Third Circuit Affirms Crystallex Attachment Of Citgo Shares

Author:Mr Steven Davidson, Michael J. Baratz, Jared R. Butcher and Molly Bruder Fox
Profession:Steptoe & Johnson LLP

First Tuesday Update is our monthly take on current issues in commercial disputes, international arbitration, and judgment enforcement.

This month, we focus on the latest decision in the ongoing saga of Crystallex International Corporation versus Venezuela. As has been widely reported, the United States Court of Appeals for the Third Circuit affirmed the Delaware District Court's order granting a writ of attachment of shares in the US-based holding company that owns Citgo. Crystallex Int'l Corp. v. Venezuela, Nos. 18-2797 & 18-3124, Slip Op., (3d Cir. July 29, 2019) (Crystallex Op.). This is a subject matter we know well - for over a decade, the authors of this First Tuesday Update represented ExxonMobil in its successful efforts to receive compensation from PDVSA and Venezuela, following Venezuela's expropriation without compensation of an ExxonMobil subsidiary's rights and interests in a joint venture.

Crystallex covers virtually every aspect of the issues we examine in these updates: investor-state international arbitration, judgment enforcement, veil piercing, and foreign sovereigns. And one aspect of the case has been underreported - even though Crystallex prevailed on its appeal, the Third Circuit made clear that the Treasury Department's Office of Foreign Asset Control (OFAC) is likely to have the final say. "[A]ny attachment and execution against PDVSA's shares of PDVH would likely need to be authorized by the Treasury Department." Crystallex Op. at 43. The decision also has bondholders, other creditors, and customers concerned about - and interested in - this decision's impact. Our prediction - Crystallex is unlikely to obtain the shares soon and this case is almost certainly headed to the Supreme Court.

The Third Circuit decision is the latest in a line of decisions from ICSID to Washington, DC courts, to Delaware involving this case. In 2002, Crystallex contracted with a Venezuelan entity for the exclusive right to extract gold from one of the world's largest deposits in Las Cristinas, Venezuela. In 2011, Venezuela expropriated the gold mines without compensation. Later that year, Crystallex filed for ICSID arbitration and then sought bankruptcy protection in Canada.

While the arbitration was pending (and then after the award was announced), Crystallex pursued claims against PDVSA, Citgo, and Citgo's holding company, PDVH, for fraudulent transfers under the Delaware Uniform Fraudulent Transfer Act. In those cases - which is...

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