49] Michael D. Ramsey, Acts of State and Foreign Sovereign Obligations<\/em>, 39 Harv. Int\u2019l L.J. 1, 1 (1998).<\/p>\n<\/div>\n

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<\/a>[50] 168 U.S. 250 (1897).<\/p>\n<\/div>\n

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<\/a>[51] Id.<\/em> at 252.<\/p>\n<\/div>\n

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<\/a>[52] W.S. Kirkpatrick & Co. v. Envtl. Tectonics Corp., Int\u2019l, 493 U.S. 400, 405 (1990).\u00a0 The Court went on to conclude that the doctrine \u201crequires that, in [courts\u2019] process of deciding, the acts of foreign sovereigns taken within their own jurisdictions shall be deemed valid.\u201d\u00a0 Id.<\/em> at 409.<\/p>\n<\/div>\n

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<\/a>[53] See<\/em> Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 423 (1964) (\u201c[The act of state doctrine] arises out of the basic relationships between branches of government in a system of separation of powers.\u201d).<\/p>\n<\/div>\n

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<\/a>[54] See id.<\/em> (\u201c[The Judicial Branch\u2019s] engagement in the task of passing on the validity of foreign acts of state may hinder rather than further this country\u2019s pursuit of goals both for itself and for the community of nations as a whole in the international sphere.\u201d).<\/p>\n<\/div>\n

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<\/a>[55] See<\/em> Ramsey, supra<\/em> note 49, at 17 n.63 (citing a number of courts that found that the act of state doctrine applied in claims of expropriation of contract rights).<\/p>\n<\/div>\n

\n

<\/a>[56] 22 U.S.C. \u00a7 2370(e)(2) (2006).<\/p>\n<\/div>\n

\n

<\/a>[57] Id.<\/em><\/p>\n<\/div>\n

\n

<\/a>[58] See, e.g.<\/em>, Compania de Gas de Nuevo Laredo S.A. v. Entex Inc., 686 F.2d 322, 327 (5th Cir. 1982) (\u201cCongress intended [the Amendment] to be limited to cases involving claims of title with respect to American owned property nationalized by a foreign government in violation of international law, when the property or its assets were subsequently located in the United States.\u201d); Empresa Cubana Exportadora de Azucar y Sus Derivados v. Lamborn & Co., Inc., 652 F.2d 231, 237 (2d Cir. 1981) (\u201c[The Amendment] has been interpreted . . . as applying only to cases in which the expropriated property has found its way back into the United States.\u201d); Menendez v. Saks & Co., 485 F.2d 1355, 1372 (2d Cir. 1973) (\u201c[T]he intent [of the Amendment] was to exclude all contract claims from the amendment.\u201d), aff\u2019d in part and rev\u2019d in part on other grounds sub nom<\/em>. See also<\/em> Ramsey, supra<\/em> note 49, at 45 n.174 (\u201c[The Amendment] . . . is problematic as a protection for contractual obligations . . . .\u201d).<\/p>\n<\/div>\n

\n

<\/a>[59] 757 F.2d 516 (2d Cir. 1985) (en banc).<\/p>\n<\/div>\n

\n

<\/a>[60] Id.<\/em> at 519.<\/p>\n<\/div>\n

\n

<\/a>[61] Id.<\/em><\/p>\n<\/div>\n

\n

<\/a>[62] Allied Bank Int\u2019l v. Banco Credito Agricola de Cartago, 566 F. Supp. 1440, 1444 (S.D.N.Y. 1983), rev\u2019d<\/em>, 757 F.2d 516 (2d Cir. 1985).<\/p>\n<\/div>\n

\n

<\/a>[63] Allied Bank<\/em>, 757 F.2d at 519.<\/p>\n<\/div>\n

\n

<\/a>[64] Id.<\/em> at 522.<\/p>\n<\/div>\n

\n

<\/a>[65] See id.<\/em> at 520 (\u201cIn light of the government’s elucidation of its position, we believe that our earlier interpretation of United States policy was wrong.\u201d).<\/p>\n<\/div>\n

\n

<\/a>[66] Brief for the United States as Amicus Curiae at 9, Allied Bank<\/em>, 757 F.2d 516 (No. 83-7714), available at<\/em> http:\/\/www.archive.org\/details\/AlliedBankInternationalV.BancoCreditoAgricolaDeCartago.<\/p>\n<\/div>\n

