United States District Court, District of Columbia
P. MEHTA, UNITED STATES DISTRICT JUDGE
case arises out of the largest modern political scandal in
the history of Brazil. In 2014, Brazilian investigators
discovered that Defendant Petroleo Brasileiro S.A.
(“Petrobras”), a Brazilian state-owned oil
company, was at the center of a complex web of political and
corporate corruption. The investigation, now popularly known
as “Operation Car Wash, ” revealed that Petrobras
had a long-standing practice of soliciting bribes in exchange
for awarding construction and service contracts. In addition
to enriching its executives, Petrobras also funneled portions
of those payments to officials in Brazil's majority
political party-the Workers Party-presumably to curry favor
with those officials. These revelations sent shockwaves
through Brazil and led to the prosecution and incarceration
of several high-ranking Petrobras executives and government
officials. The investigation into the full scope of the
scandal continues to date.
are eight related U.S.-based and Cayman Islands-based
investment funds, plus their investment adviser, that equity
financed one of the entities entangled in the corruption
scheme: Sete Brasil Participações
(“Sete”). Petrobras established Sete to serve as
a financing vehicle to fund the construction of a large fleet
of drillships that Petrobras planned to use in developing
large, newly discovered oil reserves located off the coast of
Brazil. To that end, Petrobras installed three of its former
officials-João Carlos de Medeiros Ferraz, Pedro
José Barusco Filho, and Eduardo Costa Vaz Musa-as Sete
executive officers. Through those officials, Sete then
solicited bribes from various shipyards-including Defendants
Odebrecht S.A., Odebrecht Participações e
Engenharia S.A., Keppel Corporation Ltd., Keppel Offshore
& Marine Ltd., Sembcorp Industries Ltd., Sembcorp Marine
Ltd., and Jurong (collectively, the “Shipyard
Defendants”)-in exchange for drillship construction
contracts. Those bribe payments were split amongst Ferraz,
Barusco, and Musa; current Petrobras executives; and Workers
collapsed soon after investigators uncovered the bribe
scheme. Sete depended on capital raised primarily through
debt financing from government-backed lending institutions to
pay the costs of building the drillships. After the scandal
broke, however, those lenders withdrew their financing,
causing Sete to default on the drillship contracts. As a
result, Sete was forced into bankruptcy, where it remains
who lost the hundreds of millions of dollars they invested in
Sete, filed this lawsuit against Petrobras and the Shipyard
Defendants. In their Amended Complaint, Plaintiffs advance
three claims: (1) common law fraud, against Petrobras,
premised on Petrobras fraudulently inducing Plaintiffs to
invest in Sete; (2) aiding and abetting, against Petrobras,
for providing substantial assistance to Sete in fraudulently
inducing Plaintiffs to invest in Sete; and (3) civil
conspiracy, against all Defendants, premised on the theory
that Defendants conspired to conceal the existence of the
Sete bribe scheme in an effort to fraudulently induce
Plaintiffs, and other investors, to invest in Sete.
Plaintiffs point to several allegedly fraudulent
representations and material omissions that Petrobras and
Sete made in pursuit of Plaintiffs' investment to support
their claims. As a result of those misrepresentations,
Plaintiffs allege that both Petrobras, individually, and all
Defendants, as co-conspirators, are liable for
Plaintiffs' investment losses.
matter is before the court on Motions to Dismiss. Petrobras
and the Shipyard Defendants each filed separate Motions. Read
together, Defendants seek dismissal under (1) Rule 12(b)(1)
of the Federal Rules of Civil Procedure, for lack of subject
matter jurisdiction, because (a) Plaintiffs do not have
Article III standing and (b) Petrobras is immune from suit
under the Foreign Sovereign Immunities Act; (2) Rule
12(b)(6), for failing to adequately state their claims; and
(3) Rule 12(b)(2), for lack of personal jurisdiction over the
Shipyard Defendants. Alternatively, certain Defendants, most
prominently Petrobras, urge the court to dismiss this matter
under the doctrine of forum non conveniens.
court rules as follows. First, all Plaintiffs other than EIG
Management Company, LLC-the Funds' investment
manager-have standing to assert claims against Petrobras.
