CRYSTALLEX INTERNATIONAL CORP.
PETRÓLEOS DE VENEZUELA, S.A.; PDV HOLDING, INC.; and CITGO HOLDING, INC, f/k/a PDV AMERICA, INC. PDV HOLDING INC., Appellant
September 12, 2017
Appeal from the District Court for the District of Delaware
(District Court No. 1-15-cv-01082) District Court Judge:
Honorable Leonard P. Stark
P. Eimer [ARGUED] Lisa S. Meyer Elmer Stahl LLP Kenneth J.
Nachbar Morris, Nichols, Arsht & Tunnell LLP Counsel for
Appellant PDV Holding, Inc.
L. Weigel [ARGUED] Jason W. Myatt Rahim Moloo Gibson, Dunn
& Crutcher LLP Raymond J. DiCamillo Jeffrey L. Moyer
Travis S. Hunter Richards, Layton & Finger, P.A. Counsel
for Appellee Crystallex International Corp.
Before: VANASKIE, RENDELL, and FUENTES, Circuit Judges
RENDELL, CIRCUIT JUDGE.
first glance this case appears exceedingly complex-with its
tangle of debtors, creditors, parents, subsidiaries, alter
egos, and complex international corporate transactions. But
when one cuts through this morass, the question at the center
of this case is quite simple: can a transfer by a non-debtor
be a "fraudulent transfer" under the Delaware
Uniform Fraudulent Transfer Act ("DUFTA")? The role
of a federal court in this situation is to predict how the
Supreme Court of Delaware would answer this question. We are
constrained to conclude that a transfer by a non-debtor
cannot be a "fraudulent transfer" under DUFTA.
While we do not condone the debtor's and the
transferor's actions, we must conclude that Crystallex
has failed to state a claim under DUFTA.
The Parties and Related Entities
Crystallex International Corp. ("Crystallex"), a
Canadian gold producer, owned the rights to Las Cristinas
gold reserve in the Bolivarian Republic of Venezuela
("Venezuela"). In 2011, Venezuela nationalized its
gold mines and expropriated Crystallex's rights to Las
Cristinas. Crystallex subsequently initiated an arbitration
proceeding against Venezuela before the World Bank. It
claimed that, by expropriating Crystallex's rights to Las
Cristinas, Venezuela had violated a bilateral investment
treaty with Canada. Venezuela was the sole defendant in the
arbitration proceeding and the only entity claimed to be
obligated to Crystallex for any resulting judgment. The
arbitrators found that Venezuela had breached the treaty and
awarded Crystallex $1.202 billion. Crystallex Int'l
Corp. v. Bolivarian Rep. of Venezuela, 244 F.Supp.3d
100, 107 (D.D.C. 2017). The District Court for the District
of Columbia confirmed the arbitration award, in accordance
with the Federal Arbitration Act, 9 U.S.C.A. § 1, et
seq. Crystallex, 244 F.Supp. at 122.
owns 100% of the shares of Petróleos de Venezuela,
S.A. ("PDVSA"). PDVSA is alleged to be
Venezuela's alter ego, a "national oil company
through which Venezuela implements government policies at
home and abroad." A31. PDVSA owns 100% of PDV Holding,
Inc. ("PDVH"), which in turn owns 100% of CITGO
Holding, Inc. ("CITGO Holding"). CITGO Holding owns
100% of CITGO Petroleum Corporation ("CITGO
Petroleum"). PDVSA is a foreign corporation based in
Venezuela. PDVH, CITGO Holding, and CITGO Petroleum are
Litigation Against PDVH
brought this suit against PDVH in the District of Delaware,
alleging that PDVH had violated DUFTA's prohibition
against fraudulent transfers. According to Crystallex,
Venezuela realized that it was "facing billions of
dollars in liability from the numerous arbitration
proceedings arising from its repeated expropriation of
foreign investments, " including the Crystallex
proceeding. A30. "On numerous occasions, Venezuelan
government officials stated publicly that Venezuela would
refuse to pay any anticipated arbitral award against it and
would proactively thwart efforts to enforce such
part of [its] plan to thwart enforcement, " Venezuela
orchestrated a series of debt offerings and asset transfers
among PDVSA, PDVH, CITGO Holding, and CITGO Petroleum. A30.
