Lawyers for Venezuela's opposition, which has controlled PDVSA's U.S. assets including Citgo since 2019 due to sanctions on President Nicolas Maduro's socialist government, in April argued to the Albany-based New York State Court of Appeals that the bonds were not approved by the South American country's National Assembly.

The bondholders' trustee MUFG Union Bank and GLAS Americas, their collateral agent, countered that the contention that the bonds were illegal under Venezuelan law has no bearing in New York where they were issued.

They also said the National Assembly, controlled by the opposition when the bonds were issued in 2016, never declared the bonds illegal.

"The New York courts should not encourage issuers to try to avoid their debts by abandoning their own previous commitments and representations," lawyers for MUFG and GLAS wrote in a June 2 filing made available this week.

PDVSA defaulted on the bonds, which matured in 2020, as an economic catastrophe left Maduro's government strapped for cash.

The bonds are backed by a 50.1% stake in Citgo Holding, a Delaware-registered entity through which PDVSA owns Citgo(PDVSAC.UL) . The eighth-largest refiner in the United States, Citgo's assets have been valued at some $13 billion and include a 807,000 barrel-per-day refining network.

To avoid losing control of Citgo, Venezuela's opposition filed suit in Manhattan federal court, arguing the lack of National Assembly approval rendered the bonds unenforceable.

U.S. District Judge Katherine Polk Failla initially sided with the bondholders. But the Manhattan-based 2nd U.S. Circuit Court of Appeals later said a section of New York state's commercial code could be interpreted as implying that the validity of a security, such as a bond, is determined by the local law of the jurisdiction where it is issued.

That court asked the New York State Court of Appeals to consider the question.