When firm client EIG Global Energy Partners and funds that it manages brought suit against Petróleo Brasiliero SA (Petrobras) in federal district court in 2016, Petrobras, an instrumentality of the Brazilian government, filed a motion to dismiss, asserting that it was immune from U.S. jurisdiction under the U.S. Foreign Sovereign Immunity Act. Three years later, the parties litigated this issue up to the U.S. Supreme Court.
After a six-hour argument, EIG prevailed in the district court. In July 2018, the D.C. Circuit affirmed that decision. Petrobras sought an en banc review, which was denied, and then filed a petition for certiorari to the U.S. Supreme Court. EIG filed an opposition to the cert petition, and the Supreme Court denied cert in March 2019. With this victory, discovery on the merits is now proceeding in the United States.
EIG’s case arises from the massive Brazilian corruption scandal called “Operação Lava Jato,” or “Operation Car Wash.” (The corruption scheme was discovered through an investigation of a Brazilian car wash.) Brazilian prosecutors discovered that, since at least 2004, senior executives of Petrobras required third parties to pay bribes for the privilege of doing business with their company. In 2010, Petrobras executives expanded this corruption scheme to include Sete Brasil Participações SA, a company that Petrobras formed as an off-balance-sheet vehicle to develop and lease back to Petrobras 28 ultra-deepwater drill ships, each of which would cost more than $700 million to build. Petrobras executives decided that the shipbuilders would have to pay a bribe equal to 1% of the cost of each ship.
EIG invested more than $221 million in Sete. When Brazilian prosecutors discovered that Sete was involved in the Lava Jato scandal, Sete’s lenders refused to provide Sete funding. Sete collapsed into bankruptcy, and EIG lost its entire investment. EIG is seeking the value of its investment plus interest and punitive damages.