Machine Translated by Google

Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 1 of 33

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

:
GIRARD STREET INVESTMENT HOLDINGS :
LLC, :
:
Plaintiff, : Case No. 23-cv-10772-JSR
:
v. : (Consolidated with Case No. 23-cv-10766-
: JSR)
PETRÓLEOS DE VENEZUELA, SA and PDVSA PETRÓLEO :
SA, :
:
Defendants. :
:
:
GIRARD STREET INVESTMENT HOLDINGS :
LLC, :
:
Plaintiff, : Case No. 24-cv-4448-JSR
:
v. : (Consolidated with Case No. 23-cv-10766-
: JSR)
PDV HOLDING, INC., :
:
Defendant. :
:
:

PLAINTIFF GIRARD STREET INVESTMENT HOLDINGS LLC'S OPPOSITION TO

DEFENDANT PDV HOLDING, INC.'S MOTION TO DISMISS
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 2 of 33

TABLE OF CONTENTS

INTRODUCTION ........................................................................................................................... 1

STATEMENT OF FACTS ........................................................................................................... 2

ARGUMENT ................................................................................................................................... 3

YO.
The Bancec Standard Applies to the Alter Ego Analysis ................................................... 4
II. Plaintiff Has Plausibly Pleaded Alter Ego Under Bancec Plaintiff Has .................................................. 8

TO. Adequately Alleged PDVSA Extensively Controls PDVH .............. 9

B. Plaintiff Has Adequately Alleged Injustice ........................................................... 12
III. In the Alternative, Plaintiff Has Plausibly Pleaded Alter Ego Under Delaware Law ...... 13
TO. Plaintiff Has Adequately Alleged Control ........................................................... 15
B. Plaintiff Has Adequately Alleged an Injustice that Justifies Piercing the Veil .... 18
C. Plaintiff Has Adequately Alleged That the Equities Favor Reverse Veil-
Piercing ........................................................................................................... 23
CONCLUSION ........................................................................................................................... 25

Yo
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 3 of 33

TABLE OF AUTHORITIES

Page(s)

Cases

Aaron Richard Golub, Esquire, PC v. Blum,

No. 23-CV-10102 (JSR), 2024 WL 1376436 (SDNY Apr. 1, 2024) ...................................13

In re Altaba, Inc.,
No. CV 2020-0413-JTL, 2021 WL 4705176 (Del. Ch. Oct. 8, 2021) ...................................12

Anadarko Petroleum Corp. v. Panhandle Eastern Corp.,

545 A.2d 1171 (Del. 1988) ...................................................................................................11

Asarco LLC v. Ams. Min. Corp.,

No. 1:07-CV-00018, 2009 WL 2168778 (SD Tex. July 20, 2009) .......................................19

Ashcroft v. Iqbal,
556 US 662 (2009) ...................................................................................................................3

In re Autobacs Strauss, Inc.,

473 BR 525 (Bankr. D. Del. 2012) .......................................................................................19

Bank of Am. Nat. Tr. & Sav. Ass'n v. 203 N. LaSalle St. P'ship,
526 US 434 (1999) ...................................................................................................................12

Bell Atl. Corp. v. Twombly,

550 US 544 (2007) ...................................................................................................................3, 4

Blair v. Infineon Techs. AG,

720 F. Supp. 2d 462 (D. Del. 2010) ...........................................................................................19

Buechner v. Farbenfabriken Bayer Aktiengesellschaft,

154 A.2d 684 (Del. 1959) .......................................................................................................22

Casper Sleep, Inc. v. Mitcham,

204 F. Supp. 3d 632 (SDNY 2016) ...................................................................................3, 10

Wallace ex rel. Cencom Cable Income Partners II, Inc., LP v. Wood,

752 A.2d 1175 (Del. Ch. 1999)................................................................................................19

Chance v. Armstrong,
143 F.3d 698 (2d Cir. 1998)...............................................................................................................3

Cleveland-Cliffs Burns Harbor LLC v. Boomerang Tube, LLC,

No. 2022-0378-LWW, 2023 WL 5688392 (Del. Ch. Sept. 5, 2023) ...................................14, 21

ii
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 4 of 33

Cohain v. Klimley,
No. 08 CIV 5047 PGG, 2010 WL 3701362 (SDNY Sept. 20, 2010), aff'd sub
nom. Sissel v. Rehwaldt, 519 F. App'x 13 (2d Cir. 2013) ...................................................11

Coughlin Const. Co. v. Nu-Tec Indus., Inc.,

755 NW2d 867 (ND 2008) ...................................................................................................16

Crystallex Int'l Corp. v. Bolivarian Republic of Venezuela,

333 F. Supp. 3d 380 (D. Del. 2018), aff'd and remand, 932 F.3d 126 (3d Cir.
2019) ...................................................................................................................................9

Crystallex Int'l Corp. v. Bolivarian Republic of Venezuela,

932 F.3d 126 (3d Cir. 2019), cert. denied, 140 S. Ct. 2762 (2020) ................................... passim

Crystallex Int'l Corp. v. Petroleos De Venezuela, SA,

879 F.3d 79 (3d Cir. 2018).................................................................................................................22

In re DBSD N. Am., Inc.,

634 F.3d 79 (2d Cir. 2011).................................................................................................12, 16

Doe v. State Univ. of NY Purchase Coll.,

617 F. Supp. 3d 195 (SDNY 2022) .......................................................................................4

EM Ltd. v. Banco Cent. De La Republica Arg.,

800 F.3d 78 (2d Cir. 2015)...............................................................................................4, 8, 9, 12

EMAK Worldwide, Inc. v. Kurz,

50 A.3d 429 (Del. 2012) ..........................................................................................................18

Energy Coal, SpA v. CITGO Petroleum Corp., No.

2:14-CV-03092, 2015 WL 5123867 (WD La. Aug. 31, 2015), aff'd sub nom.
Energy Coal v. CITGO Petroleum Corp., 836 F.3d 457 (5th Cir. 2016) .........................7

Essar Steel Algoma Inc. v. Nev. Holdings, Inc.,

No. 17 Misc. 360 (AT)(RWL), 2020 WL 2539031 (SDNY May 18, 2020) ...................17, 21

Esso Expl. & Prod. Nigeria Ltd. v. Nigerian Nat'l Petroleum Corp.,
397 F. Supp. 3d 323 (SDNY 2019), aff'd in relevant part, 40 F.4th 56 (2d Cir.
2022) ...................................................................................................................................9

In re Fechheimer Fishel Co.,

212 F. 357 (2d Cir.1914)................................................................................................................12

Fireman's Fund Ins. Cos. v. Meenan Oil Co.,

755 F. Supp. 547 (EDNY 1991) ...........................................................................................23

First Nat'l City Bank v. Banco Para El Comercio Exterior de Cuba, 462
U.S. 611 (1983) ................................................................................................................ 4, 5

iii
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 5 of 33

Fletcher v. Atex, Inc.,

68 F.3d 1451 (2d Cir. 1995).................................................................................................................19

Funnekotter v. Agric. Dev. Bank of Zim.,

No. 13 CIV. 1917 CM, 2015 WL 3526661 (SDNY June 3, 2015) ...................................4, 5, 6

Gabay v. Mostazafan Found. of Iran,

151 FRD 250 (SDNY 1993) ...................................................................................................6

Glob. Network Commc'ns, Inc. v. City of New York, 458

F.3d 150 (2d Cir. 2006)...............................................................................................3, 10

Grayiel v. AIO Holdings, LLC,

648 F. Supp. 3d 812 (W.D. Ky. 2022), aff'd, 2024 WL 2992676 (6th Cir.
2024) .......................................................................................................................................23

HC Schmieding Produce Co. v. Alfa Quality Produce, Inc.,

597 F. Supp. 2d 313 (EDNY 2009) .......................................................................................11

Karaha Weddings Co. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara,
313 F.3d 70 (2d Cir. 2002).................................................................................................................5

Kensington Int'l Ltd. v. Republic of Congo,

No. 03 CIV. 4578 LAP, 2007 WL 1032269 (SDNY Mar. 30, 2007) ...................................8

Kirschenbaum v. 650 Fifth Ave. & Related Properties,

830 F.3d 107 (2d Cir. 2016), repealed on other grounds by Rubin v. Islamic
Republic of Iran, 583 US 202 (2018)...............................................................................................6

In re Kwok,
No. 22-50073 (JAM), 2024 WL 3280607 (Bankr. D. Conn. July 2, 2024) ...................................23

LaCourte v. JP Morgan Chase & Co.,

No. 12-cv-9453 JSR, 2013 WL 4830935 (SDNY Sept. 4, 2013) .......................................21

Mandala v. NTT Data, Inc.,

88 F.4th 353 (2d Cir. 2023) .......................................................................................................4

Manichaean Cap., LLC v. Excela Techs., Inc.,

251 A.3d 694 (Del. Ch. 2021)................................................................................................ passim

Mason v. Network of Wilmington, Inc.,

No. CIV.A. 19434-NC, 2005 WL 1653954 (Del. Ch. July 1, 2005) ...................................21

McBeth v. Porges,
171 F. Supp. 3d 216 (SDNY 2016) ...................................................................................17, 19

iv
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 6 of 33

N. Am. Cath. Educ. Programming Found., Inc. v. Gheewalla,

930 A.2d 92 (Del. 2007) ..........................................................................................................11

NY Wheel Owner LLC v. Mammoet Holding BV, 481

F. Supp. 3d 216 (SDNY 2020) ...................................................................................19

NetJets Aviation, Inc. v. LHC Commc'ns, LLC,

537 F.3d 168 (2d Cir. 2008)...............................................................................................................19

Nieves v. Insight Building Co.,

No. CV 2019-0464-SG, 2020 WL 4463425 (Del. Ch. Aug. 4, 2020) .......................................18

OI Eur. Grp. BV v. Bolivarian Republic of Venezuela, 73

F.4th 157 (3d Cir. 2023), cert. denied, 144 S. Ct. 549 (2024) ................................... passim

OI Eur. Grp. BV v. Bolivarian Republic of Venezuela, No.

