Helmerich & Payne Int'l Drilling Co. v. Bolivarian Republic of Venezuela, No. 11-cv-1735 (D.D.C. Sept. 20, 2013) [click for opinion]

Helmerich & Payne International Drilling Co. and its wholly owned subsidiary, Helmerich & Payne de Venezuela, C.A., sued the country of Venezuela and Venezuelan-owned-and-controlled entities with whom the subsidiary had signed oil-drilling contracts.  The drilling begin in 1997 and the contracts were to be paid in U.S. dollars and sent to the Bank of Oklahoma in Tulsa.  The Venezuelan Defendants stopped paying in 2007 and eventually, with the help of the Venezuelan National Guard, seized and nationalized the subsidiary's oil rigs.

Plaintiffs sued for breach of contract and for a taking in violation of international law.  Defendant moved to dismiss on the basis of foreign sovereign immunity.  Plaintiffs sought jurisdiction under two exceptions to sovereign immunity under the Foreign Sovereign Immunities Act (“FSIA”),28 U.S.C. § 1605—the commercial-activity exception and the expropriation exception. 

The parties agreed to have the court determine four preliminary issues on the motion to dismiss: (1) whether, for purposes of determining if a taking in violation of international law has occurred under the expropriation exception, the plaintiff-subsidiary is a national of Venezuela under international law; (2) whether Plaintiffs’ expropriation claims are barred by the Act of State doctrine; (3) whether, for purposes of the commercial-activity exception, Plaintiffs have sufficiently alleged a "direct effect" in the United States, and (4) whether the parent company of the subsidiary has standing.

Regarding the first issue, the court noted that no treaty controls the determination of the subsidiary's nationality, so it had to consider various other sources of international law.  The court looked to the general international law practice which considers a corporation a national of the country of its incorporation.  In light of this precedent, and the fact that the subsidiary was incorporated in Venezuela and had its principal office there, the court determined that it would be considered a national of Venezuela under international law.  The weight of U.S. authorities supported the same conclusion.

Regarding the second issue, the court decided that it could not consider the Act of State defense until it satisfied itself that it had jurisdiction, meaning the time was not yet ripe for resolving whether the Act of State doctrine barred Plaintiffs’ expropriation claims. 

Regarding whether Plaintiffs sufficiently alleged a direct effect in the United States, the court noted that the effect necessary under the FSIA need not be substantial or foreseeable but must only follow as an immediate consequence of the defendant’s activity.  The court relied on prior D.C. Circuit precedent which held that termination of an agreement that leads “inexorably” to the loss of revenues under third-party agreements is sufficient to meet the direct effects test.  The contracts at issue required Plaintiffs to buy and use specific parts from certain U.S.-based companies, which meant that Defendants' breach caused those companies to lose revenues.

Finally, the court determined that the parent company had standing to pursue the expropriation claim.  The court acknowledged the shareholding-standing rule, which prohibits shareholders from initiating actions to enforce the rights of the corporation.  However, the court noted the exception to the rule when the shareholder has a direct, personal interest in the cause of action.  The court concluded that the complete physical seizure of a parent company's wholly-owned subsidiary, to the point of eliminating the corporation entirely or comprehensively taking its assets and profits, deprives the parent of its essential and unique rights as sole shareholder.