Rodolfo Enrique Jimenez v. Luisa Palacios

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
RODOLFO ENRIQUE JIMÉNEZ, )
ASDRÚBAL CHAVEZ, IRIS )
MEDINA, MARCOS ROJAS, JOSÉ )
ALEJANDRO ROJAS, and )
FERNANDO DE QUINTAL, )
)
Plaintiffs/Counterclaim- )
Defendants, )
)
v. ) C.A. No. 2019-0490-KSJM
)
LUISA PALACIOS, EDGAR )
RINCÓN, FERNANDO VERA, ELIO )
TORTOLERO, ANDRÉS PADILLA, )
ÁNGEL OLMETA, JAVIER )
TROCONIS, LUIS URDANETA, and )
RICK ESSER, )
)
Defendants/Counterclaim- )
Plaintiffs, )
)
and )
)
PDV HOLDING, INC., CITGO )
HOLDING, INC., and CITGO )
PETROLEUM CORPORATION, )
)
Nominal Defendants. )
OPINION
Date Submitted: July 23, 2019
Date Decided: August 2, 2019
Daniel B. Rath, Rebecca Butcher, Jennifer L. Cree, LANDIS RATH & COBB LLP,
Wilmington, Delaware; Quinn Smith, Katherine J. Sanoja, GST LLP, Miami,
Florida; Gary J. Shaw, GST LLP, Washington, D.C.; Counsel for Plaintiffs and
Counterclaim-Defendants Rodolfo Enrique Jiménez, Asdrúbal Chavez, Iris Medina,
Marcos Rojas, José Alejandro Rojas, and Fernando de Quintal.
Kenneth J. Nachbar, Susan W. Waesco, Alexandra M. Cumings, MORRIS,
NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Michael J.
Gottlieb, Samuel Hall, WILLKIE FARR & GALLAGHER LLP, Washington, D.C.;
Tariq Mundiya, Martin L. Seidel, Jonathan D. Waisnor, WILLKIE FARR &
GALLAGHER LLP, New York, New York; Counsel for Defendants and
Counterclaim-Plaintiffs Luisa Palacios, Edgar Rincón, Fernando Vera, Elio
Tortolero, Andrés Padilla, Ángel Olmeta, Javier Troconis, Luis Urdaneta, and Rick
Esser.
A. Thompson Bayliss, J. Peter Shindel, Jr., Daniel J. McBride, ABRAMS &
BAYLISS LLP, Wilmington, Delaware; José Ignacio Hernandez G., Special
Attorney General of Venezuela, Washington, D.C.; Counsel for Amicus Curiae the
Bolivarian Republic of Venezuela.
McCORMICK, V.C.
In January 2019, after a controversial presidential election, the National
Assembly of Venezuela declared the presidency of Nicolás Maduro illegitimate and
appointed opposition leader Juan Guaidó as Interim President. In response, the
President of the United States officially recognized the Guaidó government as
sovereign. After Guaidó assumed office, his government appointed a new board of
directors to govern Petróleos de Venezuela, S.A. (“PDVSA”), Venezuela’s state-
owned oil company. Guaidó’s newly appointed directors then reconstituted the
boards directors of the nominal defendants in this action—three Delaware entities
directly or indirectly owned by PDVSA.
The plaintiffs served as directors of the nominal defendants before Guaidó
took office. They commenced this litigation pursuant to Section 225 of the Delaware
General Corporation Law seeking a declaration that they comprise the rightful
boards of the nominal defendants. The defendants, who are the directors appointed
by Guaidó’s PDVSA board, counterclaimed for a competing declaration.
The parties have cross-moved for judgment on the pleadings. They agree that
the President of Venezuela has the power to appoint the members of the board of
PDVSA and, indirectly, determine the composition of the boards of the nominal
defendants. They disagree on who holds the title of President of Venezuela, whether
Guaidó’s actions successfully reconstituted the PDVSA board, and whether the
PDVSA board successfully reconstituted the boards of the nominal defendants.
1
The outcome turns on two threshold issues that implicate doctrinal
expressions of the concept of separation of powers—the political question and act
of state doctrines. The political question doctrine requires courts to accept as binding
the U.S. President’s determination to recognize a foreign government. The act of
state doctrine requires courts to assume the validity of an official act of a recognized
foreign government performed within its own territory. Applying these doctrines,
this decision accepts as binding the U.S. President’s recognition of the Guaidó
government and assumes the validity of the Guaidó government’s appointments to
the PDVSA board.
The plaintiffs raise myriad arguments in an effort to complicate this
straightforward analysis. They parse the U.S. President’s official statement
recognizing the Guaidó government, arguing that Guaidó’s authority as “interim”
President is limited. They pit the internal affairs doctrine against the more potent
political question and act of state doctrines, arguing that the former should override
the latter. They invoke exceptions to the act of state doctrine, arguing that the
Guaidó government lacks jurisdictional indicia of statehood and exceeded its
territorial limitations when appointing directors to the PDVSA board. Not one of
these arguments persuades, and this decision resolves these issues in favor of the
defendants.
2
But this decision does not reach the ultimate question of who comprises the
boards of the nominal defendants. The consents appointing the directors were
provided to the plaintiffs as attachments to briefing and are not appropriately
considered on a motion for judgment on the pleadings. This decision thus treats the
defendants’ motion as one for summary judgment and grants the plaintiffs an
opportunity to submit an affidavit identifying disputed facts foreclosing summary
judgment in the defendants’ favor.
I. FACTUAL BACKGROUND
As both sides correctly observe, the Court need not delve into the disputed
facts concerning Venezuela’s recent political turmoil in order to resolve the discrete
legal issues presented by the cross motions. Yet, ignoring those events would cheat
future readers of significant context. Thus, for context only, this factual background
includes a summary of those events, which are not considered for the purpose of the
legal analysis.1 Otherwise, the facts are drawn from the parties’ respective
1
One fact the parties cannot reasonably dispute is that the Venezuelan people have suffered
in recent years. The understated and truncated nature of the description of political events
is in no way intended to trivialize the hardships they have faced.
3
pleadings, documents integral to or incorporated by reference therein, 2 and judicially
noticeable facts.3
A. Recent Political Turmoil in Venezuela
Following the 2013 death of Venezuelan President Hugo Chávez, his political
heir Maduro became President of Venezuela. During Maduro’s first term,
Venezuela’s economy spiraled downward, resulting in hyperinflation and a shortage
of food and medical supplies. Some blamed Chávez and Maduro’s economic
2
See C.A. No. 2019-0490-KSJM Docket (“Dkt.”) 1, Verified Compl. (“Compl.”); Dkt. 16,
Defs.’ Answer to Verified Compl. and Verified Countercl. (“Countercl.”); Dkt. 17, Pls.’
Answer to Defs.’ Countercls. (“Ans. to Countercl.”).
3
In the category of judicially noticeable facts, this decision references press statements and
releases issued by official representatives of the U.S. federal government and recognized
foreign governments. That the referenced statements and releases set forth certain
positions of the U.S. federal government and other governments is not subject to reasonable
dispute, and the Court may therefore take judicial notice of the positions set forth in the
statements and releases. See D.R.E. 201(b); In re Duke Energy Corp. Deriv. Litig., 2016
WL 4543788, at *4 n.34 (Del. Ch. Aug. 31, 2016) (“I take judicial notice of the publicly
available press release announcing the appointment of Saladrigas as a Progress director in
2001[.]”); see also In re Foreign Exch. Benchmark Rates Antitrust Litig., 74 F. Supp. 3d
581, 588 n.4 (S.D.N.Y. 2015) (taking judicial notice of information provided in
government agencies’ press releases under Federal Rule of Evidence 201). This decision
also takes judicial notice of Executive Orders of the U.S. President, which have the same
force and effect as governing law. See Farmer v. Phila. Elec. Co., 329 F.2d 3, 7 (3d Cir.
1964) (“[W]hen the President issues proclamations and orders . . . pursuant to a mandate
or a delegation of authority from Congress[,] . . . the proclamations[] [and] orders . . . have
the force and effect of laws.”). See also Diesel & Equip. Specialists, Inc. v. Tull,
1983 WL 473061, at *1 (Del. Super. Dec. 7, 1983) (taking judicial notice of the governor’s
executive orders establishing legal holidays), aff’d, 494 A.2d 168 (Del. 1984); State v.
Patnovic, 129 A.2d 780, 782 n.6 (Del. Super. 1957) (taking judicial notice of declarations
by the governor and law enforcement agencies).
4
policies, including strict price controls. Protests and civil insurrection ensued.
Arrests followed.
By late 2015, the opposition coalition had won control of Venezuela’s
legislative body, the National Assembly. Before the newly elected legislators took
office, the National Assembly packed the Supreme Tribunal of Justice (“Supreme
Tribunal”) with judges reportedly loyal to Maduro. In early 2016, citing election
irregularities, the Supreme Tribunal issued a ruling blocking three opposition
lawmakers from taking office. The opposition coalition nevertheless swore in the
three legislators, claiming the Supreme Tribunal’s ruling was designed to strip the
opposition of its supermajority in the National Assembly. In response, the Supreme
Tribunal declared null and void decisions taken by the National Assembly while the
three legislators held their seats. In March 2017, the Supreme Tribunal took over
legislative powers from the National Assembly. The United States and other
members of the international community condemned this action, prompting the
Supreme Tribunal to reverse course in April 2017.
On May 1, 2017, the Maduro regime took a new approach, calling for a
National Constituent Assembly (“Constituent Assembly”) under Article 347 of the
Constitución de la República Bolivariana de Venezuela (the “Venezuelan
Constitution”). Members of the international community denounced the move as an
unconstitutional effort to concentrate political power, and the opposition coalition
5
boycotted the July elections for the Constituent Assembly. The United States vowed
“to take strong and swift actions” against the members of the Maduro regime, who
the U.S. Department of State referred to as the “architects of authoritarianism.” 4
Protests and violence ushered in election results, according to some accounts.
In its first month of existence, the Constituent Assembly reportedly expressed
support for Maduro, gave itself the power to legislate, and voted to put opposition
leaders on trial for treason. The National Assembly refused to subordinate itself to
the Constituent Assembly, resulting in two legislative bodies purporting to govern
Venezuela.
Maduro disqualified the opposition parties from participating in the 2018
Presidential election, which he then claimed to win.
Amid a collapsing economy and growing humanitarian crisis, Maduro was
sworn in for a second term as President of Venezuela on January 10, 2019. The
National Assembly declared Maduro’s presidency illegitimate on January 15, 2019.
Invoking Article 233 of the Venezuelan Constitution, the National Assembly’s
president, Juan Guaidó, was named the Interim President of Venezuela on
January 23, 2019.