19-mc-290-LPS, 2022 WL 611563 (D. Del. Mar. 2, 2022), certification granted,
judgment modified, No. 19-mc-290-LPS, 2022 WL 1404719 (D. Del.
May 4, 2022) ...........................................................................................................................24

Partner Reinsurance Co. Ltd. v. RPM Mortg., Inc., No.

18 CIV. 5831 (PAE), 2020 WL 6690659 (SDNY Nov. 13, 2020) ...................................16

Principal Growth Strategies, LLC v. AGH Parent LLC, No.

2019-0431-JTL, 2024 WL 274246 (Del. Ch. Jan. 25, 2024) ...........................................18

RSM Prod. Corp. v. Petroleos de Venezuela Societa Anonima (PDVSA),

338 F. Supp. 2d 1208 (D. Colo. 2004) .......................................................................................8

Rubin v. Islamic Republic of Iran,

583 US 202 (2018) ...........................................................................................................8, 10

Sage Chem., Inc. v. Supernus Pharms., Inc.,

No. CV 22-1302-CJB, 2024 WL 2832343 (D. Del. June 4, 2024) ...................................................14

SV Inv. Partners, LLC v. ThoughtWorks, Inc., 7

A.3d 973 (Del. Ch. 2010), judgment entered (Del. Ch. 2011), and aff'd, 37 A.3d
205 (Del. 2011) ...................................................................................................................11

Tidewater Inv. SRL v. Bolivarian Republic of Venezuela, No.

19-mc-79-LPS, 2023 WL 7182179 (D. Del. Nov. 1, 2023) ...................................................5

Torricelli v. VB Asset Mgmt., LLC,

No. 23-CV-9176 (VEC), 2024 WL 1718820 (SDNY Apr. 22, 2024) ...................................19

Trenwick Am. Litig. Tr. v. Ernst & Young, LLP,

906 A.2d 168 (Del. Ch. 2006), aff'd sub nom. Trenwick Am. Litig. Tr. v.
Billett, 931 A.2d 438 (Del. 2007) ...................................................................................11, 12

v
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 7 of 33

Trevino v. Merscorp, Inc.,

583 F. Supp. 2d 521 (D. Del. 2008) ...........................................................................................21

Trigeant Ltd. v. Petroleos de Venezuela SA,

No. 08-80584-CIV, 2010 WL 11505968 (SD Fla. Jan. 5, 2010) ...........................................7

US Fid. & Guar. Co. v. Braspetro Oil Servs., Co.,

199 F.3d 94 (2d Cir. 1999)...............................................................................................................6

US Fid. & Guar. Co. v. Braspetro Oil Servs. Co.,

No. 97 CIV. 6124 (JGK), 1999 WL 307666 (SDNY May 17, 1999), aff'd, 199
F.3d 94 (2d Cir. 1999)...............................................................................................................6

In re USDigital, Inc.,
443 BR 22 (Bankr. D. Del. 2011) ...........................................................................................11

VFS Fin., Inc. v. Falcon Fifty LLC,

17 F. Supp. 3d 372 (SDNY 2014) ...................................................................................19, 21

Other Authorities

OFAC FAQ 808 (May 1, 2023), https://ofac.treasury.gov/faqs/808 ............................................24

I saw
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 8 of 33

INTRODUCTION

Defendants Petróleos de Venezuela, SA (“PDVSA”) and PDVSA Petróleo SA

(“Oil”) (collectively, “Promissory Note Defendants”) failed to pay hundreds of millions of

dollars in accounts receivable owed to Servicios Halliburton de Venezuela, SA (“SHVSA”) for

services rendered; Years later, they failed to pay the subsequent promissory note. See Consolidated

Amended Complaint, Dkt. No. 47 (“Complaint”).1 Promissory Note Defendants could not pay

their debts as they came due because their funds were being siphoned directly to the Bolivarian

Republic of Venezuela (“Venezuela” or “the Republic”). This misuse of PDVSA's funds by

Venezuela led the Third Circuit to reverse-pierce the veil. See Crystallex Int'l Corp. v. Bolivarian

Republic of Venezuela, 932 F.3d 126, 152 (3d Cir. 2019), cert. denied, 140 S. Ct. 2762 (2020); I HEARD

Eur. Grp. BV v. Bolivarian Republic of Venezuela (“OIEG”), 73 F.4th 157, 176 (3d Cir. 2023),

cert. denied, 144 S. Ct. 549 (2024). This action extends the logic of that decision: Defendant PDV

Holding, Inc. (“PDVH”) should be held liable for PDVSA's debts because PDVH and PDVSA

disregarded corporate formalities to allow the Republic to reap the benefits of PDVH's business

to the detriment of PDVSA's creditors. Indeed, the PDVSA funds should have been used to pay Plaintiff

and other creditors originated from PDVH, but PDVSA directed the funds to Venezuela without

first satisfying commercial debts.

PDVH's Motion to Dismiss the Consolidated Amended Complaint, Dkt. No. 51

(“Motion”), attempts to raise factual disputes at the pleading stage and fails to establish legal

deficiencies in the Complaint. Plaintiff more than adequately alleged that PDVSA and its alter

ego Venezuela exercise extensive domination and control over PDVH and abuse the corporate

form to perpetuate a fraud or injustice. PDVH argues that the funneling of its funds up to PDVSA,

1
Docket numbers refer to Case No. 1:24-cv-4448-JSR unless otherwise specified.

1
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 9 of 33

through dividends and otherwise, “enhanced PDVSA's ability to satisfy its debts,” Mot. at 2, but

this misses the fundamental point that the funds were not actually used to satisfy PDVSA's debts,

and the practice exhibits a general disregard of corporate distinctions. During Venezuela's 2014-

2016 financial crisis, Venezuela and PDVSA used their domination and control to force PDVH

and other subsidiaries, including PDV USA, Inc. and PDV Chalmette, LLC, to push money to

Venezuela in total disregard of any commercial obligations of PDVSA. PDVH complied,

including pledging 100% of its equity in exchange for no consideration, but now belatedly invokes

corporate separateness to shield its assets from PDVSA's creditors. For those reasons, equity

mandates that Plaintiff be permitted to enforce its upcoming judgment against PDVSA's alter

ego, PDVH. Accordingly, the Court should deny PDVH's motion to dismiss.

STATEMENT OF FACTS

PDVH is a Delaware corporation with its principal place of business in Houston. Compl.

¶ 11. At all relevant times, PDVH has been an alter ego of PDVSA. Id. ¶¶ 5, 71-76. PDVSA uses

PDVH's property as its own and commingles its funds. Id. ¶¶ 5, 176. PDVH holds 100% of the

shares in Citgo Holding, Inc. (“Citgo Holding”), which owns 100% of Citgo Petroleum

Corporation (“Citgo”). Id. ¶ 3.

At the direction of PDVSA, PDVH's profits have been siphoned to PDVSA and then

Venezuela for the benefit of Venezuela's sovereign functions rather than for commercial purposes.

For example, in February 2015 PDVH issued billions of dollars in dividends, Compl. ¶¶ 114-117,

and in the fall of 2016, PDVH pledged 100% of its equity in Citgo Holding in two transactions

without any consideration, which the Venezuelan Special Attorney General later confirmed was

for the benefit of PDVSA's public credit operation. Id. ¶¶ 5, 130-135. PDVSA ignored PDVH's

ordinary corporate formalities; exercised close political control over PDVH, managing PDVH and

having a hand in his daily affairs; and issued policies or directives that caused PDVH to act directly

2
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 10 of 33

on PDVSA's behalf, so that PDVSA was the real beneficiary of PDVH's conduct. See id. ¶¶ 5,

97-103, 136-142, 171-183, 186-191, 194. Furthermore, PDVH's officers and directors, who were

appointed by PDVSA and overlapped with PDVSA's board, were nonfunctioning because PDVSA

dictate PDVH's corporate decisions. See id. ¶¶ 5, 143-163.

