EIG Energy Fund XIV, L.P. v. Petroleo Brasileiro, S.A.
894 F.3d 339
| D.C. Cir. | 2018Background
- Petrobras, Brazil’s state-owned oil company, helped form Sete Brasil to finance construction of 28 drill ships for a large offshore oil project and promoted the investment to U.S. investors, including D.C.-based EIG.
- Petrobras and Sete disseminated presentations in the U.S., met with EIG executives in Houston and Washington, D.C., and otherwise courted U.S. capital for Sete; EIG invested $221 million between 2012–2013 through a chain of Luxembourg subsidiaries into a Brazilian FIP used for Sete.
- Brazilian prosecutors’ Operation Car Wash revealed longstanding bribery and kickback schemes involving Petrobras executives and Sete officers; Sete’s lenders withdrew financing and Sete later declared bankruptcy, rendering EIG’s shares worthless.
- EIG sued Petrobras for fraud, aiding and abetting fraud, and civil conspiracy in D.D.C.; Petrobras moved to dismiss under Rule 12(b)(1) asserting FSIA sovereign immunity.
- The district court denied dismissal, concluding the FSIA commercial-activity exception, 28 U.S.C. § 1605(a)(2)’s third clause (acts outside U.S. causing a direct effect in the U.S.), applied; Petrobras appealed.
- The D.C. Circuit affirmed, holding EIG alleged a prima facie case that Petrobras targeted U.S. investors and that its alleged fraud caused a direct effect in the United States, rejecting intervening-lender and Luxembourg‑subsidiary defenses.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Petrobras’ out‑of‑U.S. commercial acts caused a “direct effect in the United States” under 28 U.S.C. § 1605(a)(2) | Petrobras targeted U.S. investors and made misrepresentations/omissions whose economic consequences were felt in the U.S.; that suffices for a direct effect. | The alleged tort’s locus and the investment’s booking in Luxembourg mean any U.S. effect was indirect. | Court: Held for plaintiff — allegations show a direct U.S. effect (prima facie). |
| Whether third‑party lenders’ withdrawal broke the causal chain and defeated “direct effect” | N/A (plaintiff argues Petrobras’ fraud itself rendered the investment worthless). | Lenders’ decisions were intervening acts that broke causation between Petrobras’ conduct and EIG’s loss. | Court: Rejected — lenders’ withdrawal was caused by the same fraud and did not break the chain; plaintiff was injured before lenders withdrew. |
| Whether EIG’s use of Luxembourg subsidiaries (booked loss in Luxembourg) defeats U.S. jurisdiction | EIG’s U.S. presence was solicited by Petrobras and loss ultimately affected its U.S. funds/offices; corporate form does not negate a direct U.S. effect. | Routing investment through Luxembourg means loss occurred outside the U.S., so effects in U.S. were indirect. | Court: Rejected — foreign locus or subsidiary structure alone does not preclude a direct U.S. effect; corporate form does not automatically defeat jurisdiction. |
| Whether FSIA immunity bars suit given the commercial‑activity exception | FSIA exception applies because the alleged out‑of‑U.S. commercial acts caused a direct U.S. effect. | Petrobras is an instrumentality entitled to immunity; exceptions do not apply here. | Court: Denied immunity; affirmed district court’s denial of dismissal under FSIA. |
Key Cases Cited
- Saudi Arabia v. Nelson, 507 U.S. 349 (explaining FSIA is sole basis for U.S. jurisdiction over foreign states)
- Republic of Argentina v. Weltover, 504 U.S. 607 (defining "direct effect" for § 1605(a)(2))
- Dole Food Co. v. Patrickson, 538 U.S. 468 (treatment of corporate formalities and instrumentality status under FSIA)
- Kilburn v. Socialist People’s Libyan Arab Jamahiriya, 376 F.3d 1123 (D.C. Cir.) (proximate‑cause standard; intervening actors do not necessarily defeat FSIA exceptions)
- Atlantica Holdings, Inc. v. Sovereign Wealth Fund Samruk‑Kazyna JSC, 813 F.3d 98 (2d Cir.) (misrepresentations targeting U.S. investors can cause direct U.S. effects)
- Virtual Countries, Inc. v. Republic of South Africa, 300 F.3d 230 (2d Cir.) (press release causing market reaction held indirect effect)
- Antares Aircraft, L.P. v. Federal Republic of Nigeria, 999 F.2d 33 (2d Cir.) (discussion of locus of tort and limits on foreign‑tort effects)
- Odhiambo v. Republic of Kenya, 764 F.3d 31 (D.C. Cir.) (contract‑place‑of‑performance analysis and limits on plaintiff‑created jurisdiction)
- Bell Helicopter Textron, Inc. v. Islamic Republic of Iran, 734 F.3d 1175 (D.C. Cir.) (consideration of tort locus in FSIA direct‑effect analysis)