Petition for Writ of Certiorari — Strata Heights International Corp. v. Petroleo Brasileiro, S. A.

/

Ui Supreme Court, U.S.

FILE®

O03 313 auG 26 2093

No. _

In the

Supreme Court of the United States

STRATA HEIGHTS INTERNATIONAL CORPORATION,

STRATA ENERGY RESOURCES CORPORATION

AND HEIGHTS ENERGY CORPORATION,

Petitioners,

Vv.

PETROLEO BRASILEIRO, S.A.,

Respondent.

On PETITION FOR WRIT OF CERTIORARI

To Tre UNITED STATES Court Or APPEALS

For Tue Firta Circuit

PETITION FOR WRIT OF CERTIORARI

F. FRANKLIN HONEA

DAvID F. JOHNSON

Counsel of Record

WINSTEAD SECHREST & MINICK P.C.

5400 RENAISSANCE TOWER

1201 ELM STREET

DALLAS, TX 75270

(214) 745-5400

(214) 745-5390 fax

Counsel for Petitioners

BECKER GALLAGHER LEGAL PUBLISHING, INC.,

CINCINNATI, OHIO 800-890-5001

<<“,

QUESTIONS PRESENTED FOR REVIEW

1. In a contract between United States corporations and an

foreign corporation there is a forum selection clause that

mandates that disputes concerning or relating to the contract

be resolved in arbitration in a foreign country. The contract

has a survivability clause that does not provide for the

extension of the forum selection clause. After the terminatior

of the contract, does the forum selection clause govern every

other subsequent contract or tortious act between those

entities?

2. What is a court of appeal’s proper standard of review over

a district court’s order on a motion to dismiss due to a forum

selection clause?

3. What is the proper procedural vehicle to raise a forum

selection clause issue?

PARTIES TO THE PROCEEDINGS

Petitioners

1. The Petitioners in this case are Strata Heights

International, Corporation, Strata Energy Resources,

Corporation and Heights Energy Corporation. Petitioners are

not related to any other publicly held or publicly-traded

companies.

Respondent

2. Respondent is Petroleo Brasileiro, S.A.

li

TABLE OF CONTENTS

QUESTIONS PRESENTED ...................

PARTIES TO THE PROCEEDINGS ............ ii

TABLE OF CONTENTS ..................4. iii

TABLE OF AUTHORITIES .................. v

I. DECISIONS BELOW ................... 1

Il. JURISDICTION ...... eee 1

Ill. | STATUTORY PROVISIONS INVOLVED .... 2

IV. STATEMENT OF THECASE............ 2

A. Gemeeeet OF Pacts . ww. ce eee 3

B. Proceedings Below ..............0-- 5

V. | REASONS FOR GRANTING THE WRIT . . . 6

A. THE COURT OF APPEAL’S DECISION IS

OVERLY BROAD AND _ IMPACTS

IMPRINT INTERNATIONAL COMMERCE

REGARDING FORUM SELECTION

EE ea 8

1. HOA CLAIMS ARE NOT RELATED TO

Ca: es ee eo eke we 9

2. FRAUD CLAIMS ARE NOT RELATED

SE en re 10

3. DANGEROUS RESULT OF COURT OF

APPEALS DECISION .........6-:.

B. FORUM SELECTION CLAUSE NOT

PROPERLY RAISED BY RULE 12(b)(3)

_ SPrrrrercerererr ary ee

C. THE PROPER STANDARD OF REVIEW

OVER FORUM SELECTION ISSUES

SHOULD BE ABUSE OF DISCRETION ..

VE. GRIWAAMIEEE 5 cece cee r ern ewesenes

APPENDIX

Appendix A - Fifth Circuit Order Denying Rehearing -

PP Pee ee eee eS yh hele ee

Appendix B - Fifth Circuit Opinion - 04/28/03 ....

Appendix C - District Court Orders - 03/20/02,

GRE, SUEUR nce rene ecerien evened

Appendix D - Memorandum and Recommendation -

Pere ere eee eee eC ee eT

iV

3a

23a

3la

TABLE OF CITED AUTHORITIES

CASES

Buffalo Forge Co. v. United Steelworkers of America,

428 U.S. 397, 96 S. Ct. 3141,

i ee 7

Carnival Cruise Lines v. Shute,

499 U.S. 585, 111 S. Ct. 1522,

BES £.. SB. SO GZZ CUFF) 2. ccc eee. 11, 12

Commerce Consultants International, Inc. v.

Vetrerie Riunite,

867 F.2d 697 (D.C. Cir. 1989) .............. 11

Commissioner v. Bilder, 396 U.S. 499, S. Ct. 881,

ee eerie ene 7

Crowson v. Sealaska Corp..,

705 P.2d 905 (Alaska 1985) ................ 8 -

First Options of Chicago, Inc. v. Kaplan,

eR errr ere re re et 8

Haskel v. FPR Registry, Inc.,

862 F. Supp. 909 (E.D.N.Y. 1994) ........ 11-12

Hugel v. Corporation of Lloyd’s,

Poe ae aoe CT CH. TSS) 5 wc ce ce eee ee 13

Instrumentation Associates, Inc. v. Madsen

Electronics (Canada), Ltd.,

Sa Pe eee Ges SD «vb vs ee eee 13

International Software Systems, Inc. v. Amplicon, Inc.,

ee Bie eh ke | eee ere 11

Jacobson v. Mailboxes Etc. ,

G66 1.B.ae 698 CUNO, FRG) ccc oc ese eeeee 8

Kerobo v. Southwestern Clean Fuels, Corp.,

285 F.3d 531 (6th Cir. 2002) ............ 11, 12

Kukje Hwajae Insurance Co. v. M/V Hyundai Liberty,

APO .S6 117k CRG Bs ct cere ce eteens 13

Lipcon v. Underwriters at Lloyd’s, London,

Pm By re oe a eee ere ee 11

MacPhail v. Oceaneering International, Inc..,

Pe Foe OTe Ge CE. BO kv ce eewuveccsues 13

Magellan Real Estate Investment Trust v. Losch,

109 F. Supp. 2d 1144 (D. Ariz. 2000) ......... 8

Magnum Import Co. v. Coty,

161 U.S. 159, 43 S. Ct. 531, 67 L. Ed. 922 (1923) . 6

Milwaukee Concrete Studios, Ltd. v. Fjeld

Manufacturing Co..,

moe footy it S| eee ee ere 14

Oil Chemical & Atomic Workers-International Union Local

No. 4-23 v. American Petro. Co. of Texas,

ib me wok Lb ae. 7) errr 8

Riley v. Kingsley Underwriting Agencies, Ltd.,

SGP F206 DSS CIGAR. TGRE) ow ccc wows 13

vi

Ce

Rogen v. Memry Corp.,

886 F. Supp. 393 (S.D.N.Y. 1995) ........... 13

Shapiro v. United States,

235 U.S., 35 S.Ct. 122, 59 L.Ed. 291 (1914) ..... 7

Shell v. R.W. Sturge, Ltd.,

55 F.3d 1227 (6th Cir. 1995) ............... 13

Silva v. Encyclopedia Britannica, Inc.,

239 F.3d 385 (Ist Cir. 2001) ..............., 12

Stewart Organization v. Ricoh Coys.,

487 U.S. 22, 108 S. Ct. 2239,

OOPE E.. BG. DU ZZ (ISSR) 2. ccc cc eee c nce 11

Sun World Lines, Ltd. v. March Shipping Corp.,

801 F.2d 1066 (8th Cir. 1986)............... 13

STATUTES

28 U.S.C. §1254(1) ...........000. reece 1

Oe U.S.C. SEFDBR) 2 ww cc ccc ccc cc ccc nccccs 1

| ee eee l

ED OR 1

ge ee ee 12

di, ee a 11

tt cree 1

Vii

MISCELLANEOUS

Borchers, Forum Selection Agreements In the Federal

Courts After Carnival Cruise: A Proposal for

Congressional Reform,

GF Wel. En FG. DO CEPOED cect ese caecccess 12

Taylor, The Forum Selection Clause: a Tale of Two Concepts,

66 Temple L. Rev. 765 (ISIS) 2. wwe ccccecess 12

Viii

TO THE HONORABLE SUPREME COURT OF THE

UNITED STATES:

Plaintiffs-Appellees Strata’ Heights _ International

Corporation, Strata Energy Resources Corporation, and

Heights Energy Corporation (hereinafter referred to

collectively as “Strata”) respectfully petitions for writ of

certiorari to review the judgment of the United States Court

of Appeals for the Fifth Circuit in this case. j

I. DECISIONS BELOW

The opinion of the Court of Appeals is an unpublished

opinion and is reproduced in Appendix B. The decision and

order of the District Court is unpublished and adopts an

opinion of a magistrate judge and is reproduced in Appendix

C. The magistrate judge’s opinion is reproduced in Appendix

D. The Court of Appeals order denying the petition for panel

rehearing is unreported and is reproduced in Appendix A.

II. JURISDICTION

The jurisdiction of the United States District Court for the

Southern District of Texas was invoked under 28 U.S.C.

§1330, 28 U.S.C. §1605(a), and 28 U.S.C. §1367, and the

judgment was entered on April 28, 2003. The jurisdiction of

the United States Court of Appeals for the Fifth Circuit was

invoked under two provisions for two appeals from the

District Court’s order -- the collateral order doctrine and the

permissive appeal provision of 28 U.S.C. §1292(b). The

Court of Appeals consolidated the two appeals, and the

judgment was entered on April 28, 2003. The Court of

Appeals denied Petitioners’ timely petition for panel rehearing

on June 6, 2003. The jurisdiction of this Court is invoked

under 28 U.S.C. §1254(1).

Ill. STATUTORY PROVISIONS INVOLVED

This case involves Federal Rule of Civil Procedure

12(b)(3) and 12(b)(6) and 28 U.S.C. §§ 1404(a) and 1406(a).

IV. STATEMENT OF THE CASE

The District Court correctly denied Petrobras’ motion to

dismiss under Rule 12(b)(3) due to a forum selection clause in

a contract that was not the subject of the litigation, and the

Fifth Circuit’s erred in overruling the District Court and

dismissing the case for improper venue. The forum selection

clause was contained in an initial confidentiality agreement

between the Strata and Petrobras that limited its applicability

to disputes arising under or related to the confidentiality

agreement and whose survivability clause did not contain the

forum selectioa clause. Strata sued Petrobras under two

separate theories: breach of an oil and gas joint development

agreement (entered into after the termination of the

confidentiality agreement); and fraudulent representations

made by Petrobras concerning the outright sale of properties

to Strata (once again, made after the termination of the

confidentiality agreement). The Court of Appeals used a de

novo standard of review and broadly determined that the

forum selection clause in the terminated confidentiality

agreement mandated that all of Strata’s claims had to be

brought in Brazil in arbitration and that the District Court

should have dismissed the suit under Rule 12(b)(3). —

This case brings three important and related issues to this

Court - 1) whether a forum selection clause in an expired

agreement that did not its survivability can bar all of a party’s

claims that arose from agreements and conduct that entered

into and occurring after the termination of the initial

agreement; 2) whether the court of appeals’ standard of

2

i

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:

nen anor chalaneena’

review is de novo on a forum selection clause issue; and 3)

what the correct procedural vehicle is to raise a forum

selection clause issue. Due to the importance of international

commerce, these issues are of great importance to the public

in general. Further, the courts of appeals have conflicting

opinions on these issues. Accordingly, this Court should

grant this Petition for Writ of Certiorari.

A. Statement Of Facts

At a conference in 1996, Petrobras solicited United States

businesses to become partners with it in the development of

oil and gas fields in Brazil. Due to these solicitations, Strata

decided to enter into negotiations with Petrobras to jointly

develop certain oil and gas fields. Strata and Petrobras

entered into a Memo of Understanding (“MOU”) on June 11,

1997, that governed issues of confidentiality so that Petrobras

could disclose various projects available for joint

development. The MOU was a preliminary agreement to

provide Strata certain information in order for them to

evaluate whether they wished to continue negotiations. The

MOU contained a forum selection clause that stated that

disputes arising out of or relating to “this MOU” would be

settled by arbitration in Brazil. The MOU was neither

ancillary to nor guaranteed or committed either party to any

other agreement. The MOU was binding for a period of

twelve (12) months. Neither Strata nor Petrobras extended

the MOU, its survivability clause did not include the forum

selection clause and it expired on June 11, 1998.

Afier reviewing the proposed projects, Strata selected two

projects to do a technical review, and after Petrobras

confirmed that they were available, the parties entered into an

Agreement on Technical Assistance (“ATA”) on August 4,

1997. The ATA provided that Strata would make

3

recommendations with respect to exploration of oil and gas

prospects and/or enhancement of marginal fields. No

agreement for joint activities had been entered into under the

ATA.

The Heads. of Agreement (“HOA”) is a_ separate

agreement from the MOU and the ATA. After years of

negotiation, Petrobras and Strata agreed to all material terms

of the HOA. Petrobras prepared the HOA, and it was

executed by Strata on July 30, 1999. When Strata signed the

HOA, Petrobras represented that the HOA would be signed

by Petrobras when its signatory returned.

Later, however, Petrobras informed Strata that Petrobras

would not sign the HOA and would have to back out of the

HOA. In lieu of the HOA, Petrobras offered to sell up to

seventeen oil and gas properties in Brazil to Strata on a

preferred, no-bid basis.- At a conference in Houston, Texas,

one of Petrobras’ directors affirmed that he had approved the

sale of the properties to Strata on a private, exclusive basis,

that the full Board would approve it, and that the sale was

legal in Brazil.

Notwithstanding these representations, in March of 2000,

Petrobras notified Strata that a private, preferred sale was

illegal under the Brazilian law and that Petrobras would not

agree to a preferred sale of the properties to Strata.

Petrobras’ representations were made with the intention of

inducing Strata to forego insisting upon performance of the

HOA because the sale was offered in lieu of the HOA. In

other words, Petrobras refused to execute the HOA in breach

of its promises and agreement to do so (which were actionable

under Texas and Brazilian law), and _ Petrobras’

representations in Houston were part of its efforts to divert

Fe dnd Toth

and misguide Strata into not seeking to enforce their rights

under the HOA.

B. Proceedings Below

Strata filed the above styled suit on September 1, 2000, in

the United States District Court for the Southern District of

Texas, Houston Division, the Honorable sohn D. Rainey

presiding. Strata filed suit against Petrobras based equally

upon Texas common law causes of action and similar

Brazilian causes of action against Petrobras. Petrobras moved

to dismiss the suit because of 1) lack of subject matter

jurisdiction due to foreign sovereign immunity; 2) lack of

personal jurisdiction due to a “fair play and substantial

_ Justice” inquiry; 3) a forum selection clause contained in a

preliminary confidentiality agreement (filed under Rule

12(b)(3)); and 4) forum non conveniens.