Second, the court will not dismiss this matter on forum non
conveniens grounds because Petrobras and other movants have
not met their burden to show that this court is an
inconvenient forum in which to address Plaintiffs'
claims. Third, the court has jurisdiction over Petrobras
under the “commercial activity exception” to the
Foreign Sovereign Immunities Act. Fourth, Plaintiffs have
alleged plausible claims against Petrobras, under District of
Columbia law, for fraud and aiding and abetting fraud. Fifth,
this court lacks personal jurisdiction over the Shipyard
Defendants, both under the District of Columbia long-arm
statute and the Due Process Clause of the United States
Constitution. And, sixth, Plaintiffs failed to plead a
plausible claim of conspiracy against any Defendant.
for the reasons discussed in greater detail below, the court
grants in part and denies in part Defendant Petrobras'
Motion. The court grants the Shipyard Defendants' Motions
and will dismiss them from this case.
Creation of Sete Brasil
Petróleo Brasileiro S.A. (“Petrobras”) is
a Brazilian state-owned energy company. Am. Compl., ECF No.
11 [hereinafter Am. Compl.], ¶¶ 1, 19. In or around
2006, Petrobras publicly announced the discovery of
significant new oil reserves off the coast of Brazil,
containing an estimated 50 billion barrels of oil (the
“Pre-Salt Reserves”). Id. ¶ 31. In
2010, Petrobras endeavored to construct a fleet of 28
deep-water drillships to extract the oil in the Pre-Salt
Reserves. Id. ¶¶ 3, 32-33. In light of the
high cost of constructing that fleet-approximately $20
billion, in total-Petrobras formed an independent entity,
Sete Brasil Participações (“Sete”),
to finance the project. Id. ¶¶ 32-35. This
financing plan was devised by two senior Petrobras
employees-João Carlos de Medeiros Ferraz
(“Ferraz”) and Pedro José Barusco Filho
(“Barusco”)-and allowed Petrobras to shift the
large capital expenditure required to build the drillships
off its balance sheet and onto Sete's balance sheet.
Id. ¶¶ 31-32. Petrobras subsequently
“installed” Ferraz as Sete's Chief Executive
Officer; Barusco as its Chief Operating Officer; and a third
Petrobras executive, Eduardo Costa Vaz Musa, as its
Engineering Director. Id. ¶ 35.
and Sete raised the capital required to fund Sete's
operations through both debt and equity financing sources.
Id. ¶¶ 3-4. Sete's primary source of
capital came from bank credit lines, including from the
Brazilian state-owned development bank, Banco Nacional de
Desenvolvimento Econômico e Social. Id. ¶
34. In addition, the companies sought out equity investors in
the United States and elsewhere. Id. ¶ 36. Once
it secured that capital, Sete entered into contracts with
several Brazil-based shipyards, including the Shipyard
Defendants and their subsidiaries, to build the drillship
fleet. Sete planned to lease those ships to Petrobras for use
in developing the Pre-Salt Reserves. Id.
¶¶ 2-3. Sete anticipated that the lease proceeds
would cover its operating costs, repay its loans, and provide
a return to its investors. Id. ¶¶ 3, 33,
Plaintiffs' Investment in Sete
are eight related energy investment funds (the
“Funds”) and their investment manager, EIG
Management Company, LLC (“EIG Management”),
through which the Funds invested in Sete (collectively,
“Plaintiffs”). Id. ¶¶ 1,
10-18. Six of the Funds are limited partnerships organized
under the laws of the State of Delaware and two are limited
partnerships organized under the laws of the Cayman Islands.
Id. ¶¶ 10-17. EIG Management is
incorporated in Delaware, with its principal place of
business in Washington, D.C. Id. ¶ 18.
in 2010, Petrobras and Sete provided various promotional
materials to EIG Management, including in Washington, D.C.,
in an effort to solicit the Funds' investment.
Id. ¶¶ 36-44, 47. In January 2010,
Petrobras sent EIG Management-the Amended Complaint does not
specific precisely to which EIG Management
office-a “Confidential Informational
Memorandum” (the “Petrobras Memorandum”)
describing the strategic details and investment outlook of
the Sete project. Id. ¶ 36. The Petrobras
Memorandum included specific disclosures regarding several
project-related risk factors-e.g., cost overruns, engineering
defects, and environmental concerns-as well as favorable
financial projections associated with investing in Sete.
