Petroleos De Venez. v. MUFG Union Bank
| Decision Date | 13 October 2022 |
| Docket Number | 20-3858,20-4127 |
| Parties | PETROLEOS DE VENEZUELA S.A., PDV HOLDING, INC., PDVSA PETROLEO S.A., Plaintiffs-Counter-Defendants-Appellants, v. MUFG UNION BANK, N.A., GLAS AMERICAS LLC, Defendants-Counter-Claimants-Appellees. |
| Court | U.S. Court of Appeals — Second Circuit |
Argued: January 26, 2022
Appeal from a judgment entered in the United States District Court for the Southern District of New York (Failla, J.) declaring valid and enforceable against Appellants instruments governing a debt issue-notes, indenture, and pledge agreement. The district court granted Appellees' motion for summary judgment, holding the notes, pledge agreement, and indenture valid and enforceable under New York law, and denied Appellants' cross-motion, which argued the documents were void under the law of Venezuela, the jurisdiction of the issuer of the notes, and that the court should decline to enforce the notes on the basis of the act-of-state doctrine. Because the choice-of-law determination may depend in this case on the act-of-state analysis, and existing New York law does not clearly settle choice-of-law issues in this dispute, we certify questions on the issue to the New York Court of Appeals.
DECISION RESERVED AND QUESTIONS CERTIFIED.
MICHAEL J. GOTTLIEB, Willkie Farr &Gallagher LLP Washington, D.C.; JAMES R. BLISS, Paul Hastings LLP, New York, N Y (Nicholas Reddick, Kyle A. Mathews, Kristin E. Bender, Willkie Farr &Gallagher LLP, Washington, D.C.; Jeffrey B. Korn, Willkie Farr &Gallagher LLP, New York, NY; Kurt W. Hansson, Paul Hastings LLP, New York, NY; Igor V. Timofeyev, Paul Hastings LLP, Washington, D.C., on the brief), for Plaintiffs-Counter-Defendants-Appellants.
WALTER RIEMAN, Paul, Weiss, Rifkind, Wharton &Garrison LLP, New York, NY (William A. Clareman, Jonathan Hurwitz, Shane D. Avidan, Paul, Weiss, Rifkind, Wharton &Garrison LLP, New York, NY; Roberto J. Gonzalez, Paul, Weiss, Rifkind, Wharton &Garrison LLP, Washington, D.C.; Christopher J. Clark, Matthew S. Salerno, Sean H. McMahon, Latham &Watkins LLP, New York, NY, on the brief), for Defendants-Counter-Claimants-Appellees.
DONALD B. VERRILLI, JR., Munger, Tolles &Olson LLP, Washington, D.C. (Elaine J. Goldenberg, Munger, Tolles &Olson LLP, Washington, D.C.; George M. Garvey, Munger, Tolles &Olson LLP, Los Angeles, CA, on the brief), for Amicus Curiae the Bolivarian Republic of Venezuela.
Douglass Mitchell, Previn Warren, Jenner &Block LLP, Washington, D.C., for Amici Curiae David Landau, Nelson Camilo Sanchez Leon, Mila Versteeg, Diego Zambrano.
Before: LEVAL, LOHIER, and ROBINSON, Circuit Judges.
In 2016, Venezuela's state-owned oil company, Petroleos de Venezuela, S.A. ("PDVSA"), announced a proposed bond swap through which noteholders could tender unsecured notes due in 2017 in exchange for new notes due in 2020 and secured by a controlling interest in CITGO Holding, Inc. CITGO is owned by PDVSA through a series of subsidiaries and is considered one of Venezuela's most important strategic assets abroad. At the time of the exchange, the regime of then-President Nicolas Maduro controlled PDVSA's Board of Directors.
Article 150 of the Venezuelan Constitution vests the country's National Assembly with the power to approve "national public interest contracts." Although the democratically elected National Assembly passed two separate resolutions in 2016 that purported to assert its constitutional authority over national public interest contracts-including explicitly rejecting the plan to pledge control of CITGO-PDVSA nevertheless executed the bond swap and issued the CITGO-secured debt.
Following recognition of Venezuela's Interim President Juan Guaido by the United States in early 2019, Guaido appointed another Board of Directors, which was recognized in the United States as the legitimate Board (although it does not exercise any influence or control over PDVSA within Venezuela). In October 2019, that Board, in the name of the PDV Entities, caused
this suit to be brought in the Southern District of New York. The PDV Entities seek declarations that the entire bond transaction is void and unenforceable and preventing the creditors from executing on the CITGO collateral. Plaintiffs argue the bond transaction was a contract of national public interest under Venezuelan law and PDVSA lacked authority to execute it without approval of the National Assembly pursuant to Article 150. And they contend separately that the withholding of Article 150 approval and the National Assembly resolutions constituted sovereign acts that rendered the bond exchange void and were entitled to legal deference under the act-of-state doctrine.