Judge Rainey referred Petrobras’ motions to N ancy K.

Johnson, a Magistrate Judge, who issued a Memorandum and

Recommendation (“M&R”) on January 21, 2002. In this

M&R, Magistrate Johnson held that even though Petrobras

was entitled to the status of a “foreign state” under the FSIA,

maintenance of the suit was proper under the commercial

activity exception. Magistrate Johnson also held that the

District Court had personal jurisdiction over Petrobras due to

general contacts and specific contacts and that the exercise of

jurisdiction over Petrobras would not offend traditional

notions of fair play and substantial justice. Lastly, Magistrate

Johnson found that the suit should not be dismissed due to

forum non conveniens or the forum selection clause.

On March 19, 2002, Judge Rainey adopted Magistrate

Johnson’s M&R. Petrobras filed a motion for rehearing,

which Judge Rainey denied on March 27, 2002. Petrobras

5

filed a second motion for rehearing, which Judge Rainey

denied on May 16, 2002. Petrobras filed its notice of appeal

on May 24, 2002. Petrobras appealed the District Court’s

order on subject matter jurisdiction under the collateral order

doctrine, and in a separate appeal, appealed the district court’s

personal jurisdiction, forum selection/arbitration clause, and

forum non conveniens under a permissive appeal.

The Court of Appeals for the Fifth Circuit consolidated

the two appeals. The Court of Appeals entered its judgment

on April 28, 2003. The Court found that the District Court

had subject matter jurisdiction and had personal jurisdiction

over Petrobras, but held that the forum selection clause

required dismissal of all of Strata’s claims. Strata timely filed

a motion for rehearing to the panel, which the Court of

Appeals denied on June 6, 2003. Strata seeks review from

this Court on the appropriateness of the dismissal of all of

Strata’s claims due to the forum selection clause.

V. REASONS FOR GRANTING THE WRIT

This Court has jurisdiction to review cases by writ of

certiorari for two basic purposes: to decide questions of

importance that are in the public interest to have decided by

courts of last resort and to secure uniformity of decision

between courts of appeals. Magnum Import Co. v. Coty, 161

U.S. 159, 43 S.Ct. 531, 67 L.Ed. 922 (1923). Both of these

purposes exist in this case.

First, this case involves the important question of whether

a forum selection clause in an expired contract between

United States corporations and a foreign corporation applies

in a dispute between the same parties over a subsequent and

unrelated agreement and to fraudulent conduct that dealt with

a separate transaction. Foreign commerce and business

6

7

a -

relations have an obvious importance in today’s economy.

The United States is the economic leader in the world with

countless international transactions occurring on a daily basis.

Many of these transactions occur with forum selection

provisions. Should one such transaction work to bar United

States citizens from bringing suit in the United States on

subsequent transactions that do not contain forum selection

Clauses? Courts have been expanding the applicability of

forum selection clauses to cover more and more unrelated

transactions by virtue of the boiler plate clause - “arising

under or related to.” Should the broad application of a forum

selection clause be extended to apply where the clause at issue

exists in a clause in an expired agreement, not the subject of

the litigation. The importance of this issue is self evident.

This Court should grant Strata’s petition to address this issue

if general importance to the public. See Shapiro v. United

States, 235 U.S., 35 S.Ct. 122, 59 L.Ed. 291 (1914) (petition

granted because of importance of issues).

Second, there is currently a split in the court of appeals

regarding what the correct procedural device is to challenge

a plaintiff's choice of forum due to a forum selection clause.

Further, there is a split in the court of appeals regarding what

the appropriate standard of review is over a district court’s

decision to enforce a forum selection clause. This Court has

the duty to unify the courts of appeals and to set a clear course

for such important issues - issues that often arise in district

courts all over this great Nation. See Buffalo Forge Co. v.

United Steelworkers of America, 428 U.S. 397, 96 S.Ct.

3141, 49 L.Ed.2d 1022 (1976) (Court grants petition where

conflict in courts of appeals); Commissioner v. Bilder, 396

U.S. 499, 82 S.Ct. 881, 8 L.Ed.2d 65 (1962) (same).

A. THE COURT OF APPEAL’S DECISION IS OVERLY

BROAD AND IMPACTS’ IMPRINT

INTERNATIONAL COMMERCE REGARDING

FORUM SELECTION CLAUSES

The MOU was a confidentiality agreement with respect to

the information Petrobras provided to Strata in the initial

stages of their negotiations for a joint venture of certain oil

and gas properties situated in Brazil. The claims in this suit,

however, do not arise out of or relate to the MOU. Fora

forum selection clause in an agreement to apply in a case, the

case must be related to the contract containing the clause. See.

Magellan Real Estate Inv. Trust v. Losch, 109 F.Supp.2d

1144, 1159 (D. Ariz. 2000); Jacobson v. Mailboxes Etc. 646

N.E.2d 741, 745 (Mass. 1995); Crowson v. Sealaska Corp.,

705 P.2d 905, 910 (Alaska 1985).

It is unreasonable to enforce a forum selection clause in

the MOU with respect to claims arising from or related to a

subsequent contract, the HOA, under the circumstances of this

case. Normal rules of contract construction prevail in

interpreting arbitration/forum selection clauses - if the parties

do not intend that the provision should apply, then it does not

apply. First Options of Chicago, Inc. v. Kaplan, 514 U.S.

938 (1995). Where the parties’ intent, as evidenced by their

agreements, is that a forum selection clause should not survive

an initial agreement, that forum selection clause provision

Should not govern a suit on a subsequent agreement. The

Court of Appeals’ decision to the contrary is opposite an

earlier opinion from the same Court. See Oil Chemical &

Atomic Workers Int’l Union Local No. 4-23 v. American

Petro. Co. of Texas, 820 F.2d 747 n.3 (5" Cir. 1987) (court

affirmed portion of the district court’s opinion holding that an

arbitration clause in an expired contract did not apply to

claims that arose after that contract had terminated.).

Re ee ee

wl alt ia Bag fe igi are

ite Abts ae at ok ae

aa a i ln

8

a a

Strata has two separate types of claims: 1) based upon the

breach of HOA, and 2) based upon Petrobras’ fraudulent

conduct. The express terms of the contracts in this case show

that the forum selection clause in the MOU did not survive its

term and did not relate to the MOU or Strata’s fraud claims.

1. HOA CLAIMS ARE NOT RELATED TO THE

MOU |

The forum selection clause in the MOU specifically states

that it relates to the MOU - a bolded term in the agreement -

a contract that dealt solely with the exchange of information

and confidentiality. There was not a single claim raised by

Strata in this suit that related to the parties’ obligations or

responsibilities under the MOU - Strata raised no

confidentiality claims.

The intent of the Parties was that the arbitration clause

would not survive the term of the MOU, which expired on

June 11, 1998. In fact, the MOU contained a survivability

clause that only extended the confidentiality provisions for a

two year period after termination. As the MOU did not

include the forum selection clause within its survivability

clause, the Parties’ intent as evidenced by the agreement itself

is that forum selection clause did not survive the agreement.

Moreover, the MOU contained a disclaimer that indicated that

the MOU was expressly not related to future agreements.

Strata’s claims in this suit arose solely after the

termination of the MOU. The HOA did not contain a forum

selection clause and it does not incorporate either the MOU or

the ATA. Further, as Petrobras testified that it ordinarily

placed a forum selection clause into HOA agreements, it

should be assumed that it was intentionally left out. Strata’s

breach of the HOA claims were not subject to the forum

9

EEE

selection clause in the MOU, and the Court of Appeals’

opinion sets dangerous precedent in this important area of

international commerce.

2. FRAUD CLAIMS ARE NOT RELATED TO

MOU.

Strata’s fraud claims are factually distinguishable from its

HOA claims. Its fraud claims arise from Petrobras’

misrepresentations concerning Strata’s ability to acquire up to

17 properties on a preferential purchase basis. The 17

properties that Petrobras promised to Strata when it refused to

sign the HOA were never made part of nor incorporated into

any MOU or ATA. These properties were not a part of the

joint venture or partnership contemplated in the MOU, ATA,

and HOA. The Court of Appeals did not discuss any rationale

or reasoning as to why the forum selection clause would apply

to the fraud claims in connection with this other remote

transaction. Accordingly, even if Strata’s claims under the

HOA should be sent to Brazii, Strata should still be able to

pursue its fraud claims in Texas.

3. DANGEROUS RESULT OF COURT OF

APPEALS DECISION

The Court of Appeals’ decision is overly broad and

dangerous. Take the following example for instance. A

United States corporation purchases a business via financing

from foreign banks and “nters into a note that has a forum

selection clause. The purchaser pays off the note, and it is

released. Later, the purchaser goes to the same bank and

obtains additional financing using the same property as

collateral - but the new note has no forum selection clause.

If the parties have a dispute over the second note, does that

mean that the forum selection clause of the first note applies?

10

Under this Court of Appeals’ opinion in this case, the answer

is yes. Accordingly, this Court should grant Strata’s Petition

for Writ of Certiorari to set this important aspect of

international commerce right.

B. FORUM SELECTION CLAUSE NOT PROPERLY

RAISED BY RULE 12(b)(3) MOTION

Strata properly alleged venue in the district court pursuant

to 28 U.S.C. 1391(d). Petrobras raised the forum selection

Clause issue to the district court via a Rule 12(b)(3) improper

venue motion. However, venue was correct in the district

court — Petrobras attempted to enforce a contractual provision

that limited the forum of the Parties’ disputes. There is

presently a conflict in the courts of appeals concerning

whether the contractual validity of a forum selection clause is

a matter of venue, and whether a motion to dismiss for

improper venue under Rule 12(b)(3) is a proper vehicle to

raise a forum selection clause issue. See Kerobo v.

Southwestern Clean Fuels, Corp., 285 F.3d 531, 535-36 (6"

Cir. 2002)(12(b)(3) is not appropriate); Lipcon v.

Underwriters at Lloyd’s, London, 148 F.3d 1285, 1289-1290

(11" Cir. 1998) (12(b)(3) is appropriate); Commerce

Consultants Int’l, Inc. v. Vetrerie Riunite, 867 F.2d 697, 699-

700 (D.C. Cir. 1989) (implies 12(b)(3) is appropriate);

International Software Systems, Inc. v. Amplicon, Inc., 77

F.3d 112, 114 (5" Cir. 1996) (implies that 12(b)(3) is

appropriate). In fact, this Court’s prior precedent has not

been entirely clear as to the proper procedural vehicle to raise

such an issue. Compare Stewart Organization v. Ricoh Coys.

487 U.S. 22, 28, 108 S.Ct. 2239, 101 L.Ed. 2d 22 (1988)

(states that motion to transfer under §1404(a) is appropriate);

Carnival Cruise Lines v. Shute, 499 U.S. 585, 594, 111 S.Ct.

1522, 113 L.Ed. 2d 622 (1991) (implied that motion to

dismiss under §1406(a) can be appropriate); see also, Haskel

11

v. FPR Registry, Inc., 862 F.Supp. 909, 913 (E.D.N.Y.

1994); Taylor, The Forum Selection Clause: a Tale of Two

Concepts, 66 TEMPLE L. REV. 785, 843-45 (1993); Borchers,

Forum Selection Agreements In the Federal Courts After

Carnival Cruise: A Proposal for Congressional Reform, 67

WASH. L.REV. 55, 74 (1992).

A Rule 12(B)(3) motion is not appropriate where venue is

proper but there is a forum selection clause that mandates

forum elsewhere. As the Kerobo Court stated:

We think that this fact argues persuasively for the

view that whether a forum-selection clause should be

enforced is a matter of contract, not an issue of proper

venue. . . . [T]he Supreme Court made it clear in

Recoh that forum selection clauses do not dictate the

forum. Indeed, the Court footnoted with apparent

approval the parties’ agreement that the district court

had properly denied the motion to dismiss for

improper venue because the case had been filed in the

venue proscribed by 28 U.S.C. §1391 . . . We think

that this is a clear signal that if venue is proper under

the statute, a motion to transfer for improper venue

will not lie. . . .We therefore hold that the district

court erred in granting the defendants’ motion to

dismiss for improper venue. Kerobo v. Southwestern

Clean Fuels, Corp., at 535-36.

As Petrobras raised the forum selection clause issue in a Rule

12(b)(3) motion to dismiss for improper venue, the district

court did not err in denying that motion. That issue should

have been raised in either a Rule 12(b)(6) motion or a motion

for summary judgment. See e.g., Silva v. Encyclopedia

Britannica, Inc., 239 F.3d 385, 387-88 (1" Cir. 2001) (Rule

12(b)(6) is appropriate); Instrumentation Associates, Inc. v.

12

Le |

Madsen Electronics (Canada), Ltd., 859 F.2d 4, 6 (3" Cir.

1988) (Rule 12(b)(6) motion appropriate); Rogen v. Memry

Corp., 886 F.Supp. 393, 395 (S.D.N.Y. 1995) (granting

summary judgment due to forum selection clause). As there

are conflicting decisions from the courts of appeals on this

issue, and it is an issue that is frequently addressed, this Court

should grant Strata’s Petition for Writ of Certiorari.

C. THE PROPER STANDARD OF REVIEW OVER

FORUM SELECTION ISSUES SHOULD BE ABUSE

OF DISCRETION

Finally, there also a conflict in the courts of appeals

regarding the correct standard of review over a district court’s

determination on a forum selection clause objection. The

Fifth, Sixth, Seventh, Tenth, and Eleventh Circuit Courts of

Appeals review determinations regarding the enforceability of

forum selection clauses de novo. MacPhail v. Oceaneering

Int'l, Inc., 302 F.3d 274, 278 (5" Cir. 2002); Shell v. R.W.

Sturge, Ltd., 55 F.3d 1227, 1229 (6" Cir. 1995); Hugel v.

Corporation of Lloyd’s, 999 F.2d 206, 207 (7" Cir. 1993);

Riley v. Kingsley Underwriting Agencies, Ltd. , 969 F.2d 953,

956 (10" Cir. 1992). However, the Ninth and Eighth Circuits

review those decisions under an abuse of discretion standard.

Kukje Hwajae Ins. Co. v. M/V Hyundai Liberty, 294 F.3d

1171, 1174 (9" Cir. 2002); Sun World Lines, Ltd. v. March

Shipping Corp., 801 F.2d 1066, 1068 n.8 (8" Cir. 1986).

This case is a good example of how the differing standards

may effect the outcome.

