312 F.R.D. 354
S.D.N.Y.2016Background
- Lead plaintiff USS brought a putative securities class action against Petrobras, its subsidiaries, former officers/directors, auditor PwC, and underwriters alleging a multi‑year bribery/kickback scheme and related false/misleading statements under the Securities Act and Exchange Act.
- Plaintiffs sought certification of two classes: (1) an Exchange Act Class (purchases of Petrobras securities on NYSE or in domestic transactions from Jan 22, 2010 to July 28, 2015) and (2) a Securities Act Class (purchasers of debt securities traceable to two U.S. registered offerings in May 2013 and March 2014 in domestic transactions).
- Proposed class representatives: USS (for Exchange Act Class) and USS, North Carolina DOTS, Hawaii ERS, and Union (for Securities Act Class); Pomerantz LLP proposed as Class Counsel.
- Defendants opposed certification, raising Rule 23(a) and 23(b)(3) challenges (numerosity, typicality, adequacy, predominance, ascertainability, foreign res judicata, and classwide damages), and contested market efficiency and event‑study/damages methodology via expert testimony (Feinstein for plaintiffs; Gompers for defendants).
- The Court held evidentiary hearings, evaluated Cammer factors (and modifications for debt), accepted Feinstein’s overall market‑efficiency analysis (including direct event‑study evidence), found the classes ascertainable and superior, and certified both classes while appointing USS (Exchange Act) and North Carolina and Hawaii (Securities Act) as class reps and Pomerantz as Class Counsel.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Numerosity | Thousands of global investors; class joinder impracticable | Volume of sophisticated opt‑outs shows members can sue separately | Numerosity satisfied (classes likely in the thousands) |
| Typicality & Class Membership (Securities Act) | Proposed reps’ claims arise from same misconduct | Some reps (USS, Union) lack domestic purchase of Notes so not class members | USS and Union cannot represent Securities Act Class; North Carolina and Hawaii are adequate reps |
| Typicality & Adequacy (Exchange Act) | USS represents purchasers of equities; same misconduct drives all claims | USS lacks Notes claims and made in‑and‑out trades and post‑disclosure purchases, raising unique defenses | Typicality and adequacy satisfied for USS as Exchange Act rep; potential additional rep can be appointed later if needed |
| Market Efficiency / Reliance (Exchange Act) | Market efficient for Petrobras equities and bonds; invoke fraud‑on‑the‑market (Basic) using Cammer factors and event studies | Structural factors insufficient; only direct causation evidence suffices; Feinstein’s event selection/method flawed | Court finds market efficient (accepts Feinstein overall); event‑study direct evidence adequate to invoke Basic presumption at class stage |
| Ascertainability / Morrison domesticity | Class members who purchased in domestic transactions can be identified using documented trading records | Morrison’s domestic transaction test creates unmanageable individualized inquiries; exclude many foreign purchasers | Class ascertainable; Morrison issues administratively feasible (Absolute Activist criteria likely documented) |
| Predominance / Superiority & Damages | Common issues predominate; proposed event‑study/inflation‑ribbon damages model suitable for classwide damages | Damages model fails to tie classwide damages to liability, especially for non‑numeric disclosures | Predominance and superiority satisfied; damages model weighs modestly in favor but disputes not fatal at certification stage |
Key Cases Cited
- Pennsylvania Pub. Sch. Emps. Ret. Sys. v. Morgan Stanley & Co., 772 F.3d 111 (2d Cir. 2014) (numerosity/context factors for Rule 23(a)(1))
- Morrison v. Nat’l Australia Bank Ltd., 561 U.S. 247 (2010) (limits reach of U.S. securities laws to exchange‑traded or domestic transactions)
- Basic Inc. v. Levinson, 485 U.S. 224 (1988) (fraud‑on‑the‑market presumption of reliance)
- Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398 (2014) (market efficiency is a matter of degree; Common‑proof standard for Basic)
- Cammer v. Bloom, 711 F. Supp. 1264 (D.N.J. 1989) (factors for assessing market efficiency)
- Teamsters Local 445 Freight Div. Pension Fund v. Bombardier, 546 F.3d 196 (2d Cir. 2008) (application of Cammer factors and efficiency analysis)
- Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013) (if damages model is used to certify class, model must measure damages from the theory of liability)
- Roach v. T.L. Cannon Corp., 778 F.3d 401 (2d Cir. 2015) (individual damages calculations do not alone defeat predominance)
- In re Flag Telecom Holdings, Ltd. Sec. Litig., 574 F.3d 29 (2d Cir. 2009) (adequacy of class counsel and class representatives)
- In re Enron Corp. Sec. Litig., 529 F. Supp. 2d 644 (S.D. Tex. 2006) (treating debt and equity purchasers as members of same class in securities litigation)