4
Press Statement, U.S. Dep’t of State, Defending Democracy in Venezuela (July 30, 2017),
available at https://www.state.gov/defending-democracy-in-venezuela-2/.
6
B. PDVSA and the CITGO Entities
Although Venezuela’s economy struggles, Venezuela’s government lays
claim to the largest proven oil reserves in the world. PDVSA is a Venezuelan
company formed in 1975 by the President of Venezuela. Venezuela owns PDVSA,
which indirectly owns CITGO Petroleum Corporation (“CITGO Petroleum”), a
Delaware corporation headquartered in Houston and one of the largest operating
petroleum refiners in the United States.
PDVSA owns CITGO Petroleum through two other Delaware corporations,
PDV Holding, Inc. and CITGO Holding, Inc. (with CITGO Petroleum and PDV
Holding, the “CITGO Entities”). Venezuela is the sole stockholder of PDVSA,
PDVSA is the sole stockholder of PDV Holding,5 PDV Holding is the sole
stockholder of CITGO Holding, and CITGO Holding is the sole stockholder of
CITGO Petroleum.
5
On July 29, 2019, the United States Court of Appeals for the Third Circuit issued an
opinion affirming a ruling that allowed Crystallex International Corporation to seize shares
of PDV Holding to satisfy an arbitral award. See Crystallex Int’l Corp. v. Bolivarian
Republic of Venezuela, -- F.3d --, 2019 WL 3403888, at *1, *17 (3d Cir. July 29, 2019).
This ruling might affect ownership of these entities, but it does not alter the validity of the
acts at issue in this case.
7
Historically, the President of Venezuela had the power to appoint the
members of the board of directors of PDVSA by decree. 6 Maduro last exercised that
authority in October 2018. 7
C. The United States Recognizes the Guaidó Government.
The same day that Guaidó became the Interim President of Venezuela, the
United States and a number of other countries recognized the Guaidó government.
In a public statement on January 23, 2019, the U.S. President declared:
Today, I am officially recognizing the President of the
Venezuelan National Assembly, Juan Guaido, as the
Interim President of Venezuela. In its role as the only
legitimate branch of government duly elected by the
Venezuelan people, the National Assembly invoked the
country’s constitution to declare Nicolas Maduro
illegitimate, and the office of the presidency therefore
vacant. . . .
We encourage other Western Hemisphere governments to
recognize National Assembly President Guaido as the
Interim President of Venezuela, and we will work
constructively with them in support of his efforts to restore
constitutional legitimacy. We continue to hold the
6
Compl. Ex. E, Apostilla de Estatuto Petróleos de Venezuela, Title IV, Article Seventeen
(“The Board of Directors will be composed of at least seven (7) but no more than fifteen
(15) members, appointed by Decree of the President of the Republic.”).
7
In October 2018, Maduro decreed that the following individuals would comprise the
board of PDVSA: Manuel Salvador Quevedo Fernández; Miguel José Quintana Castro;
Rodolfo Enrique Jiménez Jiménez; José Alejandro Rojas Reyes; Nemrod Antonio
Contreras Mejías; Marcos Alejandro Rojas Marchena; Fernando Manuel de Quintal
Rodríguez; Yurbis Josefina Gómez; Ricardo Andrés León Sabala; Wils Asención Rangel
Linares; Simón Alejandro Zerpa Delgado; Ricardo José Menéndez Prieto; and Tareck
Zaidan el Aissami Maddah. Compl. Ex. F, Decreto Nº 3.637 (Oct. 22, 2018).
8
illegitimate Maduro regime directly responsible for any
threats it may pose to the safety of the Venezuelan people.8
On January 25, 2019, the U.S. Department of State accepted Interim President
Guaidó’s designation of Carlos Alfredo Vecchio as the Chargé d’Affaires of the
government of Venezuela. 9
8
See Statement from President Donald J. Trump Recognizing Venezuelan National
Assembly President Juan Guaido as the Interim President of Venezuela (Jan. 23, 2019)
(cited as the “January 23 Executive Statement”), Dkt. 25, Ex. A to the Transmittal Aff. of
Kenneth J. Nachbar in Supp. of Defs. and Countercl.-Pls.’ Opening Br. in Supp. of Their
Mot. for Judgment on the Pleadings (“Nachbar 7/11/19 Aff.”). See also, Press Statement,
U.S. Dep’t of State, Continuing U.S. Diplomatic Presence in Venezuela (Jan. 23, 2019)
(cited as “Sec. Pompeo Statement”) (U.S. Secretary of State Michael R. Pompeo stated:
“The United States stands with interim President Juan Guaido . . . . The United States does
not recognize the Maduro regime as the government of Venezuela.”), available at
https://www.state.gov/continuing-u-s-diplomatic-presence-in-venezuela/; Press Release,
Foreign & Commonwealth Office and the Rt Hon Jeremy Hunt MP, UK recognises Juan
Guaido as interim President of Venezuela (Feb. 4, 2019) (UK Foreign Secretary Jeremy
Hunt stated: “The United Kingdom now recognises Juan Guaido as the constitutional
interim President of Venezuela, until credible presidential elections can be held. . . . The
UK takes this position alongside the Organisation of American States, the Lima Group, the
United States and European partners.”), available at
https://www.gov.uk/government/news/uk-recognises-juan-guaido-as-interim-president-
of-venezuela; Press Release, Fed. Ministry of Republic of Austria, Joint declaration on
Venezuela (Feb. 4, 2019) (“Austria along with Spain, Portugal, Germany, the United
Kingdom, Denmark, the Netherlands, France, Hungary, Finland, Belgium, Luxemburg, the
Czech Republic, Latvia, Lithuania, Estonia, Poland, Sweden and Croatia takes note that
Mr. Nicolás Maduro has chosen not to set in motion the electoral process. Subsequently,
and in accordance with the provisions of the Venezuelan Constitution, they acknowledge
and support Mr. Juan Guaidó, President of the democratically elected National Assembly,
as President ad interim of Venezuela, in order for him to call for free, fair and democratic
presidential elections.”), available at https://www.bmeia.gv.at/en/the-
ministry/press/announcements/2019/02/joint-declaration-on-venezuela/. The plaintiffs
assert that Germany has withdrawn its recognition of the Guaidó government. Ans. to
Countercl. ¶ 14.
9
Press Statement, U.S. Dep’t of State, Representative of the Government of Venezuela to
the United States (Jan. 27, 2019) (recognizing that “Mr. Vecchio will have authority over
diplomatic affairs in the United States on behalf of Venezuela” and “reaffirm[ing] the
9
According to the plaintiffs, Maduro continued to wield actual control over
PDVSA’s Venezuelan operations.10 According to the defendants, Maduro wielded
this control through military force. 11 According to the U.S. Executive Branch, the
Maduro regime made “continued attempts to undermine the Interim President of
Venezuela and undermine the National Assembly, the only legitimate branch of
government duly elected by the Venezuelan people, and to prevent the Interim
President and the National Assembly from exercising legitimate authority in
Venezuela[.]” 12 Citing these concerns, the U.S. President issued an Executive Order
on January 25, 2019, that extended pre-existing sanctions to members of the Maduro
regime. 13 Then, on January 28, 2019, the U.S. Department of Treasury’s Office of
Foreign Assets Control (“OFAC”) added PDVSA to its Specially Designated
Nationals and Blocked Persons List. 14 This designation prohibits U.S. persons
United States’ strong support for interim President Guaido’s leadership of Venezuela”),
available at https://www.state.gov/representative-of-the-government-of-venezuela-to-the-
united-states/.
10
See Dkt. 21, Pls./Countercl. Defs.’ Opening Br. in Supp. of Their Mot. for J. on the
Pleadings (“Pls.’ Opening Br.”) at 30.
11
See Countercl. ¶ 12.
12
Executive Order 13857 (Jan. 25, 2019), Nachbar 7/11/19 Aff. Ex. B. See also Countercl.
¶ 16; Ans. to Countercl. ¶ 16.
13
Executive Order 13857 (Jan. 25, 2019), Nachbar 7/11/19 Aff. Ex. B. See also Countercl.
¶ 16; Ans. to Countercl. ¶ 16.
14
See Press Release, U.S. Dep’t of Treasury, Treasury Sanctions Venezuela’s State-Owned
Oil Company Petroleos de Venezuela, S.A. (Jan. 28, 2019) (cited as “January 2019
Treasury Press Release”) (“Today’s designation of PdVSA will help prevent further
diverting of Venezuela’s assets by Maduro and preserve these assets for the people of
10
“from engaging in transactions or dealings” with PDVSA in the absence of a license
issued by OFAC. 15 Concurrent with the designation, to mitigate market disruptions
stemming from these sanctions, OFAC issued licenses creating exceptions to the
sanctions on PDVSA and the CITGO Entities. 16
On January 31, 2019, OFAC published a response to the frequently asked
question, “[w]hen will sanctions be lifted on [PDVSA] or any entity in which
PdVSA owns, directly or indirectly, a 50 percent or greater interest?” 17 The response
states:
The path to sanctions relief for PdVSA and its subsidiaries
is through the expeditious transfer of control of the
company to Interim President Juan Guaidó or a
subsequent, democratically elected government that is
committed to taking concrete and meaningful actions to
combat corruption, restore democracy, and respect human
rights. A bona fide transfer of control will ensure that the
Venezuela.”), available at https://home.treasury.gov/news/press-releases/sm594. See also
Countercl. ¶ 16; Ans. to Countercl. ¶ 16.
15
OFAC FAQs No. 547 (July 19, 2018), available at https://www.treasury.gov/resource-
center/faqs/sanctions/pages/faq other.aspx#venezuela. See also Ans. to Countercl. ¶ 16
(referring to text of OFAC FAQ No. 547, among other things). OFAC FAQs are U.S.
Department of Treasury-prepared responses to frequently asked questions; they are not
subject to reasonable dispute and capable of accurate and ready determination by resort to
resources, such as Executive Orders, whose accuracy cannot reasonably be questioned.
The Court therefore takes judicial notice of the OFAC FAQs discussed herein. See D.R.E.
201(b).
16
See supra n.14, January 2019 Treasury Press Release (“Concurrent with this
[designation], OFAC is issuing general licenses that authorize certain transactions and
activities related to PdVSA and its subsidiaries within specified timeframes.”).
17
OFAC FAQs No. 660 (Jan. 31, 2019), available at https://www.treasury.gov/resource-
center/faqs/Sanctions/Pages/faq_other.aspx#650.
11
assets of Venezuela are preserved for the country’s people,
rather than misused and diverted by former President
Nicolas Maduro. Treasury will continue to use its
economic tools to support Interim President Guaidó, the
National Assembly, and the Venezuelan people’s efforts
to restore their democracy. 18
As of the date of this decision, OFAC has not changed its position.