A judgment creditor of Venezuela, Crystallex International Corporation, reverse-pierced

the corporate veil in the District of Delaware and obtained a writ of attachment against PDVSA's

shares of PDVH. See Crystallex Int'l Corp. v. Bolivarian Republic of Venezuela, No. 17-mc-151-

LPS (D. Del.) (“Crystallex”). Other judgment creditors of Venezuela and PDVSA enforced their

judgments against the same shares; The judicial sale process is ongoing. The PDVSA alter ego

question, which the Third Circuit first affirmed in 2019, see Crystallex, 932 F.3d 126, returned to

the Third Circuit after the appointment of the PDVSA Ad Hoc Board. The Third Circuit again

affirmed that PDVSA is the alter ego of Venezuela, regardless of whether PDVSA is controlled

by the Maduro-appointed board or the PDVSA Ad Hoc Board. See OIEG, 73 F.4th 157 (cert

denied).

ARGUMENT

“To survive a motion to dismiss, a complaint must contain sufficient factual matter,

accepted as true, to 'state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556

US 662, 678 (2009) (citations omitted); Bell Atl. Corp. v. Twombly, 550 US 544, 570 (2007).

On a motion to dismiss, “the Court accepts all well-pleaded factual allegations as true and draws

all reasonable inferences in favor of the plaintiff.” Casper Sleep, Inc. v. Mitcham, 204 F. Supp.

632, 637 (SDNY 2016) (Rakoff, J.); Glob. Network Commc'ns, Inc. v. City of New York, 458

F.3d 150, 155 (2d Cir. 2006). “At the 12(b)(6) stage, [t]he issue is not whether a plaintiff is likely

to prevail ultimately, but whether the claimant is entitled to offer evidence to support the claims.”

Chance v. Armstrong, 143 F.3d 698, 701 (2d Cir. 1998) (internal quotation marks omitted). "Ace

3
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 11 of 33

the Supreme Court has explained, when 'the underlying facts or circumstances relied upon by a

plaintiff may be a proper subject of relief, he ought to be afforded an opportunity to test his claim

on the merits.'” Mandala v. NTT Data, Inc., 88 F.4th 353, 365 (2d Cir. 2023) (citation omitted).2

Plaintiff has pleaded facts more than sufficient to “nudge[] their claims across the line from

conceivable to plausible," and the motion to dismiss should be denied. Twombly, 550 US at 570.

YO.
The Bancec Standard Applies to the Alter Ego Analysis

When a party seeks to establish that “an instrumentality of a sovereign state [is] the 'alter

ego' of that state,” the “controlling case” is First Nat'l City Bank v. Banco Para El Comercio

Exterior of Cuba, 462 US 611 (1983) (“Bancec”), which set forth the federal common law

standard. EM Ltd. v. Cent Bank. De La Republica Arg., 800 F.3d 78, 89 (2d Cir. 2015). The

Bancec standard, rather than the standard set forth in the state law dictated by ordinary choice of

law principles (here, Delaware law, as discussed infra), similarly controls in federal court when

determining whether a subsidiary of a foreign instrumentality is an alter ego.3

In this action, Plaintiff seeks a declaration that PDVH is the alter ego of foreign

instrumentality PDVSA. The Third Circuit repeatedly applied the Bancec test to find that PDVSA

is the alter ego of Venezuela.4 See OIEG, 73 F.4th at 172. Because PDVSA is a foreign

2
A Court may consider documents incorporated by reference in the Complaint, and may take
judicial notice of documents filed in another court or matters of public record. Doe v. State Univ.
of NY Purchase Coll., 617 F. Supp. 3d 195, 201 n.3 (SDNY 2022).
3
Despite PDVH's contrary position here, in G&A Strategic Investments I LLC, v. PDV Holding,
Inc., No. 4:24-cv-2774 (SD Tex.)), PDVH argued it was “clear that the [Southern District of Texas]
will need to decide whether Bancec applies (and, if so, whether Plaintiffs have stated a claim
under that standard),” a “substantial” federal question. 24-cv-2774 Dkt. No. 48 at 5. G&A Strategic
Investments filed that case in state court, and accordingly asserted only state law claims; in its
reply in support of remand, G&A Strategic Investments reserved its right to argue Bancec
applied if the case remained in federal court. 24-cv-2774 Dkt. No. 53 at 4. By contrast, this case,
which was filed in federal court, asserts both federal and state law claims.
4
Evidence cited by PDVH—that both PDVSA and Venezuela are presently sanctioned by OFAC,
and PDVSA is a SDN—supports the conclusion that PDVSA is the alter ego of Venezuela. Mot.

4
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 12 of 33

instrumentality and is itself the alter ego of Venezuela, there is a strong federal interest in ensuring

that consistent standards apply to the determination of such questions, such that application of the

Bancec standard is appropriate. See Bancec, 462 US 611; Tidewater Inv. SRL v. Bolivarian

Republic of Venezuela, No. MC 19-mc-79-LPS, 2023 WL 7182179, at *8 (D. Del. Nov. 1, 2023)

(“[T]he determination of [PDVSA's] alter ego status is a matter bearing on the nation's foreign

relations that 'should not be left to divergent and perhaps parochial state interpretations.'”) (citing

Bancec, 462 US at 622 n.11).

Contrary to PDVH's assertion that the application of state law would follow circuit

precedent, Mot. at 22.5 other courts in this District have “conclude[d] that Bancec's test for alter

ego status—a presumption of separateness that can be overcome by showing either total control

by a parent or . . . an injustice worked by respecting the corporate form—applies whether the entity

asserted to be an alter ego is an instrumentality or not,” because “[t]he test is grounded in equitable

principles and federal common law[,] [and] [i]ts origins and purpose do not depend on the alleged

alter ego's being an instrumentality of a foreign state.” Funnekotter v. Agric. Dev. Bank of Zim.,

No. 13 CIV. 1917 CM, 2015 WL 3526661, at *13 (SDNY June 3, 2015). In Funnekotter, a

judgment creditor of Zimbabwe sought to enforce an $8 million judgment by obtaining a

declaration that ZB Bank Limited (a non-sovereign entity owned by a Zimbabwean

instrumentality) was an alter ego of Zimbabwe and therefore liable for the judgment. ID at *1–

at 5. “[T]he OFAC SDN designation is one kind of (potentially very persuasive) evidence tending to show alter
ego status.” Funnekotter v. Agric. Dev. Bank of Zim., No. 13 CIV. 1917 CM, 2015 WL 3526661, at *16 (SDNY
June 3, 2015).
5
Karaha Weddings Co. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 313 F.3d 70 (2d Cir.
2002), cited by PDVH, did not involve alter ego but rather concerned ownership of a trust account. The Court
did not apply federal common law because the proffered interest of “the uniform application of federal law”
was “'generic' and 'generalized'” and therefore “'insufficient to justify imposition of federal common law.'” Id. at
85 n.14.

5
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 13 of 33

*2, *7. Looking back to the “language and history of the FSIA,” and Bancec, which “[b]oth sides

assume[d]” governed the alter ego question, Judge McMahon noted that the Bancec test applies

particularly “when an entity does not qualify as an instrumentality, but is instead removed by an

additional level of ownership,” and concluded that “[t]he determination that a party is an alter ego

of a foreign state—to whom the foreign state's liability may be attributed—does not depend on

“whether that party is an instrumentality of the foreign state.” Id. at *12-*14.

applied Bancec and denied ZB Bank's motion for summary judgment, holding “Plaintiffs have

pointed to sufficient evidence in the record from which a reasonable factfinder could infer that ZB

Bank is an alter ego of the Zimbabwean Government.” ID at *14.

Similarly, in US Fid. & Guar. Co. v. Braspetro Oil Servs. Co. (“Brasoil”), another court

in this District considered whether Brasoil, a non-sovereign entity subsidiary of Braspetro, itself a

subsidiary of Brazilian state-owned Petrobras, was “an alter ego of Petrobras and/or Braspetro.”

No. 97 CIV. 6124 (JGK), 1999 WL 307666, at *7 (SDNY May 17, 1999), aff'd, 199 F.3d 94

(2d Cir. 1999). Applying Bancec, Judge Koeltl held that Petrobras and Braspetro were agencies

or instrumentalities of Brazil, id. at *8-*9, and that Brasoil was an alter ego of both Petrobras and

Braspetro. ID at *9-*10. Judge Koeltl specifically considered “evidence regarding the general

relationship among Brasoil, Braspetro and Petrobras,” including evidence regarding overlapping

officers and the role Petrobras played in the creation of the relevant contracts. ID at *10-*11; see

US Fid. & Guar. Co. v. Braspetro Oil Servs., Co., 199 F.3d 94, 98 (2d Cir. 1999) (affirming

denial of Petrobras's motion to dismiss because “the plaintiffs have made a sufficient showing at

this point in the litigation that Brasoil was the 'alter ego' of Petrobras"). This action involves

essentially the same issues. See also Gabay v. Mostazafan Found. of Iran, 151 FRD 250, 258

(SDNY 1993) (applying Bancec and denying motion to dismiss claim that New York-

6
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 14 of 33

incorporated entity Alavi was alter ego of Iranian instrumentality); Kirschenbaum v. 650 Fifth Ave.

