Lovati v. Petroleos De Venezuela, S.A.

Background

Sergio Lovati, Rudi Lovati, Alessandra Sarago Lovati, and Alessandra Lovati sued Petroleos De Venezuela, S.A. (PDVSA) for breach of contract. They sought interest payments allegedly due under notes issued by PDVSA under a November 17, 2011 indenture. The plaintiffs owned notes with a combined principal amount of $55,455,000. The notes carried a 9% annual interest rate and required principal payments in three installments beginning November 17, 2019.

PDVSA moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. Alternatively, PDVSA asked the court to pause the case for 120 days because of Venezuela’s political conditions.

Motion to Dismiss

PDVSA argued that the indenture’s no-action clause barred the plaintiffs from suing because they owned less than 25% of the notes’ principal amount and were not proceeding through the trustee. The clause required specified steps, including a request by holders of at least 25% of the outstanding notes and a failure by the trustee to act, before a holder could bring a suit to enforce the indenture or use another remedy under it.

The plaintiffs argued that the clause applied only to suits enforcing the indenture, not to individual actions enforcing the notes themselves.

The court agreed with the plaintiffs at this stage. Relying on the New York Court of Appeals’ decision in a prior case and the court’s own earlier analysis in a related bond case, it concluded that the no-action clause was narrow and limited to claims related to the indenture. The clause did not specifically bar individual suits to enforce the notes.

The court also rejected PDVSA’s argument that language in the form of the notes barred the lawsuit. The court read the indenture’s cumulative-rights provision as preserving noteholders’ rights and remedies existing outside the indenture, including the common-law right to sue under the notes. The court therefore denied PDVSA’s motion to dismiss based on the no-action clause and the form-note language.

Motion to Stay

PDVSA asked the court to stay, or pause, the proceedings for 120 days because of the political transition and humanitarian crisis in Venezuela. PDVSA argued that the political circumstances limited its access to information, institutions, and personnel needed to defend the case, and that additional time was needed for a proposed plan to address claims against the Republic and related entities.

The court first stated that the stay request was moot because more than 120 days had passed between the filing of the motion and the decision. The court also stated that it would deny the request even if it were not moot. It found that the plaintiffs had an interest in proceeding quickly and that delay could affect their ability to recover, particularly because other creditors held judgments against PDVSA. Although PDVSA had an interest in obtaining facts and resources for its defense, the court found that PDVSA had not identified specifically what information it needed or how long it would take to obtain it.

The court concluded that the factors governing a stay did not support further delay. It denied the request for a stay.

Disposition

Judge Carter denied PDVSA’s motion to dismiss or, alternatively, for a stay. The opinion resolved the identified docket entries, and the parties were ordered to file a joint status report by October 10, 2020.