Crystallex International Corp. v. Petroleos de Venezuela, S.A. et al

Filing 34

MEMORANDUM OPINION re 8 motion to dismiss. Signed by Judge Leonard P. Stark on 9/30/16. (ntl)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

CRYSTALLEX INTERNATIONAL CORP.,
Plaintiff,
v.

Civil Action No. 15-1082-LPS

PETROLEOS DE VENEZUELA, S.A.; PDV
HOLDING, INC. ; and CITGO HOLDING, INC .,
f/k/a PDV AMERICA, INC.,
Defendants.

Raymond J. Di Camillo, Jeffrey L. Moyer, and Travis S. Hunter, RICHARDS, LAYTON &
FINGER, P.A. , 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

September 30, 2016
Wilmington, Delaware

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
Petr6leos de Venezuela, S.A. ("Petr6leos"). Plaintiff contends that Petr6leos, a state-owned
Venezuelan company, is an alter ego of the Venezuelan government. Plaintiff alleges that
Venezuela and Petr6leos 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, Petr6leos. 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

1

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, 23 1) and the Court heard oral argument
on July 12, 2016. (See D.I. 29 ("Tr."))

II.

LEGAL STAND ARDS
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 2 18, 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 4 72, 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 At!. Corp. v. Twombly, 550 U.S. 544, 555 (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

1

At oral argument the Court granted Plaintiffs motion for leave to file a sur-reply brief.
(See D.I. 18, 22)
2

(2009). At bottoni, "[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 Plaintiffs DUFTA claim fails as a matter oflaw and

that a claim for civil conspiracy cannot be built on DUFTA. They further contend that Plaintiffs
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)(l). CITGO Defendants contend that Plaintiffs 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

3

transfer made "by a debtor." 2 See 6 Del. C. §§ 1301, 1304.
1.

Existence of a "Tran sfer"

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 Petr6leos, basic tenets of corporate law dictate that Petr6leos 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 (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 Petr6leos 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)

2

Venezuela is not a party to this action. In deciding the motion, the Court accepts as true
Plaintiff s allegation that Petr6leos is Venezuela's alter ego (see D.I. 1at18-33) and is,
therefore, an alleged "debtor .. . liable on a claim." See Del. C. § 1301(6).
4

Plaintiff's argument, at its root, is that Petr6leos' s extraction of value from its wholly-owned
subsidiaries diminishes the value of Petr6leos'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

3

Although a DUFTA claim was involved in the litigation, the Spring Real Estate court
was focused instead on application of the bankruptcy code. See 2016 WL 769586, at *3
("Property of the debtor is best understood as that property that would have been part of the
estate had it not been transferred before the commencement of bankruptcy proceedings.")
(internal quotation marks omitted). This does not, however, diminish the case ' s persuasiveness.
The bankruptcy code ' s provisions are similar to - and perhaps even broader than- the DUFTA
provisions at issue in this case. Compare 11 U. S.C. § 541(a)(l) (estate comprises "all legal or
equitable interests of the debtor," with certain exceptions) with 6 Del C. § 1301(10) (debtor's
property is "anything that may be the subject of ownership.").
5

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 suggesting that a transfer of
embedded "value" - rather than of directly-held assets - is not a "transfer" of an "asset" on which
a DUFTA claim may stand.4 Roseton held that the plaintiff likely5 had not alleged a "necessary
predicate transfer" on which a DUFTA claim could be based. Id. at *15. This conclusion rested
on a finding that "Plaintiffs ' allegations as to the [subsidiaries' assets] at issue do not involve the
' transfer' of any ' asset' of [the parent company defendant] because [the defendant] does not
directly own any of [its subsidiaries' assets] subject to transfer in the Proposed Transaction," but
rather "owns equity interests in multiple subsidiaries that directly own the physical assets." Id.
The court' s attention to the value embedded in those equity interests was limited to a separate
analysis underlying its observation that, even if a "predicate transfer" was alleged, the plaintiff
was unlikely to succeed in showing lack of reasonably equivalent value in the proposed
transactions. See id. at *15-16.

