Bankruptcy court judge closes suit, orders PREPA to pay former oil supplier some $41 million
By The Star Staff
U.S. District Court Judge Laura Taylor Swain on Wednesday closed a lawsuit filed by the Puerto Rico Electric Power Authority (PREPA) in 2009 and ordered the utility to pay a former oil supplier $41.4 million.
In the suit filed by PREPA against Swiss firm Vitol, which began in the local courts and was later moved to the bankruptcy court, the utility was trying to claw back $3.9 billion in payments under contracts it says were marred by Vitol’s participation in a kickback scheme for an Iraqi oil contract.
In the decision, the judge said PREPA “shall take nothing in the suit.”
The money that PREPA owns Vitol is now an unsecured claim because PREPA filed for bankruptcy in 2017.
PREPA said Vitol failed to alert PREPA of a federal investigation into the matter at the time the parties entered into the fuel supply contracts. The utility said it was prevented from engaging in contracts with companies convicted of corrupt acts by local laws and said the contract was null and void from the start.
Vitol severed ties with its parent company, creating another subsidiary. The subsidiary, VIC, claims that it was not prohibited from doing business with PREPA under Puerto Rico’s anti-corruption statute, because it had already severed ties with its former parent company in 2007, before the parent company pled guilty to participating in the kickback scheme.
PREPA claimed that its fuel supply contracts with VIC were void because VSA – a legally independent company that was VIC’s parent from late 2006 until late 2007 – was convicted in November 2007 of a crime in New York state court.
VSA’s conviction had nothing to do with PREPA or Puerto Rico, but rather concerned the United Nations Oil-for-Food Program in Iraq. PREPA claims that VSA’s conviction caused VIC to violate a since-repealed Puerto Rico statute called Law 458, which barred public corporations from entering into contracts with companies that had been convicted of certain offenses.
PREPA alleged that pursuant to Law 458, as of the date of VSA’s conviction, all contracts between PREPA and VIC then in effect were “automatically rescinded” and became “null and void” and all contracts between PREPA and VIC entered into after the date of VSA’s conviction were “void ab initio” and never came into legal effect.
At the time PREPA filed suit, all but one of the six contracts at issue had been fully performed and had expired on their own terms – and the only obligation that remained under that last contract was PREPA’s obligation to pay for fuel that PREPA ordered and accepted after PREPA by its own admission had actual knowledge of VSA’s conviction in New York.