Crystallex International Corporation v. Bolivarian Republic of Venezuela

Filing 275

MEMORANDUM ORDER re issues and objections related to the Special Master. Signed by Judge Leonard P. Stark on 5/25/21. (ntl)

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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

CRYSTALLEX INTERNATIONAL CORP.,
Plaintiff,
Misc. No. 17-151-LPS

V.

BO LIV ARIAN REPUBLIC OF VENEZUELA,
Defendant.

MEMORANDUM ORDER

On April 13, 2021, the Court issued an order appointing Robert B. Pincus as a special
master in this case. (D.I. 258) On May 14, 2021, the Special Master submitted a revised
proposal for an order formalizing his appointment. (D.I. 265, 265-1 ) The Court permitted
objections to the proposed order to be filed within five days. (D.I. 264) The Court received
objections from Plaintiff Crystallex International Corporation ("Crystallex"), Intervenors PDV
Holding, Inc. ("PDVH") and CITGO Petroleum Corporation ("CITGO"), and nonparties Phillips
Petroleum Company Venezuela Limited and ConocoPhillips Petrozuata B.V. (together,
"ConocoPhillips"). (See generally D.I. 266, 267, 268) The Court subsequently received
responsive letters from Crystallex, PDVH and CITGO, Defendant Bolivarian Republic of
Venezuela ("the Republic"), Intervenor Petr6leos de Venezuela S.A. ("PDVSA"), and
Intervenors Blackrock Financial Management, Inc. and Contrarian Capital Management, L.L.C.
(together, "Intervenor Bondholders"). (See generally D.I. 269,270,271 ,273 , 274-1) 1 The

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In their responsive letters, the Republic and PDVSA agreed with the positions taken by

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Court will briefly address each issue raised in the letters.
Standard of Review for Factual Findings. Crystallex objects to the Court reviewing the
Special Master's factual findings for clear error. (D.I. 268 at 1) Given that objection, the
Venezuela Parties concede that Federal Rule of Civil Procedure 53(f)(3) requires the Court to
review the Special Master' s factual findings de novo. (D.I. 269 at 3) The Court agrees with
the parties' reading of the rule. Accordingly, the Court will review the Special Master' s factual
findings de novo.
OF AC Language. Crystallex and ConocoPhillips both request that the Court add
language to the proposed order regarding sanctions imposed on Venezuela by the U.S. Treasury
Department' s Office of Foreign Assets Control ("OFAC"). Crystallex asks the Court to add
language stating that the Special Master is acting as an "arm of the Court." (D.I. 268 at 1-3)
Similarly, ConocoPhillips requests that the Court add language stating that the Special Master' s
activities are "authorized conduct" under the OFAC sanctions and prohibiting certain other
conduct by the Special Master. (D.I. 266 at 1-2) The Venezuela Parties advise the Court that
the Special Master "and his OF AC counsel spoke extensively with the parties about these
matters, and they decided that the proposals were either unnecessary, incorrect, or outside the
scope of his assignment." (D.I. 269 at 1; see also D.I. 265 at 1 (Special Master reporting that
his OFAC counsel had discussions with OFAC counsel of the various parties)) The Venezuela
Parties further accuse Crystallex and ConocoPhillips of seeking "a preemptory order from this
Court that their participation in this matter - past, present, and future - complies with the

PDVH and CITGO in their opening and responsive letters. (See generally D.I. 270,271) The
Court refers generally to the positions of all four of these entities as those of the "Venezuela
Parties."
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Venezuelan sanctions regime, regardless of the regulations." (Id.) (internal footnote omitted)
Crystallex' s proposed language is adopted in part and rejected in part. The Court will
include the following provision in its appointment order:
Arm of the Court. The Court finds that the Special Master, in
effectuating his Court-appointed duties, is acting pursuant to
Federal Rule of Civil Procedure 53 and, thus, as an arm of the
Court.
(See D.I. 268 at 2) (non-substantive modifications have been made to Crystallex' s proposal)

While likely unnecessary, the Court agrees with Crystallex that this portion of its proposed
language is nonetheless appropriate because it "is correct and would facilitate the efficient
exercise of the Special Master's authority." (Id. )
The Court will not, however, include Crystallex' s additional proposal, which would have
the Court find, for sanctions purposes, that any payments to the Special Master relate to the
official business of the United States. (See id. ) (citing 31 C.F.R. § 591.509)2 Nor will the
Court include ConocoPhillips' proposed provision, which would require the Court to find that
"the Parties and ConocoPhillips are not financing ... any conduct or transaction that purports to
encumber, transfer or otherwise affect the PDVH shares, or that constitutes a prohibited dealing
with" a Specially Designated National. (D.I. 266 at 2) The Court has not determined that
Crystallex' s or ConocoPhillips' positions are wrong, but neither has it, to this date, made a
determination that one or both of them is correct. While the Court may soon be required to
resolve additional issues regarding the OF AC regulations, the Court need not do so at this time in

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The Court is also not including the first two sentences of Cry stall ex' s proposal, which
repeat certain language from prior decisions of the Court, some of which is already contained in
a "Whereas" provision of the Special Master' s proposed order.
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order to finalize the Special Master's appointment.
Fee Cap. ConocoPhillips objects to the initial fee cap of $2 million for the Special
Master, his counsel, and his other advisors. (D.I. 266 at 2) ConocoPhillips proposes that the
cap instead be set at $1 million. (See id.) That objection is overruled. Given the scope and
complexity of the anticipated sale of PDVH shares, the Court concludes that $2 million is a
reasonable cap at this point. The Court also agrees with the other parties that requiring
additional proceedings to raise the fee cap above ConocoPhillips' preferred $1 million would be
an inefficient use ofresources. (See D.I. 269 at 3; D.I. 273 at 1) Like the parties, the Court is
confident that the Special Master and his advisors will perform their functions efficiently and
prudently.
Contributions by Intervenor Bondholders. Crystallex, ConocoPhillips, and the
Venezuela Parties all object to the participation of the Intervenor Bondholders in the structuring
of the sale without paying a portion of the fees and costs. (See D.I. 266 at 2; D.I. 268 at 3-5;
D.I. 269 at 3) Those objections are sustained.
The Court agrees with Crystallex that the Intervenor Bondholders should not have
opportunities to increase expenses for the other parties without sharing in those costs themselves.

