Paul Hastings LLP secured a victory in U.S. District Court for the Southern District of New York on behalf of the Ad Hoc Board of Venezuela’s state-owned oil company, Petróleos de Venezuela (PDVSA), when the court dismissed securities and New York common law fraud claims brought in connection with PDVSA’s nearly $2 billion bond offering for failure to state a claim – a dismissal rarely granted in securities actions.

In VR Global Partners LP v. Petróleos de Venezuela SA, No. 23-cv-05604 (S.D.N.Y.), plaintiff VR Global Partners, L.P., an investment fund that purchased $30 million of the 2020 bonds issued by PDVSA, brought a lawsuit alleging both securities and common law fraud in connection with the bond issuance and subsequent litigation brought by the PDVSA’s Ad Hoc Board seeking to declare the bonds invalid.  VR Global alleged that, at the time it issued the 2020 bonds, PDVSA fraudulently represented that the bonds were valid even though it knew that they were issued in violation of the Venezuelan constitution, which required approval of the issuance by the National Assembly.  VR Global also alleged that, in the alternative, PDVSA committed fraud by commencing litigation (also in SDNY) seeking a declaration that the 2020 bonds were illegal, even though PDVSA knew they were legal and valid.

On April 8, 2024, Judge Denise Cote granted PDVSA’s motion to dismiss for failure to state a claim. In granting the dismissal, Judge Cote found that VR Global’s allegations were entirely illogical, as they would have required the court to accept that PDVSA issued the 2020 bonds “with the intention of refusing to fulfill [its] repayment obligations,” but nevertheless made billions of dollars in required bond payments in the next two years.  The court also rejected VR Global’s alternative theory – that PDVSA brought its parallel lawsuit seeking to declare the 2020 bonds invalid despite knowing that they were valid – as conclusory and contrary to the recent decision of the New York Court of Appeals with respect to the bonds’ validity that Paul Hastings secured for the PDVSA Ad Hoc Board in February 2024.

“We are pleased that the district court correctly recognized VR Global’s illogical allegations as implausible, and properly dismissed them,” said Kurt W. Hansson, Co-chair of the Complex Litigation and Arbitration practice.  “The court’s decision further vindicates the PDVSA Ad Hoc Board’s consistent efforts to ensure adherence to the requirements of Venezuelan constitution in public debt issuance.” 

Co-chair of the Complex Litigation and Arbitration practice Kurt W. Hansson and litigation partner Igor V. Timofeyev led the Paul Hastings team, which also included associates James L. Ferguson, Zoe Lo, and Zach Melvin. 

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