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Helmerich & Payne International Drilling Co. v. Bolivarian Republic of Venezuela

United States District Court, District of Columbia

September 20, 2013

HELMERICH & PAYNE INTERNATIONAL DRILLING CO. and HELMERICH & PAYNE DE VENEZUELA, C.A., Plaintiffs,
v.
BOLIVARIAN REPUBLIC OF VENEZUELA, PETRÓ LEOS DE VENEZUELA, S.A., and PDVSA PETRÓ LEO, S.A., Defendants

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For HELMERICH & PAYNE INTERNATIONAL DRILLING CO., HELMERICH & PAYNE DE VENEZUELA, C.A., Plaintiffs: David W. Bowker, Elisebeth Collins Cook, Francesco Valentini, LEAD ATTORNEYS, David William Ogden, WILMER CUTLER PICKERING HALE & DORR LLP, Washington, DC.

For BOLIVARIAN REPUBLIC OF VENEZUELA, Defendant: William Leitzsey Monts, III, LEAD ATTORNEY, HOGAN LOVELLS, L.L.P., Washington, DC; Bruce D. Oakley, HOGAN LOVELLS, Houston, TX.

For PETROLEOS DE VENEZUELA, S.A., PDVSA PETROLEO, S.A., Defendants: George Edward Spencer, Robert Brian Garcia, LEAD ATTORNEYS, PRO HAC VICE, CURTIS, MALLET-PREVOST, COLT & MOSLE, LLP, New York, NY; Joseph Dominic Pizzurro, LEAD ATTORNEY, CURTIS, MALLET-PREVOST, COLT & MOSLE, LLP, New York, NY.

OPINION

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MEMORANDUM OPINION

ROBERT L. WILKINS, United States District Judge.

I. INTRODUCTION

This case involves a longstanding and apparently formerly productive contractual relationship that has since broken down. Although Defendants filed motions to dismiss, subsequent to the filing of those motions all parties asked, and this Court agreed, to hold those motions in abeyance so as to first answer four questions central to the disposition of the motions. This Memorandum Opinion addresses those four questions, along with a motion filed by Plaintiffs asking the Court to " enforce" the parties' Joint Stipulation regarding the handling of the four questions. As detailed below, the Court's answers to the questions, and the resolution of Plaintiffs' motion, do not fully resolve the motions to dismiss, and therefore additional briefing will be necessary on the remaining arguments raised in Defendants' motions.

II. FACTUAL SUMMARY

A. Issue Background[1]

Helmerich & Payne International Drilling Co. (H& P-IDC) is a Delaware-incorporated, Tulsa, Oklahoma-based corporation that wholly owns the subsidiary Helmerich & Payne de Venezuela, C.A. (H& P-V) (collectively, Plaintiffs). (Dkt. No. 1, ¶ ¶ 2, 9). H& P-V " is incorporated in Venezuela," and " had its principal Venezuelan office in Anaco, Venezuela . . . ." ( Id. ¶ 10). Plaintiffs are oil and gas drilling companies. ( Id. ¶ ¶ 9-10). H& P-V began providing contract oil and gas drilling services in Venezuela in the 1970s; H& P-IDC had been operating in Venezuela through wholly-owned subsidiaries since 1954. ( See id. ¶ 16). Venezuela's Superintendent of Foreign Investment, which is part of the country's Finance Ministry, issued H& P-V a Company Qualification Certificate stating the company " is . . . considered a FOREIGN COMPANY at all relevant legal effects." ( Id. ¶ ¶ 100, 102) (capitalization in original).

There are three Defendants in this case. One is the Bolivarian Republic of Venezuela (Venezuela), which of course is a country on the northern coast of South America. The other two are entities owned and controlled by Venezuela: Petróleos de Venezuela, S.A. (PDVSA) and PDVSA Petróleo, S.A. (Petróleo). ( See id. ¶ 2). PDVSA and Petróleo are energy corporations " that by law enjoy a monopoly on Venezuela's oil reserves." ( Id. ). Petróleo, a wholly owned subsidiary of PDVSA, is the exploration and operating arm of PDVSA. ( Id. ¶ 13). The PDVSA Defendants concede

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they are agencies or instrumentalities of Venezuela, as that term is defined at 28 U.S.C. § 1603(b). ( See Dkt. No. 22-1, at 13).

Beginning around 1997, H& P-V provided contract drilling services exclusively to the PDVSA Defendants and other entities owned by Venezuela. ( See Dkt. No. 1, ¶ 2). H& P-V and Petróleo signed each contract. ( See id. ¶ ¶ 30, 32). This work involved, among other things, " the largest, most powerful, and deepest-drilling, land-based drilling rigs available." ( Id. ¶ ¶ 21, 26). At issue in this litigation are ten " fixed term" drilling contracts signed in 2007 to be performed by H& P-V on a " day-rate" basis. ( Id. ¶ ¶ 30, 33-35). " The agreed-upon daily rates for H& P-V . . . were partially set forth in U.S. Dollars and partially in Venezuelan currency ('Bolivars' or 'Bolivar Fuertes')." ( Id. ¶ 37) (footnote omitted). " H& P-V separately invoiced the amounts due in U.S. Dollars ('Dollar-based invoices') and the amounts due in Venezuelan currency ('Bolivar-based invoices')." ( Id. ¶ 38).

