Banco Safra S.A.-Cayman Islands Branch v. Samarco Mineração S.A. ( 2021 )

19-3976-cv
Banco Safra S.A.-Cayman Islands Branch v. Samarco Mineração S.A., et al.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED
ON OR AFTER JANUARY 1, 2007 IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE
PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT
FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE
(WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT
ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second
Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in
the City of New York, on the 4th day of March, two thousand twenty-one.
PRESENT: ROBERT A. KATZMANN,
RAYMOND J. LOHIER, JR.,
MICHAEL H. PARK,
Circuit Judges.
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BANCO SAFRA S.A.-CAYMAN ISLANDS BRANCH,
Plaintiff-Appellant,
v. 19-3976-cv
SAMARCO MINERACAO S.A., BHP BILLITON
LIMITED, BHP BILLITON PLC, BHP BILLITON
BRASIL LTDA., VALE S.A.,
Defendants-Appellees. *
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* The Clerk of Court is directed to amend the caption as shown above.
For Plaintiff-Appellant Banco Safra S.A.:
JEREMY A. LIEBERMAN (Emma Gilmore, Jennifer
Banner Sobers, on the brief), Pomerantz LLP,
New York, NY.
For Defendant-Appellee Samarco
Mineração S.A.:
NATHANIEL P.T. READ (Mark S. Cohen, Joanna
K. Chan, on the brief), Cohen & Gresser LLP,
New York, NY.
For Defendants-Appellees BHP Billiton
Limited, BHP Billiton Plc, and BHP
Billiton Brasil Ltda.:
Brendan P. Cullen, on the brief, Sullivan &
Cromwell LLP, Palo Alto, CA.
For Defendant-Appellee Vale S.A.:
Randy M. Mastro, Mark A. Kirsch, Christopher
M. Joralemon, David M. Kusnetz, on the brief,
Gibson Dunn & Crutcher LLP, New York, NY.
For Amici Curiae Law Professors in
Support of Appellant:
Laurence M. Rosen, Brent LaPointe, on the brief,
The Rosen Law Firm, P.A., New York, NY.
For Amici Curiae Washington Legal
Foundation and Allied Educational
Foundation in Support of Appellees:
Corbin K. Barthold, Cory L. Andrews, on the
brief, Washington Legal Foundation,
Washington, D.C.
Appeal from a judgment of the United States District Court for the Southern
District of New York (Berman, J.).
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UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED,
AND DECREED that the judgment of the District Court is AFFIRMED.
Banco Safra S.A.-Cayman Islands Branch (“Banco Safra”) brought this putative
securities fraud class action alleging that several offshore companies connected to a
Brazilian mining operation had violated Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 (the Exchange Act), 15 U.S.C. §§ 78j(b), 78t(a), and Rule 10b-5, 17
C.F.R. § 240.10b-5, promulgated thereunder. 1 As relevant here, the United States
District Court for the Southern District of New York (Berman, J.) dismissed with
prejudice Banco Safra’s Second Amended Complaint (the “SAC” or the “Complaint”)
for failure to plausibly allege a domestic transaction under Morrison v. National Australia
Bank Ltd., 561 U.S. 247 (2010), and Absolute Activist Value Master Fund Ltd. v. Ficeto, 677
F.3d 60 (2d Cir. 2012). Banco Safra appeals this dismissal as well as the District Court’s
denial of its motion for reconsideration and to amend the Complaint. We assume the
parties’ familiarity with the underlying facts, procedural history of the case, and issues
on appeal, to which we refer only as necessary to explain our decision to affirm.
1Banco Safra also asserted various state law claims for common law fraud, negligent
misrepresentation, and aiding and abetting fraud arising out of the same set of facts.
Following its dismissal of Banco Safra’s federal claims, the District Court declined to
exercise supplemental jurisdiction over these state law claims and dismissed them
without prejudice. Because we conclude that the District Court properly dismissed the
federal claims, we affirm the dismissal of these state law claims. See Kolari v. N.Y.-
Presbyterian Hosp., 455 F.3d 118, 124 (2d Cir. 2006) (remanding with instructions to
dismiss without prejudice state law claims when federal claims were dismissed).
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BACKGROUND
Banco Safra is a Cayman Islands branch of the Brazilian bank Banco Safra S.A.
