Eig Energy Fund Xiv, L.P. v. Petroleo Brasileiro S.A ( 2019 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
_________________________________________
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EIG ENERGY FUND XIV, L.P., et al., )
)
Plaintiffs, )
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v. ) Case No. 16-cv-00333 (APM)
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PETRÓLEO BRASILEIRO S.A., et al., )
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Defendants. )
_________________________________________ )
MEMORANDUM OPINION AND ORDER
Before the court is Defendant Petrόleo Brasileiro S.A.’s Motion to Stay Pending
Arbitration. See Def.’s Mot. to Stay, ECF No. 100 [hereinafter Def.’s Mot. to Stay]. For the
reasons that follow, Defendant’s Motion is denied as untimely and on the merits.
I.
A litigant cannot sit on its right to arbitrate. In this Circuit, “[a] defendant seeking a stay
pending arbitration under Section 3 [of the Federal Arbitration Act] who has not invoked the right
to arbitrate on the record at the first available opportunity, typically in filing his first responsive
pleading or motion to dismiss, has presumptively forfeited that right.” Zuckerman Spaeder LLP
v. Auffenberg, 646 F.3d 919, 922 (D.C. Cir. 2011). To overcome this presumption, a defendant
must show “his delay did not prejudice his opponent or the court.” Id. at 923.
A.
Defendant here did not invoke its right to arbitrate at the “first available opportunity.”
That would have been when Defendant filed its motion to dismiss nearly three years ago, on
August 12, 2016. See Def.’s Mot. to Dismiss, ECF No. 58. Defendant moved to dismiss on
multiple grounds, but mandatory arbitration was not one of them. See generally Def.’s Mem. of
P. & A. in Supp. of Def.’s Mot. to Dismiss, ECF No. 58-1 [hereinafter Def.’s Mot. to Dismiss
Mem.]. Defendant only asserted its right to arbitrate for the first time more than 30 months later,
on December 4, 2018, by identifying “mandatory arbitration pursuant to an agreement” as one of
its affirmative defenses in its Answer. See Def.’s Answer and Affirmative Defenses, ECF No. 91,
at 18. Defendant did not, however, actually move to compel arbitration for another four months,
filing its Motion to Stay on April 5, 2019. See Def.’s Mot. to Stay. Zuckerman Spaeder’s
presumption of forfeiture therefore applies here. See Kelleher v. Dream Catcher, LLC, 729 Fed.
Appx. 4, 6 (D.C. Cir. 2018) (finding that the presumption of forfeiture applied when the defendant
moved to stay proceedings and compel arbitration six months after it removed the case to federal
court and after it filed an answer that did not invoke its right to arbitrate).
Defendant’s attempt to avoid the presumption is unpersuasive. Defendant argues that it
invoked its right to arbitrate at the “first available opportunity” when it filed its Answer and then
moved to vindicate that right “just weeks” after the Supreme Court denied its petition for writ of
certiorari. See Def.’s Mem. of P&A in Supp. of its Mot. to Stay, ECF No. 100-1 [hereinafter Def.’s
Mem.], at 1, 16–18. The Supreme Court’s decision ended more than two years of litigation over
whether Defendant was completely immune from suit under the Foreign Sovereign Immunities
Act. This court and the D.C. Circuit held that it was not. See EIG Energy Fund XIV, L.P. v.
Petróleo Brasileiro S.A., 246 F. Supp. 3d 52 (D.D.C. 2017), aff’d, 894 F.3d 339 (D.C. Cir. 2018),
cert. denied, 139 S. Ct. 1324 (2019). Defendant insists that litigating its immunity defense to its
conclusion before invoking its right to arbitrate did not result in forfeiture because “[t]o hold
otherwise would encourage additional and unnecessary efforts be expended at the early stages of
litigation: parties would need to brief arguments regarding the applicability of arbitration clauses
when other arguments stand as a potential bar to judicial proceedings in general.” Def.’s Mem. at
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17–18. Defendant also contends that “asserting foreign sovereign immunity provides an additional
strong policy reason not to find forfeiture here.” Id. at 18. Requiring sovereign entities to raise
their arbitration right before a final ruling on immunity, Defendant says, “would directly undercut
the core purpose of foreign sovereign immunity.” Id.
Defendant’s argument is disingenuous. Defendant would make it seem that its motion to
dismiss focused solely on asserting sovereign immunity and left no room for any other arguments.