Of the ten contracts, one related to drilling in the western region of Venezuela, and the rest related to drilling in the eastern region. ( Id. ¶ ¶ 39-40). The former contract required the Dollar-based invoices to be paid " in U.S. Dollars in the United States" under certain conditions. (Dkt. No. 40-3, at 21-22 (§ 18.14)). [2]

The remaining nine contracts " were supplemented" by a 2008 agreement signed by H& P-V and PDVSA, (Dkt. No. 1, ¶ ¶ 40-41), that required the PDVSA Defendants to pay " invoices issued [by H& P-V] corresponding to the contract's foreign currency component . . . in actual dollars at 61% . . . abroad in the [Tulsa, Oklahoma] account specified by [H& P-V]," while " the remaining portion, 39%, shall be paid in equivalent bolivars at the official exchange rate," (Dkt. No. 40-7, at 2 (¶ ¶ 1-2). " This 2008 agreement reiterated the terms of an earlier 2003 agreement, which similarly provided for a set percentage of the PSVSA Defendants' payments to be remitted in U.S. Dollars to a bank account in the United States." (Dkt. No. 1, ¶ 118). " Thus, under each of the contracts at issue,

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the PDVSA Defendants were required to make payments to H& P-V in U.S. Dollars directly to H& P-V's designated bank account at the Bank of Oklahoma in Tulsa, Oklahoma." ( Id. ¶ 43).

Around 2007, [3] the PDVSA Defendants " began systematically to breach those contracts" in an amount that eventually amounted to over $32 million in unpaid invoices. ( See id. ¶ ¶ 6, 56). In January 2009, H& P, Inc., the parent company of H& P-IDC, ( id. ¶ 9), " announced it would 'cease[] operations on rigs as their drilling contracts expire' and not renew its subsidiary's contracts with the PDVSA Defendants absent an 'improvement in receivable collections,'" ( id. ¶ 50). By November 2009, H& P-V had finished its contractually-obligated work and disassembled its equipment. ( See id. ¶ 53). In 2010, the PDVSA Defendants stopped making payments altogether. ( Id. ¶ ¶ 44, 56). Prior to that, they " made at least 55 payments totaling roughly $65 million into H& P-V's designated bank account in Tulsa," in addition to payments made in Bolivars. ( See id. ¶ 44). The PDVSA Defendants and Plaintiffs met in Houston on May 24, 2010, in an attempt to work out a solution, but were unsuccessful. ( See id. ¶ 55).

Between June 12 and 14, 2010, the PDVSA Defendants, with assistance from the Venezuelan National Guard, " surrounded and unlawfully blockaded" H& P-V's business premises in western and eastern Venezuela. ( Id. ¶ 3). " PDVSA's Director of Services expressly informed H& P-V's Administrative Manager that Defendants intended the blockade to prevent H& P-V from removing its rigs and other assets from its premises, and to force H& P-V to negotiate new contract terms immediately." ( Id. ¶ 63). On June 23, 2010, PDVSA issued a press release stating they had nationalized eleven drilling rigs belonging to " Helmerich & Payne (HP), a U.S. transnational firm." ( Id. ¶ 65). Two days later, PDVSA issued another press release, which referred to " [t]he nationalization of the oil production drilling rigs from the American contractor H& P . . . ." ( Id. ¶ 66).

On June 29, 2010, the Venezuelan National Assembly issued a Bill of Agreement declaring H& P-V's property to be of public interest, and recommended to then President Hugo Chá vez that he issue a Decree of Expropriation. ( Id. ¶ ¶ 3-4). That day, President Chá vez issued Presidential Decree No. 7532, directing PDVSA " or its designee affiliate" to seize H& P-V's property. ( See id. ¶ 4). Also on that same day, the PDVSA Defendants hired a notary to " conduct a judicial inspection of the rigs and other assets" in the eastern (but not western) region of Venezuela. ( Id. ¶ 71). " H& P-V hired a notary to accompany the PDVSA Defendants' notary; H& P-V's notary simultaneously performed a rushed and incomplete inspection in the limited time available that day." ( Id. ). The property encompasses more than just the drilling rigs, including, for example, real property, vehicles, and various equipment. ( See id. ¶ ¶ 77-80). At some time after that, Minister Ramirez, Venezuela's Minister of Energy and Petroleum and also President of PDVSA, spoke in eastern Venezuela at what had been H& P-V's premises there about the seizure, referring to H& P-V as an " American company" with " foreign gentlemen investors" that would now " become part of the payroll" of PDVSA. ( Id. ¶ 5). On July 1, 2010, Petróleo filed two eminent domain

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proceedings in Venezuela, one in the eastern region and one in the western. ( Id. ¶ ¶ 72-73). In the former, as of September 2011, " H& P-V still has not been afforded the opportunity to appear," and in the latter " those proceedings have not progressed past the earliest stage of the case." ( Id. ). Plaintiffs have received no compensation from Venezuela with respect to the seizure of their drilling rigs and related items. ( Id. ¶ 86).