4

The footnote Plaintiff cites to is no more than a recognition that the Roseton defendant' s
movement of directly-owned equity could be a DUFTA "transfer." This is not in dispute.
5

The Roseton court' s decision was an application of "something . .. akin to the
preliminary injunction standard." 2011 WL 3275965, at *8.
6

The Court finds these cases persuasive and useful in predicting how the Supreme Court of
Delaware would rule if confronted with the issue presented here. "Delaware public policy does
not lightly disregard the separate legal existence of corporations." Spring Real Estate, 2016 WL
769586, at *3 n.35 (internal quotation marks omitted). "Persuading a Delaware court to
disregard the corporate entity is a difficult task." Wallace ex rel. Cencom Cable Income Partners
IL Inc., L.P. v. Wood, 752 A.2d 1175, 1183 (Del. Ch. 1999) (internal quotation marks omitted).

Fraudulent transfer laws exist to preserve a creditor' s ability to satisfy claims. It follows
that a debtor' s "property" is therefore best understood as that which would have been available to
satisfy the creditor' s claim but-for the fraudulent transfer, according due respect to the corporate
form . See Buechner v. Farbenfabriken Bay er Aktiengesellschaft, 154 A.2d 684, 687 (Del. 1959)
("A creditor of the parent corporation may not, in the absence of fraud, disregard the separate
existence of a subsidiary corporation and look directly to specific assets of a subsidiary for
satisfaction of his claim against the parent."); United States v. Patras, 544 F. App' x 137, 144 (3d
Cir. 2013) (explaining that New Jersey fraudulent transfer law "focuses on the transfer of
property that would otherwise be available to creditors").6
For as long as the Transactions' proceeds were assets of CITGO Defendants rather than

6

Plaintiff quotes Mitchell v. Lyons Professional Services, Inc., 109 F. Supp. 3d 555,
565 (E.D.N.Y. 2015), for the proposition that "fraudulent transfer laws bring within them not
only transfers of property, but any transaction done with the intent to ' hinder' or ' delay'
creditors," including transfers that diminish the value of a property interest. (D.I. 14 at 8) The
Mitchell court applied New York' s fraudulent conveyance law, which differs from DUFTA.
Compare N.Y. Debt. & Cred. Law§ 276 ("Every conveyance made .. . with actual intent . .. to
hinder ... creditors, is fraudulent .. . .") andN.Y. Debt. & Cred. Law§ 270 (defining
"conveyance" broadly as "every payment of money, ... transfer, ... or pledge of tangible or
intangible property") with 6 Del. C. § 1301 (2), (12) ("transfer" requires disposition of "property
of a debtor").
7

Petr6leos, Plaintiff would not have had any right to those funds -unless CITGO Defendants'
corporate forms were disregarded through reverse veil piercing or if CITGO Defendants were
deemed agents of Petr6leos. See Buechner, 154 A.2d at 687. The Complaint does not allege that
CITGO Defendants are alter egos of Venezuela or Petr6leos. (See generally D.I. 1)7 It follows
that Plaintiffs assertion that "the $2.8 billion currently in the possession of Petr6leos and
Venezuela was always the property of the debtor" is incorrect.
Still, the Transactions can be characterized as more than the mere movement of
embedded value or depletion of asset value; they allegedly involve the ultimate extraction of that
value by the "debtor" itself. Plaintiff observes that, for at least some time between PDVH' s
declaration of a dividend and the transfer of that dividend to Petr6leos, "PDVH indisputably had
assets of [Petr6leos] in its possession." (D.I. 14 at 12 n.3) This declared but then as-yet unpaid
dividend might theoretically have been available to satisfy Plaintiffs claim.8 Because the unpaid
dividend was Petr6leos' s property,9 at least some transfer of "property of a debtor" would have

