Case of the Day: Crystallex v. Venezuela

The CITGO Sign in Kenmore Square
A Boston landmark. Credit: Lunarsurface

The case of the day is Crystallex International Corp. v. Bolivarian Republic of Veneuela (3d Cir. 2019). I last wrote about the case in October 2016. Crystallex, a Canadian company that had invested in a Venezuelan gold mining project, won a $1.2 billion aribtral award against Venezuela after that country nationalized the gold deposits and transferred them to the state-owned oil company, PDVSA. Crystallex won confirmation of the award in Washington and then sought to attach PDVSA’s shares in PDVH, its American subsidiary, which is the ultimate parent of CITGO a Delaware corporation that, according to the court, is “best known for the CITGO sign outside Fenway Park in Boston.” You’ve got that right. PDVSA, and some of its other creditors as amici curiae, argued against the attachment. The district court granted the attachment, and in today’s decision the Third Circuit affirmed.

The Third Circuit affirmed the lower court’s ruling the PDVSA was Venezuela’s alter ego, and it concluded that the alter ego relationship was sufficient to give the court subject-matter jurisdiction over PDVSA under First National City Bank v. Banco Para El Comercio Exterior de Cuba (“Bancec”), 462 U.S. 611 (1983). It rejected PDVSA’s argument that the rule should be different in the judgment enforcement context than in the substantive liability context at issue in Bancec. And the court suggested that the rule of Bancec is a special rule for cases involving foreign sovereign and their instrumentalities. I was glad to see this clarification, because outside of the FSIA context the rule of Bancec is, if not wrong, at least not generally right. In general, a judgment is only enforceable against the judgment debtor. (In the context of the Lago Agrio case, I discussed this point in some detail in a 2017 post and its comments). The court also held that registration in one federal judicial district under 28 U.S.C. § 1963 of a judgment against a foreign sovereign entered in another district is okay; the FSIA does not trump the judgment registration statute.[efn_note]The outcome would be different, I think, if the original judgment had been a judgment of a state court and if the judgment creditor had sought recognition and enforcement of it in another state or in the federal courts; but I am not sure of that.[/efn_note]

PDVSA argued that even if it was Venezuela’s alter ego, Crystallex was not entitled to attach its shares in PDVH. In arbitration cases, the statute allows for attachment of property of the foreign sovereign if used for a commercial activity in the United States. 28 U.S.C. § 1610(a)(6). PDVSA had a creative argument: due to US sanctions, it could not presently make any commercial use of its shares in PDVH. A similar argument won the day in TIG Insurance v. Argentina, a case from the District Court in Washington that we considered last month. But as I wrote in my post on TIG, I wasn’t happy with the rule, and today’s decision states the reason for unhappiness clearly:

A strict day-of-writ inquiry could allow parties to avoid execution by freezing assets or otherwise ceasing commercial use when the appeal decision is handed down.

In any event, the court held that the sanctions did not prohibit all commercial uses of the shares, but simply some of them, and that the rights that PDVSA continued to exercise (“to run its business as an owner, to appoint directors, approve contracts, and to pledge PDVH’s debts for its own short-term debt”) were enough.[efn_note]The court recognized, though, that executive branch approval might be necessary for the attachment, in light of the executive orders imposing the sanctions.[/efn_note]

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