Between 2013 and 2015, it purchased $135,102,000 in debt securities issued by
defendant-appellee Samarco Mineração S.A. (“Samarco”), a Brazilian mining company
co-owned by two other defendants-appellees, BHP Billiton Brasil Ltda. and Vale S.A. In
2015, Samarco’s Fundão “tailings” dam, designed to hold back waste materials
produced by mining operations, collapsed, resulting in many tragic deaths and injuries
as well as significant flooding, property damage, and other environmental impacts.
Following this incident, the debt securities that Banco Safra had purchased plummeted
in value.
At issue are “debt securities issued by Samarco between October 31, 2012 and
November 30, 2015” (the “Samarco Bonds”). App’x 402 ¶ 1. The SAC alleges that in
selling the Samarco Bonds the defendants-appellees made material misstatements and
omitted important information about the safety and other aspects of their Brazilian
mining operations. Samarco initially issued the securities under Regulation S, which
provides an exemption from registration under Section 5 of the Securities Act of 1933
for securities offered and sold outside the United States. 17 C.F.R. §§ 230.901–905.
The SAC alleges that Banco Safra purchased most of its Samarco Bonds in
secondary aftermarket transactions “from counterparties and/or broker dealers located
in the United States.” App’x 409 ¶ 25. The District Court dismissed the Complaint with
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prejudice, however, on the ground that it failed to adequately plead a domestic
transaction under the Exchange Act as required by Morrison and Absolute Activist. The
District Court denied Banco Safra’s motion for reconsideration, which included a
request for leave to submit a Third Amended Complaint.
DISCUSSION
A. Dismissal of the Second Amended Complaint
We review de novo a district court’s grant of a motion to dismiss. Stratte-McClure
v. Morgan Stanley, 776 F.3d 94, 99–100 (2d Cir. 2015). To survive a motion to dismiss
under 12(b)(6), “a complaint must contain sufficient factual matter, accepted as true, to
‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
A private civil complaint that claims a violation of Section 10(b) must allege
relevant “transactions in securities listed on domestic exchanges, [or] domestic
transactions in other securities.” Morrison, 561 U.S. at 267. Banco Safra does not allege
that the Samarco Bonds traded on a domestic exchange. So the issue is whether Banco
Safra has alleged “domestic transactions in other securities.” Id. To establish such
transactions, a plaintiff “must allege facts suggesting that irrevocable liability was
incurred or title was transferred within the United States.” Absolute Activist, 677 F.3d at
68. “[I]t is sufficient for a plaintiff to allege facts leading to the plausible inference that
the parties incurred irrevocable liability within the United States: that is, that the
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purchaser incurred irrevocable liability within the United States to take and pay for a
security, or that the seller incurred irrevocable liability within the United States to
deliver a security.” Id. Such allegations may include “facts concerning the formation of
the contracts, the placement of purchase orders, the passing of title, or the exchange of
money.” Id. at 70. A conclusory assertion that securities transactions “took place in the
United States” by itself will not satisfy the domestic transaction requirement. Id. Nor is
it enough to allege that a United States entity was involved in a transaction. In Absolute
Activist, we explained that “[w]hile it may be more likely for domestic transactions to
involve parties residing in the United States, [a] purchaser’s citizenship or residency
does not affect where a transaction occurs; a foreign resident can make a purchase
within the United States, and a United States resident can make a purchase outside the
United States.” Id. at 69 (quotation marks omitted). Thus, merely providing the
physical location of a broker-dealer involved in the relevant transaction does not
“necessarily demonstrate where a contract was executed”—at least without additional
allegations “that the broker carrie[d] out tasks” in the United States “that irrevocably
b[oun]d the parties to buy or sell securities.” Id. at 68. This is because “territoriality
under Morrison concerns where, physically, the purchaser or seller committed him or
herself.” United States v. Vilar, 729 F.3d 62, 77 n.11 (2d Cir. 2013).
Detailed factual allegations describing contract formation in the United States
will typically satisfy the domestic transaction test. See Giunta v. Dingman, 893 F.3d 73,
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76–77, 80 (2d Cir. 2018) (holding that plaintiffs adequately alleged a domestic
transaction where one plaintiff accepted—over lunch meetings and phone calls in
Manhattan—the defendant’s offer to invest in a venture); Vilar, 729 F.3d at 76–78
(concluding that the trial evidence would have supported a jury finding that the
underlying transactions were domestic where some fraud victims entered into and
renewed their investment agreements in the United States—including one victim who
executed the relevant documents “in her own New York apartment and handed those
documents to a New York messenger”). 2
With these principles in mind, we consider the allegations contained in the SAC,
and in particular the three sets of allegations that Banco Safra argues satisfy the
domestic transaction requirement under Morrison.