\n

<\/a>[67] Id.<\/em> at 10.<\/p>\n<\/div>\n

\n

<\/a>[68] Allied Bank<\/em>, 757 F.2d at 521 n.3.<\/p>\n<\/div>\n

\n

<\/a>[69] Id.<\/em> at 522.<\/p>\n<\/div>\n

\n

<\/a>[70] See<\/em> Braka v. Bancomer, S.N.C., 762 F.2d 222, 224 (\u201c[T]he relevant considerations mitigate against judicial intervention.\u201d).<\/p>\n<\/div>\n

\n

<\/a>[71] Id.<\/em> at 224.<\/p>\n<\/div>\n

\n

<\/a>[72] See<\/em> International Monetary Fund, Country Report No. 11\/351, Greece: Fifth Review Under the Stand-By Arrangement, Rephasing and Request for Waivers of Nonobservance of Performance Criteria; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Greece<\/em>, 31, 33 (Dec. 2011) available at<\/em> http:\/\/www.imf.org\/external\/pubs\/ft\/scr\/2011\/cr11351.pdf (\u201cA next key step now under consideration is the inducement(s) to use to ensure near-universal participation (including the possible legislation of CACs in domestic law bonds). The steps taken to date give confidence that the operation will be able to attract the needed level of creditor support and that it will go forward consistent with contemplated parameters. . . . [T]he Greek and European authorities are encouraged to consider tools to attain near-universal creditor participation.\u201d).<\/p>\n<\/div>\n

\n

<\/a>[73] See <\/em>Choharis, supra<\/em> note 38, at 48\u201349 (\u201cWhere there are sufficient links to the contested property to satisfy jurisdiction for purposes of due process, U.S. courts should not decline to hear cases based upon judicial squeamishness about judging the legality of foreign sovereign acts.\u201d). See also<\/em> Malvina Halberstam, Sabbatino Resurrected: The Act of State Doctrine in the Revised Restatement of U.S. Foreign Relations Law<\/em>, 79 Am. J. Int\u2019l L. 68, 70\u201371 (1985) (\u201cWhile some lower courts have limited the Hickenlooper Amendment to property located in the United States, and there is legislative history to support the narrow construction adopted by the Restatement, there is also legislative history to the contrary.\u201d).<\/p>\n<\/div>\n

\n

<\/a>[74] See, e.g.<\/em>, Ramsey, supra<\/em> note 49, at 17 n.63 (citing a number courts that found that the act of state doctrine applied in expropriation claims).<\/p>\n<\/div>\n

\n

<\/a>[75] See <\/em>Bernard Kishoiyian, The Utility of Bilateral Investment Treaties in the Formulation of Customary International Law<\/em>, 14 Nw. J. Int\u2019l L. & Bus. 327, 329 (1994) (\u201c[I]nternational law has not kept pace with the developments that have taken place in the last thirty years in foreign direct investment.\u201d).<\/p>\n<\/div>\n

\n

<\/a>[76] Compare<\/em> Banco Nacional de Cuba v. Chem. Bank N.Y. Trust Co., 822 F.2d 230, 238 (2d Cir. 1987) (\u201cIn general, if a state merely expropriated a debtor’s assets and treated all of its creditors alike, both foreign and domestic, the state would not be liable under principles of international law to foreign creditors for a taking of their property.\u201d), with<\/em> First Fid. Bank, N.A. v. Ant. & Barb.\u2014Permanent Mission, 877 F.2d 189, 193 (2d Cir. 1989) (\u201cA breach of a commercial contract . . . is not a violation of international law unless the breach . . . occurs for governmental rather than commercial reasons and the state is not prepared to pay damages for the breach.\u201d (citation omitted)).<\/p>\n<\/div>\n

\n

<\/a>[77] See, e.g.<\/em>, discussion in Part II.B supra<\/em> regarding Allied Bank<\/em>.<\/p>\n<\/div>\n

