Helmerich & Payne Int'l Drilling Co. v. Bolivarian Republic of Venezuela

Decision Date01 May 2015
Docket NumberNos. 13–7169,14–7008.,13–7170,s. 13–7169
Citation784 F.3d 804
PartiesHELMERICH & PAYNE INTERNATIONAL DRILLING CO. and Helmerich & Payne De Venezuela, C.A., Appellees v. BOLIVARIAN REPUBLIC OF VENEZUELA, Appellee. Petroleos De Venezuela, S.A. and PDVSA Petroleo, S.A., Appellants.
CourtU.S. Court of Appeals — District of Columbia Circuit

Mary H. Wimberly argued the cause for appellant/cross-appellee Bolivarian Republic of Venezuela. Joseph D. Pizzurro argued the cause for appellants/cross-appellees Petroleos De Venezuela, S.A. and PDVSA Petroleo, S.A. With them on the briefs were Robert B. Garcia, George E. Spencer, William L. Monts III, and Bruce D. Oakley.

David W. Ogden argued the cause for appellee/cross-appellant Helmerich & Payne De Venezuela, C.A. With him on the briefs were David W. Bowker, Catherine M. Carroll, Elisebeth C. Cook, and Francesco Valentini.

Before GARLAND, Chief Judge, TATEL, Circuit Judge, and SENTELLE, Senior Circuit Judge.

Opinion

Opinion for the Court filed by Circuit Judge TATEL.

Opinion concurring in part and dissenting in part filed by Senior Circuit Judge SENTELLE.

TATEL, Circuit Judge:

The Foreign Sovereign Immunities Act (FSIA) grants foreign states immunity from suit in American courts unless one of several enumerated exceptions applies. In this case, after Venezuela forcibly seized oil rigs belonging to the Venezuelan subsidiary of an American corporation, both the parent and the subsidiary filed suit in the United States asserting jurisdiction under the FSIA's expropriation and commercial activity exceptions. Venezuela moved to dismiss on the ground that neither exception applies. The district court granted the motion as to the subsidiary's expropriation claim, but denied it in all other respects. For the reasons set forth in this opinion, we affirm in part and reverse in part. We agree with the district court that the parent corporation had sufficient rights in its subsidiary's property to support its expropriation claim. But because the subsidiary's expropriation claim is neither “wholly insubstantial” nor “frivolous”—this Circuit's standard for surviving a motion to dismiss in an FSIA case—the district court should have allowed that claim to proceed. And given that the subsidiary's commercial activity had no “direct effect” in the United States, which the FSIA requires to defeat foreign sovereign immunity, the district court should have granted the motion to dismiss with respect to that claim.

I

For more than half a century, Oklahoma-based Helmerich & Payne International Drilling Co. (H & P–IDC) successfully operated an oil-drilling business in Venezuela through a series of subsidiaries. Incorporated under Venezuelan law, the most recent subsidiary, Helmerich & Payne de Venezuela (H & P–V), provided drilling services for the Venezuelan government. Having nationalized its oil industry in the mid–70s, Venezuela now controls exploration, production, and exportation of oil through two state-owned corporations: Petróleos de Venezuela, S.A. (PDVSA) and PDVSA Petróleo, known collectively as PDVSA. From its creation in 1975 through 2010, PDVSA depended on H & P–V's highly valuable and rare drilling rigs because they were capable of reaching depths of more than four miles. Those rigs were originally purchased by H & P–IDC and then transferred to its subsidiary H & P–V. At issue here are ten contracts executed in 2007 between H & P–V and PDVSA, each involving one of these rigs—nine in Venezuela's eastern region and one in the west. The contracts initially covered periods ranging from five months to one year, though all were subsequently extended.

Soon after signing the contracts, PDVSA fell substantially behind in its payments. By August 2008, unpaid invoices totaled $63 million. PDVSA never denied its contractual debt; quite to the contrary, it repeatedly reassured H & P–V that payment would be forthcoming. But no payments were made, and after overdue receivables topped $100 million, H & P–V announced in January 2009 that it would not renew the contracts absent “an improvement in receivable collections.” Compl. ¶ 50 (internal quotation marks omitted). By November of that year, H & P–V had fulfilled all of its contractual obligations, disassembled its drilling rigs, and stacked the equipment in its yards pending payment by PDVSA.

PDVSA made no further payments. Instead, on June 12, 2010, PDVSA employees, assisted by armed soldiers of the Venezuelan National Guard, blockaded H & P–V's premises in western Venezuela, and then did the same to the company's eastern properties on June 13 and 14. PDVSA acknowledged that it erected the blockade to “prevent H & P–V from removing its rigs and other assets from its premises, and to force H & P–V to negotiate new contract terms immediately.” Id. ¶ 63.

