Court Opinion

ID: 4669078
Source: CourtListenerOpinion
Date Created: 2021-03-18 14:00:28.364003+00
Date Added: 2024-06-11T07:56:45.298722
License: Public Domain

USCA11 Case: 19-10950   Date Filed: 03/18/2021   Page: 1 of 18

                                                                        [PUBLISH]

              IN THE UNITED STATES COURT OF APPEALS

                     FOR THE ELEVENTH CIRCUIT
                       ________________________

                               No. 19-10950
                         ________________________

                    D.C. Docket No. 1:18-cv-20818-DPG

PDVSA US LITIGATION TRUST,

                                               Plaintiff - Appellant,

versus

LUKOIL PAN AMERICAS, LLC,
LUKOIL PETROLEUM, LTD.,
COLONIAL OIL INDUSTRIES, INC.,
COLONIAL GROUP, INC.,
GLENCORE, LTD., et al.,

                                            Defendants - Appellees.
                         ________________________

                 Appeal from the United States District Court
                     for the Southern District of Florida
                       ________________________

                              (March 18, 2021)

Before JORDAN, TJOFLAT, and ANDERSON, Circuit Judges.

JORDAN, Circuit Judge:
            USCA11 Case: 19-10950    Date Filed: 03/18/2021   Page: 2 of 18

       This lawsuit involves an alleged multi-billion-dollar conspiracy to defraud

Petróleos de Venezuela, S.A., the Venezuelan state-owned oil company known as

PDVSA. The scheme purportedly involved computer hacking and payment of bribes

by numerous corporations and individuals to obtain PDVSA’s proprietary oil trading

information, and the use of that information to manipulate the pricing of crude oil

and hydrocarbon products.

       But PDVSA, the purported victim of the fraudulent scheme, did not sue the

alleged perpetrators. Instead, an entity called the PDVSA U.S. Litigation Trust filed

suit, alleging that it had authority to do so as an assignee of PDVSA pursuant to a

trust agreement which, through a choice-of-law clause, is governed by New York

law.

       Following some discovery, the district court adopted in part the report and

recommendation of the magistrate judge and dismissed the action without prejudice

under Rule 12(b)(1) of the Federal Rules of Civil Procedure for lack of Article III

standing. See PDVSA U.S. Litigation Trust v. Lukoil Pan Americas LLC, 372 F.

Supp. 3d 1353, 1359–61 (S.D. Fla. 2019). The court ruled that the Litigation Trust

did not properly authenticate the trust agreement—it failed to authenticate three of

the five signatures in the agreement—and without an admissible agreement it lacked

standing.     The court also concluded that, even if the trust agreement were

authenticated and admissible, it was void as champertous under New York law,

                                         2
          USCA11 Case: 19-10950        Date Filed: 03/18/2021    Page: 3 of 18

specifically N.Y. Judiciary Law § 489. As a result, the Litigation Trust did not have

standing. See generally MSPA Claims 1, LLC v. Tenet Florida, Inc., 918 F.3d 1312,

1318 (11th Cir. 2019) (an assignee has standing “if (1) its . . . assignor . . . suffered

an injury-in-fact, and (2) [its] claim arising from that injury was validly assigned”);

Kenrich Corp. v. Miller, 377 F.2d 312, 314 (3d Cir. 1967) (if an assignment is

champertous under state law, and therefore “legally ineffective,” the assignee lacks

standing to sue).

      The Litigation Trust appealed. With the benefit of oral argument, we now

affirm.

                                           I

      Rule 901 of the Federal Rules of Evidence entails a two-step process for

determining authenticity. A “district court must first make a preliminary assessment

of authenticity . . . , which requires a proponent to make out a prima facie case that

the proffered evidence is what it purports to be.” United States v. Maritime Life

Caribbean Ltd., 913 F.3d 1027, 1033 (11th Cir. 2019) (involving the authenticity of

an assignment) (citation and internal quotation marks omitted). “If the proponent

satisfies this ‘prima facie burden,’ the inquiry proceeds to a second step, in which

the evidence may be admitted, and the ultimate question of authenticity is then

decided by the [factfinder].” Id. (citation and internal quotation marks omitted). At

the first step of the process, it is inappropriate for the district court to place on the

                                           3
          USCA11 Case: 19-10950        Date Filed: 03/18/2021     Page: 4 of 18

proponent of the evidence the burden of showing authenticity by a preponderance of

the evidence. See id. (“By requiring Maritime to prove authenticity by ‘the greater

weight of the evidence,’ the district court compressed the two steps of the inquiry

under Rule 901 into one and conflated the issue of authenticity with [the merits].”).