\n

<\/a>[78] Choharis, supra<\/em> note 38, at 11.<\/p>\n<\/div>\n

\n

<\/a>[79] See, e.g.<\/em>, Brewer v. Socialist People\u2019s Republic of Iraq, 890 F.2d 97, 101 (8th Cir. 1989) (\u201c[P]laintiffs\u2019 contract rights were not expropriated\u2014rather, the contract itself was repudiated by defendants. .\u00a0.\u00a0.\u00a0[S]uch a repudiation is not equivalent to expropriation.\u201d (citation omitted); Verlinden B.V. v. Cent. Bank of Nig., 647 F.2d 320, 325 (2d Cir. 1981), rev\u2019d on other grounds<\/em>, 461 U.S. 480 (1983) (\u201c[C]ommercial violations . . . do not constitute breaches of international law.\u201d); Jafari v. Islamic Republic of Iran, 539 F. Supp. 209, 215 (N.D. Ill. 1982) (\u201cWe cannot elevate our American-centered view of governmental taking of property without compensation into a rule that binds all civilized nations.\u201d (internal quotation marks omitted)); Daventree Ltd. v. Azerbaijan, 349 F. Supp. 2d 736, 751 (S.D.N.Y. 2004) (\u201c[P]laintiffs\u2019 failure to privatize claims do not arise from the taking of tangible property without compensation, but instead from the Sovereign defendants\u2019 failure to honor an alleged contractual obligation to carry out an orderly privatization program. Therefore, because those claims pertain to contract rights or the right to receive payments, the expropriations exception does not apply . . . .\u201d (internal quotation marks omitted)).<\/p>\n<\/div>\n

\n

<\/a>[80] See supra<\/em> text accompanying note 76. See also<\/em> Zappia Middle E. Constr. Co. v. Emirate of Abu Dhabi, 215 F.3d 247, 252 (2d Cir. 2000) (\u201c[B]reach of a commercial contract alone does not constitute a taking pursuant to international law.\u201d).<\/p>\n<\/div>\n

\n

<\/a>[81] 807 F.2d 820 (9th Cir. 1987).<\/p>\n<\/div>\n

\n

<\/a>[82] See<\/em> id.<\/em> at 830 (\u201c[A]lthough the certificates of deposit may be characterized as intangible property or contracts, they are \u2018property interests\u2019 that are protected under international law from expropriation.\u201d).<\/p>\n<\/div>\n

\n

<\/a>[83] Id.<\/em> at 831.<\/p>\n<\/div>\n

\n

<\/a>[84] See <\/em>Matt Levine, Mandatory Greek CDS Post<\/em>, Dealbreaker, Oct. 27, 2011, http:\/\/dealbreaker.com\/2011\/10\/mandatory-greek-cds-post\/ (discussing whether the Greek \u201cpseudo-voluntary pseudo-default\u201d exchange qualifies as a credit event for CDS purposes).<\/p>\n<\/div>\n

\n

<\/a>[85] Compare<\/em> G.C. Christie, What Constitutes a Taking of Property Under International Law?<\/em>, 38 Brit. Y.B. Int’l L. 307, 338 (1962) (\u201cWhere a State compels an alien to sell his property for less than its true value either to the State or to a third party, a compensable claim arises\u201d), with<\/em> W. Michael Reisman & Robert D. Sloane, Indirect Expropriation and Its Valuation in the BIT Generation<\/em>, 74 Brit. Y.B. Int\u2019l L. 115, 121 (2004) (\u201c[E]xpropriation must be analyzed in consequential rather than formal terms. What matters is the effect of governmental conduct\u2014whether malfeasance, misfeasance, or nonfeasance, or some combination of the three\u2014on foreign property rights or control over an investment, not whether the state promulgates a formal decree or otherwise expressly proclaims its intent to expropriate\u201d), and <\/em>Choharis, supra<\/em> note 38, at 86 (\u201cWhile the forced renegotiation of a contract is not as well-established, if the state uses its governmental powers to coerce more favorable contractual terms, this too would violate international law.\u201d).<\/p>\n<\/div>\n

\n

<\/a>[86] See, e.g.<\/em>, Detlev F. Vagts, Coercion and Foreign Investment Rearrangements<\/em>, 72 Am. J.Int’l L. 17, 22 (1978) (\u201cThe leading cases [in the state-investor coercion field] come from national tribunals considering claims asserted under international law. . . . [A]bout all those cases seem to settle is the point, which one hopes is obvious, that raw physical pressure vitiates consent.\u201d).<\/p>\n<\/div>\n

\n

<\/a>[87] For example, Allied Bank Int\u2019l v. Banco Credito Agricola de Cartago, 757 F.2d 516 (2d Cir. 1985) is the only U.S. case to conclude that a forced but nonviolent renegotiation of a contract was expropriatory.\u00a0 As noted above in Part II.B, however, the precedential value of Allied Bank<\/em> is questionable.<\/p>\n<\/div>\n

\n

<\/a>[88] See, e.g.<\/em>, supra<\/em> note 71 and accompanying text.<\/p>\n<\/div>\n