D. The Guaidó Government Appoints Directors to the
Managing Board of PDVSA.
On February 5, 2019, the National Assembly approved and adopted a Statute
to Govern a Transition to Democracy to Reestablish the Validity of the Constitution
of the Republic of Venezuela (the “Transition Statute”). 19 The Transition Statute
was adopted to facilitate a “democratic transition” in Venezuela in three phases:
(1) “End the dictatorial regime” of Maduro, (2) “Set up a provisional Government
for national unity, to ensure that the democratic system is restored and free elections
are called[;]” and (3) “Restore a democratic State by holding free, clear and fair
elections in the shortest time possible.”20
The Transition Statute identified Guaidó as “the legitimate President in
Charge” of Venezuela. 21 It specifically empowered Guaidó to “appoint an ad hoc
18
Id.
19
Transition Statute (translated to English), Nachbar 7/11/19 Aff. Ex. C; see also Compl.
Ex. P, Transition Statute (untranslated); Countercl. ¶ 18; Ans. to Countercl. ¶ 18. The
Transition Statute spans seven chapters and thirty-nine articles.
20
Transition Statute, at ch. I, art. 1, art. 7, Nachbar 7/11/19 Aff. Ex. C.
21
Id. at ch. III, art. 14.
12
Managing Board” of PDVSA “to exercise PDVSA’s rights as a shareholder of PDV
Holding[.]” 22 The Transition Statute further directed the CITGO Entities to “have
no relationship whatsoever” with Maduro and his regime. 23
On February 8, 2019, pursuant to the authority granted him under the
Transition Statute, Guaidó appointed five individuals as the ad hoc Managing Board
of PDVSA “for the purpose of carrying out all necessary actions to appoint a Board
of Directors” for PDV Holding. 24 On February 13, 2019, the National Assembly
approved this action by resolution. 25
On February 14, 2019, Venezuela’s Constitutional Court, a subdivision of the
Supreme Tribunal, issued a decision finding the Transition Statute unconstitutional
and declaring the Transition Statute and the National Assembly resolution null and
void. 26 The Constitutional Court found Guaidó’s appointment of PDVSA’s
Managing Board unlawful and declared it a nullity. 27
22
Id. at ch. VII, art. 34; see also Countercl. ¶ 19; Ans. to Countercl. ¶ 19.
23
Transition Statute, at ch. VII, art. 34 ¶ 3(b).
24
See Decree of Juan Guaidó (Feb. 8, 2019), Nachbar 7/11/19 Aff. Ex. D. The Guaidó
PDVSA Managing Board comprised Simón Antunes, Gustavo J. Velásquez, Carlos José
Balza, Ricardo Alfredo Prada, and David Smolansky. Id. ¶ ONE.
25
Resolution, Compl. Ex. Q.
26
Decision of the Constitutional Court of the Supreme Tribunal, at 1, 8 (Feb. 14, 2019)
(the “Constitutional Court Decision”), Compl. Ex. R.
27
Constitutional Court Decision, at 9 (The National Assembly’s resolution “includes
appointments of authorities to the Board of Directors of PDVSA and of some of its
Subsidiary Companies, which are NULL OF ABSOLUTE NULLITY.” (emphasis
omitted)).
13
E. The Managing Board of PDVSA Reconstitutes the Boards
of the CITGO Entities.
On February 15, 2019, the Guaidó-appointed Managing Board, acting for
PDVSA as the sole stockholder of PDV Holding took action by a written consent
pursuant to Section 228 of the Delaware General Corporation Law (“DGCL”) to
elect a new board of PDV Holding.28
Also on February 15, 2019, each member of the new PDV Holding board
executed a unanimous written consent pursuant to Section 141(f) of the DGCL
electing a new officer of PDV Holding. 29 That officer then caused PDV Holding to
act by written consent as the sole stockholder of CITGO Holding to elect a new
board of CITGO Holding.30 The CITGO Holding board repeated the steps for
CITGO Petroleum. 31
The defendants allege (and the plaintiffs dispute) that the written stockholder
consents electing the new boards of the CITGO Entities became effective on
28
PDV Holding, Inc., Waiver of Notice and Written Consent of the Sole Stockholder in
Lieu of a Special Meeting (Feb. 15, 2019), Nachbar 7/11/19 Aff. Ex. E.
29
PDV Holding, Inc., Waiver of Notice and Unanimous Written Consent of the Board of
Directors in Lieu of a Special Meeting (Feb. 15, 2019), Nachbar 7/11/19 Aff. Ex. F.
30
CITGO Holding, Inc., Waiver of Notice and Written Consent of the Sole Stockholder in
Lieu of a Special Meeting (Feb. 15, 2019), Nachbar 7/11/19 Aff. Ex. G.
31
CITGO Holding, Inc., Waiver of Notice and Unanimous Written Consent of the Board
of Directors in Lieu of a Special Meeting (Feb. 15, 2019), Nachbar 7/11/19 Aff. Ex. H;
CITGO Petroleum Corporation, Waiver of Notice and Written Consent of the Sole
Stockholder in Lieu of a Special Meeting (Feb. 15, 2019), Nachbar 7/11/19 Aff. Ex. I.
14
February 18, 2019, when each consent was delivered to the respective CITGO
Entity. 32 The defendants also allege (and the plaintiffs dispute) that, at the end of
this process, the new PDV Holding board comprised directors Luisa Palacios, Edgar
Rincón, Fernando Vera, Elio Tortolero, and Andrés Padilla. The new CITGO
Holding board comprised directors Palacios, Rincón, Ángel Olmeta, Javier
Troconis, and Rick Esser. And the new CITGO Petroleum board comprised
directors Palacios, Rincón, Luis Urdaneta, Olmeta, Padilla, and Esser.
F. This Litigation
On June 25, 2019, the plaintiffs initiated this action pursuant to Section 225
of the DGCL claiming that they comprise the boards of each of the CITGO Entities.
By statute, Section 225 actions are summary proceedings, so the plaintiffs moved
for expedited proceedings contemporaneous with filing their complaint, and the
defendants agreed to expedition. On July 9, 2019, the defendants answered and
counterclaimed. That same day, the plaintiffs answered the counterclaim. Both
sides moved for judgment on the pleadings, submitting cross-opening briefs on
32
According to the amicus curiae, on April 10, 2019, by Presidential Decree approved by
the National Assembly, Guaidó amended the February 8 decision creating the Guaidó
Managing Board to ratify the creation of the Managing Board of PDV Holding and revoke
Maduro’s prior appointments to the PDVSA board of directors. See Dkt. 43, Br. of the
Bolivarian Republic of Venezuela, as Amicus Curiae, In Supp. of Defs./Countercl.-Pls.
(“Amicus Br.”), at 9 (citations omitted).
15
July 11, 2019, and cross-answering briefs on July 16, 2019.33 The Court heard oral
argument on July 18, 2019. 34
Before oral argument, but after the parties’ second round of briefing, the Court
granted Venezuela leave to participate as amicus curiae in support of the defendants’
motion.35 Filing an amicus brief after the submission of the parties’ principle
briefing is typical,36 and permitting Venezuela to participate as an amicus curiae is
consistent with well-settled law. 37 The plaintiffs did not contend otherwise. During
oral argument, however, counsel for the plaintiffs expressed concern that they were
unable to respond to the arguments made by the amicus curiae. 38 To address this
concern, and to allow the parties to address legal authorities identified by the Court
33
Dkt. 21, Pls.’ Opening Br.; Dkt. 24, Defs.’ and Countercl.-Pls.’ Opening Br. in Supp. of
Their Mot. for J. on the Pleadings (“Defs.’ Opening Br.”); Dkt. 35, Pls./Countercl. Defs.’
Answering Br. in Opp’n to Defs. and Countercl.-Pls. Mot. for J. on the Pleadings (“Pls.’
Ans. Br.”); Dkt. 36, Defs. and Countercl.-Pls.’ Corrected Reply Br. in Supp. of Their Mot.
for J. on the Pleadings (“Defs.’ Ans. Br.”).
34
Dkt. 55, Oral Arg. re Cross-Mots. for J. on the Pleadings (July 18, 2019) (“Oral Arg.
Tr.”).
35
Dkt. 43, Amicus Br.
36
See generally Del. Supr. Ct. R. 28.
37
See, e.g., Matteo Godi, A Historical Perspective on Filings by Foreign Sovereigns at the
U.S. Supreme Court: Amici or Inimici Curiae?, 42 Yale J. Int’l L. 409, 441 (2017) (tracing
common practice of foreign sovereigns filing amicus curiae briefs before the U.S. Supreme
Court and concluding that “judicial openness to foreign sovereign amici is a longstanding
institutional tradition of the Court”).
38
Oral Arg. Tr. at 7:18–9:3.
16
during argument, 39 the Court ordered another round of briefing post-argument,
which was submitted on July 23, 2019.40
II. LEGAL STANDARD
The parties cross-moved for judgment on the pleadings pursuant to Court of
Chancery Rule 12(c). The Court will grant a Rule 12(c) motion “only when no
material issue of fact exists and the movant is entitled to judgment as a matter of
law.” 41 In deciding cross motions for judgment on the pleadings, the Court will take
the well-pleaded facts contained in the operative pleadings and “‘view the facts
pleaded and inferences to be drawn from such facts . . . in a light most favorable to
the non-moving party.’” 42 The pleadings to which this Court may look are not
limited to complaints or counterclaims, but also include answers and affirmative
39
Id. at 34:10–37:6.
40
Dkt. 51, Defs.’ and Countercl.-Pls.’ Suppl. Br. in Supp. of Their Mot. for J. on the
Pleadings (“Defs.’ Reply Br.”); Dkt. 52, Pls./Countercl. Defs.’ Reply Br. in Supp. of Their
Mot. for J. on the Pleadings (“Pls.’ Reply Br.”). At the time of this decision, Venezuela
and its state-owned entities were embroiled in litigation in other courts in this country. See
Defs.’ Opening Br. at 31–32 & n.9; Pls.’ Ans. Br. at 38 n.9. See, e.g., PDVSA U.S. Litig.
Tr. v. Lukoil Pan Ams. LLC, 372 F. Supp. 3d 1353, 1362 (S.D. Fla. 2019); Order, Rusoro
Mining Ltd. v. Bolivarian Republic of Venezuela, C.A. No. 18-7044 (D.C. Cir. May 1,
2019), Nachbar 7/11/19 Aff. Ex. U; Defs. Bariven S.A. and PDVSA Servs., B.V.’s Mot. to
Substitute Counsel, CLADirect, Inc. v. Bariven S.A., C.A. No. 4:19-cv-00553 (S.D. Tex.
