The scope of the mandatory choice-of-law rule set forth in Uniform Commercial Code (UCC) §8-110(a)(1), which provides that "[t]he local law of the issuer's jurisdiction … governs … the validity of a security," is an important issue in ongoing appellate proceedings between Venezuela's state-owned oil company Petróleos de Venezuela, S.A. (PDVSA) and holders of its now defaulted notes that were scheduled to come due in 2020 (the 2020 Notes).

The 2020 Notes were issued under an indenture governed by New York law. Focusing solely on the New York law issues, at the District Court, PDVSA argued that UCC §8-110(a)(1) should override the choice-of-law clause in the indenture and that the question of the validity of the Notes should be determined on the basis of Venezuelan law. The noteholders, on the other hand, responded that UCC §8-110(a)(1) should not override the New York choice-of-law clause in the indenture because constitutional provisions of the type pointed to by PDVSA are outside the scope of UCC §8-110(a)(1).

The U.S. District Court for the Southern District of New York decided in the noteholders' favor as a matter of New York law. On the choice-of-law question, the district court held that the 2020 Notes' validity is governed by New York law and agreed with the noteholders that whether the 2020 Notes violated the Venezuelan constitution is outside the scope of "validity" in the context of UCC §8-110(a)(1). Petróleos de Venezuela S.A. v. MUFG Union Bank, N.A., 495 F. Supp. 3d 257 (S.D.N.Y. 2020) (hereinafter PDVSA Case). That decision is currently under appeal to the U.S. Court of Appeals for the Second Circuit.