The main issue is whether the forum selection clause in

the MOU was intended by the parties to control all future

agreements or actions between them. The only evidence that

the three agreements were related is conclusory statements

made by Petrobras in its brief on appeal. The district court

13

found that the Parties did not intend for the forum selection

clause in the MOU to apply to the HOA or to Strata’s fraud

claims. This was a fact intensive determination. When the

three agreements are read in totem with an understanding of

their purposes and the properties that they were based upon -

the only reasonable conclusion supports the district court’s

conclusion. However, the Court of Appeals reviewed the

district court’s determination under a de novo standard,

ignored the contracts and facts, and reversed the district

court’s determination.

This standard of review is inconsistent with the procedural

method that Petrobras raised the forum selection clause - Rule

12(b)(3) motion. Generally, the standard of review over a

Rule 12(b)(3) motion is an abuse of discretion. See

Milwaukee Concrete Studios, Ltd. v. Fjeld Mfg. Co., 8 F.3d

441, 445 (7" Cir. 1993). The procedure that is utilized in

raising the forum selection clause issue necessarily impacts

the standard of review.

As the District Court’s determination necessarily involved

the facts of this case and as the issue was raised under a Rule

12(b)(3) motion, the Court of Appeals should have used an

abuse of discretion standard of review. This Court should

respectfully grant Strata’s Petition for Writ of Certiorari,

reconcile the courts of appeals conflict on this issue, find that

under the facts of this case, the appropriate standard of review

is an abuse of discretion, and affirm the district court’s order

denying Petrobras’ 12(b)(3) motion.

VI. CONCLUSION

Strata requests that this Honorable Court grant this

petition for a writ of certiorari because this case presents

important questions of international trade and commerce and

14

because there is currently conflict between the courts of

appeals regarding the proper procedural device to raise a

forum selection clause issue and the appropriate standard of

review over the determination of that issue.

‘

Ab oil

Respectfully submitted,

F. Franklin Honea

David F. Johnsow

| Counsel of Record

WINSTEAD SECHREST & MINICK P.C.

5400 Renaissance Tower

1201 Elm Street

Dallas, Texas 75270

Telephone: (214) 745-5400

Telecopy: (214) 745-5390

ATTORNEYS FOR STRATA HEIGHTS

. INTERNATIONAL CORPORATION,

STRATA ENERGY RESOURCES

CORPORATION, AND HEIGHTS

ENERGY CORPORATION

15

Pe a

APPENDIX A

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 02-20645

consolidated with Case No. 02-20767

[Filed June 6, 2003]

STRATA HEIGHTS INTERNATIONAL

CORPORATION; STRATA ENERGY

RESOURCES CORPORATION; HEIGHTS

ENERGY CORPORATION

Plaintiffs - Appellees

v.

PETROLEO BRASILEIRO SA, also known as

Petrobras Brasileiro

Defendant - Appellant

i i a a a a a ae a a ee ee ee

Appeals from the United States District Court

for the Southern District of Texas, Houston

ON PETITION FOR REHEARING

Before KING, Chief Judge, REAVLEY and STEWART,

Circuit Judges:

la

PER CURIAM:

IT IS ORDERED that the petition for rehearing is denied.

ENTERED FOR THE COURT :

/s/

United States Circuit Judge

2a

APPENDIX B

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

Nos. 02-20645 & 02-20767

[Filed April, 2003]

STRATA HEIGHTS INTERNATIONAL

CORPORATION; STRATA ENERGY

RESOURCES CORPORATION; HEIGHTS

ENERGY CORPORATION,

Plaintiffs - Appellees,

versus

PETROLEO BRASILEIRO, SA, also known as

Petrobras Brasileiro,

Defendant - Appellant.

i A A a a a Lae a Lae Lae ee ae a

Appeal from the United States District Court

for the Southern Distriot of Texas

(USDC No. H-00-CV-3052)

Before KING, Chief Judge, REAVLEY and STEWART,

Circuit Judges.

3a

REAVLEY, Circuit Judge:*

OPINION

Strata Heights International Corp., Strata Energy

Resources, and Heights Energy Corp. (collectively “Strata”)

sued Petré6leo Brasilerio, S.A. (“Petrobras”), the national oil

company of Brazil, for breach of contract, promissory

estoppel, quantum meruit, and fraud and misrepresentation

under Texas law and similar actions under Brazilian law. The

district court denied Petrobras’s motions to dismiss under the

Foreign Sovereign Immunities Act (“FSIA”),' for lack of

personal jurisdiction, to enforce a forum selection clause, and

for forum non conveniens. Petrobras appealed the district

court’s denial of its FSIA motion to dismiss under the

collateral order doctrine. The district court denied

Petrobras’s remaining motions to dismiss but certified an

interlocutory appeal. This court agreed to hear the

interlocutory appeal and consolidated it with Petrobras’s FSIA

appeal.

Petrobras is not entitled to foreign sovereign immunity,

and the exercise of personal jurisdiction over the company

comports with traditional notions of fair play and substantial

justice. We do not reach the district court’s decision to deny

Pursuant to STH CIR. R. 47.5, the Court has determined

that this opinion should not be published and is not precedent

except under the limited circumstances set forth in 5TH CIR. R.

47.5.4. |

' 28 U.S.C. § 1601 et seq.

2 See Arriba, Ltd. v. Petroleos Mexicanos, 962 F.2d 528, 532

(5th Cir. 1992).

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Fifth Circuit Opinion - 4/28/03

the motion to dismiss for forum non conveniens because we

hold that the district court erred by refusing to enforce the

forum selection clause. Accordingly, we vacate and remand

to the district court and order that the suit be dismissed.

Background

In the mid-1990s, the Brazilian government decided to

allow foreign companies to bid to explore oil in Brazil.

Petrobras solicited U.S. businesses to become joint venture

partners.

Pursuant to this solicitation, Strata signed a Memorandum

of Understanding (“MOU”) containing confidentiality

provisions regarding potential opportunities for joint ventures

between Petrobras and private companies. Under the MOU,

Petrobras disclosed various projects available for joint

development with assurances that the disclosures would be

kept confidential. The MOU provided that all disputes arising

out of or relating to the MOU be resolved through Brazilian

arbitration. The MOU expired one year after it was signed

unless extended by the parties, except that the contract’s

confidentiality provisions expired after two years. Neither

Petrobras nor Strata extended the MOU, and it expired on

June 11, 1998.

After reviewing the proposed projects, Strata selected two

(BES-1 and BSF-1) on which to perform a technical review.

After Petrobras confirmed the projects were available, Strata

signed an Agreement for Technical Assessment (“ATA”).

The ATA provided that Strata wotfld pay Petrobras $20,000

to purchase technical information to assist their evaluation of

the projects they were to bid upon. Strata would then submit

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Fifth Circtst Gyinion - 4/28/03

a report to Petrobras evaluating those properties. The ATA

was an addendum to the MOU and adopted its terms.

After Petrobras informed Strata that its ATA proposals

were accepted, Strata learned that Petrobras had surrendered

the BES-1 project to the Brazilian regulatory agency, Agencia

National de Petrolio (“ANP”). Strata requested additional

producing properties to replace the loss of BES-1 (“the

rejuvenation projects”). |

Because both the MOU and the ATA were preliminary

agreements, the parties were required to negotiate another

agreement: the Technical Assistance Contract (“TAC”). The

TAC was a production-sharing agreement comprised of the

Heads of Agreement (“HOA”), an Operating Agreement, and

other documents. The HOA provided that Strata and Petrobras

would enter into a joint development agreement for the

enhancement of BSF-1 and the rejuvenation projects.

According to the allegations of Strata’s complaint,

Petrobras prepared the HOA and Strata signed it after

Petrobras’s representative told Strata that Petrobras had

agreed to the terms of the contract and would sign it as soon

as its signatory officer was available.

Strata further alleges that Petrobras then informed Strata

that Petrobras had surrendered BSF-1 to the ANP and that it

would not execute the HOA because it now chose to sell the

rejuvenation projects outright. Petrobras told Strata it would

offer to sell up to seventeen oil and gas properties in Brazil to

Strata on a preferred, no-bid basis. This essentially gave

Strata a right of first refusal with regard to these seventeen

properties in exchange for Strata giving up whatever rights it

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Fifth Circuit Opinion - 4/28/03

had under the HOA. Strata contends this offer was repeated

by Petrobras’s directors and officers on several occasions,

who assured Strata that the offer was approved by Petrobras’s

Governing Board.

At an unrelated conference in Houston in 1999, Ray Diaz,

Managing Director of Strata Heights and President of Strata

Energy, sought personal assurances from Jose Coutinho

Barbosa (“Barbosa”), head of the Exploration and Production

Division of Petrobras, regarding the preferred sale. According

to Strata, during a break at the conference, Diaz spoke to

Barbosa, who recognized Strata and stated that he was

familiar with their past and pending transactions with

Petrobras. Barbosa affirmed that he had approved the

preferred sale of the properties to Strata, and that anything he

approves is always approved bythe Governing Board of

Petrobras. Diaz asked Barbosa whether the sale was valid

under Brazilian law, and Barbosa assured Diaz it was. He

stated that Petrobras’s legal department had concluded the sale

was legal and would hold up in court if challenged. He added

that the legal department would so advise the Board when the

matter came up for approval. After this meeting, Strata

requested that Petrobras provide written confirmation of the

preferred sale offer. Petrobras sent Strata an unsigned

confirmation letter but never forwarded a signed version.

In March 2000, Petrobras notified Strata that the private,

preferred sale was prohibited under Brazilian law, and that

Petrobras was required to surrender the rejuvenation projects

to the ANP for open bidding. Strata sent Petrobras a letter

proposing that the rejuvenation projects be excluded from the

public bidding, but Petrobras did not respond. Strata did not

submit a bid during the open bidding. This suit followed.

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Fifth Circuit Opinion - 4/28/03

Foreign Sovereign Immunity

We review determinations of foreign sovereign immunity

under the FSIA de novo.’ The FSIA sets forth the sole and

exclusive standards to be used to resolve all sovereign

immunity issues raised in federal and state court by foreign

sovereigns or their instrumentalities.* A foreign sovereign is

not entitled to immunity from suit if its conduct fails within an

exception to the FSIA. Once such exception, known as the

commercial activity exception, provides:

(a) A foreign state shall not be immune from the

jurisdiction of courts of the United States or of the

States in any case—

(2) in which the action is based upon [1] a

commercial activity carried on in the United

States by the foreign state; or upon [2] an act

performed in the United States in connection

with a commercial activity of the foreign state

elsewhere; or upon [3] an act outside the

territory of the United States in connection

with a commercial activity of the foreign state

elsewhere and that act causes a direct effect in

the United States.°

> Pere ex rel. Pere v. Nuovo Pignone, Inc., 150 F.3d 477,

480 (5th Cir. 1998).

* Arriba, 962 F.2d at 532.

> 28 U.S.C. § 1605(a)(2).

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Fifth Circuit Opinion - 4/28/03

The district court determined that Strata’s fraud claims fell

within the second clause, and that its contract claims fell

within the third clause of the commercial activity exception.

Petrobras complains that the conversation in Houston

between Diaz and Barbosa was “plainly commercial in

nature” because the conversation concerned business

opportunities in Brazil, and thus Strata should have proceeded

under the first clause with respect to its fraud claims.

Although this court has previously determined that the second

clause applies only to claims based upon conduct that is not

commercial,° we find Petrobras’s argument unconvincing.

Even if fraud-and-misrepresentation are commercial, as

opposed to noncommercial, acts, the commercial activity

exception applies in this particular case.” Despite the district

° See Byrd v. Corporacion Forestal y Indust. de Olancho,

S.A., 182 F.3d 380, 390 (5th Cir. 1999); Voest-Alpine Trading

USA Corp. v. Bank of China, 142 F.3d 887, 892 (5th Cir. 1998).

. Although we are bound by the decisions in Voest-Alpine and

Byrd, we note that in the House of Representatives Report on the

FSIA Congress stated:

Although some or all of [the acts covered by the

second clause] might also be considered to be a

‘commercial activity carried on in the United States,’ as

broadly defined in section 1603(e), it has seemed advisable

to provide expressly for the case where a claim arises out

of a specific act in the United States which is commercial

or private in nature and which relates to a commercial

activity abroad. It should be noted that the acts (or

omissions) encompassed in this category are limited to

those which in and of themselves are sufficient to form the

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Fifth Circuit Opinion - 4/28/03

court’s refusal to consider the applicability of the first clause,

it is well settled that this court will not reverse a district court

if it can be affirmed on any ground supported by the record,

regardless of whetiier that ground was considered by the

lower court.® Strata’s fraud claims are based upon either a

commercial act performed within the United States or upon a

noncommercial act performed within the United States in

connection with commercial activity abroad. Accordingly, the

district court had jurisdiction to consider Strata’s fraud claims

against Petrobras, regardless of whether that jurisdiction was

basis of a cause of action.

H.R. PEP. No. 1487, 94th Cong., 2d Sess., at 19(1976), reprinted

in 1976 U.S.C.C.A.N. 6604, 6618. Thus, the Voest-Alpine court,

seizing on the Supreme Court’s distinction between sovereign and

commercial acts in Saudia Arabia v. Nelson, 507 U.S. 349 (1993),

may have read a distinction into the statute that neither Congress

nor the Supreme Court intended. See id. at 358-61.

In Nelson, the Supreme Court noted that “Congress manifestly

understood there to be a difference between a suit ‘based upon’

commercial activity and one ‘based upon’ acts performed ‘in

connection with’ such activity,” but concluded only that the first

clause “calls for something more than a mere connection with, or

relation to commercial activity.” Jd. at 358. The Court did not

conclude that the second clause cannot apply in cases in which a

suit is based upon a commercial act in the United States performed

in connection with commercial activity abroad; it focused instead

on the relationship between public and private acts with respect to

the first clause. See id. at 358 n.4, 359-63.

8 See, e.g., United Indus., Inc. v. Simon-Hartley, Ltd., 91

F.3d 762, 765 n.6 (Sth Cir. 1996).

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created by the first or the second clause of the commercial

activity exception. Petrobras’s remaining arguments regarding

the district court’s application of the second clause to Strata’s

fraud claims are meritless.

Petrobras also argues that the district court erred by

applying the third clause of the commercial activity exception,

which requires an action be based upon commercial activity

abroad that has a direct effect on the United States, to Strata’s

contract claims. Recognizing that “a nontrivial effect in the

United States need only be an immediate consequence of the

foreign state’s activity to support jurisdiction under the third

clause,”” Petrobras contends that Strata’s losses were not an

immediate consequence of Petrobras’s activity, and, even if

they were, this court should recommend en_ banc

reconsideration of Voest-Alpine.