\n

<\/a>[89] See, e.g.<\/em>, Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 429 (1964) (\u201cThere is, of course, authority, in international judicial and arbitral decisions, in the expressions of national governments, and among commentators for the view that a taking is improper under international law if it is not for a public purpose.\u201d).\u00a0 But see<\/em> Choharis, supra<\/em> note 38, at 20 n.78 (noting that courts generally do not address the state\u2019s purpose when analyzing a forced renegotiation of a contract \u201cbecause of the limited circumstances that courts and scholars argue warrant finding that such forced renegotiations may violate international law\u201d).<\/p>\n<\/div>\n

\n

<\/a>[90] In other words, an expropriation no doubt has occurred, but questions remain as to whether that expropriation was invalid.<\/p>\n<\/div>\n

\n

<\/a>[91] See<\/em> Restatement (Third) of Foreign Relations Law of the United States \u00a7 712 rptrs\u2019 n.8 (\u201cThe prevailing view is that, in principle, international law is not implicated if a state repudiates or breaches a commercial contract with a foreign national for commercial reasons as a private contractor might, e.g., due to inability of the state to pay or otherwise perform, or because performance has become uneconomical . . . . It is a violation of international law if, in repudiating or breaching the contract, the state is acting essentially from governmental motives . . . rather than for commercial reasons, and fails to pay compensation or to accept an agreed dispute settlement procedure.\u201d).<\/p>\n<\/div>\n

\n

<\/a>[92] Id.<\/em><\/p>\n<\/div>\n

\n

<\/a>[93] Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 428 (1964).<\/p>\n<\/div>\n

\n

<\/a>[94] Michael Waibel, Opening Pandora\u2019s Box: Sovereign Bonds in International Arbitration<\/em>, 101 Am. J. Int\u2019l L. 711, 744 (2007).<\/p>\n<\/div>\n

\n

<\/a>[95] See id.<\/em> at 745 (\u201cLack of performance does not amount to a treaty breach unless it is proven that the state has gone beyond its role as a mere party to the contract and has exercised the specific functions of a sovereign authority.\u201d).\u00a0 For a cogent analysis of the policy implications involved in this distinction between commercial and sovereign actions, see generally Choharis, supra<\/em> note 38, at 27\u201329.<\/p>\n<\/div>\n

\n

<\/a>[96] \u201cCommercial reasons\u201d include those that a private contractor could proffer in breaching a contract.\u00a0 See<\/em> supra<\/em> note 92 and accompanying text; see also <\/em>Waibel, supra<\/em> note 94, at 745 (\u201cCould a private corporation have successfully carried out a similar restructuring implemented by a country? In other words, did the government use specific regulatory, administrative, or governmental powers in its sovereign bond exchange? . . . A host state acting as a contractual party does not interfere with the normal exercise of the investors\u2019 rights, but rather fails to perform the contract.\u201d).<\/p>\n<\/div>\n

\n

<\/a>[97] See<\/em> First Fid. Bank<\/em>, 877 F.2d at 193 (\u201cA breach of a commercial contract . . . is not a violation of international law unless the breach is discriminatory . . . .\u201d).<\/p>\n<\/div>\n

\n

<\/a>[98] See, e.g.<\/em>, West v. Multibanco Comermex, S.A., 807 F.2d 820, 822\u201323 (9th Cir. 1987) (finding an expropriation even though Mexico did not distinguish between foreign nationals).<\/p>\n<\/div>\n

\n

<\/a>[99] See, e.g.<\/em>, Banco Nacional de Cuba v. Chem. Bank N.Y. Trust Co., 822 F.2d 230, 237 (2d Cir. 1987) (\u201cAs a general principle of international law, a state is liable to a private person who is a national of another state if it takes the foreign national’s property and the taking is \u2018discriminatory.\u2019 A taking pursuant to a program that excludes from compensation all aliens or all aliens of a particular nationality is discriminatory.\u201d).<\/p>\n<\/div>\n

\n

<\/a>[100] See<\/em> Buchheit & Gulati, supra note 12, at 6 (\u201cA significant percentage (perhaps more than 30 percent) of the bonds are believed to be owned by Greek institutional holders.\u201d).<\/p>\n<\/div>\n

\n

<\/a>[101] See<\/em> Waibel, supra<\/em> note 94, at 747 (\u201cWhether this particular form of discrimination violates international law depends on whether international law requires countries to treat all creditors equally. It is at least doubtful, however, that international law incorporates such a general equal treatment obligation, over and above an obligation not to discriminate against creditors by nationality.\u201d).<\/p>\n<\/div>\n

