By Jonathan Stempel
NEW YORK (Reuters) – A U.S. appeals court on Wednesday overturned a judge’s ruling that bondholders had valid claims against Venezuela’s state oil company related to its U.S. Citgo refinery, and instructed the judge to apply Venezuelan law in evaluating claims.
The decision by the 2nd US Circuit Court of Appeals in Manhattan could give a boost to opponents of Venezuelan President Nicolás Maduro, who since 2019 have controlled some of the foreign assets of Petróleos de Venezuela (PDVSA).
U.S. District Judge Katherine Polk Failla in Manhattan applied New York law in October 2020 when she authorized PDVSA bondholders to seize a 50.1% stake in Citgo, a PDVSA subsidiary that had been given as collateral for the securities.
Failla also filed a $1.68 billion judgment against PDVSA, declaring it in default.
The bonds were issued under Maduro, but opponents said the opposition-controlled National Assembly never approved the use of Citgo as collateral.
In Wednesday’s ruling, the 2nd Circuit said that although it could decide questions of foreign law, Failla was in a better position because it had reviewed materials from the parties and expert witnesses.
Venezuela’s opposition wanted the dispute to be resolved according to their country’s law.
Lawyers for PDVSA and the bondholders’ respective fiduciary and guarantee agents, MUFG Union Bank and GLAS Americas, did not immediately respond to requests for comment.
Citgo is considered Venezuela’s most valuable asset outside the country.
Headquartered in Houston, Citgo operates three refineries and a network of gas pipelines and terminals, and supplies thousands of Citgo-branded gas stations.
In October 2022, the 2nd Circuit requested guidance from New York’s highest court on whether Venezuelan or New York law governed the securities dispute. The state court ruled in February that Venezuelan law applied.
The case is Petroleos de Venezuela SA et al. v. MUFG Union Bank NA et al., U.S. Court of Appeals for the 2nd Circuit, Nos.
(Reporting by Jonathan Stempel in New York; Editing by Chizu Nomiyama, William Maclean)
