Venezuela — home to the “largest proven oil reserves” on Earth — vests its hydrocarbon deposits in the Republic as its “inalienable” assets and subjects them to governmental control. Venezuela’s Constitution enshrines the government’s role in the petroleum sector by assigning it “all of the shares of Petróleos de Venezuela, S.A.,” the state-owned oil monopoly commonly known as PDVSA. PDVSA engages in oil exploration, production, refining, and transportation within Venezuela and across the globe, including in the United States through its wholly owned subsidiary and “crown jewel”: CITGO. Under Presidents Hugo Chávez and Nicolás Maduro, Venezuela has faced tremendous instability, including extraordinary threats to PDVSA’s autonomy. In 2019, after disputed elections, the National Assembly declared that opposition leader Juan Guaidó had become Venezuela’s Interim President. The same day, the U.S. executive branch “officially” recognized Guaidó and simultaneously proclaimed it “does not recognize the Maduro regime” as being part of “the government of Venezuela.” The National Assembly enacted a “Transition to Democracy” statute, which among other things, directed Guaidó to appoint an ad hoc PDVSA board, something he promptly did. The Maduro-controlled Constitutional Court struck down the statute and Guaidó’s PDVSA appointments as an “assault on the rule of law.” However, U.S. state and federal courts, applying the President’s “unambiguous” pronouncements, have held (1) Guaidó’s government, including the ad hoc PDVSA board, to be Venezuela’s “sole effective government” (and thus the Republic’s only representative in U.S. courts) and (2) Maduro’s regime to no longer be “legitimate parts of the Venezuelan government.” Recently, in OI European Group B.V. v. Bolivarian Republic of Venezuela, the Third Circuit held that when Guaidó’s recognized government and Maduro’s affirmatively derecognized one exert dueling control over PDVSA, courts “must consider” the “actions of both the Guaidó and Maduro governments as the totality of the sovereign conduct of Venezuela,” on the theory that the Foreign Sovereign Immunities Act’s (FSIA) use of “foreign state” (rather than “foreign government”) required the court to examine — and, critically, accord legal weight to — the legal acts of “both” governments. But because so holding gave legal effect to the acts of an “illegitimate” regime made after the executive branch “explicitly withdrew” its “recognition,” the court implicitly extended the Act of State doctrine beyond its separation of powers foundation and simultaneously risked undermining the President’s “‘exclusive’ and ‘conclusive’” power to recognize — for all three branches of our government — “the legitimacy of other states and governments.” Reading “foreign state” to mean anything other than the presidentially recognized “government” creates a gap between both terms that the Supreme Court has repeatedly said it is not competent to fill, due to our tradition that Presidents are “the sole organ of the nation in its external relations.”
On October 25, 2010, Hugo Chávez, then-President of Venezuela, appeared on evening TV, announcing: “The expropriation of that glass company, what’s it called? — Owens-Illinois! — is already all set. Let it be expropriated.” The next morning, he decreed “the forcible acquisition” of Owens-Illinois’s Venezuelan property; later that day, the military arrived at the company’s Los Guayos factory. The plaintiffs, OIEG and five companies who suffered expropriations totaling $2.7 billion, won arbitration awards against Venezuela for violating bilateral investment treaties, confirmed the awards in federal court (thus converting them into judgments), and registered them in Delaware. The companies sought to attach PDVSA’s U.S. assets, namely CITGO, on an established “reverse veil piercing” theory under which courts “disregard” a sovereign instrumentality’s “separate legal personhood” if it “is so extensively controlled by” its parent country that it “may be held liable” for the Republic’s debts as the country’s corporate “alter ego.” (In 2018, Crystallex, another of Chávez’s expropriation victims, successfully used this mechanism to attach PDVSA’s assets by showing that Venezuela, under then-President Maduro, exerted “extensive control over PDVSA”; the Third Circuit affirmed Crystallex’s attachment of PDVSA’s assets under First National City Bank v. Banco Para El Comercio Exterior de Cuba’s (Bancec) “alter ego” test in Crystallex II.) Looking “to seize on Crystallex’s success,” OIEG brought parallel attachment proceedings in 2019. But between Crystallex II and this case, the National Assembly replaced Maduro with Guaidó, and the United States recognized Guaidó’s government as Venezuela’s “only legitimate” government, so the district court required OIEG to independently re-prove PDVSA’s “alter ego” status because Venezuela and PDVSA were now “under different control under a new legal regime”: that of Juan Guaidó. The Bancec alter-ego inquiry thus began anew. But this time the district court “held that the relevant analysis” under Bancec “must focus on” the Guaidó government because Guaidó’s is the only regime recognized by the President “as the legitimate government” and the power to recognize “a foreign government” is “reserved exclusively to the Executive Branch.” The court surveyed the Guaidó government’s actions and concluded that it, like its predecessor, exercised “extensive direction and control over PDVSA.” Venezuela appealed.
