[00:00:00] Speaker 05: Ms. [00:00:04] Speaker 05: Stetson, before you begin, let me just say apologize on behalf of the court. [00:00:25] Speaker 00: Judge Centel has been delayed, and we feel that we've waited long enough. [00:00:30] Speaker 00: So he'll either join us, or in any event, we'll listen to the transcription. [00:00:34] Speaker 00: All right. [00:00:36] Speaker 04: Thank you, Your Honor. [00:00:37] Speaker 04: Good morning, and may it please the Court. [00:00:38] Speaker 04: My name is Kate Stetson. [00:00:39] Speaker 04: I represent the appellant Petrobras. [00:00:42] Speaker 04: Petrobras is an instrumentality of the Republic of Brazil, and that means that a U.S. [00:00:47] Speaker 04: Court cannot exercise jurisdiction over Petrobras unless one of the FSIA's statutory exceptions applies. [00:00:55] Speaker 04: The exception at issue in this case is the commercial activity exception, Section A2 of Statutory Provision 1605, Title 28. [00:01:05] Speaker 04: And the clause primarily at issue in this case is the Direct Effects Clause, which says that a court may exercise jurisdiction over a foreign sovereign [00:01:13] Speaker 04: if the claim against the sovereign is based on an act committed outside the U.S. [00:01:19] Speaker 04: that has a direct effect in the U.S. [00:01:22] Speaker 04: And the question on this appeal is whether a loss taken by the plaintiff's indirect foreign subsidiary is a direct effect in the U.S. [00:01:32] Speaker 04: The district court said it was and we argue that it's not. [00:01:36] Speaker 04: When these plaintiffs [00:01:38] Speaker 04: decided to invest in Sete Brasil. [00:01:42] Speaker 04: They decided to create two Luxembourgian companies, one EIG Parent and one EIG Luxembourg, we call it in the complaint. [00:01:52] Speaker 04: Through EIG Luxembourg, they purchased shares in another vehicle, a Brazilian investment vehicle called FIP Sondas. [00:02:00] Speaker 04: FIP Sondas, in turn, held shares in Sete Brasil. [00:02:04] Speaker 04: Our point is that when these plaintiffs came to the district court alleging a loss, [00:02:12] Speaker 04: What they were complaining about was a loss of their value of their shares in EIG Luxembourg. [00:02:18] Speaker 04: EIG Luxembourg was the entity that suffered the loss, and it suffered that loss in Luxembourg. [00:02:25] Speaker 04: This is something that even the district court acknowledged to a point. [00:02:29] Speaker 04: If you look at page 308 of the Joint Appendix, the district court acknowledges that these plaintiffs, the funds invested in Seche Brazil, but they... Is it tort? [00:02:40] Speaker 02: Is it tort? [00:02:42] Speaker 02: complete only when you can prove that there is a loss in the value of the shares was a tort complete upon making the investment under the allegedly false pretenses. [00:02:57] Speaker 04: I think there are cases in this circuit that counsel the former. [00:03:03] Speaker 04: The Wu versus Stamberg case, for example, says that the tort of fraud is complete and the locus of fraud is located where the loss is suffered. [00:03:12] Speaker 04: But just to cut through that sort of binary question, because in this case, [00:03:18] Speaker 04: We think it's rather academic. [00:03:19] Speaker 04: If you look at where the losses suffered, it was Luxembourg. [00:03:22] Speaker 04: If you look at where the funds were relinquished to purchase FIP Sanda shares, which in turn invested in Seche, that too was in Luxembourg. [00:03:31] Speaker 04: The only way that you can locate this loss somewhere else is if you back out from EIG Luxembourg to the parent all the way back to the funds. [00:03:41] Speaker 04: And there are basic corporate principles at work [00:03:45] Speaker 04: that suggests that you may not do that in the FSIA context. [00:03:49] Speaker 04: The funds would tell you that because they suffered a loss, they suffered financial injury, that caused a direct effect in the U.S. [00:03:57] Speaker 04: That was their argument below. [00:03:58] Speaker 04: It's their argument on appeal that you can cut through those corporate formalities and simply decide that the loss they suffered was a sufficiently direct effect. [00:04:06] Speaker 04: There are several problems with that. [00:04:08] Speaker 