We decline to follow Petrobras’s suggestion. Strata’s

compiaint sufficiently alleges contract losses, in the form of

reliance, expectancy, and restitution damages, that occurred

as an immiediate consequence of Petrobras’s commercial

activity in Brazil. In particular, Strata complains that

Petrobras represented that it had agreed to abide by the terms

of the HOA when it had not, that Strata relied on Petrobras’s

representations and spent considerable sums and suffered

opportunity costs as a result of that reliance, and that Strata

performed valuable services which benefitted Petrobras and __

for which it has not been justly compensated.

* Voest-Alpine, 142 F.3d at 896.

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Fifth Circuit Opinion - 4/28/03

Strata has alleged that Petrobras targeted American

corporations as joint venture partners, actively solicited their

participation, and then requested that they perform extensive

evaluations of Brazilian properties knowing those evaluations

would be done with American resources. It was not merely

fortuitous that the plaintiffs were American companies; it was

part of Petrobras’s business plan.'® Accordingly, we conclude

that Petrobras’s representations of its intent to enter the HOA

and its acceptance of the ATA reports is conduct upon which

Strata’s claims are based and that some undetermined but

nontrivial amount of Strata’s losses followed as an immediate

consequence of such conduct.

We are mindful of the dangers of expanding the third

Clause of the commercial activity exception to include too

much. We are also mindful, however, of the Supreme Court’s

admonishment that we not read limitations into this clause that

are not expressed in the statute.'' The requirement that a

direct effect under the third clause be nontrivial sufficiently

limits the scope of foreign sovereign immunity, for it

precludes a few phone calls or letters from the United States

from constituting a direct effect.'? We need not determine here

when an effect is so small as to be trivial, as in this case Strata

allegedly spent thousands of dollars, as a result of

0 &. Byrd, 182 F.3d at 391 (concluding that where the

“appellants foresaw...the financial harms which occurred to

appellees,” the third clause abrogated sovereign immunity).

'! See Republic of Argentina v. Weltover, Inc., 504 U.S. 607,

618 (1992).

CO. Voest-Alpine, 142 F.3d at 896; Byrd, 182 F.3d at 390.

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representations made by Petrobras, pursuing a contract that

Petrobras ultimately breached. The district court properly

applied the third clause of the commercial activity exception

to the FSIA to Strata’s claims to determine that Petrobras was

not entitled to foreign sovereign immunity.

Personal Jui isdiction

We review determinations of personal jurisdiction de novo

if the facts upon which jurisdiction is based are not in

dispute.'’ Petrobras contends the district court erred because,

while it concedes minimum contacts with the United States

and Texas, the exercise of personal jurisdiction by Texas

courts over Petrobras does not comport with fair play and

substantial justice.

Once a plaintiff has established minimum contacts, the

burden shifts to the defendant to establish that the exercise

ofjurisdiotion is unfair.'* Petrobras has not met its burden in

that regard. As the district court determined, Petrobras’s

actions “demonstrate[d] its intent to benefit from this nation’s

legal and commercial climate.” Given Petrobras’s targeting

and soliciting of American joint venture partners in Texas and

California, Petrobras will not be unfairly burdened by

litigation in Texas. Although Petrobras endeavored to avoid

litigation in the United States, their efforts reveal that the

present action, or one like it, was foreseeable. In light of

'3 See Adams . Unione Mediterranea Di Sicurta, 220 F.3d

659, 667 (Sth Cir. 2000).

'* See Wien Air Alaska, Inc. v. Brandt, 195 F.3d 208, 215

(Sth Cir. 1999).

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these circumstances, the burden on Petrobras is no greater

than Strata’s interest in convenient and effective relief.

Moreover, Texas has an interest in resolving Strata’s

claims. When a party commits a tort in Texas, it is not unfair

or substantially unjust to make it answer for that tort in

Texas.'° Although Brazil has a strong interest in a dispute

involving its national oil company, that alone cannot render

the exercise of jurisdiction unfair else courts would never be

able to exercise personal jurisdiction over foreign sovereigns.

Thus, the exercise of personal jurisdiction over Petrobras by

Texas courts comports with traditional notions of fair play and

substantial justice.

Forum Selection Clause

Petrobras also contends that the district court erred by

declining to enforce the forum selection clause contained in

the MOU. We review determinations of the enforceablity or

scope of forum selection clauses de novo."* The district court

determined that Strata’s claims did not arise under the MOU,

and thus declined to dismiss the suit. The forum selection

clause, however, also applies to claims related to the MOU:

Any dispute, controversy or claim arising out of or

relating to this MOU or the breach, termination, or

IS See, e. g., Central Freight Lines, Inc. v. APA Transp.

Corp., 322 F.3d 376, 383-84 (Sth Cir. 2003); Guidry v. United

States Tobacco Co., 188 F.3d 619, 628-30 (5th Cir. 1999).

'© MacPhail v. Oceaneering Int’l, Inc., 302 F.3d 274, 278

(Sth Cir. 2002).

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invalidity hereof, which cannot be settled amicably

between the Parties shall be settled by arbitration to be

conducted in Rio de Janeiro in the Portuguese

language, in accordance with the rules of the United

Nations Commission on international trade law

(emphasis added).

Thus, if Strata’s causes of action relate to the MOU or the

ATA, we must reverse the district court and order that it

dismiss Strata’s suit on remand. We do not resolve whether

the claims arise out of the MOU or ATA because we find the

claims relate to those agreements.

Courts must presumptively enforce forum selection

clauses in international transactions out of concern for comity

and to promote international trade and commerce.” “An

agreement to arbitrate before a specified tribunal is, in effect,

a specialized kind of forum-selection clause that posits not

only the situs of suit but also the procedure to be used in

resolving the dispute.”!*

require a party to submit a dispute to arbitration only if the

) Because arbitration is a matter of contract, courts may

party has expressly agreed to do so.!° Strata concedes that the

'’ See Haynsworth v. Corporation, 121 F.3d 956, 962 (Sth

Cir. 1997) (citing M/S Bremen v. Zapata Off-Shore Co., 407 U.S.

1, 9 (1972)). .

'8 Scherk v. Alberto-Culver Co., 417 U.S. 506, 519 (1974).

'9 Personal Security & Safety Sys., Inc. v. Motorola, Inc. :

297 F.3d 388, 392 (5th Cir. 2002).

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MOU’s foreign arbitration clause is binding with respect to

disputes arising under or relating to the MOU, but argues that

its claims do not relate to the MOU or ATA and thus does not

fall within the scope of the clause.

We generally “resolve doubts concerning the scope of

coverage of an arbitration clause in favor of arbitration.”

The clause requiring arbitration in Brazil is undoubtedly a

“broad” arbitration clause that “embrace[s] all disputes

between the parties having a significant relationship to the

contract regardless of the label attached to the dispute.”

“[W]here the parties include a broad arbitration provision in

an agreement that is ‘essential’ to the overall transaction, we

will presume that they intended the clause to reach all aspects

of the transaction.” Accordingly, it is only necessary that

Strata’s claims “‘touch’ matters covered by [the MOU or

ATA] to be arbitrable.”

To determine whether Strata’s claims fall-within the scope

of the forum selection clause, we must explore the

relationships between the agreements at issue. The MOU

noted that Petrobras would be allowed to keep an undefined

20 Neal v. Hardee’s Food Sys., Inc., 918 F.2d 34, 37 (Sth

Cir. 1990).

21 Pennzoil Exploration & Prod. Co. v. Ramco Energy, 139

F.3d 1061, 1067 (Sth Cir. 1998).

22 Personal Security, 297 F.3d at 395.

3 Pennzoil, 139 F.3d at 1068 (quoting Mitsubishi Motors

Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S 614, 625 n.14

(1985)).

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number of areas for exploration and exploitation because

Brazilian oil and gas law was in a period of transition.

Petrobras agreed to disclose general information on these

possible joint ventures, and Strata agreed to maintain certain

confidentiality measures with regard to that information.

Although the MOU did not bind the parties to proceed to the

ATA, the contract provided that “Petrobras shall keep

contacts with Strata aiming at the execution of an [ATA].”

The ATA, in ram, provided that Petrobras would release

more detailed data regarding certain properties selected by

Strata under the MOU and Strata would prepare a report on

its technical and economical assessment of each such

property. The ATA “serve[d] the purpose of an addendum to

the MOU,” because the MOU’s confidentiality provisions

applied equally to the information Petrobras disclosed

pursuant to the ATA. Although the ATA was not intended to

give the parties rights or to act as an offer by Petrobras to

proceed to the execution of joint development agreements, the

ATA provided that “[i]f Strata has decided to [proceed]

further in the negotiations with Petrobras,... the parties shall

discuss a timetable for negotiation of the economical, legal,

and operational terms of the [joint venture agreements] within

a reasonable time.”

One such joint venture agreement, the HOA, defined the

fights and obligations of the parties with respect to operations

under a yet-to-be negotiated Operating Agreement. Strata

agreed to make certain minimum capital expenditures and to

carry out its Minimum Work Program set forth in its ATA

report. Petrobras agreed to accept 100% of Strata’s

production under the Operating Agreement and to pay Strata

in the form of a Production Reward. The HOA provided that

ee

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it was not a binding agreement” and that the parties could

withdraw “for any reason without any claim against any other

party.” However, the HOA also provided that the parties

“shall meet to negotiate the Operating Agreemen‘ ~

We think the MOU, ATA, and HOA are sufficiently

interrelated to require us to apply the MOU’s forum selection

clause to each of Strata’s causes of action. As in Pennzoil,

“[t]he dispute flows from a series of interrelated agreements,

all of which center around the overriding goal of acquiring

[oil and gas] development rights [in Brazil].”** Additionally,

the terms of the agreements demonstrate their

interrelationship; each contract contemplates that the parties

will negotiate future contracts. Although the agreements at

issue here were not executed contemporaneously, each was

aimed at creating a joint venture to explore oil and gas

properties in Brazil and each was an essential part of the

transaction. The HOA binds Strata to perform the Minimum

Work Program set forth in its ATA proposal, and the ATA

expressly incorporates the terms of the MOU. Accordingly,

Strata’s claims that Petrobras wrongly prevented it from

enforcing its fights under the HOA, through fraud or through

breach of contract, relate to the MOU and ATA.

In the alternative, Strata argues that even if its claims

under the HOA relate to the MOU and ATA, the ATA

incorporated the 12-month term provision of the MOU, and

thus both the MOU and the ATA expired prior to the alleged

breaches and misrepresentations identified in Strata’s

complaint. Strata notes that the MOU contains a survivability

44 _ 139 F.3d at 1068.

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clause for the confidentiality provisions, extending the term

of the contract with respect to those provisions to two years.

Thus, Strata contends that this court should refuse to enforce

the forum selection clause on the ground that it has expired by

applying the principle that to express one thing is to exclude

others.”

This circuit has not addressed the precise question of

whether dispute resolution provisions within a contract

survive the termination or expiration of that contract. Absent

an expression of contrary intent, broad arbitration clauses—if

they are to mean what they say—must survive the expiration

of the contract because such clauses are intended to reach all

aspects of the parties’ relationship, including post-contractual

disputes.”° Courts must enforce arbitration clauses unless it

can be said “with positive assurance that an arbitration clause

is not susceptible of an interpretation which would cover the

dispute[s] at issue.”?’? When a clause purports to cover all

disputes relating to the contract, that clause covers all disputes

relating to the contract regardless of when that dispute arises.

Were we to hold otherwise, we would be reading a temporal

*5 Strata would have a better argument if the survivability

clause were contained in the term provisions of the MOU. The

survivability clause, however, is contained within the

confidentiality provisions of the contract. Thus, it is not surprising

that the clause addresses the survivability of the confidentiality

provisions and not the dispute resolution provisions.

2° See Personal Security, 297 F.3d at 394.

7 See Neal, 918 F.2d at 37 (citations and quotation marks

omitted).

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requirement into the clause that its plain language cannot

support.

Strata urges us to remand to allow it to conduct additional

discovery and asks this court to disregard evidence filed with

Petrobras’s objections to the magistrate’s Memorandum and

Recommendation. Strata complains that Petrobras did not

obtain any leave of court to file new evidence pursuant to

Federal Rule of Civil Procedure 72(b) and Z8 U.S.C. §

636(b)(1) when it filed its objections. Even if those provisions

somehow limited Petrobras’s right to offer new evidence or

the district court’s discretion to consider it, none of the

evidence offered by Petrobras is relevant to our interpretation

of the forum selection clause. Similarly, as the outcome of

this appeal depends entirely on the interpretation of

unambiguous contract language, granting Strata additional

discovery would not inform the construction of the forum

selection clause and is therefore unnecessary.

As the forum selection clause obliges us to order that the

case be remanded and dismissed, we do not address whether

the district court erred by declining to dismiss for forum non

conveniens.

Conclusion

Petrobras is not entitled to foreign sovereign immunity

because Strata’s claims fall within the commercial activity

exception to foreign sovereign immunity expressed in 28

U.S.C. § 1605(a)(2). Strata’s fraud and misrepresentation

claims are based either upon a commercial act in the United

States or a noncommercial act in the United States, and thus

Fifth Circuit Opinion - 4/28/03

fall within either the first or second clause of the commercial

activity exception. We do not decide whether fraud and

similar business torts are commercial or noncommercial acts.

We note, however, that under this court’s current construction

of the second clause of § 1605(a)(2), which requires a suit to

be based upon noncommercial activity, the clause has little if

any content, particularly if tortious activities driven by a

profit motive are considered commercial.”8

Nor is Petrobras entitled to immunity from Strata’s

contract claims. Strata allegedly suffered nontdvial losses in

the United States as an immediate consequence of Petrobras’s

breaches of contract in Brazil. Petrobras’ s argument that it is

immune from suit hinges on its characterization of Strata’s

damages as unilateral expenditures. Nothing in the statute,

however, precludes application of the third clause to losses in

the form of expended capital.” In such cases, so long as the

expenditures are nontrivial and their loss is an immediate

consequence of the foreign sovereign’s conduct, sovereign

immunity is abrogated by the third clause of the commercial

activity exception. Additionally, the district court’s exercise

of personal jurisdiction over Petrobras comports with

traditional notions of fair play and substantial justice.

8 The Supreme Court has stated that the existence of a profit

motive should not determine whether conduct is commercial,

because the FSIA requires courts to look to the nature and not the

purpose of the conduct. See Weltover, 504 U.S. at 614.

i Accordingly, Petrobras’s attempts to distinguish Voest-

Alpine on the ground that Petrobras did not fail to fulfill an

obligation to pay Strata are unpersuasive.

2ia

OO

Fifth Circuit Opinion - 4/28/03

The district court erred, however, by failing to enforce the

broad forum selection clause contained in the MOU requiring

all disputed related to that document to be arbitrated in Brazil.

In light of the interrelationship of the MOU, ATA, and HOA,

we cannot say that Strata’s claims under the HOA do not

relate to the MOU or ATA. Accordingly, we vacate the order

of the district court and remand the case with orders that the

cause be dismissed.

