Universities Superannuation Scheme Ltd. v. Petróleo Brasileiro S.A. Petrobras
862 F.3d 250
| 2d Cir. | 2017Background
- Petrobras, a majority state‑owned Brazilian oil company, saw market value collapse after revelation of a multi‑year bribery/kickback scheme; investors sued on Exchange Act and Securities Act claims relating to ADS (NYSE‑traded) and various debt Notes (not exchange‑traded).
- District Court certified two Rule 23(b)(3) classes: an Exchange Act class (ADS and Notes purchasers) and a Securities Act class (Note purchasers), limiting membership to those who bought Notes in "domestic transactions" (Morrison requirement).
- Notes trade over‑the‑counter globally; under Absolute Activist, non‑exchange securities are "domestic" if either irrevocable liability was incurred in the U.S. or title passed in the U.S.; proof requires transaction‑specific evidence.
- Appellants challenged certification on (1) ascertainability/predominance/superiority grounds because individual Morrison inquiries may be required to determine class membership, and (2) that plaintiffs failed to carry their burden to invoke the Basic "fraud‑on‑the‑market" presumption for the Exchange Act class.
- The Second Circuit (Garaufis, J.) (a) clarified the Circuit’s ascertainability test (objective, definite class boundaries; no freestanding administrative‑feasibility prong), (b) vacated certification to the extent the classes include Note purchasers whose domesticity requires individualized Morrison inquiries (predominance error), and (c) affirmed the district court’s finding that plaintiffs met the Basic presumption on the record presented.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Scope of ascertainability doctrine | Class is objectively defined (security, time, "domestic transaction") so ascertainable | Heightened test required: must show administrative feasibility to identify members without burdensome individual inquiries | Adopted Circuit test: class must be defined by objective criteria with definite boundaries; rejected separate administrative‑feasibility requirement; classes here meet ascertainability |
| Predominance given Morrison domesticity requirement | Class can be certified because transaction records are routinely available and common issues predominate | Individualized Morrison inquiries (location of liability/title) will dominate, defeating predominance and manageability | Vacated certification insofar as classes include Note purchasers requiring individualized Morrison determinations; district court must reexamine predominance with Morrison in view |
| Basic "fraud‑on‑the‑market" presumption (Exchange Act) | Plaintiffs offered both indirect (Cammer factors) and direct (event‑study) evidence of market efficiency sufficient for class presumption | Defendants argued event studies were methodologically flawed and that directional price impact is required | Affirmed: district court permissibly weighed direct and indirect evidence holistically and did not abuse discretion in finding market efficiency and invoking Basic presumption |
| Use of class‑management tools to address individual issues | Plaintiffs argued subclasses, sampling, or document production can manage Morrison inquiries | Defendants warned unmanageable individualized proof and notice problems | Court noted district courts may tailor procedures (subclasses, bifurcation, sampling) but must first reassess predominance on remand; offered no fixed remedy |
Key Cases Cited
- Morrison v. National Australia Bank Ltd., 561 U.S. 247 (Sup. Ct.) (limits U.S. securities laws to domestic exchange trades or domestic transactions)
- Absolute Activist Value Master Fund Ltd. v. Ficeto, 677 F.3d 60 (2d Cir.) (defines "domestic transaction" for non‑exchange securities: irrevocable liability incurred or title passed in U.S.)
- Brecher v. Republic of Argentina, 806 F.3d 22 (2d Cir.) (ascertainability requires objective criteria and definite boundaries; no mini‑merits hearings to identify class)
- Basic Inc. v. Levinson, 485 U.S. 224 (Sup. Ct.) (establishes "fraud‑on‑the‑market" presumption of reliance)
- Amgen Inc. v. Connecticut Ret. Plans & Tr. Funds, 568 U.S. 455 (Sup. Ct.) (materiality can be established by classwide proof; discusses common vs. individual issue analysis)