valeOn December 7, 2015, in a complaint that reflects a number of current U.S. securities class action lawsuit filing trends, a plaintiff securityholder filed a securities class action lawsuit in the Southern District of New York under the U.S. securities laws against the Brazilian mining giant Vale, S.A. and two of its officers. The complaint relates to the massive dam failure that occurred on November 5, 2015 near Mariana, in the Minas Gerais state, in Brazil. The failed dam is the property of Samarco Mineração, S.A., a joint venture between Vale and BHP Billiton. The securities suit plaintiff claims that the Vale defendants made misleading statements about the company’s safety and environmental standards and risk management, as well as about the spill itself.



The dam failure, which resulted at least 13 deaths and many more injuries, has been called the worst environmental disaster in Brazil’s history. According to Wikepedia (here), following the dam failure, about 60 million cubic meters of iron waste flowed into the Rio Doce (Sweet River), and the toxic mudflows reached the Atlantic Ocean 17 days later. According to a Wall Street Journal report (here), on November 30, 2015, the Brazilian government filed a civil lawsuit in federal court in Brasilia against Samarco, Vale, and BHP Billiton seeking 20.2 billion reais ($5.2 billion) over a period of ten years in order to provide financial compensation to persons affected by the disaster and to restore the Rio Doce river basin. According to the Journal article, the complaint seeks an award providing that if Samarco is unable to pay, that Vale and BHP Billiton be required to pay.


The U.S. Securities Class Action Complaint

The securities lawsuit complaint filed in federal court in Manhattan on Monday purports to be filed on behalf of all persons who purchased Vale securities between March 21, 2015 and November 30, 2015. A copy of the complaint can be found here. Vale’s common shares trade on the Bovespa stock exchange in Sao Paulo. Vale’s American Depositary Shares trade on the New York Stock Exchange; however, the complaint does not limit the class on whose behalf it purports to be filed to those persons who bought ADRs on the NYSE. (Obviously, under the U.S. Supreme Court’s 2010 decision in Morrison v. National Australia Bank, those persons  who bought their shares in Brazil or another exchange outside of the U.S. would not have cognizable claims under the U.S. securities laws.)


The defendants named in the complaint include Vale; Vale’s CEO, Murilo Pinto de Oliveira Ferreria; and Vale’s CFO, Luciano Siani Pires. Ferreira is not unacquainted with corporate scandals and difficulties. From April of this year until November 30, when the Brazilian government filed the civil lawsuit, Ferreira had served as Chairman of Petrobras. Ferreira is not among the individuals named as a defendant in the most recent amended complaint in the securities lawsuit filed in the U.S. relating to the Petrobras bribery scandal.


The Vale securities class action complaint alleges that in its periodic filings with the SEC prior to the dam failure, Vale made a number of statements about its health, safety and environmental standards and risk management. The complaint also cites statements by the company’s CFO to the effect that the mine waste and tailings that had been held in the reservoir behind the dam that burst were not toxic. The complaint alleges that the defendants made misleading statements or failed to disclose that the dam burst resulted in the spillage of toxic waste; that Vale had a contract with Samarco that allowed Vale to depost iron ore waste from its treatment plant at its Algreia mine; and that Vale’s programs and procedures to mitigate environmental, health, and safety were inadequate.


The complaint alleges further that in the days after the dam failure, the “truth” began to emerge. First, in a November 10, 2015 article (here), the Wall Street Journal reported that there was evidence that Vale was dumping debris from its own nearby iron-ore mines into Samarco’s waste reservoirs. On November 24, 2015, the Journal reported that between 2012 and 2015, the volume of iron-ore tailings deposited in the reservoir grew from 5 million cubic meters to 55 million cubic meters. The November 24 article also raised the possibility that the existence of Vale’s contract to dump iron-ore tailings in the reservoir “raise questions about Vale’s potential liability.”


The complaint also alleges that on November 25, 2015, two independent United Nations experts called for action to protect the environment and health of communities at risk as a result of the dam failure, reporting specifically that “the steps taken by the Brazilian government, Vale and BHP Billiton to prevent harm were clearly insufficient.” The report also stated that “new evidence shows” that the tailings released by the spillage “contained high levels of toxic heavy metals and other toxic chemicals into the river Doce.”


On November 27, 2015, according to the complaint, Vail and BHP Billiton, in conjunction with Samarco, announced their initiative to create a Rio Doce Fund, to support the rescue and recuperation of the Rio Doce river system. Also on November 27, 2015, Vale, according to the complaint, for the first time admitted that toxic waste had been spilled into the Rio Doce. The complaint’s factual allegations end with a reference to the Brazilian government’s lawsuit filing.


