The Billion-Dollar Determination of Foreign Law Question

Image by Pete Linforth from Pixabay

The ongoing litigation in New York relating to the validity of certain debt instruments issued by Venezuela’s state-owned oil company has received extensive coverage here at TLB. In 2022, I explained that the case presented a billion-dollar choice-of-law question. That choice-of-law question was answered in 2024 when the New York Court of Appeals held the validity of the bonds was governed by Venezuelan law.

The case, Petroleos De Venezuela S.A. v. MUFG Union Bank N.A., is now back where it started—in the U.S. District Court for Southern District of New York before Judge Katherine Polk Failla. Instead of a billion-dollar choice-of-law question, the court now has to address a billion-dollar determination of foreign law question. Specifically, Judge Failla must decide whether billions of dollars in notes were validly issued under Venezuelan law. On September 18, 2025, she held that the notes were, in fact, validly issued.

Background

The plaintiff in the case was Venezuela’s state-owned oil company, Petróleos de Venezuela, S.A. (“PDVSA”). It sought a declaratory judgment that certain notes issued by PDVSA were not validly issued and were therefore unenforceable. The defendants were noteholders to whom PDVSA owed billions of dollars. The noteholders argued that the notes were validly issued and that PDVSA’s default meant that the noteholders could seize the pledged collateral—a 50.1% equity interest in CITGO Holding, Inc., considered by many to be the “crown jewel” of Venezuela’s strategic assets abroad.

Whether the notes were validly issued turned on a specific provision in the Venezuelan Constitution. Article 150 of that document states:

The execution of national public interest contracts shall require the approval of the National Assembly in those cases in which such requirement is determined by law. No municipal, state[,] or national public interest contract shall be executed with foreign States or official entities, or with companies not domiciled in Venezuela, or shall be transferred to any of them without the approval of the National Assembly (emphasis added).

If the notes were “national public interest contracts,” then PDVSA would win because the notes had never been approved by the National Assembly. Indeed, the National Assembly passed two resolutions specifically challenging the power of the executive branch to issue the notes. If the notes were not “national public interest contracts,” then the noteholders would prevail because all of the other validity requirements had been satisfied. The question before the court, therefore, was whether the notes qualified as “national public interest contracts” as a matter of Venezuelan law.

Federal Rule of Civil Procedure 44.1

Under Rule 44.1 of the Federal Rules of Civil Procedure, a court called upon to determine foreign law “may consider any relevant material or source, including testimony, whether or not submitted by a party or admissible under the Federal Rules of Evidence. The court’s determination must be treated as a ruling on a question of law.”

The volume of expert materials submitted by the parties relating to the content of Venezuelan law reflected the amount of money at stake in this case. PDVSA submitted ten separate reports or declarations from three different experts—Allan R. Brewer-Carías, Freddy Guevara, and José Araujo-Juárez. The noteholders submitted eight separate reports or declarations from two different experts—Doe and Roe. (At the request of the defendants, the names of their experts were not disclosed due to concern that they might be harmed should their identities become known.) The Bolivarian Republic of Venezuela to the United States submitted an amicus brief supporting PDVSA. (This brief did not come from the Maduro government but rather from the González government, which the United States recognizes as the rightful government of Venezuela.) The United States also submitted a statement of interest.

The Battle of the Experts

After reviewing the many expert reports and declarations relating to the content of Venezuelan law, the court concluded that the notes were not national public interest contracts that had to be approved by the National Assembly. Judge Failla based her decision principally on a decision by the Constitutional Chamber of the Venezuelan Supreme Court, Andrés Velásquez, in which that court held that only contracts to which the Republic of Venezuela was itself a party qualified as national public interest contracts for purposes of Article 150. Since PDVSA is an entity distinct from the Republic, Judge Failla held, its contracts did not have to be approved by the National Assembly.

In reaching this conclusion, Judge Failla rejected a number of arguments advanced by PDVSA’s experts. Most significantly, the experts argued that the notes were national public interest contracts because PDVSA was a constituent part of Venezuela’s National Public Administration—the Decentralized Public Administration—and that this fact brought the notes within the scope of Article 150. Judge Failla disagreed. She acknowledged that a number of Venezuelan legal scholars had argued that contracts made by the National Public Administration should be viewed as national public interest contracts. She held, however, that these scholarly opinions as to what the law should be were distinct from the question of what the law actually was. In her view, the decision by the Constitutional Chamber of the Venezuelan Supreme Court in Andrés Velásquez definitively resolved the issue. The notes were not national public interest contracts because they were not issued by the Republic of Venezuela.

In adopting this position, Judge Failla specifically noted that some of PDVSA’s experts had themselves endorsed this position in their prior academic writings. Consider this passage from the opinion discussing prior scholarship by Professor Araujo:

Professor Araujo claims he has “consistently expressed the view that the entities of the Decentralized Public Administration, being intrinsic parts of the branch of the National Executive Power, can enter into contracts of national public interest.” But Professor Araujo previously recognized (in a book jointly edited with Professor Brewer [another expert for PDVSA]) that, based on the Andrés Velásquez decision, it is “required … that it be a political-territorial entity, that is, the Republic, the States, and the municipalities” “whose presence is a necessary condition for the conclusion of contracts of national interest.”

Or consider this passage discussing Professor Brewer’s prior scholarship:

Throughout this litigation, Professor Brewer has maintained that Decentralized Public Administration entities can enter into national public interest contracts. But Professor Brewer’s pre-litigation scholarship was consistent in its position that Andrés Velásquez was binding precedent that concluded contrariwise. Indeed, in his earlier writings, Professor Brewer described his position regarding Decentralized Public Administration entities as one that finds support in case law and other scholarly commentary, but that has not prevailed . . . . Although Professor Brewer endeavors to explain [these writings] away, it is apparent that he, like Professor Araujo, previously critiqued Andrés Velásquez while recognizing it as binding law.

All of this, in Judge Failla’s view, made it difficult to credit the assertions made by PDVSA’s experts.

The Republic

As noted above, the González government—which the United States has recognized as the rightful government of Venezuela—submitted an amicus brief supporting PDVSA’s argument that the notes were national public interest contracts. The Judge Failla was no more persuaded by this argument when made by the Republic than she was when made by the experts:

The Court has carefully considered the Republic’s position regarding national public interest contracts and the significance of Andrés Velásquez, especially insofar as Plaintiffs have raised the very same issues. But the Court, having reviewed the Republic’s submissions and the parties’ expert submissions, and having tempered due deference with the submission’s context and purpose, finds that it simply cannot square the Republic’s views with what Venezuelan law requires. Certainly, contracts involving PDVSA are economically and politically important to the Republic. But the Court reads Venezuelan law, through the binding decisions of the Constitutional Chamber of the Supreme Tribunal of Justice, to necessitate that the Republic itself, through the National Executive, conclude national public interest contracts. The Republic’s contrary views do not persuade the Court to reach a different conclusion.

In so holding, Judge Failla was faithful to the U.S. Supreme Court’s admonition in Animal Science Products v. Hebei Welcome Pharmacy Company that a federal court “should accord respectful consideration to a foreign government’s submission, but is not bound to accord conclusive effect to the foreign government’s statements.”

Conclusion

In light of the vast sums of money involved, it is a foregone conclusion that this decision will be appealed. In the meantime, I would urge any readers who happen to be law professors to think carefully before taking positions as experts that are clearly inconsistent with their published positions.