Red Tree Investments, LLC v. Petroleos De Venezuela, S.A.

Background

Red Tree Investments, LLC brought two actions against Petróleos de Venezuela, S.A. (PDVSA) and PDVSA Petróleo, S.A. (Petróleo). The actions concerned two note agreements and a credit agreement. PDVSA issued the notes and was the borrower under the credit agreement. Petróleo guaranteed PDVSA’s payment obligations. The original lenders assigned their rights under the agreements to Red Tree on January 25, 2019.

Red Tree sought payment of unpaid principal and interest. The opinion states that the total amount owed under the three notes was approximately $63.5 million plus unpaid interest, and that Red Tree claimed approximately $65 million in principal plus interest under the credit agreement. The cases began in New York state court and were removed to federal court. After discovery extensions and the production of more than 13,000 pages of documents, Red Tree moved for summary judgment under Rule 56 of the Federal Rules of Civil Procedure.

Summary-judgment standard

Summary judgment is appropriate when the moving party shows that there is no genuine dispute about any material fact and that it is entitled to judgment as a matter of law. The court must view the evidence favorably to the nonmoving party. After the moving party meets its initial burden, the opposing party must present admissible evidence showing a genuine factual issue for trial.

Red Tree’s showing

For the notes, Red Tree submitted the note agreements, the notes, evidence of the assignments, notices of assignment, and affidavits addressing the agreements, defaults, and amounts due. For the credit agreement, Red Tree submitted the agreement, evidence of disbursements to PDVSA, evidence of default and notice, the assignment, and evidence of the unpaid balance.

The court concluded that Red Tree established the elements needed to recover on the notes: valid instruments containing an unconditional obligation to pay and PDVSA’s failure to pay. Red Tree also established the elements needed to enforce the guarantees against Petróleo: the guarantees, the underlying debts, demand, and Petróleo’s failure to pay.

Impossibility defense

The defendants’ main defense was that United States sanctions and banks’ risk concerns made payment impossible or highly impracticable. Under New York law, impossibility excuses performance only when an unforeseen event makes performance objectively impossible. The defense is applied narrowly.

The court concluded that the relevant sanctions did not prohibit payment of the debt. Executive Order 13808 addressed certain new debt issued after August 25, 2017, while the debt at issue predated that order. The court also relied on guidance from the Office of Foreign Assets Control stating that United States persons could collect and accept payment on qualifying preexisting debt. After PDVSA was designated as a blocked person, General License 9 authorized transactions ordinarily necessary to deal with qualifying PDVSA-related debt issued before August 25, 2017. The opinion states that the parties did not dispute that Petróleo was covered by the license.

The defendants presented evidence that some banks initially declined or delayed processing payments because of sanctions-related risks. But the court noted that certain payments were eventually processed and that other payments had also been successfully made. The court further concluded that PDVSA had not shown what steps it took to reassure financial institutions that payment was lawful, obtain legal guidance, seek additional guidance from the Office of Foreign Assets Control, or otherwise facilitate payment. On that record, the court held that no reasonable jury could find for the defendants on the impossibility defense.

The court also held, as an alternative ground, that the defendants had not shown the sanctions were unforeseeable or could not have been addressed in the contracts. The agreements required PDVSA to maintain necessary governmental approvals and licenses, and the credit agreement addressed the possibility that activities could become subject to sanctions. None of the agreements excused or postponed payment because banks were hesitant to process otherwise lawful payments.

Petróleo’s guaranty liability

The court held that Petróleo had offered no defense specific to its liability as guarantor. The agreements described the guarantees as unconditional and absolute and broadly waived defenses to the guarantor’s liability. The court concluded that Petróleo had waived defenses to enforcement and granted summary judgment against it for all outstanding sums under the note agreements, the notes, and the credit agreement.

Document-production argument

The defendants argued that they lacked access to documents needed to oppose summary judgment and that entering judgment would violate due process. The court rejected that argument. It noted the lengthy period available for discovery, Red Tree’s production of more than 13,000 pages, depositions of representatives, multiple discovery extensions, and the defendants’ failure to move to compel additional discovery or identify what missing documents would show.

Disposition

Judge Castel ordered that Red Tree’s motions for summary judgment—Doc. 24 in No. 19-cv-2519 and Doc. 25 in No. 19-cv-2523—were GRANTED against PDVSA and Petróleo. The court directed Red Tree to submit proposed final judgments, including unpaid balances, accrued interest, and per-day interest calculations. The opinion did not itself state the final dollar amounts or state that the judgment was entered on that date.