& Related Properties, 830 F.3d 107, 128-130 (2d Cir. 2016), abrogated on other grounds by Rubin

v. Islamic Republic of Iran, 583 US 202 (2018) (applying Bancec to alter ego analysis of Alavi).

In addition, courts outside this District have applied the Bancec standard to considerations

of PDVSA's alter ego status. See Trigeant Ltd. v. Petroleos de Venezuela SA, No. 08-80584-

CIV, 2010 WL 11505968, at *17 (SD Fla. Jan. 5, 2010) (noting “other courts have applied [the

Bancec] standard to characterizing the relationship between a foreign sovereign's

instrumentality/agency and that instrumentality's/agency's corporate subsidiary”).

PDVH's reliance on Energy Coal, SpA v. CITGO Petroleum Corp. is inapposite. No.

2:14-CV-03092, 2015 WL 5123867 (WD La. Aug. 31, 2015), aff'd sub nom. Energy Coal v.

CITGO Petroleum Corp., 836 F.3d 457 (5th Cir. 2016). Neither party referenced the Bancec

standard; instead, the plaintiff, an Italian company which had contracted with PDVSA Petróleo,

SA to resolve disputes in Venezuelan courts under Venezuelan law, argued for Louisiana law,

which contains a unique “single business enterprise” theory, while the defendant argued for

Delaware law. After conducting a detailed choice-of-law analysis and concluding that, as between

Louisiana and Delaware, Delaware law applied, the Louisiana court noted “[t]here are no

allegations that CITGO . . . failed to observe corporate formalities; nor is there any allegation that

PDVSA 'siphoned company funds' from CITGO.” ID at *9; ID at *7-*8 (plaintiff cited only a

PDVSA financial report from 2007 referring to PDVSA as a “vertically integrated company,” one

set of consolidated financial statements, and several overlapping directors). The Trigeant court

Similarly noted that the plaintiff had failed to make any “indication that PDVSA or Citgo directed

Carco to engage in any specific acts.” Trigeant, 2010 WL 11505968 at *20.

Plaintiff has clearly alleged—and supported with extensive evidence—failure to observe corporate

7
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 15 of 33

formalities (eg Compl. ¶¶ 5, 141, 145, 146, 161, 177, 189) and siphoning (eg Compl. ¶¶ 5, 97,

98, 102, 103, 174, 187, 191).6 Accordingly, Bancec should govern this action.

II. Plaintiff Has Plausibly Pleaded Alter Ego Under Bancec

Plaintiff has more than adequately pleaded its claims under Bancec. The Bancec factors

are whether “(1) the instrumentality 'is so extensively controlled by its owner that a relationship

of principal and agent is created'; or (2) the recognition of an instrumentality's separate legal status

would work a 'fraud or injustice.'" EM Ltd., 800 F.3d at 90 (emphasis added). This is a

“disjunctive test”; satisfaction of either factor allows the veil to be pierced. Crystallex, 932 F.3d

at 140; see Kensington Int'l Ltd. v. Republic of Congo, No. 03 CIV. 4578 LAP, 2007 WL 1032269,

at *15 (SDNY Mar. 30, 2007).

The Supreme Court described “the Bancec factors” as “(1) the level of economic control

by the government; (2) whether the entity's profits go to the government; (3) the degree to which

government officials manage the entity or otherwise have a hand in its daily affairs; (4)whether

the government is the real beneficiary of the entity's conduct; and (5) whether adherence to

separate identities would entitle the foreign state to benefits in United States courts while avoiding

its obligations.” Rubin v. Islamic Republic of Iran, 583 US 202, 210 (2018) (citing Walter Fuller

Aircraft Sales, Inc. v. Republic of Philippines, 965 F.2d 1375, 1380 n.7 (5th Cir. 1992)).

Courts assessing control consider “whether the sovereign nation: (1) uses the

instrumentality's property as its own; (2) ignores the instrumentality's separate status or ordinary

corporate formalities; (3) deprives the instrumentality of the independence from close political

control that is generally enjoyed by government agencies; (4) requires the instrumentality to obtain

6
Cf. RSM Prod. Corp. v. Petroleos de Venezuela Societa Anonima, 338 F. Supp. 2d 1208, 1215 (D. Colo.
2004) (finding PDVSA Petróleo, SA to be an organ of Venezuela “consistent with the analyzes finding organ
status for first tier subsidiary entities of national petroleum companies” in the Fifth and Ninth circuits).

8
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 16 of 33

approvals for ordinary business decisions from a political actor; and (5) issues policies or directives

that causes the instrumentality to act directly on behalf of the sovereign state.” EM Ltd., 800 F.3d

at 91. However, the control factors are only “indicia” that “courts have articulated . . .to guide the

inquiry,” id.; “[n]o one factor is dispositive, and the underlying facts should be weighed

collectively.” Esso Expl. & Prod. Nigeria Ltd. v. Nigerian Nat'l Petroleum Corp., 397 F. Supp.

3d 323, 335 (SDNY 2019), aff'd in relevant part, 40 F.4th 56, 69-70 (2d Cir. 2022).

Here, Plaintiff has adequately alleged both PDVSA's extensive control over PDVH and

the injustice that would occur if the veil were not pierced—providing two independent grounds to

pierce the veil. See Crystallex Int'l Corp. v. Bolivarian Republic of Venezuela, 333 F. Supp. 3d

380, 397 (D. Del. 2018), aff'd and remand, 932 F.3d 126 (3d Cir. 2019) (“The test, then, is

disjunctive. A party such as Crystallex may rebut the presumption of separateness by establishing

either of the foregoing and need not establish both.”) (citing EM Ltd., 800 F.3d at 90–91).

TO. Plaintiff Has Adequately Alleged PDVSA Extensively Controls PDVH

Plaintiff's ample allegations of consistent and extensive control set forth a plausible claim

that PDVSA extensively controls PDVH. See Compl. ¶¶ 5, 97-103, 109-36, 175-80, 187-90. For

example, Plaintiff alleges that PDVSA uses PDVH's property as its own, siphoning funds from

PDVH and its subsidiaries and ignoring PDVH's separate status. See, eg, Compl. ¶¶ 5, 73-74,

109-117, 123, 175, 179 (allegations that Citgo and Citgo Holding were indebted by billions of

dollars in order to issue dividends to PDVH which largely passed through to PDVSA and then

Venezuela); Compl. ¶¶ 5, 126-135 (alleging that at the direction of PDVSA, PDVH's profits were

used for the benefit of the sovereign functions of Venezuela rather than for commercial purposes,

including the 2016 equity pledges which “in no way benefited PDV Holding, Inc.”); Compl.

¶¶ 97-103 (reciting allegations from PDVH's subsidiary that it was “forced” by PDVSA to take

certain actions, and summarizing the US Department of Justice filings that list over $80,000 per

9
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 17 of 33

month paid by PDVH to PDVSA's lobbying firm, over $75,000 in regular monthly stipend

payments made from a PDVH subsidiary directly to Horacio Medina, the Chair of the PDVSA Ad

Hoc Board, for his services representing PDVSA, and millions paid by a PDVH subsidiary to

support Venezuela's consulate)7 . In other words, PDVH's profits went to PDVSA and Venezuela.

See Rubin, 583 US at 210 (indication of alter ego if “the entity's profits go to the government”).

PDVH argues the distribution of dividends was appropriate because PDVSA and

Venezuela were suffering a fiscal crisis, Mot. at 25 & n.26, but that actually supports Plaintiff's

argument—and, in any event, inferences must be constructed in Plaintiff's favor. Casper Sleep, 204

F. Supp. 3d at 637; Glob. Network, 458 F.3d at 155. PDVSA's ability to satisfy its debts was not

“enhanced” by upstreamed funds that flowed through PDVSA to Venezuela, and the payment of

dividends “to meet PDVSA's and Venezuela's fiscal crisis” without satisfying PDVSA's

commercial debts is precisely the domination and control that supports alter ego under Bancec.

Mot. at 2, 25 n.26.

Plaintiff also alleges PDVSA ignored PDVH's ordinary corporate formalities; exercised

close political control over PDVH—managing PDVH and having a hand in its daily affairs—and

issued policies or directives that caused PDVH to act directly on PDVSA's behalf, so that PDVSA

was the real beneficiary of PDVH's conduct. See Compl. ¶¶ 5, 93-94, 97-103, 141-142. Moreover,

Plaintiff alleges PDVH's officers and directors overlapped with PDVSA's board, and that the

overlap can, and has, served as a mechanism for abusing the corporate form, including when

PDVH's board was ignored by the Venezuelan government directly appointing officers of its

subsidiaries. See Compl. ¶¶ 5, 143-163.

