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Helmerich & Payne International Drilling Co. v. Bolivarian Republic of Venezuela

United States Court of Appeals, District of Columbia Circuit

August 7, 2018

Helmerich & Payne International Drilling Co., Appellee
v.
Bolivarian Republic of Venezuela, et al., Appellants/Cross-Appellees Helmerich & Payne De Venezuela, C.A. Appellee/Cross-Appellant

          Argued April 30, 2018

         On Remand from the Supreme Court of the United States

          Catherine E. Stetson argued the cause for the appellants/cross-appellees. With her on the briefs were William L. Monts, III, Mitchell P. Reich, Bruce D. Oakley, Joseph D. Pizzurro, Robert B. García, Kevin A. Meehan, and Juan O. Perla.

          Catherine M.A. Carroll argued the cause for appellees/cross-appellant. With her on the briefs were David W. Ogden and David W. Bowker.

          Jessie K. Liu, U.S. Attorney, and Douglas N. Letter, Sharon Swingle, and Lewis S. Yelin, Attorneys, U.S. Department of Justice, were on the brief for amicus curiae United States of America.

          Before: Garland, Chief Judge, Tatel, Circuit Judge, and Sentelle, Senior Circuit Judge.

          OPINION

          TATEL, CIRCUIT JUDGE.

         After Venezuela and two of its agencies seized all assets of an American drilling company's Venezuelan subsidiary, both parent and subsidiary sued in federal court. In a prior opinion, we held that, notwithstanding the defendants' efforts to invoke sovereign immunity, both companies' suits could go forward because each company had, consistent with the then-governing circuit standard, made a "non-frivolous" claim that its case fell into a statutory immunity exception that permits suit against foreign-state defendants in certain cases involving takings that violate international law. Helmerich & Payne International Drilling Co. v. Bolivarian Republic of Venezuela (Helmerich II), 784 F.3d 804, 814, 816 (D.C. Cir. 2015) (quoting Agudas Chasidei Chabad of United States v. Russian Federation, 528 F.3d 934, 941 (D.C. Cir. 2008)). The Supreme Court, however, overturned this circuit's "nonfrivolous-argument standard" and vacated our prior judgment. Bolivarian Republic of Venezuela v. Helmerich & Payne International Drilling Co. (Helmerich III), 137 S.Ct. 1312, 1324 (2017). Tasked now on remand with determining whether either company has alleged facts that are sufficient, if true, to establish that it has in fact suffered a taking in violation of international law, we conclude that only the American parent-and not its Venezuelan subsidiary-has done so. We therefore affirm the district court's dismissal of the subsidiary's claims, as well as its denial of the defendants' motions to dismiss the parent's claims.

         I.

         The parties agree that we are to resolve the issues presented here "solely on the basis of the allegations in the complaint." Joint Stipulation and Motion to Establish a Briefing Schedule for the Adjudication of Defendants' Motions to Dismiss at 2, Helmerich & Payne International Drilling Co. v. Bolivarian Republic of Venezuela (Helmerich I), 971 F.Supp.2d 49 (D.D.C. 2013) (No. 11-cv-1735) ("Stipulation"), ECF No. 34. We therefore draw our factual recitation from the complaint's allegations, assuming their truth and construing them in the light most favorable to the plaintiff companies. See Helmerich II, 784 F.3d at 811.

         Starting in the late 1990s, Venezuelan company Helmerich & Payne de Venezuela, C.A. (H&P-V), a wholly owned subsidiary of Oklahoma-based Helmerich & Payne International Drilling Co. (H&P-IDC), began providing exclusive oil- and gas-drilling services to Venezuelan state-owned entities, including Petróleos de Venezuela, S.A., and PDVSA Petróleo, S.A. (collectively, PDVSA), that own and manage Venezuela's oil reserves. Compl. ¶ 2. In order to overcome Venezuela's "difficult geological conditions," H&P-V acquired "some of the largest, most powerful, and deepest-drilling, land-based drilling rigs available," id. ¶ 21, and developed "a substantial infrastructure needed to maintain, repair, operate, and transport [its] drilling equipment," id. ¶ 25.