June 19, 2019), Nachbar 7/11/19 Aff. Ex. Z. Since the Executive Branch recognized
Guaidó, no United States court has held that representatives of the Maduro regime may act
for either the Venezuelan government or a Venezuelan state-owned enterprise in litigation.
41
Desert Equities, Inc. v. Morgan Stanley Leveraged Equity Fund, II, L.P., 624 A.2d 1199,
1205 (Del. 1993).
42
BAE Sys. N. Am. Inc. v. Lockheed Martin Corp., 2004 WL 1739522, at *3 (Del. Ch.
Aug. 3, 2004) (quoting Desert Equities, 624 A.2d at 1205).
17
defenses.43 On a Rule 12(c) motion, the Court may consider documents integral to
the pleadings,44 including documents incorporated by reference and exhibits
attached to the pleadings, 45 and facts subject to judicial notice. 46
III. LEGAL ANALYSIS
The parties agree that the President of Venezuela has the power to select the
members of the board of PDVSA, which in turn has the power to determine the
boards of the CITGO Entities. They disagree on three points. First, they dispute
who wields sovereign authority of the President of Venezuela, an issue that turns on
the political question doctrine. Second, they dispute whether Venezuela’s sovereign
authority properly reconstituted PDVSA’s board, an issue that turns on the act of
43
See Airborne Health, Inc. v. Squid Soap, LP, 984 A.2d 126, 130 (Del. Ch. 2009); Lillis
v. AT&T Corp., 896 A.2d 871, 876 n.9 (Del. Ch. 2005), clarified, 2005 WL 3111991 (Del.
Ch. Nov. 17, 2005); Ct. Ch. R. 8(c).
44
Bakotic v. Bako Pathology LP, 2018 WL 6601172, at *2 (Del. Super. Dec. 10, 2018)
(“Where a document is integral to the pleadings, the court may consider it in deciding a
Rule 12(c) motion without converting it to one for summary judgment.”); see also 5C
Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1367 (3d ed.
2019).
45
See Mehta v. Mobile Posse, Inc., 2019 WL 2025231, at *2 (Del. Ch. May 8, 2019)
(considering exhibits attached to the defendants’ answer on a motion for judgment on the
pleadings); Ketler v. PFPA, LLC, 2015 WL 3540187, at *1 (Del. Super. June 3, 2015)
(considering document attached to answer on motion for judgment on the pleadings and
noting that “[e]xhibits to pleadings are considered part of the pleadings and therefore this
motion does not convert to one for summary judgment”), aff’d, 132 A.3d 746 (Del. 2016)).
46
Delaware Rule of Evidence 201 empowers the Court to “take judicial notice at any stage
of the proceeding.” D.R.E. 201(d); see also ITG Brands, LLC v. Reynolds Am., Inc., 2017
WL 5903355, at *2, *5 (Del. Ch. Nov. 30, 2017) (considering, on cross motions for partial
judgment on the pleadings, facts “either not subject to reasonable dispute or subject to
judicial notice”).
18
state doctrine. Third, they dispute the ultimate question of who constitutes the
CITGO Entities’ respective boards, which turns on facts not before the Court at the
pleading stage.
A. Under the Political Question Doctrine, the U.S. President’s
Recognition of the Guaidó Government Binds This Court.
Under the political question doctrine, a decision to recognize a foreign
sovereign presents a non-justiciable political question, because the recognition of a
foreign sovereign is exclusively a function of the Executive Branch. 47 Applying this
doctrine, the defendants contend that the Executive Branch’s recognition of the
Guaidó government is binding on this Court. And according to the defendants,
invalidating Guaidó’s actions to replace the PDVSA board would effectively
undermine the Executive Branch’s recognition of the Guaidó government. The
defendants say that the plaintiffs’ request for relief must therefore be denied. The
plaintiffs respond that although the U.S. President issued a statement of recognition,
that statement is limited on its face and does support the defendants’ requested
relief. 48
47
Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 410 (1964); Guar. Tr. Co. v. United
States, 304 U.S. 126, 137–38 (1938).
48
The plaintiffs also challenge the applicability of the political question doctrine. They
contend that the internal affairs doctrine controls whether Maduro or Guaidó can determine
the board of PDVSA. Pls.’ Ans. Br. at 24. This argument is addressed infra § III.B(1).
19
As Chief Executive, the President of the United States is the “sole organ of
the federal government in the field of international relations[,]” 49 and thus holds the
exclusive power of recognition of a foreign government. 50 “Recognition is a ‘formal
acknowledgment’ . . . ‘that a particular regime is the effective government of a
state.’” 51 “The very purpose of the recognition by our government is that our
nationals may be conclusively advised with what government they may safely carry
on business transactions and who its representatives are.” 52 Recognition can be
accomplished expressly through a statement of the Executive Branch or implicitly
by receiving diplomatic representatives.53
49
United States v. Curtiss-Wright Exp. Corp., 299 U.S. 304, 320 (1936).
50
Sabbatino, 376 U.S. at 410 (“Political recognition is exclusively a function of the
Executive.”); see also Zivotofsky v. Kerry, 135 S. Ct. 2076, 2086 (2015) (“Recognition is
a topic on which the Nation must speak . . . with one voice. . . . [and] [t]hat voice must be
the President’s.”). In Zivotofsky, the Court declined to opine that the “President has
‘exclusive authority to conduct diplomatic relations,’” determining that a “formulation
broader than the rule that the President alone determines what nations to formally recognize
as legitimate—and that he consequently controls his statements on matters of recognition—
presents different issues and [was] unnecessary to the resolution of this case.” 135 S. Ct.
at 2089.
51
Zivotofsky, 135 S. Ct. at 2084 (quoting Restatement (Third) of Foreign Relations Law of
the United States § 203 cmt. a (1986)).
52
Guar. Tr., 304 U.S. at 140.
53
See Zivotofsky, 135 S. Ct. at 2084 (“Recognition is often effected by an express ‘written
or oral declaration.’ It may also be implied—for example, by concluding a bilateral treaty
or by sending or receiving diplomatic agents.” (citations omitted)); see also Ams. United
for Separation of Church & State v. Reagan, 786 F.2d 194, 202 (3d Cir. 1986) (“There is
such a textually demonstrable commitment [in the Constitution] with respect to recognition
of foreign states. Only the President has the power to ‘receive Ambassadors and other
public Ministers.’” (quoting U.S. Const. art. II, § 3)), cert. denied, 479 U.S. 1012 (1986);
cf. Thomas Jefferson, Jefferson’s Opinion on the Powers of the Senate Respecting
20
Given the exclusive nature of the Executive Branch’s recognition authority,
the Supreme Court of the United States has held that any decision by the Executive
to recognize (or not recognize) a foreign government is a non-justiciable political
question that federal and state courts must accept.54 The seminal Supreme Court
decision on recognition of a foreign government, Oetjen v. Central Leather Co.,
addressed the seizure of animal hides in Mexico by General Francisco Villa, a
representative of the revolutionary government of Venustiano Carranza.55 General
Villa seized the hides to satisfy an assessment imposed by the revolutionary regime,
and the hides were ultimately sold to the defendant.56 The plaintiff brought suit
claiming that the defendant lacked good title to the hides because General Villa had
obtained them unlawfully. 57 During the pendency of the action in the lower courts,
Diplomatic Appointments, 24 April 1790, Founders Online, National Archives (“The
transaction of business with foreign nations is Executive altogether.”), available at
https://founders.archives.gov/documents/Jefferson/01-16-02-0215.
54
See, e.g., Guar. Tr., 304 U.S. at 137–38 (“What government is to be regarded here as
representative of a foreign sovereign state is a political rather than a judicial question, and
is to be determined by the political department of the government. . . . Its action in
recognizing a foreign government and in receiving its diplomatic representatives is
conclusive on all domestic courts, which are bound to accept that determination, although
they are free to draw for themselves its legal consequences in litigations pending before
them.”). See also Erwin Chemerinsky, Constitutional Law, Principles and Policies § 2.8,
at 148 (5th ed. 2015) (“[T]he Supreme Court has held that the recognition of foreign
governments is a political question . . . . In other words, issues concerning who represents
a foreign state, and in what capacity, are not justiciable.”).
55
246 U.S. 297, 299–301 (1918).
56
Id.
57
Id. at 299.
21
the United States recognized the Carranza government as both the de facto and de
jure government of Mexico, 58 which proved dispositive on appeal. The Supreme
Court held:
Who is the sovereign, de jure or de facto, of a territory is
not a judicial, but is a political question, the determination
of which by the legislative and executive departments of
any government conclusively binds the judges, as well as
all other officers, citizens and subjects of that government.
This principle has always been upheld by this court, and
has been affirmed under a great variety of circumstances.59
Applying that principle, the Court held that the Carranza government “must be
accepted as the legitimate government of Mexico” and gave that conclusion
retroactive effect.60 The Court further invoked the act of state doctrine, a companion
to the political question doctrine discussed more fully in the next section of this
decision, to presume valid General Villa’s actions in seizing the hides on behalf of
the recognized Carranza government. 61
Oetjen is well-settled law. Multiple decisions of the Supreme Court and lower
courts have applied its holding. 62 Under Oetjen and its progeny, the applicable rule
58
Id. at 301.
59
Id. at 302 (citation and internal quotation marks omitted).
60
Id. at 303.
61
See id. at 303–04.
62
See, e.g., Baker v. Carr, 369 U.S. 186, 212 (1962) (noting that “recognition of foreign
governments so strongly defies judicial treatment that without executive recognition a
foreign state has been called a republic of whose existence we know nothing” (citation and
internal quotation marks omitted)); United States v. Pink, 315 U.S. 203, 229 (1942) (“What
22
is clear: the Executive Branch’s decision to recognize a foreign state “conclusively
binds” all domestic courts, such that they must accept that decision. 63 This decision
calls for a straightforward application of that rule.
On January 23, 2019, the Executive Branch issued a statement “officially
recognizing the President of the Venezuelan National Assembly, Juan Guaido, as
the Interim President of Venezuela.” 64 That statement also described the National
Assembly as “the only legitimate branch of government duly elected by the
Venezuelan people[.]” 65 The word “only” means “alone in a category” or to the
government is to be regarded here as a representative of a foreign sovereign state is a
political rather than a judicial question, and is to be determined by the political department
of the government.” (internal quotation marks omitted) (quoting Guar. Tr., 304 U.S. at
137)); Guar. Tr., 304 U.S. at 137 (explaining that recognition “is a political rather than a
judicial question, and is to be determined by the political department of the government”);
Universal Cable Prods., LLC v. Atl. Specialty Ins. Co., 2019 WL 3049034, at *13 (9th Cir.