7

Even if the Complaint contained such an allegation, whether Delaware law recognizes
reverse veil piercing is an unsettled question. See Sky Cable, LLC v. Coley, 2016 WL 3926492,
at *13, *18 (W.D. Va. July 18, 2016) (holding that Delaware law would recognize reverse veilpiercing claim even though "Delaware appellate courts have never expressly recognized [it]"); In
re ALT Hotel, LLC, 479 B.R. 781 , 801-03 (Bankr. N.D. Ill. 2012) (collecting cases).
8

The FSIA's impact on this particular point is discussed below.

9

See, e.g., Smith's Estate v. CIR. , 292 F.2d 478 , 479 (3d Cir. 1961) ("[W]henever a
lawful dividend on particular stock is fully declared each stockholder becomes a creditor of the
corporation with a vested right to be paid a specified sum at some future time."); US. Indus., Inc.
v. Anderson, 579 F.2d 1227, 1230 (10th Cir. 1978) ("Dividends which are declared but unpaid
are merely a corporate debt owed to the shareholders and failure to pay such dividends when due
gives the shareholders a Cause of action on the debt."); In re Classic Coach Interiors, Inc. , 290
B.R. 631 , 636 (Bankr. C.D. Ill. 2002) ("By no means is a declared but unpaid dividend an asset
of the corporation, although it is an asset of the shareholders to whom it is owed."). Cf NBC
Universal v. Paxson Commc'ns Corp. , 2005 WL 1038997, at *10 (Del. Ch. Apr. 29, 2005)
8

occurred as part of the Transactions.
CITGO Defendants contend that this "transfer" fails to save Plaintiffs DUFTA claim
because it was not made "by a debtor," and further that the FSIA and act of state doctrine bar the
claim regardless. CITGO Defendants argue that, at the very least, CITGO Holding must be
dismissed if this final dividend is the sole DUFTA "transfer." The Court turns to these
arguments in the following sections.

2.

Whether any Transfer was Made "by a debtor"

DUFTA's plain language requires that the transfer be undertaken "by a debtor." 6 Del. C.
§ 1304(a)(l ). CITGO Defendants correctly point out that, in the narrowest sense of the term,

none of the Transactions at issue, including the final dividend payment, are alleged to have been
directly undertaken "by" the "debtor" (i.e., Venezuela or its alleged alter ego, Petr6leos ).
Petr6leos was a transferee.
Yet DUFTA includes within its ambit "indirect . .. mode(s) .. . of disposing of or parting
with an asset or an interest in an asset." 6 Del. C. § 1301(12). Moreover, "a court must begin
with the statutory language," and courts presume that legislatures express their intent "through
the ordinary meaning of the words" used in that language. Delaware Cty. , Pa. v. Fed. Haus. Fin.

Agency, 747 F.3d 215, 221 (3d Cir. 2014) (internal quotation marks omitted). MerriamWebster' s definitions for the word "by" include "through the agency or instrumentality of' and
"on behalf of." 10 In deciding this motion, the Court must accept as true Plaintiffs allegations of

(characterizing unpaid dividend as corporate liability); 6 Del. C. § 1306(4) ("A transfer is not
made until the debtor has acquired rights in the asset transferred.").
10

Merriam-Webster Online Dictionary, http://www.merriamwebster.com/dictionary/by
(last visited September 29, 2016).
9

Venezuela' s and/or its alter ego's extensive, if not dominating, involvement in the Transactions.
The only reasonable view of the Transactions, as alleged, is of an extraction of funds orchestrated
by and carried-out under orders from Venezuela and/or Petr6leos; that is, a transfer made in
every meaningful sense "by a debtor." On this view, which the Court accepts at this stage of the
proceedings, the Transactions were directly executed by an "instrumentality of' the debtor or on
its "behalf' and, in that respect, "by" the debtor. See id.
The Complaint alleges a transfer of a debtor' s property at the debtor' s behest. It therefore
properly alleges the existence of a fraudulent transfer under DUFTA. See 6 Del. C. § 1304(a).