00: Well, let me ask you about the, because the way I've looked at this case is the non-disclosure [00:04:14] Speaker 00: the so-called misrepresentation, the non-disclosure of the kickback scheme, was non-disclosed to investors here in the United States, either through the advertising the documents, as well as this fellow, Ferrez, whatever, who came, had several meetings. [00:04:40] Speaker 00: That, to me, is where [00:04:43] Speaker 00: the loss occurred in that that's where the misrepresentation was made and that's where the decision was made to part with money, whether it then went to Luxembourg and then to Brazil. [00:04:57] Speaker 04: Right, so a couple points on that, Judge Henderson. [00:04:59] Speaker 04: The first is, while there is a debate, arguably, among restatements, among courts, about whether you locate the loss at the time of the purchase or at the time of the quantifiable loss, there's no debate that the place where you don't locate it is where the misrepresentation was made. [00:05:17] Speaker 04: That goes back to the judge-friendly decision in the SAC case that we cite. [00:05:21] Speaker 04: So, for these purposes, the fact that misrepresentations were made is not the operative fact. [00:05:26] Speaker 04: The operative fact is, what did these plaintiffs do? [00:05:30] Speaker 04: They could have, but did not, create a separate U.S. [00:05:35] Speaker 04: corporation. [00:05:36] Speaker 04: They could have invested in FIP sandas through that separate U.S. [00:05:40] Speaker 04: corporation for reasons of their own, and these are sophisticated entities. [00:05:45] Speaker 04: They elected to create a Luxembourgian parent, which in turn created a Luxembourgian sub, which in turn invested in FIP Sandus, which in turn invested in Seche. [00:05:56] Speaker 04: Creating that parent and sub [00:05:58] Speaker 04: had beneficial consequences for these plaintiffs. [00:06:01] Speaker 04: That's assuredly why they did it. [00:06:03] Speaker 04: But it also has consequences for this lawsuit. [00:06:06] Speaker 04: And it means that the remedy that they seek is not available in a U.S. [00:06:10] Speaker 04: court. [00:06:11] Speaker 04: Because by creating that separate Luxembourgian subsidiary, the Luxembourgian subsidiary took those losses. [00:06:18] Speaker 04: And you can find that at Joint Appendix 60. [00:06:20] Speaker 04: The Luxembourgian sub is the one that wrote down the losses from the loss of value of the investment. [00:06:26] Speaker 04: not the funds that created the parent that in turn created the sub. [00:06:31] Speaker 03: Mea culpa, my apologies. [00:06:33] Speaker 03: I invite my colleagues to impose a fine on me for being late. [00:06:37] Speaker 03: I'm very sorry. [00:06:38] Speaker 00: I understand, Judge Santel, no problem. [00:06:40] Speaker 00: Do we know, I know there are sealed documents in this record, but do we know the amount of money invested by Americans? [00:06:50] Speaker 00: I think it's 220 million. [00:06:54] Speaker 00: That I don't think is under seal. [00:06:56] Speaker 00: what percentage that is of all investors and then what percentage of the investments as opposed to the debt financing. [00:07:08] Speaker 00: was used for these drilling ships. [00:07:11] Speaker 04: I don't think that that is in the record, Your Honor, whether sealed or unsealed, that the percentage of investors that this particular investment constituted. [00:07:19] Speaker 00: Well, I tried to figure out the fact that there were, I think, what is it, there were 28 of these ships at $700 million each. [00:07:29] Speaker 00: And $220 million didn't seem like a lot. [00:07:34] Speaker 00: I didn't do the whole numbers. [00:07:35] Speaker 00: But I was just trying to see how important the American investors were with respect to the argument about targeting. [00:07:47] Speaker 00: Because this was an international, I understand that, investment. [00:07:51] Speaker 00: How important was America? [00:07:54] Speaker 04: I see. [00:07:55] Speaker 04: With respect to targeting, I think I have a couple thoughts. [00:07:58] Speaker 04: The first is, on the investments themselves, it bears noting that all of the other entities that invest in an FIP fund, as to our knowledge, are carrying forward