VACATED and REMANDED.

22a

APPENDIX C

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

CIVIL ACTION NO. H-00-3052

[Filed March 20, 2002]

STRATA HEIGHTS INTERNATIONAL

CORPORATION; STRATA ENERGY

RESOURCES CORPORATION; HEIGHTS

ENERGY CORPORATION

Plaintiffs,

V.

PETROLEO BRASILEIRO S.A.- Petrobras,

Defendant.

ee OO eee owe owe Ss GS

ORDER

Before the Court is Magistrate Judge Nancy K. Johnson’s

Memorandum and Recommendation entered J anuary 21, 2002

(Dkt. #34). Timely objections to the M&R were filed by

Defendant Petroleo Brasileiro S.A. - Petrobras (Dkt. #35).

After considering the M&R, the objections, the entire record,

and the applicable law, the Court ADOPTS the M&R.

23a

Signed this 19th day of March, 2002.

/s/

JOHN D. RAINEY

UNITED STATES DISTRICT JUDGE

24a

UNITED STATES DISTRICT CQURT

SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

CIVIL ACTION NO. H-00-3052

[Filed March 28, 2002]

STRATA HEIGHTS INTERNATIONAL

CORPORATION, STRATA ENERGY

RESOURCES CORPORATION, and HEIGHTS

ENERGY CORPORATION

Plaintiffs,

V.

PFTROLEO BRASILEIRO S.A.- Petrobras,

Defendant.

ee ee ae wee

ORDER

Pending before the Court is Defendant Petroleo Brasileiro

S.A. - Petrobras’s (“Petrobras”) Motion for Oral Hearing,

Motion to Reconsider, and Motion for Certification for

Interlocutory Appeal (Dkt. #42). On March 20, 2002 the

Court issued an order adopting Magistrate Judge Nancy K.

Johnson’s Memorandum & Recommendation (“M&R”)

denying Petrobras’s motions to dismiss this case on Foreign

Sovereign Immunities Act (“FSIA”), lack of personal

jurisdiction, improper venue, and forum non conveniens

grounds. Although the Court agrees with Petrobras that this

case presents a number of close legal issues, the Court

25a

believes that Judge Johnson’s excellent M&R is correct.

Therefore, Petrobras’s Motion to Reconsider is DENIED.

The Court will hold a telephone conference to address the

other issues raised in the pending motion on April 3, 2002 at

5:30 P.M.

It is so ORDERED.

Signed this 27th day of March, 2002.

/s/

JOHN D. RAINEY

UNITED STATES DISTRICT JUDGE

26a

CAD ALE CALE DEEL TATE

BN ae ee ee

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

CIVIL ACTION NO. H-00-3052

[Filed May 16, 2002]

STRATA HEIGHTS INTERNATIONAL

CORPORATION; STRATA ENERGY

RESOURCES CORPORATION; and HEIGHTS

ENERGY CORPORATION,

Plaintiffs,

V.

PETROLEO BRASILEIRO S.A.- Petrobras,

Defendant.

a ae ae a ae ae ae a a a a

ORDER

Pending before the Court is Defendant Petroleo Brasileiro

S.A.- Petrobras’s (“Petrobras”) Second Motion to Reconsider

(Dkt. #45). After considering the parties’ arguments and the

applicable law, the Court is of the opinion that the pending

motion should be denied. On March 20, 2002 the Court

issued an order adopting Magistrate Judge Nancy K.

Johnson’s Memorandum & Recommendation (“M&R”)

denying Petrobras’s motions to dismiss this case on Foreign

Sovereign Immunities Act (“FSIA”), lack of personal

jurisdiction, improper venue, and forum aon conveniens

grounds. On March 27, 2002 the Court issued an order

27a

District Court Order - 5/16/02

denying Petrobras’s first motion to reconsider the order

adopting the M&R. In its second motion to reconsider,

Petrobras argues that a review of the evidence it submitted

with its objections to the M&R warrants dismissal of Strata

Heights International Corporation et al.’s (collectively “Strata

Heights”) claims. The Court has once again carefully

reviewed the evidence submitted by both parties but must still

concur with Judge Johnson’s M&R.

In support of its forum non conveniens argument

Petrobras relies on the affidavit of Rui Berford Dias which

indicates that many important witnesses and numerous

documents relevant to this case are located in Brazil. Some of

these witnesses may not be subject to compulsory process in

the United States' and many of the documents are in Portugese

and will need to be translated if this case is to be tried in the

United States. Petrobras also argues that it will have to obtain

experts on Brazilian law to sustain its defense to SHIC’s

claims. While these claims may be true, these facts do not

warrant a dismissal of this case on forum non conveniens

grounds. Strata Heights has made assertions that mirror those

of Petrobras. Many of the witnesses in this case live and work

in the United States. Many vital documents are located in the

United States and are written in English. Finally, Strata

Heights has asserted as many claims under American law as

! The Court notes, however, that several of these witnesses

are Brazilian government officials. Because Petrobras is itself an

arm of the Brazilian government, these witnesses are presumably

sympathetic to Petrobras’s cause and would seem to have every

reason to assist Petrobras in its defense. It is unclear why these

witnesses would be unwilling to voluntarily appear in an American

court.

28a

District Court Order - 5/16/02

it has under Brazilian law. Only in rare circumstances should

a case be dismissed on forum non eonveniens grounds simply

to shift the burden and inconvenience of litigating in a foreign

forum from the defendant to the plaintiff. Petrobras has failed

to overcome the heavy presumption favoring a domestic

plaintiffs choice of forum. See Piper Aircraft v. Reyno, 454

U.S. 235, 255 (1981).

Petrobras also argues that the Dias’s affidavit supports its

contention that if Petrobras and Strata Heights had entered

into a final agreement, Petrobras would have insisted on a

Brazilian forum selection clause. While it is true that courts

will vigorously enforce forum selection clauses in

international transactions, Haynsworth v. The Corp., 121 F.3d

956, 962 (Sth Cir. 1997), courts do not enforce hypothetical

agreements or conjecture as to the terms of bargains that were

never made.

Finally, Petrobras argues that it is entitled to FSIA

immunity on Strata Heights’s fraud claim because in his

affidavit Jose Coutinho Barbosa, a Petrobras employee, denies

making the fraudulent statements attributed to him by

Raymond A. Diaz, the managing director of Strata Heights

International Coiporation. In its response to Petrobras’s

motion to dismiss Strata Heights included Diaz’s affidavit

which contains a detailed account of a conversation in which

he alleges that Barbosa made several fraudulent statements to

him. A defendant may not evade the jurisdiction of the

American courts simply by offering his own uncorroborated

claim that the alleged tort never occurred when the plaintiff

has offered competent evidence supporting his allegations. See

Byrd v. Corporacion Forestal, 182 F.3d 380, 388 (5th Cir.

1999) (holding that once a defendant has established a prima

29a

i i

District Court Order - 5/16/02

facie case that it is a foreign sovereign under the FSIA” the

burden of production shifts to the [plaintiff]... to raise the

exceptions and prove that they apply in this case”).

For the foregoing reasons, Petrobras’s Second Motion to

Reconsider is DENIED.

It is so ORDERED.

Signed this 16th day of May, 2002.

/s/

JOHN D. RAINEY

UNITED STATES DISTRICT JUDGE

30a

APPENDIX D

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

CIVIL ACTION NO. H-00-3052

[Filed January 21, 2002]

STRATA HEIGHTS INTERNATIONAL

CORPORATION, STRATA ENERGY

RESOURCES CORPORATION, and HEIGHTS

ENERGY CORPORATION,

Plaintiffs,

V.

| PETROLEO BRASILEIRO S.A.- Petrobras,

Defendant.

a _ aa a a a ae ae

MEMORANDUM AND RECOMMENDATION

Pending before the court' are: 1) Defendant’s Motion to

Dismiss; 2) Motion to Dismiss filed by Petrobras America,

: Inc, (“Petrobras America”); 3) Plaintiffs’ Motion for Limited

' This case was referred to the undersigned magistrate judge

pursuant to 28 U.S.C. § 636 (b) (1) (A) & (B), the Cost and Delay

Reduction Plan under the Civil Justice Reform Act, and Fed. R.

Civ. P. 72. Docket Entry No. 10.

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District Court Memorandum and Recommendation -

1/21/02

Jurisdictional Discovery; and 4) Defendant’s Motion to Strike

Affidavit of Raymond A. Diaz. The court has considered the

motions, all relevant filings, and the applicable law. For

reasons set forth below, the court RECOMMENDS that

Defendant’s Motion to Dismiss (Docket Entry No. 20) be

DENIED and that Petrobras America’s Motion to Dismiss

(Docket Entry No. 7) be DENIED as MOOT. Based on the

decision contained within this Memorandum, Plaintiff's

Motion for Limited Jurisdictional Discovery (Docket Entry

No. 22) is unnecessary and, therefore, is DENIED as MOOT.

As the court’s decision does not hinge on any incompetent

testimony contained within the Affidavit of Raymond A. Diaz,

Defendant’s Motion to Strike Affidavit of Raymond A. Diaz

(Docket Entry No. 24) is DENIED.

I. CASE BACKGROUND”

Plaintiffs brought suit against Defendant for breach of

contract, promissory estoppel, quantum meruit, fraud and

misrepresentation pursuant to Texas common law, as well as

what appear to be similar contract, quasi-contract, and tort

actions under Brazilian statutory and constitutional law.

Plaintiffs and Defendant first made contact at an Offshore

Technology Conference (“OTC”) held in Houston. According

to Plaintiffs, Defendant sought partners for the development

of its oil and gas fields in Brazil. At the 1996 OTC, Joel

Mendes Renno, Defendant’s president, spoke about these

partnership opportunities. Based on the conference

2 Facts as stated in Plaintiffs’ First Amended Original —

Complaint (“Amended Complaint”), Docket Entry No. 15.

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District Court Memorandum and Recommendation -

1/21/02

solicitations and one phone conversation with a representative

from Petrobras America, Plaintiffs opted to enter negotiations

with Defendant to jointly develop certain oil and gas fields in

Brazil.

Plaintiffs advised Defendant that in order to invest in

Brazil, they required a combination of exploration and

production projects. Plaintiffs signed a Memo of

Understanding (“MOU”) governing issues of confidentiality,

and Defendant provided a description of the projects available

for joint development. Defendant initially offered Plaintiffs

development and exploration projects and promised that

rejuvenation field opportunities would follow. Plaintiffs

selected two projects, BES-I in Espirito Santo and BSF-I in

Sao Francisco, for technical review. Defendant confirmed

the availability of Plaintiffs’ selected projects. Plaintiffs

executed an Agreement on Technical Assistance (“ATA”) and

paid Defendant $20,000 in U.S. currency for technical data on

the projects.

Plaintiffs submitted to Defendant the results obtained from

their field inspections and technical data evaluations of the

project sites. In addition to Plaintiffs’ work proposal and

projected investment in the two projects, the technical

evaluation included seismic and salt dome analysis. After

accepting Plaintiffs’ final ATAs and proposals for both

projects, Defendant abandoned the BES-I project in Espirito

Santo. Without consulting with Plaintiffs, Defendant assigned

the project to Agencia Nacional de Petrolio (“ANP”), the

Brazilian regulatory agency. Plaintiffs requested that

Defendant replace the loss of the BES-I project with another_

producing property.

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District Court Memorandum and Recommendation -

1/21/02

In March 1998, Defendant offered Plaintiffs multiple

rejuvenation projects to replace the abandoned BES-I. The

parties also agreed on the terms and conditions of the

partnership and operating agreements for the development of

the BSF-I project. Plaintiffs inspected and evaluated the new

locations and submitted technical proposals. At this point, the

parties negotiated terms and conditions of the rejuvenation

projects’ Technical Assistance Contract (“TAC”), a

production-sharing agreement comprised of a Heads of

Agreement, an Operating Agreement, accounting provisions,

and other documents. The parties agreed that Defendant

would draft the agreements necessary for the TAC. By May,

the parties had reached agreement as to all the material terms

for the development of the BSF-I in Sao Francisco. Then,

Defendant advised Plaintiffs that it had surrendered the BSF-I

project to the ANP.

When the parties met again in Rio de Janeiro in August

1999 to complete negotiations on the Operating Agreement for

the rejuvenation projects, the parties reduced to final written

form all the terms and conditions of the Heads of Agreement,

the Cperating Agreement, and the accounting provisions.

Only Plaintiff Strata Heights International (“SHI”) signed the

Heads of Agreement. Plaintiff SHI was assured that

Defendant’s Board of Directors had approved the agreement.

Later, Defendant advised Plaintiff SHI that its Board of

Directors decided to sell the properties outright, rather than

enter into a production agreement with Plaintiffs.

In lieu of entering into the production agreement,

Defendant offered to sell to Plaintiff SHI sixteen producing

fields and one exploration block on a preferred basis,

34a ‘

District Court Memorandum and Recommendation -

1/21/02

essentially giving Plaintiff SHI a right of first refusal.

Defendant provided Plaintiffs with maps and technical data on

these properties. Defendant also represented to Plaintiff SHI

that both Jose Coutinho Barbosa (“Coutinho Barbosa”),

Defendant’s director of exploration and production, and

Carlos Alberto Pereira de Oliveira, Defendant’s

superintendent, approved of the preferential privately

negotiated sale to Plaintiff SHI. Later, while in Houston,

Coutinho Barbosa represented to Raymond Diaz (“Diaz”),

Plaintiff SERC’s president, that the sale of the oil fields on a

preferred, private basis was legal under Brazilian law.

Coutinho Barbosa also indicated that he had approved the

proposed sale. Plaintiff SHI thereafter asked Defendant for

written confirmation of the properties and preferences

Defendant had offered Plaintiffs. In response, Defendant sent

Plaintiff SHI a unsigned draft of a confirmation letter, but

never forwarded a signed version.

On March 13, 2000, Defendant advised Plaintiff SHI that,

under Brazilian law, the properties must be sold through a

public auction. Defendant, however, allowed that Defendant

would grant Plaintiff SHI some type of a competitive

advantage in the bidding process. Defendant ultimately denied

Plaintiffs any preference and, in fact, ceased all negotiations

with Plaintiffs, explaining that Brazilian law prohibited

Defendant from selling assets directly to private parties.

On May 18, 2000, Plaintiff SHI sent a letter to Defendant

suggesting that they resume the partnership originally

contemplated, but Defendant did not respond. Plaintiffs also

learned that Defendant published a public notice inviting bids

for the sale of certain marginal fields, including those

35a

District Court Memorandum and Recommendation -

1/21/02

previously offered to Plaintiffs. On July 20, 2000, Plaintiff

SHI sent another letter to Defendant proposing that the

negotiated fields be excluded from the public bidding process

and the parties move forward with their original plans.

