Direct, opt-out actions against Petrobras represent paradigm shift, FRT tells Ignites

28 fraud cases have been filed in the U.S. against the Brazilian oil company Petrobras, including a class action and more than a dozen individual direct actions filed by mutual fund managers. According to Ignites, funds including Vanguard, Pimco, OppenheimerFunds, Legg Mason, Dimensional Fund Advisors, Janus and Lord Abbett have opted out of the class action to file individual cases. On June 24, the federal judge overseeing the 28 cases rejected Petrobras’ plea to delay the September 19th trial to begin hearing the various cases, which is a significant step forward for those firms that believe they can recover more through a direct action. U.S. district judge Jed Rakoff described the class-action case as “arguably secondary” to the private litigation, which gives substantial weight to the claims of the companies that are pursuing direct actions.

PetrobrasJudge Rakoff stated that allowing Petrobras to stay the case would impose a “severe burden” on the court “in managing a complex litigation of which the class action is but one, arguably secondary piece.”

The judge’s decision represents a “paradigm shift” in how firms consider opting out as opposed to remaining in the class action, says Michael Lange, counsel of securities litigation at FRT.

“That’s the first time I’ve really seen an acknowledgement that not only are the opt-outs important, but they have become potentially more important in terms of [Rakoff] moving this ball forward,” he says.

Class actions are usually given greater prominence than opt-out claims because the potential damages of class members collectively are generally much bigger. But in the Petrobras litigation, there are so many large institutional investors with significant losses that the class action no longer dominates, says Lange.

“By this decision, the judge is keeping the parties’ feet to the fire,” he says. “They’ve either got to resolve it or [go to trial in] September.”

It will be interesting to see if Petrobras feels the pressure to settle or if they will go to trial in September. Click here for more on the judge’s decision and its impact on litigation against Petrobras.

Contact FRT to discuss how we can assist your firm in identifying and pursuing opt-out, direct actions.