Helmerich & Payne International Drilling Co. v. Bolivarian Republic of Venezuela ( 2016 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
HELMERICH & PAYNE
INTERNATIONAL DRILLING CO. and
HELMERICH & PAYNE DE
VENEZUELA C.A.,
Plaintiffs,
v. Case No. 11-cv-01735 (CRC)
BOLIVARIAN REPUBLIC OF
VENEZUELA, PETRÓLEOS DE
VENEZUELA, S.A., and PDVSA
PETRÓLEO, S.A.,
Defendants.
MEMORANDUM OPINION
On September 23, 2011, Helmerich & Payne International Drilling Co. (“H&P-IDC”) and
Helmerich & Payne de Venezuela, C.A. (“H&P-V”) filed suit, pursuant to the Foreign Sovereign
Immunities Act (“FSIA”), 28 U.S.C. § 1601 et seq., against the Bolivarian Republic of
Venezuela; the Venezuelan state-owned oil company, Petróleos de Venezuela, S.A. (“PDVSA”);
and one of its subsidiaries, PDVSA Petróleo, S.A (“PDVSA-P”). Plaintiffs brought two claims
stemming from Defendants’ alleged nationalization of eleven drilling rigs: breach of contract
under the FSIA’s commercial-activities exception and a taking in violation of international law
under the FSIA’s expropriation exception. Id. Only the expropriation claim remains, however,
after a ruling by the D.C. Circuit in this case. See Helmerich & Payne Int’l Drilling Co. v.
Bolivarian Republic of Venezuela, 784 F.3d 804, 808 (D.C. Cir. 2015).
To invoke the FSIA’s expropriation exception, Plaintiffs intend to show that the
drilling rigs are presently “owned or operated by an agency or instrumentality of [a] foreign
state and that agency or instrumentality is engaged in a commercial activity in the United
States.” 28 U.S.C. § 1605(a)(3). Plaintiffs allege in their Complaint that “Defendants have
expropriated and now operate all eleven drilling rigs and all of the supporting infrastructure,”
Compl. ¶ 26, citing “Defendants’ rhetoric and conduct demonstrat[ing] that the business was
taken by Defendants for the purpose of turning it into a state-owned and state-operated
enterprise,” id. ¶ 84; see also id. ¶ 81 (“Defendants took the entire business, which they now
operate as a state-owned commercial enterprise.”). Defendants have challenged these factual
allegations, asserting that
the PDVSA Defendants do not own or operate the property of Helmerich &
Payne de Venezuela C.A. (“H&P-V”), i.e., the expropriated assets. Title and
ownership of the expropriated assets remain with H&P-V. And the entity that
operates the expropriated assets is PDVSA Servicios Petroleros, S.A. [“PDVSA-
SP”], a second-tier subsidiary of PDVSA, which is not an “agency or
instrumentality of [a] foreign state . . . engaged in a commercial activity in the
United States.” 28 U.S.C. § 1605(a)(3).
Defs.’ Notice of Factual Basis of Jurisdictional Defense, ECF No. 78 (ellipsis in original).
On October 15, 2015, the Court entered a scheduling order authorizing limited
jurisdictional discovery in order to “give the plaintiff[s] ‘ample opportunity to secure and present
evidence relevant to the existence of jurisdiction.’” Phoenix Consulting Inc. v. Republic of
Angola, 216 F.3d 36, 40 (D.C. Cir. 2000) (quoting Prakash v. Am. Univ., 727 F.2d 1174, 1179–
80 (D.C. Cir. 1984)); see Scheduling Order, Oct. 19, 2015, ECF No. 77, at 1.
Plaintiffs subsequently lodged discovery requests that, generally speaking, fall into five
categories:
1. Evidence related to the PDVSA Defendants’ legal control over the expropriated
property;
2. Evidence related to the PDVSA Defendants’ power, influence, or practical
control over the expropriated property;
2
3. Evidence related to whether PDVSA-SP—the second-level subsidiary that
PDVSA contends operates the rigs—functions as the PDVSA Defendants’
agent with respect to the expropriated property or should be treated as their alter
ego;
4. Evidence related to whether PDVSA-SP is itself an agency or instrumentality
of Venezuela engaged in commercial activity in the United States; and
5. Evidence related to the relationship among PDVSA-SP, PDVSA-S (its parent
company), and the expropriated assets. 1
See Pls.’ Mot. Compel 7–9. Defendants refused to respond fully to many of Plaintiffs’ discovery
requests, and Plaintiffs have thus moved to compel responses to various interrogatories and
requests for production. Defendants have cross-moved for entry of a protective order with
respect to the responses and productions that Plaintiffs have moved to compel, as well as certain
other issues, such as Plaintiffs’ designation of multiple deponents under Federal Rule of Civil
Procedure 30(b)(6).
Because the Court finds Plaintiffs’ requests for information in categories 1, 2, 3, and 5 to
be narrowly tailored to test their contentions that the PDVSA defendants own or operate the
expropriated property and to challenge Defendants’ claim that PDVSA-SP (rather than PDVSA
or PDVSA-P) operates the property, it will grant Plaintiffs’ motion to compel discovery from the
PDSVA defendants and from the Republic of Venezuela with regard to those requests. Further,
because Plaintiffs have identified sufficient evidence to rebut the PDVSA defendants’ assertion
that PDVSA-SP conducts no commercial activity in the United States, the Court will also grant
Plaintiffs’ motion to compel with respect to many of the requests falling under category 4. It
will, however, cabin somewhat the information Plaintiffs may seek in this regard, and it will
limit Plaintiffs to one 30(b)(6) deposition for both PDVSA defendants. The Court will briefly
1
PDVSA-SP is a subsidiary of PDVSA-S, which in turn is a subsidiary of PDVSA. See
PDVSA Defs.’ Mot. Dismiss Ex. 2 (Decl. of Joasim Trujillo Acosta), ECF No. 22-4, at 3.
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discuss each category of discovery requests and then proceed to take up a joint motion by all
defendants to stay proceedings. As a preliminary matter, however, the Court first must address
the question of whether any discovery against Venezuela itself—as opposed to the PDVSA
defendants—is proper.
