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NML Capital, Ltd. v. The Republic of Argentina

United States District Court, District of Nevada

March 16, 2015

NML CAPITAL, LTD., Plaintiff,
v.
THE REPUBLIC OF ARGENTINA, Defendant.

ORDER

CAM FERENBACH UNITED STATES MAGISTRATE JUDGE

This matter involves NML Capital, Ltd.’s postjudgment execution proceeding against the Republic of Argentina. Four motions are before the court: Non-Party M.F. Corporate Services’ Motion to Quash (#14[1]), NML’s Counter Motion to Compel (#60), Non-Party Val de Loire’s Motion to Quash (#1), and NML’s Counter Motion to Compel (#10). For the reasons stated below, the parties’ motions are granted in part and denied in part.

BACKGROUND

In 2001, the Republic of Argentina suffered a depression and sovereign-default crisis. The majority of Argentina’s bondholders voluntarily restructured their investments and took a 70% loss. One bondholder refused: NML Capital Ltd. (“NML”). Beginning in 2003, NML commenced eleven collection actions against Argentina in the Southern District of New York. NML argued that its debt- which totals $1.7 billion-should be repaid in full. The court agreed. See EM Ltd. v. Republic of Argentina, 695 F.3d 201, 203 n.1 (2d Cir. 2012) aff’d Republic of Argentina v. NML Capital, Ltd., 134 S.Ct. 2250, 2251 (2014).

To date, Argentina has failed to satisfy NML’s judgments. See, e.g., NML Capital, Ltd. v. Banco Cent. de la Republica Argentina, 652 F.3d 172, 196 (2d Cir. 2011). This has caused NML to travel the globe in search of property owned by Argentina, which NML may attach to execute its judgments. This search brought NML to Las Vegas, Nevada.

NML suspects that former Argentine President Néstor Kirchner and his wife, current President Cristina Fernández de Kirchner, awarded lucrative state-controlled projects to two political insiders, Lázaro Báez and Cristobal López, who embezzled billions of pesos in state funds and laundered the proceeds through Nevada. Because a “thief acquires no title to the property which he steals, ” Robinson v. Goldfield Merger Mines Co., 206 P. 399, 401 (Nev. 1922); Código Penal art. 23, 303 (Arg.), NML commenced this proceeding against Nevada entities that are allegedly controlled by Báez and López and implicated in laundering embezzled assets. The circumstances surrounding the alleged theft are discussed below.

I. The Allegations against Lázaro Báez

In April of 2013, an Argentine journalist named Jorge Lanata initiated an investigation dubbed La Ruta Del Dinero K (i.e., “the K Money Trail”) into the Kirchners, Báez, and the trio’s financial dealings. All three allegedly embezzled billions of pesos from public-infrastructure projects and laundered the proceeds and other embezzled funds through various international shell corporations.

The scheme was allegedly executed in two steps. Weeks before Nestor Kirchner was elected in 2003, Báez founded Austral Construcciones S.A., a construction company that was awarded public-works contracts in Patagonia. In exchange for these lucrative contracts, Báez allegedly funneled a portion of the public funds back to the Kirchners through Báez’s hotel-management company, Valle Mitre S.A. (“Valle Mitre”). Valle Mitre guaranteed that hotels owned by the Kirchners would, on paper, appear at least one-third occupied throughout the year.

These allegations culminated in an official criminal investigation. The lead prosecutor, José María Campagnoli, reported that Báez laundered $65 million in embezzled state funds through Panama and 150 corporations in Nevada. Campagnoli’s report also stated that all 150 Nevada corporations have the same domicile, Las Vegas, Nevada, and the same director, Aldyne, Ltd., a Seychellois corporation. After submitting the report to Argentina’s National Supreme Court of Justice, the Kirchner government retaliated and removed Campagnoli from office.

On August 13, 2013, NML subpoenaed 123 corporations in Las Vegas. It argued that there is reasonable suspicion to believe that the 123 corporations (“the Báez Entities”) are the same 150 corporations referred to in Campagnoli’s report. The court agreed for several reasons. See NML Capital Ltd. v. Republic of Argentina, No. 14-cv-492-RFB-VCF, 2014 WL 3898021 (D. Nev. Aug. 11, 2014).

First, each of the Báez Entities has the same registered agent, M.F. Corporate Services (Nevada), Ltd. (“M.F. Corporate Services” or “MF Nevada”). M.F. Corporate Services is a Nevada corporation with one employee, Patricia Amunategui, one client, the Panamanian law firm, Mossack Fonseca & Co., and one owner, Tornbell Associates, Inc. (“Tornbell”). Tornbell is also a Panamanian company. Its agent is Mossack Fonseca & Co. and its directors are all Mossack Fonseca & Co. employees.

