Banco Safra S.A.- Cayman Islands Branch v. Andrade Gutierrez International S.A. et al
OPINION AND ORDER re: 42 MOTION to Dismiss . filed by Andrade Gutierrez International S.A., Construtora Andrade Gutierrez S.A. For the reasons stated above, Defendants' motion to dismiss is granted and Plaintiffs' Complaint is dismissed. The Clerk of Court is directed to terminate Docket No. 42, to enter judgment in favor of Defendants, and to close this case. (As further set forth in this Order.) (Signed by Judge Jesse M. Furman on 3/8/2018) (cf)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
BANCO SAFRA S.A. – CAYMAN ISLANDS BRANCH :
ANDRADE GUTIERREZ INTERNATIONAL S.A., et :
OPINION AND ORDER
JESSE M. FURMAN, United States District Judge:
In this action, two financial institutions bring securities fraud claims against a group of
Brazilian entities and individuals, including Andrade Gutierrez International (“AG
International”) and Andrade Gutierrez Engenharia (“Engenharia”). The claims relate to more
than $100 million in notes offered by AG International that Plaintiffs purchased in 2013 and
2014 (the “Notes”). (See Docket No. 41 (“SAC”), at ¶¶ 5, 22-23). Plaintiffs allege that the value
of the Notes — which are due on April 30, 2018 — dropped precipitously when an investigation
into corruption involving Defendants became public. (See SAC ¶¶ 5, 12, 32-44, 88, 91, 94, 96,
99, 101, 103, 108, 112). Plaintiffs’ Second Amended Complaint (the “Complaint”) alleges
violations of Sections 10(b) and 20(a) of the Securities Exchange Act, 15 U.S.C. § 78a et seq.,
and Rule 10b-5 promulgated thereunder, as well as related claims under New York state law.
(See SAC ¶¶ 113-51). Defendants AG International and Engenharia, the only two Defendants
who have been served to date, now move to dismiss the Complaint pursuant to Rules 9(b) and
12(b)(6) of the Federal Rules of Civil Procedure and the Private Securities Litigation Reform Act
(“PSLRA”), 15 U.S.C. § 78u-4, et seq. (Docket No. 42). For the reasons stated below, their
motion is granted and the Complaint is dismissed.
The following relevant facts, which are taken from the Complaint, documents it
incorporates, and matters of which the Court may take judicial notice, are construed in the light
most favorable to Plaintiffs. See, e.g., Kleinman v. Elan Corp., 706 F.3d 145, 152 (2d Cir.
2013); Gonzalez v. Hasty, 651 F.3d 318, 321 (2d Cir. 2011).
In 2013, pursuant to an Offering Memorandum (SAC, Ex. A (“Offering Memorandum”)),
AG International, a wholly owned subsidiary of Defendant Andrade Gutierrez, “sold $500
million of 4.000% notes, due April 30, 2018.” (SAC ¶¶ 4-5). The Notes were guaranteed by
Engenharia, another wholly owned subsidiary of Andrade and “one of the largest companies in
the engineering and heavy construction sector in Latin America.” (Id. ¶¶ 3, 5). Plaintiff Banco
Safra S.A. – Cayman Islands Branch (“Banco Safra”) purchased $106,318,000 of the Notes in
twenty-two transactions between April 2013 and October 2014, paying approximately 98% of
par value. (Id. ¶ 22). Between April 2013 and June 2013, Plaintiff Safra National Bank of New
York (“Safra National Bank”) purchased $9,300,000 of the Notes for approximately 99% of par
value. (Id. ¶ 23).
After Plaintiffs purchased the Notes, a bevy of criminal allegations against Andrade and
its executives came to light. First, on December 30, 2014, Petrobras, Brazil’s majority-stateowned gas corporation, announced that it was suspending Andrade and its subsidiaries from
bidding on Petrobras contracts. (Id. ¶¶ 10, 87). On January 20, 2015, Andrade responded to
reports that it was under investigation for corruption by issuing a statement denying that it ever
participated in any “favoritism scheme involving political parties and Petrobras.” (Id. ¶ 89). A
few months later, the Brazilian government announced that it was opening an investigation into
Andrade. (Id. ¶ 95). And on June 19, 2015, Defendant Otavio Azevedo, Andrade’s Chief
Executive Officer, was arrested; just over one month later, on July 24, 2015, he and the company
were indicted for participating in a price-fixing cartel. (Id. ¶¶ 32, 98). The indictment included
allegations that Engenharia had benefited from a bid-rigging scheme to win bids from Petrobras
and Eletrobras, another majority-state-owned corporation. (Id. ¶¶ 14, 32). Brazil’s Federal
Police also charged Azevedo with laundering money through Engenharia. (Id. ¶¶ 41, 105).
