MEMORANDUM OPINION
I. BACKGROUND
This ease stems from allegations that the Bolivarian Republic of Venezuela (“Venezuela”) unlawfully expropriated certain mining rights and investments belonging to a Canadian company, Plaintiff Crystallex International Corporation (“Crystallex”), According to Crystallex, Venezuela then orchestrated a scheme to monetize its American assets and pulled the proceeds out of,the United States, with the goal of evading potential arbitration creditors, including Crystallex. (See generally D.I. 1)
Defendant Petróleos de Venezuela, S.A. (“PDVSA”) is Venezuela’s state-owned oil company and, undisputedly, an “agency or instrumentality” of Venezuela. (See D.I. 1 at 18-33 (alleging that PDVSA is Venezuela’s alter ego); D.I. 28-2 at 1; D.I. 31 at 13 n.7) PDVSA directly and indirectly owns Defendant PDV Holding, Inc. (“PDVH”) and CITGO Holding, Inc. (“CITGO Holding” and, together with PDVH, the “Delaware Subsidiaries”), both of which are Delaware-corporations. Crystallex alleges that PDVSA instructed CITGO Holding to issue $2.8 billion in debt and pay the proceeds to its parent company, PDVH, as a dividend. Then, according to Crystallex, PDVH transferred this sum further up the ladder and out of the U.S. by issuing a dividend in the same amount-to its own parent, PDVSA. It is alleged that the transactions effecting this repatriation of funds to Venezuela (the - “Transfer (s)”) “had no legitimate purpose” but, instead, were “designed deliberately to hinder and delay Venezuela’s creditors.” (D.I. 1 ¶ 55)
Meanwhile, PDVSA’s co-defendants, PDVH and CITGO Holding, moved to dismiss the Complaint for failure to state a claim. (D.I. 8) On September 30, 2016, the Court issued a memorandum opinion and order dismissing CITGO Holding, but not PDVH, from the case. (See D.I. 34, 35) An interlocutory appeal from the Court’s order on the Delaware Subsidiaries’ motion to "dismiss is presently pending in the United States Court of Appeals for the Third Circuit. (See D.I. 40, 58)
The Court now turns to PDVSA’s separate motion to dismiss under, the Foreign Sovereign Immunities Act, 28 U.S.C. § 1602 et seq. (“FSIA” or “Act”), and Federal Rules of Civil Procedure 12(b)(1), 12(b)(2), and 12(b)(6). (See D.I. 28) The parties fully briefed PDVSA’s motion (see D.I. 28-2, 31, 32), and the Court heard oral argument on December 20, 2016 (see D.I. 57 (“Tr.”)), For the reasons stated below, the Court will grant PDVSA’s motion.
II. LEGAL STANDARDS
A Subject Matter Jurisdiction
Rule 12(b)(1) “authorizes dismissal of a complaint for lack of jurisdiction over the subject matter, or if .the plaintiff lacks standing to bring his claim.” Samsung Elec. Co., Ltd. v. ON Semiconductor Corp.,
Here, PDVSÁ brings a facial challenge to the Court’s subject matter jurisdiction. (See D.I. 28-2 at 5 n.3) PDVSA has not introduced extrinsic evidence, and the parties’ briefs and arguments reflect disagreement over “the legal sufficiency of the plaintiffs jurisdictional allegations.” Rong v. Liaoning Province Gov’t,
B. Personal Jurisdiction
Rule 12(b)(2) directs the Court to dismiss a case when it lacks personal jurisdiction over the defendant. On a motion to dismiss for lack of personal jurisdiction, “the plaintiff is entitled to have its allegations taken as true and all factual disputes drawn in its favor.” Miller Yacht Sales, Inc. v. Smith,
C. Failure to State a Claim
Evaluating a motion to dismiss under Rule 12(b)(6) requires the Court to accept as true all material allegations of a complaint. See Spruill v. Gillis,
III. DISCUSSION
A. Subject Matter Jurisdiction
1. PDYSA is presumptively immune under the FSIA
The FSIA provides the sole means for “obtaining jurisdiction over a foreign state in the courts of this country.” Argentine Republic v. Amerada Hess Shipping Corp.,
Here, Crystallex alleges that PDVSA is an “agency or instrumentality” of Venezuela, which PDVSA does not deny. (See D.I. 1 ¶ 15 (quoting 28 U.S.C. § 1603(b)); D.I. 28-2 at 1) It is undisputed, therefore, that the FSIA is applicable. It is further undisputed that PDVSA is presumptively immune from suit. What is disputed is whether Crystallex has met its burden of production to establish that one of the FSIA’s exceptions to immunity is satisfied.
2. FSIA’s “commercial activity” exceptions to immunity
Crystallex contends that it has met its burden by showing that PDVSA’s conduct
A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case ... in which the action is basedp]
[i] upon a commercial activity carried on in the United States by the foreign state; or
[ii] upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or
[iii] upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.
