Oil Companies Suing Venezuela Hit High Court Stumbling Block

WASHINGTON (CN) – The U.S. Supreme Court was unanimous Monday in vacating a decision that let U.S. oil companies sue Venezuela for seizing their oil-drilling facilities.

Before Venezuela nationalized the U.S. oil rigs in 2010 — a move President Hugo Chavez said would increase oil and gas production and open jobs for Venezuelans — Venezuelan oil companies and the local subsidiaries of U.S. energy firms had enjoyed decades of cooperation.

With their facilities blockaded by Petroleos de Venezuela and the Venezuelan National Guard, Oklahoma-based Helmerich & Payne International Drilling and its in-country subsidiary, Helmerich & Payne De Venezuela, brought a federal complaint in Washington, D.C. After Chavez died in 2013, the country has been under the control of President Nicolas Maduro.

Venezuela claimed that its sovereign immunity forbade such a suit, but the D.C. Circuit disagreed 2-1 in 2015, finding that the oil companies could pursue their takings claim because they had pleaded facts falling within the expropriation exception to the Foreign Sovereign Immunities Act.

The Supreme Court took up the dispute last year and vacated that decision by unanimous vote Monday.

At the heart of the case, Justice Stephen Breyer wrote for the court, is whether a party can defeat sovereign immunity merely by making a “nonfrivolous” argument.

Since a nonfrivolous argument can still prove incorrect, however, Breyer found it insufficient to confer jurisdiction.

“Rather, state and federal courts can maintain jurisdiction to hear the merits of a case only if they find that the property in which the party claims to hold rights was indeed ‘property taken in violation of international law,’” the 17-page opinion states. “Put differently, the relevant factual allegations must make out a legally valid claim that a certain kind of right is at issue (property rights) and that the relevant property was taken in a certain way (in violation of international law). A good argument to that effect is not sufficient.” (Emphasis and parentheses in original.)

Breyer noted that it is normally in the merits phase of the litigation when courts resolve disputes about whether a party actually held rights in that property.

“But, consistent with foreign sovereign immunity’s basic objective, namely, to free a foreign sovereign from suit, the court should normally resolve those factual disputes and reach a decision about immunity as near to the outset of the case as is reasonably possible,” Breyer wrote.

In the case at hand, Breyer noted, the D.C. Circuit has not yet decided whether the allegations are sufficient to show Venezuela took U.S. property in violation of international law.

“It decided instead that the plaintiffs might have such a claim,” the ruling states. (Emphasis in original.)

This purely legal question “can be resolved at the outset of the case,” Breyer added.

“If a decision about the matter requires resolution of factual disputes, the court will have to resolve those disputes, but it should do so as near to the outset of the case as is reasonably possible,” the opinion concludes.

Justice Neil Gorsuch, who was only confirmed to the bench last month, did not participate in the court’s decision or consideration of the case.

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