3.

Proper Defendants

CITGO Defendants note that "there is no debtor-creditor relationship" between them and
Plaintiff. (D .I. 9 at 7) Delaware courts, in rejecting attempts to extend DUFTA liability to aiders
and abettors, have noted that "the only proper defendants in a fraudulent conveyance action . ..
are the transferor and any transferees." Quadrant Structured Products Co. v. Vertin, 102 A.3d
155, 203 n.17 (Del. Ch. 2014) (internal quotation marks omitted). In virtually every case, the
"transferor" is more specifically a "debtor-transferor." See, e.g., Edgewater Growth Capital

Partners, L.P. v. HI.G. Capital, Inc., 2010 WL 720150, at *2 (Del. Ch. Mar: 3, 2010)
("[DUFT A] only provides for a cause of action by a creditor against debtor-transferors or
transferees."). Here, neither of the CITGO Defendants is a debtor or transferee. 11

11

Plaintiff argues that CITGO Defendants are transferors and transferees, based on its
argument that the Transactions ' proceeds were always substantively Venezuelan property and,
hence, property of a debtor at every stage. As explained above, the Court rejects this argument
and finds that no transfer of a debtor' s property occurred until the final dividend was declared
and the Transactions ' proceeds became assets of Petr6leos. The final dividend is the relevant
"transfer," which makes PDVH a transferor.
10

PDVH' s continued presence in this action is appropriate. The unique circumstances of
the case make PDVH a non-debtor transferor. DUFTA does not explicitly preclude the presence
of such a transferor; all that DUFTA requires is a transfer of the debtor' s property with sufficient
involvement of the debtor. DUFTA broadly provides for the application of "the principles of law
and equity" unless "displaced by [DUFTA' s) provisions." 6 Del. C. § 1310. The Court has
already concluded that the Complaint alleges a fraudulent transfer to which PDVH was a direct
party, making it an appropriate defendant in this case. Plaintiff is not barred from asserting a
DUFTA claim on these facts. Instead, under the circumstances, it would be anomalous to
dismiss PDVH because it was merely a transferor rather than a debtor-transferor.
Whether CITGO Holding is also a proper party is less clear. CITGO Defendants contend
that treatment of the final dividend as the relevant "transfer" requires CITGO Holding' s
dismissal from the case. (D.I. 15 at 4 n.4) Plaintiff counters that the Transactions should be
"collapsed" and viewed as a single event. Bankruptcy courts use the "collapsing doctrine" to
siillplify transactions and boil them down to their true substantive nature. See, e.g., In re
Syntax-Brillian Corp. , 573 F. App 'x 154, 160 (3d Cir. 2014) (describing collapsing doctrine as

"an equitable tool by which a court may ' collapse' multiple apparently innocuous transactions for
purposes of a fraudulent transfer analysis and consider the economic reality of the integrated
whole"). Applying the doctrine here might support an argument that CITGO Holding is a
transferor as well.
The collapsing doctrine is often used to analyze the motivations for a transfer as opposed
to whether (and when) a transfer of debtor property occurred in the first place. See, e.g., In re
Hechinger Inv. Co. ofDel. , 327 B.R. 537, 547 (D. Del. 2005) (" [I]n evaluating the validity of the

11

Transaction, the court considers it as one transaction."). This is not the issue the Court faces
here. Rather, the DUFTA analysis focuses on whether and when "property of a debtor" was
'"transferred" and, if so, who the parties to that transfer were. The Court has not encountered any
case applying the collapsing doctrine in such a circumstance.
The Court concludes that the collapsing doctrine does not cleanly fit this case, as its
application would effectively alter the "form" of the Transactions rather than their substantive
nature. The latter is not in dispute at this stage. The doctrine ' s application would have the effect
of (i) turning CITGO Holding into a substantive transferor, which would impermissibly imply
Petr6leos held property rights in Transaction funds prior to the final dividend declaration; and/or
(ii) impermissibly treat CITGO Holding as an accomplice or co-conspirator. See Quadrant

Structured Products, 102 A.3d at 203 n.17. It would also be inconsistent with the condition that
"a transfer is not made until the debtor has acquired rights in the asset transferred." 6 Del. C.