(Bracketed text, spacing, and emphasis added)
In order for any of the three “commercial activity” exceptions to immunity to apply, Crystallex must first show that PDVSA’s alleged conduct was “commercial activity.” On this point, Crystallex has met its burden. Indeed, PDVSA does not appear to contest that the actions it is alleged to have taken are treated as “commercial activity” under the FSIA.
Pursuant to the statute, “commercial activity” can be either “a regular course of commercial conduct or a particular commercial transaction or act.” 28 U.S.C. § 1603(d). “The commercial character of an activity shall be determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose.” Id. Hence, a “foreign sovereign’s actions are ‘commercial’ ” when the foreign state “acts, not as regulator of a market, but in the manner of a private player within it.” Republic of Argentina v. Weltover, Inc.,
[T]he question is not whether the foreign government is acting with a profit motive or instead with the aim of fulfilling uniquely sovereign objectives. Rather, the issue is whether the particular actions that the foreign state performs (whatever the motive behind them) are the type of actions by which a private party engages in “trade and traffic or commerce.”
Id. (internal citation omitted; emphasis in original).
The Court agrees with Crystallex that the Transfers constitute “commercial activity” under the FSIA’s definition. (See D.I. 31 at 7) As Crystallex writes, “PDVSA’s receipt of $2.8 billion in dividends from its wholly-owned Delaware Subsidiaries following a series of transactions it orchestrated is exactly the kind of activity in which a private party might engage.” (Id. at 8) Whatever PDVSA’s actions were in connection with the Transfers, they were not acts of a “regulator” of a market but, instead of a “private player within it.”
Each of the “commercial activity” clauses has at least one additional requirement that must be established. The Court now turns ‘to these considerations,
a. First clause: “in the United States”
Pursuant to the first clause of the FSIA’s “commercial activity” exception, a foreign agency or instrumentality is not immune from a suit that is “based upon” that agency or instrumentality’s “commercial activity carried on in the United States.” 28 U.S.C. § 1605(a)(2). Crystallex contends that this first clause exception applies to PDVSA. (See D.I. 31 at 7-11)
The FSIA defines “commercial activity carried on in the United States by a
Crystallex has not established that its DUFTA claim is “based upon” “commercial activity” that PDVSA “carried on in the United States.” A claim is “‘based upon’ the ‘particular conduct’ that constitutes the .‘gravamen’ of the suit,” so courts must “zero[ ], in on the core” of the action in assessing whether a claim is “based upon” particular “commercial, activity.” Sachs,
With respect to Crystallex’s DUFTA claim, the “gravamen,” “core,” and “foundation” lies ' not in PDVSA’s general “course of commercial conduct” with respect to its Delaware Subsidiaries, but, instead, in PDVSA’s “particular act” of directing the Transfers, allegedly with fraudulent intent. 28 U.S.C. § 1603(d). Absent the fraudulent intent, the identical transactions comprising the Transfers would not (even arguably) give rise to a DUFTA claim. (See Tr. at 10 (“They have no claim based upon the transaction in the United States alone. Their claim is based on. the intent . to hinder, delay or defraud.”)) In other words, if the same, identical Transfers were carried out without the alleged fraudulent intent, there would be no cognizable claim that could be brought, by Crystallex. The fraudulent intent, hence, is inextricably part of the “gravamen,” “core,” and “foundation” of Crystallex’s claim.
As PDVSA is located in Venezuela, and is not alleged to.have any operations in the U.S., the alleged fraudulent intent must have been formed and executed in Venezuela. As counsel explained at oral argument, “[t]he coré of this casé is Venezuela. All of the evidence of [fraudulent] intent, if there was such an intent, has to be in Venezuela.” (Tr. at 11) While the Court must take as true that this fraudulent in-tént continued throughout the entire implementation of the Transfers—it was not just a momentary ‘ or fleeting “state of mind’—there is no well-pleaded allegation of any moment at which PDVSA possessed a fraudulent intent “in the United States” and acted “in the United States.”
Crystallex argues that “PDVSA’s claim that its intent is the only relevant act and that such intent can only be found in Venezuela ignores the language of DUFTA and its list of badges of fraud—actions within the Unitéd States from which intent may be presumed.” (D.I. 31 at 11 n.5 (citing 6 Del. C. § 1304(b))) But DUFTA’s badges of fraud are simply examples of circumstantial evidence that may. be considered “[i]n determining actual intent.” 6 Del. C.
Crystallex contends that PDVSA’s ownership and control of its Delaware Subsidiaries, along with its actions “to reduce the value of its as'sets in the U.S. and to move the cash generated from that process out of the U.S. by directing [PDVH] to issue a dividend,” are “enough to establish jurisdiction” based on commercial activity in the United States. (D.I. 31 at 9) Crystallex also points to overlapping management between PDVSA and the Delaware Subsidiaries. (See id.)
