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Crystallex International Corp. v. Bolivarian Republic of Venezuela Petroleos De Venezuela, S.A.

United States Court of Appeals, Third Circuit

July 29, 2019


          Argued April 15, 2019

          Appeal from the United States District Court for the District of Delaware (D.C. Civil Action No. 1-17-mc-00151) District Judge: Honorable Leonard P. Stark

         On Petition for Writ of Mandamus from the United States District Court for the District of Delaware (Related to D.C. Civil Action No. 1-17-mc-00151)

          Samuel Taylor Hirzel, II Heyman Enerio Gattuso & Hirzel Kevin A. Meehan Julia Mosse Juan O. Perla Joseph D. Pizzurro (Argued) Curtis Mallet-Prevost Colt & Mosle Counsel for Intervenor-Appellant

          Miguel A. Estrada (Argued) Matthew S. Rozen Lucas C. Townsend Gibson Dunn & Crutcher Rahim Moloo Jason W. Myatt Robert L. Weigel Gibson Dunn & Crutcher Travis S. Hunter Jeffrey L. Moyer Raymond J. DiCamillo Richards Layton & Finger Counsel for Appellee

          E. Whitney Debevoise, II Stephen K. Wirth Samuel F. Callahn Arnold & Porter Kaye Scholer LLP Paul J. Fishman Arnold & Porter Kaye Scholer LLP Kent A. Yalowitz (Argued) Arnold & Porter Kaye Scholer LLP Counsel for Intervenor-Appellant Bolivarian Republic of Venezuela

          Amanda F. Davidoff (Argued) Sullivan & Cromwell LLP Sergio Galvis Joseph E. Neuhaus Andrew G. Ditderich Sullivan & Cromwell LLP Carl N. Kunz, III Lewis H. Lazarus Morris James LLP Counsel for Amicus Appellants Blackrock Financial Management Inc.; Contrarian Capital Management LLC

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



         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 (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.

         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, No. 17-7068, 2019 WL 668270, at *2 (D.C. Cir. Feb. 14, 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 issue the writ and have it served in furtherance of an execution through a public sale of PDVH stock. PDVSA appealed both of these orders (docketed in our Court as Nos. 18-2797 & 18-3124), and also filed a petition for a writ of mandamus (No. 18-2889) to prevent completion of the sale during this appeal. We consolidated all three appeals for oral argument and resolution.

         While they were pending before us, Venezuela moved to intervene and to stay these appeals for 120 days so that it could further evaluate its legal position. By order dated March 20, 2019, we granted Venezuela's motion to intervene and participate in oral argument. We also permitted it to file supplemental briefing. We did not rule on its motion to stay but stated we would consider that motion at oral argument. At that argument, Venezuela chose to forgo further pursuit of a stay. Oral Arg. Tr. at 180:1-7 (Apr. 15, 2019).

         C. Relationship between Venezuela and PDVSA

         The District Court's primary ruling was that PDVSA is Venezuela's "alter ego" under Bancec. Numerous facts are relevant to that determination, as discussed in more detail below. In general, it is undisputed the relationship between PDVSA and Venezuela has tightened significantly since 2002, when then-President Hugo Chávez fired roughly 40% of the PDVSA workforce for protesting increased Venezuelan control over the company. Since then PDVSA's presidents have generally been senior members of the Venezuelan president's cabinet, including members of the Venezuelan military. Venezuela has also passed various laws that require PDVSA to fund both government initiatives and discretionary government funds. Venezuela controls PDVSA's domestic oil production, sales, and pricing. It also requires that PDVSA supply Venezuela and its strategic allies with oil at below-market rates.

         D. The Bondholders' interests

         Also relevant to this appeal are the various bonds that PDVSA has issued over the past decade or so. Several holders of PDVSA bonds due to mature in 2020 moved to intervene as amici in this appeal. They include BlackRock Financial Management, Inc. and Contrarian Capital Management, LLC. Their bonds have an outstanding face value of approximately $1.684 billion and are secured by a 50.1 % collateral interest in PDVH's shares of Citgo Holding, Inc. as security for the bonds. According to the Bondholders, PDVSA has also issued roughly $25 billion in bonds to U.S. and non-U.S. capital markets investors.

         E. U.S. policy towards Venezuela and PDVSA

         President Nicolas Maduro became the President of Venezuela in 2013. This year Juan Guaidó, Venezuelan's opposition leader and president of the National Assembly, has made efforts to oust Maduro and take control of the Venezuelan government. The United States Government recognized Guaidó as the rightful leader of Venezuela on January 23, 2019.[2]

         Five days later, as part of a broader effort to convince the Maduro regime to cede power, the Office of Foreign Assets Control of the U.S. Department of the Treasury ("OFAC") imposed new sanctions against PDVSA by adding it to the List of Specially Designated Nationals and Blocked Persons. As discussed further below, the U.S. Government has also promulgated several executive orders limiting transfer of Venezuelan or PDVSA-controlled assets in the United States.

         II. Jurisdiction and standard of review

         The parties dispute whether the District Court had jurisdiction to attach PDVSA's property to satisfy the judgment against Venezuela. The Court held that it had both ancillary jurisdiction to enforce the judgment and an independent basis for jurisdiction per 28 U.S.C. § 1330 and 28 U.S.C. § 1605(a)(6) because PDVSA was Venezuela's alter ego. Section 1330 grants federal-court jurisdiction over "any nonjury civil action" against a foreign sovereign, so long as the sovereign is properly served under 28 U.S.C. § 1608 and is not entitled to sovereign immunity. See 28 U.S.C. § 1330(a)-(b). Under 28 U.S.C. § 1604, foreign sovereigns and their instrumentalities are entitled to sovereign immunity in U.S. courts except as provided in 28 U.S.C. §§ 1605-1607. Section 1605(a)(6), the immunity exception applied by the District Court in this case, provides an exception to immunity for actions seeking to compel arbitration pursuant to an agreement or to enforce arbitration awards that meet certain criteria.

         We have jurisdiction to review the District Court's denial of PDVSA's motion to dismiss as an immune sovereign and the grant of Crystallex's motion for a writ of attachment under Federal Rule of Civil Procedure 69. We have jurisdiction to review the former under the collateral order doctrine. See Fed. Ins. Co. v. Richard I. Rubin & Co., 12 F.3d 1270, 1279-82 (3d Cir. 1993).[3] Our jurisdiction exists for the latter because it amounted to a final judgment under 28 U.S.C. § 1291 by leaving the District Court "nothing left to do but execute[.]" Bryan v. Erie Cnty. Office of Children and Youth, 752 F.3d 316, 321 (3d Cir. 2014).

         We review questions of law de novo and findings of fact for clear error, and we review de novo the ultimate determination whether to treat PDVSA as Venezuela's alter ego. See Clientron Corp. v. Devon IT, Inc., 894 F.3d 568, 575 (3d Cir. 2018).

         III. Analysis

         The parties raise a host of issues. We group them into three core inquiries: (A) whether the Bancec "alter ego" doctrine determines the District Court's jurisdiction to attach PDVSA's assets (it does), (B) the scope of the Bancec inquiry and whether its factors are satisfied here (they are), and (C) whether PDVSA's ...

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