DRFP L.L.C. v. De Venezuela, Case No. 2:04-cv-0793

Decision Date22 July 2016
Docket NumberCase No. 2:04-cv-0793
PartiesDRFP L.L.C., d/b/a SKYE VENTURES, Plaintiff, v. REPÚBLICA BOLIVARIANA DE VENEZUELA, et. al., Defendants.
CourtU.S. District Court — Southern District of Ohio

CHIEF JUDGE EDMUND A. SARGUS, JR.

Magistrate Judge Terence P. Kemp

OPINION & ORDER

This case comes before the Court on a claim for recovery on promissory notes. Plaintiff contends that Defendants have defaulted on valid debt obligations. For the reasons stated below, the Court finds that the notes are fraudulent. The Court also finds that Plaintiff's alternative arguments raised in favor of enforceability of the notes are without merit.

I. Executive Summary

In this case, Plaintiff DRFP L.L.C. d/b/a Skye Ventures, brings suit to recover on a pair of paper promissory notes, each with a face value of $50 million. Plaintiff asserts that a Venezuelan bank issued the notes in 1981. After the notes were issued, the bank was liquidated and the government of Venezuela took over the lion's share of its debt obligations. As a result, Plaintiff brings suit against Defendants the Republic of Venezuela, and its Ministry of Finance. Defendants maintain that the notes are fraudulent and no legal theory proffered by the Plaintiff can cure that defect. In 2003, the Ministry of Finance performed an investigation into the validity of purported notes issued by the bank. As a result of the investigation and a subsequently issued report, the Attorney General of Venezuela issued a legal opinion finding in favor of paying out monetary claims on the notes. The opinion was later disavowed, but Plaintiff maintains that it had "binding" preclusive effect under both United States and Venezuelan law.

For all the reasons set forth hereafter, the Court draws the following findings of fact and conclusions of law. First, the notes are fraudulent, although the facts do not demonstrate that the plaintiff was involved in the fraud. The bank in question never issued the debt and received no consideration for it. That being the case, Plaintiff has a heavy burden to bear in convincing the Court that a party that did not issue notes and did not receive consideration for them should nevertheless be responsible for the debt. Plaintiff makes several alternative arguments as to why that should be the case and the Court addresses each in turn. Second, the Attorney General's opinion does not cure the fraud. It may have been "binding," but it was reevaluated and disavowed. Nothing in Venezuelan law precluded a reevaluation or holds the Defendants to paying out on the fraudulent debt. Third, the Attorney General's opinion did not ratify the fraudulent debt, creating a legal obligation to pay. Fourth, Plaintiff did not reasonably rely on the Attorney General's opinion in a manner in which Defendants are estopped from nonpayment. Fifth, Plaintiff knew or had reason to know that the debt was unpaid and disavowed when it purchased the notes, and therefore, does not qualify as a holder in due course.

Based on the foregoing, Plaintiff's claim is denied and the Court enters judgment in favor of the Defendants.

II. Background
A. Factual Background

Prior to the resolution of this case, the Court issued Orders providing detailed accounts of the factual background. See e.g. DRFP, LLC, v. República Bolivariana de Venezuela, 945 F. Supp. 2d 890 (S.D. Ohio 2013); DRFP L.L.C. v. República Bolivariana de Venezuela, No. 2:04-cv-0793, 2015 WL 9302841 (S.D. Ohio Dec. 18, 2015). The following brief summary of the case's pre-trial history provides context for the post-trial facts and legal conclusions below.

This lawsuit is an action to recover on a pair of paper promissory notes with face values of $50 million each to the bearer, the legitimacy of which are in dispute. Plaintiff DRFP L.L.C. d/b/a Skye Ventures ("Plaintiff" or "Skye"), is a Columbus based limited liability company formed as an investment vehicle in August 2003. Plaintiff maintains that, in December 1981, Banco Desarrollo Agropecuario SA ("Bandagro"), a Venezuelan financial institution established pursuant to the laws of the Republic, issued a series of bearer promissory notes, including the two notes at issue in this case (the "Notes"). (Sec. Am. Compl. ¶¶ 6-7; ECF No. 301). According to Plaintiff, Bandagro issued the bearer promissory notes for the purpose of funding economic development programs in Venezuela and traded the Bandagro notes on the international financial market. (Id. at ¶¶ 9-10).

The Notes state that they are guaranteed by the Venezuelan government and have a face value of $50,000,000.00 (US) each. Trial Exs. P-1; P-2. The Notes further provide that they are governed by the regulations of the International Chamber of Commerce as well as the United States Council of the International Chamber of Commerce Brochure 322. Id. It is undisputed that, since the date of issuance on the Notes, Bandagro ceased operations and is currently defunct.