      The magistrate judge stated that the Litigation Trust had the “burden of

proving” the authenticity of the trust agreement and concluded that it had not carried

that burden because it failed to authenticate the signatures on the agreement. See

D.E. 636 at 11, 18. The district court noted the burden of proof used by the

magistrate judge and agreed that the trust agreement was inadmissible: “The [c]ourt

finds that [the Litigation Trust] has failed to establish the admissibility of the [t]rust

[a]greement.” PDVSA, 372 F. Supp. 3d at 1360.

      We have not addressed whether or how the two-step authenticity process

described in cases like Maritime Life should be applied in a Rule 12(b)(1) context

where the defendant’s attack on subject-matter jurisdiction is factual, and where the

district court is permitted to act as the ultimate decision-maker on jurisdictional

facts. Some district courts have ruled that on a motion to dismiss for lack of subject-

matter jurisdiction they “may only consider evidence which would be of testimonial

value at trial.” Dr. Beck & Co. G.M.B.H v. General Electric Co., 210 F. Supp. 86,

92 (S.D.N.Y. 1962), aff’d, 317 F. 2d 338 (2d Cir. 1963). Others have said that, at

the Rule 12(b)(1) stage, a court cannot consider evidence which has “not been

                                            4
            USCA11 Case: 19-10950     Date Filed: 03/18/2021    Page: 5 of 18

authenticated in some proper manner.” Research Inst. for Medicine and Chemistry,

Inc. v. Wis. Alumni Research Found., Inc., 647 F. Supp. 761, 773 n.8 (W.D. Wis.

1986). It is difficult to know from the short discussions in these cases whether the

district courts were speaking of authentication in a prima facie sense or in a final

admissibility sense. And the few treatises that speak to the matter are not very

helpful because they focus on the evidence’s ultimate admissibility at trial. See, e.g.,

61A Am. Jur. 2d, Pleading § 495 (Feb. 2021 update) (“[I]n some [cases], it has been

decided that the court may consider only evidence which would be admissible at

trial.”).

       We need not address the interplay between Rule 901 and Rule 12(b)(1) today,

for we assume without deciding that the Litigation Trust made out a prima facie case

of authenticity for the trust agreement at the Rule 12(b)(1) proceedings, and that this

prima facie showing was sufficient. Cf. Itel Capital Corp. v. Cups Coal Co. Inc.,

707 F.2d 1253, 1259 (11th Cir. 1983) (“[U]nder Rule 901, proving the signature of

a document is not the only way to authenticate it.”). We therefore also assume, again

without deciding, that the district court erred by ruling that the trust agreement was

inadmissible. That leaves the district court’s alternative champerty ruling, to which

we now turn.

                                          II

                                           5
           USCA11 Case: 19-10950           Date Filed: 03/18/2021        Page: 6 of 18

       Our cases hold that claims “should not be dismissed on motion for lack of

subject-matter jurisdiction when that determination is intermeshed with the merits

of the claims and there is a dispute as to a material fact.” Lawrence v. Dunbar, 919

F.2d 1525, 1531 (11th Cir. 1990). “When the jurisdictional basis of a claim is

intertwined with the merits, the district court should apply a Rule 56 summary

judgment standard when ruling on a motion to dismiss which asserts a factual attack

on subject-matter jurisdiction.” Id. at 1530. Cf. Culverhouse v. Paulson & Co., Inc.

813 F.3d 991, 994 (11th Cir. 2016) (“[I]n reviewing the standing question, the court

must be careful not to decide the questions on the merits for or against the plaintiff,

and must therefore assume that on the merits the plaintiff would be successful in

their claims.”) (citation and internal quotation marks omitted).1

       Based on our review of the record, the district court may have erred

procedurally in definitively resolving the question of champerty at the Rule 12(b)(1)

stage because that question likely implicated the merits of the Litigation Trust’s

claims. As it turns out, however, the Litigation Trust does not make this procedural

argument on appeal.