I. Legal Standard
The FSIA “establishes a specific framework for determining whether a sovereign
is immune from suit and consequently whether the district court has jurisdiction.” Phoenix
Consulting, 216 F.3d at 39. Where, as here, a foreign state or its agencies or instrumentalities
consciously take part in litigation, it is their burden to “assert [their] immunity under the FSIA
either before or in [their] responsive pleading[s].” Id. “Once [a] defendant has asserted the
jurisdictional defense of immunity under the FSIA, the court’s focus shifts to the exceptions to
immunity,” id. at 40, including, as relevant to this case, the expropriation exception under 28
U.S.C. § 1605. The defendant may challenge not only the legal adequacy of a plaintiff’s
jurisdictional allegations, but also—as here—“the factual basis of the court’s subject matter
jurisdiction under the FSIA, that is, either contest a jurisdictional fact alleged by the plaintiff . . .
or raise a mixed question of law and fact.” Id. at 40. In such a case, “the court may not deny [a]
motion to dismiss merely by assuming the truth of the facts alleged by the plaintiff and disputed
by the defendant. Instead, the court must go beyond the pleadings and resolve any disputed
issues of fact the resolution of which is necessary to [its] ruling . . . .” Id.
“To the extent that jurisdiction depends on particular factual propositions (at least those
independent of the merits), the plaintiff must, on a challenge by the defendant, present adequate
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supporting evidence.” 2 Agudas Chasidei Chabad of U.S. v. Russian Fed’n, 528 F.3d 934, 940
(D.C. Cir. 2008). Jurisdictional discovery is frequently the key to obtaining this evidence. And
“in order to get jurisdictional discovery[,] a plaintiff must have at least a good faith belief that
such discovery will enable it to show that the court has . . . jurisdiction over the defendant.”
Caribbean Broad. Sys., Ltd. v. Cable & Wireless P.L.C., 148 F.3d 1080, 1090 (D.C. Cir. 1998).
Although a court “must give the plaintiff ‘ample opportunity to secure and present evidence
relevant to the existence of jurisdiction,” Phoenix Consulting, 216 F.3d at 40 (quoting Prakash,
727 F.2d at 1180), it “retains ‘considerable latitude in devising the procedures it will follow to
ferret out the facts pertinent to jurisdiction,’” id. (quoting Prakash, 727 F.2d at 1179).
Additionally, “[i]n order to avoid burdening a sovereign that proves to be immune from suit . . .
jurisdictional discovery [under the FSIA] should be carefully controlled and limited.” Id.
II. Analysis
A. Venezuela’s Participation in Jurisdictional Discovery
Plaintiffs seek discovery both from the PDVSA defendants and from the Republic
of Venezuela itself. In addition to arguing that the discovery sought against it is duplicative and
unduly burdensome, Venezuela claims that Plaintiffs’ discovery requests are inappropriate
because it is not subject to jurisdiction under the FSIA’s expropriation exception at all. As a
result, Venezuela contends, it is not properly a party to this case and should therefore not be
forced to respond to any of Plaintiffs’ requests. Venezuela raises a colorable argument, but the
issue is far from clear-cut and—more importantly—is not one of the initial issues that the parties
2
“For purely factual matters under the FSIA, . . . this is only a burden of production; the
burden of persuasion [ultimately] rests with the foreign sovereign claiming immunity, which
must establish the absence of the factual basis by a preponderance of the evidence.” Chabad,
528 F.3d at 940.
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jointly agreed to brief prior to jurisdictional discovery. The Court thus declines to resolve it
definitively at this time.
1. Venezuela and the FSIA’s Expropriation Exception
At first blush, the expropriation exception to the FSIA appears to provide two routes to
sue a foreign state where rights in property have been taken in violation of international law: “A
foreign state,” like Venezuela, is not immune from suit when either (1) “th[e] property or any
property exchanged for such property is present in the United States in connection with a
commercial activity carried on in the United States by the foreign state,” or (2) “th[e] property or
any property exchanged for such property is owned or operated by an agency or instrumentality
of the foreign state and that agency or instrumentality is engaged in a commercial activity in the
United States.” 28 U.S.C. § 1605(a)(3). These two clauses seem to “specify[] alternative
commercial activity [nexus] requirements,” either one of which could be met for jurisdiction to
lie over a foreign state under the expropriation exception. Chabad, 528 F.3d at 946; see also id.
at 940 (referring to “two possible ‘commercial activity’ nexi”).
Venezuela challenges this reading. In its view, the first clause is applicable when, and
only when, a plaintiff sues a foreign state itself, such as Venezuela. It sees the second clause as
applicable when, and only when, a plaintiff sues a foreign state’s agencies or instrumentalities,
such as the PDVSA defendants. In other words, to directly sue Venezuela under the
expropriation exception, the requirements of the first commercial-activity nexus requirement
must be met: The expropriated property (or the proceeds exchanged for such property) must be
present in the United States in connection with a commercial activity carried on in the United
States by Venezuela. It is undisputed that the expropriated property in this case is not present in
the United States. Thus, the argument goes, Plaintiffs cannot satisfy the first commercial-activity
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nexus requirement. And because the Court may obtain jurisdiction over Venezuela only by
satisfying that single requirement, jurisdiction over Venezuela does not lie.
Venezuela finds strong support for its position in a recent D.C. Circuit opinion, Simon v.
Republic of Hungary. In Simon, a panel of the court unanimously held that the expropriation
exception’s commercial-activity “nexus requirement differs somewhat for claims against the
foreign state itself . . . as compared with claims against an agency or instrumentality of the
foreign state . . . .” 812 F.3d 127, 146 (D.C. Cir. 2016) (citing Chabad.) The court explained:
As to the claims against [the foreign state itself], the question is whether the
“property [in issue] or any property exchanged for such property is present in the
United States in connection with a commercial activity carried on in the United
States by the foreign state.” . . . As to the claims against [an agency or
instrumentality of a foreign state], the question is whether the “property [in issue]
or any property exchanged for such property is owned or operated by an agency or
instrumentality of the foreign state and that agency or instrumentality is engaged in
a commercial activity in the United States.”
