Attorneys for Brazilian energy giant Petrobras are asking the U.S. Court of Appeals for the Second Circuit to reconsider its order that would largely have allowed the class action suit against it to proceed.
The order, partially vacating and partially affirming from Circuit Judges Peter Hall and Debra Ann Livingston and U.S. District Judge Nicholas Garaufis for the Eastern District of New York, sitting by designation, was largely a win for the plaintiffs. While the panel found that U.S. District Judge Jed Rakoff of the Southern District of New York had erred in how he defined the plaintiffs in two separate classes suing Petrobras, it also rejected a higher standard for class membership sought by the company.
In a request for a rehearing or an en banc review filed July 21 in In re Petrobras Securities, 16 1914 cv, Petrobras' attorneys argued the panel's order "conflicts with settled precedent on two exceptionally important and recurring issues."
The panel's lowering of this threshold earlier this month also appeared to have caught Petrobras by surprise. It contends that none of the parties expected the precedent set in 2015's Brecher v. Republic of Argentina to be in dispute, "only whether the requirement was satisfied."
"The panel ... not only overruled a decision of a prior panel, but did so when the issue had not been squarely considered by the district court or raised by the parties," Petrobras argued.
The first issue is with U.S. Supreme Court and local precedent governing the proof required to show a harm in the market that the appellants' counsel argues will have serious implications for large companies being sued for securities fraud.
The panel was wrong when it said that concrete proof wasn't required to show that a stock price was affected by news of a specific event, according to Petrobras. This contradicts the Supreme Court's decision in 2014's Halliburton v. Erica P. John Fund, known as Halliburton II, where simple price movement wasn't enough to show an event, such as the revelation of the kickback and bribery scheme Petrobras found itself in a decade ago, was primarily responsible for a gain or loss of value.
The relaxed burden will effectively transfer the burden of proof onto the defendants, Petrobras said, while creating a standard that is vague enough "for every plaintiff who can site venue in the Second Circuit, the home of the New York Stock Exchange" to file suit, opening "the floodgates in the Second Circuit to meritless and debilitatingly expensive lawsuits where there is no objective evidence that any investor relied on any misstatements."