M.F. Corporate Services claims to be Mossack Fonseca & Co.’s Nevada-based independent contractor, used in connection with the law firm’s company-formation practice. This practice provides clients with the opportunity to form corporate entities in various jurisdictions worldwide to reduce their client’s tax and regulatory exposure. Mossack Fonseca & Co. is known for incorporating shell companies and laundering money.[2]

Second, in response to NML’s subpoenas, M.F. Corporate Services produced mirror image operating agreements for seventeen of the Báez Entities. The operating agreements identified M.F. Corporate Services as the registered agent and Aldyne, Ltd., Gairns Ltd., or both as the corporations’ member and director. The addresses for Aldyne and Gairns are identical: Suite 13, First Floor, Oliaji Trade Centre, Francis Rachel Street, Victoria, Mahe, Republic of Seychelles. This address is also shared by Mossack Fonseca & Co.

Third, when NML subpoenaed the Báez Entities, a single individual, Letcia Montoya, spoke on behalf of each entity. Montoya is one of Aldyne, Ltd.’s corporate officers, the custodian of records for most of the Báez Entities, and an attorney with or employee of Mossack Fonseca & Co. Montoya asserted that none of the Báez Entities possess responsive documents-including their own operating agreements-and that none of the Báez Entities reside in or regularly conduct business within 100 miles of Las Vegas. Writing on behalf of Aldyne and Gairns, Montoya later asserted that neither Aldyne nor Gairns are “actually owned by anybody.” (Montoya Letters (#83) at Ex. N & O).

II. The Allegations against Cristobal López

The allegations against López parallel the allegations against Báez. Argentine prosecutors and journalists claim that López improperly acquired lucrative hydrocarbon and gambling concessions from the Kirchner government, which the trio used to defraud the Argentine people and enrich themselves. A web of corporations are implicated in the López scheme: Casino Club, S.A., Hipódromo de Palermo, S.A. (“Hipódromo”), Correón, S.A., Centenary International Corp., and Val de Loire.

Shortly after Néstor Kirchner was elected in 2003, two of López’s companies, Hipódromo and Casino Club, allegedly experienced considerable “economic expansion” and “exorbitant profits.” Hipódromo operates a thoroughbred racetrack in the province of San Isidro. It is part of a joint venture with Casino Club, which owns and operates a chain of casinos and slot machine parlors. Judges Rodolfo Canicoba Corrál and Julián Ercolini commenced investigations into Hipódromo and Casino Club for tax evasion, defrauding the government, and colluding with the Kirchners. They allege, inter alia, that López rigged the slot machines to conceal revenue and evade taxes.

Like Báez, López may have also laundered his ill-gotten gains through Nevada corporations. Documents produced in connection with NML’s postjudgment proceedings and Argentina’s criminal investigations link Hipódromo and Casino Club to another López entity, Val de Loire. Val de Loire is a Nevada company. Its registered agent is M.F. Corporate Services and its manager and authorized representative is a Mossack Fonseca & Co. affiliate, Edmund Ward. Documents obtained by NML memorialize transactions between Val de Loire, Hipódromo, and two Báez Entities, Fintech Holdings and Balmont Holdings.

When NML subpoenaed Val de Loire, Ward submitted an affidavit that parrots the affidavits Montoya executed on behalf of the Báez Entities. Ward contends that no responsive documents exist, Val de Loire never conducted business with Báez, López, or their companies, and Val de Loire has no employees who reside in or regularly conduct business within 100 miles of Las Vegas.

III. The allegations against M.F. Corporate Services

On September 11, 2014, NML deposed M.F. Corporate Services’ sole employee, Patricia Amunategui. She explained that M.F. Corporate Services assists Mossack Fonseca & Co. with its company-formation practice. M.F. Corporate Services creates “on the shelf” corporations that are “ready to go” for Mossack Fonseca & Co.’s clients. She stated that “sometimes [Mossack Fonseca & Co.’s clients] need [a] company in less than 24 hours” and cannot wait “for the Secretary of State to get [the company] incorporated.” (Depo. (#90-1) at 109:17-19).

Ms. Amunategui’s job involves processing paperwork and preparing “corporate kits.” She assembles articles of organization and related documents required for processing by the Secretary of State. After the Secretary of States processes and returns the paperwork that Ms. Amunategui assembled, she sends the documents to one of Mossack Fonseca & Co.’s offices. Mossack Fonseca & Co. then “prepare[s] the rest of the corporate kit to give it to [their client.]” (Id. at 131:8-17).

