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

• Decision Date: 03 January 2018
• Docket Number: Nos. 16-4012 & 17-1439,s. 16-4012 & 17-1439
• Citation: 879 F.3d 79
• Parties: CRYSTALLEX INTERNATIONAL CORP. v. PETRÓLEOS DE VENEZUELA, S.A. ; PDV Holding, Inc.; and CITGO Holding, Inc., f/k/a PDV America, Inc. PDV Holding Inc., Appellant
• Court: U.S. Court of Appeals — Third Circuit

879 F.3d 79

CRYSTALLEX INTERNATIONAL CORP.

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

Nos. 16-4012 & 17-1439

United States Court of Appeals, Third Circuit.

Argued September 12, 2017

Opinion filed: January 3, 2018

[ARGUED], Nathan P. Eimer, Lisa S. Meyer, Elmer Stahl LLP, 224 South Michigan Avenue, Suite 1100, Chicago, IL 60604, Kenneth J. Nachbar, Morris, Nichols, Arsht & Tunnell LLP, 1201 North Market Street, Wilmington, DE 19801, Counsel for Appellant PDV Holding, Inc.

[ARGUED], Robert L. Weigel, Jason W. Myatt, Rahim Moloo, Gibson, Dunn & Crutcher LLP, 200 Park Avenue, 47th Floor, New York, NY 10166, Raymond J. DiCamillo, Jeffrey L. Moyer, Travis S. Hunter, Richards, Layton & Finger, P.A., One Rodney Square, 920 North King Street, Wilmington, DE 19801, Counsel for Appellee Crystallex International Corp.

Before: VANASKIE, RENDELL, and FUENTES, Circuit Judges

OPINION

RENDELL, Circuit Judge:

At first glance this case appears exceedingly complex—with its tangle of debtors, creditors, parents, subsidiaries, alter egos, and complex international corporate transactions. But when one cuts through this morass, the question at the center of this case is quite simple: can a transfer by a non-debtor be a "fraudulent transfer" under the Delaware Uniform Fraudulent Transfer Act ("DUFTA")? The role of a federal court in this situation is to predict how the Supreme Court of Delaware would answer this question. We are constrained to conclude that a transfer by a non-debtor cannot be a "fraudulent transfer" under DUFTA. 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 DUFTA.¹

I. Background

A. The Parties and Related Entities

Appellant Crystallex International Corp. ("Crystallex"), a Canadian gold producer, owned the rights to Las Cristinas gold reserve in the Bolivarian Republic of Venezuela ("Venezuela"). In 2011, Venezuela nationalized its gold mines and expropriated Crystallex's rights to Las Cristinas. Crystallex subsequently initiated an arbitration proceeding against Venezuela before the World Bank. It claimed that, by expropriating Crystallex's rights to Las Cristinas, Venezuela had violated a bilateral investment treaty with Canada. Venezuela was the sole defendant in the arbitration proceeding and the only entity claimed to be obligated to Crystallex for any resulting judgment. The arbitrators found that Venezuela had breached the treaty and awarded Crystallex $1.202 billion. Crystallex Int'l Corp. v. Bolivarian Rep. of Venezuela , 244 F.Supp.3d 100, 107 (D.D.C. 2017). The District Court for the District of Columbia confirmed the arbitration award, in accordance with the Federal Arbitration Act, 9 U.S.C.A. § 1, et seq. Crystallex , 244 F.Supp.3d at 122.

Venezuela owns 100% of the shares of Petróleos de Venezuela, S.A. ("PDVSA"). PDVSA is alleged to be Venezuela's alter ego, a "national oil company through which Venezuela implements government policies at home and abroad." A31. PDVSA owns 100% of PDV Holding, Inc. ("PDVH"), which in turn owns 100% of CITGO Holding, Inc. ("CITGO Holding"). CITGO Holding owns 100% of CITGO Petroleum Corporation ("CITGO Petroleum"). PDVSA is a foreign corporation based in Venezuela. PDVH, CITGO Holding, and CITGO Petroleum are Delaware corporations.

B. Litigation Against PDVH

Crystallex brought this suit against PDVH² in the District of Delaware, alleging that PDVH had violated DUFTA's prohibition against fraudulent transfers.³ According to Crystallex, Venezuela realized that it was "facing billions of dollars in liability from the numerous arbitration proceedings arising from its repeated expropriation of foreign investments," including the Crystallex proceeding. A30. "On numerous occasions, Venezuelan government officials stated publicly that Venezuela would refuse to pay any anticipated arbitral award against it and would proactively thwart efforts to enforce such awards." A40.