proceedings in this case, and they're doing it in Brazil. [00:08:13] Speaker 04: This is the investor that chose not to do that. [00:08:25] Speaker 04: simply for an American plaintiff to say, I suffered financial injury. [00:08:30] Speaker 04: Nor, we would say, is it enough for an American plaintiff to say, I was recruited to contribute money, and then I suffered injury. [00:08:37] Speaker 04: When that American plaintiff chooses, for reasons of its own, not to create a US sub, but to create a foreign subsidiary through which it perfects that investment. [00:08:49] Speaker 04: Now, this is not just me saying that this is a foreign indirect subsidiary, by the way. [00:08:54] Speaker 04: If you look at Exhibit B to the plaintiff's opposition to the motion to dismiss below, it was filed on October 7, 2016. [00:09:04] Speaker 04: Exhibit B is an assignment, and it's an assignment that purports to come from EIG Luxembourg to the funds. [00:09:11] Speaker 04: And on page two of that assignment, what EIG Luxembourg says is, EIG Luxembourg is an indirect subsistence. [00:09:20] Speaker 04: Our entire thesis of this case is that a loss to an indirect subsidiary cannot be a direct effect on the funds. [00:09:30] Speaker 04: With respect to the subsidiary arguments, I would say that the funds raise, one of them has to do with this idea that the Luxembourgian companies were mainly holding companies. [00:09:42] Speaker 04: They were created for the purpose of investing in FIP Sandes. [00:09:46] Speaker 04: They didn't have another purpose and so forth. [00:09:49] Speaker 04: A couple points on that. [00:09:50] Speaker 04: First of all, we embrace that because, again, they could have created a holding company in the U.S. [00:09:54] Speaker 04: and they chose not to. [00:09:56] Speaker 04: Second, for purposes of the FSIA, the fact that there is corporate separateness between EIG and the funds that it managed, and EIG parent Luxembourg and EIG subsidiary Luxembourg, [00:10:09] Speaker 04: is important. [00:10:10] Speaker 04: It can't be overridden, and it certainly can't be overridden with reference to a couple 10b5 cases, Grubb and Abbey, I think, are the two that are cited in the briefs, that stand for the proposition that in a 10b5 case, you can locate a sort of judicially created standing principle by looking at who the actual purchaser of the securities was. [00:10:34] Speaker 04: There is no such principle that controls in the FSIA cases. [00:10:38] Speaker 04: So the holding company argument, we think, is beside the point. [00:10:42] Speaker 04: So I think what the contentions that the plaintiffs argue boil down to three. [00:10:48] Speaker 04: The first is because they suffered some financial injury, they have suffered a direct effect. [00:10:54] Speaker 04: I've already spoken to that. [00:10:55] Speaker 04: The fact that they suffered an economic impact under Bell Helicopter, under the Antares case from the Second Circuit, that is not sufficient to show a direct effect. [00:11:04] Speaker 04: You look at where the tort occurred, and whether you look at the beginning or the end, the purchase or the loss, the tort occurred in Luxembourg. [00:11:13] Speaker 04: The second argument is the honing company argument I just mentioned, that because these were so-called pass-through companies, they should be deemed to have suffered the loss. [00:11:21] Speaker 04: That is not the way it works in the world of corporate separateness. [00:11:25] Speaker 04: It's not the way it works under the FSIA. [00:11:28] Speaker 00: The third is... Why is it the direct effect? [00:11:31] Speaker 00: Isn't this sufficient? [00:11:33] Speaker 00: Coming back to the money started in America, I mean the money, whether it went to Luxembourg or to Brazil, the effect was felt in America because the money started in America. [00:11:49] Speaker 04: The money started in America in the Antares aircraft case as well. [00:11:52] Speaker 04: The money started in America in that case and was sent to Nigeria when Nigeria seized and held Antares Aircraft's sole asset. [00:12:02] Speaker 04: But the fact that the money started in Nigeria or started in America was sent through a U.S. [00:12:07] Speaker 04: bank to Nigeria was not relevant to the direct