A Venezuelan government-owned oil company has failed to shake a lawsuit that resulted in a $1.4 billion judgment against it over its expropriation of a Canadian company's gold deposits.

The U.S. Court of Appeals for the Third Circuit on Monday affirmed a Delaware federal judge's order allowing plaintiff Crystallex International Corp.'s collection efforts to move forward against Venezuela and Petróleos de Venezuela S.A., or PDVSA, a Venezuelan state-owned oil company.

In order to collect, Crystallex went after shares of PDVSA's U.S.-based subsidiary PDVH, which is a holding company of CITGO Petroleum, incorporated in Delaware. Venezuela argued that it was immune from the plaintiff's attachment lawsuit under the Foreign Sovereign Immunities Act.

“Under federal common law first recognized by the Supreme Court in First National City Bank v. Banco Para El Comercio Exterior de Cuba ('Bancec'),” Judge Thomas Ambro of the U.S. Court of Appeals for the Third Circuit wrote in the court's July 29 opinion, “a judgment creditor of a foreign sovereign may look to the sovereign's instrumentality for satisfaction when it is 'so extensively controlled by its owner that a relationship of principal and agent is created.'”

That was the case in this instance, Ambro said, despite Venezuela's assertions that the district judge misapplied Bancec. Ambro indicated that the Venezuelan government's control over PDVSA was absolute.

“Under the Foreign Sovereign Immunities Act, there is a strong presumption that a foreign sovereign and its instrumentalities are separate legal entities,” Ambro said. “But the Supreme Court made clear in Bancec and [Fed. Ins. Co. v. Richard I. Rubin & Co] that in 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. This clears that bar easily. Indeed, if the relationship between Venezuela and PDVSA cannot satisfy the Supreme Court's extensive-control requirement, we know nothing that can.”

After Venezuela's 2011 nationalization of Crystallex's deposits in Las Cristinas, Crystallex invoked a bilateral investment treaty between Canada and Venezuela to file for arbitration before the International Centre for Settlement of Investment Disputes, Ambro said.

According to Ambro, “The deposits are among the world's largest. Per the contract, Crystallex spent hundreds of millions of dollars developing the Las Cristinas site.”

Crystallex won the arbitration, which took place in Washington, D.C. It was initially awarded $1.2 billion with interest, bringing the amount up to $1.4 billion.

Kent Yalowitz of Arnold & Porter Kaye Scholer in New York argued the case on behalf of Venezuela and did not respond to a request for comment. Miguel Estrada of Gibson, Dunn & Crutcher in Washington, D.C., argued the case on behalf of Crystallex and also did not respond to a request for comment.