U.S. Court Denies Motion to Stay in $118 Million-Dollar Venezuelan Debt Case

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The United States District Court for the Southern District of New York has denied a motion brought by Venezuelan state-owned oil company, Petróleos De Venezuela, S.A. (“PDVSA”), and PDVSA Petróleo, S.A. (“Petróleo”) (together, “Defendants”), for an additional 120-day stay of the litigation in Red Tree Investments, LLC v. Petróleos De Venezuela, S.A. and PDVSA Petróleo, S.A.

Red Tree, a creditor, brought this action in New York state court alleging that PDVSA had defaulted under a credit agreement, which was guaranteed by Petróleo. Defendants, who are currently at the center of Venezuela’s current political power struggle, removed the case to federal court, and then moved for a stay of litigation. They argued that the stay was necessary because (1) issues arising from the transition of power from the Maduro to Guaidó government prevented the Defendants from accessing documents necessary to defend themselves against Red Tree’s claims and (2) the humanitarian and economic crisis in Venezuela favored a stay in litigation. The court granted their motion in May 2019.

During the stay, in another lawsuit Cystallex Int ‘l Corp. v. Bolivarian Republic of Venezuela, the Third Circuit affirmed a ruling that allowed the plaintiffs in that case to seize PDVSA assets to satisfy a $1.2 billion-dollar arbitral award they had obtained against Venezuela. This development presented the possibility that PDVSA assets may be depleted, thus impeding Red Tree’s ability to recover damages arising from any judgment it obtained against the state-owned oil company. Based on this concern, Red Tree moved to lift the stay in August 2019 citing the Crystallex Int’l decision. The Defendants then moved for an additional stay the following month.

After weighing the prejudice to Red Tree’s ability to recover damages against PDVSA’s ability to access the documents and non-party witnesses to defend itself against Red Tree’s claim, the Court ruled that-at least in this instance-justice favored allowing Red Tree to proceed with its case The judge noted that, while the Court was cognizant of the current state of Venezuela, the unrest would likely take years to resolve and it would be unfair to force Red Tree to wait until the country stabilized to pursue its claims.

The political unrest in Venezuela is just one of several examples of recent political developments that have cause geopolitical uncertainty in the international markets. Despite these developments, commercial parties will continue to do business. Comparing the recent developments in Crystallex Int’l and Red Tree may serve as a reminder that international arbitration, rather than traditional litigation, offers substantial advantage for cross-border disputes involving politically unstable regions. 


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