Third Circuit: Crystallex Can Seize Venezuela's Citgo Shares

PHILADELPHIA (CN) — A Third Circuit judge affirmed a federal court ruling Monday that legally attaches Venezuela to shares in a U.S.-based subsidiary of its state-owned oil company, which owns Citgo Petroleum Corp.

The attachment came at the request of a now-defunct Canadian gold company called Crystallex International Corp., which seeks to recover a $1.2 billion arbitration award it was granted after Venezuela nationalized its mining operations in 2011.

The country took over Crystallex’s mines at Las Cristinas, one of the world’s largest undeveloped gold deposits.

The state has refused to pay Crystallex’s arbitration award. So, in an attempt to collect its $1.2 billion – plus interest –the gold company sought to attach Venezuela’s state-owned oil giant Petroleos de Venezuela (PDVSA), to its U.S. subsidiary, Petróleos de Venezuela Holding, which owns Citgo.

The attachment allows Crystallex to seize Citgo shares to collect on Venezuela’s debt.

The U.S. District Court for the District confirmed the attachment, but Venezuela appealed in April, arguing that it is protected by sovereign immunity.

In the Third Circuit ruling Monday, U.S. Circuit Judge Thomas Ambro – who heard the case along with Justices Joseph Greenaway Jr. and Anthony Scirica – cited the Supreme Court case Rubin v. Islamic Republic of Iran , and said that, because the oil company is state owned and operated, the writ is appropriate.

“[I]n extraordinary circumstances – including where a foreign sovereign exerts dominion over the instrumentality so extensive as to be beyond normal supervisory control – equity requires that we ignore the formal separateness of the two entities,” Ambro wrote.

“This clears that bar easily,” he added. “Indeed, if the relationship between Venezuela and PDVSA cannot satisfy the Supreme Court’s extensive-control requirement, we know nothing that can.”