Specifically, Venezuela sought to "monetize its
interests in CITGO [Petroleum], " its largest United
States-based asset, and repatriate the proceeds. A40. To this
end, Venezuela "enlisted its alter ego PDVSA, " who
in turn "directed its wholly-owned subsidiary PDVH to
direct its wholly-owned subsidiary CITGO Holding to issue
$2.8 billion in debt." A31. CITGO Holding, in turn,
transferred the proceeds from the issuance of debt to its
parent PDVH as a shareholder "dividend." A31. PDVH
then declared a dividend of the same amount to its parent
PDVSA, a Venezuelan corporation and the alleged alter ego of
Venezuela, thereby repatriating the money to Venezuela and
shielding it from an enforcement action in the United States.
transactions formed the basis of Crystallex's DUFTA claim
against PDVH. As a result of these transfers, "nearly
$2.8 billion in 'dividends' ended up in the hands of
PDVSA (and therefore Venezuela) outside the United States
where they could not be reached by Venezuela's
creditors." A43. Under DUFTA,
A transfer made or obligation incurred by a debtor is
fraudulent as to a creditor, whether the creditor's claim
arose before or after the transfer was made or the obligation
was incurred, if the debtor made the transfer or incurred the
obligation . . . [w]ith actual intent to hinder, delay or
defraud any creditor of the debtor. 6 Del. C. § 1304.
District Court Denies PDVH's Motion to Dismiss
moved to dismiss the complaint for failure to state a claim
under Federal Rule of Civil Procedure 12(b)(6). It argued
that Crystallex had failed to state a claim under DUFTA
because the allegedly fraudulent transfer was not made
"by a debtor"-that is, by Venezuela-as required by
the statute. 6 Del. C. § 1304(a). The District
Court denied PDVH's motion to dismiss, concluding that
there had indeed been a transfer "by a debtor."
Crystallex Int'l Corp. v. Petroleos de Venezuela,
S.A., 213 F.Supp.3d 683 (D. Del. 2016).
reaching this conclusion, the District Court first correctly
stated that Crystallex's only potential debtors were
Venezuela and its alleged alter ego PDVSA.
Crystallex, 213 F.Supp.3d at 691. Therefore,
"in the narrowest sense of the term, " none of the
transfers were "directly undertaken 'by' the
'debtor.'" Id. Nonetheless, the
District Court found that PDVH-a "non-debtor
transferor"-could be liable under DUFTA for its dividend
transfer to PDVSA. Id. at 693. In support of this
conclusion, the District Court noted that "DUFTA
includes within its ambit 'indirect . . . mode(s) . . .
of disposing of or parting with an asset or an interest in an
asset.'" Id. at 691 (quoting 6 Del. C.
§ 1301(12)). It also cited Merriam-Webster's
definition of the word "by, " which includes
"through the agency or instrumentality of" and
"on behalf of." Id. Given the alleged
"extensive, if not dominating, involvement" of the
debtor Venezuela, the PDVH transfer was executed by an
"instrumentality" of the debtor or on its
"behalf." Id. Therefore, the District
Court reasoned, the transfer from PDVH to PDVSA was "a
transfer made in every meaningful sense 'by a debtor,
'" despite the fact that PDVH was not in
fact a debtor. Id. at 691-92. Finally, the District
Court noted that its holding was in line with the purpose of
DUFTA, which "broadly provides for the application of
'the principles of law and equity.'"