B. Procedural Background

Plaintiffs filed their Complaint in September 2011 against Defendants under two provisions of the Foreign Sovereign Immunities Act (FSIA): the commercial activities exception [4] and the expropriation exception. [5] ( Id. ¶ 1). The Complaint states two counts: Taking in Violation of International Law, and Breach of Contract. In three briefs filed separately on August 31, 2012--two by Venezuela, and one by the PDVSA entities--Defendants moved to dismiss. (Dkt. Nos. 22-24). Before opposing the motions to dismiss, Plaintiffs filed a motion to compel discovery, (Dkt. No. 29), which was fully briefed but ultimately denied without prejudice because the parties instead agreed to a Joint Stipulation, ( see Dkt. No. 36).

The Joint Stipulation lists four issues raised in the motions to dismiss, termed the " Initial Issues," that the parties " shall brief . . . in their next round of briefing and reserve argument on the additional issues raised in the motions to dismiss . . . ." (Dkt. No. 36, at 3). The four Initial Issues are:

(A) Whether, for purposes of determining whether a 'taking in violation of international law' has occurred under the expropriation exception of the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. § 1605(a)(3), Plaintiff Helmerich & Payne de Venezuela C.A. is a national of Venezuela under international law;
(B) Whether Plaintiffs' expropriation claims are barred by the act of state doctrine, including the issue whether this defense may be adjudicated prior to the resolution of Defendants' challenges to the Court's subject matter jurisdiction;
(C) Whether, for purposes of determining the applicability of the commercial activities exception of the FSIA, 28 U.S.C. § 1605(a)(2), Plaintiffs have sufficiently alleged a 'direct effect' in the United States within the meaning of that provision; and
(D) Whether Plaintiff Helmerich & Payne International Drilling Co. has standing.

( Id. at 3). The Joint Stipulation states that these four issues " shall be adjudicated

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solely on the basis of the Plaintiffs' allegations (including the materials attached as exhibits or referenced in the complaint), assuming the truth of all well-pleaded factual allegations in the complaint, and construing the complaint in the light most favorable to Plaintiffs." ( Id. at 2-3). It also states the following: " The parties stipulate that Plaintiffs shall brief the Initial Issues in their next round of briefing and reserve argument on the additional issues raised in the motions to dismiss (the ownership or operation of the expropriated assets, application and enforceability of what Defendants refer to as a forum selection clause, and forum non conveniens (hereafter 'Additional Issues')) until a second phase of briefing on the motions to dismiss." ( Id. at 3).

Following the agreement on the Joint Stipulation, the parties completed the briefing on the motions to dismiss. Shortly thereafter, Plaintiffs filed a motion to enforce the Joint Stipulation, claiming that the PDVSA Defendants violated the Joint Stipulation by arguing " that the Court cannot exercise personal jurisdiction over the PDVSA Defendants consistent with constitutional due process," which Plaintiffs state is not among the four Initial Issues. ( See Dkt. No. 45, at 3). Plaintiffs ask that portions of the PDVSA Defendants' Reply that " contain the constitutional due process argument" be stricken. ( See id. at 5-6). In their Opposition to the motion to enforce, the PDVSA Defendants argue that " a due process analysis is directly related to a determination of direct effect because the FSIA's commercial activity exception cannot grant personal jurisdiction where the Constitution forbids it." (Dkt. No. 46, at 9).

III. ANALYSIS OF INITIAL ISSUES

The Court will address the four Initial Issues in the order they appear in the parties' Joint Stipulation. In addition, as part of answering the question regarding whether the Plaintiffs have sufficiently alleged a direct effect under the relevant FSIA provision, the Court will resolve Plaintiffs' motion to enforce.

A. Corporate Nationality of H& P-V

Listed first among the four Initial Issues is the question of whether H& P-V is considered a national of Venezuela under international law for the purpose of determining if a taking in violation of international law occurred under the expropriation exception of the FSIA. Based on the weight of authority reviewed below, this Court concludes that H& P-V is considered a national of Venezuela under international law.

1. Standard of Review

International law is based on, among other sources, international conventions, principles of law recognized by civilized nations, judicial opinions, and reputable scholarship. Doe v. Exxon Mobil Corp., 654 F.3d 11, 36-37 n.23, 397 U.S.App. D.C. 371 (D.C. Cir. 2011) (citations omitted). See also Restatement (Third) of Foreign Relations Law (the Restatement) § 103(2) (1987) (" In determining whether a rule has become international law, substantial weight is accorded to (a) judgments and opinions of international judicial and arbitral tribunals; (b) judgments and opinions of national judicial tribunals; (c) the writings of scholars; [and] (d) pronouncements by states that undertake to state a rule of international law, when such pronouncements are not seriously challenged by other states." ). In the absence of an applicable treaty or ...


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