The U.S. Supreme Court rebuffed Venezuela’s request to review a ruling allowing creditors to pursue assets of CITGO Petroleum’s parent company.
The decision removes an obstacle to an upcoming court-ordered auction of shares in CITGO’s parent, the government-owned oil concern, Petróleos de Venezuela S.A. (PDVSA).
The court denied the petition for certiorari, or review, in Bolivarian Republic of Venezuela v. OI European Group B.V., in an unsigned order on Jan. 8. In addition to the Venezuelan government, PDVSA, was also listed as a petitioner.
No justices dissented from the order. The court did not provide reasons for its decision. At least four of the nine justices must vote to grant the petition for it to advance to the oral argument stage.
CITGO Petroleum Corp. describes itself as an indirect subsidiary of U.S.-based PDV Holding, a non-operating holding company that is incorporated in Delaware and headquartered in Texas. “PDV Holding is the indirect sole stockholder of CITGO Petroleum Corporation, through ownership of 100% of the shares of its direct subsidiary CITGO Holding Inc. CITGO Holding Inc. is the sole stockholder of CITGO Petroleum Corp.,” the company’s website states.
Based in the Netherlands, the lead respondent, OI European Group, makes packaging products. Among the other respondents are Northrop Grumman Ship Systems Inc. (now known as Huntington Ingalls Inc.), Koch Minerals Sarl, and Gold Reserve Inc.
Several companies, including ExxonMobil and ConocoPhillips, are hoping the sale of shares in PDV Holding generates enough cash to satisfy claims they have against Venezuela or PDVSA. More than $24 billion in claims are reportedly outstanding.
Also on Jan. 8, a federal judge in Delaware ordered that a group of creditors owed money by Venezuela will be allowed to participate in the auction, Reuters reports.
A lawsuit spearheaded by Crystallex Corp., a Canadian mining company, linked CITGO to Venezuela’s debts and allowed parties with claims against the country to seek its corporate assets.
The 10 companies have a Jan. 12 deadline to have writs of attachment issued against PDV Holding. The U.S. Department of the Treasury could veto any winning bid.
Venezuela had stated in its Supreme Court petition that a lower court found PDVSA was the “alter ego” of the Venezuelan government. This holding “creates a very real risk that petitioner PDVSA’s principal asset in the United States—the shares through which it indirectly owns 100% of CITGO Petroleum Corporation—will be sold off by next summer,” the petition said.
Venezuela, which is said to be home to the largest proven oil reserves in the world, had asked the Supreme Court to declare that the “alter ego” ruling should be reversed. On July 7, the U.S. Court of Appeals for the 3rd Circuit affirmed a ruling that allowed six companies to add claims worth $3.4 billion to an ongoing lawsuit.
The 3rd Circuit noted in the ruling that, four years before, it had determined that PDVSA operated as Venezuela’s alter ego and permitted a judgment creditor to attach PDVSA’s A shares in a U.S. subsidiary. Six creditors then registered their arbitration awards against Venezuela in federal district court in Delaware, seeking a writ of attachment against PDVSA’s holdings. They argued that changes in Venezuela’s government “destroyed the factual foundations supporting our prior alter-ego decision.”
“But even accounting for those differences, the District Court correctly concluded that PDVSA remains the alter ego of Venezuela,” the circuit court said in affirming the district court’s decision.
In its petition to the Supreme Court, Venezuela argued that under the Foreign Sovereign Immunities Act (FSIA), a U.S. statute, foreign states “are presumptively immune from suit and attachment.”
An “instrumentality” of a foreign state is “presumptively independent from its parent government, and is independently entitled to FSIA immunity absent an alter-ego finding.”
But in April 2023, the Supreme Court ruled in Turkiye Halk Bankasi A.S. v. United States that the immunity of an instrumentality of a foreign state is not absolute.
The Istanbul-based bank Turkiye Halk Bankasi, also known as Halkbank, is accused of participating in a criminal conspiracy involving money laundering, bank fraud, and assisting terrorism-sponsoring Iran in evading U.S. economic sanctions.
The U.S. government prosecuted the bank in a federal district court in New York for conspiring to evade the sanctions.
Despite that, the FSIA operates “against the backdrop of the Executive Branch’s exclusive authority to determine whether ‘a particular regime is the effective government of a state,’” the petition said, citing a 2015 precedent.
The United States has recognized the government of Juan Guaido, after Nicolas Maduro was deposed, as the only legitimate government of Venezuela. Mr. Guaido was acting president of Venezuela from January 2019 to January 2023.
The district court held that PDVSA was Venezuela’s alter ego “principally based on the Maduro regime’s actions after derecognition, and alternatively based on the Guaido government’s ordinary oversight. As a result, billions of dollars in PDVSA’s shares of PDV Holding, the parent of CITGO, can be auctioned in a bankruptcy-style sale.”
Specifically, Venezuela was asking the Supreme Court to decide if its courts may assess the FSIA immunity of a foreign state and its instrumentalities, and the immunity of their property from attachment “by relying on the actions of an illegitimate government that has been derecognized by the Executive Branch, where the Executive has chosen to recognize a different government of the state.”
Venezuela had also asked the Supreme Court to decide whether “a presumptively independent state instrumentality should be treated as the alter ego of the foreign state [when it] may be based on nothing more than the ordinary incidents of government supervision that are common to most state instrumentalities, rather than on extraordinary day-to-day control.”
