250 A.3d 814
Del. Ch.2019Background
- In January 2019 the U.S. Executive Branch publicly recognized Juan Guaidó as Interim President of Venezuela; the U.S. subsequently sanctioned Maduro-aligned officials and PDVSA and issued OFAC guidance tying sanctions relief to transfer of control to Guaidó or a successor government.
- Guaidó and the National Assembly appointed an ad hoc managing board for PDVSA, which then (by written consents) reconstituted the boards of PDV Holding, CITGO Holding, and CITGO Petroleum — Delaware corporations ultimately owned by PDVSA.
- Plaintiffs are directors who were on the CITGO-related boards before Guaidó’s appointments; they sued under DGCL § 225 seeking a declaration that they are the rightful boards. Defendants are the Guaidó-appointed directors and counterclaimed for a competing declaration.
- Plaintiffs and defendants cross-moved for judgment on the pleadings. The court addressed two threshold separation-of-powers doctrines: the political question doctrine (recognition) and the act of state doctrine (validity of foreign sovereign acts).
- The Court held the U.S. President’s recognition of Guaidó binds the court (political question) and that, under the act of state doctrine, Guaidó’s PDVSA appointments — official acts of a recognized sovereign within its territory — must be assumed valid.
- The Court did not decide the ultimate composition of the CITGO boards because the written consents were provided outside the pleadings; it converted the Rule 12(c) motion into one for summary judgment and gave plaintiffs time to submit an affidavit to oppose summary judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Executive Branch’s recognition of Guaidó is binding on the court | The recognition language is limited ("interim"), ambiguous, and does not preclude inquiry under Delaware internal affairs law | Recognition is an exclusive Executive power; the court must accept the Executive’s determination and treat Guaidó as the recognized government | Binding: the court is conclusively bound by the President’s recognition of Guaidó under the political question doctrine |
| Whether Guaidó’s creation of a PDVSA managing board is entitled to deference under the act of state doctrine | The internal affairs doctrine should control corporate governance questions; Guaidó lacks de facto control/territorial indicia of statehood | The act of state doctrine applies to official acts of a U.S.-recognized sovereign performed within its territory; recognition is dispositive of statehood for this purpose | Act of state applies: the Court must assume validity of Guaidó’s PDVSA appointments |
| Whether the act of state doctrine yields to the internal affairs doctrine for Delaware corporations | Internal affairs (Venezuelan law) governs corporate board composition and trumps foreign-recognition defenses | Federal foreign-relations doctrines (act of state) override state internal affairs when recognition is implicated | Act of state overrides internal affairs here; courts should not adjudicate under foreign internal law when Executive recognition and official acts are at issue |
| Whether the PDVSA acts are extraterritorial (affecting U.S. corporations) so as to preclude the act of state doctrine; and whether defendants’ written consents are admissible on Rule 12(c) | The PDVSA appointments were intended to affect U.S. entities; extraterritorial effects mean the act is not a domestic sovereign act; also plaintiffs need time to review consents | The relevant official act occurred within Venezuela; extraterritorial effects do not defeat the act of state doctrine; the consents were submitted outside the pleadings | Official act occurred in Venezuela so act of state applies; consents are not part of the pleadings so court converted Rule 12(c) motion to summary judgment and stayed resolution to allow a Rule 56(e) affidavit |
Key Cases Cited
- Oetjen v. Central Leather Co., 246 U.S. 297 (recognition by the political branches is conclusive on courts)
- Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398 (act of state doctrine stems from separation-of-powers concerns and precludes judicial inquiry into official acts of recognized foreign sovereigns)
- W.S. Kirkpatrick & Co. v. Envtl. Tectonics Corp., Int’l, 493 U.S. 400 (act of state doctrine applies to any official act of a foreign sovereign performed within its territory)
- Guaranty Trust Co. v. United States, 304 U.S. 126 (courts must accept political-branch determinations about which foreign regime represents a state)
- Underhill v. Hernandez, 168 U.S. 250 (early articulation of the principle that courts will not judge acts of a foreign sovereign within its territory)