Id. (second and fourth alterations in original) (quoting 28 U.S.C. § 1605(a)(3)). Under the Simon
rule, then, the Court would lack jurisdiction over Venezuela because Plaintiffs indisputably have
not satisfied the first commercial-activity nexus requirement.
Unlike in the classic children’s game, though, what Simon says does not end the matter.
“The law-of-the-circuit doctrine [holds] that ‘the same issue presented in a later case in the same
court should lead to the same result’ and that ‘[o]ne three judge panel . . . does not have the
authority to overrule another three-judge panel of the court.’” In re Grant, 635 F.3d 1227, 1232
(D.C. Cir. 2011) (alteration in original) (quoting LaShawn v. Barry, 87 F.3d 1389, 1393, 1395
(D.C. Cir. 1996) (en banc)). As a result, “when a decision of one panel is inconsistent with the
decision of a prior panel, the norm is that the later decision, being in violation of that fixed law,
cannot prevail.” Sierra Club v. Jackson, 648 F.3d 848, 854 (D.C. Cir. 2011).
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Plaintiffs vigorously contend that the decision by the three-judge panel in Simon is
irreconcilable with the result reached by a prior three-judge panel of the D.C. Circuit in Chabad.
In Chabad, a Jewish non-profit organization brought suit pursuant to the FSIA’s expropriation
exception, alleging that the Soviet Union had taken a collection of its religious books,
manuscripts, and other documents in violation of international law. It named as defendants the
Russian Federation (the successor to the Soviet Union) and several of its agencies or
instrumentalities that the plaintiff claimed held different portions of the collection. There was no
suggestion that the expropriated property was present in the United States and thus no argument
that the first commercial-activity nexus requirement was met. The D.C. Circuit assessed only the
“second alternative commercial activity [nexus] requirement” and found it “plainly satisfied”
because the relevant agencies or instrumentalities “engaged in sufficient commercial activity in
the United States to satisfy that element of 28 U.S.C. § 1605(a)(3).” Chabad, 528 F.3d 946–48.
Crucially, the Court went on to uphold jurisdiction over all defendants, including the Russian
Federation. 3 Id. at 955. The Russian Federation is, of course, a foreign state. If the Simon rule
applied, requiring the first commercial-activity nexus requirement to be met with respect to suits
against foreign states and the second to be met with respect to suits against agencies or
instrumentalities, jurisdiction would have been proper over the agencies or instrumentalities in
Chabad—but not the Russian Federation itself. Thus, it would appear that Simon’s articulation
of the relevant standard under § 1605(a)(3) cannot be squared with Chabad’s holding that the
district court had jurisdiction over the Russian Federation, even though only the second
commercial-activity nexus requirement was satisfied.
3
Following the D.C. Circuit’s ruling that the district court had jurisdiction over all
defendants, the district court proceeded to grant judgment against all defendants, including the
Russian Federation. Chabad, 729 F. Supp. 2d at 143.
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This Court would therefore seem bound by Chabad to disregard the inconsistent standard
in Simon. See Sierra Club, 648 F.3d at 854. Several factors, however, complicate the matter.
First, Simon did not simply ignore Chabad or purport to distinguish it. Instead, Simon cited
Chabad directly for the proposition that the “nexus requirement differs somewhat for claims
against the foreign state itself . . . as compared with claims against an agency or instrumentality
of the foreign state.” Simon, 812 F.3d at 146 (citing Chabad, 528 F.3d at 947). Chabad,
however, does not state that one nexus requirement applies in suits against a foreign state itself
and that the other requirement applies in suits against agencies or instrumentalities. That view
would not have allowed for jurisdiction over the Russian Federation in that case. Yet not only
did the D.C. Circuit panel in Simon not find any inconsistency with Chabad—it evidently
understood Chabad to support that very proposition.
Second, the plaintiffs in Simon, who had their claims against a foreign state itself rejected
on the ground that they could not satisfy the first commercial-activity nexus requirement,
petitioned for a rehearing before the three-judge panel to raise this very issue. See Pet. Panel
Reh’g, Simon, 812 F.3d 127 (No. 14-7082). The Simon plaintiffs asked the court to reconsider
its holding as to Hungary largely because it “conflicts with [a] prior [D.C. Circuit] decision[]”—
Chabad—“allowing claims to proceed against a foreign [state] where only the second
commercial activity nexus [requirement] was met.” Id. at 2. The panel unanimously rejected the
plaintiffs’ request for a rehearing, see Order Denying Pet. Reh’g, Simon, 812 F.3d 127 (No. 14-
7082), sending another signal that the Simon panel viewed its holding to be consistent with
Chabad.
Third, Simon’s conception of the underlying legal principle is explicit, whereas Chabad’s
is implicit. That is, Simon provides a clear and direct rule: To sue a foreign state itself, the first
commercial-activity nexus requirement must be satisfied. Period. Chabad necessarily implies
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that this is not the rule by sustaining jurisdiction over a foreign state when the second, but not the
first, commercial-activity nexus requirement was satisfied. But it does not say so directly.
Consequently, to follow Chabad, the Court would have to deviate from the D.C. Circuit’s only
specific articulation of the applicable rule.
Fourth, this issue apparently was not argued or briefed in either Chabad or Simon. In
Simon, at least, the defendants “did not raise the point on which the [D.C. Circuit] relied except
in a footnote arguing that the complaint failed to allege any commercial activity carried on by
Hungary in the United States.” Pet. Panel Reh’g at 6 n.1, Simon, 812 F.3d 127 (No. 14-7082).
Moreover, according to the Simon plaintiffs, “Defendants did not raise it before the district court,
which rested its dismissal on the treaty exception without addressing the issue on which the
[D.C. Circuit] relied.” Id. With no substantive briefing on the issue, it is unclear to what extent
either panel may have fully grappled with these arguments.
