LexisNexis Corporate & Securities Law Community 2011 Top 50 Blogs

« Say on Pay and the International Trend: Lessons for the US? | Main | Brummer on International Financial Regulation »
Tuesday
Jun052012

Rogers v. Petroleo Brasileiro: Immunity Under the Foreign Sovereign Immunities Act

In Rogers v. Petroleo Brasileiro, S.A., 2012 WL 806812 (2d Cir. Mar. 13, 2012), two United States citizens, Dennis Rogers and Kevin Burlew (collectively, “Plaintiffs”), filed separate suits against Petroleo Brasileiro (“Petrobrás”) because the corporation declined to convert their bearer bonds into preferred shares. Combining the two actions, the Second Circuit Court of Appeals held that Petrobrás was immune under the Foreign Sovereign Immunities Act (“FSIA”).

In 1953, the Brazilian legislature enacted a law which incorporated Petrobrás, a Brazilian state-owned oil company, and required every motor vehicle owner in Brazil to pay an annual fee. Petrobrás subsequently issued four series of bearer bonds (the “bonds”) to evidence payment of the annual fee. Each bond stated that Petrobrás owed the bondholder one thousand cruzeiros, plus interest, to be paid during the relevant redemption period. Bondholders could also exchange the bonds for preferred shares. All of the redemption periods ended in 1980, and Petrobrás has denied requests for redemption or conversion since then. The Brazilian President’s Office issued a report in 1989 supporting Petrobrás’ denials. On June 22, 2009, Plaintiffs mailed letters to Petrobrás’ New York City office demanding Petrobrás convert their bonds to preferred shares.

Petrobrás asserted that the “commercial activity” exception under the FSIA was not satisfied and that the court therefore lacked subject matter jurisdiction. All parties agreed that Petrobrás was a “foreign state” under the FSIA. The FSIA grants immunity to foreign states, with three exemptions.

The first clause of the “commercial activity” exemption states that a foreign state will not receive immunity if “the action is based . . . upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere.” Although Plaintiffs contended that an email sent from Petrobrás’ New York office should constitute the act, the court held that this was “‘notice to [the Plaintiffs] of the alleged breach, rather than the actual mechanism of breach” (emphasis in original). Accordingly, the relevant act at issue was not performed in the United States.

The second clause of the “commercial activity” exemption states that a foreign state will not receive immunity if “the action is based . . . upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.”  The court reasoned that the bonds were issued in Portuguese and were evidence of a Brazilian motor vehicle fee. Therefore, the court held that there was no “direct effect” because the bonds did not include language “suggest[ing] a reasonable understanding that the United States could be a possible place of performance.”

The primary materials for this case may be found on the DU Corporate Governance website.

Reader Comments

There are no comments for this journal entry. To create a new comment, use the form below.

PostPost a New Comment

Enter your information below to add a new comment.

My response is on my own website »
Author Email (optional):
Author URL (optional):
Post:
 
All HTML will be escaped. Hyperlinks will be created for URLs automatically.