Court Opinion

ID: 4421384
Source: CourtListenerOpinion
Date Created: 2019-07-30 23:00:48.957112+00
Date Added: 2024-06-11T14:51:17.896568
License: Public Domain

UNITED STATES DISTRICT COURT
                      FOR THE DISTRICT OF COLUMBIA
_________________________________________
                                          )
EIG ENERGY FUND XIV, L.P., et al.,        )
                                          )
      Plaintiffs,                         )
                                          )
             v.                           ) Case No. 16-cv-00333 (APM)
                                          )
PETRÓLEO BRASILEIRO S.A., et al.,         )
                                          )
      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

                                                   2
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

                                                  3
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.

                                                          4
       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,

                                                  5
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

                                                   6
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

                                                 7
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–

                                                      8
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

                                                                                               .

                                                         9
                                             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

                                             10