PDVSA’s CITGO-Backed Bonds: No Article 150 Approval and No Mandatory Act-of-State Protection for Extraterritorial Invalidation

1. Introduction

This decision addresses the intersection of foreign constitutional law, international securities transactions, and the act-of-state doctrine. Venezuela’s state-owned oil company and two subsidiaries sought to invalidate a bond exchange secured by a controlling interest in CITGO Holding, Inc. They argued both that Venezuelan constitutional law required legislative approval and that resolutions of Venezuela’s National Assembly independently compelled American courts to treat the transaction as void.

The Second Circuit rejected both arguments. Applying Venezuelan law, it held that the transaction did not require National Assembly approval under Article 150 of the Venezuelan Constitution. Separately, it held that the act-of-state doctrine did not require American courts to give the Assembly’s resolutions their asserted effect on property and transactions outside Venezuela.

The decision is significant because it keeps three inquiries distinct: which country’s law governs a security’s validity, what that foreign law actually requires, and whether a particular sovereign act must receive conclusive effect regardless of otherwise applicable law.

The transaction and the parties

In 2016, Petróleos de Venezuela, S.A. (“PDVSA”) offered holders of unsecured notes maturing in 2017 an exchange for secured notes maturing in 2020. Holders representing approximately 39.43% of the outstanding principal accepted. PDVSA issued the new notes; PDVSA Petróleo, S.A. guaranteed them; and PDV Holding, Inc. pledged 50.1% of its equity interest in CITGO Holding.

These three companies—the “PDV Entities”—were the plaintiffs and appellants. MUFG Union Bank, N.A., the trustee, and GLAS Americas LLC, the collateral agent, were the defendants and appellees. The challenged “Governing Documents” comprised the 2020 Notes, the Indenture, and the Pledge Agreement.

Following PDVSA’s October 2019 payment default, the PDV Entities sought declarations that those documents were void from the outset and an injunction against enforcement. The creditor-side defendants counterclaimed for enforceability declarations and contractual relief.

The political setting

The dispute arose during a struggle between Nicolás Maduro’s executive government and the opposition-controlled National Assembly. The Assembly issued resolutions in May and September 2016 asserting its constitutional authority and opposing the CITGO pledge. In October 2019, it declared that the bond indenture violated Article 150 because legislative approval had not been obtained.

Changes in United States recognition of Venezuela’s leadership complicated the background. The court nevertheless did not decide whether those developments altered the litigation positions before it. Nor did it definitively resolve whether the Assembly should be treated as Venezuela’s sovereign for purposes of its 2016 resolutions.

2. Procedural Development and Summary of the Opinion

The earlier decisions

The two holdings

1. No Article 150 approval was required for this transaction. Venezuela’s binding constitutional decisions distinguish contracts concluded by the Republic through competent organs of the National Executive from contracts undertaken independently by decentralized state-owned enterprises. PDVSA fell within the latter category, and the transaction did not directly obligate the Republic.
2. The act-of-state doctrine did not require recognition of the asserted invalidation. Even assuming that the Assembly’s resolutions were sovereign acts purporting to invalidate the exchange, their asserted operation was extraterritorial. The transaction and relevant property were outside Venezuela.

The court therefore affirmed the partial final judgment. It did not issue an unrestricted authorization to foreclose on CITGO collateral or resolve every outstanding issue in the broader litigation.

3. Analysis: Venezuelan Law and the Precedents Defining Article 150

A. Standards of review and proof of foreign law

Citing NML Capital v. Republic of Argentina, 621 F.3d 230 (2d Cir. 2010), the court reviewed summary judgment without deference to the district court. Under Federal Rule of Civil Procedure 56(a) and Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986), summary judgment was appropriate if no genuine dispute of material fact existed and the prevailing party was entitled to judgment as a matter of law.