The upshot is this: This Court would seem bound to follow the precedent set in Chabad,
which implies that Venezuela is a proper defendant at this stage of litigation and that it may
appropriately be ordered to participate in jurisdictional discovery. Yet the D.C. Circuit’s clear
articulation of a contrary rule in Simon and its implicit view that the new rule is consistent
with—and perhaps even based on—Chabad places the Court in somewhat of a quandary. And
while the parties briefly argued the issue at a hearing on Plaintiffs’ motion to compel, the Court
is not prepared to definitively resolve the issue without further briefing. The Court will also
defer ruling on the issue at this time for a second reason: The parties’ stipulation on initial issues
to be briefed prior to jurisdictional discovery did not include the issue.
2. Stipulation on Initial Issues
Plaintiffs filed their Complaint in September 2011, which Defendants moved to dismiss
in August 2012 for lack of jurisdiction under the FSIA and for failure to state a claim. Prior to
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opposing the motions to dismiss, Plaintiffs moved to compel discovery. The Court denied that
motion without prejudice because all parties agreed to first address several preliminary issues
that could be resolved on the basis of the Complaint. “The Joint Stipulation [that resulted] lists
four issues raised in the motions to dismiss, termed the ‘Initial Issues,’ that the parties ‘shall brief
. . . in their next round of briefing [while] reserv[ing] argument on the additional issues raised in
the motions to dismiss . . . .” Helmerich & Payne Int’l Drilling Co. v. Bolivarian Republic of
Venezuela, 971 F. Supp. 2d 49, 56 (D.D.C. 2013) (quoting Joint Stipulation, ECF No. 36, at 3),
aff’d in part, rev’d in part, 784 F.3d 804 (D.C. Cir. 2015). The four initial issues were
(A) Whether, for purposes of determining whether a “taking in violation of
international law” has occurred under the expropriation exception of the Foreign
Sovereign Immunities Act (FSIA), 28 U.S.C. § 1605(a)(3), Plaintiff Helmerich &
Payne de Venezuela C.A. is a national of Venezuela under international law;
(B) Whether Plaintiffs’ expropriation claims are barred by the act of state
doctrine, including the issue whether this defense may be adjudicated prior to the
resolution of Defendants’ challenges to the Court’s subject matter jurisdiction;
(C) Whether, for purposes of determining the applicability of the
commercial activities exception of the FSIA, 28 U.S.C. § 1605(a)(2), Plaintiffs
have sufficiently alleged a ‘direct effect’ in the United States within the meaning
of that provision; and
(D) Whether Plaintiff Helmerich & Payne International Drilling Co. has
standing.
Id. All other issues raised in the motions to dismiss, including the issue of whether jurisdiction
could be obtained over Venezuela via the second commercial-activity nexus requirement of
§ 1605(a)(3), were deferred “until a second phase of briefing on the motions to dismiss.” Id. at
57 (quoting Joint Stipulation 3) (internal quotation mark omitted). That second phase of briefing
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is set to take place following the completion of jurisdictional discovery. See Order of October 2,
2015, ECF No. 73.
The issue of whether Venezuela could be subject to jurisdiction under the FSIA’s
expropriation exception could potentially have been briefed on the basis of Plaintiffs’ Complaint
and thus could have been included in the set of initial issues to be briefed prior to jurisdictional
discovery. True, at the time, Defendants did not have the benefit of the D.C. Circuit’s opinion in
Simon. Yet the parties did not include this issue in their stipulation, and briefing on the four
initial issues has already dragged the parties though a multi-year battle in this Court and before
the D.C. Circuit. The Court recognizes the potentially unnecessary burden jurisdictional
discovery may impose on Venezuela if it is in fact not a proper defendant in this case and the
general principle that jurisdictional discovery “should not be authorized at all if the defendant
raises . . . a different jurisdictional [ground,] . . . the resolution of which would impose a lesser
burden upon the defendant.” Phoenix Consulting, 216 F.3d at 40 (citing In re Papandreou, 139
F.3d 247, 254–55 (D.C. Cir. 1998)). Nonetheless, the Court will stand by its decision—based on
the parties’ agreement—to address that question following the close of jurisdictional discovery.
B. Categories of Discovery Requests
With jurisdictional discovery set to continue against both Venezuela and the PDVSA
defendants, the Court will consider each category of information Plaintiffs seek and the
corresponding interrogatories or requests for production.
1. First and Second Categories
In the first two categories of discovery requests, Plaintiffs seek information pertaining to
the PDVSA defendants’ legal control and power, influence, or practical control over the
expropriated property. This information is relevant because Plaintiffs hope to prove that the
PDVSA defendants—that is, PDVSA and PDVSA-P—“own or operate” the property within the
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meaning of 28 U.S.C. § 1605(a)(3). Plaintiffs believe their discovery requests are proper
because the D.C. Circuit has rather broadly construed “the phrase ‘owned or operated’ [to]
mean[] ‘possessed or exerted control or influence over’ the property at issue.” Nemariam v. Fed.
Democratic Republic of Ethiopia, 491 F.3d 470, 481 (D.C. Cir. 2007) (quoting Webster’s Third
New Int’l Dictionary 1580, 1612 (3d ed. 1993)). This Court agrees with Plaintiffs’ assessment
and, accordingly, will compel discovery as to PDVSA Requests for Production (“RFP”) 16 and
23 and Venezuela RFPs 9 and 10, which pertain to the first category of requests and PDVSA’s
legal control over the drilling rigs; and PDVSA interrogatories 1, 3, 4, 5, 10, 11, and 16 as well
as PDVSA RFPs 4, 5, 8, 9, 10, 11, 12, 19, 20, 27, and 28, which pertain to the second category of
requests and PDVSA’s ability—through its subsidiaries—to control the rigs.