Nothing could be further from the truth. In addition to seeking dismissal on immunity grounds,
Defendant moved to dismiss based on forum non conveniens, lack of standing, and for failure to
state a claim. Defendant devoted more than half of its brief to these arguments. See Def.’s Mot.
to Dismiss Mem. at 9–17, 26–45. It is hard to conceive how requiring Defendant to invoke its
right to arbitrate at the same time it raised various jurisdictional and non-jurisdictional grounds for
dismissal would have caused it to expend “additional and unnecessary” efforts at the early stages
of this litigation. Def.’s Mem. at 17. Surely, Defendant could have devoted some space to
asserting a claimed right that, if recognized, would have as effectively removed it from the United
States courts as the claim of sovereign immunity.
But there is more. Defendant could have moved to arbitrate months before the Supreme
Court ruled on its petition. After the D.C. Circuit denied en banc review, the matter returned to
this court when the mandate issued on October 9, 2018. See Mandate, ECF No. 83. Once here,
Defendant immediately could have moved for a stay of these proceedings and sought to compel
arbitration. The court had jurisdiction to do so. See Johnson v. Bechtel Assocs. Prof’l Corp., D.C.,
801 F.2d 412, 415 (D.C. Cir. 1986) (“Issuance of the mandate formally marks the end of appellate
jurisdiction.”); Hr’g Tr. 1/11/19, ECF No. 102, at 20 (Defendant acknowledging the court’s
jurisdiction to compel arbitration post-remand). But Defendant chose a different path. It asked
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instead to stay this matter while its petition for writ certiorari ran its course—a stay this court
would ultimately deny. See generally Def.’s Mot. to Stay Pending Cert. Decision, ECF No. 85;
Mem. of P&A in Supp. of Def.’s Mot. to Stay, ECF No. 85-1 [hereinafter Mot. to Stay Pending
Cert.]; Order, ECF No. 90. 1 All told, Defendant waited six months after the mandate issued to file
its motion to compel arbitration. It therefore did not avail itself of the “first available opportunity”
to assert its right to arbitrate when the matter returned to this court. 2 The presumption of forfeiture
therefore squarely applies, and applying it does not undercut the “core purpose” of sovereign
immunity.
B.
Defendant’s attempt to overcome the presumption of forfeiture is a nonstarter. Defendant
is dismissive of the costs incurred by Plaintiffs and the courts, insisting that this “litigation remains
in its preliminary stages” and that the burdens imposed largely have come from its assertion of
sovereign immunity. See Def.’s Reply in Support of Def.’s Mot., ECF No. 106 [hereinafter Def.’s
Reply], at 5. The first contention is inaccurate and the second beside the point.
1
To be fair, Defendant alternatively asked to extend time to answer if the court declined to stay the matter while its
petition for writ of certiorari was pending. See Mot. to Stay Pending Cert. at 10. The court granted Defendant
additional time. In its Answer, Defendant asserted its right to arbitrate as an affirmative defense, but then it waited
another four months before it moved to stay and compel arbitration. The mere assertion of a right to arbitrate in an
Answer is not enough, however. A defendant still must move to compel arbitration for the right to have effect. See
Zuckerman, 646 F.3d at 923–24 (noting that litigation costs could have been avoided if the defendant had “filed his
petition to arbitrate and corresponding motion for a stay eight months earlier”) (emphasis added). Asserting the right
to arbitrate as an affirmative defense followed by four months of silence is not the type of “invocation” “at the first
opportunity” that the Circuit had in mind in Zuckerman. Cf. Kelleher, 729 Fed. Appx. at 6 (holding that a “footnote
purporting to reserve the right to arbitrate” in a post-answer motion to dismiss followed by a motion to compel three
months later did not satisfy Zuckerman).
2
Underscoring Defendant’s unreasonable delay in moving to compel arbitration is a representation it made to the
court at the initial scheduling conference, held on January 11, 2019. Asked when it intended to move to compel
arbitration, Defendant answered: “At this point, now that -- I mean, the Supreme Court, it’s unclear exactly what’s
going to happen, but now that we’re resuming here, we feel it’s the right opportunity and the right time to make that
motion, and we’re expecting to do it shortly.” See Hr’g Tr. 1/11/19 at 19–20 (emphasis added). Defendant, without
explanation, did not file its motion for another three months.
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This case is not in its early stages. After the court denied Defendant’s post-remand motion
to stay, the parties prepared for and conducted discovery for a four-month period before Defendant
filed its motion to compel. See Order, ECF No. 92 (setting initial scheduling conference); Order,
ECF No. 95 (setting discovery schedule). Plaintiffs, in particular, exchanged initial disclosures;
served requests for production; negotiated a document production protocol; reviewed produced
records; participated in multiple meet and confers in person and in writing; and prepared and issued
letters of request for testimony of witnesses in Brazil. See Pls.’ Opp’n to Def.’s Mot. to Stay, Decl.
of Daniel B. Goldman, ECF No. 104-1, ¶¶ 4(a)–(l) (Plaintiffs’ counsel’s affidavit detailing the
extent of Plaintiffs’ discovery efforts during this period of time). Plaintiffs have not quantified
these costs, but they are no doubt substantial. Had Defendant moved to stay and compel arbitration
when this matter returned from the Court of Appeals—let alone done so when it moved to dismiss
years earlier—these costs would have been avoided.
