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Venezuelan Debt: Soft Power Matters

posted by Mark Weidemaier

Mark Weidemaier and Mitu Gulati

Last week, we did a post about a set of creative but long shot defenses that Venezuela’s Interim Government has invoked to defend against lawsuits by creditors holding defaulted debt. Basically, the government wants a stay of creditor enforcement efforts. The plaintiffs want summary judgment—i.e., a relatively quick entry of judgment, without a trial or significant fact-finding. The Interim Government’s defenses have equitable appeal but questionable (although not zero) legal merit. The defenses included the contract law defense of Impossibility and the customary international law defenses of Necessity and Comity. Impossibility rarely works, especially when the defendant’s argument boils down to, “I’m out of money and need time to work out a deal with my creditors.” Necessity and Comity may not even apply in cases arising from a sovereign’s default. However, the Interim Government’s legal team persuasively emphasized their client’s impossible situation—recognized as the legitimate representative of the country but unable to access its resources.

Judges have power, and much of this power is of the “soft” variety that comes, not from the ability to resolve substantive disputes, but from professional status and authority and from the ability to control process. Here, the judge has given the Interim Government a bit of the relief it wanted, in the form of a relatively favorable scheduling order.

The plaintiffs requested an accelerated schedule in which the parties would begin to brief the summary judgment question right away and the court would be in a position to decide whether to grant them summary judgment by approximately mid-December. They saw no need for discovery, since everyone agrees that Venezuela hasn’t paid and has waived its sovereign immunity. The Interim Government, by contrast, wanted to defer any consideration of summary judgment until after the parties briefed and the court decided whether to grant the government’s request for a stay.

On July 8, Judge Analisa Torres of the SDNY gave each side a bit of what it wanted. Contrary to the plaintiffs’ request, she authorized a short period of discovery through November 5. However, she did not defer consideration of the plaintiffs’ summary judgment motion until after resolving the government’s request for a stay. Instead, she ordered the parties to brief both issues by February 27, 2020.

We suspect that the Interim Government is relatively satisfied with this resolution. Even once briefing is complete, there will likely be a hearing, plus additional time in which the judge makes her decision and (probably) writes an opinion. That might take until mid-April 2020, or perhaps even longer.

Of course, if April 2020 comes around, and Mr. Maduro is still in power, the Interim Government’s request for a stay will not be all that compelling. But a lot of other things will likely have changed by then, perhaps including the leaders of the Venezuelan opposition. 

For now, even a short delay offers relief to the Interim Government. Although most creditors have been patient, if the subset who have filed lawsuits are perceived to be gaining an advantage, then others may follow. Putting the brakes on litigation, even for a bit, keeps what will undoubtedly be a messy debt restructuring process from spiraling even further out of control.

Comments

...Perhaps the most notable feature of Veny politics by April 2020 could be the fact they remain a largely unchanged affair. 'Imminent changes' have been expected oftentimes in the past -- going back to Chavez' times -- usually with underwhelming results. I worry about expectations management outside the country and among creditors.

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