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In re Application of CA Investment (Brazil) S.A.

United States District Court, D. Minnesota

April 9, 2019

In re Application of CA Investment (Brazil) S.A. for an Order to Take Discovery for Use in Foreign Proceedings Pursuant to 28 U.S.C. § 1782

          Douglas L. Elsass, Nilan Johnson Lewis PA, and Kenneth Puhala, Schnader Harrison Segal & Lewis LLP, (for Petitioner).

          ORDER

          Steven E. Rau United States Magistrate Judge

         This matter is before the Court, United States Magistrate Judge Steven E. Rau, on CA Investment (Brazil) S.A.'s Ex Parte Application for an Order to Take Discovery for Use in Foreign Proceedings Pursuant to 28 U.S.C. § 1782. (ECF No. 1). For the reasons set forth below, the application is granted.

         I. BACKGROUND

         Eldorado Brasil Celulose S.A. (“Eldorado”) is a Brazilian company that produces market bleached hardwood kraft pulp. (Decl. of Claudio Laert Cotrim Passos ¶ 2, ECF No. 3). CA Investment (Brazil) S.A. (“CA Investment”) is a Brazilian corporation.[1] (Cotrim Passos Decl. ¶ 2). CA Investment holds 49.41% of the total issued and outstanding shares of Eldorado. (Cotrim Passos Decl. ¶ 2). The remaining 50.59% of the issued and outstanding shares in Eldorado are held by J&F Investimentos S.A. (Cotrim Passos Decl. ¶ 3). J&F Investimentos is controlled by two brothers, Joesley Mendonça Batista and Wesley Mendonça Batista. (Cotrim Passos Decl. ¶ 3).

         Following a corruption probe by Brazilian authorities, Joesley Mendonça Batista and Wesley Mendonça Batista, as well as other officers of various companies owned by J&F Investimentos, entered into plea bargains with the Brazilian Federal Prosecutor Service on May 3, 2017. (Cotrim Passos Decl. ¶ 4). The pleas called for fines totaling R$225 million. (Cotrim Passos Decl. ¶ 4). On June 5, 2017, J&F Investimentos entered in a leniency agreement wherein it assumed responsibility for the criminal conduct outlined in the May 3, 2017 pleas; J&F Investimentos agreed to pay a R$8.0 billion fine and contribute R$2.3 billion over a 25-year period for social projects.[2] (Cotrim Passos Decl. ¶ 5).

         To fund these fines, Joesley Mendonça Batista, Wesley Mendonça Batista, and J&F Investimentos sought to sell various assets, including Eldorado. (Cotrim Passos Decl. ¶ 7). On September 2, 2017, CA Investment entered into a share purchase agreement with J&F Investimentos to purchase its ownership interest in Eldorado, which was 80.9% of Eldorado's total issued and outstanding capital stock. (Cotrim Passos Decl. ¶ 8). The share purchase agreement provided that CA Investment would acquire all shares in Eldorado by September 2, 2018. (Cotrim Passos Decl. ¶ 9).

         Two transactions were made pursuant to the share purchase agreement. First, J&F Investimentos sold CA Investment 13% of the total and voting share capital of Eldorado for R$1, 006, 000 on September 25, 2017. (Cotrim Passos Decl. ¶ 9(a)). On December 12, 2017, CA Investment purchased 34.45% of the indirect total share capital of Eldorado from Florestal Fundo de Investimento em Participacoes Multiestrategia for R$2, 700, 000, 000 and 1.96% of the indirect total and voting share capital for R$151, 000, 000. (Cotrim Passos Decl. ¶ 9(b)). This brought CA Investment to a total of 49.41% ownership of the shares of Eldorado. (Cotrim Passos Decl. ¶ 9(b)).

         The sale of the remaining Eldorado shares to CA Investment has not occurred. (Cotrim Passos Decl. ¶ 9(c)). On July 18, 2018, CA Investment remitted the necessary funds to finalize the purchase of the remaining Eldorado funds pursuant to the share purchase agreement. (Cotrim Passos Decl. ¶ 9(c)). Due to various market changes-a significant increase in pulp prices in China and favorable changes to the US/Brazilian exchange rate-J&F Investimentos and Eldorado frustrated CA Investment's efforts under the share purchase agreement. (Cotrim Passos Decl. ¶ 11). Accordingly, CA Investment sought an injunction in Brazilian courts on August 14, 2018. (Cotrim Passos Decl. ¶ 12). On August 31, 2018, the Brazilian court determined that the dispute between CA Investment and J&F Investimentos and Eldorado should be resolved by ICC arbitration under the terms of the share purchase agreement. (Cotrim Passos Decl. ¶ 13). The Brazilian court enjoined J&F Investimentos from (1) disposing of its shares in Eldorado pending the arbitration and (2) any transactions outside the ordinary course of business without CA Investment's consent. (Cotrim Passos Decl. ¶ 13).

         On September 4, 2018, J&F Investimentos notified CA Investments that it was terminating the share purchase agreement on the grounds that the September 2, 2018 deadline had passed and CA Investment failed to fulfill its obligations. (Cotrim Passos Decl. ¶ 14).

         J&F Investimentos and CA Investments appealed the Brazilian court decision. (Cotrim Passos Decl. ¶ 15). The São Paulo State Court of Appeals issued its decision on November 28, 2018, suspending J&F Investimentos' termination notice and extending the injunctive relief through an arbitration decision. (Cotrim Passos Decl. ¶ 15; see Cotrim Passos Decl. Ex. B).

         CA Investment submitted its arbitration request to the Secretariat of the International Court of Arbitration of Brazil on September 5, 2018. (Cotrim Passos Decl. ¶ 16). J&F Investimentos and Eldorado responded on October 15, 2018. (Cotrim Passos Decl. ¶ 16). On March 21, 2019, an arbitral tribunal was constituted under ICC No. 23909/GSS. (Cotrim Passos Decl. ¶¶ 16-17).

         At a shareholders' meeting on February 6, 2019, J&F Investimentos approved, over the objection of CA Investment, the issuance of US$500 million in new bonds listed on the Singapore Exchange Securities Trading Limited (“Singapore Exchange”) by an Eldorado affiliate, Eldorado Intl. Finance GmbH. (Cotrim Passos Decl. ¶ 18). The bonds would be guaranteed by Eldorado and another Eldorado affiliate, Cellulose Eldorado Austria GmbH. (Cotrim Passos Decl. ¶ 18). This proposed bond offering had been approved at a January 21, 2019 meeting of Eldorado's board of directors. (Cotrim Passos Decl. ¶ 19).[3] In relation to the proposed new bonds, CA Investment obtained from a third party-not Eldorado or J&F Investimentos-the accompanying bond offering memorandum. (Cotrim Passos Decl. ¶ 20). CA investment asserts there are numerous fraudulent representations in the bond offering memorandum. (Cotrim Passos Decl. ¶¶ 21-22).

         On February 7, 2019, CA Investment commended dual actions in the High Court of Singapore (HC/OS 169/2019) and the Singapore High Court (HC/SUM 612/2019) seeking an injunction restraining Eldorado from taking any steps to publish or disseminate the bond offering memorandum or applying to list the proposed bonds on the Singapore Exchange. (Cotrim Passos Decl. ¶¶ 23-24). The Singapore High Court ...


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