\n

<\/a>[102] Richard Barley, ECB Teaches Bondholders Greek Lesson<\/em>, Wall St. J., February 17, 2012, http:\/\/online.wsj.com\/article\/SB10001424052970204059804577229351454312864.html.<\/p>\n<\/div>\n

\n

<\/a>[103] Paul Dobson & Abigail Moses, ECB Greek Plan May Hurt Bondholders While Triggering Debt Swaps<\/em>, Bloomberg Businessweek, February 19, 2012, http:\/\/www.businessweek.com\/news\/2012-02-19\/ecb-greek-plan-may-hurt-bondholders-while-triggering-debt-swaps.html.<\/p>\n<\/div>\n

\n

<\/a>[104] Commentators noted these concerns over a month before the ECB deal was made.\u00a0 For a thorough analysis, see Joseph Cotterill, To ring-fence the ECB in Greece . . . or not<\/em>, Fin. Times Alphaville, January 10, 2012, http:\/\/ftalphaville.ft.com\/blog\/2012\/01\/10\/823321\/to-ring-fence-the-ecb-in-greece-or-not\/.<\/p>\n<\/div>\n

\n

<\/a>[105] If the loss is compensated, it likely would be considered a valid expropriation.\u00a0 See<\/em> Restatement (Third) of Foreign Relations Law of the United States \u00a7\u00a7 712(1)-(2) (validating expropriation if compensation is \u201cjust\u201d or \u201ccompensatory\u201d).<\/p>\n<\/div>\n

\n

<\/a>[106] See<\/em> Choharis, supra<\/em> note 38, at 34\u201335 (\u201c[A]uthorities offer little additional guidance on what degree of loss is necessary to constitute an expropriation. Few courts have mentioned the issue of the degree of loss necessary to result in an expropriation, and they have done so only incidentally, usually quoting secondary sources. The only principle that can be distilled from these dicta is that total deprivation of property violates international law. Short of that, the courts provide little or no guidance.\u201d).<\/p>\n<\/div>\n

\n

<\/a>[107] See supra<\/em> note 32 and accompanying text.<\/p>\n<\/div>\n

\n

<\/a>[108] See supra<\/em> notes 32, 34 and accompanying text.<\/p>\n<\/div>\n

\n

<\/a>[109] See supra<\/em> note 33 and accompanying text.<\/p>\n<\/div>\n

\n

<\/a>[110] See supra<\/em> note 30 and accompanying text.<\/p>\n<\/div>\n

\n

<\/a>[111] See infra<\/em> notes 131\u2013134 and accompanying text.<\/p>\n<\/div>\n

\n

<\/a>[112] Greek Bonds Rated \u2018Junk\u2019 By Standard & Poor\u2019s<\/em>, BBC News, Apr. 27, 2010, http:\/\/news.bbc.co.uk\/2\/hi\/8647441.stm.<\/p>\n<\/div>\n

\n

<\/a>[113] Banco Nacional de Cuba v. Chase Manhattan Bank, 658 F.2d 875, 893 (2d Cir. 1981).<\/p>\n<\/div>\n

\n

<\/a>[114] See<\/em> Restatement (Third) of Foreign Relations Law of the United States \u00a7 712 cmt. d, rptrs\u2019 n.3 (1987) (advocating compensation \u201cbased on value at the time of taking\u201d).<\/p>\n<\/div>\n

\n

<\/a>[115] See, e.g.<\/em>, supra<\/em> text accompanying note 71.<\/p>\n<\/div>\n

\n

<\/a>[116] See supra<\/em> text accompanying note 34.<\/p>\n<\/div>\n

\n

<\/a>[117] See, e.g.<\/em>, supra<\/em> note 48 and accompanying text; supra<\/em> note 58 and accompanying text; infra<\/em> note 119 and accompanying text.<\/p>\n<\/div>\n

\n

<\/a>[118] See<\/em> Waibel, supra<\/em> note 94, at 739 (\u201c[I]nternational law [is] underdeveloped in a central respect. Under the general principles of law found in many municipal systems, extraordinary circumstances may occasionally warrant a modification of contractual claims. The lack of payment capacity and the use of general regulatory powers in national economic emergencies are pertinent examples.\u201d).<\/p>\n<\/div>\n

