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,
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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
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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
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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
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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
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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
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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.
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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
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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).
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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
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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.
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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
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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
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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,
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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.