UPDATE: Challenges To Standing Of Petrobras Opt-Out Plaintiffs Denied

As a follow-up to our October 15 discussion about challenges to the standing of certain opt-out plaintiffs in the In re Petrobras Securities Litigation, No. 14-cv-9662 (S.D.N.Y.) consolidated litigation, Judge Rakoff has resolved those issues in two decisions. In a brief October 19, 2015 decision announcing the Court's opinion (and dismissing certain opt-out claims) and a more fulsome January 5, 2016 decision explaining his reasoning, Judge Rakoff denied the Petrobras defendants' motion to dismiss on each of the standing arguments. Although the two opinions address a variety of arguments beyond the standing issues, including dismissal of various claims on limitations grounds, the Court's opinion allows those opt-out plaintiffs whose standing was challenged to proceed with certain claims in their cases.

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 of Petrobras on the New York Stock Exchange, as well as other securities, 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 allegations was substantially denied, but on August 21, 2015, Defendants, i.e., Petrobras, affiliated entities, and their underwriters, filed a Motion to Dismiss Certain Individual Opt-Out Complaints.

Judge Rakoff's opinion ("Op.") denies Defendants' motion as to the standing issues, though the reasoning differs for various categories of opt-out plaintiffs. First, the Court rejected Defendants' argument that certain opt-out plaintiffs should be dismissed because "[t]he plaintiffs in those cases are suing on behalf of others and have not personally suffered injuries." (Op. at 3.) Instead, the Court observed that "the Supreme...