effects test. [00:12:11] Speaker 04: For the reason that we were talking about earlier in the argument, when you look at that direct effects test, you don't ask where the money came from or whether there was an American plaintiff that was injured. [00:12:21] Speaker 04: That backs into the test the wrong way. [00:12:23] Speaker 04: You ask where the locus of the tort occurred. [00:12:26] Speaker 04: We know that it's not enough. [00:12:28] Speaker 04: for the misrepresentation to have been made in the U.S. [00:12:31] Speaker 04: And by the way, I am giving the most charitable reading possible of the plaintiff's passive-voiced complaint in that respect. [00:12:40] Speaker 04: You look at the locus of the tort, and here the locus of the tort is Luxembourg. [00:12:45] Speaker 04: The fact that there was U.S. [00:12:46] Speaker 04: money earlier involved in creating a parent, which in turn created a sub, which in turn invested in a Brazilian vehicle, [00:12:54] Speaker 04: is not enough to chase all the way back to find the direct effect in the US. [00:13:00] Speaker 00: How is the locus of the tort in Luxembourg when the decision to part with the money was in America? [00:13:10] Speaker 00: I mean, I can see how you're arguing the money [00:13:14] Speaker 00: went from Luxembourg to Brazil, but how does Luxembourg have the direct effect of the tort of the fraud? [00:13:29] Speaker 04: The decision to part with the money is a component of the test, but the decision to part with the money occasioned the decision to create a Luxembourgian subsidiary in order to part with the money. [00:13:41] Speaker 04: So, again, I think it would be a misreading of this court's past precedents, certainly of Bell Helicopter, of the Antares case, to suggest that simply because a U.S. [00:13:53] Speaker 04: investor decided all the way back up the chain to invest in a particular entity, you look at what the investor did next. [00:14:02] Speaker 04: And what that investor did next could have been to create a U.S. [00:14:05] Speaker 04: entity, as I said. [00:14:06] Speaker 04: It didn't. [00:14:07] Speaker 04: What these investors did was to create a Luxembourgian entity, which in turn created a Luxembourgian entity, and so on and so forth. [00:14:14] Speaker 04: That corporate choice has consequences. [00:14:18] Speaker 04: And we are not, again, saying that these plaintiffs are without a remedy. [00:14:22] Speaker 04: They can do what every other plaintiff in their position has done, which is to take their claims to Brazil. [00:14:29] Speaker 04: What they cannot do is interpolate all the way back from their Luxembourgian indirect subsidiary [00:14:36] Speaker 04: the subsidiary that took the loss and interpolate that all the way back to claim that the effects were directly felt in the U.S. [00:14:47] Speaker 04: If there are no further questions, I'll reserve. [00:14:49] Speaker 04: All right. [00:14:49] Speaker 04: Thank you. [00:14:50] Speaker 00: Mr. Goldman. [00:15:01] Speaker 01: Hey, please, the court. [00:15:02] Speaker 01: My name is Daniel Goldman. [00:15:03] Speaker 01: I'm with Kramer-Lev, and I represent the plaintiff's appellees. [00:15:07] Speaker 01: This case is not Antares. [00:15:11] Speaker 01: It's not Bell Helicopter. [00:15:12] Speaker 01: It's not about a plane being impounded in Nigeria. [00:15:16] Speaker 01: I mean, if ever there was a case in which the commercial activities exception should apply, this is it. [00:15:23] Speaker 01: Oh, come on. [00:15:26] Speaker 01: Pardon me, Your Honor. [00:15:27] Speaker 03: Overstatement is not going to get you very far, Counsel. [00:15:30] Speaker 03: I mean, you may win on this point, but to come in and see if ever there was a case where it should apply, [00:15:35] Speaker 03: You're relying, at this point at least, principally on the direct effects clause. [00:15:40] Speaker 03: Was it clause one or clause three? [00:15:42] Speaker 03: Clause three, I guess it is. [00:15:46] Speaker 03: You admit, by language, and I think it's in your reply brief where you say you don't have to have the most direct effects. [00:15:53] Speaker 03: You can't say this is the quintessential case for the application of the commercial extension gain. [00:16:01] Speaker 01: At best, it's a