In support of their first category of requests, related to legal control, Plaintiffs have
identified an order from Venezuela’s then-President Hugo Chávez on June 30, 2010, providing
that “[t]he Expropriated Assets shall be transferred free of liens or encumbrances to Petróleos de
Venezuela, S.A. [i.e., PDVSA] or the subsidiary which it designates for this purpose, as the
expropriating entity,” Trujillo Acosta Decl. Ex. B (Presidential Decree No. 7,532) at 3–4, as well
as evidence that one of the PDVSA defendants (PDVSA-P) “initiated two proceedings in the
Venezuelan courts seeking expropriation of the assets and transfer of title,” Pls.’ Mot. Compel
15; id. Exs. 14, 17. These facts, among others, see Pls.’ Mot. Compel 14–17, lend support to
Plaintiffs’ allegations that the PDVSA defendants participated in the alleged expropriation and
acquired legal rights to possess and use the assets following expropriation. The Court finds that
Plaintiffs have shown a good-faith basis for their requests and are entitled to explore these
allegations further by conducting appropriately tailored discovery into the PDVSA defendants’
legal rights over the drilling rigs.
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In support of their second category of requests, Plaintiffs cite a host of public statements
tending to show that PDVSA exerts practical control over the rigs: among them, a PDVSA press
release titled “Our workers have in custody the drilling rigs” and a PDVSA announcement that
the taking of the rigs “will guarantee that the drills will be operated by PDVSA as a company of
all Venezuelans.” See id. at 19–20 (citing id. Exs. 23, 24). Plaintiffs also put forward an
affidavit filed in separate litigation by PDVSA’s Executive Director of Finance, explaining that
PDVSA “has the purpose of planning, coordinating and supervising the action of the companies
that it owns, as well as controlling them in regards to their activities.” See Aff. of Abraham
Eduardo Ortega at 1, Skanga Energy & Marine Ltd. v. Arevenca, S.A. (S.D.N.Y. Aug. 16, 2011)
(No. 11-cv-4296), ECF No. 17. They also quote from PDVSA-SP’s bylaws, which require
PDVSA-SP’s Assembly of Shareholders to, “in the use of their powers[,] . . . comply with the
strategic guidelines, policies and plans agreed to by the Shareholders Assembly of Petróleos de
Venezuela, S.A. [PDVSA].” Trujillo Acosta Decl. Ex. C., at 12.
Plaintiffs have presented evidence that PDVSA directs, controls, or exerts significant
influence over the operations of the drilling rigs through PDVSA-SP or through PDVSA’s
subsidiary, PDVSA-S, which in turn controls PDVSA-SP. Although the PDVSA defendants
correctly state that “Nemariam expressly ties the concepts of control and influence to the
allegedly expropriated property itself,” Defs.’ Mot. Prot. Order 22, Plaintiffs have presented the
Court with more than enough material to justify a good-faith belief that the PDVSA defendants
control and influence not just the operations of PDVSA-S and PDVSA-SP but—through those
operations—the specific property at issue. The Court will therefore allow Plaintiffs to pursue
discovery regarding the PDVSA defendants’ and PDVSA-S’s power, influence, or practical
control over the rigs as manifested through their control of their respective wholly owned
subsidiaries.
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2. Third and Fifth Categories
In the third category of discovery requests, Plaintiffs seek information pertaining to
whether PDVSA-SP functions as the agent of the PDVSA defendants with respect to the
allegedly expropriated property or should be treated as their alter ego. Relatedly, Plaintiffs also
seek, in the fifth category of discovery requests, information concerning the relationship among
PDVSA-S, PDVSA-SP, and the expropriated assets. In Plaintiffs’ view, “there is sufficient
predicate information available in the public record to support discovery” designed to test
whether PDVSA-SP should not be treated as an entity independent of the PDVSA defendants
under the Supreme Court’s decision in First National City Bank v. Banco Para El Comercio
Exterior de Cuba (“BANCEC”), 462 U.S. 611 (1983). The Court, again, agrees with Plaintiffs
and will thus compel jurisdictional discovery under this theory as to PDVSA interrogatories 1, 3,
4, 5, 6, 7, 8, and 12 and Venezuela interrogatory 1, as well as PDVSA RFPs 4, 5, 6, 7, 8, 9, 10,
11, 12, 13, 19, 20, 27, 28, 30, 31 and Venezuela RFP 4.
“Under [the] FSIA, agencies and instrumentalities of a foreign nation are presumed to be
separate from each other and from the foreign state.” Foremost-McKesson, Inc. v. Islamic
Republic of Iran, 905 F.2d 438, 440 (D.C. Cir. 1990) (citing BANCEC, 462 U.S. at 625–28).
This presumption implies that
[i]t is not enough to show that various government entities or officials represent a
majority of the shareholders or constitute a majority of the board of directors of the
applicable agency or instrumentality; in other words, mere involvement by the state
in the affairs of an agency or instrumentality does not answer the question whether
the agency or instrumentality is controlled by the state for purposes of FSIA.
Id. The Supreme Court has nevertheless held that “where a corporate entity is so extensively
controlled by its owner that a relationship of principal and agent is created, . . . one may be held
liable for the actions of the other.” BANCEC, 462 U.S. at 629; see also Foremost-McKesson,
905 F.2d at 440 (holding that a district court must consider whether a foreign state “so dominated
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the operations of the” corporate entity that a principal-agent relationship existed). In addition,
the Supreme Court has “long recognized ‘the broader equitable principle that the doctrine of
corporate entity, recognized generally and for most purposes, will not be regarded when to do so
would work fraud or injustice.’” Id. (citing Taylor v. Standard Gas Co., 306 U.S. 307, 322
(1939)). And it “has consistently refused to give effect to the corporate form where it is
interposed to defeat legislative policies.” Id. at 630. In this vein, the Supreme Court has also
held that foreign governments “cannot escape liability for acts in violation of international law
simply by retransferring . . . assets to separate juridical entities. To hold otherwise would permit
governments to avoid the requirements of international law simply by creating juridical entities
whenever the need arises.” Id. at 633.