Foreign law likewise presented a legal question subject to independent appellate review. In re Vitamin C Antitrust Litigation, 8 F.4th 136 (2d Cir. 2021), supplied that principle. Rule 44.1 permitted consideration of relevant legal materials, expert reports, academic commentary, and governmental submissions. Consequently, disagreement among experts did not itself require a factual trial.

B. Constitutional text and institutional structure

Article 150 requires legislative approval for national public interest contracts in cases specified by law. Its second clause also requires approval for municipal, state, or national public interest contracts made with specified foreign counterparties. Article 187(9) sets out corresponding legislative powers.

Neither provision defines “national public interest contract.” The court therefore examined Venezuela’s governmental structure and its authoritative constitutional decisions rather than treating the transaction’s economic importance as sufficient by itself.

The critical distinction was between the Central Public Administration, comprising governmental organs such as ministries, and the Decentralized Public Administration, comprising legally distinct entities such as state-owned enterprises. All parties agreed that PDVSA belonged to the latter.

Article 335 gave particular importance to decisions of Venezuela’s Constitutional Chamber. Although judicial decisions generally do not operate as binding precedent in Venezuela’s civil-law system, the 1999 Constitution expressly made the Chamber’s constitutional interpretations binding on other Venezuelan courts.

C. Andrés Velásquez: the controlling foundation

The principal authority was Andrés Velásquez y otros [Andrés Velásquez and others], No. 2241 (Sept. 24, 2002), referred to throughout the opinion as Andrés Velásquez. That case concerned legislation allowing the National Executive to undertake financing operations with subsequent notification, rather than specific prior approval, of the National Assembly.

The Constitutional Chamber held that qualifying national public interest contracts required prior approval. More importantly here, it described such contracts as those concluded by the Republic through competent organs of the National Executive, with objects essential to the State’s purposes.

The PDV Entities argued that this language merely distinguished national contracts from state and municipal contracts; the case had not directly considered the powers of decentralized enterprises. The Second Circuit instead read the repeated references to the Republic and its governmental organs as deliberate limitations.

The distinction between an “organ” and an “entity” was therefore substantive, not semantic. A company could be wholly state-owned and economically indispensable without becoming a ministry or another organ acting for the Republic.

The court also noted that Professor Brewer-Carías, an expert for the PDV Entities, had previously criticized Andrés Velásquez for restricting the relevant category to contracts concluded by the Republic. That earlier scholarship supported the court’s reading, but neither the expert’s consistency nor his later explanation was treated as dispositive.

D. EDELCA: state-enterprise participation coupled with obligations of the Republic

In EDELCA, No. 953 (Apr. 29, 2003), the Constitutional Chamber considered challenges involving an electricity project between Venezuela and Brazil. The arrangements included an intergovernmental memorandum and a related contract between a Venezuelan state-owned enterprise and Brazilian companies.

The PDV Entities emphasized that the Chamber described the enterprise’s contract as a public interest contract. The Second Circuit focused instead on the contract’s implementation of international commitments already undertaken by the Republic itself.

Accordingly, EDELCA did not establish that subject-matter importance alone brought an independently executed enterprise contract within Article 150. It demonstrated why identifying the Republic’s own obligations matters. No comparable undertaking by the Republic was established for the CITGO-backed exchange.

E. Attorney General II (Bandagro): direct governmental backing distinguishes the debt

Banco de Desarrollo Agropecuario (Bandagro) [Attorney General of the Republic II (Bandagro)], No. 1460 (July 12, 2007), concerned the effect of advice issued by Venezuela’s Attorney General about promissory notes allegedly issued by a state agricultural development bank.

The case’s actual holding addressed the advisory, rather than rights-creating, character of the Attorney General’s opinion. Its discussion nevertheless repeated Andrés Velásquez and stated that participation by the Republic was necessary, though not sufficient, for the relevant classification.

Although the Chamber appeared to regard the notes as potentially qualifying national public interest contracts, the record indicated explicit backing by the national government and possible payment obligations of the Republic’s treasury. Those features distinguished the notes from PDVSA’s independent borrowing. The Second Circuit therefore found that Attorney General II (Bandagro) reinforced the foundational framework without materially assisting the PDV Entities.