Plaintiff SHI gave Defendant ten days to respond, but

Defendant failed to do so.

On September 1, 2000, Plaintiffs filed their Original

Complaint before this court.’ Plaintiffs served Idelso Piazza

of Petrobras America in Houston, as agent for Defendant.‘

Petrobras America filed a Motion to Dismiss for insufficiency

of process and for failure to state a claim upon which relief

could be granted.* Subsequently, Plaintiffs served Defendant

in Houston through Coutinho Barbosa.° Defendant filed its

motion to dismiss’ after Plaintiffs amended their complaint

with leave of court.®

As the court understands Plaintiffs’ First Amended

Complaint, Plaintiffs’ claims can be divided into three broad

categories. First, they allege that Defendant’s failure to

comply with the agreements to jointly develop the BSF-I and

> Docket Entry No. 1.

* Summons, Docket Entry No. 6.

> Docket Entry No. 7.

© Summons, Docket Entry No. 17.

7 Docket Entry No. 20.

8 Docket Entry Nos. 15, 19.

36a

District Court Memorandum and Recommendation -

1/21/02

the rejuvenation projects amounted to breaches of contract

actionable under U.S. and Brazilian laws. Second, they claim

that equity, pursuant to quasi-contract legal theories and

Brazilian statutory law, requires that they be awarded

damages as restitution for their work in reliance on

Defendant’s promises and as compensation for Defendant’s

unjust enrichment. Third, Plaintiffs claim that Defendant’s

misrepresentations as to its intention to execute the TAC and

as to the legality of its offers to grant Plaintiffs an exclusive

right of first refusal are violations of Texas common law and

Brazilian statutory and constitutional law.

Il. DEFENDANT’S MOTION TO DISMISS

On April 2, 2001, Defendant filed this motion asking the

court to dismiss Plaintiffs’ Amended Complaint for lack of

subject matter jurisdiction, lack of personal jurisdiction, lack

of venue, and forum non conveniens. At this juncture,

Defendant does not challenge the sufficiency of Plaintiffs’

complaint with regard to the merits of their enumerated causes

of action.

A. SUBJECT MATTER JURISDICTION

The Foreign Sovereign Immunities Act (“FSIA”) provides

the “sole basis for obtaining jurisdiction over a foreign state

in the courts of this country.” Saudi Arabia v. Nelson, 507

U.S. 349, 355 (1993) (quoting Argentine Republic v. Amerada

Hess Shipping Corp., 488 U.S. 428, 443 (1989)); see also 28

U.S.C. § 1330(a). Under the FSIA, “foreign states” receive

presumptive grants of immunity from the jurisdiction of U.S.

courts unless one of the exceptions defined in the FSIA

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District Court Memorandum and Recommendation -

1/21/02

applies. 28 U.S.C. § 1604; Nelson, 507 U.S. at 355; Byrd v.

Corporacion Forestal y Industrial de Olanchos S.A. , 182 F.3d

380, 388 (Sth Cir. 1999).

To properly invoke immunity under the FSIA, a defendant

has the initial burden of making a prima facie showing that it

is a foreign state as defined under the FSIA. Byrd, 182 F.3d

at 388; Stena Rederi AB v. Comision de Contratos del Comite

Ejecutivo General del Sindicato Revolucionario de

Trabajadore Petroleros de la Republica Mexicana, 923 F.2d

380, 390 n.14 (Sth Cir. 1991). This shifts the burden of proof

to the plaintiff to raise one of the exceptions to sovereign

immunity set forth in the FSIA and to assert some facts that

will establish the exception. Byrd, 182 F.3d at 388; Pere v.

Nuovo Pignone, Inc., 150 F.3d 477, 481 (Sth Cir. 1998),

cert. denied, 525 U.S. 1141 (1999); Stena Rederi AB, 923

F.2d at 389-90. If the plaintiff successfuliy invokes an

exception under the FSIA, the court will have subject matter

jurisdiction over the claim against the foreign state defendant.

Verlinden B.V.v. Cent. Bank of Nig., 461 U.S. 480, 488-489

(1983). The defendant has the final burden of persuasion and,

therefore, ultimately must prove the non-applicability of the

exception raised by the plaintiff. Pere, 150 F.3d at 481;

Voest-Alpine Trading USA Corp v. Bank of China, 142 F.3d

887, 896 (1998), cert denied, 525 U.S. 1041 (1998). Whether

the court has subject matter jurisdiction under the FSIA is a

question of law. Stena Rederi AB, 923 F.2d at 386.

Defendant asks this court to dismiss Plaintiffs’ Amended

Complaint on the basis that Defendant is an agency or

instrumentality of a foreign state entitled to immunity under

the FSIA. Plaintiffs, on the other hand, argue that Defendant

38a

District Court Memorandum and Recommendation -

1/21/62

has not carried its burden of showing it is a foreign state

under the FSIA; and, even if it is a foreign state, Defendant

engaged in activity that falls under the “commercial activity”

exception of the FSIA.

1. Agency or Instrumentality of a Foreign State

To determine whether Defendant is entitled to the benefits

of the FSIA, the court must first resolve whether Defendant

carried its burden of showing that it is a “foreign state” as

defined by the FSIA. Byrd, 182 F.3d at 388. Section 1603 of

the FSIA defines a “foreign state” to include “a political

subdivision of a foreign state or an agency or instrumentality

of a foreign state.” 28 U.S.C. § 1603(a). An “agency or

instrumentality of a foreign state” is further defined as an

entity:

(1) which is a separate legal person, . . . and

(2) which is an organ of a foreign state or political

subdivision thereof, or a majority of whose shares or

other ownership interest is owned by a foreign state or

political subdivision thereof, and

(3) which is neither a citizen of a State of the United

States . . . nor created under the laws of any third

country. 28 U.S.C. §§ 1603(b).

In support of its assertion of immunity, Defendant argues

that it is an “agency or instrumentality” as defined by the

FSIA because it is the majority-owned national oil company

of the Republic of Brazil. Plaintiffs claim Defendant must

Show that Brazil owns a majority of all stock, not simply

voting stock, in order to establish that it is an agency of the

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District Court Memorandum and Recommendation -

1/21/02

foreign state. In response, Defendant submitted the

declaration of Rui Berford Dias, an attorney licensed to

practice in Brazil, who is employed by Defendant.’ In

pertinent part, the declaration states that by government

decree, Defendant was established as the state-owned oil

company under Brazilian law.'° The declaration also sets forth

that the federal government of Brazil owns the majority of the

shares of voting capital and that throughout Defendant’s

history, it has been controlled by the Brazilian government."

In a previous case, the Fifth Circuit recognized that

Defendant is a foreign sovereign entitled to the benefits of the

FSIA. Atwood Turnkey Drilling, Inc. v. Petroleo Brasileiro,

S.A., 875 F.2d 1174, 1176 (Sth Cir. 1989), cert. denied, 493

U.S. 1075 (1990). Plaintiffs argue that circumstances have

changed since that ruling. However, this court finds that

Defendant has asserted sufficient facts to satisfy its prima

facie burden of showing that it is an agency or instrumentality

of the Republic of Brazil. Defendant, therefore, is entitled to

sovereign immunity unless one of the FSIA’s exceptions

applies.

° Defendant’s Reply Brief in Further Support of its Motion to

Dismiss (“Defendant’s Reply”), Docket Entry No. 23, Ex. C,

Declaration of Rui Berford Dias.

” -

MN Yd.

District Court Memorandum and Recommendation -

1/21/02

2. Commercial Activity Exception

The FSIA sets forth eight exceptions to the presumptive

grant of sovereign immunity. 28 U.S.C. § 1605. Plaintiffs

assert that the commercial activity exception applies in this

case to strip Defendant of immunity. The commercial activity

exception states:

(a) A foreign state shall not be immune from the

jurisdiction of courts of the United States or of the

States in any case-

(2) in which the action is based upon a commercial

activity carried on in the United States by the foreign

State; or upon an act performed in the United States in

connection with a commercial activity of the foreign

State elsewhere; or upon an act outside the territory of

the United States in connection with a commercial

activity of the foreign state elsewhere and that act

causes a direct effect in the United States.

28 U.S.C. § 1605(a) (2).

Even a cursory review of this section reveals three basic

requirements for its application: 1) the foreign state’s relevant

activity must be commercial’? in nature, rather than sovereign;

2 The FSIA defines “commercial activity” as “either a

regular course of commercial conduct or a particular commercial

transaction or act. The commercial character of an activity shall be

determined by reference to the nature of the course of conduct or

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District Court Memorandum and Recommendation -

: 1/21/02

2) the conduct underlying Plaintiffs’ causes of action must be

connected with that commercial activity; and 3) the

commercial activity must have a jurisdictional nexus to the

United States. See Soudavar v. Islamic Republic of Iran, 186

F.3d 671, 673 (Sth Cir. 1999), cert. denied, 528 U.S. 1157

(2000)(citing de Sanchez v. Banco Central de Nicar., 770

F.2d 1385, 13.91 (Sth Cir. 1985)); Voest-Alpine Trading USA

Corp., 142 F.3d at 892. In this case, it is undisputed that the

proposed development of Defendant’s oil and gas fields was

commercial in nature. Defendant contends that Plaintiffs fail

to establish the required jurisdictional nexus between

Defendant’s conduct and the United States. Plaintiffs assert

that the second and third clauses of 28 U.S.C. § 1605 (a) (2)

support subject matter jurisdiction over Defendant.”

Regarding the second clause, Plaintiffs’ cause of action

must “be based upon (1) an act in the United States (2) in

particular transaction or act, rather than by reference to its

purpose.” 28 U.S.C. § 1603(d). This definition is of limited

assistance in analyzing the facts of particular cases because it fails

specifically to define “commercial.” See Nelson, 507 U.S. at 359;

Republic of Argentine v. Weltover, 504 U.S. 607, 612 (1992). So,

the United States Supreme Court clarified that a foreign state

engages in commercial activity when it participates in the market

as would a private player. Nelson, 507 U.S. at 360; Weltover, 504

U.S. at 614. Defendant does not dispute the commercial nature of

its interactions with Plaintiffs.

'3 Ina recent filing, Plaintiffs assert that the first clause of the

commercial activity exception also applies. See Rule 72 Objections

to Magistrate’s Order and Recommendation, Docket Entry No. 29.

The court does not consider this untimely argument.

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District Court Memorandum and Recommendation -

1/21/02

connection with commercial activity outside the United

States.” Voest-Alpine Trading USA Corp., 142 F.3d at 895.

Plaintiffs allege that Coutinho Barbosa, while in Houston,

falsely represented to Diaz that the proposed private sale of

seventeen properties in Brazil was legal under Brazilian law. "4

Plaintiffs contend that this act and their reliance on it form the

basis for their claims of fraud and misrepresentation under the

laws of Texas and Brazil. Because Coutinho Barbosa made the

remarks to Diaz in connection with Defendant’s development

of its oil and gas fields, Plaintiffs contend that the second

required element of this clause is also met.

Defendant does not argue that the conversation did not

take place or that Coutinho Barbosa did not say the things

attributed to him. Rather, Defendant argues that “this single

Statement cannot form the basis for a lawsuit, much less the

basis for which to hale a foreign sovereign into a United

States court.”’° Defendant characterizes this conversation as

an isolated encounter amid extensive negotiations, most of

which took place in Brazil. Therefore, according to

Defendant, this one act in the United States is insufficient to

overcome sovereign immunity. The court disagrees with

Defendant’s analysis.

Defendant misplaces emphasis on a comparison of the

many events which occurred in Brazil with the one event

4 Plaintiffs’ Response to Defendant’s Motion to Dismiss

(“Plaintiffs’ Response”), Docket Entry No. 22, Affidavit of

Raymond Diaz.

'° Defendant’s Reply, Docket Entry No. 23.

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Plaintiffs allege occurred in the United States. “Isolated,” as

the term is employed in this context by Fifth Circuit case law,

refers to the requirement that a material connection exist

between the cause of action and the foreign sovereign’s

commercial activity. See Arriba Ltd. v. Petroleos Mexicanos,

962 F.2d 528, 533 (Sth Cir. 1992), cert. denied, 506 U.S.

956 (1992); Stena Rederi AB, 923 F.2d at 387.

In order to satisfy the commercial activities exception

to sovereign immunity, the commercial activity that

provides the jurisdictional nexus with the United

States must also be the activity on which the lawsuit is

based. . . . Isolated or unrelated commercial actions of

a foreign sovereign in the United States are

insufficient to support a commercial activities

exception to sovereign immunity.

Stena Rederi AB, 923 F.2d at 387. In that case, the defendant

conducted commercial activity in the United States, but that

activity did not form the basis of the plaintiff's causes of

action. /d.

Defendant here avers that the particular act in the United

States about which Plaintiffs complain does not meet the

commercial activity requirement for purposes of jurisdiction

under the first clause of 28 U.S.C. § 1605(a) (2). However,

Defendant wrongly concludes that the act therefore provides

an insufficient basis for finding a jurisdictional nexus with the

United States. It is important to reiterate that Plaintiffs are not

alleging, pursuant to the first clause of 28 U.S.C. § 1605(a)

(2), that Defendant’s commercial activity in the United States

underlies their fraud and misrepresentation causes of action;

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but, instead, pursuant to the second clause, Plaintiffs are

alleging that one specific act in the United States, which is

connected to commercial activity in Brazil, forms the basis for

some of their causes of action.

The Stena Rederi AB discussion of the second clause

leaves no doubt that the Fifth Circuit intended to allow the

words “an act performed in the United States” their plain

meaning. /d. at 388 (“Thus, the material connection required

by the commercial activities exception to sovereign immunity

must exist between the plaintiff's cause of action and the act

performed in the United States.”) (emphasis in original).

Although the Fifth Circuit in that case acknowledged a

material connection between that plaintiff’ s complaints and the

defendant’s commercial activity elsewhere, it found no

material connection between any of the acts that the defendant

performed in the United States and the plaintiff's breach of

contract cause of action. Id.; see also Soudavar, 186 F.3d at

674 (finding that jurisdiction was not proper because the

plaintiff's causes of action were not based on representations

made at a meeting in New York, the only act by the foreign

sovereign which occurred in the United States). It is in this

context that the Fifth Circuit explains that an “isolated event”

is insufficient to support the exercise of jurisdiction. Stena

Rederi AB, 923 F.2d at 388. Isolated, therefore, means

removed from the plaintiff’s cause of action.