close case. [00:16:04] Speaker 01: I don't believe it's a closed case, and I think that there are two reasons why this is not a closed case. [00:16:09] Speaker 01: Number one, there's no question, and Petrobras does not deny, that it targeted, specifically targeted U.S. [00:16:17] Speaker 01: investors for such an investment. [00:16:20] Speaker 03: That's the act's first clause, right? [00:16:23] Speaker 03: Not the direct-to-fix clause. [00:16:25] Speaker 01: Well, that's in the Atlantica case, in the Second Circuit. [00:16:29] Speaker 03: Well, you have three clauses in the exception of the statute. [00:16:33] Speaker 03: One is the axe, one is the direct effect, and then the... No, that relates in the Atlantica case, the Second Circuit, the Second Circuit held... Forget there's an Atlantic case, which clause of the statute are you relying on? [00:16:45] Speaker 01: The third, the third clause, which is the direct effect clause. [00:16:48] Speaker 01: Direct effect clause, okay. [00:16:49] Speaker 01: And so what distinguishes this case, it's not just that there's a financial harm, it's the financial harm plus the fact that Petrobras specifically targeted U.S. [00:17:01] Speaker 01: investors... Is that an effect? [00:17:03] Speaker 01: That's not the effect, but what that means... That's not an effect, is it? [00:17:06] Speaker 01: That's not the effect. [00:17:08] Speaker 01: So the direct effects are felt where? [00:17:10] Speaker 01: The direct effects are felt in the U.S. [00:17:12] Speaker 03: when EIG invested... EIG is a shareholder in a subsidiary and then there's an indirect subsidiary in Luxembourg? [00:17:24] Speaker 01: That's correct, Your Honor. [00:17:25] Speaker 03: That's correct. [00:17:25] Speaker 03: So the direct effects are actually felt by the indirect subsidiary in another country, aren't they? [00:17:33] Speaker 01: Under the third clause, all one needs is a direct effect in the U.S. [00:17:38] Speaker 01: A direct effect. [00:17:39] Speaker 01: A direct effect. [00:17:41] Speaker 01: And these subsidiaries would never have been set up but for the fraud. [00:17:47] Speaker 01: But they were fitted. [00:17:49] Speaker 01: They were indeed set up. [00:17:50] Speaker 01: But here's the thing, is that really what Petrobras is arguing is that because of these subsidiaries, there's an intervening element. [00:18:02] Speaker 03: Intervening would seem to interrupt the course of the effect, so it would no longer be direct. [00:18:09] Speaker 03: That's the argument. [00:18:10] Speaker 01: That is not only the argument, but it's a pretty good argument. [00:18:14] Speaker 01: Well, but the fact is, and again, if I could just quote Atlantica, Second Circuit, that says, the intervening actions of a third party may sometimes break the causal chain [00:18:27] Speaker 01: between a defendant's alleged torsion's conduct and the effect felt in the U.S. [00:18:33] Speaker 01: if the third party takes some independent action that causes a total effect in the U.S. [00:18:41] Speaker 01: The Luxembourg entities did nothing here. [00:18:50] Speaker 01: When the scandal was publicly disclosed, the loss flowed through Luxembourg to the U.S. [00:18:59] Speaker 01: directly. [00:19:00] Speaker 01: They had no ability to keep the loss in Luxembourg. [00:19:04] Speaker 01: They didn't take any independent actions. [00:19:06] Speaker 01: It's really no different than a product liability case where the manufacturer is liable and you have retailers and distributors in between who did nothing with respect to the manufacturing defect. [00:19:19] Speaker 01: So, yes. [00:19:21] Speaker 03: I mean, it would be a wonderful day for... Well, it's very different than a direct effect, than a product liability case. [00:19:28] Speaker 03: We're dealing here not with liability, but with jurisdiction. [00:19:32] Speaker 03: That jurisdiction depends upon a waiver of sovereign immunity. [00:19:36] Speaker 03: Unless the manufacturer in a product case is a sovereign, you don't have a parallel case, do you? [00:19:41] Speaker 01: I understand that, Your Honor, but there are product liability cases in which there are foreign sovereigns, and they're held that there's an FSA exception and there's jurisdiction, notwithstanding the