Standing of Petrobras Opt-Out Plaintiffs Challenged

A recent motion to dismiss filed by the defendants in the In re Petrobras Securities Litigation, No. 14-cv-9662 (S.D.N.Y.) consolidated litigation challenges the standing of several institutional opt-out plaintiffs. Defendants' arguments on standing, if accepted, could have a far reaching impact on an investment advisor's standing to sue on behalf of funds it advises.

As background, Petróleo Brasileiro S.A. ("Petrobras"), a Brazil-based energy multinational, is a target of a Brazilian police investigation of alleged rampant corruption involving construction contracts. Allegedly, several large construction companies colluded to avoid Petrobras's competitive bidding process, giving kickbacks to Petrobras executives to allow the collusion. As a result, Petrobras allegedly significantly overpaid for the construction of certain refineries.

In December 2014, investors who had purchased American Depository Shares (ADSs) of Petrobras on the New York Stock Exchange filed a securities class action in the Southern District of New York, alleging violations of the Securities Act of 1933, the Securities Exchange Act of 1934, and (in an amended complaint) Brazilian securities laws. Plaintiffs allege that in regulatory filings and public statements, Petrobras misrepresented its financial condition, financial controls, and ethical practices. A motion to dismiss the class action was substantially denied.

However, on August 21, 2015, Defendants, i.e., Petrobras, affiliated entities, and their underwriters, filed a Motion to Dismiss certain Individual Opt-Out Complaints (the "Opt-Out Def. Mem."). Defendants' supporting memorandum makes a variety of arguments in favor of dismissal against a variety of plaintiffs, including arguments on standing.

As to standing, Defendants argue that certain plaintiffs "must be dismissed" where those plaintiffs "are investment advisors who have not adequately pleaded that they have standing to sue." Opt-Out Def. Mem. at 2. Instead of "alleg[ing] that they have suffered a personal injury in their own right," these plaintiffs "assert claims on behalf of others without ... plausibly alleging that they have received a valid assignment of those claims." Id. According to Defendants, investment advisors who purchased the relevant securities on behalf of others cannot "demonstrate[] that they have suffered an injury-in-fact, as required to establish standing." Id. at 6. For example, Defendants argue that one such plaintiff only makes...