Jiménez v. Palacios

• Decision Date: 02 August 2019
• Docket Number: C.A. No. 2019-0490-KSJM
• Citation: 250 A.3d 814
• Parties: Rodolfo Enrique JIMÉNEZ, Asdrúbal Chavez, Iris Medina, Marcos Rojas, José Alejandro Rojas, and Fernando De Quintal, Plaintiffs/Counterclaim-Defendants, v. Luisa PALACIOS, Edgar Rincón, Fernando Vera, Elio Tortolero, Andrés Padilla, Ángel Olmeta, Javier Troconis, Luis Urdaneta, and Rick Esser, Defendants/Counterclaim-Plaintiffs, and PDV Holding, Inc., CITGO Holding, Inc., and CITGO Petroleum Corporation, Nominal Defendants.
• Court: Court of Chancery of Delaware

250 A.3d 814

Rodolfo Enrique JIMÉNEZ, Asdrúbal Chavez, Iris Medina, Marcos Rojas, José Alejandro Rojas, and Fernando De Quintal, Plaintiffs/Counterclaim-Defendants,

v. Luisa PALACIOS, Edgar Rincón, Fernando Vera, Elio Tortolero, Andrés Padilla, Ángel Olmeta, Javier Troconis, Luis Urdaneta, and Rick Esser, Defendants/Counterclaim-Plaintiffs,andPDV Holding, Inc., CITGO Holding, Inc., and CITGO Petroleum Corporation, Nominal Defendants.

C.A. No. 2019-0490-KSJM

Court of Chancery of Delaware.

Date Submitted: July 23, 2019

Date Decided: August 2, 2019

Revised: August 12, 2019

Daniel B. Rath, Rebecca Butcher, Jennifer L. Cree, LANDIS RATH & COBB LLP, Wilmington, Delaware; Quinn Smith, Katherine J. Sanoja, GST LLP, Miami, Florida; Gary J. Shaw, GST LLP, Washington, D.C.; Counsel for Plaintiffs and Counterclaim-Defendants Rodolfo Enrique Jiménez, Asdrúbal Chavez, Iris Medina, Marcos Rojas, José Alejandro Rojas, and Fernando de Quintal.

Kenneth J. Nachbar, Susan W. Waesco, Alexandra M. Cumings, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Michael J. Gottlieb, Samuel Hall, WILLKIE FARR & GALLAGHER LLP, Washington, D.C.; Tariq Mundiya, Martin L. Seidel, Jonathan D. Waisnor, WILLKIE FARR & GALLAGHER LLP, New York, New York; Counsel for Defendants and Counterclaim-Plaintiffs Luisa Palacios, Edgar Rincón, Fernando Vera, Elio Tortolero, Andrés Padilla, Ángel Olmeta, Javier Troconis, Luis Urdaneta, and Rick Esser.

A. Thompson Bayliss, J. Peter Shindel, Jr., Daniel J. McBride, ABRAMS & BAYLISS LLP, Wilmington, Delaware; José Ignacio Hernández G., Special Attorney General of Venezuela, Washington, D.C.; Counsel for Amicus Curiae the Bolivarian Republic of Venezuela.

McCORMICK, V.C.

In January 2019, after a controversial presidential election, the National Assembly of Venezuela declared the presidency of Nicolás Maduro illegitimate and appointed opposition leader Juan Guaidó as Interim President. In response, the President of the United States officially recognized the Guaidó government as sovereign. After Guaidó assumed office, his government appointed a new board of directors to govern Petróleos de Venezuela, S.A. ("PDVSA"), Venezuela's state-owned oil company. Guaidó's newly appointed directors then reconstituted the boards of directors of the nominal defendants in this action—three Delaware entities directly or indirectly owned by PDVSA.

The plaintiffs served as directors of the nominal defendants before Guaidó took office. They commenced this litigation pursuant to Section 225 of the Delaware General Corporation Law seeking a declaration that they comprise the rightful boards of the nominal defendants. The defendants, who are the directors appointed by Guaidó's PDVSA board, counterclaimed for a competing declaration.

The parties have cross-moved for judgment on the pleadings. They agree that the President of Venezuela has the power to appoint the members of the board of PDVSA and, indirectly, determine the composition of the boards of the nominal defendants. They disagree on who holds the title of President of Venezuela, whether Guaidó's actions successfully reconstituted the PDVSA board, and whether the PDVSA board successfully reconstituted the boards of the nominal defendants.

The outcome turns on two threshold issues that implicate doctrinal expressions of the concept of separation of powers—the political question and act of state doctrines. The political question doctrine requires courts to accept as binding the U.S. President's determination to recognize a foreign government. The act of state doctrine requires courts to assume the validity of an official act of a recognized foreign government performed within its own territory. Applying these doctrines, this decision accepts as binding the U.S. President's recognition of the Guaidó government and assumes the validity of the Guaidó government's appointments to the PDVSA board.

