NEW YORK, June 19 (Reuters) - At a hearing Wednesday afternoon in Manhattan, Argentina's lawyer, Carmine Boccuzzi of Cleary Gottlieb Steen & Hamilton, informed U.S. District Judge Thomas Griesa that Argentine officials "will be in New York next week" in order to begin negotiations with the hedge funds whose bond litigation has forced the country to the brink of a sovereign debt crisis.
The very next morning, at a press briefing, Argentine Cabinet Chief Jorge Capitanich appeared to contradict Cleary's representations to Griesa: "There is no delegation prepared for a possible trip to the United States," he said, according to a Reuters report from Buenos Aires.
Capitanich is the third Argentine official this week whose public comments seem to be at odds with positions the country's lawyers have taken in U.S. courts. Earlier this month, Cleary partner Boccuzzi assured Judge Griesa that Argentina was not making contingency plans to restructure its debt in the event that the U.S. Supreme Court upheld Griesa's orders requiring the country to pay hedge fund holdouts about $1.5 billion at the same time that it makes coupon payments to exchange bondholders that participated in previous restructurings. Argentina also said in a brief to the Supreme Court that it would comply with U.S. court orders.
Yet hours after the Supreme Court declined on Monday to hear Argentina's appeal, Argentine President Cristina Fernandez de Kirchner delivered a speech vowing not to "submit to extortion" by the hedge funds. The following day, Economy Minister Axel Kicillof announced that Argentina is developing a process to pay exchange bondholders without paying the holdouts.
Argentina's lawyers have been careful to couch what they've said in court. At Wednesday's hearing, for example, Boccuzzi said he "had been informed" and that "Argentine authorities have told me" that officials planned to come to New York to negotiate. Boccuzzi also tried to persuade Judge Griesa that Argentine politicians are making political speeches, not legal representations. "Obviously, there is some strong language because (they are) dealing with quite a large problem and situation and trying to deal with it in a way that takes into account all the aspects here," he said.
It's true that Argentine officials have a different audience than their lawyers. It's also true that Argentina's debt crisis can't be definitively resolved in U.S. courts. Griesa's injunctions, which officially took effect Wednesday, bar Argentina from making a scheduled $900 million payment on June 30 to exchange bondholders through the U.S. banks specified in the contracts without also paying the hedge fund holdouts.
If Argentina somehow figures out a way to move the payment mechanism outside of the reach of U.S. courts -- which would likely put the exchange bonds in default -- it will be violating Griesa's orders, based on what the judge said at Wednesday's hearing, and at grave risk of a contempt of court finding and monetary sanctions. If the dispute really reaches that point, perhaps the hedge funds' creative lawyers can propose some other punishment to coerce Argentina into compliance -- though they'd probably face opposition from the U.S. government, which has previously opposed any kind of contempt sanctions against foreign governments. And even sanctions won't help the hedge funds collect Argentine assets protected under the Foreign Sovereign Immunities Act.
For Argentine officials, in other words, the political and economic benefits of defiant public statements may outweigh the risks to their country of contrary statements to U.S. courts. But for Cleary Gottlieb, the risk calculus is quite different. Cleary relies on its reputation and its credibility with U.S. judges. Argentina's pronouncements, at the very least, have put the firm in the awkward position of trying to explain to Judge Griesa why he should disregard the public proclamations of its client. Griesa wasn't persuaded on Wednesday, when he said that the Argentine president's reference Monday to "extortion" was "unfortunate" and "really does not give me confidence in a good faith commitment to pay all of the obligations of the Republic."
NML's lawyers, meanwhile, seem to be angling for Cleary to face consequences more dire than awkwardness. At Wednesday's hearing, NML lawyer Robert Cohen of Dechert came close to accusing the firm of lying to Griesa. "The representations that were made about there being no plan were obviously untrue," Cohen said, in a reference to Cleary's previous assurances to Griesa that Argentina wasn't working on a debt restructuring process designed to evade his orders. "Mr. Boccuzzi and Mr. Blackman stood up and said that in this court. And on the night of the denial, the president goes on national television and announces that plan," Cohen said.
It's also worth pointing out that Gibson, Dunn & Crutcher is counseling NML along with Dechert -- and Gibson Dunn has used attacks on its opponents' lawyers as a successful strategy in other cases, including the environmental litigation against Chevron, the BP Gulf oil spill class action and injury suits against Dole Food for using pesticides. The circumstances in the Argentine bond litigation are different, since Cleary is a renowned defense firm that's typically on the same side as Gibson Dunn, unlike the plaintiffs firms Gibson Dunn tried to discredit in the other cases. But NML's lawyers have proven themselves to be as relentless as the hedge fund's leader, Paul Singer of Elliott Management.
At the hearing Wednesday, Aurelius's lawyer, Edward Friedman of Friedman Kaplan Seiler & Adelman, stopped well short of NML's accusations of Cleary misrepresentations, though he pointed out to Griesa the "contrast between what Mr. Boccuzzi is saying today and the facts that are in the record before your honor and the public record." After the hearing, Aurelius chair Mark Brodsky said, "I have learned not to rely on any assurances Argentina's counsel provide to our courts."
NML and Aurelius representatives declined Reuters' requests for comment on the apparent contradiction between the Argentine cabinet official's comments Thursday and Cleary's representation in court Wednesday that Argentina is sending a delegation to New York to negotiate.
So far, Judge Griesa hasn't shown any doubts about Cleary's credibility. On Wednesday, he ignored Cohen's accusation that Cleary previously made misstatements to the judge, and told Boccuzzi that he had made "a good statement, as always" when Boccuzzi tried to explain away Argentine speeches. The judge hasn't always been so easy-going, though. At a hearing in September 2011, Griesa told Boccuzzi that Argentina has had "the assistance of your law firm" in its resistance "to fulfillment of its obligation."
Lawyers have an ethical duty not to knowingly make misrepresentations to the court, but contradictory statements in a situation like the Argentine debt crisis could reflect changing political calculations. An attorney can request to withdraw from representing a client that is responsible for misrepresentations. There has been no indication that Cleary is contemplating withdrawing from its representation of Argentina or distancing itself from its client.
A Cleary spokeswoman declined to comment on NML's accusations or the apparent contradiction between Wednesday's hearing and Thursday's comments from Argentina.