§ 1306(4).

In sum, Plaintiff' s DUFTA claim strains the statute ' s structure. Nevertheless, the
Complaint alleges a fraudulent transfer, and DUFTA provides for a range of remedies that may
be appropriate. 12 Under the circumstances, PDVH, a non-debtor transferor of debtor property, is
an appropriate defendant. In contrast, CITGO Holding will be dismissed from the case, because
it was not a party to a fraudulent transfer under DUFTA and cannot be held liable as an
accomplice or co-conspirator.

12

Because the discussion relating to remedies under the unique circumstances of this case
is heavily wrapped up in sovereign immunity issues, the Court defers it to its FSIA analysis
below.
12

B.

Civil Conspiracy

CITGO Defendants contend that, even if Plaintiff's DUFTA claim survives their motion,
Plaintiff's civil conspiracy claim must be dismissed. (D.I. 9 at 10) CITGO Defendants cite to
Edgewater Growth Capital, 2010 WL 720150, at *2, for the proposition that "[DUFTA] does not
create a cause of action for aiding and abetting, or conspiring to commit, a fraudulent transfer."
Plaintiff responds that the rationale in Edgewater is inapplicable here because Plaintiff's civil
conspiracy claim "is not an attempt to extend liability to non-transferors or transferees, but rather
an alternative path to relief against the same defendants that are liable under DUFTA." (D .I. 14
at 20)
Putting aside that a conspiracy claim would in fact "attempt to extend liability" to CITGO
Holding, which the Court has found is not a transferor or transferee, this "alternative path to
relief' is inconsistent with Delaware law. In Quadrant Structured Products, 102 A.3d 155 at
203, the Court of Chancery reiterated the principal that "[u]nder Delaware law, a conspiracy
cannot be predicated on fraudulent transfer" (internal quotation marks omitted). Quadrant went
on to note that "[t]o the extent [the civil conspiracy count] seeks to impose secondary liability
based on primary wrongs· pled in [the fraudulent transfer counts], it fails to state a claim on which
relief can be granted." Id. Accordingly, Plaintiff's civil conspiracy claim will be dismissed.

C.

Foreign Sovereign Immunities Act

CITGO Defendants contend 13 that "to the extent that Plaintiff ... targets the property of

13

The parties disagree as to whether CITGO Defendants have standing to assert FSIA
immunity on Venezuela' s behalf. But even if CITGO Defendants lack standing to do so, the
apparent involvement of sovereign property requires the Court to consider the FSIA ' s application
on its own motion. See Peterson v. Islamic Republic ofIran, 627 F.3d 1117, 1124-28 (9th Cir.
2010) (collecting cases); Rubin v. Islamic Republic ofIran , 637 F.3d 783 , 799 (7th Cir. 2011), as
13

Venezuela," the FSIA, 28 U.S.C. § 1602 et seq., requires dismissal of Plaintiff's claims. (D.I. 9
at 11 ) The FSIA provides that "the property in the United States of a foreign state shall be
immune from attachment arrest and execution," subject to certain exceptions. 28 U .S .C. § 1609;

see also§§ 1610, 1611. CITGO Defendants argue that Plaintiff's claim is barred by the FSIA ' s
prohibition of prejudgment attachments, and that the remedies sought by Plaintiff are similarly
impermissible.
1.

Is Plaintiff's Action Barred by the FSIA's Prejudgment Immunity?

