Crystallex Int'l Corp. v. Petróleos De Venezuela, S.A.

• Decision Date: 30 September 2016
• Docket Number: Civil Action No. 15-1082-LPS
• Parties: CRYSTALLEX INTERNATIONAL CORP., Plaintiff, v. PETRÓLEOS DE VENEZUELA, S.A. ; PDV Holding, Inc.; and CITGO Holding, Inc., f/k/a PDV America, Inc., Defendants.
• Court: U.S. District Court — District of Delaware

213 F.Supp.3d 683

CRYSTALLEX INTERNATIONAL CORP., Plaintiff,

v.PETRÓLEOS DE VENEZUELA, S.A. ; PDV Holding, Inc.; and CITGO Holding, Inc., f/k/a PDV America, Inc., Defendants.

Civil Action No. 15-1082-LPS

United States District Court, D. Delaware.

Signed September 30, 2016

Raymond J. DiCamillo, Jeffrey L. Moyer, and Travis S. Hunter, RICHARDS, LAYTON & FINGER, PA., Wilmington, Del., Robert L. Weigel, Jason W. Myatt, and Rahim Moloo, GIBSON, DUNN & CRUTCHER LLP, New York, N.Y., Attorneys for Plaintiff Crystallex International Corp.

Kenneth J. Nachbar, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Del., Nathan P. Eimer and Lisa S. Meyer, EIMER STAHL LLP, Chicago, Ill., Attorneys for Defendants PDV Holding, Inc. and CITGO Holding, Inc.

MEMORANDUM OPINION

STARK, U.S. District Judge:

I. BACKGROUND

This action is rooted in a dispute over the Bolivarian Republic of Venezuela's alleged unlawful expropriation of certain mining rights and investments belonging to a Canadian company, Plaintiff Crystallex International Corporation ("Crystallex"). Plaintiff alleges that Venezuela, aware of the possibility of a large award against it in an ensuing World Bank arbitration, orchestrated a scheme to monetize its American assets and pull the proceeds out of the United States, in order to evade potential arbitration creditors. (See generally D.I. 1)

Defendants PDV Holding, Inc. ("PDVH") and CITGO Holding, Inc. ("CITGO Holding") (together, "CITGO Defendants"), both Delaware corporations, are wholly-owned subsidiaries of Petróleos de Venezuela, S.A. ("Petróleos"). Plaintiff contends that Petróleos, a state-owned Venezuelan company, is an alter ego of the Venezuelan government. Plaintiff alleges that Venezuela and Petróleos caused CITGO Holding to issue $2.8 billion in debt, the proceeds from which were later paid to its parent company, PDVH, as a dividend. PDVH then transferred this sum further up the ladder and out of the U.S. by issuing a dividend in the same amount to its own parent, Petróleos. In Plaintiff's view, this series of events (the "Transaction(s)") was carried out in order to repatriate funds to Venezuela, where they would be "safe from execution by creditors." (D.I. 14 at 6; see generally D.I. 1)

Plaintiff filed a Complaint (D.I. 1) with this Court asserting claims based on the Delaware Uniform Fraudulent Transfer Act ("DUFTA"), 6 Del. C. § 1301 et seq. , and civil conspiracy. Plaintiff seeks a judgment ordering the return of $2.8 billion in Transaction proceeds to the United States, awarding money damages against Defendants in the alternative, and enjoining the further transfer of remaining funds or assets out of the United States.

CITGO Defendants moved to dismiss the Complaint for failure to state a claim. (D.I. 8) The parties have completed briefing (see D.I. 9, 14, 15, 23¹ ) and the Court heard oral argument on July 12, 2016. (See D.I. 29 ("Tr."))

II. LEGAL STANDARDS

Evaluating a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) requires the Court to accept as true all material allegations of the complaint. See Spruill v. Gillis , 372 F.3d 218, 223 (3d Cir. 2004). "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." In re Burlington Coat Factory Sec. Litig. , 114 F.3d 1410, 1420 (3d Cir. 1997) (internal quotation marks omitted). Thus, the Court may grant such a motion to dismiss only if, after "accepting all well-pleaded allegations in the complaint as true, and viewing them in the light most favorable to plaintiff, plaintiff is not entitled to relief." Maio v. Aetna, Inc. , 221 F.3d 472, 482 (3d Cir. 2000) (internal quotation marks omitted).

However, "[t]o survive a motion to dismiss, a civil plaintiff must allege facts that 'raise a right to relief above the speculative level on the assumption that the allegations in the complaint are true (even if doubtful in fact)." Victaulic Co. v. Tieman , 499 F.3d 227, 234 (3d Cir. 2007) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). A claim is facially plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). At bottom, "[t]he complaint must state enough facts to raise a reasonable expectation that discovery will reveal evidence of [each] necessary element" of a plaintiffs claim.

Wilkerson v. New Media Tech. Charter Sch. Inc. , 522 F.3d 315, 321 (3d Cir. 2008) (internal quotation marks omitted).