Id. ¶ 37. It also contained representations
that Sete would enter into shipbuilding contracts that
complied with Brazilian law. Id. ¶ 38.
September 2010, EIG Management received, in Washington, D.C.,
a multi-page presentation prepared by Petrobras (the
“Petrobras Drilling Presentation”), which
provided further detail concerning how Petrobras planned to
finance and construct the drillship fleet. Id.
¶¶ 40-43. The Petrobras Drilling Presentation
contained similar risk disclosures as the Petrobras
Memorandum and also specifically cautioned U.S. investors,
among other things, that the technical terminology used
therein, such as oil and gas reserves, did not meet the
definitional requirements governing similar filings made with
the Securities and Exchange Commission. Id. ¶
40. Then, in October 2010, EIG Management received, in
Washington, D.C., another document prepared and circulated by
Petrobras entitled the “Pre-Salt Oil Rigs Project,
” which largely mirrored the disclosures and
representations contained in the Petrobras Memorandum and
Petrobras Drilling Presentation. Id. ¶
addition to circulating these solicitation materials,
Plaintiffs allege that Ferraz regularly communicated with EIG
Management employees, both in person and via e-mail, to
solicit the Funds' investment. Id. ¶¶
45-46, 48-53. These communications took place both while
Ferraz worked for Petrobras and after he assumed his position
at Sete. For instance, in both October 2010 and March 2011,
EIG Management representatives met with Ferraz, then an
employee of Petrobras, at EIG Management's office in Rio
de Janeiro to discuss the Funds' potential investment in
Sete. Id. ¶¶ 45-46. EIG Management
representatives again met with Ferraz in September 2013, this
time in Washington, D.C., after he had officially joined
Sete. Id. As part of that trip, Ferraz attended EIG
Management's investor conference, where he informed the
Funds' investors that Sete expected to earn nearly $90
billion in revenue over 20 years from its charter contracts
with Petrobras and that it projected an annual EBITDA of $4.6
billion. Id. ¶ 53. Throughout this
period, Ferraz also was in regular e-mail contact with EIG
Management employees, touting the rapid progress on fleet
construction, the substantial international investment
interest in Sete, and its favorable financial projections.
Id. ¶¶ 48-50.
at Petrobras or Sete, however, ever disclosed to EIG
Management that Petrobras had formed Sete, at least in part,
to further a long-standing bribe scheme. Years before
Sete's formation, Petrobras executives, including
Barusco, began extracting bribes and kickbacks from various
contractors, including the Shipyard Defendants or their
subsidiaries, in exchange for Petrobras contracts.
Id. ¶¶ 8, 58-59. Those contractors would
pay kickbacks directly to Petrobras executives, who kept some
portion for themselves and disbursed the rest to various
Workers Party officials. Id. ¶¶ 5, 58-59.
This practice would continue at Sete. Id.
¶¶ 8, 57-58. Over time, the bribe scheme enriched
Petrobras executives to the tune of nearly $100 million
dollars. Id. ¶¶ 8, 56.
Funds ultimately invested $221, 133, 393 in Sete, but did so
indirectly. Id. ¶ 54. Plaintiffs established
two Luxembourg-based companies-EIG Sete Parent SÀRL
and its subsidiary, EIG Sete Holdings SÀRL (“EIG
Luxembourg”)-specifically for the purpose of making
their investment. The Funds first transferred capital to EIG
Luxembourg, which, in turn, invested those funds into a
Brazilian holding company, FIP Sondas. See Def.
Petrobras' Mot. to Dismiss, ECF No. 58, Mem. in Supp.,
ECF No. 58-1 [hereinafter Petrobras Mot.], Ex. 4, ECF No.
58-7 [hereinafter Investment Agreement], §§ 3.4,
4.3. FIP Sondas, which owned 95 percent of Sete's
shares-Petrobras directly owned the remaining five
percent-then invested the Funds' money into Sete pursuant
to an Investment Agreement signed by EIG Luxembourg, FIP
Sondas, and others. Id. The Investment Agreement
contains both a choice-of-law clause, designating Brazilian
law as the law governing interpretation of the Agreement, and
a forum selection clause, specifying that disputes arising
from the Investment Agreement be settled through arbitration
in Brazil or, if arbitration is unavailable under Brazilian
law, in a Brazilian court. Id. §§ 13.9,
13.12, 13.12.4, 13.12.5, 13.12.12.
