Judge finds Petrobras liable for defrauding EIG in drillship scheme

(WO) — A federal judge ruled Brazil’s Petrobras liable in a lawsuit filed by Houston firm IEG Global Energy Partners, finding that Petrobras defrauded EIG in connection with a deal to build and charter 28 oil drilling rigs for work off the coast of Brazil.

Initial effects. Federal Judge Amit Mehta denied the summary judgement motion with respect to damages, meaning the case can proceed to trial to determine the amount Petrobras that will be responsible for. EIG will seek $221 million in compensatory damages, punitive damages, and prejudgment interest, according to the Kramer Levin law firm, which is representing EIG.

“Petrobras reinforces that the company will vigorously continue defending itself in the lawsuit and reassures its status as a victim of the illicit activities investigated in light of Operation Car Wash, as recognized by all instances of the Brazilian Judiciary branch,” Petrobras said in a statement.

Operation Car Wash (or Operation Lava Jato) is a Brazilian criminal investigation that began in 2014. It uncovered “a massive political and corporate corruption scheme with Defendant Petróleo Brasileiro S.A. (Petrobras) at its center,” said the memorandum opinion issued Monday from the U.S. District Court for the District of Columbia.

“The investigation revealed a longstanding practice at Petrobras of soliciting and accepting bribes in exchange for construction and services contracts,” the opinion states. “Several high-ranking Petrobras executives and government officials were prosecuted in Brazil and incarcerated as a result of the investigation, which continued until 2021.”

One of the entities involved was Sete Brasil Participações (Sete), which Petrobras used as a financing vehicle to construct a fleet of drillships after oil reserves were discovered off the coast of Brazil. Petrobras was then to charter the rigs, to develop the newly discovered reserves, the court document states.

Three former Petrobras officials—João Carlos de Medeiros Ferraz, Pedro José Barusco Filho, and Eduardo Costa Vaz Musa—moved over to Sete as executive officers and solicited bribes from shipyards in exchange for drillship construction contracts.

EIG’s losses. EIG was a significant U.S. investor in Sete, and when Sete’s role in the bribery scheme was exposed, EIG “lost hundreds of millions of dollars,” the opinion states.

The judge held that Petrobras is liable on plaintiffs' claims but denied plaintiffs' summary judgment motion with respect to damages, and any award of damages will have to be proven by EIG at trial. In the same ruling, the court denied Petrobras' motion for summary judgment to dismiss all the plaintiffs' claims and deferred ruling on two procedural issues.

Mehta ruled that Petrobras fraudulently induced EIG to invest in Sete, confirming EIG established that Petrobras made false representations as to material facts, with both knowledge of their falsity and the intent to deceive, and that EIG took actions in reliance on those representations.

The judge also concluded that Petrobras aided and abetted Sete’s fraud on EIG. The parties will appear for a remote status conference on Aug. 23 to discuss a schedule for further proceedings.