February 23, 2024
On February 20, Willkie secured a crucial victory in the New York Court of Appeals for PDV Holding, Inc. (PDVH), a CITGO U.S. holding company, along with Petrόleos de Venezuela S.A. (PDVSA), and PDVSA Petrόleo, S.A., which were represented by co-counsel Paul Hastings (the PDVSA Parties). The court ruled that Venezuelan law rather than New York state law governs the validity of bonds issued by PDVSA—which are valued at more than $1.9 billion and implicate ownership of a controlling share in the parent company of U.S.-based refiner CITGO Petroleum Corporation (CITGO)— in the dispute involving an alleged violation of the Venezuelan constitution.
In 2017, Venezuela’s state-owned oil company PDVSA, at the behest of Nicolás Maduro, purportedly issued bonds (the 2020 Notes) as part of an exchange offer to avoid defaulting on bonds coming due. To entice existing bondholders to enter the transaction, PDVSA sought to secure the 2020 Notes with a pledge of 50.1% of PDVH’s shares of its wholly owned subsidiary CITGO Holding, Inc., which in turn wholly owns CITGO. However, under Article 150 of the Venezuelan Constitution, Venezuela’s legislature, the National Assembly, must approve “national public interest contracts” prior to execution. The opposition-controlled and U.S.-recognized National Assembly never approved the issuance of the 2020 Notes. After the U.S. Government deemed the Maduro regime illegitimate in 2019, the opposition-controlled PDVSA defaulted on the invalid bonds.
In October 2019, the PDVSA parties filed a declaratory judgment action in the Southern District of New York seeking a judgment that the 2020 Notes were invalid, illegal, null and void ab initio. The bondholders filed counterclaims and SDNY ultimately granted summary judgment in favor of the bondholders. On appeal, the PDVSA parties argued that the act of state doctrine required that U.S. courts defer to the official action taken by the National Assembly in rejecting the issuance of the bonds, and further that Venezuelan law applied to the question of the bonds’ validity. In October 2022, after oral argument, the Second Circuit issued its decision declining to rule on the act-of-state question and certifying questions to the New York Court of Appeals regarding whether a determination of the validity of the 2020 Notes is a question of New York or Venezuelan law.
In this most recent ruling, the New York Court of Appeals agrees with the PDVSA Parties that New York’s UCC provisions require the application of Venezuelan law. The ruling sets forth an avenue for the PDVSA Parties to argue that Venezuela’s constitutional prerequisites render the bonds invalidly issued, as well as to reassert applicability of act of state deference to the National Assembly’s preemptive rejection of the bonds. With this key ruling in place, the case now returns to the Second Circuit, which will consider the New York Court of Appeals’ decision in determining whether to reverse the lower court’s summary judgment ruling. The decision is also important for the ongoing litigation concerning the ownership of a controlling share in CITGO’s parent company.
The Willkie litigation team consists of partners Michael Gottlieb, Jeffrey Korn, Nicholas Reddick, and Kristin Bender, and associates Melissa Taustine, Amanda Payne, Tim Ryan, and Dylan Evans.
In 2017, Venezuela’s state-owned oil company PDVSA, at the behest of Nicolás Maduro, purportedly issued bonds (the 2020 Notes) as part of an exchange offer to avoid defaulting on bonds coming due. To entice existing bondholders to enter the transaction, PDVSA sought to secure the 2020 Notes with a pledge of 50.1% of PDVH’s shares of its wholly owned subsidiary CITGO Holding, Inc., which in turn wholly owns CITGO. However, under Article 150 of the Venezuelan Constitution, Venezuela’s legislature, the National Assembly, must approve “national public interest contracts” prior to execution. The opposition-controlled and U.S.-recognized National Assembly never approved the issuance of the 2020 Notes. After the U.S. Government deemed the Maduro regime illegitimate in 2019, the opposition-controlled PDVSA defaulted on the invalid bonds.
In October 2019, the PDVSA parties filed a declaratory judgment action in the Southern District of New York seeking a judgment that the 2020 Notes were invalid, illegal, null and void ab initio. The bondholders filed counterclaims and SDNY ultimately granted summary judgment in favor of the bondholders. On appeal, the PDVSA parties argued that the act of state doctrine required that U.S. courts defer to the official action taken by the National Assembly in rejecting the issuance of the bonds, and further that Venezuelan law applied to the question of the bonds’ validity. In October 2022, after oral argument, the Second Circuit issued its decision declining to rule on the act-of-state question and certifying questions to the New York Court of Appeals regarding whether a determination of the validity of the 2020 Notes is a question of New York or Venezuelan law.
In this most recent ruling, the New York Court of Appeals agrees with the PDVSA Parties that New York’s UCC provisions require the application of Venezuelan law. The ruling sets forth an avenue for the PDVSA Parties to argue that Venezuela’s constitutional prerequisites render the bonds invalidly issued, as well as to reassert applicability of act of state deference to the National Assembly’s preemptive rejection of the bonds. With this key ruling in place, the case now returns to the Second Circuit, which will consider the New York Court of Appeals’ decision in determining whether to reverse the lower court’s summary judgment ruling. The decision is also important for the ongoing litigation concerning the ownership of a controlling share in CITGO’s parent company.
The Willkie litigation team consists of partners Michael Gottlieb, Jeffrey Korn, Nicholas Reddick, and Kristin Bender, and associates Melissa Taustine, Amanda Payne, Tim Ryan, and Dylan Evans.
