US court vacates $1.4 billion Venezuela default judgment at creditors’ request

A federal judge has granted a request by investment funds to vacate a $1.4 billion default judgment against Venezuela, citing sanctions that have made the judgment worthless and complicated the bondholders’ ability to trade their securities.

The judgment earlier this month by Judge Analisa Torres of the US District Court for the Southern District of New York allows Pharo Gaia Fund, Pharo Macro Fund, and Pharo Trading Fund to dismiss their claims without prejudice.

‘Unlike most Rule 60(b)(6) cases, Plaintiffs here are moving to vacate a default judgment in their favor,’ Judge Torres noted in her decision. ‘That unusual situation is due to a combination of Venezuela’s failure to satisfy the default judgment and the U.S. government’s prolonged sanctions against that country, which have rendered Plaintiffs’ default judgment practically worthless despite their extensive efforts to enforce it.’

The plaintiffs had obtained the judgment in October 2021 after Venezuela failed to make contractually mandated payments on eight series of sovereign bonds. The judgment awarded the plaintiffs $1,396,434,079.98 in unpaid principal and accrued interest, plus post-judgment interest and attorneys’ fees.

Despite efforts to enforce the judgment, US sanctions against Venezuela ‘generally prevent the enforcement of judgments against the property of Venezuela or PDVSA’, Venezuela’s state-owned oil company, the court noted.

The plaintiffs argued that the sanctions and judgment had ‘the practical effect of making it more difficult for them to transfer or otherwise deal efficiently with the underlying bonds’ because ‘a portion of the debt originally evidenced by the bonds has merged into the judgment’, making their bonds ‘not fungible with bonds that are not subject to a judgment’.

While the US Office of Foreign Assets Control has issued a general licence allowing secondary market trading of Venezuelan bonds, it ‘has not clarified whether it views the assignment of a judgment against Venezuela as prohibited by sanctions’, according to the court order.

Judge Torres ruled that dismissal of the claims without prejudice ‘will not harm Venezuela’s  interests’ and could potentially benefit the country by relieving it of a court order requiring payment of more than a billion dollars.

https://law.justia.com/cases/federal/district-courts/new-york/nysdce/1:2020cv08497/546030/46