                                                A

1
 The magistrate judge put the parties on notice of our precedent at one of the hearings in the case.
See D.E. 423 at 22 (explaining that “very frequently issues related to standing are intertwined with
issues related to the merits”).
                                                 6
         USCA11 Case: 19-10950       Date Filed: 03/18/2021   Page: 7 of 18

      Rule 8(c) of the Federal Rules of Civil Procedure provides that “illegality” is

an affirmative defense. And New York law treats champerty as an affirmative

defense. See, e.g., Justinian Capital SPC v. WestLB AG, 65 N.E.3d 1253, 1255

(N.Y. 2016); Bluebird Partners, L.P. v. First Fidelity Bank, N.A., 731 N.E.2d 581,

582 (N.Y. 2000); Krusch v. Affordable Housing, LLC, 698 N.Y.S. 2d 674, 674 (App.

Civ. 1st Dept. 1999); Phoenix Light SF Ltd. v. U.S. Bank Nat’l Ass’n, ___ F. Supp.

3d ___, 2020 WL 1285783, at *11 (S.D.N.Y. 2020). Indeed, if an assignment or

agreement is champertous under New York law it is null and void and cannot be

enforced or sued upon. See, e.g., Bluebird Partners, 731 N.E. 2d at 587; Elliott

Assoc., LP v. Republic of Peru, 948 F. Supp. 1203, 1208 (S.D.N.Y. 1996).

      Because champerty likely implicated the merits of the claims brought by the

Litigation Trust, there is a strong argument that the district court should have used

the Rule 56 standard in addressing whether the trust agreement was champertous

under New York law. See, e.g., Morrison v. Amway Corp., 323 F. 3d 920, 927–30

(11th Cir. 2003). But we do not reverse on this ground because the Litigation Trust

does not raise any procedural objections to the district court’s handling of the

champerty question.

      The Litigation Trust argued to the magistrate judge that champerty is a fact-

intensive issue which must be decided by a jury. See D.E. 636 at 23 n.16. Yet on

appeal the Litigation Trust does not contend that the district court committed

                                         7
          USCA11 Case: 19-10950       Date Filed: 03/18/2021    Page: 8 of 18

procedural error by failing to employ the Rule 56 standard in addressing the

affirmative defense of champerty. Instead, although it acknowledges that champerty

is an affirmative defense, it takes the champerty ruling head on and asks us to hold

that the assignment was not champertous under New York law. See Appellant’s Br.

at 32–33 & n. 13 (arguing that the district court committed clear error in finding that

the clear purpose of the trust agreement was to bring this lawsuit).

      We normally decide cases and issues as framed by the parties, and the

Litigation Trust has abandoned any procedural objections to the champerty ruling

by not raising them in its brief. See Sapuppo v. Allstate Floridian Ins. Co., 739 F.3d

678, 680 (11th Cir. 2014) (collecting several Eleventh Circuit cases holding that a

party abandons an issue by not briefing it). In a case like this one—involving

sophisticated litigants represented by able counsel—there is no reason to depart from

the general principle of party presentation, and we decline to take up sua sponte the

district court’s failure to apply the Rule 56 standard. See United States v. Sineneng-

Smith, 140 S. Ct. 1575, 1579 (2020) (“In our adversarial system, we follow the

principle of party presentation . . . . [W]e rely on the parties to frame the issues for

decision and assign to courts the role of neutral arbiter of matters the parties

present.”) (citation and internal quotation marks omitted). Like the district court,

then, we address champerty on the merits.

                                           B

                                           8
         USCA11 Case: 19-10950       Date Filed: 03/18/2021   Page: 9 of 18

      The Litigation Trust was created in 2017 by PDVSA, as both the grantor and

beneficiary under New York law, so that the litigation efforts to hold the defendants

“accountable could proceed without interference from the political and economic

instability and rampant corruption in Venezuelan government and society.”

Appellant’s Br. at 2–3. The Litigation Trust has two New York trustees (appointed

by the Trust’s counsel) and one Venezuelan trustee. All costs and expenses of the

litigation against the defendants are borne by the Trust’s counsel. Any recoveries or

proceeds will be divided between PDVSA (which receives 34%) and the Trust’s

counsel, investigator, and financier (who collectively receive the remaining 66%).