Criminal Investigation of Petrobras and Sete
about 2014, Brazilian investigators revealed Operation Car
Wash to the public. Am. Compl. ¶¶ 55-60. In the
wake of that revelation, Brazilian authorities convicted or
charged several Petrobras executives-including Renato Duque
and Roberto Gonçalves-and Sete officials- including
Ferraz, Barusco, and Musa-for their involvement in the bribe
scheme. Id. ¶ 64. Barusco, Ferraz, and Musa
entered into plea agreements that required them to cooperate
in the ongoing investigation. Id. ¶ 56. As part
of his plea agreement, Barusco agreed to testify at a public
hearing, where he explained that he and Ferraz had
established Sete in an effort to expand the preexisting bribe
scheme at Petrobras. Id. ¶¶ 57-58 (quoting
Barusco's testimony that “[t]he issue of [Sete],
about the establishment of bribe amounts, was a continuity of
what happened in Petrobras”). According to Barusco, the
discovery of the Pre-Salt Reserves provided Petrobras the
opportunity not only to create Sete, but also to have a
number of shipyards pay bribes in exchange for shipbuilding
contracts. Id. ¶¶ 57-59. Barusco admitted
that shipyards, including those owned or controlled by the
Shipyard Defendants, agreed to pay kickbacks of approximately
one percent of the value of the contracts to Petrobras
executives and government officials in exchange for securing
the contracts. Id. ¶¶ 8, 57-58, 62.
date, nearly 200 corporate executives, Workers Party
officials, and others have been charged or convicted in
connection with the Brazilian investigation, including
several alleged agents of the Shipyard Defendants.
Id. ¶¶ 6, 64-67. Additionally, according
to Plaintiffs, Brazilian officials continue to investigate
the Shipyard Defendants' participation in the bribe
scheme. Id. ¶ 67.
public revelation of the corruption scheme led to Sete's
ruin. The company's lenders quickly pulled their credit
lines, blocking Sete's access to capital and leaving it
unable to secure replacement debt or equity financing.
Lacking access to capital, Sete defaulted on its shipbuilding
contracts and, as a result, Petrobras canceled its charter
agreements with Sete. Id. ¶ 68. Subsumed by
debt, Sete filed for bankruptcy in April 2016. Id.
¶¶ 68-69. According to Plaintiffs, Sete's
bankruptcy rendered the Funds' investment worthless.
Id. ¶ 70.
filed a three-count Amended Complaint. Count One alleges that
Petrobras defrauded Plaintiffs by making materially false and
misleading statements and material omissions with the purpose
of inducing the Funds to invest in Sete. Plaintiffs
specifically assert that both the materials provided by
Petrobras and statements made by its agents failed to
disclose the ongoing bribe scheme and its associated risks.
Plaintiffs further allege that by failing to disclose those
risks, Petrobras fraudulently induced the Funds to invest in
Sete and, thus, caused the Funds' investment losses.
Id. ¶¶ 72-83.
Two alleges that Petrobras aided and abetted Sete in
fraudulently inducing Plaintiffs to invest in Sete.
Plaintiffs contend that Petrobras created and staffed Sete
for the purpose of perpetrating and expanding the existing
bribe scheme. As a result, Plaintiffs allege, Petrobras
provided substantial assistance to Sete in making materially
false and misleading written and oral statements designed to
induce the Funds' investment. Plaintiffs further assert
that, for the same reasons as in Count One, Petrobras'
actions were the proximate cause of the Funds' investment
losses. Id. ¶¶ 84-97.
Count Three alleges that all Defendants engaged in a civil
conspiracy to defraud Plaintiffs into investing in Sete.
