The Venezuelan government is asking the U.S. Supreme Court to revisit a lower court ruling allowing creditors to go after the assets of the parent of its government-owned oil company that does business in the United States as Citgo Petroleum.
Any decision that the Supreme Court makes could affect an upcoming court-ordered auction of shares in Citgo’s parent company.
The case is Bolivarian Republic of Venezuela v. OI European Group B.V., court file 23-140. In addition to the Venezuelan government, that country’s government-owned oil company, Petróleos de Venezuela S.A. (PDVSA), is also listed as a petitioner.
Citgo Petroleum Corp. states on its website that it’s the indirect subsidiary of U.S.-based PDV Holding, a nonoperating holding company that’s 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 site 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.
The court has given the respondent companies until Sept. 15 to respond to the petition.
Venezuela’s lead attorney, Donald Verrilli of law firm Munger, Tolles and Olson in Washington, filed a letter with the court on Aug. 17 saying that because “time is of the essence in this case,” the petitioners “will oppose any requests for extensions of time for responding to the petition.”
Several companies, including ExxonMobil and ConocoPhillips, are hoping that the sale of shares in PDV Holding generates enough cash to satisfy claims that they have against Venezuela or PDVSA. About $20 billion in claims are reportedly outstanding.
A lower court found that PDVSA is 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 states.
Venezuela, which is said to be home to the world’s largest proven oil reserves, is asking the Supreme Court to declare that the “alter ego” ruling shouldn’t stand. 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 found 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 the U.S. District Court for the District of Delaware, seeking a writ of attachment against PDVSA’s holdings. They argued that changes in Venezuela’s government “destroyed the factual foundations” supporting their prior alter-ego decision.
“But even accounting for those differences, the District Court correctly concluded that PDVSA remains the alter ego of Venezuela,” the court said in affirming the district court’s decision.
In its petition to the Supreme Court, Venezuela is arguing 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,” it states.
But on April 19, the Supreme Court ruled in Turkiye Halk Bankasi A.S. v. United States that the immunity of an instrumentality of a foreign state isn’t absolute.
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 in 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 against Iran.
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 states, 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 is asking the United States’ highest 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 is also asking 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.”
The Epoch Times reached out to attorneys representing both sides in the litigation for comment but didn’t receive a reply by press time.
Venezuela’s lawyer, Mr. Verrilli, and PDVSA’s lawyer, Joseph Pizzurro of Curtis, Mallet-Prevost, Colt and Mosle LLP in New York, didn’t respond by press time to a request by The Epoch Times for comment.
The respondents’ attorneys at the international law firm of Morgan Lewis and Sequor Law in Miami also didn’t respond by the time of publication.
