In re Petrobras Securities Litigation continues to produce interesting developments – this time on SLUSA preemption and Brazilian law. On March 12, 2016, the U.S. District Court for the Southern District of New York held that the Securities Litigation Uniform Standards Act (“SLUSA”) does not preempt claims asserted under foreign law and that Brazilian law requires a plaintiff to have actually realized loss on the securities transactions at issue.
The court’s most recent decision addressed claims by a purchaser of Petrobras securities in U.S. transactions. That purchaser sought to sue under both U.S. and Brazilian law. The court had previously dismissed U.S. purchasers’ claims arising from Brazilian transactions, holding that an arbitration provision in Petrobras’s bylaws barred litigation of those claims.
SLUSA Preemption. Congress enacted SLUSA in 1998 to centralize the litigation of most securities class actions in federal court under federal law. SLUSA provides that “[n]o covered class action based upon the statutory or common law of any State or subdivision thereof may be maintained in any State or Federal court.” 15 U.S.C. § 78bb(f)(1) (emphasis added). Courts have split on whether this preemption of “state” law also applies to foreign law – such as the Brazilian-law claims asserted in the Petrobras case.
The defendant argued that the considerations underlying Congress’ desire to federalize most securities class actions and to prevent “strike suits” in state courts applied as well to foreign-law claims and that SLUSA should therefore preclude the plaintiff’s Brazilian-law claims. But the court concluded that, although the defendant’s “argument makes a good deal of sense, it has no foundation in SLUSA’s text, which makes no mention of foreign law claims.” “Simply put, Brazil is not a State” – and SLUSA preemption therefore does not apply.
Brazilian Law. The defendant also argued that, under Brazilian law, civil liability depends on “‘effective damages,’ i.e., losses that have been realized. . . . If a loss has not been realized, there are no damages that can support a claim.” The defendant sought to dismiss the plaintiff’s claims because the plaintiff had not alleged that it had sold its Petrobras securities and actually realized a loss arising from the alleged misconduct. The court observed that the plaintiff had not cited any Brazilian law to the contrary, and it dismissed the Brazilian-law causes of action for failure to state a claim.
Litigants asserting or defending claims under foreign law would be well advised to consider whether applicable law requires actual realization of a loss, as Brazilian law apparently does. And submission of expert declarations on the issue is important (if only to keep academics employed).