The Texas Supreme Court dealt a fatal blow to Brazilian state-run petroleum company Petrobras’s breach of fiduciary duty claims against former joint venture partner Belgian Transcor Astra Group S.A. The Texas high court ruled that an $820 million settlement agreement between the two oil and gas companies precluded Petrobras from asserting breach of fiduciary duty claims accusing Astra of bribing certain high-ranking Petrobras employees.
In 2006, Petrobras and Astra formed an ill-fated joint venture of Pasadena Refining System Inc. The joint venture between the two multi-national oil companies soon began to unravel. After the parties found themselves embroiled in several disputes, they initiated an arbitration to break up the partnership which resulted in a 2009 arbitration award requiring Astra to sell its 50% interest to Petrobras for $640 million.
Astra alleged that pursuant to the arbitration award it turned over its interest in the Texas refining company, but Petrobras never paid the $640 million purchase price for that interest. A series of lawsuits ensued leading to Astra obtaining judgments against Petrobras totaling more than $750 million with more than $400 million more in pending claims when the parties agreed to a global settlement. Under the 2012 settlement agreement Petrobras agreed to pay Astra $820 million in exchange for a release by each party of all claims against the other party.
By 2016, the peace between the companies ended when Petrobras initiated two separate legal proceedings against Astra. First, Petrobras filed a lawsuit against Astra and several of its employees, asserting that they breached fiduciary duties owed to Petrobras by offering bribes to certain Petrobras officials and failing to disclose the offers during the parties’ settlement negotiations. Petrobras also asserted derivative claims for declaratory judgment, conspiracy, aiding and abetting, unjust enrichment, and exemplary damages and attorney’s fees, and sought to invalidate the 2012 settlement agreement and render it unenforceable. Simultaneously, Petrobras initiated arbitration proceedings to invalidate the 2006 stock-purchase agreement due to the bribes Astra allegedly paid to Petrobras officials in connection with that agreement.
Petrobras alleged that after entering the 2012 settlement agreement it discovered that Astra’s representatives paid $15 million to bribe certain Petrobras officials to agree to the 2006 stock-purchase agreement and then offered other bribes totaling $80–$100 million to convince Petrobras to accept the settlement on terms highly favorable to Astra. Included in the 2012 settlement agreement was a broad release in which each party was discharged from “any and all claims” the parties may have had or have against the other in the future.
Petrobras argued that the individual Astra defendants owed fiduciary duties to Petrobras during the parties’ settlement negotiations because they served as officers and directors of the joint-venture entities the parties created when they began their joint venture in 2006. Petrobras further argued that the fiduciary duty claims were not barred by the settlement agreement because they fell into an exception included in the agreement that provided that claims related to “the alleged breach, enforcement, or interpretation” of the settlement agreement were not released.
The Court began its analysis with the breach of fiduciary duty claims. The Court rejected Petrobras’s argument that the breach of fiduciary duty claims concerned a “breach, enforcement, or interpretation” of the settlement agreement. Rather than seeking to compel compliance with the settlement, the Court reasoned, Petrobras’s claims instead sought to avoid compliance. Additionally, the Court pointed out that claims related to breaches, enforcement or interpretation of the settlement agreement necessarily limit the exception to claims relating to post-settlement conduct. Petrobras’s breach of fiduciary duty claims, however, concerned conduct that occurred before the settlement agreement was reached. Consequently, the exception could not apply.
The Court did note that its decision should not be interpreted as a blanket preclusion of breach of fiduciary duty claims following entry of a settlement agreement containing mutual releases. The Court posited that a similar release might not stop a party from asserting similar claims as counterclaims or defenses against enforcement based on the suing party’s fraud or fiduciary breaches. The Court also held that Petrobras’s arbitration claims were also superseded by the 2012 settlement agreement.
The Court’s full opinion can be found here.
Continue Reading Texas High Court Rules that Breach of Fiduciary Duty Claims Barred by $820 Million Settlement