Id. at 692.
filed a motion to certify the District Court's Order for
interlocutory review pursuant to 28 U.S.C. § 1292(b),
arguing that the District Court incorrectly concluded that
DUFTA extends to transfers by non-debtors. After briefing and
oral argument, the District Court granted PDVH's motion,
and we accepted PDVH's petition for permissive review.
we acknowledge the appeal to equity that the District Court
and our dissenting colleague have expressed, we are compelled
to conclude that we must reverse the District Court's
Order denying PDVH's motion to dismiss, because transfers
by non-debtors are not fraudulent transfers under DUFTA as it
has been interpreted by the Delaware courts. To survive a
motion to dismiss, a plaintiff must allege each
"required element" of his claim. Phillips v.
Cty. of Allegheny, 515 F.3d 224, 234-35 (3d Cir. 2008).
The DUFTA statute reads, in relevant part:
A transfer made or obligation incurred by a
debtor is fraudulent as to a creditor, whether the
creditor's claim arose before or after the transfer was
made or the obligation was incurred, if the debtor made the
transfer or incurred the obligation . . . [w]ith actual
intent to hinder, delay or defraud any creditor of the
debtor. 6 Del. C. § 1304 (emphasis added).
order to withstand a motion to dismiss a claim under DUFTA,
therefore, Crystallex must successfully plead three things:
(1) a transfer, (2) by a debtor, (3) with actual intent to
hinder, delay, or defraud a creditor. This case turns on the
meaning of the second element, "by a debtor."
on the decisions of the Delaware Chancery Court and other
Delaware state law principles, we conclude that the transfer
by non-debtor PDVH to PSVHA was not a fraudulent transfer
under DUFTA. "Our role in diversity cases is to apply
state law." Sheridan v. NGK Metals, 609 F.3d
239, 254 (3d Cir. 2010). "A federal court under
Erie is bound to follow state law as announced by
the highest state court." Edwards v. HOVENSA,
LLC, 497 F.3d 355, 361 (3d Cir. 2007). "[I]f that
state's highest court has not provided guidance, we are
charged with predicting how that court would resolve the
issue." In re Energy Future Holdings Corp. v. Energy
Future Intermediate Holdings Co., 842 F.3d 247, 253-54
(3d Cir. 2016). In doing so, we must give "due
deference" to the intermediate state courts'
rulings. In re Makowka, 754 F.3d 143, 148 (3d Cir.
2014). "This standard places a significant constraint on
us[.]" Sheridan, 609 F.3d at 254 (quoting
Jewelcor Inc. v. Karfunkel, 517 F.3d 672, 676 n.4
(3d Cir. 2008)). "Unlike our role in interpreting
federal law, we may not 'act as a judicial pioneer'
in a diversity case." Sheridan, 609 F.3d at 254
alleges that PDVH's transfer to PDVSA was part of a
scheme, designed in part by Venezuela, to transfer $2.8
billion out of the United States, placing it out of the reach
of Crystallex or other creditors attempting to enforce a
judgment against Venezuela. It alleges that,
"[t]ogether, [Venezuela, through its alter ego] PDVSA,
PDVH, and CITGO Holding . . . devised a scheme" to
liquidate the value of CITGO Petroleum, Venezuela's
largest United States-based asset. A31, A41. Pursuant to this
"strategy concocted by PDVSA, PDVH, and CITGO Holding,
" CITGO Holding would transfer billions of dollars to
PDVH "where, in turn, those funds would be paid as a
dividend to PDVH's direct parent[, ] . . . moving the
funds to PDVSA outside the United States." A41.
more important is what Crystallex does not allege. It does
not allege that PDVH is a debtor or otherwise liable for the
arbitral judgment Crystallex has obtained against Venezuela.