In support of their discovery requests, Plaintiffs point to the temporal proximity of
PDVSA-SP’s creation and the taking of the drilling rigs and ask how it is possible that “at the
very instant the expropriation was effectuated[,] . . . [PDVSA’s] recently minted and wholly
owned subsidiary acquired sole operation of the assets.” Pls.’ Mot. Compel 26 (citing Pls.’ Ex. 5
(PDVSA Defs.’ Resps. & Objs. Pls.’ First Set Interrogs.)) at 23 (“Prior to July 1, 2010, neither
PDVSA nor any of its affiliates operated any of the Expropriated Property. Since July 1, 2010,
that property has been solely operated by PDVSA-SP.”)). Plaintiffs are entitled to the limited
discovery they seek to understand the circumstances of PDVSA-S and PDVSA-SP’s creation and
Venezuela’s involvement in it.
In addition, Plaintiffs present some “evidence . . . of blurred lines, extensive control, and
commingling of funds” between PDVSA and PDVSA-SP, id. at 30, including, for instance,
invitations issued by PDVSA-SP for bids expressly “on behalf of” PDVSA and PDVSA-P and
on PDVSA letterhead, see id. Exs. 27–28. This evidence is consistent with the Eleventh
Circuit’s observation that PDVSA is a “unique organization” that gives “little consideration to
16
profits and losses of its separate corporate entities, and instead employ[s] the companies as
operational arms on behalf of the parent, PDVSA.” Exim Brickell LLC v. PDVSA Servs. Inc.,
516 Fed. App’x 742, 760 (11th Cir. 2013). To establish a principal-agent relationship, Plaintiffs
will ultimately need to show, at a minimum, that the
parent has manifested its desire for the subsidiary to act upon the parent’s behalf,
the subsidiary has consented so to act, the parent has the right to exercise control
over the subsidiary with respect to matters entrusted to the subsidiary, and the
parent exercises its control in a manner more direct than by voting a majority of
the stock in the subsidiary or making appointments to the subsidiary’s Board of
Directors.
Transamerica Leasing, Inc. v. La Republica de Venezuela, 200 F.3d 843, 849 (D.C. Cir. 2000).
Plaintiffs at least appear to be on that road and are thus entitled to the additional information they
seek in order to test their principal-agent theory and attempt to make the required showing under
BANCEC and Transamerica Leasing.
3. Fourth Category
In the fourth category of discovery requests, Plaintiffs seek information concerning
whether PDVSA-SP and PDVSA-S are themselves agencies or instrumentalities of Venezuela
engaged in commercial activity in the United States. It is important to note that this category of
information is relevant only if Chabad controls and the Court disregards Simon. That is, unless a
foreign state itself may be sued by virtue of one of its agencies or instrumentalities owning or
operating property taken in violation of international law, it makes no difference as far as any
defendant in this case is concerned whether PDVSA-SP or PDVSA-S is an agency or
instrumentality of Venezuela. However, given that this question was not one to which the parties
initially stipulated to briefing, and the answer to it is far from clear-cut, the Court will consider
Plaintiffs’ discovery requests under this category.
17
As Plaintiffs acknowledge, they must at least have a “good faith belief that . . . discovery
will enable [them] to show that the court has . . . jurisdiction over the defendant[s].” Caribbean
Broad. Sys., 148 F.3d at 1090. The PDVSA defendants unequivocally state that neither PDVSA-
S nor PDVSA-SP has transacted, been engaged in, or conducted any commercial activities in the
United States. See PDVSA Defs.’ Resp. Interrog. 17. They further contend that Plaintiffs have
not provided sufficiently concrete “evidence to discredit Defendant[s’] declaration so as to
provide the requisite ‘good faith basis.’” Simon v. Republic of Hungary, 37 F. Supp. 3d 381,
441 (D.D.C. 2014), aff’d in part, rev’d in part on other grounds, 812 F.3d 127 (D.C. Cir. 2016).
Indeed, the evidence to which Plaintiffs initially pointed was scant, and the conclusions
they drew from it were largely speculative. For instance, Plaintiffs identified customs records
indicating that PDVSA-SP purchased some American-made goods from a Chinese company,
which were shipped from China, and that it purchased products that traveled through U.S. ports.
This information does not provide any serious rebuttal to the PDVSA defendants’ assertions that
they have engaged in no commercial activity or transactions in the United States. Neither does
18
Plaintiffs’ evidence, then, showed that PDVSA-SP engaged in some commercial activity, but
with only a tangential connection to the United States;
4
Were that information all Plaintiffs could muster, they would have presented insufficient
evidence to rebut the PDVSA defendants’ assertions or to justify a good-faith belief supporting
jurisdictional discovery. In supplemental briefing on the issue, however, Plaintiffs have
identified evidence to bolster their belief that PDVSA-SP engages in at least some commercial
activity in the United States—in other words, that it has conducted transactions of a commercial
nature in the United States, see 28 U.S.C. § 1603(d), such as by affirmatively entering into
commercial contracts with American corporations to be performed in part in the United States,
see Chabad, 528 F.3d at 947–48.
In particular, Plaintiffs have come forward with documentation purporting to show
PDVSA-SP as the consignee of at least 20 shipments originating in the United States and
arriving in Venezuela. See Pls.’ Mot. Compel Ex. 44. In addition, Plaintiffs point to
4
Information in this section has been redacted because it discusses or cites confidential
business information shielded from disclosure by the Court’s Order of February 29, 2016, ECF
No. 92, adopting the parties’ stipulated Discovery and Confidentiality Oder.
19
The FSIA’s expropriation exception sets a “low” threshold, see Chabad, 528 F.3d at 947,
for what constitutes “engag[ing] in a commercial activity in the United States,” 28 U.S.C. §
1605(a)(3), and arranging for these shipments from the United States
may well constitute such activity, even if merely receiving goods that at one point
passed through U.S. ports does not.
This
and the newly found customs records that Plaintiffs identify, call into
question the PDVSA defendants’ response to Interrogatory 17 and provide Plaintiffs with a
good-faith basis to seek jurisdictional discovery into PDVSA-SP’s commercial activities in the
United States.
As a result, the Court will grant Plaintiffs’ motion to compel as to PDVSA Interrogatory
17 and PDVSA RFP 35, but only to the extent that Plaintiffs seek information about PDVSA-SP.