Specifically, Plaintiffs allege that the Shipyard
Defendants' payment and concealment of bribes to Sete
were integral elements of the aforementioned scheme to
defraud the Funds. Plaintiffs assert that Defendants, as
co-conspirators, are jointly and severally liable for
Plaintiffs' injuries. Id. ¶¶ 98-111.
move to dismiss on three grounds. First, under Rule 12(b)(1)
of the Federal Rules of Civil Procedure, they contend that
the court is without subject matter jurisdiction to hear
Plaintiffs' claims because (1) Plaintiffs lack Article
III standing and (2) Petrobras is immune from suit under the
Foreign Sovereign Immunities Act, 28 U.S.C. § 1602
et seq. See Petobras Mot. at 19-28; Def.
Odebrecht's Mot. to Dismiss, ECF No. 56, Mem. in Supp.,
ECF No. 56-1 [hereinafter Odebrecht Mot.], at 14.
Additionally, certain Defendants have moved to dismiss under
the doctrine of forum non conveniens, asserting that Brazil
is the better forum in which to resolve the parties'
disputes. Petrobras Mot. at 9-19; Odebrect Mot. at 22-27;
Defs. Sembcorp Marine & Jurong's Mot. to Dismiss, ECF
No. 51, Mem. in Supp., ECF No. 51-1 [hereinafter Jurong
Mot.], at 8-13.
under Rule 12(b)(6), Defendants argue that Plaintiffs have
failed to state plausible claims of fraud, aiding and
abetting, and conspiracy to defraud, upon which relief can be
granted. See Petrobras Mot. at 28-45; Odebrect Mot.
at 27-30; Jurong Mot. at 13-16; Def. Keppel's Mot. to
Dismiss, ECF No. 54 [hereinafter Keppel Mot.], at 18-31; Def.
Sembcorp Industries' Mot. to Dismiss, ECF No. 55
[hereinafter Sembcorp Mot.], at 9-14.
under Rule 12(b)(2), the Shipyard Defendants argue that the
court lacks personal jurisdiction over them under both the
District of Columbia long-arm statute, D.C. Code §
13-423(a), and the Due Process Clause. See Odebrect
Mot. at 14-22; Keppel Mot. at 8-18; Sembcorp Mot. at 2-8;
Jurong Mot. at 5-8.
Dismissal for Lack of Subject Matter Jurisdiction Under Rule
deciding a motion to dismiss under Rule 12(b)(1), although a
court has discretion to consider materials outside the
pleadings, it still must accept all well-pleaded factual
allegations in the complaint as true. Jerome Stevens
Pharm., Inc. v. Food & Drug Admin, 402 F.3d 1249,
1253- 54 (D.C. Cir. 2005). The plaintiff bears the burden of
invoking the court's subject matter jurisdiction.
Arpaio v. Obama, 797 F.3d 11, 19 (D.C. Cir. 2015).
ruling on a Rule 12(b)(1) motion, in which the defendant
challenges the plaintiff's standing to assert a claim, a
federal court must presume that it “lack[s]
jurisdiction unless the contrary appears affirmatively from
the record.” DaimlerChrysler Corp. v. Cuno,
547 U.S. 332, 342 n.3 (2006) (quoting Renne v.
Geary, 501 U.S. 312, 316 (1991)). The burden of
establishing the elements of standing “rests upon the
party asserting jurisdiction.” Kokkonen v. Guardian
Life Ins. Co. of Am., 511 U.S. 375, 377 (1994); see
Lujan v. Defenders of Wildlife, 504 U.S. 555, 561
(1992). A plaintiff must establish standing “for each
claim” and “for each form of relief sought,
” DaimlerChrysler, 547 U.S. at 352 (internal
quotation marks omitted), “with the manner and degree
of evidence required at the successive stages of litigation,
” Lujan, 504 U.S. at 561.
Dismissal for Failure to State a Claim Under Rule 12(b)(6)
to dismiss under Rule 12(b)(6) test the legal sufficiency of
a complaint. See Smith-Thompson v. District of
Columbia, 657 F.Supp.2d 123, 129 (D.D.C. 2009).
To survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to “state
a claim to relief that is plausible on its face.” A
claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(citation omitted) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 556 (2007)).
assessing a motion to dismiss under Rule 12(b)(6), the court
must accept the plaintiff's well-pleaded factual
allegations as true and draw all reasonable inferences from
those allegations in the plaintiff's favor. Id.;
Arpaio, 797 F.3d at 19. The court is not required,
however, to assume the truth of legal conclusions or accept
inferences that are not supported by the facts set out in the
complaint. Iqbal, 556 U.S. at 678; Islamic Am.