      The trust agreement, dated July of 2017, was purportedly executed in August

of 2017. Under the terms of the trust agreement, PDVSA assigned its claims against

the defendants to the Litigation Trust so that they could be pursued by the Trust in

the United States.

      PDVSA’s president and board of directors did not approve the trust

agreement. The signatories of the agreement were two Venezuelan government

officials, Nelson Martinez (a former Venezuelan oil minister) and Reynaldo Muñoz

Pedrosa (an attorney general for civil matters); Alexis Arellano, a PDVSA-

designated trustee; and Edward Swyer and Vincent Andrews, two American trustees.

The Venezuelan government officials who signed the trust agreement were members

                                         9
         USCA11 Case: 19-10950        Date Filed: 03/18/2021     Page: 10 of 18

of the administration of President Nicolas Maduro, which the United States had

formally recognized as Venezuela’s government at the time. 2

      As relevant here, N.Y. Judiciary Law § 489(1) provides that “no corporation

or association . . . shall solicit, buy, or take an assignment of . . . a bond, promissory

note, bill of exchange, book debt, or other thing in action, or any claim or demand,

with the intent and for the purpose of bringing an action or proceeding thereon[.]”

The New York Court of Appeals recently explained that the “statue prohibits the

purchase of notes, securities, or other instruments or claims with the intent and for

the purpose of bringing a lawsuit.” Justinian Capital, 65 N.E.3d at 1254.

      Whether an agreement is champertous “is a mixed question of law and fact,”

14 C.J.S., Champerty and Maintenance § 26 (Feb. 2021 update), and a number of

New York cases have reversed summary judgment rulings on champerty because

there were underlying disputes of material fact (usually regarding the transaction’s

“primary purpose”). Take, for example, the decision of the New York Court of

Appeals in Bluebird Partners, 731 N.E.2d at 587: “We are satisfied that the record

here does not support a finding of champerty as a matter of law for summary

disposition. It cannot be determined on this record and in this procedural posture

2
 President Trump later recognized Juan Guaidó, the President of the Venezuelan National
Assembly, as the Interim President of Venezuela.

                                           10
         USCA11 Case: 19-10950       Date Filed: 03/18/2021    Page: 11 of 18

that champerty was the primary motivation, no less the sole basis, for all this

strategic jockeying and financial positioning.”

      But, as noted, the Litigation Trust does not make any Rule 56-type arguments

on appeal. So we treat the champerty ruling as one made by the district court as the

ultimate decision-maker, and review any underlying factual findings for clear error

(as the Litigation Trust asks us to do). See generally Cooper v. Harris, 137 S. Ct.

1455, 1465 (2017) (explaining that, under the clear error standard, “[a] finding that

is ‘plausible’ in light of the full record—even if another is equally or more so—must

govern”). On this basis, we affirm the district court’s conclusion that the trust

agreement was champertous under New York law.

      The district court found, on the evidence before it, that the primary purpose

of the trust agreement was to “facilitate the prosecution and resolution” of the

assigned claims and to liquidate the Litigation Trust’s “assets with no objective to

continue or engage in the conduct of a trade or business.” PDVSA, 372 F. Supp. 3d

at 1360. This factual finding was not clearly erroneous. First, the trust agreement’s

own language states in the same words that this was the primary purpose. See D.E.

517-4 at § 2.5(a). Second, one of the Litigation Trust’s lead attorneys testified at his

deposition that the trust agreement was executed by the parties for “purposes of

pursuing claims that are the subject matter of this litigation, among others.” D.E.

573-1 at 11. Third, the Litigation Trust was not a pre-existing entity with a separate

                                          11
         USCA11 Case: 19-10950       Date Filed: 03/18/2021    Page: 12 of 18

commercial existence. Fourth, only 34% of any recovery goes to PDVSA, with the

remaining amount divided between the Litigation Trust’s attorneys, investigator, and

financier.

      Contrary to the Litigation Trust’s argument, the fact that some of the ultimate

beneficiaries of the litigation (at least to the tune of 34% of the recovery) may be the

Venezuelan people does not detract from the fact that the trust agreement was created

to allow a third party—the Trust—to sue on claims that belonged to PDVSA. And

even if one accepts that the trust agreement also served the facilitation of cooperation

with law enforcement and the engagement of investigators to look further into other

improper conduct (as one of the Litigation Trust’s lead attorneys testified) that does

not make the district court’s finding clearly erroneous. The same goes for the

Litigation Trust’s contention that the 34%-66% fee structure is reasonable. See

Cooper, 137 S. Ct. at 1465. “Where there are two permissible views of the evidence,

the factfinder’s choice between them cannot be clearly erroneous.” Anderson v. City

of Bessemer City, 470 U.S. 564, 574 (1985).