The plaintiffs raise myriad arguments in an effort to complicate this straightforward analysis. They parse the U.S. President's official statement recognizing the Guaidó government, arguing that Guaidó's authority as "interim" President is limited. They pit the internal affairs doctrine against the more potent political question and act of state doctrines, arguing that the former should override the latter. They invoke exceptions to the act of state doctrine, arguing that the Guaidó government lacks jurisdictional indicia of statehood and exceeded its territorial limitations when appointing directors to the PDVSA board. Not one of these arguments persuades, and this decision resolves these issues in favor of the defendants.

But this decision does not reach the ultimate question of who comprises the boards of the nominal defendants. The consents appointing the directors were provided to the plaintiffs as attachments to briefing and are not appropriately considered on a motion for judgment on the pleadings. This decision thus treats the defendants' motion as one for summary judgment and grants the plaintiffs an opportunity to submit an affidavit identifying disputed facts foreclosing summary judgment in the defendants' favor.

I. FACTUAL BACKGROUND

As both sides correctly observe, the Court need not delve into the disputed facts concerning Venezuela's recent political turmoil in order to resolve the discrete legal issues presented by the cross motions. Yet, ignoring those events would cheat future readers of significant context. Thus, for context only, this factual background includes a summary of those events, which are not considered for the purpose of the legal analysis.¹ Otherwise, the facts are drawn from the parties' respective pleadings, documents integral to or incorporated by reference therein,² and judicially noticeable facts.³

A. Recent Political Turmoil in Venezuela

Following the 2013 death of Venezuelan President Hugo Chávez, his political heir Maduro became President of Venezuela. During Maduro's first term, Venezuela's economy spiraled downward, resulting in hyperinflation and a shortage of food and medical supplies. Some blamed Chávez and Maduro's economic policies, including strict price controls. Protests and civil insurrection ensued. Arrests followed.

By late 2015, the opposition coalition had won control of Venezuela's legislative body, the National Assembly. Before the newly elected legislators took office, the National Assembly packed the Supreme Tribunal of Justice ("Supreme Tribunal") with judges reportedly loyal to Maduro. In early 2016, citing election irregularities, the Supreme Tribunal issued a ruling blocking three opposition lawmakers from taking office. The opposition coalition nevertheless swore in the three legislators, claiming the Supreme Tribunal's ruling was designed to strip the opposition of its supermajority in the National Assembly. In response, the Supreme Tribunal declared null and void decisions taken by the National Assembly while the three legislators held their seats. In March 2017, the Supreme Tribunal took over legislative powers from the National Assembly. The United States and other members of the international community condemned this action, prompting the Supreme Tribunal to reverse course in April 2017.

On May 1, 2017, the Maduro regime took a new approach, calling for a National Constituent Assembly ("Constituent Assembly") under Article 347 of the Constitución de la República Bolivariana de Venezuela (the "Venezuelan Constitution"). Members of the international community denounced the move as an unconstitutional effort to concentrate political power, and the opposition coalition boycotted the July elections for the Constituent Assembly. The United States vowed "to take strong and swift actions" against the members of the Maduro regime, whom the U.S. Department of State referred to as the "architects of authoritarianism."⁴ Protests and violence ushered in election results, according to some accounts.

In its first month of existence, the Constituent Assembly reportedly expressed support for Maduro, gave itself the power to legislate, and voted to put opposition leaders on trial for treason. The National Assembly refused to subordinate itself to the Constituent Assembly, resulting in two legislative bodies purporting to govern Venezuela.

Maduro disqualified the opposition parties from participating in the 2018 Presidential election, which he then claimed to win.

Amid a collapsing economy and growing humanitarian crisis, Maduro was sworn in for a second term as President of Venezuela on January 10, 2019. The National Assembly declared Maduro's presidency illegitimate on January 15, 2019. Invoking Article 233 of the Venezuelan Constitution, the National Assembly's president, Juan Guaidó, was named the Interim President of Venezuela on January 23, 2019.

B. PDVSA and the CITGO Entities

Although Venezuela's economy struggles, Venezuela's government lays claim to the largest proven oil reserves in the world. PDVSA is a Venezuelan company formed in 1975 by the President of Venezuela. Venezuela owns PDVSA, which indirectly owns CITGO Petroleum Corporation ("CITGO Petroleum"), a Delaware corporation headquartered in Houston and one of the largest operating petroleum refiners in the United States.

PDVSA owns CITGO Petroleum through two other Delaware corporations, PDV Holding, Inc. and CITGO Holding, Inc. (with CITGO Petroleum and PDV Holding, the "CITGO Entities"). Venezuela is the sole stockholder of PDVSA, PDVSA is the sole stockholder of PDV Holding,⁵ PDV Holding is the sole stockholder of CITGO Holding, and CITGO Holding is the sole stockholder of CITGO Petroleum.

Historically, the President of Venezuela had the power to appoint the members of the board of directors of PDVSA by decree.⁶ Maduro last exercised that authority in October 2018.⁷

C. The United States Recognizes the Guaidó Government.

The same day that Guaidó became the Interim President of Venezuela, the United States and a number of other countries recognized the Guaidó government. In a public...