F. Brigitte Acosta: an express four-element framework

Brigitte Acosta Isasis, No. 618 (July 20, 2016), examined a financing agreement involving Venezuela’s Central Bank. Drawing on Andrés Velásquez, the Constitutional Chamber identified four characteristics of national public interest contracts:

1. Execution by the Republic through competent organs of the National Executive;
2. An object crucial or essential to the Venezuelan State’s purposes;
3. Service of the national community’s interests, rather than merely a particular sector; and
4. Payment obligations extending into subsequent fiscal years.

The Chamber found that the Central Bank occupied a distinct, functionally autonomous position and that its financing agreement was not a national public interest contract.

The PDV Entities argued that the Chamber’s extensive institutional analysis would have been unnecessary if only the Republic could execute qualifying contracts. The Second Circuit disagreed: determining an institution’s legal position was entirely consistent with applying the first requirement.

The decision also supported attention to separate legal personality, autonomous assets, and independent functions—features relevant to PDVSA. The Second Circuit acknowledged the politically contentious circumstances surrounding Brigitte Acosta but assessed the decision on its legal terms; the parties had not argued in their briefs that those circumstances should change its treatment.

G. Simón Muñoz Armas: limited relevance of an earlier, nonbinding decision

The PDV Entities also relied on Simón Muñoz Armas y otros [Simón Muñoz Armas and others], No. 17-08-1999 (Aug. 17, 1999), also described as Apertura Petrolera. That case discussed public interest contracts in the context of congressional authorization for hydrocarbon exploration arrangements.

The Second Circuit found it unpersuasive because it interpreted the 1961 Constitution, predated the Constitutional Chamber’s new precedential authority, and concerned a different arrangement. It could not override the later, binding interpretation in Andrés Velásquez.

H. Other statutes: reconciling joint ventures with independent borrowing

The strongest statutory argument for the PDV Entities arose from Article 33 of the Hydrocarbons Law, which requires prior Assembly approval for establishing mixed enterprises. The Assembly had regularly invoked Articles 150 and 187(9) when authorizing such ventures involving PDVSA or its subsidiaries.

This practice complicated any categorical claim that PDVSA-related arrangements could never fall within Article 150. The court acknowledged that difficulty. It nevertheless distinguished state-sanctioned ventures developed through ministries, international arrangements, and legislatively approved conditions from PDVSA’s contracts undertaken on its own account.

The Financial Administration Law pointed in the other direction. Article 98 generally required authorization for public credit operations, while Article 101 exempted relevant hydrocarbon enterprises, including PDVSA, from that statutory system. A broad constitutional requirement covering PDVSA’s foreign borrowing would undermine much of that exemption.

Neither statutory argument displaced the Constitutional Chamber’s interpretation. Together, however, they supported a contextual distinction between transactions involving the Republic’s own governmental commitments and ordinary borrowing by a separate state-owned company.

I. Historical practice and the Republic’s submissions

PDVSA had not historically submitted its debt transactions for Assembly approval. The Assembly had not challenged the issuance of the unsecured 2017 Notes on that ground. This history supported the court’s interpretation, although it was not conclusive: pledging control of CITGO was potentially different from ordinary unsecured borrowing.

The Republic, appearing as amicus, maintained that the transaction required approval. Under Animal Science Products, Inc. v. Hebei Welcome Pharmaceutical Co. Ltd., 585 U.S. 33 (2018), that submission deserved respectful consideration but not automatic acceptance.

The court considered the submission’s clarity, support, litigation context, the authority of its source, the legal system’s transparency, and consistency with earlier positions. It acknowledged that the Republic’s submissions were clear and reasoned and did not question their representative status on the record presented.