2019) (“Who is the sovereign, de jure or de facto, of a territory is not a judicial, but is a
political question, the determination of which by the legislative and executive departments
of any government conclusively binds the judges.” (internal quotation marks omitted)
(quoting Oetjen, 246 U.S. at 302)); Tel-Oren v. Libyan Arab Republic, 726 F.2d 774, 791
n.21 (D.C. Cir. 1984) (“[T]he Court has made clear that the judiciary is not to second guess
the determination of the other branches as to ‘[w]ho is the sovereign, de jure or de facto,
of a territory.’” (quoting Oetjen, 246 U.S. at 302)), cert. denied, 470 U.S. 1003 (1985). See
also United States v. Belmont, 301 U.S. 324, 327 (1937) (following Oetjen and holding
that “we are of opinion that no state policy can prevail against the international compact
here involved”).
63
Oetjen, 246 U.S. at 302; see also Guar. Tr., 304 U.S. at 137–38 (explaining that the
political department’s “action in recognizing a foreign government and in receiving its
diplomatic representatives is conclusive on all domestic courts, which are bound to accept
that determination, although they are free to draw for themselves its legal consequences in
litigations pending before them.”).
64
January 23 Executive Statement at 1.
65
Id. (emphasis added).
23
exclusion of others. 66 Thus, no other elected branch of government in Venezuela—
not Maduro nor the Constituent Assembly—is legitimate in the eyes of the Executive
Branch. The determinations of the Executive Branch are unambiguous: Guaidó is
recognized, the National Assembly is legitimate, and neither Maduro nor the
Constituent Assembly are legitimate parts of the Venezuelan government.
As their first line of defense, the plaintiffs quibble with the language of the
January 23 statement. The plaintiffs describe the statement as having limited
effect—neither elevating the Guaidó government to a superior position nor demoting
the Maduro government to a subordinate role.67 They note that the statement
recognizes Guaidó as the “Interim President,” not the President. To the plaintiffs,
the word “interim” precludes Guaidó from “invok[ing] the powers that come with
the title” of President.68 They alternatively argue that the term “interim” renders the
statement ambiguous, requiring further development of Venezuelan law on the
66
See, e.g., Only, Merriam-Webster Dictionary (defining “only” as “alone in a class or
category”), available at https://www.merriam-webster.com/dictionary/only; Only,
dictionary.com (defining “only” as “being the single one or the relatively few of the kind”),
available at https://www.dictionary.com/browse/only?s=t; Alone, Merriam-Webster
Dictionary (defining “alone” as “exclusive of anyone or anything else”), available at
https://www.merriam-webster.com/dictionary/alone; Alone, dictionary.com (defining
“alone” as “to the exclusion of all others or all else”), available at
https://www.dictionary.com/browse/alone.
67
See Pls.’ Opening Br. at 26–27.
68
Id. at 27.
24
meaning of “interim,” 69 and a review of the administrative construction of the
Executive Branch’s policy. 70 The plaintiffs next note that the January 23 statement
declined to expressly “derecognize” the Maduro regime, which they argue is
meaningful under foreign relations law. 71 To the plaintiffs, the Maduro regime is
merely “non-recognized” in the eyes of the United States. 72
None of these attempted distinctions have consequences for the issues before
the Court. “Recognition” is a term of art used by the Executive Branch to identify a
regime that “is the effective government of a state.”73 Regardless of what title
Guaidó holds, Guaidó and his regime are the effective government of Venezuela.
As important, no other regime in Venezuela is currently “recognized,” even using
the plaintiffs’ preferred nomenclature. At present, therefore, it cannot be disputed
that Guaidó is the voice of Venezuela’s sole effective government as recognized by
the U.S. President. This Court is bound by that determination.
B. Under the Act of State Doctrine, the Guaidó Government’s
Reconstitution of the PDVSA Board Is Valid.
Recognition of Guaidó’s government has significant consequences in this
litigation because foreign sovereigns are entitled to the benefits of the act of state
69
See Pls.’ Reply Br. at 20.
70
See Pls.’ Ans. Br. at 31–36.
71
Pls.’ Reply Br. at 17–19.
72
Oral Arg. Tr. at 89:3–13; see also Pls.’ Opening Br. at 23; Pls.’ Ans. Br. at 55.
73
Zivotofsky, 135 S. Ct. at 2084.
25
doctrine. 74 That doctrine confers presumptive validity on official acts of a foreign
sovereign performed within its own territory. In this case, it means that Guaidó’s
creation of the Managing Board of PDVSA is valid.
A product of federal common law, 75 the jurisprudential bases for the doctrine
have evolved. The classic statement of the act of state doctrine is found in Underhill,
which arose from a prior period of unrest in Venzuela.76 In that case, the plaintiff
was a U.S. citizen working in the Venezuelan city of Bolivar. When revolution
74
See Sabbatino, 376 U.S. at 410–11 (noting that the United States maintained recognition
of Cuba as a sovereign power despite severance of diplomatic relations, thereby requiring
the U.S. Supreme Court to give deference to Cuba’s acts of expropriation); Pink, 315 U.S.
at 229–30 (noting that the United States’ recognition of the Union of Soviet Socialist
Republics as the de jure government of Russia requires withholding judgment on the Soviet
government’s actions); Belmont, 301 U.S. at 330 (taking judicial notice of the U.S.
President’s recognition of the Soviet government and validating all of its acts from the
commencement of its existence); Oetjen, 246 U.S. at 301 (taking judicial notice of the
United States’ recognition of the government of Carranza as the de facto and then de jure
government of Mexico and consequently refusing to sit in judgment on the Carranza
government’s revolutionary acts); Underhill v. Hernandez, 168 U.S. 250, 253–54 (1987)
(noting the United States’ recognition of the revolutionary government of Venezuela and
refusing to adjudicate the revolutionary party’s acts); Republic of Panama v. Air Panama
Internacional, S.A., 745 F. Supp. 669, 672 (S.D. Fla. 1988) (noting the Executive Branch’s
recognition of the Delvalle government as the lawful government of the Republic of
Panama and granting its actions deference under the act of state doctrine).
75
Federal law governs the analysis in this case. See Sabbatino, 376 U.S. at 425; Modern
Status, 12 A.L.R. Fed. 707 § 4 (1972) (cited as “Modern Status”) § 4 (“Questions as to the
applicability of the Act of State Doctrine in any given situation are to be determined
exclusively by reference to federal law, and any state laws of policies in conflict therewith
are to be disregarded.”).
76
168 U.S. at 252. See also D’Angelo v. Petroleos Mexicanos, 317 A.2d 38, 40 (Del. Ch.
1973) (citing Underhill, 168 U.S. at 252), rev’d on other grounds, 331 A.2d 388 (Del.
1974) (reversing the trial court’s holding that the act of state doctrine deprived it of subject
matter jurisdiction).
26
erupted, he was physically detained in Bolivar by revolutionary forces. Upon
returning to the United States, he brought claims sounding in tort against his captors.
The revolutionary forces were ultimately successful and subsequently recognized by
the United States. The Supreme Court of the United States held that “[e]very
sovereign state is bound to respect the independence of every other sovereign state,
and the courts of one country will not sit in judgment on the acts of the government
of another, done within its own territory.” 77 Applying this rule, the Court found in
favor of the defendant, holding that the decision to detain the plaintiff was a
presumptively valid act of a recognized sovereign.
The Supreme Court of the United States reexamined and reformulated the act
of state doctrine in Sabbatino.78 Sabbatino involved a dispute over the proceeds
from the sale of sugar cargo, which had belonged to an American-owned company,
but which the Cuban government confiscated while the cargo was in Cuban waters.79
The defendants argued that the act of confiscation violated international law and was
thus not entitled to deference under the act of state doctrine. To address this
argument, the Court revisited the jurisprudential bases of the doctrine.
77
Underhill, 168 U.S. at 252.
78
376 U.S. 398.
79
Id. at 404–406.
27
Underhill and intervening cases had articulated the act of state doctrine as an
expression of comity and international law. 80 The Court in Sabbatino rejected that
theory, 81 recasting the doctrine as arising from “constitutional underpinnings,” or
“the basic relationships between branches of government in a system of separation
of powers. It concerns the competency of dissimilar institutions to make and
implement particular kinds of decisions in the area of international relations.” 82 As
part of the family of theories derived from separation of powers principles, the act
of state doctrine overrides otherwise binding law, including state and international
law. The Sabbatino decision explained that the Judicial Branch
will not examine the validity of a taking of property within
its own territory by a foreign sovereign government, extant
and recognized by this country at the time of suit, in the
absence of a treaty or other unambiguous agreement
regarding controlling legal principles, even if the
80
168 U.S. at 252 (“Redress of grievances by reason of such acts must be obtained through
the means open to be availed of by sovereign powers as between themselves.”); Oetjen,
246 U.S. at 304–05 (“The principle that the conduct of one independent government cannot
be successfully questioned in the courts of another . . . rests at last upon the highest
considerations of international comity and expediency.”).
81
376 U.S. at 421 (“We do not believe that this doctrine is compelled either by the inherent
nature of sovereign authority, as some of the earlier decision[s] seem to imply, see
Underhill, . . . or by some principle of international law.”).
82
Id. at 423. See generally W.S. Kirkpatrick & Co. v. Envtl. Tectonics Corp., Int’l, 493
U.S. 400, 404 (1990) (“This Court’s description of the jurisprudential foundation for the
act of state doctrine has undergone some evolution over the years. We once viewed the
doctrine as an expression of international law, resting upon ‘the highest considerations of
international comity and expediency[.]’ We have more recently described it, however, as
a consequence of domestic separation of powers, reflecting ‘the strong sense of the Judicial
Branch that its engagement in the task of passing on the validity of foreign acts of state
may hinder’ the conduct of foreign affairs[.]” (citations omitted)).
28
complaint alleges that the taking violates customary
international law.83
The Supreme Court of the United States had occasion to reexamine the act of
state doctrine in W.S. Kirkpatrick, further clarifying its operation in two significant
ways. The Court first distinguished the act of state doctrine from the political
question and sovereign immunity doctrines, holding that “[t]he act of state doctrine
is not some vague doctrine of abstention but a ‘principle of decision binding on
federal and state courts alike.’” 84 The Court next clarified the scope of official acts
protected by the doctrine. Before W.S. Kirkpatrick, U.S. Supreme Court cases
applying the act of state doctrine involved acts of expropriation by foreign
governments, leaving open the question of whether the Court would apply the
doctrine to other actions. In W.S. Kirkpatrick, the Supreme Court described the
doctrine as applying to any “official act of a foreign sovereign performed within its
own territory.” 85
83
376 U.S. at 428 (emphasis added).
84
493 U.S. at 406 (emphasis in original).
85
Id. at 405 (emphasis added). Tracing the developments of W.S. Kirkpatrick, the
Restatement of Foreign Relations was revised in 2018 to describe the doctrine as a
“principle of decision” and make clear that it applies to all “official acts.” See Restatement
(Fourth) of Foreign Relations Law of the United States § 441 cmt. a (2018) (The act of
state doctrine “operates as a special choice-of-law rule in that it precludes a court from
denying effect to an official act on the ground that the act violates the public policy of the
forum. The doctrine is not jurisdictional but rather provides a rule of decision in cases when
a court has jurisdiction over a case.”); see also id. at reporters’ n.1 (“Although the holding
of Sabbatino was limited to questions of the title to property, both the language of the
29
In sum, in its modern form, the act of state doctrine derives from the principle
of separation of powers. It applies to a multitude of foreign acts performed by
recognized sovereigns within territorial limits. Once applied, the doctrine requires
the Court to assume the validity of the official act in question.