Nor does it help Defendant that a significant portion of the costs incurred by Plaintiffs and
the courts before it moved to compel were incurred due to prosecuting its sovereign immunity
defense. Had Defendant moved to arbitrate contemporaneously with its motion to dismiss, the
costs incurred by and before this court would have been largely the same. Plaintiffs and the
appellate courts, however, would have avoided the costs associated with Defendant’s direct appeal,
request for en banc review, and petition for writ of certiorari. The resources expended during those
proceedings is no small matter.
The court also acknowledges the ultimate prejudice Plaintiffs could suffer were the court
to stay this matter and compel arbitration: dismissal of their claim on statute of limitations grounds.
In opposing the motion to dismiss, Plaintiffs offered the expert declaration of a Brazilian law
expert, Professor José Rogério Cruz e Tucci. Professor Tucci opined that, under Brazilian law,
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Plaintiffs’ fraud-in-the-inducement claim might be time barred due to uncertainty under Brazilian
law as to when such a claim accrues. See EIG Energy Fund XIV, 246 F. Supp. 3d at 74. Plaintiffs
renew Professor Tucci’s concern here.
Defendant is dismissive of the risk posed to Plaintiffs’ claims if compelled to arbitrate in
Brazil. Defendant asserts that, even if an arbitrator in Brazil were to find Plaintiffs’ claims time
barred, “Plaintiffs still could return to this Court and seek to have it adjudicate Plaintiffs’ claims.”
Def.’s Reply at 4–5 n.3. That position no doubt provides cold comfort to Plaintiffs. Defendant
does not concede that Plaintiffs’ claims are tolled under Brazilian law. Nor does Defendant offer
any promise that, if the claims were deemed time barred in Brazil, it would not raise the same
defense before this court. Defendant has said nothing that would dispel the limitations risk that
Plaintiffs face in a Brazilian forum.
Accordingly, Defendant has not overcome the presumption of forfeiture.
II.
Not only did Defendant forfeit its right to arbitrate in this case, it also waived it. Unlike
forfeiture, which requires no element of intent, waiver is an “intentional relinquishment or
abandonment of a known right.” See Zuckerman, 646 F.3d at 922 (quoting United States v. Olano,
507 U.S. 725, 733 (1993)). Defendant here candidly acknowledges that it has done a
complete 180 on whether the parties’ dispute is subject to arbitration. See Def.’s Mem. at 17 n.9
(acknowledging that its position on arbitration “has shifted in the time between the filing of its
Motion to Dismiss and its Answer”). Defendant in its Motion to Dismiss took the position that the
arbitration agreement contained in the controlling Investment Agreement did not apply. See Def.’s
Mot. to Dismiss Mem. at 8. Now, Defendant says, because various arbitrators in Brazil have ruled
that disputes similar to the one here between investors and Defendant are arbitrable, it “accepts
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that the Agreement requires claims such as those—and claims such as Plaintiffs have asserted
here—to be resolved via arbitration in Brazil.” Def.’s Mem. at 17 n.9. Plaintiffs call this change
in position “gamesmanship.” Pls.’ Mem. of P&A in Opp’n to Def.’s Mot., ECF No. 104, at 3, 20.
The court simply calls it waiver. See SuperMedia v. Affordable Elec., Inc., 565 Fed. App’x 144,
148 (3d Cir. 2014) (finding that defendant’s “midstream about-face on the applicability of a
contracted-for arbitration provision” supported a finding of waiver); MidAtlantic Int’l, Inc. v. AGC
Flat Glass N. Am., Inc., No. 2:12CV169, 2014 WL 504701, at *5 (E.D. Va. Feb. 7, 2014) (holding
that party had “explicitly waived any right to enforce the arbitration clause” when “early in the
proceedings” the parties had informed the court that “neither side wanted to utilize arbitration”).
Defendant justifies its about-face by pointing to Brazilian arbitrators’ decisions affirming
the arbitrability of similar disputes. Defendant calls this an “intervening change of controlling
law.” Def.’s Reply at 3–4 (citing Firestone v. Firestone, 76 F.3d 1205, 1208 (D.C. Cir. 1996)).