Plaintiff asserts that, before May 2002, certain holders of the Bandagro notes requested payment. (Sec. Am. Compl. at ¶ 18). Such requests prompted the Venezuelan Minister of Finance to investigate the legitimacy of the Bandagro notes. (Id. at ¶¶ 18-21).

According to Plaintiff, as part of the investigation, a visual inspection of the Notes at issue in this case was performed in the United States. (Id. at ¶ 21). Plaintiff maintains thatfollowing a four-month investigation, the Ministry of Finance's Office of Legal Counsel issued a report concluding that the holders of the Notes had legitimate rights to payment. (Id. at ¶ 22). Plaintiff asserts that based on these findings, Venezuelan Attorney General Marisol Plaza issued an opinion on October 3, 2003, stating that the Notes were valid and that Venezuela was obligated to pay them. (Id. at ¶ 25). Plaintiff contends that on approximately October 17, 2003, the Minister of Finance distributed copies of the Attorney General's opinion to the holder of the Notes. (Id. at ¶ 26).

Plaintiff asserts that it acquired the Notes from Gruppo Triad-FCC SPA ("Gruppo Triad"), a Panamanian corporation. (Id. at ¶ 14). Plaintiff maintains that, prior to purchasing the Notes, it received a copy of the Attorney General's October 3, 2003 opinion. (Id. at ¶ 26). Plaintiff contends that, in purchasing the Notes, it relied on the Attorney General's October 3, 2003 opinion. (Id. ¶ 29). Plaintiff further contends that on August 11, 2004, it demanded—from Columbus, Ohio—that Defendants make payment on the Notes by depositing funds in a Columbus, Ohio financial institution. (Id. at ¶ 32). Defendants have refused to pay on the Notes. (See id. at ¶ 33).

Defendants maintain that the Notes in question are part of a series of well-known forgeries. Specifically challenged is the conduct of James Paolo Pavanelli ("Pavanelli"), the CEO and President of Gruppo Triad. Defendants submit that even before Plaintiff acquired the Notes, Pavenelli had already been convicted twice—in England and Italy—for trading in false Bandagro notes. Moreover, Defendants stress that, since 1981, Venezuelan government officials have conducted numerous investigations into the validity of Bandagro notes. According to Defendants, these investigations have revealed that the Bandagro notes are forgeries. Additionally, Defendants provide that Venezuela had issued several alerts warning the publicthat such notes are invalid. Defendants submit that the individuals who purportedly signed the Notes have testified that they never signed such documents. Finally, Defendants posit that multiple investigations independent from Venezuela have also determined that the Bandagro notes are forgeries.

Defendants further challenge Plaintiff's reliance on the October 2003 opinion of the Attorney General. Defendants emphasize that the Attorney General withdrew this opinion shortly after finding that government officials had overlooked evidence. Defendants also contend that in December 2003, following further investigation by both the Attorney General and Ministry of Finance, the Attorney General issued a new opinion finding the Notes invalid. Moreover, Defendants stress that in July 2007, the Venezuelan Supreme Court issued an interpretative opinion finding that the Attorney General's October 2003 opinion was consultive in nature, as opposed to binding, and did not create private individual rights.

B. Procedural History

Plaintiff originally filed this cause of action on August 23, 2004, bringing a single cause of action for default on the Notes. (See Compl., ECF No. 1). On January 31, 2005, Defendants moved for dismissal based on a lack of subject matter jurisdiction in light of sovereign immunity under FSIA; lack of personal jurisdiction; preclusion under the act of state doctrine; forum non conveniens; and failure to state a claim. (See ECF Nos. 13, 14). On June 7, 2007, Defendants filed a supplement to their original Motion to Dismiss urging that the Court to first consider the issues of sovereign immunity and forum non conveniens. (ECF No. 106).

On February 13, 2009, the Court, through United States District Judge John D. Holschuh, now deceased, issued an Opinion and Order denying Defendants' Motion to Dismiss on the grounds of subject matter jurisdiction and forum non conveniens. The Court held that itpossessed subject matter jurisdiction pursuant to FSIA's commercial activity exception. Additionally, the Court concluded that Venezuela was not an available forum because the Venezuelan Supreme Court's 2007 decision "would not permit litigation of one of the essential issues of Plaintiff's complaint." (Opinion & Order 20, ECF No. 144).

Plaintiff filed an Amended Complaint on March 2, 2009. (ECF No. 147). Within the Amended Complaint, Plaintiff reasserted a cause of action for default on the Notes. Plaintiff also pled four additional counts for estoppel/detrimental reliance; breach of contract; promissory estoppel; and negligence.

Defendants appealed the Court's February 13, 2009 Opinion and...

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