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July 2017: Complete Victory for Odebrecht in Fraud Dispute

July 2017

The firm recently won a complete dismissal of all claims against Brazilian contractor Odebrecht S.A. in a civil suit in Washington, D.C. seeking over $200 million in damages stemming from Odebrecht’s participation in the massive Petrobras bribery scheme that has sent shockwaves through Brazil.

A group of investment funds managed by EIG Management Co., LLC and certain affiliated funds had invested over $200 million in a Brazilian company, Sete, that Petrobras had created to extract oil in waters off the coast of Brazil. EIG contended that, as part of the massive Petrobras bribery scheme, Odebrecht and certain other Brazilian shipyards paid bribes to Sete to secure lucrative contracts to build drillships for the oil extraction. When this fact came to light, Sete went bankrupt, and EIG started looking for who it could sue.

In 2016, EIG filed suit in federal court in D.C. against Petrobras, Odebrecht, and other Brazilian shipyard owners, alleging they had all conspired to defraud EIG by inducing it to invest in Sete without disclosing the ongoing bribery scheme that would render the venture worthless. Also in 2016, the Firm negotiated a $2.6 billion criminal settlement with U.S., Brazilian, and Swiss authorities on behalf of Odebrecht in connection with the massive Petrobras bribery scheme. Odebrcht’s criminal guilty plea made defending this case immensely difficult, as the Firm could not deny that Odebrecht had bribed officials at Sete.

Nevertheless, the firm was able to persuade Judge Mehta of the U.S. District Court for the District of Columbia to dismiss the claims against Odebrecht, both because EIG failed to establish that an objective of the bribery scheme was to defraud EIG and because EIG had not established a sufficient connection between Odebrecht and Washington, D.C. to enable the court to exercise personal jurisdiction over Odebrecht.

This case was an important bellwether in determining the extent to which U.S. litigants could use Odebrecht’s criminal guilty plea for participating in the massive Petrobras bribery scheme to extort damages from Odebrecht in civil suits. The victory goes a long way to insulating Odebrecht from such lawsuits by establishing that Odebrecht is not subject to jurisdiction in the United States.