The decisive difficulty was their inconsistency with the court’s reading of binding Constitutional Chamber decisions. The governmental explanations also differed: some stressed the transaction’s subject matter, while another treated PDVSA itself as part of the National Executive. Following the analogy in Animal Science Products, Inc. v. Hebei Welcome Pharmaceutical Co. Ltd., the court gave greater weight to the foreign jurisdiction’s authoritative judicial interpretation than to a governmental litigating position.

4. Analysis: The Act-of-State Doctrine and Its Territorial Limit

A. A separate route to invalidity

The PDV Entities’ act-of-state argument did not depend on persuading the court that their interpretation of Article 150 was correct. They argued instead that the Assembly had sovereignly prevented or invalidated the exchange and that American courts had to accept that act as controlling.

Celestin v. Caribbean Air Mail, Inc., 30 F.4th 133 (2d Cir. 2022), explains why this distinction matters. The doctrine operates as a rule of decision on the merits: a qualifying foreign sovereign act may control even when an otherwise applicable legal rule would render it invalid. It is not merely ordinary respect for another government’s legal opinion.

B. The resolutions and the questions left open

• May 2016: The Assembly rejected Maduro’s asserted power to bypass legislative approval and reaffirmed the invalidity of qualifying public interest contracts executed without it.
• September 2016: The Assembly categorically opposed the CITGO pledge, summoned PDVSA’s president, requested investigation, and urged a refinancing plan.
• October 2019: The Assembly declared that the bond indenture violated Article 150 and purported to ratify its earlier position.

The district court concluded that the resolutions did not preemptively invalidate the Governing Documents. The Second Circuit did not need to resolve that question. It assumed, for purposes of its reasoning, that the Assembly qualified as the relevant sovereign, that its resolutions were formal sovereign acts, and that they purported to invalidate the exchange.

The PDV Entities invoked Konowaloff v. Metropolitan Museum of Art, 702 F.3d 140 (2d Cir. 2012), and its reliance on Oetjen v. Central Leather Co., 246 U.S. 297 (1918), for the proposition that recognition can operate retroactively for act-of-state purposes. Those authorities did not resolve the appeal because recognition could not overcome the separate territorial limitation.

C. Sabbatino: actual control over property is crucial

Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398 (1964), provided the principal comparison. Cuba had expropriated sugar physically located in a Cuban harbor and prevented its shipment until a substitute contract was executed. Although payment was due in New York, the Supreme Court treated the sovereign act as an effective taking of the sugar in Cuba.

The lesson was that the location of contractual paperwork or payment obligations does not alone determine territoriality. Cuba had actual dominion over the property and could complete the taking within its territory.

Venezuela lacked comparable control here. The exchange required tender through European clearing banks or the New York-based Depository Trust Company. The new global notes were registered through a New York nominee and deposited with a New York custodian. Most importantly, the physical certificate securing the 50.1% CITGO Holding interest was held in a New York vault.

D. Allied Bank and Kirkpatrick: foreign-affairs restraint has geographic limits

Allied Bank International v. Banco Credito Agricola de Cartago, 757 F.2d 516 (2d Cir. 1985), supplied the operative territorial test: whether the purported taking could come to complete fruition within the foreign government’s dominion. Courts may examine the validity of extraterritorial takings.

W.S. Kirkpatrick & Co. v. Environmental Tectonics Corp., International, 493 U.S. 400 (1990), explained the doctrine’s separation-of-powers foundation. Judicial review of sovereign conduct within a foreign state’s territory can interfere with American foreign relations. That rationale does not require the same restraint toward acts asserted to control property beyond the sovereign’s territory.

The Assembly’s adoption of resolutions in Venezuela therefore did not establish the necessary territorial connection. The relevant question concerned what the resolutions purported to accomplish, not merely where officials adopted them.

Nor did describing the resolutions as preventive measures, rather than later expropriations, change the result. Their asserted effect was to prevent an offshore transaction involving offshore property. The Second Circuit accordingly held that they did not bind American courts as a mandatory rule of decision.