The FSIA bars "attachment[ s] prior to the entry of judgment" in the absence of explicit
waiver by a foreign sovereign of that immunity. 28 U.S.C. § 1610(d). 14 CITGO Defendants
argue that the FSIA preempts Plaintiff's state-law fraudulent transfer claim, based on CITGO
Defendants' characterization of the claim as "prejudgment" in nature. Because the Transactions
took place prior to entry of any judgment, CITGO Defendants contend, any liability for those
transfers is the equivalent of a prejudgment attachment, from which Venezuela is protected by
virtue of the FSIA' s prejudgment immunity.
Underlying this argument is the principle that, to the extent the Transactions involved
Venezuelan property, Venezuela and/or its alter ego were presumptively free to move their
property in and out of the U.S. unencumbered. See Rubin, 637 F.3d at 799. CITGO Defendants

corrected (Apr. 1, 2011 ) ("[T]he court must address [the immunity] regardless of whether the
foreign state appears and asserts it.").
14

Plaintiffhas not specifically alleged any waiver on Venezuela' s part of its FSIA
immunity with respect to the Transactions, and it appears undisputed that no waiver had occurred
at the time the Transactions were undertaken. Counsel for Plaintiff suggested at oral argument
that Venezuela' s participation in the related arbitration in Washington, D.C., may constitute
"waiver [as] to any assets that are in the United States." (Tr. at 54) The Court need not address
the waiver issue because it does not view Plaintiff's DUFTA claims as prejudgment in nature.
14

argue that DUFTA is preempted by "Congress' s judgment that U.S. courts cannot interfere with
the use or disposition of a foreign state' s property before a judgment has been entered." (D .I. 9 at
13) To CITGO Defendants, Plaintiff's present assertion of a DUFTA claim seeks to impose
liability based on a transfer that was immunized when it occurred. Again, CITGO Defendants
believe this is the equivalent of seeking an invalid prejudgment attachment of Transaction
proceeds. (See Tr. at 77 ("[T]here is no question that DUFTA essentially [im]mobilizes assets in
this country or creates liability if you do, which is the same thing as immobilizing."))
CITGO Defendants, therefore, read the FSIA to prohibit fraudulent transfer liability for
transfers undertaken by foreign sovereigns prior to the entry of judgment. They argue that any
liability from such purportedly "lawful" conduct would frustrate Congress ' s objectives in
enacting the FSIA. (See, e. g., Tr. at 18-19 ("[C]reating liability in [CITGO Defendants] basically
.. . means there was . .. a penalty for ... Venezuela moving its money overseas."))
The Court is not persuaded by CITGO Defendants' attempt to stretch the statute's
"immun[ity] from attachment arrest and execution," id. § 1609, to become immunity from all
liability for the transfer of property that was non-attachable at the time of transfer. No direct
support is offered for CITGO Defendants' proposition that attachment immunity equals
lawfulness and, therefore, precludes all conceivable forms of potential liability. There is nothing

in the FSIA' s text that bars eventual liability for a transfer of property which was immune from
attachment when the transfer was made. To the contrary, the Act provides that, " [a]s to any
claim for relief with respect to which a foreign state is not entitled [jurisdictional immunity from
suit], the foreign state shall be liable in the same manner and to the same extent as a private
individual under like circumstances." 28 U .S .C. § 1606.

15

Neither the parties nor the Court have identified any case on point. (See generally Tr. at
76-77) CITGO Defendants cite a number of cases for the proposition that the FSIA bars "the
application of any state law, court process, or order that immobilizes the assets of a foreign
sovereign." (D.I. 9 at 12) As the Second Circuit has stated, " [t]he FSIA would become
meaningless if courts could eviscerate its protections merely by denominating their restraints as
injunctions against the negotiation or use of property rather than as attachments of that property."