fact they're a foreign sovereign, that the intermediate retailers and distributors don't affect whether or not there's a direct effect. [00:20:03] Speaker 01: But the point is the Luxembourg entities did nothing. [00:20:07] Speaker 01: It would be a great day if my client could go to its investments and say, don't worry. [00:20:13] Speaker 01: The loss is in Luxembourg. [00:20:15] Speaker 01: That's not the reality. [00:20:17] Speaker 01: Well, there's a loss here. [00:20:19] Speaker 01: The question is whether it's direct. [00:20:21] Speaker 01: It is direct because the Luxembourg entities did nothing relative to the loss. [00:20:26] Speaker 01: The loss flowed straight through to the funds. [00:20:29] Speaker 01: The Luxembourg entities were set up because of the fraud, but for the fraud there never would have been a loss. [00:20:34] Speaker 01: And if you accept the district court's reasoning, which we argue, the loss, the direct effect happened immediately upon the investment, immediately upon the fact when EIG and the funds invested $221 million and it left bank accounts in the U.S. [00:20:53] Speaker 01: and flowed through Luxembourg and up. [00:20:56] Speaker 01: That's when the loss occurred immediately. [00:20:59] Speaker 01: The loss was quantified at a later time when the public scandal was disclosed and subsequent events. [00:21:09] Speaker 01: But the actual injury happened at the time of the fraudulent inducement and the American funds wired out $221 million from America. [00:21:23] Speaker 01: Counsel from Petrobras says, well, these are just securities fraud cases. [00:21:27] Speaker 01: But this is, in a sense, a securities fraud case. [00:21:30] Speaker 01: Yes, it's not a 10b5 case, because there were direct representations from Petrobras to EIG. [00:21:36] Speaker 01: But in a fraudulent inducement case, the injuries suffered at the time that the plaintiff gives up its money. [00:21:47] Speaker 00: Do the US investors have to be targeted in order for the third exception to apply? [00:21:55] Speaker 01: I think so, yes, Your Honor. [00:21:57] Speaker 01: And I think that at least if the court accepts the holding in Atlantica, what distinguished Atlantica was that the defendant contemplated U.S. [00:22:09] Speaker 01: investment. [00:22:10] Speaker 01: and did extensive marketing in the U.S. [00:22:13] Speaker 01: So it wasn't simply just that there was an injury in the U.S. [00:22:16] Speaker 01: because the plaintiffs happened to live. [00:22:18] Speaker 01: It was that extra factor which brought it under the direct effects test, and that's at least what the Second Circuit held. [00:22:26] Speaker 01: And I think that's what distinguishes this case. [00:22:28] Speaker 01: It's not, again, about a plane being impounded in Nigeria. [00:22:32] Speaker 01: It's not about press releases being issued in South Africa. [00:22:36] Speaker 01: There's extensive marketing of this to U.S. [00:22:39] Speaker 01: investors and, in fact, two U.S. [00:22:40] Speaker 01: investors invested, EIG and Luce, which is a Delaware entity. [00:22:46] Speaker 01: And the Court wanted to know what percentage of the investment. [00:22:50] Speaker 01: The American investors invested – took up 10 percent of the equity. [00:22:56] Speaker 01: in this investment. [00:22:57] Speaker 01: So EIG invested $221 million. [00:23:00] Speaker 01: Luce invested over $100 million. [00:23:04] Speaker 01: That was 10% of the equity. [00:23:06] Speaker 01: And the remaining investment was going to be debt investment, principally from the Brazilian National Development Bank. [00:23:16] Speaker 01: And as I said, going back to [00:23:22] Speaker 01: This case is anything stronger than in Atlantica, because in Atlantica there's extensive marketing in the U.S., but there was no contact directly with the plaintiff. [00:23:32] Speaker 01: Here we have Petrobras sending information memorandum directly to EIG in D.C. [00:23:38] Speaker 01: You've got meetings in D.C. [00:23:40] Speaker 01: You have emails in D.C. [00:23:46] Speaker 01: So I think, if any way, this is a stronger case than Atlantica. [00:23:52] Speaker 01: I mean, look, two weeks ago, Petrobras announced that it's paying $3 billion to settle a securities class action in the Southern