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The U.S. Supreme Court on Monday refused to review Argentina’s petition challenging a Second Circuit ruling that requires the country to hand over reversionary interests in collateral tied to $400 million in defaulted sovereign bonds.

The case centers on Argentina's 2001 default on bonds issued in 1994 under the Brady Plan, a U.S.-backed debt-relief initiative. The Second Circuit ruled in August 2024 that these reversionary interests in collateral, including U.S. Treasury bonds and Deutsche Mark bonds, fall under the Foreign Sovereign Immunities Act (FSIA) commercial activity exception because Argentina had used them in U.S. commercial activity.

Argentina's Petition Rejected

Argentina petitioned the Supreme Court in December, arguing that the Second Circuit erred by applying New York state law to determine the location of the reversionary interests, rather than a federal standard. The country warned that the decision could lead to inconsistent outcomes across states.

"The Second Circuit’s approach would mean, contrary to the FSIA’s command of uniformity, that the same property would be subject to execution in some states but not others," Argentina argued.

The petition also disputed the Second Circuit’s conclusion that the collateral was used for commercial purposes in the U.S. Argentina claimed its interests in the Deutsche Mark bonds were unrelated to U.S. activity, stating, "The republic has never used any interest it holds in the collateral in commercial activity in the United States."

Long-Running Litigation

The dispute originated after Argentina defaulted on $400 million in bond payments. Bondholders sought to recover collateral assets tied to Brady Plan bonds, which matured in March 2023. These bonds were secured by zero-coupon U.S. Treasury bonds and Deutsche Mark bonds, with collateral held in the New York Federal Reserve and European banks.

In 2023, U.S. District Judge Loretta A. Preska ordered Argentina to turn over reversionary interests in the collateral. Argentina appealed, arguing that the interests belonged to the country’s central bank, Banco Central de la República Argentina, and that FSIA immunity applied since some collateral was located outside the U.S.

The Second Circuit rejected these defenses, affirming that Argentina owned the reversionary interests and that the FSIA commercial activity exception applied.

Implications of the Supreme Court’s Denial

By declining to hear the case, the Supreme Court leaves the Second Circuit's ruling intact, clearing the way for bondholders to claim the collateral interests. Argentina’s rejection of the decision underscores the potential for further international disputes over sovereign immunity and the scope of U.S. courts’ jurisdiction.

Bondholders are represented by attorneys from Quinn Emanuel Urquhart & Sullivan LLP, while Argentina is represented by Cleary Gottlieb Steen & Hamilton LLP.