On February 11, 2020, Judge Stanton of the U.S. District Court for the Southern District of New York denied Dresser-Rand Company’s (Dresser Rand) motion for summary judgment in a suit to collect on a promissory note issued by Petróleos de Venezuela, S.A. (PdVSA).  The Court’s decision turned on a finding that payment by PdVSA was legally impossible under U.S. sanctions.  That finding was based on incomplete briefing by the parties and appears seriously flawed given the licenses and guidance provided by the Department of Treasury’s Office of Foreign Assets Control (OFAC).  We discuss the decision and the U.S. sanctions regime as applied to the promissory note below.

The Order and the Parties’ Submissions

According to the opinion and order issued by the Court (the Order), Dresser-Rand holds a note issued by PdVSA on January 20, 2017, and guaranteed by PdVSA Petróleo, S.A. (Petróleo), a wholly owned subsidiary of PdVSA, for the principal sum of $119,645,069.70.   PdVSA made its first two payments on the note, but subsequent attempts at payment were rejected by Dresser-Rand’s bank for internal policy reasons following the U.S. imposition of targeted sanctions against PdVSA on August 25, 2017.  PdVSA and Dresser-Rand discussed other methods of payment, but default on the payments continued.  In February 2019, Dresser-Rand filed suit via a motion for summary judgment in lieu of complaint against PdVSA and Petróleo.

The Order addressed whether U.S. sanctions provided PdVSA and/or Petróleo an impossibility defense (i.e., whether “governmental sanctions make it impracticable or impossible . . . to pay Dresser-Rand”).  The Court found that Petróleo as guarantor had waived all defenses except for complete payment and granted summary judgment against Petróleo.  However, the Court also held that U.S. sanctions (in particular, blocking sanctions imposed pursuant to Executive Order (E.O.) 13850) “make it legally impossible here for PdVSA to pay Dresser‑Rand,”[1] which the Court found created a disputed factual issue precluding summary judgment and necessitating a trial over PdVSA’s impossibility of payment defense..  As discussed below, the Court’s finding fails to take into account (and the parties failed to brief) general licenses and guidance issued by OFAC that make it clear that PdVSA is not prohibited from making payments on pre-sanctions debt.

Both PdVSA and Petróleo (as a subsidiary of PdVSA by operation of OFAC’s 50 Percent Rule) are subject to blocking sanctions under E.O. 13850 and E.O. 13884.  These blocking sanctions provide that the assets of PdVSA and Petróleo within U.S. jurisdictions are blocked and all transactions within U.S. jurisdiction involving PdVSA and Petróleo are prohibited, absent a license.  The Court relied upon E.O. 13850 to conclude that payment on the note was prohibited.

However, OFAC’s General License (GL) 9F exempts transactions and activities ordinarily incident and necessary to dealings in any debt (explicitly including promissory notes) of PdVSA and Petróleo issued prior to August 25, 2017 from blocking sanctions under those E.O. 13850 and E.O. 13884.[2]  OFAC has given specific guidance that those provisions of the license authorize “engaging in transactions related to the receipt and processing of interest or principal payments.”  We note that PdVSA made an interest payment in May 2019 on its bond maturing in 2020 ⁠—after it had been targeted for blocking sanctions in January 2019⁠— based on GL 9F’s predecessor license.  This payment was permissible under U.S. sanctions law, just as payment on the note held by Dresser-Rand would appear to be permissible.[3]

Neither the Order nor the parties’ briefs mention or discuss the General License.


There are a few lessons to be learned from the litigation and the Order:

  • Despite clear OFAC regulatory action and guidance to the contrary, for the moment there is a U.S. federal district court decision that states that PdVSA is legally barred from making payment on its debts.
  • It is possible that, as in this case and others of which we are aware, banks will refuse to process even payments that are legally permissible when sanctioned persons are involved as a matter of internal policy.
  • Parties facing sanctions issues, including litigants, bondholders, and others, should seek specialist advice, as U.S. sanctions programs are increasingly complicated and difficult to navigate.


[1]  Order at 8 (emphasis added).

[2] GL 9F does not address restrictions under E.O. 13835 on dealings in equity collateral securing debt of the Government of Venezuela and its controlled entities, such as the shares in Citgo Holding Inc. securing the PdVSA 2020 bonds; GL 5B, which under its current terms is not effective until April 22, 2020, a date that could be further delayed, would be needed to execute on that collateral.

[3] Both PdVSA and Petróleo are also subject to sanctions under E.O. 13808, which prohibits dealings in “new debt” created on or after August 25, 2017, with a maturity of greater than 90 days of both entities within U.S. jurisdiction.  While the Order states that “Dresser-Rand extended PdVSA’s time to make payments,” OFAC guidance indicates that mere late payment does not create “new debt,” and the Order contains no analysis supporting a conclusion that Dresser-Rand and PdVSA entered into a new, post-sanctions agreement (nor any language limiting its holding to that situation).