Relief Agency v. Gonzales, 477 F.3d 728, 732 (D.C. Cir.
2007). “Threadbare recitals of the elements of the
cause of action, supported by mere conclusory statements, do
not suffice.” Iqbal, 556 U.S. at 678. If a
complaint lacks sufficient facts “to state a claim that
is plausible on its face, ” then the court must dismiss
it. Id. (quoting Twombly, 550 U.S. at 570);
see also Arpaio, 797 F.3d at 19.
Dismissal for Lack of Personal Jurisdiction Under Rule
motion to dismiss under Rule 12(b)(2) challenges whether a
federal court can exercise its jurisdiction over a particular
defendant. The plaintiff bears the burden of establishing a
prima facie case of personal jurisdiction by coming forward
with specific and pertinent facts that connect the defendant
with the forum. Reuber v. United States, 750 F.2d
1039, 1052 (D.C. Cir. 1984). Unlike a Rule 12(b)(6) or Rule
12(b)(1) motion to dismiss, however, the court need not treat
all the plaintiff's allegations as true when making a
personal jurisdiction determination. The court may, instead,
“receive and weigh affidavits and any other relevant
matter to assist it in determining the jurisdictional
facts.” 5A Charles A. Wright & Arthur R. Miller,
Federal Practice and Procedure § 1351 (1990); accord
Youming Jin v. Ministry of State Sec., 335 F.Supp.2d 72,
77 (D.D.C. 2004). However, the court must resolve any factual
discrepancies with regard to establishing personal
jurisdiction in favor of the plaintiff. See Crane v. New
York Zoological Soc'y, 894 F.2d 454, 456 (D.C. Cir.
Article III Standing
court begins its analysis, as it must, with whether
Plaintiffs have standing to bring suit. See, e.g.,
Davis v. Fed. Election Comm'n, 554 U.S. 724, 734
(2008) (“[A] plaintiff must demonstrate standing for
each claim [it] seeks to press and for each form of relief
that is sought.” (internal quotation marks omitted)).
That inquiry, as will be seen, also informs the court's
analysis of several other asserted grounds for dismissal.
general matter, a plaintiff has standing when she has
“(1) suffered an injury in fact, (2) that is fairly
traceable to the challenged conduct of the defendant, and (3)
that is likely to be redressed by a favorable judicial
decision.” Spokeo, Inc. v. Robins, 578 U.S.,,
136 S.Ct. 1540, 1547 (2016) (citing Lujan, 504 U.S.
at 560-61). An injury in fact is “an invasion of a
legally protected interest which is (a) concrete and
particularized, and (b) actual or imminent, not conjectural
or hypothetical.” Lujan, 504 U.S. at 560
(footnote, citations, and internal quotation marks omitted).
The plaintiff must demonstrate that she meets each of these
requirements. Id. at 561.
advance one theory to establish the Funds' standing and
another to establish EIG Management's standing. As to the
Funds' standing, Plaintiffs allege that the Funds
suffered an injury-in-fact when they were induced to invest
in Sete and that such injury is directly traceable to
Petrobras and Sete's fraudulent misrepresentations to EIG
Management. Pls.' Opp'n to Defs.' Motions to
Dismiss, ECF No. 62 [hereinafter Pls.' Opp'n], at
11-12; see also Oral Hearing Tr. (rough draft)
[hereinafter Tr.], at 54. In contrast, Plaintiffs conceded at
oral argument that EIG Management-as distinct from the
Funds-did not suffer any legal injury as a result of
Defendants' actions. See Tr. at 54. Plaintiffs,
therefore, try a less direct route to establish EIG
Management's standing. After Plaintiffs filed suit in
this case, EIG Luxembourg-the Funds' second-tier
subsidiary that was established to make the Sete investment
through FIP Sondas- assigned its rights to any and all claims
arising out of the Sete Investment to EIG Management.
See Pls.' Opp'n, Ex. B, ECF No. 62-6
[hereinafter “Assignment Agreement”]. Plaintiffs
contend that the assignment places EIG Management in the
shoes of EIG Luxembourg, which itself has a cognizable
injury-in-fact-the losses EIG Luxembourg suffered.