The Third Circuit affirmed. Writing for the panel, Judge Matey held that PDVSA “remains” Venezuela’s alter ego under Bancec’s rubric. But instead of cabining its alter-ego inquiry to the Guaidó government’s actions, as the district court did, the Third Circuit credited “both the Guaidó and Maduro governments as the totality of the sovereign conduct of Venezuela,” despite acknowledging that the President “explicitly withdrew recognition of the Maduro Government” four years earlier. The court grounded its decision in the FSIA’s “[t]ext, tradition, and legislative aim,” concluding that Congress’s use of “foreign state” (instead of “foreign government”) meant courts “must consider” derecognized governments’ actions in their Bancec analyses.
On the text, the court pointed to 28 U.S.C. § 1604’s use of “foreign state,” and then quoted Samantar v. Yousuf for the proposition that, “on its face,” foreign state “indicates a body politic that governs a particular territory.” The court also considered various secondary sources, along with the fact that in Bancec itself “the Supreme Court never mentioned the Castro Regime” (referring instead to “actions taken by the sovereign”), to buttress its reading of “foreign state” in the FSIA to mean the “nation — rather than the regime presently in power.”
Turning to “tradition,” the court quoted Blackstone’s view that “sovereign power” remains constant despite changes in government. The opinion then cited four Supreme Court cases to support the distinction between government representatives and their sovereign. The Sapphire, the Third Circuit observed, embraced this view: “the national sovereignty or its rights” does not change when the “party in power” changes. The court also pointed to Guaranty Trust Co. v. United States, which held that a change in recognized government did not affect the sovereign’s rights. The opinion again cited Samantar for the suggestion that a state, under the FSIA, “is more than its government” because the FSIA sweeps in a “state’s political subdivisions, agencies, and instrumentalities.” Finally, the court quoted United States v. Curtiss-Wright Export Corp. to note: “[R]ulers come and go; governments end and forms of government change; but sovereignty survives.”
On legislative aim, the court reasoned that “the FSIA was enacted against” a backdrop of case-by-case executive pronouncements, and Congress sought to eliminate the State Department’s role in immunity decisions, so the court should not reinvite the Executive’s prerogative.
Applying Bancec’s factors, the Third Circuit held Venezuela’s legitimate and “illegitimate” governments, together, exerted significant control over PDVSA’s global operations, and among other things pointed to the fact that in March 2019 — months after he was officially derecognized by the United States — “Maduro ordered the transfer of PDVSA’s European Office from Lisbon to Moscow” and that “[s]enior members of the Maduro Regime used PDVSA’s aircraft for state purposes . . . well after the 2019 election.” The court also gave weight to PDVSA’s rescission of service station licenses pursuant to “Maduro’s Executive Order 4.090,” an act promulgated a year after derecognition. The court concluded that “all the Bancec factors weigh towards finding an alter-ego relationship” between PDVSA and its parent sovereign.
According legal effect to any of these post-derecognition actions by Maduro, as acts of the “foreign state” of Venezuela, has implications for the Act of State doctrine — the “classic American statement” of which is that “courts of one country will not sit in judgment on the acts of the government of another.” Grounding the doctrine in “domestic separation of powers considerations,” the Supreme Court clarified that the nonreviewability of sovereigns’ legal acts covers those made “by a foreign sovereign government, extant and recognized by this country.” The doctrine’s inverse is also true: courts “may not examine the effect of decrees of the unrecognized foreign sovereign” when executive nonrecognition of a foreign sovereign and “its decrees” is announced.