Andrade and Azevedo suffered significant consequences as a result of the indictment.
Andrade paid a fine of approximately $300 million. (Id. ¶ 42). Azevedo was convicted and
sentenced to eighteen years in prison. (Id. ¶ 14). According to Plaintiffs, the “market value of
AG International’s 2018 Notes” also declined dramatically. (Id. ¶ 112). Between December 30,
2014 and January 20, 2015, the approximate value of the Notes dropped from 87% of par value
to 69% of par. (Id. ¶ 88). By July 30, 2015, after disclosure of the indictment, the value of the
Notes had dropped to 62% of par value. (Id. ¶ 108). Plaintiffs seek to recover their losses,
blaming them on a series of false and misleading statements made by Defendants, first in the
Offering Memorandum itself and in later statements as news of the ongoing investigation and
prosecution became public. (See id. ¶¶ 65-86, 100, 104).
In reviewing a Rule 12(b)(6) motion to dismiss, the Court must accept the factual
allegations set forth in the complaint as true and draw all reasonable inferences in favor of the
plaintiff. See, e.g., Cohen v. Avanade, Inc., 874 F. Supp. 2d 315, 319 (S.D.N.Y. 2012). A court
may not dismiss claims pursuant to Rule 12(b)(6) unless the plaintiff has failed to plead
sufficient facts to state a claim to relief that is facially plausible, see Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 570 (2007), that is, one that contains “factual content that allows the
court to draw the reasonable inference that the defendant is liable for the misconduct alleged,”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). More specifically, a plaintiff must allege facts
showing “more than a sheer possibility that a defendant has acted unlawfully.” Id. A complaint
that offers only “labels and conclusions” or “a formulaic recitation of the elements of a cause of
action will not do.” Twombly, 550 U.S. at 555. If a plaintiff has not “nudged [its] claims across
the line from conceivable to plausible, [those claims] must be dismissed.” Id. at 570.
Because they allege securities fraud, Plaintiffs must also satisfy the heightened pleading
requirements of both Rule 9(b), which requires that the circumstances constituting fraud be
“state[d] with particularity,” Fed. R. Civ. P. 9(b), and the PSLRA, which requires that scienter —
that is, a defendant’s “intention to deceive, manipulate, or defraud” — also be pleaded with
particularity, Tellabs, Inc. v Makor Issues & Rights, Ltd., 551 U.S. 308, 313 (2007) (internal
quotation marks omitted). To satisfy Rule 9(b), a plaintiff “must ‘(1) specify the statements that
the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the
statements were made, and (4) explain why the statements were fraudulent.’” Anschutz Corp. v.
Merrill Lynch & Co., 690 F.3d 98, 108 (2d Cir. 2012) (quoting Rombach v. Chang, 355 F.3d
164, 170 (2d Cir. 2004)). To satisfy the PSLRA, a complaint must, “with respect to each act or
omission alleged to [constitute securities fraud], state with particularity facts giving rise to a
strong inference that the defendant acted with the required state of mind.” ATSI Commc’ns, Inc.
v. Shaar Fund, Ltd., 493 F.3d 87, 99 (2d Cir. 2007) (quoting 15 U.S.C. § 78u-4(b)(2)(A)).
Plaintiffs’ primary federal claims are brought pursuant to Section 10(b) of the Securities
Exchange Act, 15 U.S.C. § 78j(b), and Securities Exchange Commission Rule 10b-5, 17 C.F.R.
§ 240.10b-5. (SAC ¶¶ 113-29). To state a claim under these provisions, a plaintiff must allege:
“that the defendant (1) committed a manipulative or deceptive act (2) in furtherance of the
alleged scheme to defraud, (3) scienter, and (4) reliance.” Gurfein v. Ameritrade, Inc., 411 F.
