Subject Matter Jurisdiction for Award Enforcement

by Lionel M. Schooler, FCIArb
Jackson Walker LLP1

Introduction. In ConocoPhillips Petrozuata BV v. Bolivarian Republic of Venezuela, _____ F.4th _____, 2024 WL 4986937 (3d Cir. 2024), the United States Court of Appeals for the Third Circuit addressed a situation involving two arbitrations, one before ICSID, and one before the International Chamber of Commerce. The first case was filed against Venezuela on the basis of its applicable treaty, in which ConocoPhillips complained of Venezuela’s expropriation of ConocoPhillips’ investments; the second case was filed against Petroleos de Venezuela S.A. (“PDVSA”), the Venezuelan state-owned oil company which had entered into a joint venture with ConocoPhillips. The question ultimately presented to the Third Circuit had to do with ConocoPhillips’ right to enforce an award against PDVSA.

Background. As indicated above, this dispute was triggered by Venezuela’s expropriation of ConocoPhillips’ investments in Venezuela. That matter was submitted to arbitration before ICSID, with ConocoPhillips being awarded $8,500,000,000, the market value of such investments. In so doing, the tribunal determined that the issue of the damages in question could not be restricted on the basis of potentially applicable agreements because ConocoPhillips had based its claim for damages upon international law and treaty enforcement and not the agreements in question.

Before the ICC, ConocoPhillips contended that PDVSA willfully breached applicable agreements governing their relationship or, alternatively, that ConocoPhillips was entitled to indemnification from PDVSA because of Venezuela’s expropriation actions. ConocoPhillips contended in part that PDVSA was “inextricably linked” to Venezuela, such that PDVSA was complicit in the investment expropriation scheme carried out by Venezuela. The ICC tribunal rejected most of ConocoPhillips’ contentions, but did conclude that PDVSA should be liable to ConocoPhillips for indemnification under the applicable agreements.

Following the conclusion of these proceedings, ConocoPhillips successfully pursued a judgment to enforce the ICSID award in the District of Columbia, and then registered it in the District of Delaware. ConocoPhillips then filed a motion for writ of attachment to attach U.S.-based shares owned by PDVSA. PDVSA moved to dismiss on the basis of sovereign immunity under the Foreign Sovereign Immunities Act. The District Court granted the motion for writ of attachment of PDVSA’s assets, and denied the sovereign immunity claim.

Issue Presented. As identified by the Third Circuit, the issue in this case was whether ConocoPhillips was judicially or collaterally estopped from enforcing its judgment against PDVSA. In that regard, PDVSA did not challenge the underlying finding that it was the alter ego of Venezuela, on the basis of prior Third Circuit decisions resolving that issue.

Appellate Review: Judicial Estoppel. The judicial estoppel claim urged by PDVSA was premised upon its right to prevent ConocoPhillips from asserting a position inconsistent with one previously asserted in the same or a previous proceeding. The Third Circuit indicated that PDVSA’s claim of allegedly inconsistent position was ConocoPhillips’ position taken in the ICSID arbitration that Venezuela and PDVSA were separate entities, in contrast to its position taken in the enforcement proceeding that PDVSA and Venezuela were one and the same.

The Third Circuit rejected this argument. It held that the agreements in question did not relieve Venezuela of its own legal responsibility under applicable international law, in this case, the treaty Venezuela had signed that undergirded the relationship between it and ConocoPhillips in the first place.

The Court therefore held that recognizing PDVSA and Venezuela as two separate legal entities did not preclude taking a position that the Court could legitimately “disregard corporate separateness” when it came to enforcing against PDVSA an award issued against Venezuela. In this instance, it specifically held that ConocoPhillips’ efforts to enforce existing precedent concerning the relationship between PDVSA and Venezuela was legitimate.

Appellate Review: Collateral Estoppel. As for PDVSA’s contention that ConocoPhillips was collaterally estopped from seeking enforcement of its award, the essence of such a claim is an attempt by a party to relitigate a particular fact or legal issue that had already been litigated in an earlier action. The Court indicated that PDVSA and Venezuela contended that the issue of the alleged “alter ego” relationship between PDVSA and Venezuela had already been adjudicated in the ICC arbitration. Analyzing the decision in that latter proceeding, the Third Circuit concluded that the specific issue raised by PDVSA at this stage had not been previously adjudicated.

Accordingly, the Third Circuit upheld the District Court’s decision to grant ConocoPhillips a writ of attachment as to PDVSA’s assets in the United States.

Conclusion. The decision in the ConocoPhillips case reminds investment treaty participants yet again of the scope and impact of potential interactions between a sovereign and its wholly owned entity.