PDVSA responds that the Complaint lacks “a single pleaded fact to explain what PDVSA allegedly did to ‘orchestrate,’ ‘direct’ or ‘perpetuate’ the transfers, where such acts occmred, or what conduct allegedly constituted PDVSA’s ‘commercial activity in the United States.’ ” (D.I. 28-2 at 9 (quoting D.I. 1 ¶¶ 7, 8, 15, 19) (emphasis added); see also Tr. at 7-8 (“They don’t say that there were meetings in the United States. They don’t say there were phone calls in the United States.”)) In' PDVSA’s view, “the Complaint fails to allege that PDVSA did anything in the United States.” (D.I. 28-2 at 9)
The Court agrees with PDVSA that the Complaint fails to allege where PDVSA’s acts occurred; the only plausible inference is that they occurred where PDVSA is solely located: in Venezuela. While the’ Delaware Subsidiaries’ actions are adequately alleged to have taken place In the U.S., it does not follow that the alleged actions of their parent, PDVSA, are also adequately alleged to have taken place in the U.S.
As noted above, there may be a second way in which the first clause exception from immunity is satisfied: where the claim is “based upon” “.commercial activity ... having substantial contact with the United States.” 28 U.S.C. § 1603(e) (emphasis added). Contrary to Crystallex’s apparent view (see D.I. 31 at 8; Tr. at 36-37), satisfaction of this exception still requires some conduct by the foreign nation, instrumentality, or agency in the United States.
The Sixth Circuit has explained this requirement. In Triple A,
Other courts have taken a similar view. See Terenkian v. Republic of Iraq,
Not all courts have reached the same conclusion. See, e.g., Rubin v. Islamic Republic of Iran,
But there is no binding precedent on this point.
Mere ownership and control of Delaware subsidiaries, and “overlapping management” (D.I. 31 at 9), do not suffice. See generally First National City Bank v. Banco Para El Comercio Exterior de Cuba,
It is unclear whether Crystallex has adequately alleged even the “minimum contacts” to meet the lesser standard required for showing personal jurisdiction. See generally Marnavi S.p.A. v. Keehan,
In Sum, because the conduct at the heart of the Complaint’s allegations is extraterritorial and/or insubstantially connected to the United States, the first clause of § 1605(a)(2) does not provide a basis for finding subject matter jurisdiction in this Court with respect to Crystallex’s claim against PDVSA.
b. Second clause: act performed in the U.S. “in connection with” commercial activity elsewhere
The second clause turns “upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere.” 28 U.S.C. § 1605(a)(2). This second clause “is generally understood to apply to non-commercial acts in the United States that relate to commercial acts abroad.” Kensington Int’l, Ltd. v. Itoua,
PDVSA contends that the second clause does not apply because “the Complaint fails to specifically allege any act of PDVSA in the United States.” (D.I. 28-2 at 12) Additionally, in PDVSA’s view, “all of the activity alleged to have occurred in the United States [i.e., by the Delaware Subsidiaries] is commercial in nature.” (Id. at 12-13)
Crystallex takes the position that the second clause of the commercial activities exception does not apply because PDVSA engaged in commercial activities within the U.S. (D.I. 31 at 11 n.5) But, in the alternative, if—as has happened—the Court were
As the Court has already held, Crystal-lex’s DUFTA claim is not -“based upoh” any act PDVSA performed within the United States. In the absence of an allegation that PDVSA has performed any act in the U.S., it follows that PDVSA is not alleged to have performed any “noncommercial act” in this country. Accordingly, - the second clause of the commercial activity exception from immunity is inapplicable.
c. Third clause: act with a “direct effect” in the U.S.
The third “commercial activity” exception from immunity applies to actions based upon “an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere” when that act “causes a direct effect in the United States” 28 U.S.C. § 1605(a)(2) (emphasis added). Crystallex’s DUFTA claim is “based upon” an act outside' of the U.S.—PDVSA’s instructions to’ its subsidiaries—in connection with commercial activity elsewhere—PDVSA’s management of its . subsidiariés generally,' which occurs at least in part outside of the United States. With these prerequisites satisfied, the issue becomes whether PDVSA’s extraterritorial acts in connection with managing the Delaware Subsidiaries “caused a direct effect in the United States.”
