Pharo Gaia Fund Ltd. v. Bolivarian Republic of Venezuela

Background

Pharo Gaia Fund, Ltd. and Pharo Macro Fund, Ltd. sued the Bolivarian Republic of Venezuela for breaching payment obligations on two series of sovereign bonds. In September 2020, the court granted the plaintiffs’ motion for summary judgment, ruling that Venezuela had waived sovereign immunity, breached its contractual obligations, and owed damages. In October 2020, the court entered a final judgment awarding $389,089,012.30 in unpaid principal and accrued contractual interest, plus post-judgment interest and attorneys’ fees. Venezuela did not appeal.

The plaintiffs spent years attempting to enforce the judgment against Venezuela and its state-owned oil company, Petróleos de Venezuela, S.A. The opinion states that U.S. sanctions generally prevented enforcement against Venezuelan or company property. The plaintiffs obtained attachments of shares in a Delaware proceeding and participated in a related sale process, but the court found it unlikely that the sale would provide them relief because creditors with earlier judgments held approximately $18 billion in claims and recent bids were much lower.

The plaintiffs also represented that the judgment made the underlying bonds harder to transfer or trade efficiently. Because some of the bond debt had merged into the judgment, a transferee would need an assignment of the judgment to receive the full bundle of creditor rights. The Office of Foreign Assets Control had authorized secondary-market trading of Venezuelan bonds but had not clarified whether assigning the judgment was allowed under sanctions.

Legal standards

The plaintiffs moved under Federal Rule of Civil Procedure 60(b)(6), which permits relief from a final judgment for an extraordinary reason not covered by the rule’s other grounds. The court explained that relief may be appropriate when extraordinary circumstances exist or when the judgment creates an extreme and undue hardship, and that the motion must be filed within a reasonable time.

The plaintiffs also moved under Rule 41(a)(2) to voluntarily dismiss their claims. Under that rule, the court may dismiss an action on appropriate terms, and voluntary dismissal generally is allowed when it will not prejudice the defendant.

Court’s analysis

The court held that vacating the judgment was appropriate under Rule 60(b)(6). It characterized the combination of Venezuela’s failure to satisfy the judgment and the prolonged U.S. sanctions as extraordinary circumstances that had made the judgment practically worthless despite the plaintiffs’ enforcement efforts. The court also found that the judgment imposed an extreme and undue hardship because sanctions prevented enforcement and reduced the plaintiffs’ ability to deal efficiently with the bonds.

The court further determined that the plaintiffs could not obtain relief under the first five parts of Rule 60(b), because they were not alleging a court error, newly discovered evidence, fraud or misconduct, a void judgment, or a change involving prospective injunctive relief. The court found that the motion was filed within a reasonable time because the plaintiffs had tried to enforce the judgment for years and sought relief after it became clear that recovery from the Delaware share auction was unlikely. The court also found no prejudice to Venezuela and limited public interest in preserving this particular judgment.

The court separately concluded that voluntary dismissal without prejudice was appropriate. It found that dismissal would not harm Venezuela and that Venezuela would benefit from no longer facing the meritorious claims and the existing judgment. The possibility that the plaintiffs might refile in the future did not justify denying their request.

Disposition

The court granted the plaintiffs’ motion to vacate the judgment and voluntarily dismiss their claims. It vacated the October 2020 judgment and dismissed the plaintiffs’ claims against Venezuela without prejudice. The clerk was directed to terminate the motion at ECF 97.