\n

<\/a>[119] See<\/em> Braka v. Bancomer, S.A., 589 F. Supp. 1465, 1472 (S.D.N.Y. 1984), aff\u2019d<\/em>, 762 F.2d 222 (2d Cir. 1985) (\u201c[Mexico exercised] the recognized governmental function of setting monetary policy. Mexico acted in response to a fiscal crisis and its mandate touched all foreign currency obligations, private as well as public\u201d); Callejo v. Bancomer, S.A., 764 F.2d 1101, 1116 (5th Cir. 1985) (\u201cWere we to disregard the exchange regulations by enforcing the [plaintiffs\u2019] certificates of deposit, we would render nugatory the attempts by Mexico to protect its foreign exchange reserves. While we are doubtful of our ability to foresee what will vex the peace of nations, we have no doubt that disregarding the Mexican regulations would be very vexing indeed.\u201d).<\/p>\n<\/div>\n

\n

<\/a>[120] 807 F.2d 820 (9th Cir. 1987).<\/p>\n<\/div>\n

\n

<\/a>[121] Id.<\/em> at 830.<\/p>\n<\/div>\n

\n

<\/a>[122] Id.<\/em> at 831.<\/p>\n<\/div>\n

\n

<\/a>[123] Id.<\/em><\/p>\n<\/div>\n

\n

<\/a>[124] Id.<\/em> at 832.<\/p>\n<\/div>\n

\n

<\/a>[125] Id.<\/em> at 831.<\/p>\n<\/div>\n

\n

<\/a>[126] 762 F.2d 222 (2d Cir. 1985).<\/p>\n<\/div>\n

\n

<\/a>[127] Braka v. Bancomer, S.A., 589 F. Supp. 1465, 1472 (S.D.N.Y. 1984), aff\u2019d<\/em>, 762 F.2d 222 (2d Cir. 1985).<\/p>\n<\/div>\n

\n

<\/a>[128] See<\/em> Papadoyiannis, supra<\/em> note 9 (\u201cBank sources told Kathimerini that the efforts to find a solution have intensified in the last few days, emphasizing the absolute need for PSI+ to succeed. If that fails, given the country\u2019s loan requirements in the first quarter of 2012, Greece will find itself at a dead end with unpredictable consequences.\u201d).<\/p>\n<\/div>\n

\n

<\/a>[129] West<\/em>, 807 F.2d at 833.<\/p>\n<\/div>\n

\n

<\/a>[130] See, e.g.<\/em>, Emilio Agust\u00edn Maffezini v. The Kingdom of Spain, ICSID Case No. ARB\/97\/7, Award, para. 64 (Nov. 13, 2000) (\u201c[T]he Tribunal must emphasize that Bilateral Investment Treaties are not insurance policies against bad business judgments.\u201d).<\/p>\n<\/div>\n

\n

<\/a>[131] Choi, Gulati & Posner, supra<\/em> note 6, at 24.<\/p>\n<\/div>\n

\n

<\/a>[132] Id.<\/em><\/p>\n<\/div>\n

\n

<\/a>[133] Id.<\/em> at 25.<\/p>\n<\/div>\n

\n

<\/a>[134] See id.<\/em> (\u201cThese purchasers took advantage of the higher yields on this risky debt. Other investors took lower yields in exchange for lower risk (or greater holdout rights).\u201d).<\/p>\n<\/div>\n

\n

<\/a>[135] 431 U.S. 1 (1977).\u00a0 The most favorable case to support the Mopping-Up Law is Faitoute Iron and Steel Co. v. City of Asbury Park<\/em>, 316 U.S. 502 (1942), in which the Supreme Court upheld a state modification of a bond contract.\u00a0 However, because Faitoute<\/em>\u2019s broad holding was somewhat limited by U.S. Trust<\/em>, a fair analysis of the present question should instead focus on the narrower (and less favorable) U.S. Trust<\/em> test.<\/p>\n<\/div>\n

\n

<\/a>[136] Id.<\/em> at 13.<\/p>\n<\/div>\n

\n

<\/a>[137] Id.<\/em> at 32.<\/p>\n<\/div>\n

\n

<\/a>[138] See<\/em> Michael L. Zigler, Takings Law and the Contract Clause: A Takings Law Approach to Legislative Modifications of Public Contracts<\/em>, 36 Stan. L. Rev. 1447, 1455 (1984) (\u201cThe Court\u2019s opinion established a three-step test for determining whether a legislative action is an unconstitutional impairment of a public contract. To be a violation of the contract clause, the state action must (1) not be pursuant to its reserved powers; (2) constitute a substantial impairment of the contractual obligation; and (3) be neither necessary nor reasonable.\u201d).<\/p>\n<\/div>\n