That is, Plaintiffs request information and documents concerning any business or commercial
activities in the United States involving PDVSA-SP and PDVSA-S, but have not supplied the
Court with predicate information sufficient to justify a good-faith belief that PDVSA-S (rather
than PDVSA-SP) has engaged in any commercial activity in the United States. Furthermore,
with an eye toward tailoring discovery to avoid imposing unnecessary burdens on sovereign
defendants, see Phoenix Consulting, 216 F.3d at 40, the Court will further limit Plaintiffs in
seeking discovery in this area to the types of transactions, contracts, or shipments they have
20
already identified—i.e., those concerning PDVSA-SP’s efforts to maintain and secure parts for
its drilling equipment, either directly or through a purchasing agent.
The Court will also grant Plaintiffs’ motion to compel with respect to PDVSA
Interrogatories 6, 7, 8, 10, 12, 13, 14, and 16; Venezuela Interrogatories 1, 3, 4, and 5; PDVSA
RFPs 13, 15, 16, 17, 19, 20, 26, 27, 28, 30, and 31; and Venezuela RFPs 4, 5, 6, 7, 8 and 11. 5
These requests all pertain to Plaintiffs’ efforts to test their claim that PDVSA-SP is an organ, and
therefore an agency or instrumentality, of Venezeula. Plaintiffs have come forward with
evidence that PDVSA-SP engages in public activity on behalf of Venezuela, see Trujillo Acosta
Decl. Ex. C, at 7–8; that PDVSA-SP’s shareholder assembly is required to comply with
guidelines from Venezuela’s Central Commission of Planning, see id. at 12; and that
Venezuela’s Minister of the People’s Power of Energy and Petroleum proposes designees for
PDVSA-SP’s President and Board of Directors and must approve any new investment or debt
taken on by PDVSA-SP, see id. at 9, 12. Plaintiffs thus have put forth adequate information to
support a good-faith belief regarding PDVSA-SP’s organ status, and jurisdictional discovery into
that issue is appropriate.
Again, however, the Court will limit Plaintiffs’ requests in this area—except to the extent
that the Court has already found particular requests to be justified on another ground—to the
status of PDVSA-SP and not PDVSA-S. Because Plaintiffs have not come forward with facts
supporting a good-faith belief that PDVSA-S conducts any commercial activity in the United
5
Of these discovery requests, the following are not independently supported by another
good-faith basis for conducting jurisdictional discovery discussed earlier in the Court’s opinion:
PDVSA Interrogatories 13 and 14; Venezuela Interrogatories 3, 4, and 5; PDVSA RFPs 15, 17,
and 26; and Venezuela RFPs 5, 6, 7, 8, and 11. Therefore, in the event that Defendants concede
that PDVSA-SP is an agency or instrumentality of Venezuela, Plaintiffs will have no need for
those specific discovery requests and the Court will consequently not compel discovery as to
those requests.
21
States, its status as a Venezuelan agency or instrumentality is irrelevant. “[J]urisdictional
discovery should be permitted only ‘if it is possible that the plaintiff could demonstrate the
requisite jurisdictional facts sufficient to constitute a basis for jurisdiction’ and it should not be
allowed when discovery would be futile.” Crist v. Republic of Turkey, 995 F. Supp. 5, 12
(D.D.C. 1998) (quoting Greenpeace, Inc. v. State of France, 946 F. Supp. 773, 789 (C.D. Cal.
1996)). Discovery under category 4 with respect to PDVSA-S would be futile, and the Court
will therefore not compel such discovery for this purpose. At the same time, the Court notes that
it has already found PDVSA Interrogatories 6, 7, 8, 10, 12, 13, and 16; Venezuela Interrogatory
1; PDVSA RFPs 16 and 19; and Venezuela RFP 4 to be appropriate for discovery as to both
PDVSA-SP and PDVSA-S in connection with other relevant categories of requested information.
Therefore, it is only with respect to PDVSA Interrogatory 14; Venezuela Interrogatories 3, 4, and
5; PDVSA RFP 26; and Venezuela RFPs 5, 6, 7, 8, and 11 that Defendants need not respond
with respect to PDVSA-S.6
4. Additional Discovery Issues
In addition to granting Plaintiffs’ motion to compel with respect to the requests identified
above, the Court will grant Defendants’ motion for a protective order with respect to Plaintiffs’
designation of multiple deponents under Federal Rule of Civil Procedure 30(b)(6). Despite their
claim that PDVSA and its subsidiaries are essentially one entity, Plaintiffs have noticed 30(b)(6)
depositions of both PDVSA and PDVSA-P. The deposition notices include identical lists of
matters for examination. See Defs.’ Mot. Protective Order Exs. 1–2. The PDVSA Defendants
contend that they “should not be forced to bear the burdens, costs and annoyance of defending
6
The Court would be prepared to reconsider this ruling if other discovery were to reveal
facts suggesting that PDVSA-S does in fact engage in commercial activity in the United States.
22
duplicative depositions,” especially given this Court’s obligation to appropriately limit discovery
against foreign sovereigns. Defs.’ Mot. Protective Order 6. The Court agrees and, provided that
PDVSA and PDVSA-P jointly designate a representative or representatives to testify once on
behalf of both entities, will prohibit Plaintiffs from deposing separate corporate witnesses on the
same topics for each PDVSA defendant.
Furthermore, the Court agrees with Defendants that Plaintiffs have not adequately
justified the following discovery requests: PDVSA interrogatory 19; PDVSA RFPs 1, 2, and 3;
Venezuela interrogatory 7; and Venezuela RFPs 1, 2, and 3. These requests involve the
identification and production of documents on which Defendants relied in providing the factual
basis of their jurisdictional defense, see ECF No. 78, and in responding to interrogatories. The
Court finds that the burden on Defendants of complying with these requests outweighs the likely
benefit to Plaintiffs, see Fed. R. Civ. P. 26(b)(1), a concern to which the Court must be especially
attuned in the FSIA context. It will thus deny Plaintiffs’ motion to compel and grant
Defendants’ motion for a protective order with respect to them. At the same time, PDVSA
interrogatory 18 and Venezuela interrogatory 6, which ask Defendants to identify persons likely
to have discoverable information relevant to the jurisdictional inquiry, strike the Court as
perfectly ordinary and reasonable requests designed to assist Plaintiffs in testing their
jurisdictional allegations. Responding to these two requests is also likely to be far less onerous
than responding to those identified above. Therefore, the Court will grant Plaintiffs’ motion to
compel with respect to PDVSA interrogatory 18 and Venezuela interrogatory 6.
