Conocophillips Petrozuata B.V. et al v. Petroleos DE Venezuela S.A. et al

REPLY BRIEF re MOTION to Dismiss for Failure to State a Claim Pursuant to Fed. R. Civ. P. 12

D. Del.February 22, 2017

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE CONOCOPHILLIPS PETROZUATA B.V., et al., Plaintiff, v. PETRÓLEOS DE VENEZUELA, S.A., et al Defendant. : : : : : : : : : : : : Case No. 1:17-cv-0028-LPS Hon. Leonard P. Stark PDV HOLDING, INC.’S REPLY IN SUPPORT OF ITS MOTION TO DISMISS PURSUANT TO FED. R. CIV. P. 12(b)(6) OF COUNSEL: Nathan P. Eimer Lisa S. Meyer EIMER STAHL LLP 224 S. Michigan Avenue Suite 1100 Chicago, IL 60604 (312) 660-7600 NEimer@eimerstahl.com LMeyer@eimerstahl.com Kenneth J. Nachbar (#2067) Alexandra M. Cumings (#6146) MORRIS, NICHOLS, ARSHT & TUNNELL LLP 1201 North Market Street Wilmington, DE 19801 (302) 658-9200 KNachbar@mnat.com ACumings@mnat.com Case 1:17-cv-00028-LPS Document 17 Filed 02/22/17 Page 1 of 7 PageID #: 183 1 Plaintiffs’ complaint against PDV Holding, Inc. (“PDVH”) must be dismissed for failure to state a claim. Plaintiffs allege that PDVH’s pledge of its shares of CITGO Holding, Inc. (“CITGO Holding") to Rosneft Trading, S.A. (“Rosneft”), referred to as the “Rosneft transaction,” constituted a fraudulent transfer. In order to state a viable fraudulent transfer claim, however, Plaintiffs need to establish that PDVH is Plaintiffs’ debtor. This they cannot do. The supposed basis of the creditor-debtor relationship between Plaintiffs and PDVH is the ConocoPhillips I1 lawsuit, but that lawsuit doesn’t suffice because 1) Plaintiffs failed to state a claim against PDVH in that suit, and 2) even if they had stated a claim, they are not entitled to a money judgment against PDVH and thus cannot establish the “right to payment” required by the statute. As a fallback, Plaintiffs argue that they do not need to establish a creditor-debtor relationship with PDVH because PDVH can be liable as a “non-debtor transferor.” Plaintiffs are mistaken. The Delaware Uniform Fraudulent Transfer Act, 6 Del. C. § 1301, et. seq. (“DUFTA”), requires that a fraudulent transfer involve debtor property, but Plaintiffs allege that PDVH transferred its own property to Rosneft. If PDVH is a non-debtor, Plaintiffs cannot state a fraudulent transfer claim against it. As a result, the claim against PDVH must be dismissed. A. PDVH Cannot Be Liable as a Non-Debtor Transferor. In their opposition brief, Plaintiffs argue that PDVH can be liable for the Rosneft transaction as a “non-debtor transferor,” citing this Court’s decision in Crystallex I, now on appeal. See Crystallex Int’l Corp. v. Petróleos de Venezuela, S.A., No. 1:15-cv-01082-LPS, 2016 WL 5724777 (D. Del. Sept. 30, 2016). This argument does not withstand even the slightest scrutiny. Plaintiffs are correct that this Court held in Crystallex I that, due to the “unique 1 ConocoPhillips Petrozuata B.V. v. Petróleos de Venezuela, S.A., et al., No. 1:16-cv-00904-LPS (D. Del.). Case 1:17-cv-00028-LPS Document 17 Filed 02/22/17 Page 2 of 7 PageID #: 184 2 circumstances of [that] case,” PDVH could be liable under DUFTA as a non-debtor transferor. Id. at *6. But, as PDVH argued in its opening brief, DUFTA requires that a fraudulent transfer involve property belonging to the creditor’s debtor. See Mem. at 6; see also Crystallex I, 2016 WL 5724777, at *2 (“[I]n order for a fraudulent transfer to exist under the statute, there must be some transfer of debtor property involved.”). One of the circumstances that made Crystallex I unique was that non-debtor PDVH was alleged to have transferred debtor property in the form a “declared but then as-yet unpaid” dividend belonging to PDVSA. Id. at *4. Here there is no allegation that PDVSA transferred property belonging to Plaintiffs’ debtors, the Republic of Venezuela or PDVSA. To the contrary—Plaintiffs allege that PDVH granted a lien on 49.9% of its capital stock in CITGO Holding to Rosneft. See Compl. ¶¶ 38-40. PDVH’s shares of CITGO Holding stock, even once encumbered, are the property of PDVH, not PDVSA or Venezuela. See Lien; Lienee; Lienholder, Black’s Law Dictionary (9th ed. 2009); see also Dole Food Co. v. Patrickson, 538 U.S. 468, 475 (2003) (“A corporate parent which owns the shares of a subsidiary does not, for that reason alone, own or have legal title to the assets of the subsidiary; and, it follows with even greater force, the parent does not own or have legal title to the subsidiaries of the subsidiary.”). If PDVH is a non-debtor transferor, then Plaintiffs cannot state a fraudulent transfer claim against it as they have not alleged that PDVH transferred “property of the debtor,” an inescapable requirement of the plain language of DUFTA. B. ConocoPhillips I Does Not Establish a Creditor-Debtor Relationship. Thus, the viability of Plaintiffs’ DUFTA claim in this lawsuit depends exclusively on whether Plaintiffs’ claims against PDVH in ConocoPhillips I are sufficient to render PDVH Plaintiffs’ debtor. Those claims are not sufficient for several reasons. First, Plaintiffs have failed to state a claim against PDVH in ConocoPhillips I for the reasons articulated in the Case 1:17-cv-00028-LPS Document 17 Filed 02/22/17 Page 3 of 7 PageID #: 185 3 CITGO Defendants’ motion to dismiss that suit. See D.I. 10, ConocoPhillips I, No. 1:16-cv- 00904-LPS (D. Del.). Moreover, Plaintiffs’ claims in ConocoPhillips I are dependent on the outcome of Crystallex I, as the two lawsuits present essentially identical issues. See Crystallex I, No. 1:15-cv-01082-LPS, 2016 WL 7440471, at *2 (D. Del. Dec. 27, 2016). This Court’s decision denying PDVH’s motion to dismiss in Crystallex I is currently on appeal in front of the Third Circuit. If the Third Circuit rules in favor PDVH, the dismissal of Crystallex I will lead to the dismissal of ConocoPhillips I, and, thus in turn, to the dismissal of this case. Second, even if Plaintiffs had stated a claim in ConocoPhillips I, Plaintiffs’ equitable claim against PDVH in that suit is not sufficient to create the “right to payment” required under DUFTA to establish a creditor-debtor relationship. DUFTA defines a “creditor” as a person with a “claim,” which is further defined under the statute as “a right to payment, whether or not the right is reduced to judgment … .” 6 Del. C. § 1301. As Plaintiffs acknowledge, DUFTA provides that, to the extent a transaction is voidable, a creditor can recover a money judgment against only “the first transferee of the asset,” “the person for whose benefit the transfer was made” or “any subsequent transferee other than a good-faith transferee.” 6 Del. C. § 1308. In their Opposition brief, Plaintiffs seem to concede that PDVH, as a non-debtor transferor, is alleged to be neither a transferee nor the person for whose benefit the transfer was made. Therefore, while Plaintiffs may be able to obtain some type of injunctive relief against PDVH in ConocoPhillips I, the statute does not provide an avenue for money damages. Plaintiffs concede that they cannot obtain money damages from PDVH on their claim. They speculate, however, that the possibility that they might one day be entitled to monetary relief from PDVH cannot be completely foreclosed. Plaintiffs argue that they could potentially receive a monetary award sometime down the road if, say, they obtain an injunction and PDVH Case 1:17-cv-00028-LPS Document 17 Filed 02/22/17 Page 4 of 7 PageID #: 186 4 ignores the injunction or the enforcement of the injunction proves impracticable. Opp’n at 10. DUFTA was intended to be a flexible statute, but it strains credulity to argue that the bare possibility that a litigant potentially subject to an injunction might be ordered to pay damages if it violates that hypothetical injunction is sufficient to render the litigant a “debtor” for the purposes of a fraudulent transfer claim. Unlike a plaintiff with an existing claim for damages based on an already-occurred injury, event, or transaction, Plaintiffs do not and cannot claim that PDVH does or will owe them any amount of money as a result of its alleged role in the alleged fraudulent transfers or even as a result of a potential victory in Plaintiffs’ DUFTA suit. Plaintiffs’ suit for injunctive relief against PDVH does not give rise to a “right to payment,” actual or nascent, as required by the statute. In any event, as explained in PDVH’s opening brief, even if the Foreign Sovereign Immunities Act, 28 U.S.C. § 1602, et. seq. (“FSIA), does not entirely preempt Plaintiffs’ claims in ConocoPhillips I, it at least preempts any claim for damages. See Mem. at 9-10. To hold otherwise would mean imposing liability on PDVH for conduct—transferring foreign sovereign property to the foreign sovereign—that Congress has determined is protected under the FSIA. This would have the effect of creating a secondary legal regime governing the movement of foreign sovereign property in the United States, thereby undermining the very purpose of the FSIA. Plaintiffs do not offer any credible opposition to this contention or even attempt to explain how DUFTA damages claims could coexist with the FSIA. C. The FSIA Bars Plaintiffs’ Claims. Finally, for the reasons set forth in PDVH’s opening brief, this suit is barred by the FSIA, as Plaintiffs allege that the fraudulent transfer in this action was part of the same Venezuela- directed scheme alleged in ConocoPhillips I. See Mem. at 11-12. Case 1:17-cv-00028-LPS Document 17 Filed 02/22/17 Page 5 of 7 PageID #: 187 5 CONCLUSION PDVH respectfully request that this Court grant its motion to dismiss. OF COUNSEL: Nathan P. Eimer Lisa S. Meyer EIMER STAHL LLP 224 South Michigan Avenue Suite 1100 Chicago, IL 60604 (312) 660-7600 NEimer@eimerstahl.com LMeyer@eimerstahl.com February 22, 2017 MORRIS, NICHOLS, ARSHT & TUNNELL LLP /s/ Kenneth J. Nachbar (#2067) Kenneth J. Nachbar Alexandra M. Cumings (#6146) 1201 North Market Street Wilmington, DE 19801 (302) 658-9200 KNachbar@mnat.com ACumings@mnat.com Case 1:17-cv-00028-LPS Document 17 Filed 02/22/17 Page 6 of 7 PageID #: 188 6 CERTIFICATE OF SERVICE I hereby certify that on February 22 2017, I electronically filed the foregoing document with the Clerk of the Court using CM/ECF which will send notification of such filing to all registered participants, including: Garrett B. Moritz Benjamin J. Schladweiler Ross Aronstam & Moritz LLP 100 South West Street, Suite 400 Wilmington, DE 19801 /s/ Kenneth J. Nachbar Kenneth J. Nachbar (#2067) Morris, Nichols, Arsht & Tunnell LLP 1201 North Market Street P.O. Box 1347 Wilmington, DE 19899-1347 (302) 658-9200 Case 1:17-cv-00028-LPS Document 17 Filed 02/22/17 Page 7 of 7 PageID #: 189