Crystallex Int'l Corp. v. Bolivarian Republic De Venezuela (In re De Venezuela)

932 F.3d 126

CRYSTALLEX INTERNATIONAL CORPORATION

v.BOLIVARIAN REPUBLIC OF VENEZUELA

Petroleos De Venezuela, S.A. (Intervenor in D.C.), Appellant

In re: Petroleos De Venezuela, S.A., Petitioner

Nos. 18-2797 & 18-3124

No. 18-2889

United States Court of Appeals, Third Circuit.

Argued April 15, 2019

Opinion filed: July 29, 2019

Samuel Taylor Hirzel, II, Heyman Enerio Gattuso & Hirzel, 300 Delaware Avenue, Suite 200, Wilmington, DE 19801, Kevin A. Meehan, Julia Mosse, Juan O. Perla, Joseph D. Pizzurro (Argued), Curtis Mallet-Prevost Colt & Mosle, 101 Park Avenue, 35th Floor, New York, NY 10178, Counsel for Intervenor-Appellant

Miguel A. Estrada (Argued), Matthew S. Rozen, Lucas C. Townsend, Gibson Dunn & Crutcher, 1050 Connecticut Avenue, N.W., Washington, DC 20036, Rahim Moloo, Jason W. Myatt, Robert L. Weigel, Gibson Dunn & Crutcher, 200 Park Avenue, 47th Floor, New York, NY 10166, Travis S. Hunter, Jeffrey L. Moyer, Raymond J. DiCamillo, Richards Layton & Finger, 920 North King Street, One Rodney Square, Wilmington, DE 19801, Counsel for Appellee

E. Whitney Debevoise, II, Stephen K. Wirth, Samuel F. Callahn, Arnold & Porter Kaye Scholer LLP, 601 Massachusetts Avenue, N.W., Washington, DC 20001, Paul J. Fishman, Arnold & Porter Kaye Scholer LLP, One Gateway Center, Suite 1025, Newark, NJ 07102, Kent A. Yalowitz (Argued), Arnold & Porter Kaye Scholer LLP, 250 West 55th Street, New York, NY 10019, Counsel for Intervenor-Appellant Bolivarian Republic of Venezuela

Amanda F. Davidoff (Argued), Sullivan & Cromwell LLP, 1700 New York Avenue, N.W., Suite 700, Washington, DC 20006, Sergio Galvis, Joseph E. Neuhaus, Andrew G. Ditderich, Sullivan & Cromwell LLP, 125 Broad Street, New York, NY 10004, Carl N. Kunz, III, Lewis H. Lazarus, Morris James LLP, 500 Delaware Avenue, Suite 1500, Wilmington, DE 19801, Counsel for Amicus Appellants Blackrock Financial Management Inc.; Contrarian Capital Management LLC

Before: AMBRO, GREENAWAY, JR., and SCIRICA, Circuit Judges

OPINION OF THE COURT

AMBRO, Circuit Judge Crystallex International Corp., a Canadian gold mining company, invested hundreds of millions of dollars to develop gold deposits in the Bolivarian Republic of Venezuela. In 2011, Venezuela expropriated those deposits and transferred them to its state-owned oil company, Petróleos de Venezuela, S.A. ("PDVSA"). To seek redress, Crystallex invoked a bilateral investment treaty between Canada and Venezuela to file for arbitration before the International Centre for Settlement of Investment Disputes. The arbitration took place in Washington, D.C., and Crystallex won; the arbitration panel awarded it $1.2 billion plus interest for Venezuela’s expropriation of its investment. The United States District Court for the District of Columbia confirmed that award and issued a $1.4 billion federal judgment. Now Crystallex is trying to collect.

Unable to identify Venezuelan-held commercial assets in the United States that it can lawfully seize, Crystallex went after U.S.-based assets of PDVSA. Specifically, it sought to attach PDVSA’s shares in Petróleos de Venezuela Holding, Inc. ("PDVH"), its wholly owned U.S. subsidiary. PDVH is the holding company for CITGO Holding, Inc., which in turn owns CITGO Petroleum Corp. ("CITGO"), a Delaware Corporation headquartered in Texas (though best known for the CITGO sign outside Fenway Park in Boston).

This attachment suit is governed by the Foreign Sovereign Immunities Act of 1976, 28 U.S.C. §§ 1602 – 1611 (the "Sovereign Immunities Act"). Under federal common law first recognized by the Supreme Court in First National City Bank v. Banco Para El Comercio Exterior de Cuba ("Bancec "), 462 U.S. 611, 103 S.Ct. 2591, 77 L.Ed.2d 46 (1983), a judgment creditor of a foreign sovereign may look to the sovereign’s instrumentality for satisfaction when it is "so extensively controlled by its owner that a relationship of principal and agent is created." Id. at 629, 103 S.Ct. 2591.

Interpreting Bancec , the District Court, per Chief Judge Stark, concluded that Venezuela’s control over PDVSA was sufficient to allow Crystallex to attach PDVSA’s shares of PDVH in satisfaction of its judgment against the country.

PDVSA and Venezuela, along with PDVSA’s third-party bondholders as amici (the "Bondholders"), challenge this ruling.

Venezuela and the Bondholders do not substantially contest the District Court’s finding that it extensively controlled PDVSA. Rather, they raise various jurisdictional and equitable objections to the attachment. Likewise, PDVSA primarily contends that its tangential role in the dispute precludes execution against its assets under Bancec irrespective of the control Venezuela exerts over it.