This case raises important questions about the scope of an as-of-yet uninterpreted provision of the New York Uniform Commercial Code, and about potential common law exceptions to New York's general approach to enforcing contractual choice-of-law elections. Because the New York Court of Appeals has not addressed these issues and they are important to the State's choice-of-law regime and status as a commercial center, we CERTIFY questions to the New York Court of Appeals.
BACKGROUND[1]
The plaintiffs-appellants in this case are the issuer, guarantor, and pledgor of the secured notes due in 2020 (the "2020 Notes").
PDVSA is the issuer of the 2020 Notes. PDVSA is Venezuela's state-owned oil company, and as required under Article 303 of the Venezuelan Constitution, is wholly owned by the Venezuelan government. PDVSA is incorporated under Venezuelan law and is considered part of the government's "Decentralized Public Administration."
PDVSA Petroleo S.A. is the guarantor of the 2020 Notes. It is also incorporated in Venezuela and is a wholly owned subsidiary of PDVSA.
PDV Holding, Inc. is incorporated in Delaware and has its principal place of business in Texas. It is wholly owned by PDVSA. PDV Holding is the sole owner of CITGO Holding, Inc., which in turn owns CITGO Petroleum Corporation. CITGO Holding and CITGO Petroleum are incorporated in Delaware and maintain their principal places of business in Texas. PDV Holding pledged 50.1% of its equity interest in CITGO Holding as security for the 2020 Notes.
We refer to these three entities-PDVSA, PDVSA Petroleo, and PDV Holding-collectively as "The PDV Entities."
The defendants-appellees to this action are MUFG Union Bank, N.A. and GLAS Americas LLC. MUFG Union Bank is a federally chartered national banking association with offices in New York City. It is the trustee for the 2020 Notes. GLAS Americas is a New York limited liability company. It is the collateral agent for the 2020 Notes. We refer to these two entities collectively as "The Creditors."
In April 2007, PDVSA issued $3 billion of notes with the principal to come due in April 2017. In October 2010 and January 2011, PDVSA issued a combined $6.15 billion of notes with the principal to come due in November 2017. We refer to this debt in aggregate as the "2017 Notes."
Between 2007 and 2016, various rating agencies downgraded PDVSA's credit rating. As of September 2016, the 2017 Notes had an outstanding principal balance of $7.1 billion.
In early September 2016, the PDVSA Board approved the transaction at the heart of this dispute: a bond exchange through which holders of the 2017 Notes could tender their 2017 Notes in exchange for new notes with principal due in 2020. Unlike the 2017 Notes, which were unsecured, PDVSA offered the 2020 Notes secured by a pledge from PDV Holding of a 50.1% equity interest in CITGO Holding. We refer to this tender offer-and ultimately the closed transaction-as the "Exchange Offer."
PDVSA's Board approved the Exchange Offer on September 7, 2016, in accordance with the corporate formalities of the company's certificate of incorporation and by-laws, including approval by the company's sole shareholder, the Venezuelan government, on September 8, 2016. The PDV Petroleo Board similarly approved the Exchange Offer on September 7th in accordance with applicable corporate formalities. PDV Holding's Board approved the CITGO pledge the following week on September 15. PDVSA announced the Exchange Offer within the next few days and filed an offering circular with the U.S. Securities and Exchange Commission.
Ultimately, 2017 Noteholders representing 39 percent of the aggregate principal amount outstanding, $2,799,272,267, decided to participate in the deal and tender their 2017 Notes. Depending in part on when they tendered, 2017 Noteholders received between $1,120 and $1,220 of 2020 Notes for every $1,000 of 2017 Notes exchanged. As noted above, the 2020 Notes were secured by PDV Holding's pledge of 50.1% of its equity in CITGO Holding. The Exchange Offer closed, and PDVSA issued the 2020 Notes on October 28, 2016. The relevant documents for the closed transaction, referred to collectively as the "Governing Documents," are the Indenture,[2] the 2020 Notes,[3] and the Pledge Agreement.[4]
Much of the activity around the transaction involved contacts in New York. For example, the PDV Entities engaged a New York-based financial advisor and an American law firm with New York partners to advise on the structure of the deal. The financial advisor solicited participation in the Exchange Offer from at least ten 2017 Noteholders who were based in New York. Signature pages were exchanged between the entities in New York in connection with the signing and closing of the Governing Documents. The 2020 Notes were deposited in New York with the Law Debenture Trust Company of New York. Finally, all the Governing Documents state that they shall be construed in accordance with the laws of the State of New York, and that all matters arising...
To continue reading
Request your trial