Supp. 2d 416, 425 (S.D.N.Y. 2006) (internal quotation marksomitted). Where, as here, the
alleged deceptive act is a failure to disclose uncharged criminal conduct, the “critical
consideration” is “whether the alleged omissions . . . are sufficiently connected to defendants’
existing disclosures to make those public statements misleading.” In re Sanofi Sec. Litig., 155 F.
Supp. 3d 386, 403 (S.D.N.Y. Jan. 6, 2016) (internal quotation marks omitted). As a general
matter, courts in this Circuit have found a sufficient connection in three circumstances: “(1)
when a corporation puts the reasons for its success at issue, but fails to disclose that a material
source of its success is the use of improper or illegal business practices; (2) when a defendant
makes a statement that can be understood, by a reasonable investor, to deny that the illegal
conduct is occurring; and (3) when a defendant states an opinion that, absent disclosure, misleads
investors about material facts underlying that belief.” In re Virtus Inv. Partners, Inc. Sec. Litig.,
195 F. Supp. 3d 528, 536 (S.D.N.Y. 2016) (internal quotation marks omitted).
Plaintiffs’ federal claims are premised solely on alleged misstatements and omissions in
the Offering Memorandum. 1 First and foremost, Plaintiffs allege that the “Offering
Memorandum falsely described the bidding process, failing to disclose that Defendants were
The Complaint also includes allegations with respect to certain statements Defendants
made after publication of the Offering Memorandum. (See, e.g., Compl. ¶ 100, 104). In their
opposition to Defendants’ motion, however, Plaintiffs confirm that their federal claims are not
based on any of those statements. (Docket No. 47 (“Pls’ Br.”), at 11 n.10). That is for good
reason, as the only statements alleged in the Complaint that predated Plaintiffs’ purchase of the
Notes are those in the Offering Memorandum, and the PSLRA “extends only to purchasers and
sellers, not to holders, of securities.” Chadbourne & Parke LLP v. Troice, 134 S. Ct. 1058, 1063
instrumental in forming and leading a cartel of similar contractor businesses that rigged bids for
public projects in Brazil, through collusion with supposed competitors.” (SAC ¶ 9). In a
variation on that theme, Plaintiffs also allege that Defendants committed fraud by claiming
falsely that financial statements included in the Offering Memorandum were “prepared in
accordance with International Financial Reporting Standards.” (SAC ¶ 81 (citing Offering
Memorandum v)). In particular, the Complaint identifies two provisions of the “International
Accounting Standards” with which the financial statements allegedly did not comply: “IAS1,”
which requires financial statements to faithfully represent “the effect of transactions, other events
and conditions” in accordance with other provisions of the International Accounting Standards;
and “IAS37,” which calls for disclosure of, among other things, “contingent liabilities,” defined
as a “possible obligation that arises from past events and whose existence will be confirmed only
by the occurrence or non-occurrence of one or more uncertain future events not wholly within
the control of the entity.” (SAC ¶¶ 46-47, 50-51).
These claims fail as a matter of a law for a straightforward reason: Defendants adequately
disclosed the ongoing investigations into their bid-rigging scheme and, by extension, their
“contingent liabilities.” Specifically, the Offering Memorandum disclosed that,
as part of our business and the industry in which we operate, claims may be
brought against us to (i) temporarily suspend our participation in public biddings
and impede us from entering into contracts with the Brazilian government; and
(ii) declare us as unfit to bid for or to enter into contracts with the Brazilian
government pending a determination of our culpability or until such time as any
penalties enforced against us are rescinded. Moreover, we are currently subject to
claims alleging irregularities in certain bidding processes and public contracts
for which we were awarded construction works. In addition to monetary
damages, certain of the plaintiffs in these proceedings also seek injunctions
against our ability to contract with government or public sector companies. In
case decisions are issued against us, we could suffer a material adverse effect.
