New York federal courts have rattled nerves around the globe with recent decisions that impact far beyond US borders. Last month, an Eastern District jury verdict found a Jordanian bank responsible for terrorist financing. Meanwhile, over in the Southern District, Judge Griesa is working to force Argentina into a settlement with so-called “vulture funds” that have rejected that country’s debt restructuring offers. These laws have never been successfully adjudicated before, but the judges in each case dismissed arguments of the Obama administration that caution should prevail. In particular, the administration claimed that the way the judges interpreted the law risked damaging US foreign policy interests and economic stability. Both cases raise questions about how the judges catapulted themselves into these diplomatic roles and if there is any way to contain them.
In the Jordanian case, a jury determined that the Arab Bank was liable for transferring payments on behalf of suicide bombers that killed US civilians in Israel. The damages awarded could reach into the billions. The Bank claimed innocence, but was unable to provide evidence in its defence due to bank secrecy laws of the countries where it operates. Judge Gershon gave no weight to the Bank’s obligations under foreign law, and instructed the jury to presume the Bank guilty. In essence, Gershon made the Bank choose between defending itself in US courts and honouring its obligations under other countries’ laws.
In the Argentina case, Griesa ruled that Argentina is contractually obligated to give equal treatment to all holders of its bonds – which were issued under New York law. Argentina argued that it was legally required to pay the main class of bondholders and that the country had complied with the law by giving all of its bondholders an equal opportunity to participate in a 2005 debt exchange. This didn’t convince the judge, who has held Argentina in contempt and issued a series of patchwork injunctions blocking – and then selectively unblocking – New York banks from making payments on Argentina’s behalf until a deal is reached.
While the judges claim to be applying the plain text of statutes and contracts, the Obama administration has a different perspective. In a friend of the court brief in the Arab Bank case, Obama’s Solicitor General criticised the severity of Gershon’s sanctions, lauded the bank and the Jordanian government as valuable partners in terrorism investigations and predicted harm to the Jordanian economy. In the Argentina case, the Solicitor General warned that siding with the “vulture funds” could make sovereign debt workouts more difficult and might harm New York’s financial industry by leading countries to issue their debt elsewhere.
Despite these warnings, there seems to be little appetite from the presidency, Congress or the Supreme Court to override the New York decisions. That does not leave Jordan and Argentina without options, however.
During the 1990s, the US joined the World Trade Organization and signed bilateral investment treaties with both Argentina and Jordan. These agreements contain a raft of obligations that bind the judicial branch just as much as the rest of government. For example, courts cannot impede the free flow of capital to foreign financial firms. These agreements also block the US from treating foreign investors and companies in an arbitrary or discriminatory fashion. Argentina, Jordan – or indeed firms based in these countries – should have little difficulty making the case that the New York decisions violate these standards, given their break with past governmental practice at home and abroad. They could even cut-and-paste from the administration’s own briefs in making their case.
The case for tighter controls
In the longer term, US policymakers should examine whether tighter controls on US judges are needed in cases involving international sensitivities. The Constitution tasks the president with foreign policy power for a reason. The Jordan and Argentina cases have shown that nuanced consideration of policy implications is not a skill that comes automatically to judges. Just as officials created the Foreign Intelligence Surveillance Court so that the presidency would not have the final say on the legality of its own wiretaps, the president needs to ensure that judges do not exert unchecked authority over foreign policy issues. Congress could pass laws requiring judges to give commanding weight to Solicitor General opinions, or even create a device to remove cases from the court system and put them in the diplomatic pipeline.
Without such reforms, the foreign policy positions of judicial nominees must be scrutinised by Congress and the public. If nominees are unwilling to carefully consider trade and foreign policy blowback from their decisions, they should not be elevated to such sensitive diplomatic positions as modern judgeships.