(See D.I. 268 at 5) The Court also agrees with ConocoPhillips that there is no persuasive reason
why it should be treated differently from the Intervenor Bondholders. (See D.I. 266 at 2)
While the Intervenor Bondholders are parties in this case and ConocoPhillips is a third party, the
sale for which the Court is preparing involves - at least at present - only the satisfaction of the
Republic's debt to Crystallex. Currently in this proceeding, neither ConocoPhillips nor the
Intervenor Bondholders have an interest in the PDVH shares to be sold that is nearly as strong as

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Crystallex's. If, like ConocoPhillips, the Intervenor Bondholders nonetheless wish to be
included in the discussions with the Special Master, the Intervenor Bondholders, like
ConocoPhillips, should pay a proportionate share of the fees incurred by the Special Master
(including his counsel and other advisors).
To the extent the Special Master envisioned allowing the Intervenor Bondholders to
participate in these proceedings but with lesser rights than other parties (see, e.g. , D.I. 265 at 1)
("I do, however, propose to revise the Proposed Order to include a limited set of rights to the
Intervenor Bondholders."), the Court believes that such limited participation would only
complicate these proceedings and would increase the risk of unnecessary delay and expense. As
the Intervenor Bondholders correctly state, '" [w ]hen a party intervenes, it becomes a full
participant in the lawsuit and is treated just as ifit were an original party."' (D.I. 274-1 at 2)
(quoting Wayne Land & Min. Grp. LLC v. Del. River Basin Comm 'n, 894 F.3d 509, 521 n.6 (3d
Cir. 2018) (other internal quotation marks omitted)) Here, being a "full participant" means
bearing a proportionate share of the expenses incurred by the Special Master. 3 Accordingly, if
the Intervenor Bondholders wish to participate in this process, then they should be responsible
for the same portion of the Special Master' s fees as Crystallex, the Venezuela Parties, and

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This conclusion is consistent with Federal Rule of Civil Procedure 53(g)(3), which
provides that the Court "must allocate payment among the parties after considering the nature
and amount of the controversy, the parties' means, and the extent to which any party is more
responsible than other parties for the reference to a master." While the Intervenor Bondholders
are not responsible for the reference to a master, the nature and amount of the controversy as
well as the Intervenor Bondholders' means fully support, under the circumstances here, imposing
the same obligations on them as all other parties (and non-party ConocoPhillips) are bearing.
See also generally Fed. R. Civ. P. 24 (1966 Adv. Comm. Notes) (" An intervention of right . ..
may be subject to appropriate conditions or restrictions responsive among other things to the
requirements of efficient conduct of the proceedings.").

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ConocoPhillips (i.e., a one-quarter share).
Given today's ruling, the Court understands that the Intervenor Bondholders may prefer
not to participate going forward. (See D.I. 274-1 at 3) They write that they "would recede
from participation in [these] proceedings rather than pay a portion of fees." (Id.) Now that
they are aware of the Court's ruling, the Intervenor Bondholders may well determine that the
"limited and defensive interests" they have in "the proceedings before the Special Master" are
fully and/or adequately protected without their further participation. (Id. )4 The Court does not
wish to guess which way the Intervenor Bondholders will come out on a choice to which they do
not believe they should have been put. (See id.) Therefore, by no later than tomorrow, May
26, 2021, the Intervenor Bondholders shall file a letter with the Court indicating whether they
will either (i) participate and pay their one-quarter share of the fees and costs, or (ii) withdraw
from further discussions with the Special Master.
Compensation Language. The Venezuela Parties request that the Court modify language
in the proposed order to clarify that their share of fees and costs may come from any of four
entities (i.e., the Republic, PDVSA, PDVH, or CITGO). (See generally D.I. 267) Crystallex
does not take a position on the issue. (See D.I. 273 at 1) The Court will adopt a version of the
Venezuela Parties' proposal. Like Crystallex, the Court is not concerned about which entity
will provide the necessary funds . The Court does expect, however, that all the Venezuela

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The Intervenor Bondholders identify "two limited and defensive but highly important
interests in proceedings before the Special Master." (D.I. 274-1 at 2) First, "the Intervenor
Bondholders seek to be assured of a timely opportunity to object before the Special Master and
this Court." (Id.) Second, "the Intervenor Bondholders have an interest in ascertaining that full
disclosure is made to prospective purchasers of PDVH shares concerning the pledge of collateral
protecting the 2020 Notes." (Id.)
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Parties will work together to ensure that their portion of the Special Master's fees and costs are
reimbursed promptly.
Conclusion. After the Court receives the Intervenor Bondholders' position on how they
will proceed, the Court will issue an order finalizing the Special Master' s appointment.

May 25 , 2021
Wilmington, Delaware

HONO
LE LEONARD P. STARK
UNITED STATES DISTRICT JUDGE

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