(Offering Memorandum 23 (emphases added)). This cautionary language addressed the very
risks that Plaintiffs claim were later realized: that an investigation into Defendants’ business
might reveal that they “rigged bids for public projects in Brazil,” (SAC ¶ 9), “causing the market
value of the 2018 Notes to fall precipitously,” (SAC ¶ 12). That is, “[t]he cautionary language
addresse[d] the relevant risk[s] directly.” Halperin v. eBanker USA.com, Inc., 295 F.3d 352, 360
(2d Cir. 2002). In light of that cautionary language, no reasonable investor could have relied on
the statements in the Offering Memorandum that Plaintiffs now allege to be fraudulent. See, e.g.,
City of Pontiac Policemen’s & Firemen’s Ret. Sys. v. UBS AG, 752 F.3d 173, 184 (2d Cir. 2014)
(“By disclosing its involvement in multiple legal proceedings and government investigations and
indicating that its involvement could expose [the defendant] to substantial monetary damages
and legal defense costs, as well as injunctive relief, criminal and civil penalties, and the potential
for regulatory restrictions, [the defendant] complied with its disclosure obligations under our
case law.” (internal quotation marks and brackets omitted)); Olkey v. Hyperion 1999 Term Tr.,
Inc., 98 F.3d 2, 6 (2d Cir. 1996) (affirming dismissal of PSLRA claim where “the prospectuses
even suggested the possibility of precisely the scenario that occurred”).
In arguing otherwise, Plaintiffs contend that Defendants’ disclosure was “deceptively
broad.” (Pls’ Br. 16). “[W]here there is disclosure that is broad enough to cover a specific risk,”
however, “the disclosure is not misleading simply because it fails to discuss the specific risk.” In
re Bank of Am. AIG Disclosure Sec. Litig., 980 F. Supp. 2d 564, 579 (S.D.N.Y. 2013), aff’d, 566
F. App’x 93 (2d Cir. 2014). Along similar lines, Plaintiffs contend that Defendants were
required in the Offering Memorandum “to estimate potential fines and penalties to which
Engenharia could be subjected.” (Pls’ Br. 16). But they cite no authority for the proposition that
such a specific (and usually unknowable) disclosure is required. The bottom line is that
Defendants disclosed the precise risks that came to pass — that because of “claims alleging
irregularities in certain bidding processes,” their participation in public bidding could be
“suspend[ed]” and they “could suffer a material adverse effect.” (Offering Memorandum 23).
Given those disclosures, “no reasonable investor could have been misled about the nature of the
risk when he invested.” Halperin, 295 F.3d at 359.
Plaintiffs’ remaining arguments are premised on Defendants’ statement in the Offering
Memorandum that Andrade “aligns its corporate practices to standards issued by international
entities, such as the International Finance Corporation” and other lenders. (Offering
Memorandum 64; see SAC ¶¶ 45-64). The cautionary language in the Offering Memorandum
arguably defeats any claims based on that statement too. In addition, however, considered in
“the context in which [it was] made,” In re Petrobras Sec. Litig., 116 F. Supp. 3d 368, 381
(S.D.N.Y. 2015), that one statement does not support the weight that Plaintiffs put on it. That is,
although the Offering Memorandum lists organizations with whose policies Andrade purports to
“align” — namely, financial organizations that provide funding for Andrade’s projects — it
does not cite the specific policies themselves. Moreover, the Complaint does not even allege that
many of the organizations themselves have established relevant standards — only that the
organization “supports” a standard set forth by a separate organization, which is not mentioned
in the Offering Memorandum. (See SAC ¶¶ 56, 57). In short, Defendants’ statement that
Andrade “aligns its corporate practices to standards issued by international entities,” (Offering
Memorandum 64), is both “too general” and too “aspirational” to support a securities-fraud
claim, City of Pontiac, 752 F.3d at 183 (affirming dismissal of PSLRA claim where the
statements identified by plaintiffs were “too general . . . [and] explicitly aspirational”).
For the foregoing reasons, Plaintiffs’ claims under Section 10(b) and Rule 10b-5 fail as a
matter of law. 2 It follows that Plaintiffs’ claims for control person liability under Section 20(a)
of the Securities Exchange Act, which depend upon the existence of a “primary violation,” also
fail. See, e.g., Gillis v. QRX Pharma Ltd., 197 F. Supp. 3d 557, 606 (S.D.N.Y. 2016).