First, Banco Safra alleges that it “purchased Samarco bonds in domestic (U.S.)
transactions . . . and was damaged thereby. Specifically, [Banco Safra] purchased
Samarco bonds from counterparties and/or broker dealers located in the United States.”
App’x 409 ¶ 25. An exhibit to the Complaint (“Exhibit A”) lists Banco Safra’s purchases
and sales of Samarco Bonds—including, for each transaction, the name and U.S. address
of each “Counterparty/Broker-dealer,” the trade date, and the purchase or sale price in
2
We note that a transaction is also domestic when the two sides of the transaction are
“matched”—thus forming a binding contract—on an electronic exchange system within
the United States. Myun-Uk Choi v. Tower Rsch. Cap. LLC, 890 F.3d 60, 63, 67–68 (2d Cir.
2018).
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U.S. dollars. App’x 598–600. The Complaint further alleges that “all of the
counterparties to the transactions and/or their agents were located in the United States.”
App’x 409 ¶ 27. Second, according to the Complaint, the transactions listed in Exhibit A
were “consummated with U.S. dollars” and were “conducted by Banco Safra and/or its
affiliates using $US dollars and through Banco Safra’s bank accounts located in New
York.” App’x 409 ¶ 26. And third, Banco Safra alleges that most of the after-market
transactions listed in Exhibit A were reported to the Trade Reporting and Compliance
Engine (“TRACE”), an “automated system developed by the Financial Industry
Regulatory Authority (‘FINRA’) that, among other things, accommodates reporting and
dissemination of transaction reports where applicable in TRACE-Eligible Securities.”
App’x 410 ¶ 28. We take judicial notice of FINRA’s rules governing TRACE. 3 See Fed.
R. Evid. 201. “TRACE-Eligible Securities” are defined, as relevant here, as debt
securities denominated in U.S. dollars and issued by certain specified issuers. FINRA
R. 6710(a). A FINRA member that is a “Party to a Transaction”—that is, “an
introducing broker-dealer, . . . an executing broker-dealer, or a customer,”—in a
“TRACE-Eligible Security” must report that transaction on TRACE. Id. 6710(a); 6710(b);
6720(a); 6730(a), but FINRA does not require member firms to report “debt securities
that are the subject of bona fide off-shore Regulation S transactions.” FINRA, Trade
3FINRA is a “self-regulatory organization” registered with the SEC. See Fiero v. Fin.
Indus. Regul. Auth., Inc., 660 F.3d 569, 571 (2d Cir. 2011). Its rules are subject to approval
of, 15 U.S.C. § 78s(b), and amendment by, 15 U.S.C. § 78s(c), the SEC.
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Reporting Notice, Aug. 1, 2013, at 4,
https://www.finra.org/sites/default/files/NoticeDocument/p314034.pdf.
We easily dispense with Banco Safra’s argument that using U.S. dollars and New
York bank accounts to purchase the Samarco Bonds is enough to establish a domestic
transaction under Morrison. Because U.S. dollars can be exchanged outside of the
United States, and a transacting party can decide and agree to use or accept dollars
while abroad, the fact that U.S. dollars were used to purchase U.S.-dollar-denominated
bonds is inadequate to show that either party here incurred liability in the United States
to transact in the securities. Nor does the direction to transfer money using New York
bank accounts to purchase the bonds suffice to demonstrate a domestic transaction. See
Loginovskaya v. Batratchenko, 764 F.3d 266, 275 (2d Cir. 2014).
Similarly, the SAC’s allegations about the location of the “counterparties/broker -
dealers” do not suffice to demonstrate a domestic transaction. These allegations suffer
from two defects. First, they are silent as to whether the “counterparties and/or broker-
dealers located in the United States,” App’x 409 ¶ 25, acted as principals who purchased
the Samarco Bonds for their own accounts and then sold them to Banco Safra, or instead
operated as agents who merely facilitated the sale and purchase of the bonds between
the parties. Second, even if we were to liberally construe the terms “counterparties”
and “broker-dealers” in the Complaint to mean that the broker-dealers acted as
principal “sellers,” the Complaint fails to allege that their agents acted in the United
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States to incur liability for the sales. Banco Safra sought to cure this defect by listing the
U.S. addresses for the broker-dealer entities themselves. But providing generic U.S.
addresses for the broker-dealers without also listing where the individuals actually
involved in negotiating the transactions were located when they negotiated the
transactions “does not necessarily demonstrate where a contract was executed.”