“A direct effect is one which has no intervening element, but, rather, flows in a straight line without deviation or interruption.” Cruise Connections Charter Mgmt. 1, LP v. Attorney Gen. of Canada,
Crystallex asserts that PDVSA’s “manipulation of its subsidiaries into taking on $2.8 billion in debt and transferring $2.8 billion out of Delaware had a ‘direct effect’ in the U.S.” (D.I. 31 at 11) It explains that one “immediate consequence of PDVSA’s receipt of $2.8 billion was to leave its Delaware-based subsidiary insolvent on a GAAP basis, furthering PDVSA’s and Venezuela’s scheme to hinder and delay creditors in enforcement proceedings.” (Id. at 12)
However, the Court agrees with PDVSA that the “alleged frustration of a potential, future judgment in the United States” is not a direct’ harm for purposes of application of the third clause of the commercial activities exception of the FSIA, (D.I. 32 at 6) As PDVSA accurately describes, the Complaint here alleges' merely that “the transfers hindered [Crystallex’s] ability in the United States to collect on its anticipated, but [then] non-existent, arbitral award against Venezuela.” (D.I. 28-2 at 14) “At the time of the allegedly fraudulent transfers, Crystallex, a Canadian corporation, was engaged in an international arbitration against Venezuela involving activities that’ had nothing whatsoever, to do with the United States.” (D.I. 28-2 at 15)
In Kensington,
A case on which Crystallex relies, Cruise Connections,
None of PDVSA or its subsidiaries’ alleged conduct had a direct, “straight line” impact on Crystallex. When the Transfers occurred, .Crystallex was litigating, an arbitration proceeding against Venezuela. It had no judgment against PDVSA or any of its subsidiaries. The arbitration itself and confirmation of any arbitration award (perhaps among other intervening events) stood between Crystallex and execution on PDVSA’s allegedly devalued assets. Given these “intervening elements,” the Court cannot conclude that Crystallex’s DUFTA claim is “based upon” an act having a “direct effect” in the United States. 28 U.S.C. § 1605(a)(2).
' M> ⅜ ⅜
Because the Complaint’s allegations fail to provide a basis for jurisdiction under any of the three, commercial activity exceptions in § 1605(a)(2), sovereign immunity bars Crystallex’s action against PDVSA. See 28 U.S.C. § 1604. Therefore, the Court lacks subject matter jurisdiction with respect to Crystallex’s DUFTA claim against PDVSA and PDVSA must be dismissed as a defendant.
The parties agree that PDVSA’s motion to dismiss for lack of personal jurisdiction rises or falls with the Court’s ruling on subject matter jurisdiction. (See D.I. 28-2 at 16-17 (citing 28 U.S.C. § 1330(b)); D.I. 31 at 13 n.7) Given the Court’s finding that it lacks subject matter jurisdiction, it follows that the Court lacks personal jurisdiction as well. Accordingly, PDVSA will be dismissed for lack of personal jurisdiction.
C. Failure to State a Claim
Given the Court’s lack of subject matter and personal jurisdiction with respect to PDVSA, it is unnecessary to also address whether Crystallex has failed to state a claim against PDVSA on which relief may be granted. To the extent PDVSA is raising the same challenges that the Delaware Subsidiaries did with respect to whether the Court may grant relief on Crystallex’s DUFTA claim (see, e.g., D.I. 28-2 at 4 (attempting to incorporate by reference arguments made in Delaware Subsidiaries’ briefs); Tr. at 59-60 (describing overlap with Delaware Subsidiaries’ motion)), the Court has nothing to add to the views expressed in the earlier Memorandum Opinion (D.I. 34).
IV. CONCLUSION
For the reasons explained above, PDVSA’s motion (D.I. 28) will be granted, and PDVSA will be dismissed as a party to this matter. An appropriate Order follows.
ORDER
At Wilmington this 1st day of May, 2017, consistent with the Memorandum Opinion issued this date,
IT IS HEREBY ORDERED that defendant Petróleos de Venezuela, S.A.’s (“PDVSA”) motion to dismiss (D.I. 28) is GRANTED and PDVSA is DISMISSED as a party to this matter.
IT IS FURTHER ORDERED that all remaining parties to this action shall provide the Court with a joint status report— including an update as to the status of any related actions and any appeals, as well as the parties’ proposal(s) as to how the Court should proceed with respect to any pending motion and if it should schedule oral argument and/or a status conference—no later than May 5, 2017.
Notes
. Crystallex also asserted a claim for common law civil conspiracy. (See D.I. 1 at 37) The Court has already dismissed this claim as against the Delaware Subsidiaries (See D.I. 34 at 13) and the parties to the pending motion do not appear to believe that any civil conspiracy claim is still being pressed against PDVSA.
. Crystallex does not appear to seriously contest PDVSA’s assertion that applying, the principles of agency—and treating the Delaware Subsidiaries’ actions in the U.S. as PDVSA’s actions in the U.S.—would be inappropriate here, (See D.I. 28-2 at 10-11; D.I. 31 at 10 n.4)
. A precedential decision of the Third Circuit that considered the FSIA, Sugarman v. Aeromexico, Inc.,
. As noted earlier, an interlocutory appeal from the Court’s order on the Delaware Subsidiaries’ motion to dismiss is pending in the Third Circuit.