C. Defendants’ Joint Motion to Stay
The Court’s order compelling at least some discovery against all defendants raises an
additional issue: On March 11, 2016, Defendants jointly filed a motion asking the Court to stay
proceedings “pending the Supreme Court’s resolution of . . . petitions for certiorari [filed by both
23
sides] and, if certiorari review is granted, the case on the merits.” Defs.’ Mem. Supp. Mot.
Stay 1. Defendants previously sought stays from the D.C. Circuit and Chief Justice John
Roberts, sitting in his capacity as Circuit Justice, pending the filing of a petition for certiorari.
Those requests were denied on August 25, 2015 and September 1, 2015, respectively. Pls.’
Opp’n Defs.’ Mot. Stay Exs. 1–2. On February 29, 2016, the Supreme Court issued an order
inviting the Solicitor General to express the views of the United States as to the petitions for
certiorari. See Monday, February 29, 2016 Certiorari – Summary Dispositions,
http://www.supremecourt.gov/orders/courtorders/022916zor_7lho.pdf (last visited May 13,
2016) (Case Nos. 15-423, 15-698). An order of this kind is commonly referred to as a “CVSG,”
or a call for the views of the solicitor general. See David C. Thompson & Melanie F. Wachtell,
An Empirical Analysis of Supreme Court Certiorari Petition Procedures: The Call for Response
and the Call for the Views of the Solicitor General, 16 Geo. Mason L. Rev. 237, 242 (2009).
Defendants contend that this CVSG “order substantially changes the state of play in the
litigation” because “if the Supreme Court grants review and reverses the D.C. Circuit’s ruling
here, the litigation will end on jurisdictional grounds based on the face of the complaint,
rendering any jurisdictional discovery unnecessary.” Defs.’ Mem. Supp. Mot. Stay 1. Plaintiffs
respond that the CVSG does not bear on “Defendants’ likelihood of success, their alleged
irreparable harm, whether their petition presents substantial [legal] questions, the interests of
public policy, or H&P’s injury from additional delay—judgments that led to the denial [by the
D.C. Circuit and Chief Justice Roberts] of Defendants’ prior requests” for a stay of proceedings.
Pls.’ Opp’n Def.’s Mot. Stay 2. For the reasons stated below, the Court finds that the Plaintiffs
have the better argument, and it will therefore not stay proceedings at the present time.
As this Court has noted:
24
“A stay is . . . an exercise of judicial discretion.” Virginian Ry. Co. v. United States,
272 U.S. 658, 672 (1926) . . . . The movant bears the burden of proving that a stay
is warranted. Nken v. Holder, 556 U.S. 418, 433–34 (2009). Decisions whether to
grant a stay are governed by four factors: “‘(1) whether the stay applicant has made
a strong showing that he is likely to succeed on the merits; (2) whether the applicant
will be irreparably injured absent a stay; (3) whether issuance of the stay will
substantially injure the other parties interested in the proceeding; and (4) where the
public interest lies.’” Id. at 434 (quoting Hilton v. Braunskill, 481 U.S. 770, 776
(1987)). “The first two factors . . . are the most critical.” Id.
Enron Nigeria Power Holding, Ltd. v. Fed. Republic of Nigeria, 70 F. Supp. 3d 457, 458–59
(D.D.C. 2014). Even when likelihood of success on the merits may be difficult to assess, “so
long as the other factors strongly favor a stay, such remedy is appropriate if ‘a serious legal
question is presented.’” Loving v. I.R.S., 920 F. Supp. 2d 108, 110 (D.D.C. 2013) (quoting
CREW v. Office of Admin., 593 F. Supp. 2d 156, 160 (D.D.C. 2009)).
Empirical research bears out, at least to some extent, Defendants’ contention that the
CVSG changes the state of play. For instance, one study of the CVSG process found that “[t]he
overall grant rate [for cert petitions] increases from 0.9% to 34% following a CVSG from the
Court; in other words, the Court is 37 times more likely to grant a petition following a CVSG.”
Thompson & Wachtell, supra, at 242. The grant rate increases to 42% for petitions on the paid
docket for which the Court has issued a CVSG. Id. Plaintiffs caution against reading too much
into these figures on the ground that “it is not at all unusual for the Supreme Court to seek the
Solicitor General’s views on petitions in [FSIA] cases.” Pls.’ Opp’n Defs.’ Mot. Stay 5. Yet
there is no doubt that, in general, “CVSG’d petitions . . . are granted at a far higher rate than
other petitions.” Conkright v. Frommert, 556 U.S. 1401, 1403 (2009) (Ginsburg, J., in
chambers).
The Supreme Court’s interest in the case, signaled by the CVSG order, does lend some
support to the notion that Defendants have raised substantial legal questions in their petition. But
a CVSG “is hardly dispositive” in this situation, and “[c]onsideration of the guiding criteria in
25
the context of the particular case remains appropriate.” Id. The D.C. Circuit and the Chief
Justice considered similar criteria in denying a stay of the D.C. Circuit’s mandate, and the
CVSG—on its own—does not sufficiently alter the calculus to justify granting a stay. This
Court may reconsider should the Solicitor General recommend granting certiorari. 7 In the
meantime, however, fairness to Plaintiffs and the public interest counsel in favor of no further
delays. The Court will deny the motion to stay and allow jurisdictional discovery to proceed.
An Order accompanies this Memorandum Opinion.
CHRISTOPHER R. COOPER
United States District Judge
Date: May 13, 2016
7
The empirical study referenced earlier indicates that the Supreme Court follows the
recommendation of the Solicitor General in this regard close to 80% of the time. See Thompson
& Wachtell, supra, at 242.
26