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Auslander v. Murray

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Kaye v. Blue Bell Creameries, Inc.

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Crystallex International Corp. v. Petroleos De Venezuela, S.A.

Venezuela let off the hook for expropriating assets.

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Case Type:
Business
Case Status:
Reversed
Citation:
Nos. 16-4012 & 17-1439, U.S. Court of Appeals for the Third Circuit (3rd Circuit, Jan 03,2018) Published
Tag(s):
Ruling:
A transfer by a non-debtor entity cannot be a “fraudulent transfer” under the Delaware Uniform Fraudulent Transfer Act (“DUFTA”).
Procedural context:
Plaintiff Crystallex International Corp. was awarded a $1.202 billion arbitration award against Venezuela, that was confirmed by the Delaware District Court. Crystallex brought a lawsuit against PDV Holding, Inc. ("PDVH"), an indirect subsidiary of Venezuela, for a fraudulent transfer under the DUFTA. The Delaware District Court denied PDVH's motion to dismiss, concluding there was a transfer "by a debtor," as required by the DUFTA.
Facts:
Crystallex filed a complaint against PDVH, alleging that Venezuela shielded money from any enforcement action in the United States by directing its alter ego Petróleos de Venezuela SA ("PDVSA") to cause its subsidiaries to issue $2.8 billion in debt and then upstream the proceeds as shareholder dividends. PDVSHA's wholly owned subsidiary PDVH moved to dismiss the complaint, arguing that Crystallex failed to state a claim under the DUFTA because the allegedly fraudulent transfer was not made “by a debtor,” i.e. Venezuela, rather it was by a subsidiary and affiliate. A plaintiff must plead three things to assert a claim under the DUFTA: 1) that a transfer was performed, 2) by a debtor and 3) with the actual intent to hinder, delay or defraud a creditor. Here there is no allegation that PDVH is a debtor or otherwise liable for the arbitration award, nor that Venezuela transferred any property. Rather, the allegation was that Venezuela through its alter ego PDVSA "received" $2.8 billion and the only transfer was by a non-debtor, PDVH. Therefore, the Third Circuit concluded that "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." The court also noted that reading the requirement of "by a debtor" broadly to include non-debtor subsidiaries "would undermine a fundamental precept of Delaware corporate law: parent and subsidiary corporations are separate legal entities." Similarly, the court declined to rely upon the dictionary definition of "by" to include transfers "on behalf of" a debtor finding that courts have read DUFTA to require a transfer by the debtor itself. The court noted that DUFTA may cover indirect transfers, but that transfer must nonetheless be made "by a debtor" in order to be recognized under DUFTA. Lastly, the court held that there are no aiding and abetting or conspiracy claims that are recognized under the DUFTA.
Judge(s):
Vanaskie, Rendell and Fuentess

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