Without a doubt Plaintiffs’ allegations against Coutinho

Barbosa, true or not, underlie their claims of fraud and

misrepresentation. See id. at 389 (stating that any false

representations made by the defendant’s representative during

a visit in the United States could provide “the very

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foundation” for the plaintiff's misrepresentation claim and

would support the exercise of jurisdiction as to that claim).

Furthermore, those alleged misrepresentations are connected

to Defendant’s oil and gas business in Brazil. Plaintiffs have

met their burden of offering some evidence to show that the

second clause of the commercial activity exception applies to

overcome sovereign immunity, at least with regard to their

fraud and misrepresentation causes of action under U.S. and

Brazilian law. Although other Defendant’s acts in the United

States are discussed in Defendant’s motion, Plaintiffs limit

their response, in connection with the second clause, to

Coutinho Barbosa’s representations. Plaintiffs offer no

argument or evidence that any act related to their contract and

quasi-contract causes of action occurred in the United States.

Accordingly, this court has jurisdiction, pursuant to the

second clause of the commercial activity exception, only over

Plaintiffs’ fraud and misrepresentation causes of action.

Under the third clause, Plaintiffs are required to show “(1)

an act outside the United States (2) in connection with

commercial activity outside the United States (3) that cause[d]

a direct effect in the United States.” Voest-Alpine Trading

USA Corp., 142 F.3d at 894. As evidence of a direct effect in _

the United States, Plaintiffs submit affidavit testimony and

business records purporting to show that Plaintiffs suffered

financial losses,'° including expenditures of money, time, and

16 Other than the $20,000 Plaintiff paid to Defendant in

exchange for technical data in connection with the ATA, Plaintiffs

claim they lost: 1) more than $200,000 in property evaluation

costs; 2) more than $850,000 in labor expenses; and 3) large sums

in travel, due diligence efforts, and other expenses. Plaintiffs’

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effort, as a result of Defendant’s alleged breaches of the TAC,

joint development agreements, and the agreed sale of

Brazilian oil and gas properties.'’ According to Plaintiffs, all

of which are U.S. corporations, Defendant’s acts in Brazil

were in connection with Defendant’s commercial activity of

developing its oil and gas fields, and those acts caused

Plaintiffs’ direct losses. Plaintiffs also claim that some of their

losses resulted from fraud perpetrated by Defendant in Brazil.

Defendant argues that Plaintiffs’ losses were due to their

own unilateral efforts in furtherance of a transaction they

eagerly sought. Such losses, Defendant contends, do not

amount to a “direct effect” under the third clause of 28

U.S.C. § 1605(a) (2). Beneath the surface of this argument,

no doubt, is Defendant’s challenge of the formation and/or

validity of the alleged separate contracts that Plaintiffs assert

Defendant breached. Regardless of whether Plaintiffs can

prove the existence of valid contracts or damages related to

those particular contracts, Plaintiffs have alleged facts in

support of their contract and quasi-contract causes of action.

They have alleged that they lost money either because

Defendant breached valid contracts or because benefits inured

to Defendant as a result of Plaintiffs’ services in a quasi-

contractual relationship. What the court considers here is

whether Plaintiffs have asserted facts to establish the existence

of a direct effect in the United States resulting from

Defendant’s acts outside the United States in connection with

its commercial activity elsewhere.

Response, Docket Entry No. 22, Affidavit of Raymond Diaz.

wae!

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Over the years, courts have struggled with the “direct

effect” element of this third clause. See Voest-Alpine Trading

USA Corp., 142 F.3d at 893. However, since 1992, the law

is Clear that “[A]n effect is direct if it follows as an immediate

consequence of the defendant’s activity.” Soudavar, 186 F.3d

at 674 (quoting Weltover, 504 U.S. at 618 (eliminating the

Fifth Circuit’s requirements that the effect be foreseeable and

substantial and, further, warning courts against adding any

other unexpressed requirements)). Based on_ these

modifications, the Fifth Circuit recently summarized, “a

financial loss incurred in the United States by an American

plaintiff, if it is an immediate consequence of the defendant’s

activity, constitutes a direct effect sufficient to support

jurisdiction under the third clause of the commercial activity

exception to the FSIA.” Voest-Alpine Trading USA Corp.,

142 F.3d at 897. In order to confer subject matter

jurisdiction, the plaintiff’s loss must be nontrivial. Byrd, 182

F.3d at 390.

In application of these principles, the Fifth Circuit found

that the breach of a contractual duty to defend a plaintiff

resulted in the direct effect that the plaintiff expended

considerable sums of money to defend itself. Walter Fuller

Aircraft Sales, Inc. v. Republic of Phil. , 965 F.2d 1375, 1387

(Sth Cir. 1992). Because the other elements of the direct

effect clause were met, the court found subject matter

jurisdiction to be proper. Jd. at 1389; see also Aldy on Behalf

of Aldy v. Valment Paper Mach., 74 F.3d 72, 75 (Sth Cir.

1996), cert. denied 519 U.S. 817 (finding subject matter

jurisdiction proper where the plaintiffs maintained that deaths

in the United States resulted from negligent design and/or

manufacture of products outside the United States); Voest-

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Alpine Trading USA Corp., 142 F.3d at 896 (finding a direct

effect in the United States where a foreign state failed to pay

on a letter of credit, payable at a Texas bank, to an American

corporation). Even in Stena Rederi AB, a pre-Weltover case,

the Fifth Circuit suggested that a financial loss to an U.S.

company would affect the United States and may support

jurisdiction under the commercial activity exception. Stena

Rederi AB, 923 F.2d at 390.

Here, Plaintiffs are U.S. corporations that assert

Significant financial losses as a result of Defendant’s breach

of contracts entered into in Brazil in connection with the

development of Defendant’s oil and gas properties. '® Plaintiffs

have submitted evidence in support of their assertion that

Defendant either entered into contracts with Plaintiffs

prompting Plaintiffs’ performance or unjustly benefitted from

Plaintiffs’ efforts.” Plaintiffs are far from proving their

claims, but they have shown, for purposes of jurisdiction, that

their losses were a direct effect of Defendant’s commercial

activity. Under Plaintiffs’ version of the facts, Plaintiffs

suffered losses as an immediate consequence of Defendant’s

promises and representations. Based on Plaintiffs’ allegations,

this court is left with no alternative but to find subject matter

'8 Defendant contends that Plaintiffs’ accounting of damages

includes losses prior to 1999, the year in which Plaintiffs represent

that their claims arose. Even if some of Plaintiffs’ alleged damages

were associated with the MOU and the ATA and, therefore, are not

part of the case, Plaintiffs’ damages still are more than trivial.

19 Plaintiffs’ Response, Docket Entry No. 22, Affidavit of

Raymond Diaz.

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jurisdiction, under the third clause of 28 U.S.C. § 1605(a)

(2), for Plaintiffs’ contract and quasi-contract causes of action

under U.S. and Brazilian law.

Although it is of no practical significance due to the

court’s findings with regard to the second clause of the

commercial activity exception, Plaintiffs fail to meet their

burden under the third clause with regard to their fraud and

misrepresentation claims. They simply do not assert specific

facts which demonstrate that Defendant’s fraudulent acts in

Brazil contributed to their financial losses.

Based on the above analysis, the court finds that the

commercial activity exception confers jurisdiction on this

court over all of Plaintiffs’ asserted causes of action.

B. PERSONAL JURISDICTION

Personal jurisdiction exists over a foreign state “as to

every claim for relief over which the district courts have

[subject matter] jurisdiction . . . where service has been made

under section 1608 of this title.” 28 U.S.C. S 1330(b); see

also In.re B-727 Aircraft Ser. No. 21010, 272 F.3d 264, 270

(Sth Cir. 2001); Kelly v. Syria Shell Petroleum Dev., 213

F.3d 841, 845-46 (Sth Cir. 2000), cert. denied, 531 U.S. 979

(2000); Amerada Hess Shipping Corp., 488 U.S. at 435 n.3.

The FSIA allows for service upon an agency or

instrumentality of a foreign state “by delivery of a copy of the

Summons and complaint either to an officer, a managing or

general agent, or to any other agent authorized by

appointment or by law to receive service of process in the

United States.” 28 U.S.C. § 1608(b) (2).

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Although not specifically required by the Statutory

scheme, the exercise of personal jurisdiction still must comply

with constitutional due process requirements, de Sanchez, 770

F.2d at 1390 n.4 (Sth Cir. 1985) (citing Tex. Trading &

Milling Corp. v. Fed. Republic of Nig., 647 F.2d 300, 308

(2d Cir. 1981), cert. denied, 454 U.S. 1148 (1982)): Callejo

v. Bancomer, S.A., 764 F.2d 1101, 1107 n.5 (Sth Cir. 1985)

(same). The due process clause allows personal jurisdiction

over nonresident defendants who have purposefully

established minimum contacts with the forum if the exercise

of jurisdiction “would not offend ‘traditional notions of fair

play and substantial justice.’” Bullion v. Gillespie, 895 F.2d

213, 216 (Sth Cir. 1990) (quoting Jnt’l Shoe Co. v. Wash.,

326 U.S. 310, 316 (1945) and Milliken v. Meyer, 311 U.S.

457, 463 (1940)).

In analyzing the contacts of a foreign sovereign served

under the FSIA, the court takes into consideration the contacts

of the defendant, through its agents, with the entire United

States.” Tex. Trading & Milling Corp., 647 F.2d at 314.

* Defendant urges the court to disregard the Tex. Trading &

Milling Corp. decision because it is not binding precedent and

because no Fifth Circuit case has held that nationwide contacts that

are to be considered. Defendant cites Kern v. Jeppesen Sanderson,

Inc., 867 F. Supp. 525, 534-36 (S.D. Tex. 1994), as holding that

the only relevant contacts for purposes of personal jurisdiction are

those with the forum state, not the nation as a whole. Defendant

misapplies the Kern case. In that case, the court found that one of

the defendants qualified as a foreign sovereign entitled to immunity

and that the plaintiffs failed to show that an exception within the

_FSIA applied. Jd. at 531. Therefore, the court did not have subject

matter jurisdiction with regard to claims against that defendant. Jd.

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Continuous and systematic contacts are grounds for the

exercise of personal jurisdiction for any cause of action

regardless of whether the claim arose from specific activity

within the forum. Bullion, 895 F.2d at 216. Furthermore,

personal jurisdiction may exist if the asserted cause of action

is related directly to the defendant’s contact with the forum.

Access Telecom, Inc. v. MCI Telecomms. Corp., 197 F.3d

694, 718 (5th Cir. 1999), cert. denied, 531 U.S. 917 (2000).

The key considerations for deciding whether personal

jurisdiction comports with the due process clause are: 1) the

extent to which the defendant availed itself of the privileges

of U.S. law; 2) “the extent to which litigation in the United

States [was] foreseeable;” 3) the inconvenience of litigation in

the United States; and 4) “the countervailing interest of the

United States in hearing the suit.” Tex. 7; rading & Milling

Corp., 647 F.2d at 314; see also Ruston Gas Turbines. Inc.

v. Donaldson Co., 9 F.3d 415, 421 (Sth Cir. 1993) (listing

the fairness issues as: “(1) the defendant’s burden; (2) the

forum state’s interests; (3) the plaintiff's interest in convenient

However, in the alternative, the court examined personal

jurisdiction as to that particular defendant. Jd. at 534. That is to

say, the court analyzed personal jurisdiction over that defendant as

if it were not a foreign state. Because the court did not analyze

personal jurisdiction pursuant to 28 U.S.C. § 1330(b), that decision

has no bearing on this case. Furthermore, although the Fifth Circuit

has not specifically adopted the national rule of minimum contacts

as articulated in Tex. 7; rading & Milling Corp., it has cited the case

favorably with regard to the personal jurisdiction analysis under the

FSIA. See de Sanchez, 770 F.2d at 1390 n.4; Callejo, 764 F.2d at

1107 n.5.

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and effective relief; (4) the judicial system’s interest in

efficient resolution of controversies; and (5) the state’s shared

interest in furthering fundamental social policies.”). Personal

jurisdiction must be established by the party seeking to invoke

the court’s jurisdiction. Allred v. Moore & Peterson, 117

F.3d 278, 28% (Sth Cir. 1997), cert. denied, 522 U.S. 1048

(1998). However, once a plaintiff establishes minimum

contacts, “the burden shifts to the defendant to show the

assertion of jurisdiction would be unfair.” Wein Air Alaska,

Inc. v. Brandt, 195 F.3d 208, 215 (5th Cir. 1999).

Defendant argues that no FSIA exception to immunity

applies and that the exercise of personal jurisdiction would

violate due process requirements. Specifically with regard to

due process considerations, Defendant argues that Plaintiffs

have not established that Defendant had sufficient contacts to

justify either general or specific jurisdiction and that the

burden on Defendant to defend an action in a U.S. court

would be great. Plaintiffs counter with evidence that

Defendant committed an action in the United States that

underlies its fraud causes of action and on several occasions

sent officers to the United States to solicit business.”!

7! Plaintiffs’ Response, Docket Entry No. 22, Affidavit of

Raymond Diaz. Although not competent evidence, Diaz stated that

he believes Defendant has maintained permanent offices in New

York for at least thirty years and regularly conducts business in the

United States, including entering contracts to sell oil to U.S.

corporations and to acquire refineries and pipeline systems in the

United States. Jd. The court recognizes that Defendant carries no

burden to prove that it does not have minimum contacts with the

United States. Even so, the court finds it interesting that Defendant

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Plaintiffs also assert that Petrobras America is an alter ego for

Defendara and Petrobras America’s activities in the United

States are, therefore, attributable to Defendant. The court

does put reach this last argument as it finds that Defendant’s

Own contacts with the United States are sufficient to justify

the exercise of personal jurisdiction without offending

“traditional notions of fair play and substantial justice.”

Beginaing with the requirements particular to the FSIA,

the court finds that Defendant is not immune under the FSIA”

and that the record contains evidence of service effected in

compliance with 28 U.S.C. § 1608(b) (2).% As for general

jurisdiction, Defendant suggests that it simply sent

representatives to attend conferences and seminars in the

United States. Plaintiffs submit evidence that those

representatives actually solicited business partners from

among U.S. attendees.** Diaz testified that he witnessed

Defendant’s representatives advertising these opportunities in

does not deny these particular averments. If true, these facts only

strengthen the court’s analysis presented in this Memorandum.

22 See discussion infra Part III.A.

73 See Summons, Docket Entry No. 17. The return of service

was signed by Coutinho Barbosa, indisputably an officer of

Defendant. The court notes, in order to avoid any confusion, that

the relevant service is not Plaintiffs’ original service of Petrobras

America, but the February 2001 service, the efficacy of which is

not challenged.

4 Plaintiffs’ Response, Docket Entry No. 22, Affidavit of

Raymond Diaz.

