Croseus EMTR Master Fund L.P. v. Federative Republic of Brazil

In 1902 and 1911, the Republic of Brazil (Brazil) (defendant) issued bonds. The bonds provided for repayment at so-called empowered branches, including Brazilian Public Debt Offices. No empowered branches were in the United States (US), and bondholders had no right to demand payment in the US. In 1969, after giving bondholders an opportunity to exchange the bonds for other securities, Brazil decreed that any remaining bonds were worthless. Nevertheless, a secondary market existed in the US for the bonds. Croseus EMTR Master Fund L.P. and other US-based investors (collectively, Croseus) (plaintiffs) purchased bonds on the US secondary market. Croseus never demanded payment from Brazil. Instead, Croseus sued Brazil for breach of contract in anticipation of Brazil’s refusal to pay. Brazil moved for summary judgment based on the Foreign Sovereign Immunities Act. Croseus responded that Brazil was not immune due to the act’s commercial-activity exception because, first, Croseus’s suit was based upon Brazil’s commercial activity in the US. Specifically, Croseus contended that Brazil sold other bonds (known as Global Bonds) via US primary markets and that Brazil must have tried to help such primary sales by supporting the secondary markets for the 1902 and 1911 bonds. In addition, Croseus alleged that Brazil had a Brazilian-law contractual duty to warn US traders that Brazil believed that the 1902 and 1911 bonds were invalid. Second, Croseus argued that Brazil was not immune because Croseus’s suit was based upon commercial activity in Brazil that caused a direct effect in the US because Brazil (1) breached its supposed duty to warn US investors and (2) caused Croseus to not receive money in the US. Per Croseus, because Brazil’s Public Debt Offices no longer existed, Brazil likely would have allowed Croseus to designate the US as the place of payment if Croseus had so requested.