5. Significance and Potential Impact

A. State ownership does not erase separate legal identity

The decision strengthens the distinction between a sovereign and its separately constituted commercial enterprises when interpreting this Venezuelan approval requirement. A transaction’s strategic importance does not by itself establish that the Republic contracted through its executive organs.

The holding should not be extended into universal immunity from legislative approval for state-enterprise transactions. Direct sovereign guarantees, governmental obligations, implementing agreements, or specific statutory approval requirements could produce a different analysis.

B. Foreign-law selection does not guarantee sovereign deference

The earlier choice-of-law ruling required application of Venezuelan law. It did not require acceptance of every interpretation advanced by Venezuela’s government. Future courts applying foreign law must identify authoritative sources within the foreign legal system and evaluate governmental submissions against them.

C. Territoriality limits attempts to neutralize offshore financial rights

The act-of-state holding is especially relevant to international debt restructurings. A sovereign cannot obtain mandatory judicial recognition merely by issuing a domestic decree aimed at foreign-held collateral or offshore transactions. Actual dominion over the affected property remains central.

At the same time, the court did not establish that every transaction using a New York intermediary necessarily falls outside the doctrine. Its conclusion rested on the combined location and structure of this exchange, its notes, and its collateral.

D. Validity remains distinct from execution

The opinion expressly described continuing sanctions restrictions. At the time of decision, the relevant licensing date had been postponed until November 5, 2026, constraining execution against the CITGO shares without further authorization. Contractual validity therefore did not establish an immediate right to realize the collateral.

The court also cited Crystallex Int'l Corp. v. Bolivarian Republic of Venezuela, 932 F.3d 126 (3d Cir. 2019), concerning attachment of PDVSA’s interest in PDV Holding, and Crystallex Int'l Corp. v. Bolivarian Republic of Venezuela, No. MC 17-151, 2025 WL 3281353 (D. Del. Nov. 25, 2025), concerning a court-supervised sale process. These authorities supplied context about competing recovery efforts, not the basis for the Article 150 or act-of-state holdings.

Importantly, those proceedings concerned PDVSA’s ownership interest in PDV Holding, whereas this case concerned the pledge of PDV Holding’s 50.1% interest in CITGO Holding. The related corporate interests should not be conflated.

6. Complex Concepts Simplified

Choice of law

The rules determining which jurisdiction’s law answers a legal question. Here, Venezuelan law governed the notes’ validity even though important transaction assets and institutions were in New York.

National public interest contract

A Venezuelan constitutional category, not simply any commercially important contract. The controlling decisions attach significance to execution by the Republic through competent executive organs.

Central versus decentralized administration

The distinction between government organs, such as ministries, and separate public entities, such as state-owned companies. Ownership by the government does not automatically eliminate that distinction.

Act-of-state doctrine

A doctrine generally preventing American courts from declaring invalid certain official sovereign acts performed within the foreign sovereign’s territory. It does not automatically protect acts directed at property abroad.

Situs and dominion

“Situs” means the relevant location of property; “dominion” concerns effective control over it. Together, they help determine whether a purported sovereign taking is domestic or extraterritorial.

Respectful consideration

Serious attention to a foreign government’s explanation of its law without treating that explanation as binding.

Void ab initio

Invalid from the beginning. The PDV Entities sought this characterization so the notes and pledge would never have created enforceable rights.

Partial final judgment

A judgment resolving specified claims or issues that is certified for appeal while other matters remain pending.

7. Conclusion

The Second Circuit upheld the CITGO-backed bond exchange because Venezuela’s binding constitutional decisions did not require legislative approval for PDVSA’s independent transaction. It separately refused to give mandatory act-of-state effect to resolutions aimed at invalidating offshore rights.

The broader significance lies in the decision’s disciplined separation of sovereign ownership from sovereign contracting, foreign-law interpretation from governmental advocacy, and contractual validity from the practical ability to enforce against collateral.