7
PDVH argues that its registration as an agent of PDVSA “reflects at most 'assisting' with the
sovereign's 'policies and goals,'” Mot. at 24, and does not reflect day-to-day control. This position
ignores the evidence—submitted to the US government—of regular, recurring extensive control.

10
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 18 of 33

Plaintiff adequately alleged that PDVSA “lacked the cash to manage its business in the

ordinary course,” Compl. ¶ 128, and issued the promissory note at issue here because it “could not

fund its ordinary business operations as they became due, especially after having made such large

dividend payments to the Republic in 2015 . . ., and therefore funded its operations with debt,”

Compl. ¶ 29. See SV Inv. Partners, LLC v. ThoughtWorks, Inc., 7 A.3d 973, 987 (Del. Ch. 2010),

judgment entered, (Del. Ch. 2011), and aff'd, 37 A.3d 205 (Del. 2011). Once insolvent (unable to

meet debts when due), PDVSA should have operated for the benefit of all residual beneficiaries,

including creditors. N. Am. Cath. Educ. Programming Found., Inc. v. Gheewalla, 930 A.2d 92,

101 (Del. 2007) (“When a corporation is insolvent, however, its creditors take the place of the

shareholders as the residual beneficiaries[.]”)8 ; see also infra at Section III.A (discussing

PDVSA's insolvency).

PDVH's cases on this point are inapposite. In Anadarko Petroleum Corp. v. panhandle

Eastern Corp., 545 A.2d 1171 (Del. 1988), the issue was whether a parent entity disregarded

fiduciary duties to future stockholders. 545 A.2d at 1172. Here, Plaintiff alleged the dividends

were distributed—spite each entity in the chain owing substantial sums to existing creditors—

directly to Venezuela for the express purpose of furthering the social and sovereign programs of

Venezuela, in total disregard of PDVH and PDVSA's commercial obligations to existing creditors.

Similarly, Trenwick Am. Litig. Tr. v. Ernst & Young, LLP, 906 A.2d 168 (Del. Ch. 2006),

8
See also HC Schmieding Produce Co. v. Alfa Quality Produce, Inc., 597 F. Supp. 2d 313, 316 (EDNY 2009) (“It is
well-established at common law that an insolvent corporation . . . holds its assets in trust for its creditors.”) (citing In re
Fechheimer Fishel Co., 212 F. 357, 364 (2d Cir.1914), inter alia); Cohain v. Klimley, No. 08 CIV 5047 PGG, 2010 WL
3701362, at *21 (SDNY Sept.
20, 2010) (“[D]irectors of an insolvent corporation owe a fiduciary duty to preserve the assets of the
corporation for the benefit of creditors.”), aff'd sub nom. Sissel v. Rehwaldt, 519 F. App'x 13 (2d
Cir. 2013); In re USDigital, Inc., 443 BR 22, 42 (Bankr. D. Del. 2011) (“In Delaware, when a
corporation has become insolvent, however, fiduciary duties insure to the benefit of creditors.”).

11
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 19 of 33

aff'd sub nom. Trenwick Am. Litig. Tr. v. Billett, 931 A.2d 438 (Del. 2007), does not help PDVH.

The court there noted that “[s]o long as directors are respectful of the corporation's obligation to

honor the legal rights of its creditors, they should be free to pursue in good faith profit for the

corporation's equityholders.” Id. at 174–75. Here, PDVSA's refusal to pay creditors like Plaintiff,

despite receiving distributions from its subsidiaries, is extensively documented and adequately

pleaded in the Complaint, and shows a total disregard of the corporate form. See In re DBSD N.

Am., Inc., 634 F.3d 79, 94 (2d Cir. 2011) (noting it is “well settled that stockholders are not entitled

to. . . any dividend of the profits until all the debts of the corporation are paid.”) (citation omitted);

Bank of Am. Nat. Tr. & Sav. Ass'n v. 203 N. LaSalle St. P'ship, 526 US 434, 448 (1999)

(“[C]reditors are entitled to priority over stockholders against all the property of an insolvent

corporation.”) (quoting Case v. LA Lumber Prods. Co., 308 US 106, 116 (1939)); In re Altaba,

Inc., No. CV 2020-0413-JTL, 2021 WL 4705176 (Del. Ch. Oct. 8, 2021) (same).

Indeed, virtually every alter ego claim involves a company that disregarded creditors,

usually for the benefit of shareholders. Furthermore, PDVH quoted Trenwick as saying that

directors of a subsidiary should “follow the parent's instructions unless those instructions

require[] the board to violate the legal rights of others,” Mot. at 15 (emphasis added), without

recognizing that following a shareholder's directive to siphon assets in disregard of legitimate

creditors violate the legal rights of others. See In re Fechheimer Fishel Co., 212 F. 357, 364 (2d

Cir. 1914). PDVH's remaining arguments against control—which are discussed extensively below

in the context of the Delaware alter ego test—are similarly unavailing. See Section III.A, infra.

Thus, Plaintiff makes out a plausible claim under the control prong of the Bancec test.

B. Plaintiff Has Adequately Alleged Injustice

Under the disjunctive Bancec test, well-pleaded allegations of injustice provide an

independent ground for an alter ego determination. See EM Ltd., 800 F.3d at 90; Crystallex, 932

12
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 20 of 33

F.3d at 140. PDVH did not dispute that Plaintiff adequately alleged the injustice prong of Bancec,

and relied solely on Delaware law for their injustice arguments. Mot. at 8-12. plaintiff

incorporates by reference the injustice discussion below in Section III.B, infra, which applies with

equal force under the Bancec test.

Plaintiff has articulated precisely the kind of injustice that the court in OIEG found justified

piercing the veil between Venezuela and PDVSA—“drawing on the 'application of internationally

recognized equitable principles to avoid the injustice that would result from permitting a foreigner

state to reap the benefits of our courts while avoiding the obligations of international law.'” 73

F.4th at 171 (quoting Bancec, 462 US at 633-34); see, eg, Compl ¶¶ 6, 76, 171-174, and 182

(“Adherence to separate identities between PDVSA and PDVH would entitle PDVSA, as the

agency and instrumentality of a foreign state, and Venezuela, as a foreign state, to benefits in

United States courts while avoiding their obligations.” PDVSA disregarded PDVH's corporate

form to extract value for Venezuela's benefit. It cannot now invoke that same corporate form to

shield PDVH's assets from the creditors it has been avoiding for years. Thus, for this reason too,

Plaintiff has made out a plausible alter ego claim under Bancec.

III. In the Alternative, Plaintiff Has Plausibly Pleaded Alter Ego Under Delaware Law

Even if Bancec does not apply, Plaintiff makes out a more than plausible alter ego claim

under Delaware law.9

“Delaware will not countenance the use of the corporate form as a means to facilitate fraud

or injustice.” Manichaean Cap., LLC v. Exela Techs., Inc., 251 A.3d 694, 713 (Del. Ch. 2021).

For this reason, courts applying Delaware law may pierce the corporate veil from a parent to its

9
Under New York choice-of-law principles, the law of the state of incorporation applies to efforts to pierce
the corporate veil. Aaron Richard Golub, Esquire, PC v. Blum, No. 23-CV-10102 (JSR), 2024 WL 1376436,
at *2 (SDNY Apr. 1, 2024). PDVH is a Delaware corporation; Thus, Delaware law would apply.

13
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 21 of 33

subsidiary—so-called reverse veil-piercing—to “act as a deterrent to owners of companies,

particularly those that are closely held, from shuffling their assets among their controlled entities

with the express purpose of avoiding a judgment.” Manichaean Ch., 251 A.3d at 714 (emphasis

added). Further, courts should deviate from the typical rule that parents and subsidiaries are to be

treated as separate legal entities “where the subsidiary and the parent 'operate[ ] as a single

economic entity such that it would be inequitable for th[e] Court to uphold a legal distinction

between them.'” Cleveland-Cliffs Burns Harbor LLC v. Boomerang Tube, LLC, CA No. 2022-

0378-LWW, 2023 WL 5688392, at *5 (Del. Ch. Sept. 5, 2023) (internal citations omitted).

In reverse assessing veil-piercing claims, Delaware courts first consider the control factors

relevant to “a traditional veil-piercing claim”: specifically, “insolvency, undercapitalization,

commingling of corporate and personal funds, the absence of corporate formalities, and whether

“the subsidiary is simply a facade for the owner.” Manichaean Cap., 251 A.3d at 714. Importantly,

none of these five factors is device. “Rather, [a]n final decision regarding veil-piercing is

largely based on some combination of these factors, in addition to an overall element of injustice

or unfairness.” Cleveland-Cliffs, 2023 WL 5688392, at *5 (citations and internal quotation marks

omitted). “[I]n considering whether veil piercing is appropriate, a court must assess the totality of

the circumstances. . . . The presence of a number of these factors can also be sufficient to establish

that an element of injustice or fundamental unfairness is at play.” Sage Chem., Inc. v. Supernus

Pharms., Inc., No. CV 22-1302-CJB, 2024 WL 2832343, at *7 (D. Del. June 4, 2024).