Not so. Presumably, private arbitrators in Brazil, as in the United States, do not establish
“controlling” law. Defendant has not suggested otherwise. In truth, Defendant simply lost on the
question of arbitrability before some tribunals in Brazil, see id., Decl. of Pedro Jardim de Paiva
Barroso, ECF No. 105-4 (under seal) [hereinafter Barroso Decl.], ¶¶ 6–7, and now seeks to extract
some benefit from those losses. Defendant cannot rely on its litigation defeats in Brazil to avoid
waiver in the United States.
III.
Finally, on the present record, the court also finds that Defendant has not carried its burden
of showing that the parties’ dispute is subject to arbitration. A motion to compel arbitration is
evaluated under the summary judgment standard of Rule 56(c), as if it were a request for “summary
disposition of the issue of whether or not there had been a meeting of the minds on the agreement
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to arbitrate.” Aliron Int’l, Inc. v. Cherokee Nation Indus., Inc., 531 F.3d 863, 865 (D.C. Cir. 2008)
(internal quotation marks and citation omitted). Here, the limited evidence presented suggests that
the parties’ dispute is not subject to arbitration.
The parties’ Investment Agreement provides that “[a]ny disputes, doubts, conflicts,
controversies, matters or discrepancies of any nature arising out of or related to” the Investment
Agreement are subject to arbitration in Brazil. See Investment Agreement, ECF No. 59, at 255,
§ 13.12 (sealed). The parties agree that Brazilian law governs the agreement. See Pls.’ Opp’n at
22–24; Def.’s Reply at 6.
Other than the Investment Agreement itself, Defendant offers no other evidence with its
motion. In a footnote in its brief, Defendant represents that “Brazilian arbitrators have ruled that
the claims brought by other [ ] investors against Petrobras should proceed [to] arbitration,” Def.’s
Mem. at 17 n.9, but that statement is not evidence. Nor is that representation sufficiently detailed
to offer any genuine insight on the state of Brazilian law. Plaintiffs, by contrast, point to the
declaration of their Brazilian law expert, Professor Tucci, who opines that, under Brazilian law,
the arbitration agreement does not cover tort claims, like those asserted here by Plaintiffs. See
Decl. of José Rogério Cruz e Tucci, ECF No. 62-3, ¶ 14. Professor Tucci’s opinion is the only
evidence before the court concerning how Brazilian law would treat the claims specifically
advanced here under the arbitration agreement. Defendant therefore has not carried its burden of
showing that it is entitled to an order compelling arbitration as a matter of law.
Defendant tries to cure the lack of evidence it presents by belatedly offering with its Reply
a declaration from Pedro Jardim de Paiva Barroso, an employee of Defendant who is responsible
for managing its litigation and arbitration outside of Brazil. See Barroso Decl. ¶ 1. Barroso
summarizes the Brazilian arbitral tribunals’ decisions on the question of arbitrability. See id. ¶¶ 5–
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7. The court, however, declines to consider the Barroso Declaration. It would be fundamentally
unfair accept it, as Plaintiffs have not had an opportunity to respond to its assertions. See Lee v.
District of Columbia, 298 F. Supp. 3d 4, 10–11 (D.D.C. 2018); Rosenberg v. U.S. Dep’t of
Immigration & Customs Enf’t, 956 F. Supp. 2d 32, 36 n.4 (D.D.C. 2013).
Even if the court were to consider the Barroso Declaration, it deserves little weight.
Barroso does not oversee the Brazilian arbitrations, and it is not even clear whether he is a lawyer.
Barroso offers no insight into the rationales of the various tribunals, and he does not attach any of
their decisions. 3 Importantly, Barroso does not say whether the arbitration provisions at issue in
the Brazilian matters are textually the same as the one before this court, thus making it impossible
to make an apples-to-apples comparison. Finally, the arbitration results are, at best, ambiguous.
Barroso Decl. ¶¶ 5–7. This picture
hardly presents a consensus view of Brazilian law on the arbitrability of Plaintiffs’ claims.
The court therefore finds that Defendant has failed to carry its burden of showing that the
parties’ dispute is subject to the Investment Agreement’s arbitration clause.
3
Defendant criticizes Professor Tucci’s opinion as an “outdated statement of Brazilian law,” because his opinion does
not take account of these tribunals’ decisions. See Def.’s Reply at 7–8. But Professor Tucci cannot be blamed for not
updating his opinion, as these decisions are shrouded in secrecy. The decisions are not public due to confidentiality
agreements, see Barroso Decl. ¶ 5, and Defendant has not supplied the decisions nor described them in any meaningful
detail in his case.
4
.
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IV.
For the foregoing reasons, Defendant’s Motion to Stay Pending Arbitration, ECF No. 100,
is denied.
Dated: July 30, 2019 Amit P. Mehta
United States District Court Judge
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