\n

<\/a>[139] United States Trust<\/em>, 431 U.S. at 25.<\/p>\n<\/div>\n

\n

<\/a>[140] See<\/em> Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 416\u201317 (1983) (\u201c[T]he Kansas Act\u00a0rests on, and is prompted by, significant and legitimate state interests . . . [in] protect[ing] consumers from the escalation of natural gas prices caused by deregulation . . . [and] in correcting the imbalance between the interstate and intrastate markets.\u201d).<\/p>\n<\/div>\n

\n

<\/a>[141] See<\/em> Baltimore Teachers Union, Am. Fed\u2019n of Teachers Local 340, AFL-CIO v. Mayor & City Council of Baltimore, 6 F.3d 1012, 1021 (4th Cir. 1993) (\u201cWe . . . conclude that the salary reductions were reasonable under the circumstances.\u201d).<\/p>\n<\/div>\n

\n

<\/a>[142] Norman v. Baltimore & Ohio Railroad Co., 294 U.S. 240 (1935); Nortz v. United States, 294 U.S. 317 (1935); and Perry v. United States, 294 U.S. 330 (1935).<\/p>\n<\/div>\n

\n

<\/a>[143] Norman<\/em>, 294 U.S. at 291\u201392.<\/p>\n<\/div>\n

\n

<\/a>[144] Id.<\/em> at 292\u201393.\u00a0 For a modern analog, see New Law Limits Claims by Vulture Funds<\/em>, Reuters, Apr. 8, 2010, http:\/\/uk.reuters.com\/article\/2010\/04\/08\/uk-britain-debt-idUKTRE63748920100408 (discussing how the U.K. enacted legislative measures\u2014with no successful legal challenges\u2014in placing restrictions on the recovery of heavily discounted debts).<\/p>\n<\/div>\n

\n

<\/a>[145] Id.<\/em> at 316.<\/p>\n<\/div>\n

\n

<\/a>[146] 294 U.S. 330 (1935).<\/p>\n<\/div>\n

\n

<\/a>[147] Id.<\/em> at 350\u201351 (1935) (\u201cThere is a clear distinction between the power of the Congress to control or interdict the contracts of private parties when they interfere with the exercise of its constitutional authority and the power of the Congress to alter or repudiate the substance of its own engagements when it has borrowed money under the authority which the Constitution confers.\u201d).<\/p>\n<\/div>\n

\n

<\/a>[148] Id.<\/em> at 355 (1935) (\u201cThe question of actual loss cannot fairly be determined without considering the economic situation at the time the government offered to pay . . . the face of his bond, in legal tender currency.\u201d).<\/p>\n<\/div>\n

\n

<\/a>[149] Id.<\/em><\/p>\n<\/div>\n

\n

<\/a>[150] Id.<\/em> at 358.<\/p>\n<\/div>\n

\n

<\/a>[151] See supra<\/em> note 114 and accompanying text.<\/p>\n<\/div>\n

\n

<\/a>[152] See, e.g.<\/em>, West v. Multibanco Comermex, S.A., 807 F.2d 820, 831 n.10 (9th Cir. 1987) (\u201cIt is appropriate to look to international law when determining whether the institution of exchange control regulations constitutes a \u2018taking\u2019 for purposes of FSIA. We note, however, that in ascertaining the content of international law, we may look to various sources of law, including United States law.\u201d).<\/p>\n<\/div>\n

\n

<\/a>[153] International Centre for Settlement of Investment Disputes, http:\/\/icsid.worldbank.org\/ICSID\/Index.jsp (last visited May 2, 2012).<\/p>\n<\/div>\n

\n

<\/a>[154] See<\/em> Waibel, supra<\/em> note 94, at 745 (\u201c[I]f the exercise of governmental powers is both in the public interest and non-discriminatory, the act in question would not be considered an expropriation [by the ICSID tribunal], with the consequence that no compensation was due on that basis. In national economic emergencies the legitimate scope of governmental measures in the public interest might be greater; hence, economic policy measures adopted in response to financial crises would need to rise to a higher level of intensity to constitute expropriation.\u201d (citation omitted)).<\/p>\n<\/div>\n

\n

<\/a>[155] Olgu\u00edn v. Republic of Paraguay, ICSID Case No. ARB\/98\/5, Award (July 26, 2001), 18 ICSID REV. 160 (2003) (unofficial English translation).<\/p>\n<\/div>\n