Then, courts consider at least eight, non-exclusive factors relevant to the question of

“whether the owner is utilizing the corporate form to perpetuate fraud or an injustice.”10

10
The eight factors are: “'(1) the degree to which allowing a reverse pierce would impair the legitimate
expectations of any adversely affected shareholders who are not responsible for the

14
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 22 of 33

Manichaean Cap., 251 A.3d at 715. Finally, courts conduct an overall equitable analysis of “all

“relevant factors, including [the eight factors] just noted, to reach an equitable result.” ID Not single

factor is determinative; the “ultimate decision regarding veil-piercing is largely based on some

combination of these factors, in addition to 'an overall element of injustice or unfairness.'” Id. at

707 (emphasis added).

Delaware courts do not often reverse-pierce the veil, but “the fact the doctrine will rarely

be invoked by the court to reach assets does not suggest that it should be unavailable to aggrieved

creditors in all instances as a matter of law.” Id. at 715 n.124. Here, Plaintiff has adequately and

clearly pleaded sufficient facts which, when taken as true in the light most favorable to Plaintiff,

state claims upon which relief can be granted. Id. at 712 (“[O]utside reverse veil-piercing claims

must be permitted when justice so requires '[d]ue to the similarities and parallel goals achieved in

outside reverse piercing and traditional piercing.'”).

TO. Plaintiff Has Adequately Alleged Control

Plaintiff has adequately pleaded PDVSA's control under the Delaware reverse-piercing

test. As discussed supra, among other allegations, Plaintiff has put forward detailed allegations

that PDVSA uses PDVH's property as its own, commingles the two entities' funds, and ignores

conduct of the insider that gave rise to the reverse pierce claim, and the degree to which allowing a
reverse pierce would establish a precedent troubling to shareholders generally; (2) the degree to which
the corporate entity whose disregard is sought has exercised dominion and control over the insider who
is subject to the claim by the party seeking a reverse pierce; (3) the degree to which the injury alleged by
the person seeking a reverse pierce is related to the corporate entity's dominion and control of the
insider, or to that person's reasonable reliance upon a lack of separate entity status between the insider
and the corporate entity; (4) the degree to which the public convenience, as articulated by [Delaware
law], would be served by allowing a reverse pierce; (5) the extent and severity of the wrongful conduct, if
any, engaged in by the corporate entity whose disregard is sought by the insider; (6) the possibility that
the person seeking the reverse pierce is himself guilty of wrongful conduct sufficient to bar him from
obtaining equitable relief'; (7) the extent to which the reverse pierce will harm innocent third-party
creditors of the entity the plaintiffs seek to reach; and (8) [whether] other claims or remedies are practically
available to the creditor at law or in equity to recover the debt.” Manichaean Cap., 251 A.3d at 715
(citation omitted).

15
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 23 of 33

PDVH's ordinary corporate formalities; Citgo and Citgo Holding were indebted by billions of

dollars in order to issue dividends to PDVH which largely passed through to PDVSA and then

Venezuela, leaving PDVSA undercapitalized and unable to make payments to creditors; and

PDVSA directed the use of PDVH's profits for the benefit of the sovereign functions of Venezuela

rather than for commercial purposes. See Compl. ¶¶ 5, 97-103, 109-36, 175-80, 187-90.

PDVH's argument that the siphoning of funds from a subsidiary “has less relevance (if

any) in the reverse-piercing context,” Mot. at 16, supported only by an unpublished District of

Columbia case from 1979, is foreclosed by the Delaware case that set the standard for reverse veil-

piercing As the court stated in Manichaean Capital, “[t]he natural starting place when reviewing

a claim for reverse veil-piercing are the traditional factors.” 251 A.3d at 714 (emphasis added).

Furthermore, the siphoning alleged here is especially relevant because Plaintiff alleges that the funds

from PDVH simply flowed through PDVSA to Venezuela, and therefore did not benefit PDVSA.

Ordinary commercial debts should have been paid before the ultimate owner, Venezuela, was paid.

See Compl. ¶¶ 5, 97-103, 109-36, 175-80, 187-90; see In re DBSD N. Am., 634 F.3d at 94.

PDVH's contention that no siphoning could have occurred because a shareholder is

“legally entitled” to a dividend is circular. See Mot. at 15. No court has held that siphoning cannot

occur in the form of a dividend. See, eg, Partner Reinsurance Co. Ltd. v. RPM Mortg., Inc., No.

18 CIV. 5831 (PAE), 2020 WL 6690659, at *10 (SDNY Nov. 13, 2020) (rejecting argument

that payment of dividends could not constitute siphoning where complaint alleged dividends were

expletive); Coughlin Const. Co. v. Nu-Tec Indus., Inc., 755 NW2d 867, 875-76 (ND 2008)

(dominant shareholder siphoned funds where he “attempted to bleed the corporation of assets so it

would not be able to satisfy a known corporate liability” “through the issuance of dividends,”

among other means). And PDVH's assertion that the dividends were proper because PDVSA was

16
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 24 of 33

in “extreme financial distress” (Mot. at 15) misses the point: Plaintiff alleges the dividends were

provided to PDVSA and were promptly siphoned to Venezuela, without any corporate entity in

the chain paying creditors. Compl. ¶¶ 72, 187, 221.

Plaintiff's allegations that PDVSA was insolvent are far from conclusive. Plaintiff has

Alleged that the collapse in oil prices in 2014 led the oil sector's short-term liabilities to rise from

almost $750 million in 2006 to nearly $14 billion in 2015, rendering PDVSA unable to pay its

debts when they came due. Compl. ¶ 84. Plaintiff further alleges that PDVSA's credit rating was

downgraded by multiple agencies and that Venezuela's credit risk more than tripled to become the

highest of any country in 2016. Id. ¶¶ 86-87. Plaintiff alleges that when the Note was issued,

PDVSA and Venezuela lacked the funds to pay the noteholder and also faced other substantial

debts, including various arbitration awards. Id. ¶¶ 29, 88, 128, 195.

Similarly, to the extent undercapitalization is relevant here, Plaintiff has plausibly alleged

that PDVSA was undercapitalized because it “lacked sufficient capital to cover [its] own

“reasonably anticipated expenses.” McBeth v. Porges, 171 F. Supp.3d 216, 234 (S.D.N.Y. 2016);

see also Essar Steel Algoma Inc. v. Nev. Holdings, Inc., No. 17 Misc. 360 (AT)(RWL), 2020 WL

2539031, at *4 (SDNY May 18, 2020) (undercapitalization plausibly alleged where affiliates'

siphoning of funds left company “unable to perform its contractual obligations”). See Compl. ¶¶ 5,

175, 179, 187, 221. PDVH is incorrect that undercapitalization must be measured at the time of

formation. See, eg Manichaean Cap., 251 A.3d at 708 (undercapitalization adequately alleged

where “Exela was aware of SourceHOV Holdings' potential liability long ago and yet made a

deliberate decision to undercapitalize the entity"). The relevant inquiry is whether the judgment

debtor is unable to satisfy the judgment because of its machinations. Accordingly, in equity the

judgment should be enforced against PDVH, which has sufficient assets and was reduced to a sham

17
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 25 of 33

entity for the benefit of PDVSA and Venezuela.

PDVH also mistakenly argues Plaintiff has not adequately pleaded that PDVSA and PDVH

failed to observe corporate formalities. See Mot. at 14. To the contrary, Plaintiff makes detailed

allegations regarding multiple instances in which Venezuelan presidents directly appointed the

president of Citgo, ignoring the boards of PDVSA, PDVH, and Citgo Holding. See Compl. ¶¶

144-46, 161, 177. Plaintiff also alleges Venezuela's Decree No. 44 authorized the Minister of

Petroleum to modify or centralize PDVH's management and administration, disregarding ordinary

channels of corporate governance. Id. ¶ 189.

PDVH's criticism of Plaintiff's allegations regarding the extensive overlap between the

boards of PDVSA and PDVH also falls flat. Plaintiff thoroughly laid out the overlap and that

“PDVSA has used its influence over PDVH's Directors to interfere with PDVH's ordinary

business affairs” and that PDVH's officers and directors “were not acting in the best interest of all

of residual beneficiaries, including creditors.” Compl. ¶¶ 5, 143-63, 178, 221. The court in Nieves

v. Insight Building Co., No. CV 2019-0464-SG, 2020 WL 4463425 (Del. Ch. Aug. 4, 2020), cited

by PDVSA, recognized that while “overlapping or identical personnel does not by itself warrant

ignoring the corporate form,” it can be considered among other allegations—which Plaintiff also

makes. ID at *8 (emphasis added). PDVH cites Principal Growth Strategies, LLC v. AGH Parent

LLC, No. 2019-0431-JTL, 2024 WL 274246 (Del. Ch. Jan. 25, 2024) for the same point, but that

case was “not a setting where piercing could apply.” ID at *16. Finally, nor does EMAK

Worldwide, Inc. v. Kurz, 50 A.3d 429 (Del. 2012) provide a basis for dismissal: Plaintiff does not

dispute that shareholders have the right to appoint directors. Instead, Plaintiff alleges that the

board merely served as a façade for PDVSA's pervasive control over PDVH.

