Pharo Gaia Fund, Ltd. v. Petroleos de Venezuela, S.A.

Background

Pharo Gaia Fund, Ltd., Pharo Macro Fund, Ltd., and Pharo Trading Fund, Ltd. sued Petróleos de Venezuela, S.A. (PDVSA) over unpaid contractual obligations on four series of notes: the 6.00% 2024 Notes, 6.00% 2026 Notes, 5.375% 2027 Notes, and 5.5% 2037 Notes. PDVSA did not appear after being served, so the plaintiffs obtained a default judgment. A default judgment is a judgment entered after a defendant fails to appear or defend the case.

The judgment awarded the plaintiffs $315,487,599.80 in unpaid principal and accrued contractual interest, plus post-judgment interest and attorneys’ fees. The plaintiffs later sought to vacate, or set aside, that judgment and voluntarily dismiss their claims without prejudice. They explained that U.S. sanctions generally prevented them from enforcing judgments against property of Venezuela or PDVSA. They also said the judgment made it more difficult to transfer or otherwise deal efficiently with the underlying notes because some of the debt had merged into the judgment. The plaintiffs further represented that the Office of Foreign Assets Control had not clarified whether assigning the judgment would violate sanctions.

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, beyond the specific reasons listed in the rule. The court explained that relief may be appropriate in extraordinary circumstances or when a judgment creates extreme and undue hardship, and that the request must be made within a reasonable time.

Federal Rule of Civil Procedure 41(a)(2) allows a court to dismiss an action on terms it considers proper. Voluntary dismissal generally is allowed when it will not prejudice the defendant.

Court’s analysis

The court held that the circumstances justified relief under Rule 60(b)(6). It emphasized that the plaintiffs were unusually seeking to vacate a default judgment entered in their own favor. The court found that PDVSA’s failure to satisfy the judgment, combined with prolonged U.S. sanctions and the plaintiffs’ extensive but unsuccessful enforcement efforts, made the judgment practically worthless and created an extreme and undue hardship.

The court also found that the plaintiffs had filed their request within a reasonable time. They had spent years trying to enforce prior and related judgments before concluding that they were unlikely to recover from the expected sale of shares connected to PDVSA. The court found no prejudice to PDVSA from vacating a judgment that required it to pay hundreds of millions of dollars. It also noted that the case did not produce a precedential decision or affect nonparties.

The court separately determined that dismissing the claims without prejudice would not harm PDVSA. The court stated that PDVSA would benefit from dismissal of claims that were the subject of the default judgment and that the possibility of a future refiling did not justify denying the plaintiffs’ request.

Disposition

Judge Jed S. Rakoff ordered that the plaintiffs’ motion to vacate their default judgment and voluntarily dismiss their claims was GRANTED. The court VACATED the default judgment against PDVSA and DISMISSED WITHOUT PREJUDICE the plaintiffs’ claims against PDVSA.