S & S Mach . Co. v. Masinexportimport, 706 F.2d 411 , 418 (2d Cir. 1983). The cases cited by
CITGO Defendants dealt principally with provisional remedies sought during the pendency of an
underlying civil action. But Plaintiff's DUFTA claim does not seek a prejudgment "restraint;" it
seeks relief based on an alleged scheme to devalue certain potentially executable assets, relief
that would only be obtained (or, from Defendants ' perspective, imposed) after judgment is
entered in this case.
CITGO Defendants also rely on Export-Import Bank of the Republic of China v.

Grenada, 768 F.3d 75 (2d Cir. 2014). In that case, the Second Circuit dismissed as moot an
appeal of a decision denying attachment of certain funds because the funds had, in the meantime,
been "transferred to Grenada ... [and] became part of the undifferentiated property of the
sovereign." Id. at 86. The rationale there was based on mootness; the property sought no longer
existed for attachment. Id. at 86-87. Here, however, the relief sought is not limited to (and will
not necessarily even include) the return of sovereign property held abroad.
CITGO Defendants ' approach overreads the FSIA ' s provisions. Pursuing a remedy based
on a prejudgment transfer is not the same as attaching funds prior to the entry of judgment, even
if the pursuit of that remedy might discourage transfers of immunized property under certain

16

circumstances.
For these reasons, the Court does not view Plaintiff's fraudulent transfer claim as barred
by the FSIA, notwithstanding Plaintiff's attempt to impose liability based on a transfer of funds
which would not have been attachable when the Transactions were carried out. 15
2.

Does the FSIA Preclude the Remedies Sought by Plaintiff?

The Court' s finding above does not free Plaintiff's DUFTA claim from FSIA scrutiny.
Plaintiff seeks a judgment potentially directing the return of $2.8 billion in Transaction proceeds
to the United States, or in the alternative a damages award. Plaintiff also seeks a judgment
enjoining Defendants from transferring any remaining Transaction proceeds out of the United
States and further enjoining any other attempts to remove assets from the United States.
CITGO Defendants question whether the $2.8 billion transfer from PDVH to its parent
company is a "voidable" transfer under DUFTA. As CITGO Defendants note, federal courts
"generally lack authority in the first place to execute against property in other countries,"
Republic ofArgentina v. NML Capital, Ltd., 134 S. Ct. 2250, 2257 (2014); see also Walters v.
People's Republic of China, 672 F. Supp. 2d 573, 574 (S.D.N.Y. 2009) (" [U]nder the FSIA,

assets of foreign states located outside the United States retain their traditional immunity from
execution to satisfy judgments entered in United States courts.") (internal quotation marks
omitted); Ex-Im Bank of China, 768 F.3d at 86-87. A finding that the dividend transfer is not

15

To the extent that CITGO Defendants are suggesting that any DUFTA relfofthat
Plaintiff seeks related to the alleged expropriation of its assets is "prejudgment" for purposes of
applying the FSIA unless and until an arbitration award is confirmed, the Court is unpersauded
by that argument as well. Neither the Complaint nor any motion filed in this matter requests
provisional relief. Rather, Plaintiff seeks a final resolution on the merits of its fraudulent transfer
claim.
17

"voidable" might also bar Plaintiff's alternative claim for damages. See 6 Del. C. § 1308(b)
(providing 'judgment for the value of the asset transferred" is available "to the extent a transfer
is voidable").
But even if PDVH prevails in persuading the Court these remedies are precluded (an
issue the Court does not today decide), other types of relief remain available to Plaintiff. As
noted above, DUFTA incorporates broader equitable principles, see id. § 1310, and those
principles allow the Court to craft "any .. . relief the circumstances may require," id.
§ 1307(a)(3)(c); see also In re Mobilactive Media, LLC, 2013 WL 297950, at *32 (Del. Ch. Jan.
25, 2013) ("DUFTA provides broad remedies to creditors and leaves considerable leeway for the
exercise of equitable discretion."). Assuming that Plaintiff obtains a final judgment on the merits
in its favor, CITGO Defendants offer no convincing explanation as to why, for example, PDVH
could not at least be enjoined from further transfer of its assets out of the country. See 6 Del. C.
§ 1307(a) (providing for "relief against a transfer," including injunction against "further
disposition by the debtor or a transferee, or both, of the asset transferred or of other property").
The FSIA may ultimately limit the types of relief available to Plaintiff, should it prevail
on the merits of its DUFTA claim. However, CITGO Defendants have failed to show that the
FSIA precludes all of Plaintiff's requested relief. As a result, the FSIA does not require dismissal
of this action.