We affirm the District Court’s order granting the writ of attachment and remand for further proceedings consistent with this opinion.¹

I. Background

A. Factual background

In 2002, Crystallex contracted with Corporación Venezolana de Guayanaan, an organ of the Venezuelan government, for the right to develop and extract exclusively for 20 years the gold deposits at Las Cristinas, Venezuela. See Crystallex Int’l Corp. v. Bolivarian Republic of Venezuela ("D.C. Crystallex I "), 244 F. Supp. 3d 100, 105–06 (D.D.C. 2017). The deposits are among the world’s largest. Per the contract, Crystallex spent hundreds of millions of dollars developing the Las Cristinas site. Id. at 106. It also performed various other obligations under the contract. Id.

In 2011, Venezuela nationalized its gold mines and seized the Las Cristinas works without providing compensation. As Crystallex asserts and PDVSA does not dispute, Venezuela then gave the mining rights at Las Cristinas to PDVSA for no consideration, and PDVSA subsequently "sold to the Venezuelan Central Bank 40% of its shares in the affiliate that was created to exercise those mining rights." J.A. 1194.

Later that year, Crystallex filed for arbitration under a bilateral investment treaty between Canada and Venezuela before the International Centre for Settlement of Investment Disputes. As noted earlier, the arbitration took place in Washington, D.C., and Crystallex won an arbitration award of $1.2 billion plus interest.

Crystallex had its award. Now it had to collect.

B. Crystallex’s collection efforts

1. Confirmation proceedings in the District of Columbia

Crystallex filed an action to confirm its award in the U.S. District Court for the District of Columbia. It properly served Venezuela, who appeared to defend it. The Court confirmed the award and entered a federal judgment in favor of Crystallex. D.C. Crystallex I , 244 F. Supp. 3d at 122–23. After Venezuela failed to satisfy the judgment within 30 days, the Court ruled that Crystallex could execute on it. Crystallex Int’l Corp. v. Bolivarian Republic of Venezuela , No. CV 16-0661 (RC), 2017 WL 6349729, at *1 (D.D.C. June 9, 2017). However, the Court expressly declined to address whether Crystallex could attach assets held by PDVSA and its subsidiaries. Id. at *2. Venezuela appealed the ruling, and the D.C. Circuit affirmed it. Crystallex Int’l Corp. v. Bolivarian Republic of Venezuela , 760 Fed.Appx. 1, 2–3 (D.C. Cir. 2019).

2. Delaware Uniform Fraudulent Transfer Act proceedings

While arbitration was pending and then after the award was announced, Crystallex brought suits against CITGO, CITGO Holding, PDVH, and PDVSA in the Delaware District Court. See Crystallex Int’l Corp. v. PDV Holding, Inc. (1:15-CV-1082); Crystallex Int’l Corp. v. PDV Holding, Inc. (1:16-CV-1007). It claimed that Venezuela refused to pay its arbitration award and "thwart[ed] enforcement" by transferring its assets among several entities—PDVSA, PDVH, and CITGO— allegedly in violation of the Delaware Uniform Fraudulent Transfer Act, 6 Del. C. §§ 1301 –11. Crystallex Int’l Corp. v. Petróleos de Venezuela, S.A. , 879 F.3d 79, 82 (3d Cir. 2018). The Court denied PDVH’s motion to dismiss, but we reversed and held that a transfer from a non-debtor could not be a "fraudulent transfer" under the Act. Id. at 81 ("While we do not condone the debtor’s and the transferor’s actions, we must conclude that Crystallex has failed to state a claim under [the Act]."). That panel noted explicitly but reserved judgment on the question now before us—whether PDVSA could be liable for the arbitration award as an "alter ego" of Venezuela. Id. at 84 n.7.

3. Proceedings in this appeal

While the award-confirmation appeal was pending in the D.C. Circuit, Crystallex followed up its judgment by filing an attachment action against Venezuela in the Delaware District Court. Under Federal Rule of Civil Procedure 69(a), Crystallex attempted to attach PDVH shares owned by PDVSA. That rule provides: "A money judgment is enforced by a writ of execution, unless the court directs otherwise. The procedure on execution—and in proceedings supplementary to and in aid of judgment or execution—must accord with the procedure of the state where the court is located," here Delaware, "but a federal statute governs to the extent it applies." Delaware law permits a judgment creditor to obtain a writ of attachment (known by its Latin name, fieri facias , or simply fi . fa. ) over various forms of property belonging to the debtor, including its shares in a Delaware corporation. See 10 Del. C. § 5031 ; 8 Del. C. § 324(a).

Though not named in the attachment proceeding, PDVSA intervened in the District Court. It moved to dismiss the proceeding on the ground of sovereign immunity under the Sovereign Immunities Act.

After several rounds of briefing and hearings, the District Court concluded that PDVSA was Venezuela’s "alter ego" under Bancec . Crystallex Int’l Corp. v. Bolivarian Republic of Venezuela ("Del. Crystallex "), 333 F. Supp. 3d 380, 414 (D. Del. 2018). The Court held (1) it had jurisdiction to order attachment against PDVSA’s U.S.-based commercial assets, and (2) Crystallex could attach PDVSA’s shares of PDVH to satisfy the judgment against Venezuela. A follow-up order, dated August 23, 2018, directed the Clerk to...