Pharo Gaia Fund, Ltd. v. Bolivarian Republic of Venezuela

Background

Pharo Gaia Fund, Ltd., Pharo Macro Fund, Ltd., and Pharo Trading Fund, Ltd. sued the Bolivarian Republic of Venezuela for failing to make required payments on eight series of sovereign bonds. Venezuela did not appear after being served through diplomatic channels, so the court entered a default judgment in October 2021. The judgment awarded the plaintiffs $1,396,434,079.98 in unpaid principal and accrued contractual interest, plus post-judgment interest and attorneys’ fees.

The plaintiffs spent years trying to enforce the judgment against Venezuela and its state-owned oil company, Petróleos de Venezuela, S.A. (PDVSA). U.S. sanctions generally prevented enforcement against property belonging to Venezuela or PDVSA. The plaintiffs obtained attachments of shares in PDVSA’s holding company in Delaware and participated in a related sale process, but the court noted that creditors with earlier judgments held approximately $18 billion and that recent bids were far lower.

The plaintiffs also told the court that the judgment made the underlying bonds harder to transfer or trade. Because part of the bond debt had been incorporated into the judgment, a buyer of the bonds would also need an assignment of the judgment to obtain the full set of creditor rights. The plaintiffs said that the uncertainty over whether such an assignment was permitted under sanctions reduced the bonds’ liquidity.

Legal standards

Federal Rule of Civil Procedure 60(b)(6) allows a court to relieve a party from a final judgment for another reason that justifies relief, when extraordinary circumstances or extreme and undue hardship warrant it. The motion must also be made within a reasonable time. Rule 41(a)(2) allows a court to dismiss an action voluntarily on proper terms, generally when the dismissal will not prejudice the defendant.

Court’s analysis

The court held that vacating the default judgment was appropriate under Rule 60(b)(6). It found extraordinary circumstances because the plaintiffs were seeking to cancel a judgment that they had won, an unusual situation resulting from Venezuela’s failure to pay and the prolonged sanctions. Those conditions made the judgment practically worthless despite the plaintiffs’ efforts to enforce it.

The court also found extreme and undue hardship. The sanctions prevented enforcement and made it more difficult for the plaintiffs to deal efficiently with the bonds. The court accepted the plaintiffs’ representation that the lack of clarity about assigning the judgment harmed their ability to trade the bonds.

The court concluded that the motion was filed within a reasonable time. The plaintiffs had tried to enforce the judgment for years and sought relief after it became clear that they were unlikely to recover through the Delaware sale process. The court further found that vacating the judgment would not prejudice Venezuela; instead, it would relieve Venezuela of a court order requiring payment of more than one billion dollars. The court also found limited public interest in preserving this particular judgment because it did not establish a precedential decision or affect nonparties.

The court separately determined that dismissal without prejudice under Rule 41(a)(2) was appropriate. It found that dismissal would not harm Venezuela and noted that the possibility of refiling did not provide a valid reason to deny the plaintiffs’ request.

Disposition

The court granted the plaintiffs’ motion to vacate their default judgment and voluntarily dismiss their claims. It vacated the default judgment entered at ECF 34 and dismissed without prejudice the plaintiffs’ claims against Venezuela. The Clerk of Court was directed to terminate the motion at ECF 42.