Koch Minerals Sàrl v. Bolivarian Republic of Venez.

• Decision Date: 23 December 2020
• Docket Number: Civil Action No. 17-cv-2559-ZMF
• Citation: 514 F.Supp.3d 20
• Court: U.S. District Court — District of Columbia
• Parties: KOCH MINERALS SÀRL, et al., Plaintiffs, v. BOLIVARIAN REPUBLIC OF VENEZUELA, Defendant.

514 F.Supp.3d 20

KOCH MINERALS SÀRL, et al., Plaintiffs,

v.BOLIVARIAN REPUBLIC OF VENEZUELA, Defendant.

Civil Action No. 17-cv-2559-ZMF

United States District Court, District of Columbia.

Signed December 23, 2020

Alexander A. Yanos, Pro Hac Vice, Carlos Ramos-Mrosovsky, Rajat Rana, Alston & Bird LLP, New York, NY, Kristen K. Bromberek, Pro Hac Vice, Matthew D. Richardson, Pro Hac Vice, Alston & Bird, L.L.P., Atlanta, GA, for Plaintiffs.

Joseph Dominic Pizzurro, Kevin Arthur Meehan, Curtis, Mallet-Prevost, Colt & Mosle LLP, Washington, DC, for Defendant.

MEMORANDUM OPINION

ZIA M. FARUQUI, UNITED STATES MAGISTRATE JUDGE

Plaintiffs, Koch Minerals Sàrl ("Koch Minerals") and Koch Nitrogen International Sàrl ("Koch Nitrogen"), filed this suit against Defendant, the Bolivarian Republic of Venezuela ("Venezuela"), seeking recognition of and judgment on an arbitral award issued by the International Centre for Settlement of Investment Disputes ("ICSID"). See ECF No. 7 (Am. Compl.), ¶¶ 1, 8. The clerk entered default after Venezuela did not appear more than a year after they received service. See ECF No. 21-1 (Pls.’ Aff. for Default), ¶ 11; ECF No. 24 (Clerk's Entry of Default). Plaintiffs promptly moved for default judgment. See ECF No. 25. A few months later, Venezuela made its first appearance, filing a Motion to Set Aside the Entry of Default and to Dismiss. See ECF No. 30. The Court now grants Venezuela's Motion to Set Aside Default but denies its Motion to Dismiss. Having set aside default, the Court also denies Plaintiffs’ Motion for Default Judgment as moot.

I. BACKGROUND

A. Factual Background

1. Arbitration Dispute and Award

The parties’ dispute arose on October 10, 2010, when then-President of Venezuela, Hugo Chavez, took control of FertiNitro—a company in which both Plaintiffs, Koch Minerals and Koch Nitrogen, had financial interests. See Am. Compl, ¶13; id. , Exh. 1 (Int'l Ctr. for Settlement of Investment Disputes Award), ¶¶ 5.1, 5.4 ("ICSID Award"). Plaintiffs claimed that, by taking control of FertiNitro, the Venezuelan government expropriated Koch Mineral's 25% equity interest in the company and interfered with an existing contract between the company and Koch Nitrogen. See id. , ¶¶ 5.1, 5.4, 5.60. Plaintiffs further claimed that they never received any compensation for the expropriation of FertiNitro's assets. See id. , ¶¶ 5.4, 7.4, 7.5.

Attempting to resolve these disputes, Plaintiffs filed a request for arbitration under the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (the "ICSID Convention"). See id. , ¶ 5.73. That Convention created the ICSID to "provide facilities for conciliation and arbitration of investment disputes between Contracting States and nationals of other Contracting States." ICSID Convention, art. 1, Oct. 14, 1966, 17 U.S.T. 1270, 575 U.N.T.S. 159. After completing arbitration, the ICSID found that Venezuela was liable and awarded Koch Minerals $140.25 million and Koch Nitrogen $184.8 million. See ICSID Award, ¶¶ 10.3,12.3, 12.4.¹

After the ICSID issued its decision, Plaintiffs filed this suit seeking to enforce the award under 22 U.S.C. § 1650a(a), which provides that,

An award of an arbitral tribunal rendered pursuant to chapter IV of the [ICSID C]onvention shall create a right arising under a treaty of the United States. The pecuniary obligations imposed by such an award shall be enforced and shall be given the same full faith and credit as if the award were a final judgment of a court of general jurisdiction of one of the several States.

If awarded a judgment by this Court, Plaintiffs plan to seek attachment to the only significant assets Venezuela has left in the United States. See ECF No. 39 (Pls.’ Mot. for Status Conference), ¶¶ 2–7. Those assets consist of shares held by Petróleos de Venezuela ("PdVSA")—a Venezuelan-owned oil company—in a Delaware holding company—PDV Holding, Inc. ("PDVH"). See id. Those assets are currently the subject of ongoing litigation in the U.S. District Court for the District of Delaware. See Crystallex Int'l Corp. v. PDV Holding Inc. , No. 15-cv-1082, 2019 WL 6785504, at *1, 3 (D. Del. Dec. 12, 2019) (the " Delaware Litigation"). Several Venezuelan creditors are seeking to satisfy Venezuela's debts by auctioning off PdVSA's shares in PDVH. See id.

These assets, however, are subject to economic sanctions as part of the broader Venezuela Sanctions Regulations. See Exec. Order No. 13,850 § 1(a), 83 Fed. Reg. 55243 (Nov. 1, 2018) (blocking certain Venezuelan assets located in the United States); Press Release, U.S. Dep't of Treasury, Treasury Sanctions Venezuela's State-Owned Oil Company Petroleos de Venezuela, S.A. , (Jan. 28, 2019), available at https://home.treasury.gov/news/press-releases/sm594.