In this case, the act of state doctrine resolves the question of who constitutes
the PDVSA board. The Guaidó government’s reconstitution of the PDVSA board
was the official act of a recognized sovereign taken wholly within its own territory.
Under the act of state doctrine, this Court must accept that action as valid without
further inquiry.
The plaintiffs make three arguments in response, none of which are
convincing. The plaintiffs first dispute the applicability of the act of state doctrine,
contending generally that Guaidó’s actions in appointing the PDVSA board should
be reviewed on their merits under Venezuela law in accordance with the internal
affairs doctrine. The plaintiffs next contend that a party seeking the privileges of a
“state” for invoking the act of state doctrine must have control over a recognized
territory. 86 According to the plaintiffs, the Guaidó government in fact controls no
opinion and later decisions indicate that the doctrine applies to official sovereign acts
generally, not just to those addressing property rights.”).
86
Pls.’ Ans. Br. at 45–46 (citing Carl Zeiss Stiftung v. V.E.B. Carl Zeiss, Jena, 293 F. Supp.
892, 909, 911 (S.D.N.Y. 1968), aff’d as modified sub nom. Carl Zeiss Stiftung v. VEB Carl
Zeiss Jena, 433 F.2d 686 (2d Cir. 1970)).
30
territory or people, and thus should not be granted the presumptions of sovereignty.87
The plaintiffs further dispute the territorial effect of the action in question,
contending that it operated outside of Venezuela and that the Court may not apply
the doctrine to actions by a state “designed largely to have an effect outside the
territory of a foreign state.”88
1. The act of state doctrine overrides the internal affairs
doctrine.
As their first argument against the act of state doctrine, the plaintiffs turn to
the internal affairs doctrine. The plaintiffs describe the internal affairs doctrine as
“dominant,” “firmly established,” and “rare[ly]” excepted,89 then argue that it
renders Venezuelan law as controlling for determining the proper composition of the
PDVSA board. 90 They further contend the Constitutional Court already determined
that under Venezuelan law, the plaintiffs prevail.91 The plaintiffs view the internal
affairs doctrine as trumping the act of state doctrine, when the opposite is true.
87
Id. at 4.
88
Id. at 46 (citing Carl Zeiss Stiftung, 293 F. Supp. at 909; Latvian State Cargo &
Passenger S.S. Line v. McGrath, 188 F.2d 1000, 1002 (D.C. Cir. 1951)).
89
Pls.’ Opening Br. at 15–16 (citing Sagarra Inversiones, S.L. v. Cementos Portland
Valderrivas, S.A., 34 A.3d 1074, 1081 (Del. 2011); In re Topps Co. S’holders Litig., 924
A.2d 951, 958 (Del. Ch. 2007); VantagePoint Venture P’rs 1996 v. Examen, Inc., 871 A.2d
1108, 113 (Del. 2005)).
90
See id. at 19–20 (quoting Palmer v. Arden-Mayfair, Inc., 1978 WL 2506, at *9 (Del. Ch.
July 6, 1978) as stating: “[T]he method of electing directors and the regulation of directors’
terms in office represent internal affairs of a corporation.”)).
91
See id. at 20–22.
31
The U.S. Supreme Court has declared the act of state doctrine to be a principle
of federal common law that overrides any state or international interest.92 Before
Sabbatino, discussed above, states applied their own law to deem ineffective takings
by foreign sovereigns. 93 New York in particular enacted codes to implement the
public policy of the state not to enforce foreign confiscatory decrees and
expropriations.94 Sabbatino held that “ordering our relationships with other
members of the international community must be treated exclusively as an aspect of
federal law,”95 and that the act of state doctrine applies even if the act violates state
or “customary international law.” 96 As a result, federal law governs and precludes
the application of state laws or policies when they conflict with the act of state
doctrine. 97 This is true despite the multitude of sins that can trigger the application
92
See Sabbatino, 376 U.S. at 425 (“[A]n issue concerned with a basic choice regarding the
competence and function of the Judiciary and the National Executive in ordering our
relationships with other members of the international community must be treated
exclusively as an aspect of federal law.”); see also id. at 431 (“[T]he act of state doctrine
is applicable even if international law has been violated.”); Restatement (Fourth) of Foreign
Relations Law of the United States § 441 cmt. b (2018) (“The act of state doctrine
constitutes federal common law that, when it applies, overrides any contrary rule of State
law.”).
93
Modern Status, 12 A.L.R. Fed. 707 § 4.
94
Id. § 4 n.54.
95
376 U.S. at 425 (emphasis added).
96
Id. at 428.
97
See Modern Status, 12 A.L.R. Fed. 707 § 4. (“[A]ny state law or policy in conflict with
the federal law on this subject should be disregarded, regardless of whether the court in
which the case was being heard was a state or federal court.”).
32
of the act of state doctrine, ranging from expropriation of assets to denials of personal
rights and freedoms. 98
On the priority ascribed to the act of state doctrine, the Air Panama decision
is particularly instructive.99 In 1988, General Manuel Antonio Noriega refused to
step down as Commander of the Panamanian defense forces, then caused Panama’s
legislature to attempt to remove Panama’s recognized sovereign, President Eric
Arturo Delvalle. Within weeks of the attempted coup, the Noriega regime replaced
the board and executives of Air Panama, a corporation wholly owned by the
Republic of Panama. In response, Delvalle appointed a new board and commenced
litigation to have his appointments declared valid. Noriega’s appointees argued that
Panamanian law controlled the dispute and favored their position. The court
disagreed, holding that the act of state doctrine took primacy:
The act of state doctrine . . . obviates the need for the Court
to inquire into private Panamanian law. The
appointments by President Delvalle and Ambassador Sosa
to the management of Air Panama are acts of state, that is,
they are acts by the sovereign state of Panama, performed
within the territory of Panama. Accordingly, these acts of
state must be accepted by this Court as valid. Judicial
98
See generally Modern Status, 12 A.L.R. Fed. 707, at Part III, Particular Factual
Situations.
99
Air Panama, 745 F. Supp. at 673 (“This is not a dispute between private creditors over
which creditor owns a piece of airline equipment. Here, it is clear that the Republic of
Panama owns Air Panama. Instead, the issue presented is which rival government properly
represents the Republic of Panama in the United States. That issue is to be determined not
under Panamanian law governing private corporations, but under the foreign relations law
of the United States.” (footnote omitted)).
33
inquiry into the law of the sovereign state underlying these
acts is neither necessary nor appropriate[.] 100
In accordance with Sabbatino, and just as in Air Panama, the act of state
doctrine takes priority over the internal affairs doctrine. Evaluating the Guaidó
government’s acts under Venezuelan or other law is neither necessary nor
appropriate. 101
100
Id. (emphasis added); see also Sabbatino, 376 U.S. at 415 & n.17 (invoking the act of
state doctrine and noting that “[t]he courts below properly declined to determine if [Cuba’s]
issuance of the expropriation decree complied with the formal requisites of Cuban law”);
Banco de Espana v. Fed. Reserve Bank of NY, 114 F.2d 438, 443–44 (2d Cir. 1940) (“[T]he
question of the validity under Spanish law . . . is not open to examination by us. . . . So
long as the act is the act of the foreign sovereign, it matters not how grossly the sovereign
has transgressed its own laws. Hence the affidavits presented on behalf of plaintiff as to
the correct interpretation of Spanish law do not avail to prevent summary judgment.”);
Reavis v. Exxon Corp., 396 N.Y.S.2d 774, 90 Misc. 2d 980, 990 (N.Y. Sup. Ct. 1977) (the
act of state “doctrine does not bar inquiry into what the Venezuelan government in fact did;
but it does bar judicial consideration of whether what it did was in violation of its own or
international law”).
101
In case this court were to rule otherwise, the defendants argued that the Venezuelan
Constitutional Court’s decision is unworthy of deference, and they invoke a series of multi-
factored tests for recognizing foreign judgments under federal and Delaware law. See
Defs.’ Ans. Br. 19–26. This decision need not conduct this analysis, as the act of state
doctrine resolves this issue. The act of state doctrine requires that this court assume the
official act of the Guaidó government as valid, precluding this court from giving deference
to the Constitutional Court’s ruling purporting to invalidate the Guaidó government’s
appointments to the PDVSA board. Moreover, as discussed infra nn.120–21, the
recognition of one sovereign government must be construed to exclude other bodies,
including legal tribunals, from purporting to wield authority on behalf of a different
government. Underscoring this point, the U.S. Executive Branch has taken the
extraordinary step of declaring the Constitutional Court of Venezuela to be illegitimate and
sanctioning the members of that tribunal. Press Release, U.S. Dep’t of the Treasury,
Treasury Sanctions Eight Members of Venezuela’s Supreme Court of Justice (May 18,
2017), available at https://www.treasury.gov/press-center/press-
releases/Pages/sm0090.aspx.
34
2. The Guaidó government qualifies as a state for the purposes
of the act of state doctrine.
The plaintiffs next argue that the Guaidó government in fact does not control
any territory or a people and therefore does not qualify as a state entitled for purposes
of the act of state doctrine. The plaintiffs cite authorities for the proposition that
“[o]ne of the fundamental conditions of the ‘act of state’ doctrine is that the foreign
state whose act is involved have a clearly recognizable jurisdictional basis for its
action, usually one based on territorial control over the subject of its action.” 102 The
plaintiffs transmute this general statement into a new rule, arguing that the
Executive’s recognition of a de jure government is not sufficient to satisfy the act of
state doctrine. They contend that a government must exercise actual control over its
sovereign territory for the act of state doctrine to apply. They go so far as to say that
“[n]o court has extended the act of state doctrine to de jure governments that do not
have [these] characteristics . . . .” 103 One need not look far to prove the plaintiffs’
statement wrong.
