Aurum Asset Managers, LLC v. Banco Do Estado Do Rio Grande Do Sul, Misc. Action No. 08-102, 2010 U.S. Dist. LEXIS 109577 (E.D. Pa., Oct. 13, 2010)
Aurum, a Pennsylvania company, sought Court approval of an arbitration award against Banrisul, a state-owned financial institution organized under the laws of the Federal Republic of Brazil with its principal place of business in Brazil. Banrisul owned Uniao, an entity that contributed to GESB, a reinsurance pool of Brazilian insurance companies. In 1997, Banrisul sold Uniao to Bradesco, another Brazilian company, but remained responsible for Unaio’s responsibilities stemming from the GESB. From 1976 to 1981, as a member of the GESB, Uniao was contractually obligated to remit payments to Summit relating to participation in the GESB. Uniao stopped paying Summit in 1982. In 2006, Aurum acquired the rights to Summit’s accounts receivables. Aurum then submitted a demand for arbitration relating to the Uniao payments owed to Summit. Banrisul did not participate in the arbitration, which resulted in an award in favor of Aurum against Banrisul.
Aurum then filed a petition in federal court in Pennsylvania to confirm the arbitration award, which was granted. Banrisul moved to vacate the court order on the basis of lack of subject matter jurisdiction, asserting that it was a state-owned Brazilian entity doing business in Brazil and was immune from suits in the U.S. pursuant to the Foreign Sovereign Immunities Act (“FSIA”), 28 U.S.C. § 1330 et seq. The FSIA provides that a foreign state is immune from suit in U.S. courts unless one of the enumerated exceptions applies, including where an action is based on a commercial activity carried on in the U.S. by the foreign state or upon an act performed in connection with commercial activity outside the U.S. in which the action is brought to enforce an agreement made by the foreign state relating to a submission to arbitration.
The Court determined that Banrisul was a state-owned entity that conducted business solely in Brazil under Brazil law. Its contractual agreement to sell shares of Uniao to Bradesco, another Brazilian company, was not activity in or in connection with the U.S., nor did it have a direct effect on the U.S. Further, although Uniao had entered into an arbitration agreement, Banrisul was a non-signatory to this agreement. The Court found no basis, through agency, alter ego, estoppel, or similar grounds to bind Banrisul to the arbitration agreement and thereby extend its jurisdiction to Banrisul under the FSIA.
Consequently, no exception within the FSIA applied and Banrisul was immune to suit within the U.S. The Court vacated confirmation of the arbitration award as it applied to Banrisul.
For a copy of the decision click here
Patrick Omilian and Tom Segalla