The Volokh Conspiracy
Mostly law professors | Sometimes contrarian | Often libertarian | Always independent
In Friday's New York trial court decision in Diaz v. Galopy Corp. Int'l, N.V., Diaz is a Venezuelan lawyer who sued Galopy in May 2014 for unpaid attorney fees, and received a judgment for 1,134,463,551.97 Bolivars (that's over a billion of those puppies) in October 2016. He then went to New York court to get recognition of this judgment, presumably so it could be enforced against American assets of the defendant.
The exchange rate between pounds, bolivars, and dollars, however, is that a pound of bolivars equals a dollar. (OK, an old joke, but apt.) Hence plaintiff's argument:
Plaintiff's motion presents the interesting question of what exchange rate the court should apply to the Venezuelan judgment. Plaintiff seeks recognition of the Venezuelan Judgment in US dollars, in the amount of … US $1,719,561.57 …. Plaintiff argues that this sum is the equivalent amount of the Venezuelan Judgment expressed in US dollars at the rate of exchange prevailing on October 21, 2016, the date of entry of the Venezuelan Judgment. Plaintiff takes the position that the applicable rate of exchange is the "official" exchange rate that the government of Venezuela sets….
The parties agree that the Venezuelan government officially promotes two official exchange rates: the DIPRO rate of 10 bolivars to the U.S. dollar and the DICOM rate, set at auction. DICOM is a floating market rate and, as of February 2018, stands at 3,345 bolivars. However, the government restricts most Venezuelans from accessing the DIPRO and DICOM exchange rates. The parties agree that the DIRPO rate applies only to humanitarian needs such as food, medicine and raw materials. Therefore, it is inapplicable to this case.
The weak bolivar has led to local demand for foreign currencies, that are preferable given their stability. Accordingly, many Venezuelan businesses reject domestic currency in favor of the U.S. dollar or the Euro. Average Venezuelans are left to choose between waiting on long lines to buy basic supplies with bolivars at government-regulated establishments, with the knowledge they may leave empty-handed, and black market traders who typically only accept expensive foreign currencies in exchange for basic necessities. Further, the depressed bolivar has reduced the incentive for foreign companies to sell goods or do business in Venezuela, given that they would have to do so at a loss after converting bolivars to their local currencies.
Defendant argues that should the court convert the Venezuelan Judgment into US dollars, the court should convert at the true market rate, rather than the so called "official" rates. Defendant contends that the "official rates" do not represent true rates of exchange because they are used for limited purposes and are inaccessible to the Venezuelan public generally. Defendant's experts describe Venezuela's "official" exchange rate as "blocked." A blocked currency is "a currency that cannot freely be converted to other currencies on the foreign exchange market as a result of exchange controls. It is mainly used for domestic transactions and does not freely trade on a forex market, usually due to government restrictions."
Both of defendant's experts describe the realities of the legal and black market exchanges in Venezuela. They discuss how the DICOM exchange rate is effectively "blocked" because it is a rigged exchange rate set by a government they describe as corrupt. In reply, plaintiff argues that the court must look to Venezuela's "official" rate of exchange because alternative rates of exchange that defendant proposes are illegal, other "black market" exchange rates are illegal, and would subject plaintiff to criminal charges.
Judiciary Law § 27 … states: ["]In any case in which the cause of action is based upon an obligation denominated in a currency other than currency of the United States, a court shall render or enter a judgment or decree in the foreign currency of the underlying obligation. Such judgment or decree shall be converted into currency of the United States at the rate of exchange prevailing on the date of entry of the judgment or decree.["]
… "Where local currency restrictions would prevent a party from converting its money into dollars, New York courts have been disinclined to employ "official" exchange rates, seeking instead to appraise realistically the relative values of the currencies." ["I]t will not do to sacrifice justice to the easy way of resorting, as a substitute for a free market, to an official rate of exchange that has been established for other purposes and does not apply to transactions in controversy[."] …
Accordingly, it is
ORDERED that plaintiff's motion for summary judgment in lieu of complaint against defendant is granted only to the extent of recognizing the Venezuelan Judgment, and is otherwise denied without prejudice to bringing a new motion under the correct applicable exchange rate ….