�鶹��Ƶ

Paul, Weiss won a significant court victory for an ad hoc group of holders of defaulted bonds issued by the Venezuelan state-owned oil company Petróleos de Venezuela, S.A., (PDVSA), whose notes were secured by a pledge of 50.1% of the stock of CITGO Holding, an indirect PDVSA subsidiary. Granting a summary judgment motion by our clients and denying a summary judgment motion by PDVSA, U.S. District Judge Katherine Failla of the Southern District of New York affirmed the validity of the notes and the pledge under Venezuelan law. The judgment on the notes will be worth roughly $3 billion.

In 2016, PDVSA issued approximately $3.4 billion of notes maturing in 2020 in exchange for existing notes of PDVSA that were coming due in 2017. At the time, Venezuela’s legislature, the National Assembly, was controlled by the opposition and passed resolutions criticizing the exchange and opening investigations into it. PDVSA made required payments on the new notes in 2017 and 2018. In 2019, the United States declared the reelection of Venezuela’s president Nicolas Maduro was neither free nor fair, and recognized the National Assembly as the only legitimate government. Shortly thereafter, the National Assembly passed a resolution stating that the 2016 exchange transaction was an invalid “national public interest contract” that should have been approved by the National Assembly under the Venezuelan constitution.

PDVSA, under a new board appointed by the National Assembly, defaulted on the notes in October 2019. Two days later, PDVSA commenced an action in the Southern District of New York against the trustee and collateral agent for the notes, asserting that both the notes and the pledge were invalid because, among other reasons, they were “contracts of national interest” that required approval by the National Assembly under the Venezuelan constitution, and because the act of state doctrine required the U.S. courts to defer to the National Assembly’s declarations that the notes were invalid.

In 2020, Judge Failla determined that New York law governed the validity of the notes, the notes and pledge were valid under the law, and the act of state doctrine did not bar resolution of the issues. PDVSA appealed to the Second Circuit, which certified the choice of law question to the New York Court of Appeals and ultimately remanded to the Southern District of New York in 2024 with instructions for the court to determine the validity of the notes under Venezuelan law. The parties briefed the issues extensively, submitting hundreds of pages of briefs and expert opinions on Venezuelan law.

In a carefully reasoned 89-page opinion, Judge Failla again ruled that the notes and pledge were valid. Judge Failla rejected both PDVSA and Venezuela’s interpretation of Venezuelan law, finding that PDVSA’s experts’ opinions on Venezuelan law contradicted their earlier writings on the subject, and that while Venezuela’s views required careful consideration, they could not be squared with her interpretation of binding Venezuelan law. Judge Failla’s decision also came on the last morning of a four-day hearing in Delaware federal court concerning the judicial sale of CITGO Holding’s parent company to satisfy the claims of other creditors, which was paused for over an hour for the parties to consider the implications of the decision.

The Paul, Weiss team includes restructuring partner Andrew Rosenberg and litigation partners Kannon Shanmugam, Jeffrey Recher, Paul Paterson, Daniel Mason and Roberto Gonzalez, and of counsel Walter Rieman; restructuring counsel Karen Zeituni; and corporate partner David Huntington.