MANHATTAN (CN) - Battered for three years by a corruption scandal, the Brazilian oil giant Petrobras persuaded a U.S. appeals court to partly decertify a shareholders class accusing the state-run company of fraud.
In the wake of the corruption investigation Operation Car Wash, the New York litigation is one of continuing aftershocks for Petrobras, its executives and at least one third of the Brazilian Congress in
By August 2015, Brazilian prosecutors had handed down 117 indictments, with five politicians charged and 13 companies facing criminal cases.
Though never implicated in the scheme herself, Brazil's then-President Dilma Rousseff had trouble untangling her anti-corruption platform from her seat on the company's board. Opponents of Rousseff, who had been Brazil's first female president, milked that association to impeach her in favor of the far more right-leaning Michel Temer.
More than a dozen shareholder lawsuits against Petrobras poured into the Southern District of New York in the meantime. Following a Securities and Exchange Commission investigation, the investors alleged that Petrobras hid its bribery woes while selling $98 billion in securities.
Universities Superannuation Scheme (USS), a Liverpool-based pension fund at the head of the case, won class certification last year, but the New York-based Second Circuit directed the lower court Friday to reconsider such status in light of Supreme Court precedent.
"It is a longstanding principle of American law that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States," the 66-page opinion states, citing the 2010 ruling in Morrison v. National Australia Bank.
"Because Petrobras notes do not trade on any U.S.-based exchange, noteholders in both classes are only entitled to assert claims under the Exchange Act and the Securities Act if they can show that they acquired their notes in 'domestic transactions,'" U.S. District Judge Nicholas Garaufis wrote for the court, sitting on a three-judge panel by designation from Brooklyn.
Petrobras did not appeal the portion of Rakoff's decision certifying the class of investors who purchased American Depositary Receipts on the New York Stock Exchange.
As for the other proposed investor classes, the three-judge panel sent the case back to U.S. District Judge Jed Rakoff to apply this test.
Depicting this finding as a temporary setback, Petrobras investors touted other parts of the ruling as a "significant victory."
Petrobras had wanted the circuit to set a high bar for class certification by forcing investors to prove it "administratively feasible," but the three-judge panel denied creating this standard.
Jeremy Lieberman, a managing partner of Pomerantz, argued that this holding will benefit future shareholders as well as his clients.
"This decision represents a victory for class action plaintiffs in securities, antitrust and consumer cases," he said. "Most significantly, the Second Circuit's decision allows this important case against Petrobras and other defendants to proceed apace, lifting the automatic stay imposed by the Second Circuit. As a result, we intend to ask Judge Rakoff to set a trial date as quickly as possible, to allow the defrauded class members to finally have their day in court."
Attorneys for Petrobras did not immediately respond to an email request for comment.
U.S. Circuit Judges Peter Hall and Debra Ann Livingston rounded out the Second Circuit panel.