In holding Maduro’s post-derecognition actions as acts of state legally capable of binding actors like PDVSA — rather than holding them null, and thus incapable under Bancec of demonstrating any legal control by the state over PDVSA — the Third Circuit seems to have extended the reach of the Act of State doctrine to sweep in enactments promulgated by derecognized regimes, even when those acts directly conflict with the recognized government’s acts. Observing the court’s treatment of the contrary legal actions taken by the Guaidó and Maduro governments reveals the crux of the issue: by crediting Maduro’s post-derecognition orders as acts of the Venezuelan state evidencing its “extreme control of PDVSA” over the directly contradictory laws passed by the Guaidó government to wrest control of PDVSA from Maduro, the court held the recognized government responsible for legal actions originating from a regime the Executive had years earlier derecognized and deemed “illegitimate.” The Third Circuit’s holding thus creates an unheralded entity in the FSIA framework: a derecognized former government capable of issuing legal directives that “must” be “consider[ed]” acts of the “foreign state” under the FSIA and Bancec. And it justified such a creation not under the Act of State doctrine’s “‘constitutional’ underpinnings,” namely, respect for “basic relationships between branches of government,” but on the FSIA’s “[t]ext, tradition, and legislative aim,” divorced from separation of powers concerns or even discussion. This reading is also in tension with the FSIA’s definition of “foreign state,” which includes “political subdivision[s]” and “agenc[ies] or instrumentalit[ies],” suggesting “foreign state” means a single political entity vertically integrating its subordinate parts, not one sweeping horizontally across competing national governments.
The FSIA’s reference to a “foreign state” likely assumes that executive recognition determines which government’s actions constitute those of the state. The Executive agrees, stating that “[n]othing” in the FSIA “even hints at” congressional intent “to transfer recognition authority from the President to the courts,” and inferring so raises “serious constitutional questions.” This reading aligns with Sabbatino’s limitation to acts made “by a foreign sovereign government, extant and recognized by this country.” Even if the FSIA’s use of “foreign state” were susceptible to the inference that multiple dueling governments could together make up the “state,” there is no textual basis for limiting the President’s exclusive recognition power to operate only at the “foreign state” level. But even granting such an inference, the FSIA’s terms ought to be read in light of the statute’s constitutional, not just plausibly textual, domain. When Congress legislates with respect to foreign sovereign recognition, it lacks its usual plenary policy discretion. Instead, “Congress has the general power to legislate in support of the President’s foreign policy goals. But . . . [s]ince it is derivative of the President’s power, it must be exercised in coordination with, and not in opposition to, the President.”
By crediting the Maduro regime’s “official acts,” issued after it ceased being “recognized by the United States,” as acts of state demonstrating “extreme” state control under Bancec, the Third Circuit has effectively ruled that unrecognized — even derecognized — governments can, to some extent, have their acts count under the Act of State doctrine. The court’s reliance “on actions taken by the Maduro regime after 2019” as acts of the Venezuelan state is “a contested legal theory” because it “disregard[s] the executive branch’s recognition of the sovereign leadership of a country,” which implicates separation of powers concerns. Moreover, adopting this theory likely forces “future State Departments . . . to clean up the mess” by, for example, withholding sanctions licenses to counteract these sort of “alter ego” findings by courts — which reinvites the exact executive prerogative the Third Circuit claimed to disavow in its construction of the FSIA.
The Third Circuit’s reading of “foreign state” in the FSIA to mean that courts “must consider,” or even may consider, the legal acts of both recognized and derecognized regimes has implications for the President’s recognition authority. It creates legal space between “foreign state” and “foreign government,” implying the existence of “foreign governments” that could bind the foreign state’s instrumentalities (for example through bond sales or, as here, waiving immunity) in U.S. courts despite the President recognizing a different government as solely legitimate. Until this ruling, the President’s exclusive power to formally recognize foreign governments implied a monopoly on Act of State status for that government’s legal enactments. Now, the situation is murkier for Presidents. The question of “[w]ho is the sovereign,” at least under the FSIA, no longer seems to be just “a political question, the determination of which by the legislative and executive departments of any government conclusively binds the judges.”
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