Citgo Pans Gold Miner’s Del. Suit Over Asset Transfer

By Jack Newsham

Law360, New York (April 18, 2016, 4:32 PM ET) -- Citgo Holding Inc. again urged a Delaware federal judge Friday to toss a lawsuit brought by a mining firm that aims to force the oil company, which is indirectly owned by Venezuela, to repatriate corporate bond revenues from Venezuela to the U.S. to pay a $1.38 billion arbitral award owed by the South American country.
Citgo and its owner PDV Holding Inc., properties of state-owned oil company Petroleos de Venezuela S.A., argued in February that granting Crystallex International Corp.’s request would violate Venezuela’s sovereign immunity and said the suit wrongly lumped Venezuela and the oil companies together despite their distinct corporate identities to bring a claim under a Delaware fraudulent-transfer law.

Crystallex — which asked a D.C. federal judge earlier this month to recognize an award from the International Centre for the Settlement of Investment Disputes over Venezuela's seizure of its Las Cristinas gold mining project — has argued that its Delaware suit should survive because Citgo, PDV and Petroleos de Venezuela are simply alter egos of
Venezuela. Crystallex said that it isn't trying to attach a sovereign’s assets; it is seeking to have the alleged transfer of $2.8 billion in Citgo bond revenues to Venezuela deemed fraudulent under Delaware law.

On Friday, the Citgo defendants argued the suit glossed over the Delaware Uniform Fraudulent Transfer Act’s requirement that only debtors could be sued under it, and they wouldn’t become debtors even if the arbitral award were confirmed. The companies added that the Foreign Sovereign Immunities Act bars state-law claims that aim for “the functional equivalent of an attachment” that orders firms what to do with their assets.

“At the time of the allegedly fraudulent transfers at issue in this case, plaintiff had no judgment against Venezuela, nor did it have an order permitting attachment or execution,” the companies said. “Therefore, to the extent that DUFTA purportedly creates a right in plaintiff to require Venezuela to return its property to the United States or to preserve its property in the United States, it is preempted by the FSIA.”

Earlier this month, an International Centre for the Settlement of Investment Disputes tribunal concluded that Venezuela’s 2011 revocation of Crystallex’s exclusive rights to mine and sell gold from Las Cristinas, which is believed to contain nearly 17 million ounces of unmined gold, violated its bilateral investment treaty with Canada and caused $1.2 billion in damages. The remainder of the award is costs, fees and interest.

In anticipation of the award, Crystallex sued in Delaware in November so it could enforce the award when it came down. The complaint alleges Venezuela anticipated Crystallex’s claim and “sought to monetize its interests in Citgo and repatriate those proceeds, thereby shielding them from attempts to enforce any arbitral award.”

Dozens of companies, especially in the mining and energy industries, have pursued Venezuela over deceased former president Hugo Chavez’s nationalization of major industries. Citgo has successfully resisted being dragged into at least one state-court case involving the claims, and at least one other gold miner is pursuing an ICSID award against Venezuela in U.S. courts.

A lawyer for Crystallex didn’t reply to a request for comment.

Crystallex is represented in the Delaware action by Raymond J. DiCamillo, Jeffrey L. Moyer and Travis S. Hunter of Richards Layton & Finger PA and Robert L. Weigel, Jason W. Myatt and Rahim Moloo of Gibson Dunn.

Citgo and PDV Holding, both of which are incorporated in the U.S., are represented in the Delaware action by Kenneth J. Nachbar of Morris Nichols Arsht & Tunnell LLP and Nathan P. Eimer and Lisa S. Meyer of Eimer Stahl LLP.

The Delaware case is Crystallex International Corp. v. Petroleos de Venezuela SA et al., case number 1:15-cv-01082 in the U.S. District Court for the District of Delaware.

--Additional reporting by Vidya Kauri and Christine Powell. Editing by Jill Coffey.