Under these sanctions, any creditor wishing to satisfy a debt owed to them by Venezuela must first obtain a license from the United States Treasury Department's Office of Foreign Asset Control ("OFAC"). See 31 C.F.R. § 591.407 ; Crystallex Int'l Corp. , 2019 WL 6785504, at *3.

After Plaintiffs filed this action but before making an appearance, Venezuela petitioned the ICSID to annul the Arbitration Award. See ECF No. 25 (Pls.’ Mot. for Default J.), Exh. 3 (ICSID Annulment Procedural Order No. 1), ¶ 1. By applying to annul the award, Venezuela triggered an automatic, provisional stay that prevented the parties from enforcing the award until the annulment dispute was settled. See id. , ¶ 3; ECF No. 43 (Joint Status Report, Nov. 6, 2020), Exh. 1 (ICSID Case Details) at 9; Def.’s Mot. Set Aside Default & MTD at 8. That stay, however, was lifted on April 1, 2019, after Venezuela failed to post the required security. See ICSID Annulment Procedural Order No. 1, ¶¶ 6, 8, 29, 32, 34. Shortly after the stay was lifted, Plaintiffs moved for an entry of default and filed their motion for default judgment. See Pls.’ Aff. for Default; Pls.’ Mot. Default. J.

The details surrounding the annulment petition are hazy. To clear the air, the Court ordered the parties to file a joint report regarding the current status of the proceedings. See Minute Order (Nov. 3, 2020). Although the ICSID has issued several new procedural orders since lifting the stay in April 2019, neither party attached these orders to their joint report. See Joint Status Report (Nov. 6, 2020); ICSID Case Details at 10. In fact, Venezuela maintains that it has "no knowledge of the annulment proceedings" and claims that the illegitimate government—run by Nicolás Maduro—continues to represent Venezuela before the ICSID. Joint Status Report (Nov. 6, 2020) at 2. It appears that Venezuela posted the required security on October 14, 2019, see ICSID Case Details at 9; however, the parties have not explicitly stated whether the stay was reimplemented. See Joint Status Report (Nov. 6, 2020). The annulment petition is now being briefed before a three-member ICSID panel. See id. at 1. A hearing is set for July 17–18, 2021. See id.

2. Political Restructuring in Venezuela

As this litigation was unfolding, Venezuela was undergoing significant political restructuring. On January 10, 2019, President Maduro's term ended, but he attempted to remain in power by claiming victory in a widely discredited 2018 election. See U.S. Dep't of State, 2019 Country Reports on Human Rights Practices: Venezuela , at 1, available at https://www.state.gov/wp-content/uploads/2020/03/VENEZUELA-2019-HUMAN-RIGHTS-REPORT.pdf. Venezuela's National Assembly rejected the Maduro regime's attempt to stay in power. See id. On January 23, 2019, the Assembly named Juan Guaidó the interim president of Venezuela. See id. The United States has since recognized Interim President Guaidó. See Press Release, The White House, Statement from President Donald J. Trump Recognizing Venezuelan National Assembly President Juan Guaido as the Interim President of Venezuela (Jan. 23, 2019), available at https://www.whitehouse.gov/briefings-statements/statement-president-donald-j-trump-recognizing-venezuelan-national-assembly-president-juan-guaido-interim-president-venezuela/ ("Press Release Recognizing Guaidó"). Several months later the National Assembly passed a resolution appointing a new Attorney General and giving him the power to represent Venezuela in all pending lawsuits against it. See ECF No. 30 (Def.’s Mot. to Set Aside Default and Mot. to Dismiss), Exh. 2 (Venezuela National Assembly Resolution, Mar. 19, 2019) at 3. This Circuit has since ruled that officials of Maduro's regime cannot represent Venezuela in U.S. courts. See Order, Rusoro Mining Ltd. v. Bolivarian Republic of Venezuela , No. 18-7044, Doc. No. 1785518 (D.C. Cir. May 1, 2019). In this suit, counsel for Venezuela represents the Guaidó government. See ECF No. 33 (Def.’s Reply) at 9.

B. Procedural Background

Plaintiffs filed their Complaint on November 28, 2017, see ECF No. 1, and their Amended Complaint on May 23, 2018, see Am. Compl. Well over a year after Plaintiffs delivered the initial Complaint, Venezuela had yet to appear. See Pls.’ Aff. for Default, ¶¶ 5, 12. Plaintiffs thus requested an entry of default, see id. , which the clerk entered on May 14, 2019, see Clerk's Entry of Default. Plaintiffs moved for default judgment shortly thereafter. See Pls.’ Mot. for Default J. Venezuela's hibernation ended just four days before the Court was to have a hearing on the motion. See Minute Order (Aug. 5, 2019). In its first appearance, Venezuela contested the entry of default and moved to dismiss the suit. See id. ; Def.’s Mot. Set Aside Default & MTD. In subsequent pleadings, it objected to magistrate judge jurisdiction. See ECF No. 34 (Joint Status Report, Aug. 27, 2019) at 2.

1. Service of Process

After filing their complaint, Plaintiffs delivered signed USM–94 Forms² —including all of the required pages and two copies of the complaint and summons in both English and Spanish—via FedEx courier to Venezuela's Ministry of People's Power of Foreign Affairs Office of...