The Court is not obligated to accept as true "bald assertions," Morse v. Lower Merion Sch. Dist. , 132 F.3d 902, 906 (3d Cir. 1997) (internal quotation marks omitted), "unsupported conclusions and unwarranted inferences," Schuylkill Energy Res., Inc. v. Pennsylvania Power & Light Co. , 113 F.3d 405, 417 (3d Cir. 1997), or allegations that are "self-evidently false," Nami v. Fauver , 82 F.3d 63, 69 (3d Cir. 1996).

III. DISCUSSION

CITGO Defendants contend that Plaintiff's DUFTA claim fails as a matter of law and that a claim for civil conspiracy cannot be built on DUFTA. They further contend that Plaintiff's claims are barred by the Foreign Sovereign Immunities Act ("FSIA") as well as the act of state doctrine. For the reasons given below, CITGO Defendants' motion will be denied in part and granted in part.

A. Delaware Uniform Fraudulent Transfer Act

DUFTA provides in relevant part that "[a] transfer made ... by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made ... if the debtor made the transfer or incurred the obligation [w]ith actual intent to hinder ... any creditor of the debtor." 6 Del. C. § 1304(a)(1). CITGO Defendants contend that Plaintiff's DUFTA claim suffers from two fatal flaws: (i) there was no "transfer" made under the statute, because the Transactions did not involve movement of "property of a debtor;" and (ii) there was no relevant transfer made "by a debtor."² See 6 Del. C. §§ 1301, 1304.

1. Existence of a "Transfer"

A DUFTA "transfer" includes "every mode, direct or indirect, ... of disposing of or parting with an asset or an interest in an asset." Id. § 1301(12). An "asset" is defined broadly as a debtor's "property," and "property" is in turn identified as "anything that may be the subject of ownership." Id. § 1301(2), (10). In short, in order for a fraudulent transfer to exist under the statute, there must be some transfer of debtor property involved.

CITGO Defendants emphasize that, although they are wholly-owned direct and indirect subsidiaries of Petróleos, basic tenets of corporate law dictate that Petróleos has no ownership interest in CITGO Defendants' assets. As CITGO Defendants note, "[a] corporate parent which owns the shares of a subsidiary does not, for that reason alone, own or have legal title to the assets of the subsidiary," and "[t]he fact that the shareholder is a foreign state does not change the analysis." Dole Food Co. v. Patrickson , 538 U.S. 468, 475, 123 S.Ct. 1655, 155 L.Ed.2d 643 (2003) ; see also Scholes v. Lehmann , 56 F.3d 750, 754 (7th Cir. 1995) (stating sole shareholder's corporate "robotic tools" are "nevertheless in the eyes of the law separate legal entities with rights and duties"). As neither Venezuela nor Petróleos has any ownership interest in CITGO Defendants' assets, it follows, in CITGO Defendants' view, that no "transfer" of debtor property has occurred.

Plaintiff, urging the Court to look at the "economic reality" of the Transactions, counters that the proceeds of the Transactions were substantively Venezuelan property at all relevant times, and that the Transactions merely changed the "form" of these assets. (D.I. 14 at 11-13) Plaintiff's argument, at its root, is that Petróleos's extraction of value from its wholly-owned subsidiaries diminishes the value of Petróleos's equity interest in those subsidiaries and qualifies as a "transfer" of a debtor's property under DUFTA. (D.I. 14 at 13)

In the absence of specific guidance from the Supreme Court of Delaware, this Court's role is to "predict how that tribunal would rule" on this issue of state law. In re Makowka , 754 F.3d 143, 148 (3d Cir. 2014) (internal quotation marks omitted). Decisions of Delaware's lower courts are not controlling but are given "due deference." Id.

CITGO Defendants cite to the Delaware Court of Chancery's recent decision in Spring Real Estate, LLC v. Echo/RT Holdings, LLC , 2016 WL 769586 (Del. Ch. Feb. 18, 2016). That case involved a Chapter 7 bankruptcy trustee's efforts to unwind a subsidiary's transfer of assets to a third party. The court held that transactions involving a subsidiary's assets, even if they reduce the value of the parent's stock in the subsidiary, are not transfers of the parent's property. Id. at *3 ("[A]n act of a subsidiary that decreases the value of the shares of the subsidiary owned by its parent does not confer to a trustee of the parent standing to challenge the subsidiary's transfer.").³

Plaintiff responds in part by citing to Roseton OL, LLC v. Dynegy Holdings Inc. , 2011 WL 3275965 (Del. Ch. July 29, 2011). In Roseton , the Court of Chancery was confronted with a dispute in which a lessor plaintiff sought to enjoin a series of transactions carried out by a guarantor. The lessor and guarantor had entered into an agreement that restrained the guarantor defendant's ability to dispose of substantially all of its assets. The guarantor wished to carry out a reorganization that would include transfers of direct subsidiary equity and substantial assets owned by indirect subsidiaries. Plaintiff suggests that the reason Roseton found "there was no fraudulent transfer because the transaction actually improved the debtor's ability to meet its financial obligations." (D.I. 14 at 14)

Contrary to Plaintiff's view, Roseton is another guidepost...