Contrarian Capital Management, LLC v. Bolivarian Republic of Venezuela

Background

Contrarian Capital Management, L.L.C. is an investment adviser, and the other plaintiffs are funds managed by Contrarian. The plaintiffs were the beneficial owners of $432,862,156 in principal amount of nine series of bonds issued by Venezuela. The bonds were governed by two fiscal agency agreements. Those agreements waived Venezuela’s sovereign immunity for claims arising from the bonds, consented to suit in the Southern District of New York, and selected New York law.

Venezuela had missed five or six coupon payments on each bond series, depending on the series. It also failed to pay the principal on three bond series that matured in 2018. The plaintiffs were authorized by the registered bondholder to sue. Venezuela did not dispute the facts related to liability or assert a defense to liability.

Motion for a Stay

Venezuela asked the court to pause the litigation until democracy was restored in Venezuela and it had a reasonable opportunity to pursue a consensual restructuring. The court had rejected the same request in a prior related proceeding and concluded that the arguments failed here for the same reasons.

Venezuela also argued that presidential executive orders and regulations of the Treasury Department’s Office of Foreign Assets Control required a stay. The court explained that those restrictions generally prohibit settlement or enforcement actions that transfer or affect blocked Venezuelan property without a specific license. They do not prohibit a party from litigating to obtain a judgment. The court therefore found no basis for staying the case. It also stated that the requirement to obtain an Office of Foreign Assets Control license before pursuing Venezuelan assets would protect the relevant executive-branch interests.

The court denied Venezuela’s motion for a stay.

Summary Judgment

Summary judgment is appropriate when there is no genuine dispute about a material fact and the moving party is entitled to judgment under the law. The court held that the undisputed facts supported judgment for the plaintiffs.

Sovereign immunity and jurisdiction. Under the Foreign Sovereign Immunities Act, foreign states generally have immunity from suit but may waive it. The court found that Venezuela expressly waived its immunity in the fiscal agency agreements and therefore held that it had jurisdiction over the plaintiffs’ claims.

Breach of contract. The court held that the plaintiffs had contractual standing because they were beneficial owners authorized by the registered bondholder to sue. Venezuela’s failure to make the required coupon and principal payments breached the bond contracts. The court therefore granted the plaintiffs’ motion for summary judgment on their breach-of-contract claims.

Damages and interest. The plaintiffs sought $246,194,335.63 in damages, $15,863,903.87 in prejudgment interest, additional post-maturity interest required by the bonds, and attorney’s fees. Venezuela disputed only the use of New York’s prejudgment-interest rate. The court held that New York law governed the interest calculation and that a 9 percent rate applied to each missed interest payment from the date it was due until the date of judgment. The court found that the plaintiffs could recover the stated damages and prejudgment interest, plus qualifying additional post-maturity interest and additional prejudgment interest accrued after the summary-judgment motion was filed.

Fraud and error prevention measures. Venezuela asked the court to impose restrictions addressing possible fraudulent claims if the plaintiffs transferred their bond interests after obtaining a judgment. The court declined to impose those restrictions, finding that Venezuela had not provided authority for conditioning entry of judgment on the proposed regime.

Disposition and next steps

The court denied Venezuela’s motion for a stay and granted the plaintiffs’ motion for summary judgment. It ordered the plaintiffs to submit a proposed judgment by October 8, 2020, and to submit their attorney’s-fee motion by October 30, 2020. Venezuela’s opposition to that fee motion was due November 30, 2020.