Absent is any allegation that Venezuela or PDVSA-the only
potential debtors-transferred any property. Instead,
Venezuela, through its alleged alter ego PDVSA,
received the $2.8 billion in question. The transfer
was clearly alleged to have been by the non-debtor
PDVH. As an initial matter, this transaction seems to lack
the principal harm visited upon creditors in a fraudulent
transfer, namely the debtor's alienation of an asset
otherwise available to pay its debts. Here, the alienation
complained of was geographical. It was not technically a
transfer by the debtor but a transfer to
the debtor which, by virtue of international law, resulted in
the assets being out of the reach of creditors. This
situation is not covered, or contemplated, by DUFTA.
allegations in the complaint raise two questions. First, can
a transfer by a non-debtor such as PDVH constitute a
fraudulent transfer under DUFTA? If not, we then ask whether
the allegations in the complaint, whereby the debtor
Venezuela devised the scheme, can state a claim for relief
under DUFTA based on either an aiding and abetting or a
conspiracy theory. The answer to both questions is no.
Non-Debtor Liability Under DUFTA
the Delaware Supreme Court has not had the opportunity to
consider whether non-debtor transferors can commit fraudulent
transfers under DUFTA, the Chancery Court has answered that
question in the negative. See Edgewater Growth Capital
Partners v. H.I.G. Capital, Inc., C.A. No. 3601-VCS,
2010 WL 720150, at *2 (Del. Ch. Mar. 3, 2010) ("By its
own terms, the Delaware Fraudulent Transfer Act only provides
for a cause of action by a creditor against
debtor-transferors or transferees."); In re Wickes
Trust, No. Civ. A. 2515-VCS, 2008 WL 4698477, at *7-8
(Del. Ch. Oct. 16, 2008) ("in order to have a fraudulent
transfer claim, one must have a valid claim against the
person . . . alleged to have fraudulently made the
Chancery Court has also rejected fraudulent transfer claims
against non-debtor transferors under analogous provisions in
the federal Bankruptcy Code, 11 U.S.C.A. § 548. See
Spring Real Estate, LLC v. Echo/RT Holdings, LLC, C.A.
No. 7994-VCN, 2016 WL 769586, at *3 (Del. Ch. Feb. 18, 2016),
aff'd sub nom. Klauder v. ECHO/RT Holdings,
LLC, No. 133, 2016 WL 7189917 (Del. Dec. 12, 2016)
(rejecting a fraudulent conveyance claim against a non-debtor
subsidiary of the debtor parent company). See also In re
Plassein Int'l Corp. v. B.A. Capital Co., 366 B.R.
318, 326 (Bankr. D. Del. 2007), aff'd. 388 B.R.
46 (D. Del. 2008), aff'd 590 F.3d 252 (3d Cir.
2009) (dismissing state and federal fraudulent transfer
claims because the allegedly fraudulent transfer was made by
Crystallex's claim arises under DUFTA, not the Bankruptcy
Code, these decisions are instructive. The relevant DUFTA and
Bankruptcy Code provisions are nearly identical, and Delaware
courts have interpreted and applied them uniformly.
Compare 11 U.S.C. § 548 with 6 Del. C.
§§1302-1306. "Because Delaware has adopted the
Federal UFTA, a statute that was itself modeled on Section
548 of the Bankruptcy Code . . . Delaware courts generally
recognize that our state and the federal fraudulent transfer
statutes' principles are substantially the same."
Ki-Poong Lee v. So, C.A. No. N14C-08-173 PRW, 2016
WL 6806247, at *3 (Del. Super. Ct. Nov. 17, 2016). See
also In re PHP Healthcare Corp., 128 Fed.Appx. 839, 847
(3d Cir. 2005) ("We need not discuss the provisions of
the Delaware Fraudulent Transfer Act . . . because they are
substantially the same as the relevant parts of the
Bankruptcy Code). DUFTA is "virtually a carbon copy of
the fraudulent transfer law under the Bankruptcy Code"
and "the result under Delaware law should be the same as
the outcome under the Bankruptcy Code." In re Trace
Int'l Holdings, Inc. v. Dow Chemical Co., 287 B.R.
98, 105 n.5 (Bankr. S.D.N.Y. 2002). Just as the Chancery
Court has found that a non-debtor transferor is not liable
under the Bankruptcy Code, a non-debtor transferor is not
liable under DUFTA.