Additionally, because the flaws in Plaintiffs’ claims are inherent to the statements in the Offering
Memorandum themselves — and not specific to any particular Defendant — there is no basis to
allow Plaintiffs’ claims to proceed against Andrade Gutierrez S.A., Otavio Azevedo, and
Leandro De Aguiar — even though those Defendants are not party to the present motion
(because they have not yet been served or appeared). Thus, Plaintiffs’ federal claims are
dismissed against all Defendants. Moreover, that dismissal is without leave to amend, for three
reasons. First, given the grounds for the Court’s decision, amendment would likely be futile.
See, e.g., Ruffolo v. Oppenheimer & Co., 987 F.2d 129, 131 (2d Cir. 1993) (“Where it appears
that granting leave to amend is unlikely to be productive . . . it is not an abuse of discretion to
deny leave to amend.”); Strougo v. Barclays PLC, 105 F. Supp. 3d 330, 352 (S.D.N.Y. 2015)
(denying request for leave to amend where “[t]he alleged misstatements about [Defendants’]
business practices . . . are too general to be actionable”). Second, and related, Plaintiffs neither
request leave to amend (for a third time) nor give “any indication that [they are] in possession of
facts that would cure the problems identified in this opinion.” Clark v. Kitt, No. 12-CV-8061
(CS), 2014 WL 4054284, at *15 (S.D.N.Y. Aug. 15, 2014); see also Ritchie Capital Mgmt.,
L.L.C. v. Gen. Elec. Capital Corp., 821 F.3d 349, 352 (2d Cir. 2016) (holding that it was not an
abuse of discretion to deny the plaintiffs an opportunity to amend their complaint where
In light of that conclusion, the Court need not and does not address Defendants’ other
arguments for dismissal.
plaintiffs “did not ask the district court for leave to amend”); TechnoMarine SA v. Giftports, Inc.,
758 F.3d 493, 505 (2d Cir. 2014) (“A plaintiff need not be given leave to amend if it fails to
specify . . . how amendment would cure the pleading deficiencies in its complaint.”). And
finally, in granting leave to file a second amended complaint (see Docket No. 40), the Court
expressly warned that Plaintiffs would not be given another opportunity to address the issues
raised in Defendants’ motion to dismiss. See, e.g., Clark, 2014 WL 4054284, at *15 (holding
that the plaintiff’s failure to remedy the complaint’s deficiencies identified by an earlier motion
to dismiss “is alone sufficient grounds to deny leave to amend”); see also, e.g., Ruotolo v. City of
N.Y., 514 F.3d 184, 191 (2d Cir. 2008) (affirming the district court’s denial of leave to amend in
part because of previous opportunities that the plaintiff had received to amend the complaint).
B. State-Law Claims
That leaves Plaintiffs’ state-law claims. In light of the Court’s dismissal of Plaintiffs’
federal claims, the Court declines to exercise supplemental jurisdiction over those claims.
Pursuant to Title 28, United States Code, Section 1367, a district court has discretion over
whether to exercise jurisdiction over state-law claims “that are so related to claims in the action
within such original jurisdiction that they form part of the same case or controversy under Article
III of the United States Constitution.” 28 U.S.C. § 1367(a). The Supreme Court and the Second
Circuit have made clear, however, that, as a general rule, “when the federal claims are dismissed
the ‘state claims should be dismissed as well.’” In re Merrill Lynch Ltd. P’ships Litig., 154 F.3d
56, 61 (2d Cir.1998) (quoting United Mine Workers v. Gibbs, 383 U.S. 715, 726 (1966)). Here,
there is no basis to depart from that general rule. Given the relatively early state of the case, the
traditional “values of judicial economy, convenience, fairness, and comity” that the Court must
consider do not counsel in favor of exercising jurisdiction. Carnegie-Mellon Univ. v. Cohill, 484
U.S. 343, 350 (1988). Accordingly, Plaintiffs’ state-law claims are dismissed. See 28 U.S.C.
§ 1367(c); see also, e.g., Purgess v. Sharrock, 33 F.3d 134, 138 (2d Cir. 1994) (recognizing that
if the plaintiff’s federal claims are dismissed before trial and there has not been a substantial
expenditure of resources on the state claims, state claims should generally be dismissed as well).
For the reasons stated above, Defendants’ motion to dismiss is granted and Plaintiffs’
Complaint is dismissed. The Clerk of Court is directed to terminate Docket No. 42, to enter
judgment in favor of Defendants, and to close this case.
Date: March 8, 2018
New York, New York
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?