         The companies' relationship with PDVSA soured after Venezuela's then-President Hugo Chávez replaced much of PDVSA's workforce in the wake of a 2002-03 strike. Id. ¶ 28. From then on, PDVSA "refused to make timely payments" under its drilling contracts, id. ¶ 29, and by June 2009, PDVSA had racked up over $113 million in debt to H&P-V, id. ¶ 51. Consequently, when the contracts began expiring in early 2009, H&P-V "made clear to [PDVSA] that it would not enter into new contracts or restart drilling operations unless [PDVSA] paid a substantial amount of [its] outstanding debt." Id. ¶ 52. Despite these warnings, PDVSA stopped all payments to H&P-V in May 2010, with somewhere near $32 million in debt remaining. Id. ¶ 56.

         Matters deteriorated further the following month. In mid-June 2010, seeking "to force H&P-V to negotiate new contract terms immediately" and to forgive PDVSA's outstanding debt, id. ¶ 63, PDVSA employees, acting with assistance from the Venezuelan National Guard and at the behest of the Venezuelan government, blockaded eleven of H&P-V's drilling sites, id. ¶¶ 59-61, 65. According to contemporaneous PDVSA press releases, the Venezuelan government had in effect "nationalized" these drilling operations. Id. ¶ 65.

         Venezuela made the nationalization official soon thereafter. The Venezuelan National Assembly began by "declar[ing] that the taking of all eleven of [H&P-V's] oil drilling rigs and associated property would be of 'public benefit and good.'" Id. ¶ 67. Taking up the Assembly's recommendation, then-President Chávez issued an "Expropriation Decree," which authorized the "forcible taking" of H&P-V's assets and declared that the "expropriated property [would] become the unencumbered and unlimited property of [PDVSA]." Id. ¶ 68. The complaint alleges that Venezuela's actions were driven, at least in part, by animus against H&P-V due to its "U.S. ownership." Id. ¶ 97.

         Days after the decree, PDVSA filed two eminent domain suits in Venezuelan court to effectuate the expropriations. Id. ¶¶ 72-73. Neither proceeding, however, has progressed beyond the earliest stages, leaving H&P-V and H&P-IDC without compensation. Id. ¶¶ 86-87. In the meantime, PDVSA "ha[s] been operating H&P-V's Venezuelan business as a going concern-employing not only the [company's] real and personal property but also [its] drilling rig managers, drilling rig workers, and other professionals who were trained by, and formerly worked for, H&P-V." Id. ¶ 76. According to the complaint, "[t]he seizure constituted a taking of the entirety of [H&P-V and H&P-IDC's] Venezuelan business operations." Id. ¶ 75. In other words, Venezuela and PDVSA "took the entire business, which they now operate as a state-owned commercial enterprise," thus leaving H&P-V "[s]tripped of all its productive assets," id. ¶ 81, and without "any significant tangible property or . . . any commercial operations in Venezuela," id. ¶ 85.

         In late 2011, H&P-V and H&P-IDC (collectively, H&P) sued PDVSA and Venezuela in the United States District Court for the District of Columbia, claiming as relevant here that the expropriation of H&P's "business and assets" without compensation violated international law. Id. ¶ 181. Venezuela and PDVSA moved to dismiss for lack of jurisdiction under the Foreign Sovereign Immunities Act of 1976, 28 U.S.C. §§ 1330, 1602-1611, which provides that a foreign state, including "agenc[ies] or instrumentalit[ies]" like PDVSA, id. § 1603(a), "shall be immune from the jurisdiction of the courts of the United States" unless a statutory exception applies, id. § 1604. In response, H&P maintained that the alleged takings fit within one such exception, the "expropriation exception," which authorizes jurisdiction over a foreign state where "rights in property taken in violation of international law are in issue" and where-a matter not presently at issue-that property is sufficiently connected to commercial activity inside the United States. Id. § 1605(a)(3).

         To streamline resolution of this jurisdictional issue, the parties agreed to seek the district court's initial decision on several threshold matters on the basis of the complaint alone. Stipulation at 3. The parties asked the court to determine, first, whether H&P-V is "a national of Venezuela under international law" for purposes of the expropriation exception and, second, whether H&P-IDC has prudential standing to assert an expropriation claim. Id.

