Venezuela: The Legal Battle for Citgo

Nicolas Maduro and the PDVSA board appointed by him have an uphill legal battle if they launch a challenge in US courts for control of Citgo, the author says. Here a Citgo gas station in Georgia. (Photo:  Michael Rivera)

Maduro, his PDVSA board won’t have standing to mount a US court challenge.


On January 23, 2019, Juan Guaidó took the oath of office as Interim, or Acting, President of Venezuela. Prior to taking the oath, Guaidó had been serving as President of the Venezuelan National Assembly.

While Nicolás Maduro asserts that he was re-elected for an additional six-year term in May 2018, that election was roundly criticized around the world. As a result, the opposition-led National Assembly declared Maduro's election invalid under articles 233, 333 and 350 of the Venezuelan Constitution, leaving a vacancy in the presidency when his previous term expired on January 10, 2019 – the same day he sought to take the oath of office for another term.Under the Venezuelan Constitution, Guaidó, as President of the National Assembly, stepped in to fill the vacancy and is now serving as Interim President until democratic elections in Venezuela can take place.

To date, numerous countries – among them the United States, Canada, Australia and most of Latin America, as well as the European Union's Parliament – have recognized Juan Guaidó as the legitimate Interim President of Venezuela.

In addition, to prevent Maduro from diverting resources to his regime, the United States has imposed sanctions on the state-owned oil company of Venezuela, Petróleos de Venezuela, S.A. (PDVSA), with the effect of blocking Maduro's access to nearly $7 billion in US assets and $11 billion in export proceeds over the next year. At the same time, pressure is being put on Maduro to leave the country, while the United States maintains that "all options are on the table."

While the struggle for control ensues in Venezuela, reports indicate that a legal battle over control of Citgo Petroleum Corporation – owned by PDVSA and headquartered in Houston – is brewing. Citgo is the eighth largest refiner in the United States and is the most valuable foreign asset of Venezuela. Interim President Guaidó has recently announced his appointments to the interim Citgo and PDVSA boards, which the Venezuelan National Assembly has approved. Meanwhile, Maduro has accused the US of wanting to "steal" Citgo from Venezuela."

Should Maduro or the PDVSA board appointed by him launch a challenge in US courts for control of Citgo, US legal precedent suggests they would have an uphill legal battle in prevailing and, indeed, may not even have standing to sue or intervene in US courts.

Bank of China v. Wells Fargo Bank & Union Trust

Nearly 70 years ago, a similar scenario played out in a US federal court in California in Bank of China v. Wells Fargo Bank & Union Trust Co., 104 F. Supp. 59 (N.D. Cal. 1952). That dispute arose in the context of the Chinese Revolution and concerned which government – the Nationalist Government of China or the Peoples Government of China led by Mao Zedong – had the right to recover funds on deposit at Wells Fargo in the United States. During the pendency of the case, the United States had recognized only the Nationalist Government as the legitimate government of China.

After examining a detailed factual record supplied by both sides, the court held as a matter of law on summary judgment that the Nationalist Government alone had the right to recover the funds from the US bank. Notably, the court recognized that "[t]he resulting legal problem, arising as it does out of sweeping historical changes and the claims of rival governments, cannot be met by the application of technical rules of corporate law."

The court also explained:

It is not a proper function of a domestic court of the United States to attempt to judge which government bests represents the interests of the Chinese Bank in the Bank of China. In this situation, the Court should justly accept, as the representative of the Chinese State, that government which our executive deems best able to further the mutual interests of China and the United States.

Republic of Panama v. Republic National Bank of New York

Nearly 35 years later, another US court reiterated these same principles in Republic of Panama v. Republic Nat. Bank of New York – perhaps even more plainly than the federal court had in the Bank of China decision.

The Panama case arose in the context of the political clash between the factions of President Eric Arturo Delvalle and General Manuel Noriega. On February 25, 1988, President Delvalle dismissed Noriega as Commander of the Panamanian Defense Forces. Noriega refused to give up his post and is believed to have subsequently prompted Panama's National Assembly to remove Delvalle from office. Panama's Cabinet Counsel subsequently designated Manuel Solis Palma as "Minister in Charge of the Presidency of the Republic."

The United States recognized only Delvalle as the legitimate president of Panama. It also certified, through the US Secretary of State pursuant to the provisions of the Edge Act (12 U.S.C. §632), its recognition of Ambassador Juan B. Sosa as Panama's lawful representative in the United States.

The dispute before the US district court concerned an application for preliminary injunction to enjoin certain US banks in the possession of funds from transferring those funds, except as directed by Ambassador Sosa. The national bank of Panama and other individuals, under the direction of Minister Palma, attempted to intervene in the action to lay claim to the funds.

In granting a preliminary injunction in favor of the Delvalle government, the US court made several notable rulings, including:

Recognition by the US of the Devalle government as the legitimate government of Panama was "conclusive and binding" upon the Court.

Citing the Bank of China decision, the US court held that the US Constitution requires judicial deference to the executive on the political question of recognition of foreign governments.

Deference to the executive branch in recognizing foreign governments means that "United States courts will not hear suits brought by governments from which official recognition has been withheld."

The Edge Act "was adopted to enable the State Department to provide recognized foreign governments with swift access to their funds and property [located in the United States] that might otherwise be tied up in litigation by rivals claiming to represent the foreign government." Indeed, as the court recognized, the certification provision of the Act "was intended to implement the existing power of the executive to determine which foreign government would be recognized so that the recognized government representative could take possession of the property without delay."

Finally, the US court expressly held that the US executive's refusal to recognize the Palma government "deprives it of standing" in the matter before the court. In other words, the Palma government did not even have the right to be heard in the matter.

Principles and rules still valid today

The principles and rules articulated in the Bank of China and Republic of Panama decisions remain today.  While the Maduro regime has promised a protracted legal battle over the fate of control for Citgo, these decisions suggest a different outcome, one in which the Maduro regime and his PDVSA board will not even have standing to mount a challenge in US courts.

Christina Maccio is a Houston-based partner with DLA Piper who advises domestic and foreign energy companies—including state-owned oil companies, privately owned exploration and production companies, oilfield services firms and oilfield suppliers—as well as financial institutions, consultancy firms and other multinational clients across a range of industries in high-stakes commercial litigation and cross-border disputes.

This article is based in an alert from DLA Piper. Republished with permission.


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