Pharo Gaia Fund Ltd. v. Bolivarian Republic of Venezuela

Background

The order addressed two related cases: one brought by Casa Express Corp., as trustee of Casa Express Trust, and one brought by Pharo Gaia Fund Ltd. and Pharo Macro Fund Ltd. The plaintiffs sought recovery on three series of bonds issued by Venezuela: bonds issued in 1998, 2001, and 2009. The 1998 and 2001 bonds matured on August 15, 2018; the 2009 bonds matured on October 13, 2019. Venezuela missed required interest payments and failed to pay the principal when each series matured.

The bond agreements included Venezuela’s express waiver of sovereign immunity for claims arising from the bonds, consent to suit in the Southern District of New York, and agreement that New York law would govern. The opinion also describes Venezuela’s political, economic, health, and human-rights crisis and the debt-renegotiation guidelines issued by the government recognized by the United States as Venezuela’s legitimate government.

Motion to Stay

Venezuela asked the court to stay, or pause, the litigation until democratic rule was restored and the parties could attempt a consensual debt restructuring. The court considered the usual factors for an indefinite stay, international comity, United States policy, and Venezuela’s arguments based on international law.

The court denied the stay. It found that the requested pause had no definite end date and would substantially prejudice the plaintiffs, waste judicial resources while summary judgment was ready for decision, and improperly make the plaintiffs’ rights depend on uncertain political developments. The court also concluded that United States policy did not bar litigation of existing claims, even though sanctions could restrict later efforts to seize or transfer blocked Venezuelan property. The court further held that Venezuela’s asserted necessity and inability-to-pay arguments did not require postponing a decision on the parties’ rights and obligations.

Summary Judgment

The court granted the plaintiffs’ joint motion for summary judgment. Summary judgment is a decision without a trial when the undisputed facts show that a party is entitled to judgment under the law.

First, under the Foreign Sovereign Immunities Act, foreign states generally have immunity from suit, but they may waive that immunity. The court held that Venezuela expressly waived immunity in the fiscal agency agreements, giving the court jurisdiction over the claims.

Second, the court held that the plaintiffs had contractual standing because they were beneficial owners authorized by the registered bondholder to sue. The undisputed evidence showed that Venezuela failed to make the required interest and principal payments for all three bond series. Because a bond is a contract and Venezuela had not presented a defense to liability, the court held that the payment failures constituted breaches of contract.

Damages and Other Requests

The court held that New York law governed prejudgment interest because the bond agreements selected New York law. It ruled that a 9% prejudgment-interest rate applied to each missed interest payment, running from the date the payment was due through the date of judgment. The court stated that Casa Express was entitled to $36,921,587.50, Pharo Macro was entitled to $217,380,625, and Pharo Gaia was entitled to $136,380,625, plus the value of additional post-maturity interest payments that remained unpaid between the filing of the summary-judgment motion and the date of judgment.

Venezuela also asked the court to impose a mechanism addressing possible fraud or error if the plaintiffs transferred their beneficial bond interests after obtaining judgment. The court declined to impose those restrictions, finding that Venezuela had provided no supporting authority or reason to believe the plaintiffs would engage in such conduct.

Disposition

The court denied Venezuela’s motion for a stay and granted the plaintiffs’ motion for summary judgment. It ordered the plaintiffs to submit proposed judgments by October 7, 2020, and their motions for attorney’s fees by October 30, 2020. The order did not itself state that a final judgment had been entered.