While criteria such as territorial control may sometimes be relevant to
evaluating the concept of de facto statehood, the principal and frequently dispositive
question for purposes of the act of state doctrine is whether the foreign sovereign
102
Pls.’ Ans. Br. at 45 (quoting Carl Zeiss, 293 F. Supp. at 910); Pls.’ Reply Br. at 7 (same).
103
Pls.’ Reply. Br. at 9.
35
has received de jure recognition by the United States.104 On this issue, the Supreme
Court of the United States has spoken unequivocally: The political question doctrine
makes recognition of a foreign government “conclusive on all domestic courts,
which are bound to accept that determination[.]” 105 This well-settled
pronouncement does not permit domestic courts to ignore the Executive Branch’s de
jure recognition based on its own assessment of a foreign sovereign’s de facto
control.
Once again, Air Panama is on point. In that case, the recognized Delvalle
government had been displaced by a military coup and lacked control over the
104
See generally Sabbatino, 376 U.S. at 428 (1964) (“[T]he (Judicial Branch) will not
examine the validity of a taking of property within its own territory by a foreign sovereign
government, extant and recognized by this country at the time of suit[.]” (emphasis added));
Pink, 315 U.S. at 233 (“[W]hen a revolutionary government is recognized as a de jure
government, ‘such recognition is retroactive in effect and validates all the actions and
conduct of the government so recognized from the commencement of its existence.’”);
Modern Status, 12 A.L.R. Fed. 707 § 8[a] (1972) (“It is clear that, like beauty, sovereignty
is in the eye of the beholder. Even though a government may exercise in a particular
territory all of the incidents of sovereignty and may in fact be unquestionably supreme
there, its sovereignty, or lack of it, in the eyes of other nations depends in international law
on the recognition extended or not extended to it by such other nations. Thus . . . the
applicability or non-applicability of the Act of State Doctrine in United States courts in any
given situation depends in large part on whether or not the United States has extended
recognition to the acting state.” (emphasis added) (footnote omitted)).
105
304 U.S. at 138. See also Crystallex, -- F.3d --, 2019 WL 3403888 at *4 n.2 (finding
that although “there is reason to believe that Guaidó’s regime does not have meaningful
control over Venezuela or its principal instrumentalities such as PDVSA[,] . . . under
Guaranty Trust Co. v. United States[, 304 U.S. 126, 138 (1938)], we recognize Guaidó’s
regime as authorized to speak and act on behalf of Venezuela in these appeals”).
36
corporate assets at issue.106 In applying the act of state doctrine, the court did not
evaluate the scope of territory actually controlled by the Delvalle government.
Rather, the court explained that it must give “complete judicial deference”107 to and
was “conclusively b[ou]nd” by the decision of the Executive Branch to recognize
the Delvalle government. 108 This principle governed all aspects of the court’s
analysis.109
The act of state doctrine even extends to decrees by recognized governments
in exile that control no territory. For example, prior to Franklin D. Roosevelt’s 1933
decision to recognize the Soviet Union, the United States recognized Russia’s
provisional government located in the United States and led by Alexander
Kerensky. 110 The provisional government held no territory but, solely due to
recognition, had the right to appear in United States courts.111 This recognition
validated the provisional government’s representation of Russian interests in the
United States. 112 It was only after President Roosevelt’s de jure recognition of the
106
745 F. Supp. at 671 (“the Noriega regime took control of Air Panama’s operations”).
107
Id. at 672 (citing Pfizer Inc. v. Gov’t of India, 434 U.S. 308, 320 (1978)).
108
Id. (alteration in original) (citing Pink, 315 U.S. at 223).
109
Id. at 672–73.
110
See generally Lehigh Valley R. Co. v. State of Russia, 21 F.2d 396, 400 (2d Cir. 1927)
(explaining the history of recognition of the provisional Russian Government and reciting
the act of state doctrine).
111
Id.
112
Id.
37
Soviet Union that its representatives had authority to act in pursuit of the Russian
government’s interests in United States courts.113
The plaintiffs’ authorities do not aid their cause. They invoke cases where the
de jure sovereign exercised de facto control over its territory. 114 But that
unsurprising correlation does not render de facto control a prerequisite to applying
the act of state doctrine, and none of the supplied authorities states anything to the
contrary. 115
113
Compare Sokoloff v. Nat’l City Bank of New York, 199 N.Y.S. 355, 358 (N.Y. Sup. Ct.
1922) (“The Soviet government of Russia has never been recognized by our government;
hence we may not ascribe any of the attributes of sovereignty to it. It follows that all the
acts of that government in contemplation of American courts are ineffective, without
consent of the parties concerned, to create, transfer, or nullify legal obligations.”), aff’d,
239 N.Y. 158 (1924), with State of Russia v. Nat’l City Bank of New York, 69 F.2d 44, 45
(2d Cir. 1934) (finding that post-recognition representatives of the Soviet Union now
possessed the authority to assign claims on behalf of their government). See also State of
the Netherlands v. Fed. Reserve Bank, 201 F.2d 455, 456, 462–63 (2d Cir. 1953)
(upholding ownership rights of the Netherlands’ government-in-exile based on a royal
decree, when at the time of the decree, the Netherlands’ government had fled to England,
where it was recognized by the United States, and did not control any territory of people in
the Netherlands).
114
See Pls.’ Reply Br. at 9 (citing Sabbatino, 376 U.S. at 404; Oetjen, 246 U.S. at 303;
Ricaud v. Am. Metal Co., 246 U.S. 304, 306 (1918); Underhill, 168 U.S. at 252; Banco
Nacional de Cuba v. First Nat’l City Bank of New York, 431 F.2d 394, 399 (2d Cir.
1970), vacated sub nom. First Nat’l City Bank v. Banco Nacional De Cuba., 400 U.S. 1019
(1971); Republic of Iraq v. First Nat’l City Bank, 353 F.2d 47, 49–50 (2d Cir. 1965); Union
Shipping & Trading Co. v. United States, 127 F.2d 771, 774 (2d Cir. 1942); Capitol
Records v. Mercury Record Corp., 109 F. Supp. 330, 343 (S.D.N.Y. 1952), aff’d sub
nom. Capitol Records v. Mercury Records Corp., 221 F.2d 657 (2d Cir. 1955); E. States
Petroleum Co. v. Asiatic Petroleum Corp., 28 F. Supp. 279, 280-81 (S.D.N.Y. 1939)).
115
See supra n.114. The plaintiffs also cite Ungar v. Palestine Liberation Org., 402 F.3d
274, 289 (1st Cir. 2005). Pls.’ Reply Br. at 8–9. In that case, the Palestinean Liberation
Organization asserted a defense of sovereign immunity, which depended on their argument
that Palestine qualified as a “state.” Id. at 288. Because Palestine was not recognized by
38
At base, the plaintiffs invite a collateral attack on the Executive Branch’s
decision to recognize the Guaidó government.116 The act of state doctrine “arises
out of the basic relationships between branches of government in a system of
separation of powers.” 117 It reflects the “proper distribution of functions between
the judicial and political branches of the Government on matters bearing upon
foreign affairs.” 118 A rule requiring courts to ignore de jure recognition and instead
apply subjective criteria of statehood would invite courts to second guess the
determinations properly vested within the Executive Branch. Such a rule would
allow for multiple and potentially divergent rulings where this nation must speak
with “one voice.”119 Courts have consistently rejected that kind of judicial scrutiny
in this sphere.
Thus, although the Guaidó government’s de facto control over territory and
people has momentous implications beyond these pages, it does not matter for the
the Executive Branch as a state, the court drew upon principles of international law to
evaluate this defense. Id. at 284 n.6. Under both the recognition test and the restatement
standard, Palestine did not meet the requirements for statehood and the court denied
application of the sovereign immunity defense. Id. In this case, the Executive Branch has
formally recognized the Guaidó government and this Court will not use alternative tests to
second guess the Executive Branch’s recognition of a foreign government.
116
The plaintiffs are not subtle in this regard. See, e.g., Pls.’ Reply Br. at 5 (“[T]he
Executive Statement defied prior practice complicating the Court’s job. The Executive
Statement does not follow international law.”).
117
Sabbatino, 376 U.S. at 423.
118
Id. at 427–28.
119
See also Zivotofsky, 135 S. Ct. at 2086; Sabbatino, 376 U.S. at 410.
39
purpose of this legal analysis. The Executive’s de jure recognition of the Guaidó
government standing alone establishes statehood sufficient to invoke the act of state
doctrine.
The plaintiffs alternatively contend that the actions of Maduro’s regime,
which they characterize as “non-recognized” or “unrecognized,” are equally entitled
to presumptions of validity under the act of state doctrine. According to at least one
articulation of black letter law, however, a “state derecognizes a regime when it
recognizes another regime as the government.” 120 This concept is sound. Applying
the act of state doctrine to the actions of multiple, competing sovereigns would
undermine the purpose of recognition, which is to identify the singular authority with
whom this nation and nationals may engage.121 Accordingly, recognition of one
sovereign authority must exclude others, particularly when those other bodies have
taken positions contrary to the recognized sovereign. Thus, the recognition of the
120
Restatement (Third) of the Foreign Relations Law of the United States § 203 cmt. f
(1986). See also Nat’l Petrochemical Co. of Iran v. M/T Stolt Sheaf, 860 F.2d 551, 553
(2d Cir. 1988) (“[A] state derecognizes a governmental regime when it recognizes another
regime as the legitimate government of that state.” (quoting Restatement (Third) of the
Foreign Relations Law of the United States § 203 cmt. f (1987))); 2 Ved P. Nanda et al.,
Litigation of International Disputes in U.S. Courts § 11.11 (2019) (“Where the United
States recognizes the governmental regime regarding the territory of a state, it necessarily
‘derecognizes’ the governmental regime that it had previously recognized with respect to
that territory.” (citing M/T Stolt Sheaf, 860 F.2d at 553)).
121
See Guar. Tr., 304 U.S. at 140. See also Zivotofsky, 135 S. Ct. at 2086 (“Recognition
is a topic on which the Nation must speak . . . with one voice.” (internal quotation marks
omitted)).
40
Guaidó government effectively derecognized the Maduro regime, and the plaintiffs’
arguments based on non-recognition fail.122
3. The relevant act was accomplished within Venezuela’s
sovereign territory.
Last, the plaintiffs argue that the official act did not occur within Venezuela’s
sovereign territory because it had extraterritorial effects precluding application of
the act of state doctrine. To be clear, the relevant “official act” is Guaidó’s
appointments to the PDVSA board, and the plaintiffs do not argue that this act
occurred outside of Venezuela’s territorial limits, nor could they. 123 The plaintiffs
instead argue that because the National Assembly directed the Guaidó government
to replace the PDVSA board “for the purpose” of reconstituting the boards of
Delaware corporations headquartered in Houston, the primary effect of the official
act took place outside of Venezuela.
