EIG Energy Fund XIV, L.P. v. Petróleo Brasileiro S.A.
246 F. Supp. 3d 52
D.D.C.2017Background
- Petrobras (Brazil state-owned) created Sete Brasil to finance a fleet of drillships for Pre-Salt oil fields; Petrobras placed its former executives (Ferraz, Barusco, Musa) in Sete leadership.
- Shipyards (defendants) allegedly paid kickbacks (~1% of contracts) to Petrobras/Sete executives and politicians; Operation Car Wash exposed the scheme in 2014 and led to convictions and plea deals.
- Eight investment funds (the Funds) and their manager (EIG Management) invested ~$221 million in Sete via Luxembourg entities; marketing materials and presentations were provided (some delivered in Washington, D.C.).
- After the scandal, lenders withdrew financing, Sete defaulted and declared bankruptcy; the Funds lost their investments and sued Petrobras and various shipyard defendants for fraud, aiding and abetting, and civil conspiracy.
- Defendants moved to dismiss for lack of Article III standing, FSIA immunity, failure to state claims, lack of personal jurisdiction over shipyards, and forum non conveniens. Court denied dismissal of fraud and aiding-and-abetting claims vs. Petrobras, dismissed conspiracy claim and dismissed shipyard defendants for lack of personal jurisdiction; EIG Management lacked standing.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Article III standing (Funds and EIG Management) | Funds were injured when induced to invest; EIG Management later acquired rights by assignment | Petrobras: injury is derivative (sustained by intermediary EIG Luxembourg); assignment to EIG Management occurred after suit | Funds have standing; EIG Management lacks standing (assignment post-filing ineffective) |
| FSIA commercial-activity exception | Petrobras’ foreign acts caused a direct effect in the U.S. because U.S.-based Funds were targeted and received marketing in D.C. | Petrobras: effects were indirect (losses occurred in Luxembourg via intermediaries) | Clause 3 (act outside U.S. causing direct effect in U.S.) applies; FSIA immunity waived for this matter |
| Forum non conveniens (Brazil vs. U.S.) | U.S. forum appropriate because Plaintiffs (some) are U.S.-based, marketing occurred in U.S., and U.S. has interest; Brazilian statute-of-limitations uncertainty raises adequacy concerns | Petrobras: Investment Agreement selects Brazil; private and public factors favor Brazil | Forum non conveniens dismissal denied: forum selection clause held inapplicable to non-signatory plaintiffs under Brazilian law presented; private factors slightly favor Brazil but public factors do not; conditional dismissal unnecessary |
| Fraud and duty to disclose | Plaintiffs: Petrobras made (and circulated) marketing materials and had duty to disclose that Sete was created in part to permit bribery; omissions were material and induced investments | Petrobras: no duty to disclose, alleged misstatements/omissions not pled with required particularity, and reliance insufficient | Court found actionable omissions and misrepresentations (three specific bases tied to marketing materials) and denied dismissal of fraud claim |
| Aiding and abetting fraud | Plaintiffs: Petrobras created and staffed Sete to perpetuate bribery and substantially assisted Sete’s fraud | Petrobras: D.C. law does not recognize aiding-and-abetting tort; insufficient pleading of knowledge and substantial assistance | Court, following Halberstam precedent, held D.C. would recognize the tort and found allegations sufficient to plausibly plead knowledge and substantial assistance; claim survives |
| Civil conspiracy and conspiracy-based jurisdiction over shipyards | Plaintiffs: shipyards conspired with Petrobras/Sete to conceal bribes and defraud investors; co-conspirator contacts support D.C. long-arm jurisdiction | Shipyards: complaint lacks particularized allegations of agreement to defraud investors or forum-directed overt acts; exercise of jurisdiction would violate due process | Court dismissed conspiracy claim for failure to plead with required particularity and found no personal jurisdiction over shipyards under D.C. long-arm statute and due process; denied jurisdictional discovery |
Key Cases Cited
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (standing requires injury in fact, causation, redressability)
- DaimlerChrysler Corp. v. Cuno, 547 U.S. 332 (burden to show jurisdictional facts; standing must exist at filing)
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard — accept well-pleaded facts, not legal conclusions)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (plausibility pleading standard)
- Walden v. Fiore, 571 U.S. 277 (minimum contacts require defendant’s own forum contacts)
- Republic of Argentina v. Weltover, 504 U.S. 607 (‘‘direct effect’’ concept for FSIA commercial-activity exception)
- Halberstam v. Welch, 705 F.2d 472 (D.C. Circuit recognizing aiding-and-abetting civil liability framework)
- Atlantica Holdings v. Sovereign Wealth Fund Samruk-Kazyna, 813 F.3d 98 (2d Cir.) (direct-effect FSIA analysis for foreign fraud targeting U.S. investors)