Miguel Estrada, with Gibson Dunn & Crutcher.

Almost exactly a year ago, we named Gibson, Dunn & Crutcher's Miguel Estrada and Robert Weigel Litigators of the Week for their win before a federal judge in Delaware on behalf of a Canadian gold mining company that had its assets seized by the government of Venezuela.

But of course no one hires Miguel Estrada just to try a case in district court. The big test was the appeal—and Estrada delivered, scoring a win before the U.S. Court of Appeals for the Third Circuit that opens the door for his client Crystallex International Corp. to collect a $1.4 billion arbitration award—and could provide a road map for Venezuela's other creditors. 

“This has been a hard-fought battle from the beginning, with determined and dedicated opposing counsel,” Estrada said via email. “We are pleased that the court of appeals upheld the district court's ruling in its entirety and agreed with our client's position across the board.”

Venezuela didn't show up to defend itself in Delaware, though its state-owned oil company Petróleos de Venezuela, S.A. , or PDVSA, did, arguing that Crystallex should not be allowed to go after its assets in the U.S.—namely Citgo Petroleum Corp.

On appeal, Venezuela (or more precisely, the regime of opposition leader Juan Guaidó) intervened—and lawyered up big time. They tapped Arnold & Porter Kaye Scholer's Kent Yalowitz, who handled the oral argument, plus Paul Fishman, the U.S. Attorney for the District of New Jersey from 2009 through 2017, and E. Whitney Debevoise, II, the former U.S. executive director of the World Bank. 

Curtis Mallet-Prevost Colt & Mosle's managing partner and litigation co-chair Joseph Pizzurro argued for PDVSA.

The defense team also had help from amici BlackRock Financial Management, Inc. and Contrarian Capital Management, represented by Sullivan & Cromwell partners Amanda Davidoff, Sergio Galvis, Joseph Neuhaus and Andrew Dietderich. The investment managers, which hold $1.68 billion in bonds in PDVSA, stand to take a hit if Crystallex gets paid. 

Still, their combined firepower wasn't enough to overcome arguments by Estrada and his Gibson Dunn colleagues Matthew Rozen, Lucas Townsend, Rahim Moloo, Jason Myatt and Robert Weigel.

”Venezuela owes Crystallex from a judgment that has been affirmed in our courts. Any outcome where Crystallex is not paid means that Venezuela has avoided its obligations,” wrote Judge Thomas Ambro for the unanimous panel.

The fight has its roots in 2002, when Crystallex struck a deal with the Venezuelan government for the exclusive rights to develop and extract massive gold deposits at Las Cristinas, Venezuela. 

Crystallex spent hundreds of millions of dollars developing the site, only to have it seized by the Venezuelan government in 2011 without compensation.

Crystallex promptly brought an arbitration claim against Venezuela under the investment treaty between Canada and Venezuela. Represented by Freshfields, the company was awarded $1.2 billion (now $1.4 billion with interest) in damages. 

The award was confirmed in the District of Columbia, but Venezuela balked at paying (not entirely surprising, given the dire state of the country).

The Gibson Dunn team's mission: Figure out how Crystallex could collect. 

“[E]veryone knew that Venezuela's biggest asset in the United States was Citgo Petroleum and that it was the target that we had to figure out how to get,” Weigel told Lit Daily last year.

Citgo is owned by PDVSA's U.S. subsidiary Petróleos de Venezuela Holding, Inc.

Of course, Citgo/PDVSA was not a party to the arbitration, nor was PDVSA to blame for Crystallex's injuries—facts that the defense lawyers stressed to the court. 

But the Gibson Dunn team pointed to Bancec—a 1983 U.S. Supreme Court decision where a U.S. bank was allowed to recover assets from a Cuban instrumentality to satisfy a debt owed by the Republic of Cuba.

Key to making the argument was showing PDVSA was an alter ego of the Venezuelan government—that “control is so extensive that entity separateness fades away as a legal distinction,” as the panel put it.

Here, Gibson Dunn's legwork in building the lower court record paid off. 

“Our team combed the public record in order to make our case, and we looked at everything from financial disclosures, press releases, and government proclamations to posts on Twitter and YouTube videos showing the President of Venezuela firing PDVSA employees on national television using a soccer whistle,” Weigel told Lit Daily. “[W]e were able to locate overwhelming evidence that the government controlled every aspect of PDVSA's existence.”

The Third Circuit was convinced, noting that PDVSA flat-out told bondholders “We are controlled by the Venezuelan government.” The panel also noted that government appoints the company's leaders, requires PDVSA to subsidize Venezuela's agriculture, industrial infrastructure, and produce sectors, tells PDVSA who to sell oil to and at what price, manipulates its conversion of U.S. dollars to Venezuelan Bolivars and controls its debt structures.

Not only that, PDVSA benefitted from Crystallex's misfortune. The government transferred the rights to Crystallex's expropriated mines to PDVSA for free.

Writing for the panel, Ambro concluded 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,” he continued. “Indeed, if the relationship between Venezuela and PDVSA cannot satisfy the Supreme Court's extensive-control requirement, we know nothing that can.”

The case still isn't over—the current appeal was a petition for writ of mandamus. Now the case goes back to U.S. District Chief Judge Leonard Stark in Delaware, where Estrada said, “We look forward to returning to the district court to continue the process ordained by the court of appeals' ruling in our client's favor.”