      The district court also correctly applied New York law. We come to that

conclusion based on Justinian Capital, 65 N.E.3d at 1258–59. In that case, the New

York Court of Appeals confronted a similar arrangement and concluded on summary

judgment that it was champertous under N.Y. Judiciary Law § 489(1).

                                          12
         USCA11 Case: 19-10950      Date Filed: 03/18/2021   Page: 13 of 18

      In Justinian Capital, a company called DPAG purchased from two special

purposes companies (whom we’ll collectively call Blue Heron) notes worth

approximately € 180 million. DPAG’s portfolio was managed by WestLB, a bank

partly owned by the German government. When the notes lost most of their value,

DPAG—which was receiving financial support from the German government—did

not want to sue WestLB because of a concern that the German government might

end its support for DPAG. So DPAG turned to Justinian Capital, a Cayman Islands

company with few or no assets. See Justinian Capital, 65 N.E.3d at 1254.

      Justinian Capital proposed a business plan in which it would purchase the

notes from DPAG, commence litigation (by partnering with law firms) to recover

the losses on the investment, and remit the recovery from the litigation to DPAG

“minus a [20%] cut[.]” See id. at 1254–55. DPAG subsequently entered into a sale

and purchase agreement by which it assigned the notes to Justinian Capital, which

in turn agreed to pay DPAG a base purchase price of $1 million. The assignment of

the notes, however, was not contingent on Justinian Capital’s payment of the

purchase price, and failure to pay did not constitute a breach or default of the

agreement. The only consequences of Justinian Capital’s failure to pay the $1

million by the due date were that interest would accrue on the purchase price and

that Justinian Capital’s share of the proceeds of litigation would decrease from 20%

to 15%. At the time Justinian Capital instituted suit against WestLB, it had not paid

                                         13
          USCA11 Case: 19-10950      Date Filed: 03/18/2021    Page: 14 of 18

any portion of the $1 million and DPAG had not demanded payment. See id. at

1255.

        The New York Court of Appeals held that the assignment from DPAG to

Justinian Capital was champertous because the impetus was DPAG’s desire to sue

WestLB for the decline in the value of the shares and not be named as a plaintiff in

the action. And Justinian Capital’s business plan was to acquire investments that

suffered major losses in order to sue on them. There was no evidence, the Court of

Appeals concluded, that Justinian Capital’s acquisition of the notes from DPAG

“was for any purpose other than the lawsuit it initiated almost immediately after

acquiring the notes[.]” Id. at 1257. Significantly, the Court of Appeals dismissed

as speculative the testimony of Justinian Capital’s principal that there might be other

possible sources of recovery on the notes: “Here, the lawsuit was not merely an

incidental or secondary purpose of the assignment, but its very essence. [Justinian

Capital’s] sole purpose in acquiring the notes was to bring this action and hence, its

acquisition was champertous.” Id.

        The same is true here. As the district court found, the Litigation Trust’s

primary purpose in acquiring PDVSA’s claims was to bring this action.

                                          C

        Trying to avoid the force of Justinian Capital, the Litigation Trust makes a

number of arguments. We find them unpersuasive.

                                          14
         USCA11 Case: 19-10950         Date Filed: 03/18/2021     Page: 15 of 18

       The Litigation Trust says that it is closely related to PDVSA, and therefore

not a stranger or “officious intermeddler.” See FragranceNet.com, Inc. v.

FragranceX.com, 679 F. Supp. 2d 312, 319 n.9 (E.D.N.Y. 2010) (explaining, in the

context of a parent and subsidiary, that champerty bars the “acquisition of a cause of

action by a stranger to the underlying dispute”). It describes itself as a fiduciary of

PDVSA which does not stand to profit from the litigation.