District of New York that's been litigating there for three years. [00:24:03] Speaker 01: This case should also be litigated in America. [00:24:09] Speaker 01: I want to make one other point on the direct effect, which is that I think that [00:24:15] Speaker 01: The cases in the 10b-5 context, which are standing cases, are also persuasive. [00:24:22] Speaker 01: In those cases, the courts have routinely held that an investor who makes investment through a holding company is the actual purchaser and has 10b-5 standing and constitutional standing. [00:24:37] Speaker 01: if the holding company was set up for the sole purpose of making the investment, which is what happened here. [00:24:43] Speaker 01: So I do think those are analogous cases. [00:24:53] Speaker 00: Is there anything in the record about the costs of setting up the Luxembourg subsidiaries to EIG here in America? [00:25:05] Speaker 01: There's nothing in the record, but I don't think it was a big cost. [00:25:09] Speaker 01: I think these are just holding companies. [00:25:11] Speaker 01: Incidentally, they have such a in the name, which is, you know, they were set up specifically to make this investment. [00:25:18] Speaker 01: And I will also say that [00:25:23] Speaker 01: that the reason they were set up is because Petrobras set up a structure for foreign entities to invest into it, and if they did it in the appropriate way, they wouldn't have to pay Brazilian investment taxes. [00:25:38] Speaker 01: The U.S. [00:25:39] Speaker 01: funds could have invested directly, but the Cayman funds couldn't invest directly into that structure. [00:25:48] Speaker 01: Otherwise, so that's why the Luxembourg structure was set up, because the Cayman funds were considered tax havens, and so you can't get the Brazilian tax benefit if you're a Cayman fund. [00:26:00] Speaker 01: So Luxembourg was set up because the Cayman funds, principally, the American funds got no benefit from investing through Luxembourg. [00:26:08] Speaker 01: It was just done to make it a consistent investment. [00:26:11] Speaker 01: But it was because Petrobras set up a structure to encourage foreign investment is where the whole Luxembourg structure came from. [00:26:26] Speaker 01: I do want to also [00:26:31] Speaker 01: addressed one point, which was not addressed in the argument, but certainly addressed in the briefs. [00:26:36] Speaker 01: I mean, we argued in our briefs that the direct effect on Luce investment, which is the American, the other American that was also a sufficient basis for finding a direct effector. [00:26:52] Speaker 03: Can we consider that [00:26:56] Speaker 03: It's outside the facts of this case, and this is a legitimate question. [00:27:01] Speaker 03: I'm not arguing with you on that. [00:27:02] Speaker 01: I understand that. [00:27:03] Speaker 01: Well, that's a good question, and we say that it was not waived because the law of the circuit is that if an issue is raised in oral argument before the district court... Aside from that, is that part of this case, when you have, you're not saying that the harm in this case was caused directly in the United States? [00:27:25] Speaker 03: You're saying that some other facts arising out of the same nexus goes somebody else from the United States who's not in this lawsuit. [00:27:33] Speaker 01: Right. [00:27:33] Speaker 01: It doesn't have to be in the lawsuit as long as there is a direct effect in the US, whether or not. [00:27:38] Speaker 03: That's what I'm asking you, whether that is the law. [00:27:40] Speaker 03: And if so, what's your source of law? [00:27:42] Speaker 01: So the source for that, again, is the Atlantica case, where that very argument was made. [00:27:51] Speaker 01: And the court in Atlantica said, well, even if all the plaintiffs were foreign, [00:27:56] Speaker 01: as long as there is a direct effect in the U.S., then that satisfies the direct effects test. [00:28:04] Speaker 01: And in terms of the waiver point, I'll just say that it was actually Petrobras during oral argument that raised the issue of Luce. [00:28:14] Speaker 01: And this is at Joint Appendix 391. [00:28:16] Speaker 01: It says, [00:28:20] Speaker 01: You know, the Council for Petrobras said, in fact, there are at least four other proceedings brought in Brazilian arbitration. [00:28:26] Speaker 01: At least one of those four plaintiffs is actually a U.S.