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Texas, in California, and in print. These solicitations,

which occurred in connection with at least four conferences

over the course of three years, amount to continuous and

systematic contacts with the United States. Although not great

in number, these actions by Defendant were purposefully

directed toward the United States. Defendant, on its own

initiative, marketed its product, oii and gas development

opportunities, in Texas and California. Defendant employed

its subsidiary as a contact for potential partners. Furthermore,

the commission of an allegedly fraudulent act in the United

States, an act upon which Plaintiffs base their claims, subjects

Defendant to specific jurisdiction.

The court finds that the fairness considerations do not

warrant a different decision. Defendant’s actions, particularly

the solicitation of business in the United States, demonstrate

its intent to benefit from this nation’s legal and commercial

climate. The court recognizes that Defendant endeavored to

avoid litigation here. Of course, those very efforts reveal

some awareness of the possibility that it may be haled into

court in the United States. The burden on Defendant of

litigation in the United States is no greater than Plaintiff's

interest in convenient and effective relief. Travel to and from

Brazil is no great inconvenience to Defendant, as

demonstrated by its willingness to send representatives to the

United States in order to develop business relationships with

U.S. companies. Finally, in an international commercial

market, the United States retains a vested interest in

adjudicating disputes involving U.S. citizens. Defendant has

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not demonstrated that, despite sufficient contacts with the

United States, the exercise of personal jurisdiction would be

unfair. The court finds that it has personal jurisdiction over

Defendant.

c. VENUE

In a civil action against a foreign state, venue is proper “in

any judicial district in which a substantial part of the events or

omissions giving rise to the claim occurred” or “in which the

agency or instrumentality is licensed to do business or is

doing business, if the action is brought against an agency or

instrumentality of a foreign state.” 28 U.S.C. § 1391(f).

Defendant challenges venue by asserting that a forum-

selection clause contained in the MOU requires that this

dispute be resolved in Brazil.” Further, the ATA fully

26 The pertinent part of the MOU states:

Any dispute, controversy or claim arising out of or relating

to this MOU or the breach, termination or invalidity

hereof, which cannot be settled amicably between the

Parties shall be settled by arbitration to be conducted in Rio

de Janeiro in the Portuguese language, in accordance with

the rules of the United Nations Commission on

International Trade Law.

Defendant’s Motion to Dismiss, Docket Entry No. 20, Ex. A,

MOU, § 5.2. Plaintiffs and Defendant debate the validity of the

forum-selection clause in light of the time expiration of the MOU.

The court finds validity a nonissue because Plaintiffs’ claims are

beyond the scope of the MOU, as explained.

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incorporated the MOU.”’ Plaintiffs, on the other hand, argue

that the forum-selection clause of the MOU does not apply to

this case because it “specifically restricts itself to actions

regarding or arising from the MOU itself.”

After carefully reviewing the Amended Complaint, the

court agrees with Plaintiffs that none of their claims arise out

of any breach or commission of fraud related to the MOU or

the ATA. Rather, Plaintiffs assert that Defendant breached the

joint development agreements, the TAC, and the preferred

purchase agreement.”

It does not appear that the MOU and the ATA were

intended to bind the parties or limit, in any way, their

subsequent contractual relationship. The MOU was a

preliminary agreement that established certain ground rules

for the exchange of data and the commencement of

negotiations.” It did not identify particular properties for

development.*! Likewise, the ATA was a preliminary

agreement related to the release of data on several projects

7 Defendant’s Motion to Dismiss, Docket Entry No. 20, Ex.

3, ATA.

8 Plaintiffs’ Response, Docket Entry No. 22.

29 Amended Complaint, Docket Entry Number 15.

* Defendant’s Motion to Dismiss, Docket Entry No: 20, Ex.

A, MOU.

31 Id.

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including the BSF-I and the BES-I, in exchange for $20,000.”

The ATA fully contemplates future negotiations and

subsequent contracts.*? For example, the ATA stated:

This ATA is not intended to constitute rights nor

Should it be construed as constituting a firm offer from

[Defendant] to proceed to the next steps of execution

of competent agreements, nor creating any obligation

on [Defendant] to sell or otherwise dispose of all or

part of its interest in any Areas under this

Agreement.

The ATA does not outline the parties’ obligations or rights

related to the development or operation of the oil and gas

projects. The court finds no evidence to support Defendant’s

Suggestion that the MOU and the ATA somehow govern all

subsequent agreements between the parties. That is explicitly

not the case.

Because the forum-selection clause cannot be extended

beyond the scope of the MOU, it does not apply to these other

alleged contracts. Cf. Tex. Source Group, Inc. v. CCH, Inc.,

967 F. Supp. 234, 238 (S.D. Tex. 1997) (recognizing the

continued validity of a forum-selection clause beyond the

* Defendant’s Motion to Dismiss, Docket Entry No. 20, Ex.

B, ATA.

> i.

** Defendant’s Motion to Dismiss, Docket Entry No. 20, Ex.

B, ATA, § 4.1.

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expiration of the hosting contract, but only as to claims

directly and indirectly related to the agreement containing the

clause). As Defendant makes no other challenges to venue,

the court finds venue to be proper within this district.

D. FORUM NON CONVENIENS

The doctrine of forum non conveniens allows a court to

decline to exercise jurisdiction so that the case may be tried in

a foreign forum where “the convenience of the parties and the

ends of justice” will be best served. Koster v. (American)

Lumbermens Mut. Cas. Co., 330 U.S. 518, 527 (1947). A

two-prong test is used to determine whether forum non

conveniens justifies dismissal. Dickson Marine Inc. v.

Panalpina, Inc. , 179 F.3d 331, 342 (Sth Cir. 1999). The first

prong requires ascertaining whether there is an adequate and

available alternative forum. Jd. If such a forum exists where

Defendant is amenable to service, the court must balance

several public and private interest factors affecting the

convenience of the forum. Gulf Oil Corp. v. Gilbert, 330

U.S. 501, 508-09 (1947) (explicating principles for common

law forum non conveniens, limited now only to the extent that

28 U.S.C. § 1404(a) addresses transfer of venue, formerly a

forum non conveniens issue).

The plaintiff's choice of forum should be given great

deference and should not be disturbed, unless there is a clear

showing that it would oppress and vex the defendant out of

proportion to the plaintiff's convenience, or that it would

make trial inappropriate because of considerations affecting

the court’s own administrative and legal problems. Koster,

330 U.S. at 524. In Piper Aircraft CO. v. Reyno, the United

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States Supreme Court held that a strong showing of substantial

inconvenience and inappropriateness is necessary to sustain a

forum non conveniens dismissal. 454 U.S. 235, 249 (1981).

As such, the burden of proof in a forum non conveniens

analysis rests with the party seeking dismissal. See id.

1. Adequate and Available Alternative Foreign Forum

A foreign forum is deemed adequate if the parties will be

treated fairly and will not be deprived of all remedies.

Syndicate 420 at Lloyd’s London v. Early Am. Ins. Co., 796

F.2d 821, 828-29 (Sth Cir. 1986). The forum is available if

the entire case and all of the parties will fit within its

jurisdiction. Jd. at 829-30.

Defendant contends that Brazil is an adequate and

available alternative forum. Defendant asserts that although

the parties may not receive the same benefits available in U.S.

courts, they will not be deprived of all remedies or otherwise

be treated unfairly. As a Brazilian entity, Defendant claims

that it is amenable to service of process in Brazil. Finally,

Defendant argues that other courts have found Brazil to be an

adequate and available forum for purposes of the forum non

conveniens analysis.

Plaintiffs reject Defendant’s arguments, asserting that they

may be treated unfairly in Brazil or may find it difficult to

retain competent local counsel based on Defendant’s status as

a government-owned entity. Plaintiffs note that the Brazilian

forum would require Plaintiffs to pay a percentage of the

claim as a fee to the court and would assess all costs to the

loser. According to Plaintiffs, these and other procedural

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differences combine to create a bar to judicial relief in Brazil.

The court disagrees.

In Piper Aircraft Co., the United States Supreme Court

held that the alternative forum is inadequate only if a party

would be “deprived of any remedy or [would be] treated

unfairly.” Piper Aircraft Co., 454 U.S. at 255. In that case,

the United States Supreme Court found the Scottish courts to

be an alternative forum that was adequate and available

despite differences in the substantive law which were less

favorable to the plaintiffs. Jd. Here, Plaintiffs have shown

only that the prosecution of their suit would be more difficult

in Brazil, not that the case could not be heard or that the

remedy would be “so clearly inadequate or unsatisfactory that

it is no remedy at all.” See id. at 254.

Therefore, Brazil is an adequate and available alternative

forum, and the court now turns to the balancing test required

under the second prong of the forum non conveniens analysis.

2. Balancing of Public and Private Interest Factors

The final determination of convenience depends on the

balance of public and private interest factors, none of which

is conclusive. Dickson Marine Inc., 179 F.3d at 342. The

Fifth Circuit recently affirmed that the private interest factors

related to the convenience of the parties are: 1) the relative

ease of access to sources of proof; 2) the availability of

compulsory process for attendance of unwilling witnesses; 3)

the cost of obtaining attendance of willing and unwilling

witnesses; 4) the possibility of viewing the premises, if

viewing would be appropriate to the action; and 5) all other

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practical problems that make trial easy, expeditious, and

inexpensive. Jd. The public interest factors are:

[1)] the administrative difficulties flowing from court

congestion; [2)] the local interest in having localized

controversies decided at home; [(3)] the interest in

having the trial of a diversity case in a forum that is at

home with the law that must govern the action; [(4)]

the avoidance of unnecessary problems in conflict of

laws, or in the application of foreign law; and [(5)] the

unfairness of burdening citizens in an unrelated forum

with jury duty.

Id. (quoting Piper Aircraft Co., 454 U.S. at 241 n.6) (internal

quotations omitted). A forum non conveniens determination

is committed to the sound discretion of the trial court. Piper

Aircraft Co., 454 U.S. at 257.

Defendant argues that “Brazil is patently the more

convenient forum.” Naturally, Plaintiffs’ assessment of the

private and public factors leads them to the opposite

conclusion. The bottom line is that this case involves equal

parts Brazilian and U.S. sources of proof, witnesses,

interests, and law. Defendant’s cursory and one-sided

analysis of the private and public interest factors fails to

convince the court that it should shift the burden of foreign

litigation to Plaintiffs. Taking the private interest factors one

at a time, the court finds none which would indicate that the

inconvenience to Defendant of litigation in the United States

would oppress and vex Defendant out of proportion to

Plaintiffs’ convenience. In fact, Defendant’s brief gives very

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little attention to specific difficulties it faces in the United

States.

Proof related to this case, no doubt, will consist primarily

of documentation and witness testimony. The relevant

documents are very likely equally divided between the parties.

As for witnesses, Plaintiffs list the names of fifteen witnesses

and employees who reside in the United States and therefore

would be subject to compulsory process if required.

Defendant counters that this court cannot compel attendance

of “a vast majority of witnesses [that] reside” in Brazil, but

fails to list the names of any such potential witnesses.»

Plaintiffs assert that all of the potential witnesses from Brazil

are employees of Defendant who can be compelled to attend

trial in the United States. The cost of obtaining attendance and

the compulsion of willing and unwilling witnesses would

affect either party if trial were held in the opposite forum.

Because this case concerns contractual matters, viewing the

premises is not likely to be necessary. Finally, other practical

problems include the procedural and economic disadvantages

Plaintiffs would face if forced to litigate in Brazil. Although

not reiterated by Plaintiffs, issues raised in their discussion of

the availability and adequacy of Brazil as an alternative forum

are equally applicable here. These include difficulties in

retaining local Brazilian counsel, increased costs of litigation,

differences in court procedure, language barriers, and the

potential of bias for bringing suit against a state-owned

agency.

35 Defendant’s Motion to Dismiss, p. 24, Docket Entry

Number 20.

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Similarly, the public interest factors do not warrant

dismissal for forum non conveniens. Court congestion is a

minimal concern in this forum where parties are properly

before the court. Because of the international nature of this

suit, administrative difficulties will arise regardless of where

the parties’ dispute is litigated. The court also finds no

impediment to hearing this case. Certainly each forum has a

vested interest in trying this controversy. To the extent

Plaintiffs assert that Defendant committed fraud in the United

States, this forum has a heightened interest in the outcome.

Also, Plaintiffs’ allegations that Defendant solicits business

partners within this forum and that U.S. Plaintiffs suffered

financial loss increase local concern. As Plaintiffs assert

causes of action under both Brazilian and U.S. law, either

forum would be required to engage in a choice of law analysis

and to resolve issues of domestic and foreign law. Finally,

FSIA cases are non-jury suits, and, therefore, no citizens in

this forum will be burdened with jury duty for this case. See

28 U.S.C. § 1330.

Despite having Brazil as an adequate and available

alternative forum, Defendant failed to carry the ultimate

burden of showing a substantial inconvenience and

inappropriateness of this forum. As a result, the court holds

that Plaintiffs’ choice of forum should not be disturbed.

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III. PETROBRAS AMERICA’S MOTION TO DISMISS

Petrobras America became involved in this action on

November 21, 2000, when it was served by Defendant.”

Petrobras America filed a Motion to Dismiss,*’ which

apparently remains pending, alleging that service was

erroneous because it was not a party named in the complaint.

Plaintiffs subsequently served Defendant on February 13,

2001.** Petrobras America is not a party to this suit.

Therefore, dismissal of Petrobras America is unnecessary.

The court RECOMMENDS that Petrobras America’s Motion

to Dismiss be DENIED as MOOT.

IV. CONCLUSION

Based on the foregoing, the court RECOMMENDS that

Defendant’s Motion to Dismiss be DENIED, and that

Petrobras America’s Motion to dismiss be DENIED as

MOOT. Plaintiff's Motion for Limited Jurisdictional

Discovery is DENIED as MOOT and Defendant’s Motion to

Strike Affidavit of Raymond A. Diaz is DENIED.

The Clerk shall send copies of this Memorandum and

Recommendation to the respective parties who have ten (10)

days from the receipt thereof to file written objections thereto

pursuant to General Order 2001-6. Failure to file written

*6 Summons, Docket Entry No. 6.

7 Docket Entry No. 7.

8 Summons, Docket Entry No. 17.

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objections within the time period mentioned shall bar an

aggrieved party from attacking the factual findings and legal

conclusions on appeal.

The original of any written objections shall be filed with

the United States District Clerk, P.O. Box 61010, Houston,

Texas, 77208. Copies of such objections shall be mailed to

Opposing parties and to the chambers of the undersigned, 515

Rusk, Suite 7019, Houston, Texas 77002.

SIGNED at Houston, Texas this 18th day of January, 2002.

/s/

NANCY K. JOHNSON

UNITED STATES MAGISTRATE JUDGE