"As part of [its] plan to thwart enforcement," Venezuela orchestrated a series of debt offerings and asset transfers among PDVSA, PDVH, CITGO Holding, and CITGO Petroleum. A30. Specifically, Venezuela sought to "monetize its interests in CITGO [Petroleum]," its largest United States-based asset, and repatriate the proceeds. A40. To this end, Venezuela "enlisted its alter ego PDVSA," who in turn "directed its wholly-owned subsidiary PDVH to direct its wholly-owned subsidiary CITGO Holding to issue $2.8 billion in debt."⁴ A31. CITGO Holding, in turn, transferred the proceeds from the issuance of debt to its parent PDVH as a shareholder "dividend." A31. PDVH then declared a dividend of the same amount to its parent PDVSA, a Venezuelan corporation and the alleged alter ego of Venezuela, thereby repatriating the money to Venezuela and shielding it from an enforcement action in the United States. Id.

These transactions formed the basis of Crystallex's DUFTA claim against PDVH. As a result of these transfers, "nearly $2.8 billion in 'dividends' ended up in the hands of PDVSA (and therefore Venezuela) outside the United States where they could not be reached by Venezuela's creditors." A43. Under DUFTA,

A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation ... [w]ith actual intent to hinder, delay or defraud any creditor of the debtor. 6 Del. C. § 1304.

C. District Court Denies PDVH's Motion to Dismiss

PDVH moved to dismiss the complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). It argued that Crystallex had failed to state a claim under DUFTA because the allegedly fraudulent transfer was not made "by a debtor"—that is, by Venezuela—as required by the statute. 6 Del. C. § 1304(a).⁵ The District Court denied PDVH's motion to dismiss, concluding that there had indeed been a transfer "by a debtor." Crystallex Int'l Corp. v. Petroleos de Venezuela, S.A. , 213 F.Supp.3d 683 (D. Del. 2016).

In reaching this conclusion, the District Court first correctly stated that Crystallex's only potential debtors were Venezuela and its alleged alter ego PDVSA. Crystallex , 213 F.Supp.3d at 691. Therefore, "in the narrowest sense of the term," none of the transfers were "directly undertaken 'by' the 'debtor.' " Id. Nonetheless, the District Court found that PDVH—a "non-debtor transferor"—could be liable under DUFTA for its dividend transfer to PDVSA. Id. at 693. In support of this conclusion, the District Court noted that "DUFTA includes within its ambit 'indirect ... mode(s) ... of disposing of or parting with an asset or an interest in an asset.' " Id. at 691 (quoting 6 Del. C. § 1301(12) ). It also cited Merriam–Webster's definition of the word "by," which includes "through the agency or instrumentality of" and "on behalf of." Id. Given the alleged "extensive, if not dominating, involvement" of the debtor Venezuela, the PDVH transfer was executed by an "instrumentality" of the debtor or on its "behalf." Id. Therefore, the District Court reasoned, the transfer from PDVH to PDVSA was "a transfer made in every meaningful sense 'by a debtor,' " despite the fact that PDVH was not in fact a debtor. Id. at 691–92. Finally, the District Court noted that its holding was in line with the purpose of DUFTA, which "broadly provides for the application of 'the principles of law and equity.' " Id. at 692.

PDVH filed a motion to certify the District Court's Order for interlocutory review pursuant to 28 U.S.C. § 1292(b), arguing that the District Court incorrectly concluded that DUFTA extends to transfers by non-debtors. After briefing and oral argument, the District Court granted PDVH's motion, and we accepted PDVH's petition for permissive review.

II. Analysis⁶

While we acknowledge the appeal to equity that the District Court and our dissenting colleague have expressed, we are compelled to conclude that we must reverse the District Court's Order denying PDVH's motion to dismiss, because transfers by non-debtors are not fraudulent transfers under DUFTA as it has been interpreted by the Delaware courts. To survive a motion to dismiss, a plaintiff must allege each "required element" of his claim. Phillips v. Cty. of Allegheny , 515 F.3d 224, 234–35 (3d Cir. 2008). The DUFTA statute reads, in relevant part:

A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation ... [w]ith actual intent to hinder, delay or defraud any creditor of the debtor. 6 Del. C. § 1304 (emphasis added).

In order to withstand a motion to dismiss a claim under DUFTA, therefore, Crystallex must successfully plead three things: (1) a transfer, (2) by a debtor, (3) with actual intent to hinder, delay, or defraud a creditor. This case turns on the meaning of the second element, "by a debtor."

Based on the decisions of the Delaware Chancery Court and other Delaware state law principles, we conclude that the transfer by non-debtor PDVH to PSVHA was not a fraudulent transfer under DUFTA. "Our role in diversity cases is to apply state law." Sheridan v. NGK Metals , 609 F.3d 239, 254 (3d Cir. 2010). "A federal court under Erie is bound to follow state law as announced by the highest state court." Edwards v. HOVENSA, LLC , 497 F.3d 355, 361 (3d Cir. 2007). "[I]f that state's highest court has not provided guidance, we are charged with predicting how that court would resolve the issue." In re Energy Future Holdings Corp. , 842 F.3d 247, 253–54 (3d Cir. 2016). In doing so, we must give "due deference" to the intermediate state courts' rulings. In re Makowka , 754 F.3d 143, 148 (3d Cir. 2014). "This standard places a significant...