-based entity, and they all alleged essentially exactly what EIG alleges here. [00:28:36] Speaker 01: And then the district court picked up on your point, Judge Santel, and said, well, my understanding of the law is that as long as there's a direct effect in the U.S., it could be dilucce, that satisfies. [00:28:51] Speaker 01: Petrobras didn't really answer it. [00:28:53] Speaker 01: They went back and forth. [00:28:55] Speaker 01: And those sites are at JA447 through 448, 449, and then at 476. [00:29:05] Speaker 01: I chimed in and said, yes, that's the correct state of the law. [00:29:09] Speaker 01: As long as there's a direct effect in the US, that's sufficient for the purposes of the direct effects test. [00:29:31] Speaker 01: So unless there are any further questions. [00:29:34] Speaker 00: All right, thank you. [00:29:35] Speaker 01: Okay, thank you. [00:29:36] Speaker 00: How much time does Ms. [00:29:38] Speaker 00: Stetson have? [00:29:41] Speaker ?: Ms. [00:29:41] Speaker 00: Stetson has 46 seconds. [00:29:42] Speaker 00: All right, why don't you take a couple minutes. [00:29:45] Speaker 00: May I ask you, starting out, what your position would be on jurisdictional discovery with respect to this targeting issue? [00:29:56] Speaker 04: So jurisdictional discovery was sought by the plaintiffs below, and Judge Maeda rejected it because they had made, in his words, only a bare bones request. [00:30:05] Speaker 04: That's a Joint Appendix 357 to 358. [00:30:09] Speaker 04: We don't think there's any warrant here to second-guess that determination, particularly given the bare bones request. [00:30:16] Speaker 04: Let me make a couple quick points, if I could. [00:30:18] Speaker 00: The first on Atlantica holdings. [00:30:20] Speaker 00: Well, then let me follow up with that and ask your position on the targeting necessity. [00:30:26] Speaker 04: My position on targeting? [00:30:28] Speaker 04: My position on targeting with respect to the direct effects test is that the test is not called the targeting test. [00:30:35] Speaker 04: It is called the direct effects test for a reason. [00:30:37] Speaker 04: Even if we take, as I said earlier, the most charitable view of this complaint, and even if we accept for these purposes, despite the clever wording of the complaint, that there were misrepresentations made to U.S. [00:30:52] Speaker 04: investors in the U.S., [00:30:54] Speaker 04: The direct effects were felt in Luxembourg, and that was a choice that this investor made to create the Luxembourgian entity. [00:31:03] Speaker 04: I also on that want to make very clear something. [00:31:06] Speaker 04: Mr. Goldman just mentioned that Petrobras had encouraged the investment structure that was set up. [00:31:12] Speaker 04: If you look at the SEAL Joint Appendix 365, what you will find is that Petrobras encouraged investment through an FIP, FIP Sondas. [00:31:23] Speaker 04: Petrobras never encouraged these plaintiffs, these funds, to create a Luxembourgian entity. [00:31:30] Speaker 04: In fact, what Mr. Goldman just said is the reason they did that had to do with the Cayman entities. [00:31:35] Speaker 04: But that doesn't excuse their choice to set up that separate corporate entity. [00:31:41] Speaker 04: The difference finally between this case and Atlantica [00:31:44] Speaker 04: is that the plaintiffs in Atlantica, and I'm reading from the case, made their purchases through a Miami office of UBS, which had sent to its broker dealer in New York using funds from plaintiffs' UBS accounts in New York. [00:32:00] Speaker 04: All of the transactional particulars happened in New York. [00:32:05] Speaker 04: Here, what you have is an initial decision to invest in a Luxembourgian entity, which in turn created another Luxembourgian entity, which in turn invested in a Brazilian entity, which in turn invested in Seche. [00:32:18] Speaker 04: That chain of events which Mr. Goldman conceded rendered the subsidiary indirect [00:32:24] Speaker 04: cannot be found to cause a direct effect in the U.S. [00:32:28] Speaker 04: under the FSIA. [00:32:30] Speaker 04: There are no further questions.