B. Plaintiff Has Adequately Alleged an Injustice that Justifies Piercing the Veil

PDVH misstates the legal standard with respect to the fraud or injustice required to pierce

18
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 26 of 33

the veil, relying on decades-old cases that predate the establishment of the Delaware reverse-

piercing standard: a plaintiff seeking to reverse-pierce the veil is required to plead that “the owner

is utilizing the corporate form to perpetuate fraud or an injustice.” Manichaean Ch., 251 A.3d

715 (emphasis added). Allegations of current fraud are not required. See VFS Fin., Inc. v. Falcon

Fifty LLC, 17 F. Supp. 3d 372, 381 (SDNY 2014) (“To prevail under the alter-ego theory of

piercing the veil, a plaintiff needs not prove that there was actual fraud but must show [1] a

mingling of the operations of the entity and its owner[, and] [2] an overall element of injustice or

unfairness.”) (internal quotations omitted) (emphasis added); Torricelli v. VB Asset Mgmt., LLC,

No. 23-CV-9176 (VEC), 2024 WL 1718820, at *4 (SDNY Apr. 22, 2024) (“Plaintiffs need not

allege an actual fraud or that the 'corporation was created with fraud or unfairness in mind.'”

(quoting NetJets Aviation, Inc. v. LHC Commc'ns, LLC, 537 F.3d 168, 176-77 (2d Cir. 2008));

Fletcher v. Atex, Inc., 68 F.3d 1451, 1457 (2d Cir. 1995) (finding error in requiring a showing of

“fraud or other wrong” because “the alter ego theory of liability does not require any showing of

fraud”) (applying Delaware law).11 “Under Delaware law, 'a court can pierce the corporate veil

of an entity where there is fraud or where a subsidiary is in fact a mere instrumentality or alter ego

of its owner.'” VFS Fin., 17 F. Supp. 3d at 381.

11
Wallace ex rel. Cencom Cable Income Partners II, Inc., LP v. Wood, 752 A.2d 1175 (Del. Ch. 1999)
is an outlier and inconsistent with the authorities cited supra. See NetJets Aviation, 537 F.3d at 177
(“[T]he plaintiff needs not prove that the corporation was created with fraud or unfairness in mind. It is
sufficient to prove that it was so used.”); Asarco LLC v. Ams. Min. Corp., No. CIV. 1:07-CV-00018,
2009 WL 2168778, at *6–7 (SD Tex. July 20, 2009) (“[T]he language in Wallace at issue does not
represent a specific holding requiring that a plaintiff show that the corporate form to be pierced 'must
be a sham and exist for no other purpose than to perpetrate a fraud.'”). Indeed, courts applying
Delaware law regularly find alter ego status to be sufficiently alleged without any “sham” allegation.
See In re Autobacs Strauss, Inc., 473 BR 525, 556 (Bankr.
D. Del. 2012); Blair v. Infineon Techs. AG, 720 F. Supp. 2d 462 (D. Del. 2010); NY Wheel Owner LLC
v. Mammoet Holding BV, 481 F. Supp. 3d 216 (S.D.N.Y. 2020); McBeth v. Porges, 171 F.
Supp. 3d 216 (SDNY 2016).

19
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 27 of 33

Plaintiff explicitly alleged that PDVSA uses PDVH in such a way that “facilitate[s]

fraud or injustice.” Compl. ¶ 171. This allegation is far from conclusory, as PDVH asserts .

Mot. at 9. To the contrary, Plaintiff alleges that following a wave of expropriations of large oil

projects initiated by then-President of Venezuela Hugo Chávez, PDVH's commercial enterprise

was drained by its owner PDVSA and ultimately Venezuela (the owner and alter ego of PDVSA)

to fund a political agenda without regard for legitimate creditors.

The Complaint alleges that third-party service vendors in the oil industry (such as SHVSA,

the original holder of the Note) rendered valuable services to PDVSA. Compl. ¶ 28. But when

PDVSA “could not fund its ordinary business operations as they became due,” it issued a

promissory note in exchange for the unpaid receivables. Id. ¶ 29. Yet before the issuance of the

promissory note, and afterward, PDVSA continued to drain its assets to Venezuela.

When PDVSA defaulted on the Note, it was just the tip of the iceberg of PDVSA's and

Venezuela's defaults, as evidenced by the many creditors seeking relief through Crystallex Int'l

Corp. v. Bolivarian Republic of Venezuela, No. 17-mc-151 (D. Del.) and related proceedings.

Crystallex Dkt. No. 1102 (Final Priority Order); id Dkt. Nos. 1136, 1140-1 (Revised Public Final

Determination of Attached Judgments). Further, PDVH's assets were elevated in 2016 without

any benefit to PDVH when PDVSA exchanged a series of notes for bonds secured by a pledge of

50.1% of PDVH's equity in Citgo Holding; and the remaining 49.9% was pledged as collateral in

exchange for a $1.5 billion loan from Rosneft. See Compl. ¶¶ 126-35.

PDVSA did not treat PDVH as an independent commercial enterprise. Instead, Venezuela

operated the entire corporate structure, from PDVSA down to PDVH, Citgo Holding, and Citgo,

as an arm of the Venezuelan government, without any regard to PDVSA's or PDVH's corporate

form or commercial obligations to creditors (including Plaintiff). Compl. ¶¶ 5, 97-103, 109-36,

20
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 28 of 33

175-80, 187-90. The assets ultimately generated from the corporate enterprise were not used to

pay commercial creditors, but were instead drained, leveraged, and depleted in service of

Venezuela's political agenda. Id.12

PDVH's cases are inapposite. The plaintiffs in VFS Financing made “no allegations

showing that there was any fraud or similar injustice inherent in the use of the corporate forms.”

17 F. Supp. 3d at 384 (emphasis added). Similarly, the plaintiff in LaCourte v. JP Morgan Chase

& Co., No. 12-cv-9453 JSR, 2013 WL 4830935 (SDNY Sept. 4, 2013) did “not even attempt to

allege that an abuse of the corporate form caused him any fraud or injustice.” ID at *6 (emphasis

added). Here, Plaintiff has made extensive allegations of fraud or injustice. See, eg, Compl. ¶¶ 6,

71-76, 182-83, 191. Furthermore, the only injustice alleged in Trevino v. Merscorp, Inc. was that,

because the defendant was “ill-equipped to handle potential liability arising from this action, 'a

judgment against [the defendant] would be no more than a pyrrhic victory.'” 583 F. Supp. 2d 521,

530 (D. Del. 2008). Here, by contrast, Plaintiff alleged that PDVSA was operating PDVH for

decades as an arm of the Venezuelan state and entering into debts it had no intention of repaying

in order to fund the political priorities of Venezuela's leaders.13

Nor does Cleveland-Cliffs support PDVH's argument. 2023 WL 5688392. There, the

plaintiff asserted claims for fraudulent transfer and related theories in connection with the

12
PDVH suggests without support that Plaintiffs' allegations regarding siphoning of funds can
only be relevant to control, and not to fraud or injustice. See Mot. at 9-10. Not so. Siphoning
implies both the control prong and the fraud or injustice prong. See, eg, Essar Steel, 2020 WL
2539031, at *4 (“Allegations of undercapitalization and siphoning of funds are sufficient to satisfy
the 'injustice or unfairness' element.”).
13
The language the Trevino court cited—“[i]f creditors could enter judgments against shareholders
every time a corporation becomes unable to pay its debts as they become due, the limited liability
characteristic of the corporate form would be meaningless,” Mason v. Network of Wilmington,
Inc., No. CIV.A. 19434-NC, 2005 WL 1653954, at *3 (Del. Ch. July 1, 2005)—was in relation to
the insolvency inquiry, not the injustice inquiry.

21
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 29 of 33

purported sham sale of all of one defendant corporation's assets to its affiliate. The plaintiff's alter

ego theory, and the alleged injustice offered in support of it, was limited to the same sham sale that

formed the basis of the fraudulent transfer claim. The court therefore found the purported fraud

or injustice was impermissibly inseparable from the plaintiff's claim. The court rejected the

plaintiff's alter ego theory but permitted claims for fraudulent transfer to proceed against the

transferee affiliate. Here, by contrast, Plaintiff does not assert a fraudulent transfer theory because

PDVH is not the debtor,14 and the injustice is distinct from the underlying claim. Buechner v.

Farbenfabriken Bayer Aktiengesellschaft, 154 A.2d 684 (Del. 1959) did not even involve alter ego

allegations. Rather, the plaintiff there simply alleged that a parent corporation was “the equitable

or beneficial owner” of an asset of its subsidiary based on the contention that “the stockholders of

a corporation are the equitable owners of its assets.” ID at 686.

