The no-holds-barred litigation between the Republic of Argentina and several distressed debt hedge funds that refused to participate in the country's sovereign debt restructurings has thrown a secondary spotlight on Argentina's lawyers from Cleary Gottlieb Steen & Hamilton. As my Reuters colleague Andrew Longstreth reported last month, Cleary has a solid hold on the niche practice of representing countries that can't (or won't) pay their debts, which often puts the firm at odds with resourceful hedge fund adversaries that have obtained judgments against Cleary's sovereign clients. How resourceful? Extremely. You've probably heard about Elliott Capital's seizure of an Argentine naval vessel in Ghana, and, on a less piratical note, of Elliott and Aurelius Capital's shrewd -- and successful -- argument that the pari passu clause in old Argentine debt contracts bars the country from paying bondholders who participated in restructurings before it pays holdouts like them.

Late last month, with the 2nd Circuit Court of Appeals poised to hear arguments on an injunction that would enforce the court's previous ruling on the pari passu clause, the hedge funds took a direct shot at Cleary. Lawyers for Aurelius and the Elliott subsidiary NML Capital filed a motion to compel the law firm to comply with subpoenas demanding information on a supposed plan by Argentina to evade the court order entered by U.S. District Judge Thomas Griesa in November, which effectively enjoined Argentina from making $3 billion in scheduled payments to exchange bondholders without paying hedge fund holdouts. The 2nd Circuit subsequently stayed the injunction, and Argentina made the scheduled payments to exchange bondholders in December, without paying holdouts. But the hedge funds meanwhile claimed that the sovereign is plotting a scheme to continue paying exchange bondholders even if the appeals court eventually upholds the injunction. Lawyers at Dechert (for NML) and Friedman Kaplan Seiler & Adelman (for Aurelius) argued that the funds are entitled to any Cleary materials related to Argentina's "actions or plans, whether or not consummated, to evade or diminish the effect" of Griesa's orders.

Cleary's actions, the hedge funds asserted, implied that the law firm possesses such documents, or, at least, undocumented information about Argentina's plans. According to the brief, when hedge fund lawyers met last month with Argentina counsel Carmine Boccuzzi of Cleary, he said he would send a letter confirming that the firm did not have material covered by the subpoena. But the letter Boccuzzi ended up sending, according to the brief, didn't expressly avow that Cleary has no documents, instead raising attorney-client privilege and other objections to the subpoena. "An inference must be drawn that Argentina is, at a minimum, drawing up plans to violate (Griesa's) orders if they are affirmed, and that Cleary has participated in such efforts," the brief said. Even if the relevant documents were privileged, the hedge funds said, Cleary would have to turn them over under the crime fraud exception, which applies to violations of court orders.

Cleary filed its response Thursday -- and in it the firm said flatly that it does not have any relevant documents. "There is no scheme to 'evade' (Griesa's) order, and accordingly, Cleary Gottlieb is not in possession, custody or control of documents or information concerning any such purported evasion," the brief said. "That fact, which was explained to plaintiffs' counsel during the parties' meet and confer, should have been sufficient to end the matter, but has not."

Moreover, according to Cleary, Griesa doesn't even have jurisdiction over the discovery dispute. Since the 2nd Circuit has agreed to hear Argentina's appeal of Griesa's pari passu injunction, Cleary said, the entire matter is before the appeals court, not the trial judge. And by making their "improper" demand for information from the law firm, Cleary argued the hedge funds had ventured "into an area frowned upon by courts because it raises particular concern for the adversary system and the attorney-client relationship." As Cleary's brief notes, courts rarely grant discovery against one side's lawyers. The hedge funds' "baseless speculation" in this case certainly does not justify their extraordinary demand, the firm said.

Judge Griesa, however, has at least temporary control over enforcement of the hedge fund subpoenas (which were issued to bond trustee Bank of New York Mellon and a gaggle of exchange bondholders, as well as Cleary). That's troubling for Argentina and its lawyers, considering the judge's on-the-record suspicion that the sovereign intends to defy court orders. (I emailed Cleary partner Boccuzzi for comment but didn't hear back.)

The hedge funds are expected to file their response to Argentina early next week, and briefing on Cleary's subpoena should be completed by mid-January.

(Reporting by Alison Frankel)

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