Ms. Amunategui also testified that (1) Mossack Fonseca & Co. is M.F. Corporate Services’ only client; (2) her employment contract with M.F. Corporate Services was signed by Messrs. Jurgen Mossack and Ramón Fonseca of Mossack Fonseca & Co.; (3) the operative agreement between M.F. Corporate Services and Mossack Fonseca & Co. prohibits M.F. Corporate Services from doing business with other clients absent prior approval by Mossack Fonseca & Co., and (4) Mossack Fonseca & Co. provides M.F. Corporate Services with human-resources and information-technology services.

Ms. Amunategui was asked to interpret the following two provisions from her employment contract with M.F. Corporate Services: (1) “The employer shall direct and control all of the details of the employee’s work and the employee shall report, with respect to her work assignments, to the employer” and (2) “It is understood that the employee shall have all of her communication solely with the employer and its representatives.” (Id. at 53:5-9, 57:7-10). Ms. Amunategui stated that although her employer is M.F. Corporate Services, she receives all of her directions from Iris Vergara in Mossack Fonseca & Co.’s sales department or another sales representative. (Id. at 55:24, 58:1-6). Ms. Amunategui also indicated that she regards Ms. Vergara as M.F. Corporate Services’ representative, even though she is an employee of Mossack Fonseca & Co. who lives and works in Panama.

Mossack Fonseca & Co.’s website advertises Nevada as a jurisdiction in which Mossack Fonseca & Co.’s clients may choose to incorporate. When asked about the website, Ms. Amunategui testified that it refers to the services provided by M.F. Corporate Services. (See Amunategui Depo. (#90-1) at 117).

Indeed, the website advertises “M.F. Corporate Services (Nevada) Limited” as Mossack Fonseca & Co.[3]

IV. The Discovery Disputes

These allegations provide the backdrop for the pending discovery disputes, which arise from three subpoenas: (1) the Amunategui Subpoena, (2) the MF Nevada Subpoena, and (3) the Val De Loire Subpoena.

NML served the Amunategui Subpoena (#14-2) on M.F. Corporate Services’ Custodian of Records. It seeks, inter alia, “[a]ll documents relating to funds or other property transferred either by one of the following entities to another person, or to one of the following [137] entities by another person, since January 1, 2010.” (Doc. #14-2 at 9-12). The 137 entities are the 123 Báez Entities and fourteen additional companies: (1) Westley House, LLC, (2) Eyden Group, LLC, (3) RGS Steel LLC, (4) Itelsa Services, LLC, (5) GD Soccer Management LLC, (6) Cambridge House LLC, (7) Exeter House, LLC, (8) Redford House LLC, (9) T.H.I. - Tower House International LLC, (10) M.P.I. - Mayward Properties International LLC, (11) Fairland International LLC, (12) Rochester International LLC, (13) Westfield International LLC, and (14) Ariona Company LLC. (Compare id. with Appx. A (#1) at 19-21).[4]

NML served the MF Nevada Subpoena (#14-5) on M.F. Corporate Services as “agent” for Mossack Fonseca & Co. It seeks “All Documents Concerning funds or other property transferred either by one of the following [253 companies] to another Person (including any of the following [253] entities), or to one of the following [253 companies] to another Person (including any of the following [253] entities) since January 1, 2010.” (Doc. #14-5 at 10-15). The list of 253 entities includes the 137 entities listed in the Amunategui Subpoena plus an additional 116 entities. The MF Nevada Subpoena also notices Mossack Fonseca & Co.’s Rule 30(b)(6) deposition.

The MF Nevada Subpoena also seeks (1) “All Documents Concerning and Communications between You and/or MF (Nevada), or are hard [sic], and any of the following [27] Persons, ” (2) “Documents sufficient” to identify or describe “any and all beneficial owners of, ” “the business and operations for, ” and “any and all Persons authorized to give instructions on behalf of” two entities (i.e., Amurnung Sa and Cambridge House LLC), and (3) “All Documents Concerning the relationship between You” and M.F. Corporate Services, Aldyne Ltd., Plascot Ltd., Forbest Limited, and Bugloss Holdings, SA. (Id. at ¶ 5 pp. 16-18).

The Val de Loire Subpoena (#1-1) contains sixteen document requests and notices Val De Loire Rule 30(b)(6) deposition. The document requests seek information related to Báez, his family members, and ...


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