The CITGO auction has been paused by the Delaware Court due to the Southern District of New York’s decision affirming the validity of the PDVSA 2020 Bonds.
Judge Katherine Polk Failla, overseeing the case of Petróleos de Venezuela S.A. against MUFG Union Bank, N.A. (1:19-cv-10023), issued a judicial Opinion and Order addressing the long-standing legal dispute over the validity of the mentioned bonds issued by the Venezuelan state-owned oil company following a swap offer.
There was a controversy surrounding these papers centered on whether these contracts are valid under Venezuelan law, as it was necessary to determine if they are contracts of national public interest that require approval from the National Assembly of Venezuela, which did not happen.
The court reviewed a decision from a higher court that established that Venezuelan law, rather than New York law, governs the validity of the bonds. After an extensive analysis of Venezuelan jurisprudence, the New York court determined that the PDVSA 2020 Bonds are valid because only contracts in which the Republic of Venezuela is a direct party are classified as national public interest contracts.
The Judicial Decision
On September 18, 2025, Judge Katherine Polk Failla from the U.S. District Court for the Southern District of New York affirmed that the bonds issued by Petróleos de Venezuela S.A. (PDVSA) in 2016, known as the “PDVSA 2020 Bonds” — as well as the governing documents — are valid and enforceable under Venezuelan law.
This ruling dismisses PDVSA’s main argument that the bonds were void ab initio for not having received the National Assembly’s approval.
The critical points of the decision are as follows:
Interpretation of Venezuelan Law
The court concluded that under Venezuelan law, a contract only qualifies as a “contract of national public interest” requiring National Assembly approval if the Republic of Venezuela is a direct party to it. Since the PDVSA 2020 Bonds were issued by the state oil company and not by the republic itself, such authorization was not needed.
Binding Precedent
The decision is based on an interpretation of the Andrés Velásquez case by Venezuela’s Constitutional Chamber, which established a binding precedent that restrictively defines what constitutes a contract of national public interest.
Inapplicability of the Act of State Doctrine
The court reaffirmed its previous conclusion that the act of state doctrine does not prevent U.S. courts from ruling on the validity of the bonds. It was determined that the National Assembly’s resolutions attempting to invalidate the transaction constituted an extraterritorial action, as the underlying asset — the 50.1% collateral shares of CITGO — and the situs of the debt are located in New York, outside Venezuela’s sovereign control to execute a fait accompli.
As a result, the court partially granted the summary judgment motion in favor of the defendants, MUFG Union Bank N.A. and GLAS Americas LLC, and denied the motion from the plaintiffs — PDVSA and its subsidiaries — thus paving the way for bondholders to seek enforcement of their rights over CITGO’s collateral.
Context of the Litigation
The case focuses on the validity of the PDVSA 2020 Bonds issued by Petróleos de Venezuela S.A. as part of a swap offer in October 2016. These bonds were secured by a pledge of 50.1% of CITGO Holding Inc.’s (PDVH) shares, a subsidiary of PDVSA. Due to default by the oil company in October 2019, the plaintiffs initiated litigation seeking a declaratory judgment that the bonds and their governing documents were invalid under Venezuelan law.
PDVSA argued that the PDVSA 2020 Bonds are “contracts of national public interest” according to Articles 150 and 187(9) of the Venezuelan Constitution, and thus, required prior approval from the National Assembly, which was never obtained.
Initially, the Southern District Court of New York ruled that New York law governed the validity of the bonds. However, after an appeal process that included a certification to the New York Court of Appeals, it was determined that Venezuelan law should apply to resolve the validity issue of the securities. The case was returned to the court to apply Venezuelan law.
Judge Polk Failla’s ruling is a comprehensive analysis of Venezuelan constitutional law to determine if the PDVSA 2020 Bonds are indeed “contracts of national public interest.” The court concluded that they are not.
Based on the interpretation of the Andrés Velásquez case established by the Constitutional Chamber of Venezuela’s Supreme Tribunal of Justice in 2002, which definitively set the criteria for a “contract of national public interest,” the New York Court determined that for a contract to be classified as such, “the participation of the Republic, States, or Municipalities” is essential.
Since the bonds were issued by PDVSA, a state enterprise that is part of the “Decentralized Public Administration” and not of the Republic itself, they do not meet this essential requirement.
Rejection of Alternative Interpretations
Judge Katherine Polk Failla considered that the plaintiffs’ argument that contracts entered into by entities of the Decentralized Public Administration, like PDVSA, could also be regarded as contracts of national public interest due to their strategic importance is invalid.
It was considered that the notion that state-owned enterprises can enter contracts of national public interest is an academic normative opinion about how the law should be, rather than a reflection of what the law actually is, according to the binding interpretation of the Constitutional Chamber.
The court analyzed other Venezuelan cases presented by the parties and concluded that, rather than contradicting the Andrés Velásquez case, these reaffirmed the requirement that the Republic must be a party or final guarantor of the obligations for a contract to be of national public interest.
Inapplicability of the Act of State Doctrine
The court reexamined the act of state doctrine which prohibits U.S. courts from invalidating the official acts of a foreign sovereign. Despite the change in applicable law — from New York to Venezuela — the court upheld its original decision that the doctrine does not apply in this case.
The court considered the resolutions issued by the National Assembly in May 2016, September 2016, and October 2019, and reaffirmed that these are “official acts of a foreign sovereign,” since the United States recognizes the 2015 National Assembly as the legitimate government of Venezuela, retroactively from its inception.
However, an analysis of the text of the resolutions led the court to conclude that they did not retroactively invalidate the bond swap offer.
The May 2016 resolution referenced contracts of the “National Executive,” not of PDVSA.
The September 2016 resolution “rejected” the pledge on CITGO and requested an investigation, but did not declare the transaction void in its entirety.
The October 2019 resolution, which did classify the agreement as an unauthorized contract of national public interest, was viewed as a retroactive action that could not invalidate an already existing debt with situs abroad.
But the decisive argument against applying the doctrine was the extraterritorial limitation, as it was determined that the “center of gravity” of the debt and collateral was in New York, not Venezuela.
The act of state doctrine does not apply when the foreign sovereign can’t fully execute its action within its own territory.