Absolute Activist, 677 F.3d at 68.
Banco Safra next argues that the fact that most of its after-market transactions in
the Samarco Bonds were reported to FINRA’s TRACE system makes it plausible that
the transactions were domestic. The SAC alleges that “[o]nly U.S. (domestic) transactions
are reported to TRACE by FINRA member firms,” App’x 410 ¶ 28 (emphasis in
original), citing the 2013 FINRA Trade Reporting Notice for that proposition. See Trade
Reporting Notice, supra, at 4. But the Trade Reporting Notice does not suggest that
TRACE employs the same standard for identifying a domestic transaction as we
established in Absolute Activist. Instead, the Trade Reporting Notice states that “if a
debt security originally sold in a Regulation S transaction is subsequently purchased or
sold as part of a U.S. transaction, the [subsequent transactions] must be reported to
TRACE.” Trade Reporting Notice, supra, at 4. The language of the notice does not
prevent the reporting of non-domestic transactions or suggest that a “U.S. transaction”
in a debt security for TRACE reporting purposes is necessarily domestic as defined by
Absolute Activist. The TRACE reporting requirements do not appear to compel FINRA
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members to consider where irrevocable liability was incurred or where title passed
before reporting a transaction. On this record, that a transaction is reported to TRACE
does not mean that either party to the transaction acted within the United States to
incur irrevocable liability. 4
We do not mean to suggest that the type of transaction at issue in this case can
never constitute a domestic transaction that results in a broker-dealer incurring
irrevocable liability in the United States, or that a broker-dealer acting in the United
States as a principal for its own account may never incur liability in a transaction that is
largely offshore. But the SAC does not plausibly allege a domestic securities transaction
that satisfies the requirements of Morrison and Absolute Activist. Accordingly, we affirm
the District Court’s dismissal of the SAC and its denial of Banco Safra’s motion to
reconsider that conclusion.
B. Denial of Leave to Amend
The District Court also denied Banco Safra’s request for leave to amend the SAC,
citing Banco Safra’s “repeated failures to cure” the Morrison deficiencies. We review the
denial of leave to amend for abuse of discretion. City of Pontiac Policemen’s & Firemen’s
Ret. Sys. v. UBS AG, 752 F.3d 173, 188 (2d Cir. 2014). Leave to amend should be “freely
4The existence of these FINRA reports could be relevant to the domestic transaction
inquiry. But the SAC does not even allege that parties report transactions to TRACE
only, or even mostly, when a party incurs irrevocable liability or title passes within the
United States.
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give[n] . . . when justice so requires,” Fed. R. Civ. P. 15(a)(2), but “should generally be
denied in instances of futility, undue delay, bad faith or dilatory motive, repeated
failure to cure deficiencies by amendments previously allowed, or undue prejudice to
the non-moving party.” United States ex rel. Ladas v. Exelis, Inc., 824 F.3d 16, 28 (2d Cir.
2016) (quoting Burch v. Pioneer Credit Recovery, Inc., 551 F.3d 122, 126 (2d Cir. 2008)). We
conclude that the District Court acted within its discretion in denying leave to amend. 5
Contrary to Banco Safra’s argument, a district court is not required to grant leave
to amend when it grants a motion to dismiss based on pleading deficiencies. Porat v.
Lincoln Towers Cmty. Ass’n, 464 F.3d 274, 276 (2d Cir. 2006); City of Pontiac Policemen’s &
Firemen’s Ret. Sys., 752 F.3d at 188. And Banco Safra had ample opportunity to amend
its complaint to cure the Morrison-related deficiencies. It is thus “unlikely that the
deficiencies . . . were unforeseen.” City of Pontiac Policemen’s & Firemen’s Ret. Sys., 752
F.3d at 188.
5Banco Safra argues that we should review the District Court’s denial of leave to amend
de novo because, it claims, the court determined that amendment would be futile.
Because we uphold the denial of leave to amend on grounds unrelated to futility, we
need not address this issue.
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CONCLUSION
We have considered Banco Safra’s remaining arguments and conclude they are
without merit. For the foregoing reasons, the judgment of the District Court is
AFFIRMED.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk
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