       On this record, the argument fails. The Litigation Trust was a new entity

created for the purpose of obtaining and litigating PDVSA’s claims, and as a result

was a stranger to the underlying disputes with the defendants. See BSC Assoc., LLC

v. Leidos, Inc., 91 F. Supp. 3d 319, 328 (N.D.N.Y. 2015) (“Here, Plaintiff—which

did not exist prior to February 2014 and was formed solely to ‘retain’ this cause of

action from BSC Partners—clearly did not have a proprietary interest in the

Subcontract underlying this action that predates the transfer of claims to Plaintiff.”).

And there is no claim that PDVSA—the purported assignor of claims—owns or

controls the Litigation Trust or that the Trust is a subsidiary or related entity of

PDVSA. Finally, given that the Litigation Trust is a pass-through for 64% of the

proceeds to go to its counsel, investigator, and financier, it matters little that the Trust

itself is not going to reap an economic benefit from the litigation.

       The Litigation Trust also asserts that § 489(1) does not apply because it is not

a collection agency or a corporation, and does not qualify as an “association.” We

                                            15
         USCA11 Case: 19-10950       Date Filed: 03/18/2021   Page: 16 of 18

reject this argument, as the New York Court of Appeals has explained that

“association” is a “broad term which may be used to include a wide assortment of

differing organizational structures including trusts, depending on the context.”

Mohonk v. Bd. of Assessors of Town of Gardiner, 392 N.E.2d 876, 879 (N.Y. 1979).

Given that § 489(1) lists “trustees” as one of the persons or entities who can violate

the statute’s general prohibition on champerty, the context here permits the

application of the champerty bar to the trust agreement.

      Finally, the Litigation Trust argues that it comes within § 489(2), the

champerty statute’s “safe harbor” provision.        This provision states that the

champerty bar in § 489(1) is inapplicable if the “aggregate purchase price” of a claim

is at least $500,000. The Litigation Trust says that it was prevented from presenting

evidence that its counsel had spent over $500,000 in fees and costs, for the benefit

of PDVSA, even before the assignment of claims.

      The magistrate judge and the district court rejected the Litigation Trust’s “safe

harbor” argument because there was no evidence of any payment from the Litigation

Trust to PDVSA. See PDVSA, 372 F. Supp. 3d at 1361; D.E. 636 at 22–23. We

come to the same conclusion.

      In Justinian Capital, the New York Court of Appeals held that the “phrase

‘purchase price’ in [§] 489(2) is better understood as requiring a binding and bona

fide obligation to pay $500,000 or more of notes or securities, which is satisfied by

                                         16
         USCA11 Case: 19-10950        Date Filed: 03/18/2021   Page: 17 of 18

actual payment of at least $500,000 or the transfer of financial value worth at least

$500,000 in exchange for the notes or other securities.” 65 N.E.3d at 1258. The

expenditure by the Litigation Trust or its counsel of fees and costs for the litigation,

even if they exceeded $500,000, did not constitute a contractual “purchase price.”

There were no underlying instruments or claims valued at or transferred for more

than $500,000, and there was no obligation on the Litigation Trust or its counsel to

spend $500,000 or more for the costs of litigation.

      Moreover, none of the Litigation Trust’s expenditures for litigation costs

flowed to PDVSA. As an entity, PDVSA was no better off financially due to the

footing of litigation costs by the Litigation Trust or its counsel, and it still had to

wait until the Trust succeeded on the assigned claims to reap any contingent

monetary benefit. Cf. id. at 1259 (“[B]ecause Justinian [Capital] did not pay the

purchase price or have a binding and bona fide obligation to pay the purchase price

of the notes independent of the successful outcome of the lawsuit, [it] is not entitled

to the protections of the safe harbor.”).

      We also think the defendants may be correct in asserting that the Litigation

Trust’s interpretation of § 489(2) could threaten to swallow much of § 489(1). An

otherwise-champertous transaction, no matter the value of the assigned instruments

or the lack of a binding obligation to pay a purchase price of $500,000 or more,

                                            17
         USCA11 Case: 19-10950      Date Filed: 03/18/2021   Page: 18 of 18

would be immunized under New York law if the assignee simply spent over

$500,000 in litigation expenses.

                                        III

      This appeal might have come out differently had it been argued differently.

But on the issues presented to us, we affirm the district court’s dismissal of the

Litigation Trust’s complaint without prejudice for lack of standing.

      AFFIRMED.

                                         18