Although no U.S. Supreme Court case has directly addressed this defense,
lower courts have rejected it. For example, in Interamerican Refining Corp. v.
Texaco Maracaibo, Inc., the plaintiff alleged that the defendants engaged in a
122
See also supra n.8, Sec. Pompeo Statement (“The United States stands with interim
President Juan Guaido . . . . The United States does not recognize the Maduro regime as
the government of Venezuela.” (emphasis added)).
123
See generally Pls.’ Opening Br. at 15–22 (arguing that the appointment of the PDVSA
board concerns the internal affairs of a Venezuelan entity and is thus subject to Venezuela
law).
41
boycott designed to deny the plaintiff oil needed for its operations.124 The
defendants did not deny that they refused to do business with the plaintiff, but they
argued that the Venezuelan government forbade them from doing business with the
plaintiff in a presumptively valid act of state. 125 The federal district court found in
favor of the defendants under the act of state doctrine. The court held that regulating
trade within one’s borders qualifies as an act of state, even if the effect is compulsive
and fell outside of the acting state’s jurisdiction.126
None of the authorities on which the plaintiffs rely support the proposition
that an extraterritorial effect of an official act can alone preclude application of the
doctrine. 127 Rather, most of the plaintiffs’ authorities address how to apply territorial
124
307 F. Supp. 1291, 1292 (D. Del. 1970).
125
Id. at1297–99.
126
Id. at 1298–99. See also Carl Zeiss, 293 F. Supp. at 911 (holding the Wuerttemberg
Acts of 1949, 1954, and 1967 valid under the act of state doctrine as to matters within West
Germany’s territorial jurisdiction, explaining that “the mere fact that the foreign state’s act,
in addition to regulating matters within its territorial jurisdiction, may have some indirect
impact outside its territory, does not preclude our treatment of it as an ‘act of state’”); Air
Panama, 745 F. Supp. at 673 n.4 (holding board and management appointments to be valid
under the act of state doctrine where such appointments were made for the purpose of
controlling assets located in the United States, notwithstanding the significant
extraterritorial effects); In re Philippine Nat’l Bank, 397 F.3d 768, 773 (9th Cir. 2005)
(explaining that “even when an act of a foreign state affects property outside of its territory,
‘the considerations underlying the act of state doctrine may still be present’”); Hausler v.
JP Morgan Chase Bank, N.A., 127 F. Supp. 3d 17, 53 (S.D.N.Y. 2015) (holding that Cuba’s
confiscation of funds held in U.S. banks did not exceed extraterritorial limitations, despite
the extraterritorial effects, and permitting the petitioner to recover against those funds as
payment for a $100 million judgment against Cuba).
127
See Pls.’ Ans. Br. at 46 (citing cases); Pls.’ Reply Br. at 11–14 (citing authorities).
42
limitations to official acts involving intangible property. In each decision, the court
analyzed the fictional situs of the intangible property (trademarks or debt) to
determine whether the official act exceeded the sovereign’s territorial domain for
the purpose of the act of state doctrine. 128 In each decision, the legal situs of the
intangible property determined whether the act of state doctrine applied. The courts
did not need to look to or analyze the effects of the official act at issue.
To be sure, dictum in one of the plaintiffs’ authorities provides a non-frivolous
foothold for the plaintiffs’ theory. Allied Bank refers to the “effects” of the official
act when addressing territorial limits, stating that “[a]cts of foreign governments
purporting to have extraterritorial effect . . . by definition, fall[] outside the scope of
the act of state doctrine . . . .” 129 This reference to “effects,” found in a transitional
128
Tabacalera Severiano Jorge, S. A. v. Standard Cigar Co., 392 F.2d 706 (5th Cir. 1968)
(declining to apply the act of state doctrine where the legal situs of the intangible property
at issue, debt, was the U.S.); Republic of Iraq, 353 F.2d at 51 (declining to apply the act of
state doctrine where the legal situs of the intangible property at issue, debt and stock, was
Canada and not Iraq); Allied Bank Int’l v. Banco Credito Agricola de Cartago, 757 F.2d
516, 522 (2d Cir. 1985) (declining to apply the act of state doctrine where the legal situs of
the intangible property at issue, debt, was the U.S.); Zwack v. Kraus Bros. & Co., 237 F.2d
255, 261 (2d Cir. 1956) (declining to apply the act of state doctrine where the legal situs of
the intangible property at issue, a trademark, was the U.S.); Fed. Treasury Enter.
Sojuzplodoimport v. Spirits Int’l B.V., 61 F. Supp. 3d 372, 390–91 (S.D.N.Y. 2014)
(declining to apply the act of state doctrine where the legal situs of the intangible property
at issue, a trademark, was the U.S.), aff’d in part, vacated in part, 809 F.3d 737 (2d Cir.
2016); Gonzalez v. Indus. Bank (of Cuba), 186 N.E.2d 410, 412 (N.Y. 1962) (declining to
apply the act of state doctrine where the legal situs of the intangible property at issue, debt,
was the U.S.), reargument denied, remittitur amended, 187 N.E.2d 465 (N.Y. 1962).
129
757 F.2d at 522 (emphasis added).
43
sentence, does not refer to or form the basis of any analysis, and it is purely dictum.
The quote lacks any theoretical foundation within the decision itself or case law
generally. 130
In this case, the official act is the replacement of the PDVSA board. That act
occurred within Venezuela’s territorial boundaries and the plaintiffs do not contend
otherwise. The knock-on effects of that act which took place outside of Venezuela
do not render the original act extraterritorial.
130
Similarly, Republic of Iraq describes one of the principle questions raised in that case
as whether the act of state doctrine applies “to foreign confiscation decrees purporting to
affect property within the United States.” 353 F.2d at 50 (emphasis added). The decision
repeats its reference to “affect” in explaining the theoretical bases for the act of state
doctrine. Id. (explaining that “the exercise of discretion whether or not to respect a foreign
act of state affecting property in the United States is closely tied to our foreign affairs, with
consequent need for nationwide uniformity” (emphasis added)). Application of the act of
state doctrine in that case, however, turned on the legal situs of the property at issue, not
the effects of the foreign decree. Confusing matters more, after finding that the official
action was extraterritorial, that decision conducted a second step analysis examining
whether the foreign decree conformed to U.S. laws and policy. See generally Restatement
(Second) of Foreign Relations § 43 (1965). Revisions to the Restatement of Foreign
Relations appear to have eliminated that second step in the analysis. See, e.g., Restatement
(Third) of Foreign Relations § 443, reporters’ n.13 (1987). In any event, in this case,
because the official act at issue is within Venezuela’s territorial domain, it is unnecessary
to conduct the second step analysis.
The plaintiffs also describe a portion of the Carl Zeiss decision as supportive of their
effects analysis, but it is not. 293 F. Supp. at 909–11 (cited at Pls.’ Ans. Br. at 46–46 &
Pls.’ Reply Br. 7–8). In that case, one of the West German government’s acts at issue
purported to terminate the East German domicile of a foundation. Id. at 911. The court
held that the act was valid as to matters within West Germany, but not as to matters within
East Germany, because East Germany was not within the recognized sovereign territory of
the West German government. Id. In reaching this conclusion, the court emphasized that
any effects in East Germany did not undermine the validity of the acts as to matter within
West Germany. Id. By analogy, in this case, any effects outside of Venezuela do not
undermine the validity of the Guaidó government’s acts as to matters within Venezuela.
44
C. This Decision Does Not Resolve Who Constitutes the Boards
of the CITGO Entities.
Because Guaidó’s appointment of directors to PDVSA’s Managing Board is
valid, the defendants argue that they are entitled to a declaration that the written
consents electing new boards of the CITGO Entities are also valid.131 The
defendants did not attach the written consents at issue to their counterclaims. They
provided those documents to the plaintiffs in connection with briefing on their
motion for judgment on the pleadings.132 The Court, therefore, cannot consider these
documents on a motion pursuant to Rule 12(c). Because the defendants present
documents outside of the pleadings in support of their motion, the defendants’
motion will be treated as one for summary judgment under Rule 56.133
The plaintiffs did not identify any deficiencies in the stockholder consents in
their answering brief, at oral argument, or in their supplemental brief submitted after
argument. 134 Instead, the plaintiffs complained that they had limited time to review
131
Defs.’ Opening Br. at 42–48.
132
See Nachbar 7/11/19 Aff. Before that time, the plaintiffs denied allegations in the
defendants’ counterclaims concerning the written consents. See Ans. to Countercl. ¶¶ 21–
26 (stating that the plaintiffs had “not received the [written consents] and had no
involvement in [their] drafting, signature, or delivery” and were “without knowledge or
information sufficient to admit or deny [their] contents”).
133
Ct. Ch. R. 12(c).
134
The written consents appear to conform to the requirements of Section 228 of the
DGCL. See generally Defs.’ Opening Br. at 44–48.
45
the documents.135 The plaintiffs have now had ample time to review the documents.
The plaintiffs shall submit an affidavit pursuant to Rule 56(e) within ten days from
the date of this decision.136
IV. CONCLUSION
For the foregoing reasons, the cross motions for judgment on the pleadings
are converted into cross motions for summary judgment. Resolution of those
motions is stayed to permit the plaintiffs to submit an affidavit pursuant to
Rule 56(e).
135
Pls.’ Ans. Br. at 11–12.
136
The signatures on the stockholder consents render them presumptively valid under
Delaware law. See Parshalle v. Roy, 567 A.2d 19, 27 (Del. Ch. 1989) (noting that
stockholder proxies are presumptively valid “by the stockholder affixing his signature on
the proxy”). Generally, this Court will not look beyond the face of a consent to determine
its validity unless the party disputing its validity provides some reason for doing so. See,
e.g., Flaa v. Montano, 2013 WL 5498045, at *6–8 (Del. Ch. Oct. 4, 2013) (looking to
extrinsic evidence to resolve challenge to the authority of the executor of the consent). See
also Mainiero v. Microbyx Corp., 699 A.2d 320, 323 (Del. Ch. 1996). The plaintiffs do
not appear to contest the authority of the signatories to the consents, aside from their
challenge at the level of the PDVSA board, which this decision resolves as a matter of law.
See Pls.’ Opening Br. at 7 (conceding that “[t]he President of PDV Holding has the general
authority to act in the name of the company, which includes executing written consents on
behalf of PDV Holding”); id. (conceding that “[t]he President of CITGO Holding has the
general authority to act in the name of the company, which includes executing written
consents on behalf of CTIGO Petroleum”). Accordingly, the plaintiffs are not entitled to
discovery prior to submitting their affidavit.
46