In the wake of the blockade, PDVSA issued a series of press releases that are central to H & P–V's expropriation claim. The first, issued on June 23, stated that [t]he Bolivarian Government, through [PDVSA had] nationalized 11 drilling rigs belonging to the company Helmerich & Payne[ ], a U.S. transnational firm.” Id. ¶ 65. A second press release, dated June 25, declared that PDVSA's “workers are guarding the drills” and that:

The nationalization of the oil production drilling rigs from the American contractor H & P not only will result in an increase of oil and gas production in the country, but also in the release of more than 600 workers and the increase of new sources of direct and indirect employment in the hydrocarbon sector.

Id. ¶ 66. The June 25 release also “emphatically reject[ed] statements made by spokesmen of the American empire—traced [sic ] in our country by means of the oligarchy.” Id. ¶ 108 (alterations in original). Another press release, this one undated, stated that the nationalization would “guarantee that the drills will be operated by PDVSA as a company of all Venezuelans, ... ensur [ing] the rights of former employees of H & P, who a year ago were exploited and then dismissed by this American company, but now they will become part of PDVSA.” Id. ¶ 109.

On June 29, more than two weeks after the blockade began, the Venezuelan National Assembly issued an official Bill of Agreement” declaring H & P–V's property to be “of public benefit and good” and recommending that then-President Hugo Chavez promulgate a Decree of Expropriation. Id. ¶ 4. President Chavez issued the decree, which emphasized that “the availability of drilling equipment [such as H & P–V's] is very low both in the country and at world level, and the lack thereof would affect [Venezuela's national oil drilling] Plan.”Id. ¶¶ 4, 19 (alterations in original). The decree directed PDVSA to take “forcible” possession of H & P–V's drilling rigs and other property. Id. ¶ 4. In response, PDVSA, having already taken possession of the property, issued a press release on July 2, which stated that H & P–V's rigs “are specialized drills we need for more complex sites” and “will be very useful.” Id. ¶ 20.

That same day, Jesus Graterol, president of the Venezuelan National Assembly's Committee on Energy and Mines, criticized opponents of the nationalization for acting “in accordance with the instructions of the [U.S.] Department of State” and trying to “subsidize the big business transnational corporations, so that they can promote what they know best to do, which is war ... through the large military industry[ ] of the Empire and its allies.” Id. ¶ 105 (first alteration in original). Rafael Ramirez, Venezuela's Minister of Energy and Petroleum and PDVSA's President, led a political rally at H & P–V's eastern site and declared:

The company Helmerich & Payne has operated in our country for many years. Today, the Revolutionary Government took control over that company. You have been here guarding assets that now belong to the Venezuelan State. I acknowledge and appreciate your constant watch in order to protect the people's interests. Revolutionary salutation: Socialist Nation or Death. We shall be victorious!

Id. ¶ 5 (ellipses omitted). Ramirez also referred to H & P–V as an “American company” with “foreign gentlemen investors” and Venezuelan workers who would now “become part of [PDVSA's] payroll.” Id. As Ramirez predicted, PDVSA now uses H & P–V's rigs and other assets in its state-owned drilling business.

Supposedly to compensate H & P–V for the expropriated property, PDVSA filed two eminent domain actions in Venezuelan courts. H & P–V has yet to receive service of process in the first proceeding, and the second has been stayed indefinitely. Believing that these proceedings are unlikely to result in adequate relief, H & P–V and its American parent, H & P–IDC, filed a two-count complaint under the FSIA in the United States District Court for the District of Columbia. The first count, brought against PDVSA and Venezuela, alleges a taking of property in violation of international law and asserts jurisdiction under the FSIA's expropriation exception. The second count, brought only against PDVSA, alleges breach of the ten drilling contracts and asserts jurisdiction under the statute's commercial activity exception.

Venezuela and PDVSA moved to dismiss on the grounds that neither FSIA exception applies and that the act-of-state doctrine, under which American courts “will not question the validity of public acts (acts jure imperii ) performed by other sovereigns within their own borders,” Republic of Austria v. Altmann, 541 U.S. 677, 700, 124 S.Ct. 2240, 159 L.Ed.2d 1 (2004), bars the suit altogether. Before the district court could decide this motion, the parties filed a joint stipulation in which they agreed to brief four threshold issues:

1. Whether, for purposes of determining if a “taking in violation of international law” has occurred under the FSIA's expropriation exception, H & P–V is a national of Venezuela under international law;
2. Whether H & P–IDC has standing to assert a taking in
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