Law360 (February 27, 2019, 7:49 PM EST) -- Two BigLaw firms are representing opposing Venezuelan factions as they fight to defend the country in an appeal of a $1.2 billion arbitral award, a contest experts say the government of Nicols Maduro may find difficult to win since U.S. courts often defer to the executive branch on such issues.
Venable LLP, on behalf of the embattled Maduro government, and
Arnold & Porter, representing opposition leader Juan Guaid, have been thrown into the midst of the battle for control as the country descends into economic and political chaos — a battle in which the Trump administration has sided with Guaid. As Guaid declared himself the country’s interim president, the U.S. has imposed escalating sanctions on Venezuelan individuals and businesses in an effort to squeeze out Maduro, who has refused to step down.
This battle for power has now made its way to the D.C. Circuit. The Venable attorneys
told the court last week that they "strenuously" objected to
assertions made by Arnold & Porter that the Maduro government has no right to participate in the proceedings. But experts say that Maduro and his representatives face a tough challenge convincing the court to continue allowing them to appear since U.S. courts typically defer to the president on questions relating to the status of foreign entities.
"Where there are disputes both about what counts as a foreign state, but also who's entitled to act on behalf of the foreign state, that's classically within the domain of the executive branch," according to Mark Weidemaier, the Ralph M. Stockton Jr. distinguished professor of law at the University of North Carolina at Chapel Hill, who specializes in arbitration, international law and sovereign debt. "Courts are extremely deferential."
U.S. courts follow the one-voice doctrine, which basically says that the courts and the executive branch are speaking with one voice in matters of foreign relations, according to Stefan Talmon, a professor of public law, public international law and
European Union Law, who's also the director of the Institute of Public International Law at the University of Bonn.
Talmon noted that the D.C. Circuit or Arnold & Porter will likely ask the U.S. State Department to weigh in on the issue, and that the appeals court will almost certainly follow the State Department's view.
Interestingly, the approach taken by U.S. courts is contrary to international law and the approach typically taken in civil law countries — something that the Maduro regime is likely to bring up in its arguments before the D.C. Circuit, according to Talmon.
Under international law and in many civil law countries, courts would take evidence of which administration is actually in charge in Venezuela. It's possible then that it could be demonstrated that the Maduro government is actually in charge, Talmon said.
"International law looks to the effectiveness of an authority, and the effective authority in Venezuela is the Maduro government, " he said.
If the U.S. court were to take this approach, it would be faced with questions that are not easily answered, according to Benjamin Gedan, the director of the Latin American Program's Argentina Project at the Washington, D.C., think tank the Wilson Center and the former South America director on the White House
National Security Council. He added that the D.C. Circuit is unlikely to do so.
"The alternative would be unworkable, given the complexity of determining a country’s legitimate leadership," he said. "Would courts, for example, simply calculate what political grouping has more firepower or territory under its control? Would judges defer to a majority vote of foreign governments? Would lawyers be asked to engage in fact-intensive analyses of foreign constitutions?"
However the balance of power shakes out at the D.C. Circuit, it’s worth noting that while the situation presented before the circuit court — different law firms representing opposing factions of a foreign government — is not unprecedented, it is unusual and raises questions concerning how firms choose their clients, particularly since the Trump administration has clearly sided with Guaid, according to Rebecca Roiphe, a legal ethics professor at New York Law School.
"I don't think that there’s anything wrong with them having made this choice, but I do think it raises a complicated question about choosing one’s clients ... and who gets to benefit from their talent," she said. "The question is especially complicated here where the underlying facts are so uncertain. ... Choosing to represent Maduro is an interesting, or at least complicated, decision on the part of the firm."
The situation is akin to that faced by law firms that chose to represent Big Tobacco in litigation over the adverse health effects of smoking, Roiphe said.
And while both law firms are purporting to represent the Venezuelan state, the reason the two factions have chosen different counsel could be that the different governments will be taking divergent legal positions in the case, according to Catherine Rogers, a scholar of international arbitration and professional ethics at Penn State Law.
Venezuela is asking the D.C. Circuit in the appeal to overturn confirmation of the $1.2 billion arbitral award, which was issued to Rusoro Mining Corp. by an international tribunal after the South American nation expropriated without compensation the company's Venezuelan assets under a 2011 nationalization decree.
The events at issue in the underlying arbitration took place at the direction of the Hugo Chvez regime. Maduro, an insider in the Chvez government, became president after Chvez died in 2013. So it's possible that Guaid could look to distance his administration from the underlying conduct.
"Pointing the finger at one regime might be advantageous in the case," Rogers said.
--Editing by Kelly Duncan and Philip Shea.