Venezuelan state-owned oil company Petróleos de Venezuela, S.A. and its corporate affiliates cannot invalidate a multi-billion-dollar bond exchange that pledged a controlling interest in refiner CITGO as collateral, the U.S. Court of Appeals for the Second Circuit ruled on October 27, 2026. Affirming summary judgment in favor of creditor trustees, the federal appellate court held that the 2016 debt swap was valid under Venezuelan law and that subsequent legislative resolutions purporting to void the transaction carry no legal effect in American courts.
Writing for a unanimous panel in Docket No. 25-2652, Circuit Judge Robinson affirmed the judgment of Judge Failla of the U.S. District Court for the Southern District of New York. Joined by Circuit Judges Nardini and Lee, Judge Robinson concluded that the governing bond documents constituted enforceable corporate obligations that did not require prior legislative approval under Article 150 of the Venezuelan Constitution.
The high-stakes dispute originated in September 2016 amid severe economic strain and falling crude oil prices in Venezuela. Petróleos de Venezuela, S.A. (PDVSA) launched an exchange offer allowing holders of unsecured notes due in 2017 to swap their holdings for new notes due in 2020. To induce participation, PDVSA offered a primary sweetener: securing the new 2020 notes with a 50.1% equity pledge in CITGO Holding, Inc., held through subsidiary PDV Holding, Inc. Noteholders holding 39.43% of the outstanding principal accepted the offer. However, following political turmoil in Venezuela, PDVSA defaulted in October 2019 by failing to make scheduled principal and interest payments, raising the specter that creditors would execute against CITGO.
Seeking to block enforcement, PDVSA, guarantor PDVSA Petróleo, S.A., and pledgor PDV Holding, Inc. filed suit against trustee MUFG Union Bank, N.A. and collateral agent GLAS Americas LLC. Represented by Igor V. Timofeyev of Paul Hastings LLP and Michael J. Gottlieb of Willkie Farr & Gallagher LLP, the Venezuelan state entities argued that the transaction was void from inception. They contended that Article 150 of the Venezuelan Constitution requires National Assembly approval for “national public interest contracts” executed with foreign companies. They further argued that resolutions passed by Venezuela’s National Assembly in 2016 and 2019 condemning the transaction constituted sovereign acts that U.S. courts were bound to enforce under the act-of-state doctrine.
Following choice-of-law guidance from the New York Court of Appeals confirming that Venezuelan law governed the validity of the securities, the Second Circuit examined decisions from Venezuela’s highest constitutional tribunal. Analyzing precedent from Venezuela’s Constitutional Chamber, including the 2002 Andrés Velásquez decision, Judge Robinson determined that national public interest contracts requiring legislative approval apply strictly to contracts executed directly by the central government, not decentralized state enterprises like PDVSA.
“We are persuaded that when the Constitutional Chamber repeatedly used legal terms that exclude the Decentralized Public Administration, it did so advisedly,”
Judge Robinson wrote, holding that PDVSA possessed full authority to execute the debt deal on its own power.
The panel similarly rejected the argument that National Assembly resolutions invalidating the swap must be recognized under the act-of-state doctrine. The court emphasized that the act-of-state doctrine does not compel American courts to enforce foreign government actions targeting property located outside that sovereign’s borders. Because the note contracts were executed, payments were due, and physical stock certificates were held in New York vaults, the court held that the extraterritoriality exception barred the doctrine’s application.
“Where a foreign official act would be deemed void by an otherwise applicable legal rule”
in that jurisdiction,
“the official act controls,”
Judge Robinson noted, but clarified that separation-of-powers concerns do not require deference to extraterritorial takings.
Why it matters
This decision provides legal certainty to international financial markets by affirming that foreign state-owned enterprises cannot avoid commercial financial commitments governed by U.S. market infrastructure simply by invoking post-hoc political resolutions from their home legislatures. The ruling establishes an important federal appellate precedent confirming that decentralized foreign corporate entities remain bound by standard corporate finance mechanisms under New York commercial law choices.
For noteholders represented by counsel including Masha G. Hansford of Davis Polk & Wardwell LLP, the decision removes a primary legal defense asserted by PDVSA against enforcing the 50.1% collateral stake in CITGO Holding, Inc. However, immediate seizure of the asset remains restricted by external administrative and judicial hurdles. The U.S. Department of the Treasury’s Office of Foreign Assets Control has repeatedly extended sanctions protections—currently through November 5, 2026—preventing creditors from executing against CITGO shares without a federal license. Concurrently, a separate liquidation process in the U.S. District Court for the District of Delaware is working to resolve competing arbitral claims against PDV Holding. While the PDV Entities could seek further review from the U.S. Supreme Court, the Second Circuit’s analysis severely limits legal recourse for Venezuelan state entities seeking to invalidate the 2020 notes in U.S. courts.
Source: Court of Appeals for the Second Circuit opinion in Leos v. MUFG
