Lovati v. Petroleos De Venezuela, S.A.

Background

Rudi Lovati and Alessandra Lovati brought a breach-of-contract action against Petróleos de Venezuela, S.A. (PDVSA), seeking payments allegedly owed under notes issued under a 2011 indenture. The notes carried 9% annual interest and required principal payments in three installments beginning November 17, 2019. PDVSA was required to make payments to a principal paying agent in New York City.

PDVSA stopped making principal and interest payments after 2017. The opinion states that the missed principal and interest payments totaled $85,316,000 on Rudi Lovati’s notes and $84,700 on Alessandra Lovati’s notes. PDVSA argued that payment was impossible because banks would not process payments connected to Venezuela-related entities and because the payment agent could not find a qualifying replacement bank.

After discovery, both sides moved for summary judgment, which asks the court to decide a claim without a trial when no genuine dispute exists over an important fact. The plaintiffs sought judgment on their breach-of-contract claim and PDVSA’s impossibility defense. PDVSA sought judgment on the impossibility defense. The parties also jointly moved to seal portions of their exhibits.

Breach of Contract

Applying New York law, the court explained that the plaintiffs had to show a contract, a breach, and resulting damages. The court found that the plaintiffs established each of those matters as a legal matter through evidence including sworn testimony and account statements. PDVSA did not contest that the plaintiffs had satisfied the elements of the breach-of-contract claim.

The court therefore found no genuine dispute about the existence of the contract, PDVSA’s failure to perform, or the plaintiffs’ resulting damages. The remaining issue was whether PDVSA could avoid responsibility through its impossibility defense.

Impossibility Defense

Under New York law, impossibility is narrowly applied. A party must show that extraordinary circumstances made performance objectively impossible and that it took virtually every action within its power to perform. PDVSA argued that the indenture required payment to the agent, but banks would not process the funds and the agent could not receive them.

The plaintiffs argued that PDVSA could have used other payment methods or banks. They pointed to evidence that PDVSA made payments on other notes during the relevant period and transferred funds to an account associated with the depository for the notes. They also relied on an expert’s testimony that PDVSA made numerous payments through another bank during the same period.

The court rejected the plaintiffs’ argument that decisions in two prior related proceedings automatically prevented PDVSA from asserting impossibility here. The court found that the factual circumstances were not identical, including differences involving the notes, lenders, banks, and payment arrangements.

Even so, the court held that the evidence about successful payments and alternative payment options raised a genuine factual dispute. Resolving that dispute would require weighing the similarities between the transactions and determining whether the other payment arrangements showed that payment under these notes was possible. Those factual questions could not be resolved on summary judgment.

Disposition

The court DENIED the plaintiffs’ motion for summary judgment and DENIED PDVSA’s motion for summary judgment. The court found that the plaintiffs established the contract, nonperformance, and damages as a matter of law, but that a factual dispute remained concerning PDVSA’s impossibility defense.

The court GRANTED the parties’ letter motion to seal certain materials, based on the asserted privacy interests and protection of banking records. It directed the parties to file a joint pretrial order by April 30, 2025.