Crystallex has failed to allege that PDVH is a debtor or that
PDVH would otherwise be liable to Crystallex for any judgment
against Venezuela. The Dissent notes that no Delaware case
has specifically "held that non-debtor transferors are
immune from liability under the Act." Dissenting Op. at
4. But the question here is not one of immunity. Rather, we
must decide whether a transfer by a non-debtor fits within
the statutory definition of a fraudulent transfer in the
first place. Because relevant Delaware precedent makes it
clear that the answer to this question is "no, "
non-debtor PDVH simply could not have committed a fraudulent
transfer in violation of DUFTA.
addition, reading "by a debtor" broadly enough to
allow a non-debtor subsidiary transferor (here, PDVH) to be
liable, simply because its parent company (here, Venezuela,
through its alter ego PDVSA) is a debtor, would undermine a
fundamental precept of Delaware corporate law: parent and
subsidiary corporations are separate legal entities. As the
District Court correctly noted, "Delaware public policy
does not lightly disregard the separate legal existence of
corporations." Crystallex, 213 F.Supp.3d at 690
(quoting Spring Real Estate, 2016 WL 769586, at *3
n.35). "Persuading a Delaware court to disregard the
corporate entity is a difficult task." Wallace ex
rel. Cencom Cable Income Partners II v. Wood, 752 A.2d
1175, 1183 (Del. Ch. 1999) (internal quotation marks
omitted). Delaware law "tends to accord dignity to legal
entities except in cases in which the traditional law of
piercing the corporate veil is met." Hart Holding
Co. v. Drexel Burnham Lambert Inc. C.A. No. 11514, 1992
WL 127567, at n.11 (Del. Ch. 1992). Such cases are rare, and
include situations where the subsidiary is a mere "alter
ego" of the parent. See Mabon, Nugent & Co. v.
Texas Am. Energy Corp., CIV A No. 8578, 1990 WL 44267
(Del. Ch. 1990) (describing possible grounds for piercing the
corporate veil under Delaware law). Crystallex alleges in
great detail that PDVSA is Venezuela's alter
ego. But that is beside the point. Tellingly, it does not
allege that PDVH is Venezuela's or PDVSA's alter ego
or any other basis on which we could "pierce the
corporate veil." Absent such allegations, we are
unwilling to disregard PDVH's distinct corporate identity
and attribute to it the actions of the debtor.
remaining arguments for interpreting DUFTA to cover
non-debtor transferors are also of no avail. First,
Crystallex urges that non-debtor transferors are covered by
DUFTA because § 1307(c) of the statute shows that the
legislature contemplated such liability. Under §
1307(c), "a creditor shall have no right to relief
against any trustee, attorney or other advisor who has not
acted in bad faith on account of any transfer." 6 Del.
C. § 1307(c). According to Crystallex, the inverse must
be true: non-debtors-namely, trustees, attorneys, or other
advisors-who have acted in bad faith can be liable under
DUFTA. This argument fails. First, this section of the
statute does not affirmatively authorize suits against
non-debtors. Second, even if it did authorize such suits,
Crystallex does not allege that PDVH was a trustee, attorney,
or other advisor. Moreover, we question the continued
validity of this portion of the statute. As PDVH argues,
since its enactment in 1999, § 1307(c) may have been
rendered "surplusage" by Delaware case law finding
that DUFTA only provides a cause of action against debtors,
thereby shielding advisors from liability. See Reply
Br. for Appellant at 21 (citing Edgewater, 2010 WL
720150, at *2).
Crystallex argues to no avail that § 1308 of the statute
supports non-debtor liability. Section 1308 provides that
transferees are not liable under the statute if they received
title in good faith for equivalent value. 6 Del. C. §
1308. Crystallex seems to suggest that since good faith
transferees are not liable under the statute, relief should
be afforded against bad faith non-debtor transferors.
See 6 Del. C. § 1308. But this is a non
sequitur. Moreover, there simply is no support for subjecting
bad faith non-debtor transferors to liability under the
Delaware case law. We are not permitted to "act as a