The Venezuelan opposition government that’s aiming to oust President Nicolás Maduro will not get another chance to argue that U.S. sanctions make it impossible to repay $40 million owed to a Portuguese pipeline company over defaulted private notes.
In an order filed Monday in New York federal court, U.S. District Judge George B. Daniels said he would not prolong the case just so the Venezuelan state-owned oil company PDVSA can “continue to search in vain for a defense.”
Judge Daniels granted summary judgment against PDVSA in March, ordering President Juan Guaidó’s ad-hoc board of exiled directors to repay the Portuguese company Cimontubo-Tubagens e Soldadura — although U.S. sanctions currently prevent bondholders from enforcing such orders without a special license from the Office of Foreign Assets Control.
While Maduro remains in power, only the Guaidó administration can represent Venezuela in U.S. courts, which are required to defer to U.S. foreign policy.
Enrique Sanchez Falcón, the special attorney general for the Guaidó government, told the court in 2020 that while the Guaidó government is recognized by the U.S., Maduro maintains “substantial control” over the collapsing state. Sanchez Falcón also said that the ad-hoc board of directors for PDVSA can’t access the company’s documents or electronic records, interview relevant personnel or “even determine the identity of the government officials and personnel involved in the underlying dispute with Cimontubo. Nor does it have access to the bank accounts or assets of the government in Venezuela,” he said.
The court allowed the PDVSA board to pursue discovery materials from Banco Espirito, Banco BIC and Novo Banco S.A. in hopes they might reveal evidence that PDVSA made unsuccessful attempts to make electronic payments on the notes to Cimontubo. But the search did not uncover anything that could support an “impossibility defense,” Judge Daniels found in March. On Monday, the judge once again said that the board had failed to provide sufficient evidence to show that additional discovery would be fruitful, particularly since the board never claimed that PDVSA had tried and failed to make a payment.
Cimontubo filed the litigation in 2020, saying PDVSA owed it some $38.3 million on the bond plus an additional $1.8 million in interest. PDVSA had issued the private bond in late 2016, ultimately defaulting nearly three years later, in November 2019.
The five-person PDVSA board has also been fighting public bondholders through New York courts, saying that Maduro illegally staked its prized foreign asset, Citgo, in a 2016 debt swap. PDVSA argued that the transaction went against the orders of the Venezuelan National Assembly, which issued a warning to investors about the nullity of the contracts and then enacted a resolution rejecting it.
According to Dany Bahar, a Venezuelan economist and professor at Brown University, the PDVSA bondholder cases are part of a man-made disaster hastened by Maduro when he “mortgaged the most important assets of the country,” and then defaulted on the bonds.
But in the years leading up to the default, as Venezuela’s public health care system collapsed andpeople were fleeing the country for lack of food, “Maduro was still religiously paying off investors in New York,” Bahar told Law360, rather than attempting to stanch his country’s growing humanitarian crisis.
“It’s a bizarre situation in which Maduro’s opposition finds themselves defending the assets,” Bahar said.
Counsel for the PDVSA board declined to comment on the record. Counsel for Cimontubo did not immediately reply to requests for comment Tuesday.
Cimontubo-Tubagens E Soldadura LDA is represented by Stuart M. Riback and Scott M. Watnik of Wilk Auslander LLP.
Petróleos de Venezuela SA and PDVSA Petróleo SA are represented by Dennis H. Tracey III and Robin L. Muir of Hogan Lovells.
The case is Cimontubo-Tubagens E Soledad LDA v. Petroleos De Venezuela SA et al., case number 1:20-cv-05382, in the U.S. District Court for the Southern District of New York.
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