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D.

Act of State Doctrine 16

CITGO Defendants contend that Plaintiff's claims are barred by the act of state doctrine,
because resolution of Plaintiff's claim "would call into question the validity of an official act
performed within the sovereign' s territory." (D.I. 15 at 7) The act of state doctrine ' s application
involves balancing the national interest with the desire of litigants to obtain decisions on the
merits of their claims. See Envtl. Tectonics v. WS. Kirkpatrick, Inc., 847 F.2d 1052, 1058 (3d
Cir. 1988). Due to the tension inherent in such a balance, the Supreme Court has not imposed
"rigid rules to govern the doctrine ' s application," leaving district courts responsible for making
the determination on a case-by-case basis. Id. As part of this analysis, courts are called upon to
''analyze the nature of the questioned conduct and the effect upon the parties in addition to
appraising the sovereign' s role ." Mannington Mills, Inc. v. Congoleum Corp. , 595 F.2d 1287,
1293 (3d Cir. 1979). The doctrine is "not lightly to be imposed." Id. ; see also Envtl. Tectonics,
84 7 F .2d at 1060 n.9 (expressing "concerns with too sweeping an application of the doctrine").
On one side of the scale is Plaintiffs significant interest in litigating the propriety of the
Transactions and potentially obtaining a judgment and relief. On the other side of the scale, there
is no evidence from which the Court could now conclude that litigation of this matter would pose
significant challenges to the executive branch' s ability to conduct foreign affairs. Importantly, in
this litigation the Court is not being asked to adjudicate Venezuela' s actions with respect to

16

During oral argument, counsel for Plaintiff suggested for the first time that CITGO
Defendants lack standing to assert the act of state doctrine. (See Tr. at 28-29) Even if this
contention is not deemed waived, and even if CITGO Defendants lack standing to raise the
doctrine, the Court can and would raise the doctrine on its own motion. See Hourani v.
Mirtchev, 796 F.3d 1, 12 n.6 (D.C. Cir. 2015) ("Because the Act of State doctrine is a rule of
judicial restraint, courts may raise the doctrine sua sponte." ).
19

Plaintiffs mining rights. See Banco Nacional de Cuba v. Sabbatino , 376 U.S. 398 (1964)
(concluding act of state doctrine prohibited challenge to validity of expropriation). Instead, it
need only assess the decisions to move monies in a possible attempt to hinder creditors.
Furthermore, much of the conduct put at issue by Plaintiffs claims took place within the United
States. See generally Envtl. Tectonics, 847 F.2d at 1057-58 (act of state doctrine requires courts
to refrain from ''judging the validity of a foreign state's governmental acts in regard to matters
within that country' s borders."). Of further note, the Federal Arbitration Act provides that
"confirmation of arbitral awards, and execution upon judgments based on orders confirming such
awards shall not be refused on the basis of the Act of State doctrine." 9 U.S.C. § 15.
The Court will deny the motion to dismiss without prejudice as to the act of state
doctrine. Should the issue be raised again, the parties should consider providing the Court with
evidence of the impact, if any, of the maintenance of this suit on U.S. relations with Venezuela.
IV.

CONCLUSION

For the reasons explained above, CITGO Defendants' motion to dismiss Plaintiffs claims
will be denied in part and granted in part. CITGO Holding will be dismissed from this action.
An appropriate Order follows.

20