See Pls.' Opp'n at 12.
counters that the Funds lack standing under what is known as
the “shareholder standing rule.” Petrobras Mot.
at 26-28. Under that rule, “[c]laims based on injury to
the corporation . . . are derivative in nature and any
damages suffered are owed to the corporation, ” not the
shareholder. See Labovitz v. Washington Times Corp.,
172 F.3d 897, 901 (D.C. Cir. 1999). Shareholders “can
bring an individual claim [only] if they suffer injuries
‘directly or independently of the
corporation.'” Id. at 900-01. Here,
Petrobras asserts that the shareholder standing rule bars the
Funds' suit because they are mere shareholders of the
corporation that suffered the actual injury resulting from
Sete's demise, EIG Luxembourg. Petrobras Mot. at 27.
Petrobras points out that EIG Luxembourg, and not the Funds,
recorded the losses arising from the failed investment.
Id.; id., Ex. 5 at 19. Therefore, Petrobras
contends, the Funds, at most, suffered only a derivative
injury and thus lack standing to bring the asserted claims.
See Petrobras Mot. at 26-27.
EIG Management, Petrobras maintains that the September 2016
assignment agreement-signed six months after Plaintiffs filed
their original Complaint-does not confer standing on EIG
Management because the assignment comes too late. As standing
must exist at the time the suit is filed, see Davis,
544 U.S. at 732; Grupo Dataflux v. Atlas Global Grp.,
L.P., 541 U.S. 567, 570 (2004); Compton v. Alpha
Kappa Alpha Sorority, Inc., 64 F.Supp.3d 1, 13 (D.D.C.
2014), EIG Luxembourg's post-suit assignment to EIG
Management is ineffective for purposes of this suit.
court addresses whether either the Funds or EIG Management
have standing, in turn.
The Funds' Standing
argument that the Funds lack standing boils down to this: the
multi-layer investment structure through which the Funds
invested in Sete not only insulated the Funds from any losses
incurred, but also protected them from suffering the
requisite injury for purposes of Article III standing.
See Petrobras Mot. at 26-27. Although that argument
has surface appeal, the court disagrees and finds the Funds
core, the Amended Complaint advances claims premised on the
tort of fraudulent inducement. For that common law tort, the
aggrieved party suffers injury at the time it is dispossessed
of the money or property sought by the defendant. See,
e.g., Parr v. Ebrahimian, 774 F.Supp.2d 234,
240 (D.D.C. 2011) (finding, in fraud action against seller of
condominium who allegedly misrepresented facts about the
property, that plaintiff was injured upon her purchase of the
condominium); see also Lichtenstein v. Reassure Am. Life
Ins. Co., No. 07-1653, 2009 WL 792080, at *9 (E.D.N.Y.
Mar. 23, 2009) (measuring injury in the context of fraudulent
inducement from time of purchase of insurance policies);
Womack v. Nissan N. Am., Inc., 550 F.Supp.2d 630,
634 (E.D. Tex. 2007) (finding that plaintiff was injured upon
purchasing a vehicle with a computer software device that
registered a mileage different from the actual mileage). As
the Restatement (Second) of Torts summarizes:
The word “injury” . . . denote[s] the fact that
there has been an invasion of a legally protected
interest which, if it were the legal consequence of a
tortious act, would entitle the person suffering the invasion
to maintain an action of tort. . . . The meaning of the word
“injury, ” as here defined, differs from the
sense in which the word “injury” is often used,
to indicate that the invasion of the interest in question has
been caused by conduct of such a character as to make it
(Second) of Torts § 7 cmt. a (Am. Law. Inst. 1965)
(emphasis added). Here, the Funds' “legally
protected interest” was their property right in the
millions of dollars they committed as an investment in Sete,
as well as their intangible right to control how they spent
that money. Cf. United States v. Akinyoyenu, 201
F.Supp.3d 82, 86 (D.D.C. 2016) (citing 18 U.S.C. § 1341,
collecting cases, and explaining that, for purposes of the
federal mail and wire fraud statutes, “money or
property” includes the intangible right to control how
to use one's property). Plaintiffs have alleged that
Petrobras and Sete invaded those protected interests by
directly making ...