Supreme Court hears Venezuelan oil rig seizure case

Supreme Court hears Venezuelan oil rig seizure case

By Gary Gately   
The U.S. Supreme Court building.

WASHINGTON – The U.S. Supreme Court weighed delicate foreign relations questions Wednesday as an Oklahoma-based oil company sought the go-ahead to proceed with a lawsuit claiming the government of Venezuela illegally seized 11 oil rigs.

“There is extreme sensitivity with reference to suing foreign sovereigns,” Justice Anthony Kennedy said during hour-long oral arguments.

Chief Justice John Roberts seemed wary, too.

“Our ambassadors have to go to these other countries and say, ‘You’re being sued. You have to come into our courts, even though you’re a sovereign … because someone has raised a claim that is not wholly insubstantial or frivolous.’ That’s a very low standard in that context.”

But other justices, including Elena Kagan and Ruth Bader Ginsburg, said Helmerich & Payne International Drilling Co. had met the federal legal standard to proceed with the suit.

Helmerich & Payne’s Venezuela subsidiary, Helmerich & Payne de Venezuela, said in 2009 that the state-owned petroleum company had missed numerous lease payments totaling $100 million, and the subsidiary shut down rigs it leased to the country.

As then-President Hugo Chávez moved to nationalize his country’s petroleum industry, he sent in the Venezuelan National Guard to seize the rigs and other equipment in 2010 and touted the move in propaganda, saying it targeted “imperialist Americans.”

Helmerich & Payne sued the government and state-owned oil companies in federal district court, seeking hundreds of millions of dollars in damages, saying illegal seizure of the oil rigs breached a contract in violation of international law.

The company prevailed in district court, and a federal appeals court for the Washington, D.C., circuit upheld the ruling.

Venezuela asked the Supreme Court to review the case, arguing that the government’s nationalization of the subsidiary did not violate international law because the subsidiary was a Venezuela corporation.

The Obama administration, for its part, argued that allowing prosecution would make it easier to sue foreign governments in U.S. courts and undermine sovereign immunity and could prompt other nations to retaliate by stripping U.S. immunity.

U.S. Justice Department lawyer Elaine Goldenberg warned the justices a ruling for the company could damage foreign relations “if another court sits in judgment of something that a foreign sovereign has done.”

Under the 1976 Foreign Sovereign Immunities Act, foreign countries generally cannot be sued in U.S. courts, unless one of a few specific exceptions applies. One is the “expropriation” exception – when a foreign government nationalizes privately owned property in violation of international law and a commercial link to the United States exists.

Venezuela argues this standard should apply.

“Foreign sovereign immunity is supposed to protect foreign states from the burdens of litigation,” the Venezuelan government wrote in a Supreme Court brief.

The D.C. appeals court last year applied a much less-stringent standard, which it called an “exceptionally low bar,” ruling Helmerich & Payne’s lawsuit was not “wholly insubstantial or frivolous” and thus could proceed under federal law.

Catherine Stetson, the lawyer representing Venezuela, told the justices the federal appeals court’s standard was too low and that Helmerich & Payne had no right to the possession of the rigs.

Helmerich & Payne said in a brief that applying the expropriation exception “would permit a foreign sovereign to form a contract in the United States, utilize parts, supplies, and services from the United States and benefit from the knowledge and expertise of companies in the United States, while leaving those American parties with no remedy in U.S. courts if the foreign sovereign breached its obligations abroad. This would defeat the expectations of the U.S. contracting parties and have a chilling effect on U.S. commerce.”

Whether U.S.-based companies can claim damages under different clauses of the Foreign Sovereign Immunities Act has divided U.S. federal courts.

The Supreme Court is expected to issue a decision in the case by June.

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