\n

<\/a>[156] Id.<\/em>, para. 69.<\/p>\n<\/div>\n

\n

<\/a>[157] Id.<\/em>, para. 84.<\/p>\n<\/div>\n

\n

<\/a>[158] Borri v. Argentina, 88 Rivista di diritto internazionale 856, paras. 4, 4.2, 5 (May 27, 2005) (\u201cWhile the issuance of bonds is per se \u2018private\u2019, the Argentine legislative acts extending the payment term were undeniably acta iure imperii<\/em> and thus exempt from domestic jurisdiction.\u201d).<\/p>\n<\/div>\n

\n

<\/a>[159] Tom Braithwaite, Reykjavik Steps In with New Powers<\/em>, Fin. Times, Oct. 8, 2008, http:\/\/www.ft.com\/intl\/cms\/s\/0\/64b062aa-94d3-11dd-953e-000077b07658.html#axzz1iRylBZol.<\/p>\n<\/div>\n

\n

<\/a>[160] Jim Pickard & Clare MacCarthy, Icelandic Court Rules to Repay British and Dutch<\/em>, Fin. Times, Oct. 28, 2011, http:\/\/www.ft.com\/intl\/cms\/s\/0\/18152320-018d-11e1-8e59-00144feabdc0.html#axzz1iRylBZol.<\/p>\n<\/div>\n

\n

<\/a>[161] H\u00e6stir\u00e9ttur \u00cdslands (Icelandic Supreme Court), Case No. 340\/2011, (Oct. 28, 2011) (unofficial English translation).<\/p>\n<\/div>\n

\n

<\/a>[162] Ragnhildur Helgad\u00f3ttir, Professor, Reykjavik University School of Law, Constitutions and Government Responses to Financial Crises (Oct. 2011) (\u201cIf economic or financial crises are serious enough to warrant government intervention, let alone government intervention which may run afoul of the constitution and international obligations, the crisis will presumably affect other interests than financial.\u201d). For a more extensive analysis of the emergency powers, see Ragnhildur Helgad\u00f3ttir,\u00a0Economic Crises and Emergency Powers in Europe<\/em>,\u00a02\u00a0Harv. Bus. L. Rev. Online\u00a0130\u00a0(2012), https:\/\/journals.law.harvard.edu\/hblr\/\/?p=1981.<\/p>\n<\/div>\n

\n

<\/a>[163] J\u00f3hanna Sigur\u00f0ard\u00f3ttir, Prime Minister of Iceland, International Conference at Reykjavik, Welcoming Remarks (Oct. 27, 2011) available at<\/em> http:\/\/www.imf.org\/external\/np\/seminars\/eng\/2011\/isl\/pdf\/js.pdf (\u201cIn effect . . . the lion [sic] share of the banking collapse was borne by foreign creditors. There was no other way, there was no other option, considering that the banks\u2019 assets were ten times Iceland\u2019s GDP.\u201d).<\/p>\n<\/div>\n

\n

<\/a>[164] Ernst H. Feilchenfeld, Rights and Remedies of Holders of Foreign Bonds<\/em>, in 2 Bonds and Bondholders, Rights and Remedies 130, 170 (Silvester E. Quindry ed., 1934).<\/p>\n<\/div>\n

\n

<\/a>[165] See<\/em> Louise Story, Landon Thomas, Jr. & Nelson D. Schwartz, Wall St. Helped to Mask Debt Fueling Europe\u2019s Crisis<\/em>, N.Y. Times., Feb. 13, 2010, http:\/\/www.nytimes.com\/2010\/02\/14\/business\/global\/14debt.html?pagewanted=1&hp (\u201c[R]ecords and interviews show that with Wall Street\u2019s help, [Greece] engaged in a decade-long effort to skirt European debt limits.\u201d).<\/p>\n<\/div>\n

\n

<\/a>[166] See<\/em> Ioannis Kokkoris, Rodrigo Olivares-Caminal & Kiriakos Papadakis, The Greek Tragedy: is there a Deus ex Machina?<\/em>, in<\/em> Managing Risk in the Financial System 159\u201360 (John Raymond Labrosse, Rodrigo Olivares-Caminal, & Dalvinder Singh, eds., 2011) (\u201cThe biggest challenge that Greece is now facing is how to effectively implement the tough measures required in order to comply with IMF\/EU requirements and more importantly to sustain these measures through the delicate situation of its economy.\u201d).<\/p>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

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