         Based on its resolution of these threshold questions, the district court dismissed H&P-V's expropriation claim but held that H&P-IDC's could proceed. See Helmerich I, 971 F.Supp.2d at 73. As for the Venezuelan-incorporated H&P-V, the court concluded that it is "considered a national of Venezuela under international law," id. at 61, and so failed to satisfy the expropriation exception's requirements because a state's seizure of its own national's property is not typically a "violation of international law," 28 U.S.C. § 1605(a)(3). As for the U.S.-incorporated H&P-IDC, the district court acknowledged that a corporate parent generally lacks prudential standing to enforce the rights of its subsidiary, see Helmerich I, 971 F.Supp.2d at 70, but found that rule inapplicable because H&P-IDC sought "to enforce [its] own individual rights," id. at 71 (emphasis added). According to the complaint, Venezuela had "deprived H&P-IDC, individually, of its essential and unique rights as sole shareholder of H&P-V by dismantling its voting power, destroying its ownership, and frustrating its control over the company." Id. at 73. Because "[i]nternational custom" protects such ownership rights, id. at 73 n.11, the district court concluded that H&P-IDC's claim falls within the expropriation exception as long as it satisfies the exception's commercial-activity requirement.

         On appeal, we ruled that both companies' claims could proceed. See Helmerich II, 784 F.3d at 808. Emphasizing that circuit precedent established a "forgiving standard," id. at 813, under which we would "grant a motion to dismiss on the grounds that the plaintiff has failed to plead a 'taking in violation of international law' . . . only if the claims [were] 'wholly insubstantial or frivolous, '" id. at 812 (quoting Chabad, 528 F.3d at 943), we found that both companies' expropriation claims cleared this "exceptionally low bar," id.

         As for H&P-V, we acknowledged that, "generally, a foreign sovereign's expropriation of its own national's property does not violate international law," id., but we went on to observe that H&P-V alleged "that Venezuela ha[d] unreasonably discriminated against it on the basis of its sole shareholder's nationality, thus implicating an exception" that the Second Circuit had announced in Banco Nacional de Cuba v. Sabbatino, 307 F.2d 845 (2d Cir. 1962), rev'd on other grounds 84 S.Ct. 923 (1964). Helmerich II, 784 F.3d at 812. Although characterizing Sabbatino as "[d]ated and uncited," we observed that it "remains good law" in the Second Circuit and found "[no] decision from any circuit that so completely forecloses H&P-V's discriminatory takings theory as to 'inescapably render the claim[] frivolous' and 'completely devoid of merit.'" Id. at 813 (emphases and alteration in original) (quoting Hagans v. Lavine, 415 U.S. 528, 538 (1974)).

         As for H&P-IDC, we observed that, under United States law, "corporate ownership aside, shareholders may have rights in corporate property . . . 'by virtue of their exclusive beneficial ownership, control, and possession of the properties and businesses allegedly seized.'" Id. at 815 (quoting Ramirez de Arellano v. Weinberger, 745 F.2d 1500, 1516 (D.C. Cir. 1984) (en banc), vacated 471 U.S. 1113 (1985)). Because H&P-IDC arguably "had property rights in [its] corporation's assets," id., and because the expropriation of those assets arguably violated international law, we concluded that H&P-IDC had satisfied our circuit's standard by "put[ting] its rights in property in issue in a non-frivolous way." Id. at 816 (quoting Chabad, 528 F.3d at 941).

         The Supreme Court vacated and remanded. Helmerich III, 137 S.Ct. at 1324. Rejecting the line of circuit precedent establishing the permissive standard this court had employed, the Supreme Court held that "a party's nonfrivolous, but ultimately incorrect, argument that property was taken in violation of international law is insufficient to confer jurisdiction" under the expropriation exception. Id. at 1316. It therefore remanded for this court to consider whether H&P's "factual allegations . . . make out a legally valid claim"-and not merely a non-frivolous one-"that a certain kind of right is ...


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