Citgo gas station. Photo: Ken Wolter/Shutterstock.com

A Delaware federal judge has allowed Crystallex International Corp. to seize shares of Citgo Petroleum Corp., granting the Canadian gold producer's request to prevent Venezuela from avoiding a $1.2 billion arbitration award over lost mineral rights.

The ruling, initially filed under seal Aug. 10 by U.S. District Chief Judge Leonard P. Stark of the District of Delaware, entered a writ of attachment for shares of Petróleos de Venezuela S.A., Venezuela's national oil company, which owns Citgo in the United States—the latest development in a messy international dispute that has bounced around the federal courts for years.

In a 75-page opinion, Stark said that PDVSA acted as an “alter ego” of the Venezuelan government, which had exerted extensive control over the company's business operations. The ruling pointed to a number of official actions Venezuela had taken through PDVSA, including using its planes to transport politicians and using the company as a vehicle to raise funds.

Current Venezuela President Nicolás Maduro had also dictated the appointment of directors, vice presidents and members of the firm's shareholder council, Stark said. And the country's former leader, Hugo Chávez, even fired company officials on national television for opposing the government's policies, according to the opinion.

In an accompanying order, Stark directed the parties to meet this week to outline how the sale of the Citgo shares should proceed, and whether it would require the approval of the U.S. Treasury Department's Office of Foreign Assets Control, which administers and enforces economic and trade sanctions.

Venezuela has said in court papers that it plans to appeal.

Crystallex filed its motion for a writ of attachment in August 2017, after Venezuela failed to pay a $1.2 billion arbitration award for improperly terminating the Canadian company's rights to an untapped gold reserve amid a push to nationalize its gold mines.

The U.S. District Court for the District of Columbia confirmed the arbitration award in 2017. However, Crystallex's previous attempt to recover against PDVSA under the Delaware Uniform Fraudulent Transfer Act fell flat after an appeals court tossed the case in January.

Crystallex argued in the attachment case that Venezuela used its shares to PDV Holding Inc., a Delaware company, for commercial activity in the United States by exerting its rights as a shareholder to conduct business through Citgo, the company's wholly owned subsidiary.

“It is difficult to imagine a property with more of a commercial use than shares of a Delaware for-profit corporation that itself owns, through an intermediate holding company, a multibillion-dollar Delaware petroleum corporation,” Crystallex had argued in court papers, according to the opinion.

PDVSA intervened in the dispute and argued that Venezuela's control of PDVSA and its assets constituted ordinary government regulations. According to PDVSA, shares in the American subsidiary were “effectively frozen” and couldn't be used for commercial activity.

Stark, however, sided with Crystallex, citing evidence that Venezuela was deeply involved in the day-to-day operations of PDVSA.

“Specifically, Venezuela—through PDVSA—uses the shares to appoint directors, approve contracts and pledge assets as security for PDVSA's debt,” he wrote.

“The court finds by a preponderance of evidence that the PDVH shares are being 'used for a commercial purpose' by PDVSA and, therefore, may be attached (and executed on) as property of Venezuela's alter ego.”

Both sides have until Thursday to detail “next steps” in the litigation, according to the ruling.

Crystallex is represented by Robert L. Weigel, Jason W. Myatt, Rahim Moloo and Miguel A. Estrada of Gibson, Dunn & Crutcher's New York and Washington, D.C., offices. Raymond J. DiCamillo, Jeffrey L. Moyer and Travis S. Hunter of Richards, Layton & Finger are acting as local counsel.

PDVSA is represented by Joseph D. Pizzurro, Kevin A. Meehan, Julia B. Mosse and Juan Perla of Curtis, Mallet-Prevost, Colt & Mosle in New York and Samuel T. Hirzel II of Heyman Enerio Gattuso & Hirzel in Wilmington.

The case is captioned Crystallex International v. Venezuela.