Finally, PDVH's assertion that an alter ego finding is somehow precluded by the Third

Circuit's determination in Crystallex that PDVH's transfers to PDVSA did not constitute a

fraudulent transfer misstates that decision. See Mot. at 12. The court there held that the

transactions did not constitute fraudulent transfers because they were not made by the debtor,

PDVSA. Crystallex Int'l Corp. v. Petroleos De Venezuela, SA, 879 F.3d 79, 84-85 (3d Cir. 2018).

The alter ego question was not before the court, which expressly noted that alter ego allegations

could have changed the result. See id. at 86 (“Tellingly, [Crystallex] does not allege that PDVH

is Venezuela's or PDVSA's alter ego or any other basis on which we could 'pierce the corporate

veil.' Absent such allegations, we are unwilling to disregard PDVH's distinct corporate identity

14
Plaintiff did not assert a fraudulent transfer claim because it does not seek to claw back specific
transfers by PDVH (which was a non-debtor vis-a-vis Plaintiff. Rather, Plaintiff seeks to impose
liability on PDVH for the amount Plaintiff is owed by PDVH's alter ego, PDVSA. PDVH's transfers
are the abuse of the corporate form that justifies piercing the veil.

22
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 30 of 33

and attribute to it the actions of the debtor.”).

C. Plaintiff Has Adequately Alleged That the Equities Favor Reverse Veil-
Piercing

Although Manichaean Capital lists eight factors to consider when determining if reverse

veil-piercing is an equitable result, the factors are guides and not a checklist; many courts simply

make a general equitable determination without testing each factor. See, eg, In re Kwok, No. 22-

50073 (JAM), 2024 WL 3280607 (Bankr. D. Conn. July 2, 2024); Grayiel v. AIO Holdings, LLC,

648 F. Supp. 3d 812 (W.D. Ky. 2022), aff'd, 2024 WL 2992676 (6th Cir. 2024).

Here, Plaintiff has adequately alleged that piercing the veil would not “impair the

legitimate expectations of any adversely affected shareholders who are not responsible for the

conduct of the insider that gave rise to the reverse pierce claim,” Manichaean Capital, 251 A.3d

at 715.15 because PDVSA is the sole shareholder of PDVH. Id. at 717; Compl. ¶¶ 108, 192. Nor

would a reverse pierce “establish a precedent troubling to shareholders generally” or otherwise

“harm innocent third-party creditors” in the event that the Crystallex sale closes and a new third party

party becomes the sole shareholder of PDVH, Manichaean Capital, 251 A.3d at 715, because the

veil between Venezuela and PDVSA has already been repeatedly pierced,16 Plaintiff is merely

seeking to pierce down one additional level, and it is well-established that “[w]here a corporation

is acquired by the purchase of all of its outstanding stock, the corporate entity remains intact and

“retains its liabilities, despite the change of ownership.” Fireman's Fund Cos. v. Meenan Oil

Co., 755 F. Supp. 547, 553 (EDNY 1991) (quoting Dep't of Transp. v. PSC Res., Inc., 419 A.2d

1151, 1154 (NJ Super. Ct. Law. Div. 1980)) (emphasis in original). Furthermore, Amber Energy

15
See also id. at 718 & n.146 (finding “no basis in the Complaint to infer that reverse veil-piercing will
cause harm to innocent third-party creditors,” noting that it could not “speculate as to facts that may be
developed in discovery when adjudicating a motion to dismiss the complaint.”).
16
Crystallex, 932 F.3d at 152; OIEG, 73 F.4th at 176.

23
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 31 of 33

Inc., the entity seeking to buy the PDVH shares, priced alter ego claims from 2019 and 2024 into

its bid, and you have included a mechanism for addressing the liabilities into its proposed transaction.

Crystallex Dkt. No. 1379-1 at 10.17

With regard to public convenience, Plaintiff's pursuit of its requested relief is not

prohibited by OFAC sanctions. See OFAC FAQ 808 (May 1, 2023),

https://ofac.treasury.gov/faqs/808 (“A specific license from OFAC is not required to initiate or

continue US legal proceedings against a person designated or blocked pursuant to the Venezuela

Sanctions Regulations, 31 CFR part 591 (VSR), or for a US court, or its personnel, to hear such

a case”); see OI Eur. Grp. BV v. Bolivarian Republic of Venezuela, No. 19-mc-290-LPS, 2022

WL 611563, at *8 (D. Del. Mar. 2, 2022), certification granted, judgment modified, No. 19-mc-

290-LPS, 2022 WL 1404719 (D. Del. May 4, 2022) (“Because registering a judgment in this Court

has no effect on any blocked property, the OFAC regulations are not implicated.”).18 Furthermore,

as Plaintiff explained, the public convenience would be served “if purchasers of promissory notes

gained confidence that the issuers of the notes could not render the commercial paper worthless

by shifting their assets to affiliated entities and defaulting on the notes.” Compl. ¶ 196.

As to the extent and severity of the wrongful conduct PDVH engaged in, PDVH was

entirely complicit in Venezuela's scheme to abuse the corporate form and treat all assets in the

entire chain as its own with total disregard for the creditors of its alter ego and subsidiaries. PDVH

cannot rely on the fact that it had a fiduciary duty to PDVSA to evade responsibility for its part in

17
Other, older veil-piercing cases also sought to hold PDVH liable for debts owed to creditors by
PDVSA and/or Venezuela, and were also priced into the bids. See Crystallex Dkt. No. 1201 at 2;
ConocoPhillips Petrozuata BV et al. v. Petróleos de Venezuela SA et al., No. 16-cv-904 (D.
Del.); ConocoPhillips Petrozuata BV et al. v. Petróleos de Venezuela SA et al., No. 17-cv-28 (D. Del.);
Rusoro Mining Ltd. v. Bolivarian Republic of Venezuela et al., No. 18-cv-1458 (SD
Tex.); OI Eur. Grp. BV v. Bolivarian Republic of Venezuela et al., No. 19-cv-290 (D. Del.).
18
Just like in Crystallex, a specific license, if necessary, can be granted for any final relief.

24
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 32 of 33

this larger scheme. Further, some courts look at the wrongfulness of all the parties involved in the

scheme. Eg Manichaean Cap., 251 A.3d at 718. As in Manichaean Capital, here, PDVH and

PDVSA were fully complicit in the alleged wrongdoing.

PDVH argues that Girard Street has another remedy because it could have been pursued

enforcement through the Crystallex action. This is incorrect. Girard Street was swept from

participating in that action due to the simple fact that it had not yet obtained an order granting a

writ of attachment in Delaware, or even obtained a judgment against PDVSA, by January 12,

2024—a deadline which was not set until October 11, 2023, months after Girard Street filed a

provisional Attached Judgment Statement in the case. See Crystallex Dkt. No. 738 (order setting

deadlines); Crystallex Dkt. No. 870-1 at Exhibit B (Special Master's redline of Attached Judgment

Creditors showing Girard Street's removal from the list). Accordingly, the instant action is Girard

Street's only means of potential recovery. Any hypothetical recovery in another proceeding that

might have occurred under different facts is irrelevant.

Finally, with regard to “the degree to which the injury alleged by the person seeking a

reverse pierce is related to the corporate entity's dominion and control of the insider, or to that

person's reasonable reliance upon a lack of separate entity status between the insider and the

corporate entity,” Manichaean Cap., 251 A.3d at 715 (emphasis added), PDVH focuses its

analysis entirely on “reasonable reliance.” This is a disjunctive test, and Plaintiff has adequately

alleged the relationship between its injury and PDVSA's domination and control of PDVH.

Furthermore, the purported rule PDVH advocates—relying on cases that do not apply Delaware

law, Mot. at 19-20—contravenes basic principles of equity: PDVH should not escape liability for

wrongdoing by arguing that SHVSA should have predicted PDVSA's perfidy.

CONCLUSION

For the foregoing reasons, PDVH's motion to dismiss should be denied.

25
Machine Translated by Google
Case 1:24-cv-04448-JSR Document 59 Filed 10/29/24 Page 33 of 33

Dated: October 29, 2024 Respectfully submitted,

By: /s/ Evan Glassman Evan

Glassman STEPTOE
LLP 1114 Avenue
of the Americas New York, NY 10036
Tel: (212) 506-3900 Fax:
(212) 506-3950 E-mail:
[email protected]

Michael J. Baratz (pro hac vice)

Molly Bruder Fox (pro hac vice)
Emma Marshak (pro hac vice)
Sabra Messer (pro hac vice)
STEPTOE LLP
1330 Connecticut Avenue, NW
Washington, DC 20036 Tel:
(202) 429-6468 Fax:
(202) 429-3902 Email:
[email protected] Email:
[email protected] Email:
[email protected] Email:
[email protected]

Counsel for Plaintiff

Girard Street Investment Holdings LLC

26