The complaint alleges that the defendants violated Sections 10 and 20 of the Securities Exchange Act of 1934, and therefore that the defendants are liable to the plaintiff class for damages.



As I noted at the outset, this new lawsuit reflects a number of recent U.S. securities class action lawsuit filing trends. For starters, it involves a lawsuit filed under the U.S. securities laws against a non-U.S. company.  Foreign companies whose securities trade in the U.S. are disproportionately targeted in U.S. securities class action lawsuits. Foreign companies represent only about 16% of all companies listed on the U.S. securities exchanges. However, foreign companies have named as defendants in 35 securities class action lawsuits filed so far in 2015, representing about 20% of all 2015 YTD securities lawsuit filings. There were 32 securities suits filed in the U.S. against foreign companies in 2014, representing about 19% of all 2015 securities class action lawsuit filings.


In recent months, Brazilian companies have featured prominently in the list of non-U.S. companies that have been hit with securities suits. These securities suits have included during 2015 not only the recent suit against Vale described above, but also the suits filed earlier this year against Braskem (about which refer here) and Eletrobras (refer here, scroll down to the second item). The Braskem and Eletrobras lawsuits both are a reflection of the fact that both of these companies have been drawn into the Petrobras bribery scandal.  Petrobras was itself hit with a U.S. securities class action lawsuit in December 2014, as noted here. While the Vale lawsuit itself has nothing to do directly with the Petrobras scandal, there is the connection between Vale’s CEO and Petrobras noted above. In any event, these lawsuits collectively mean that in just the last twelve months there have been four U.S. securities class action lawsuit filed against Brazilian companies. The accumulation of these lawsuits, as well as the underlying events in Brazil, have had a disruptive impact on the Brazilian D&O insurance market.


As this case and other recent case filings show, and as discussed in greater detail here, environmental issues are an area of increasing focus for plaintiffs’ lawyers. As I have noted, a number of these environmentally focused shareholder lawsuits have proven to be viable. At a minimum, these cases underscore the fact that reporting companies’ environmental compliance disclosures are facing increasing scrutiny, making the quality of the environmental disclosures increasingly important. As I noted in connection with the recent shareholders derivative lawsuit involving Duke Energy, environmental concerns can also lead to mismanagement claims based on alleged breaches of fiduciary duties.


All of that said, a number of observations about this recent lawsuit filed against Vale seem in order. That is, while the complaint’s allegations about the dam failure disaster and the reporting that followed the disaster are somewhat detailed, the allegations in the complaint about allegedly misleading statements that the defendants made, particularly prior to the dam failure, are thin, to say the least. Anyone searching the complaint for the plaintiff’s allegations of scienter will come up empty-handed. The recently filed complaint does explore to a limited extent the question of how Vale might be held accountable for the harm cost by the failure of its Samarco joint venture’s dam, but the complaint has relatively less to say about the bases on which Vale might be held liable under the U.S. securities laws. The most concrete allegation seems to be that Vale made statements in the immediate aftermath of the disaster to the effect that the reservoir behind the dam did not contain toxic materials, and now there are specific allegations that the reservoir did contain toxic material. Those allegations on their own would support, at most, a class period of only a few days duration.


As I noted above, the complaint purports to be filed on behalf of all purchasers of Vale securities, and not just on behalf of those who purchased ADRs in the U.S. on the NYSE. The case will, however, be narrowed just to those NYSE purchasers. Which means that Vale shareholders who purchased Vale common shares on the Bovespa will not be part of the U.S. class action lawsuit. It will be interesting to see whether and to what extent those Brazilian investors seek redress for the losses by filing claims against the company and its senior officials in Brazilian court under Brazilian law.


Another interesting question is whether or not a lawsuit similar to this one might be filed against BHP Billiton. As I suggested in the preceding paragraph, the complaint against Vail is not, shall we say, the strongest securities complaint I have seen this year, but on the other hand, BHP Billiton does have ADRs that trade on the U.S. securities exchange, and its relationship to these events are certainly comparable to the relationship of Vale to these events. I wouldn’t set a clock on it, but it could happen that a complaint similar to the one filed against Vale could be filed against BHP Billiton – or it could even be filed in Australia, where BHP Billiton is based.


Just FYI, in a post earlier this year (here), I wrote about the enforcement action and settlement against BHP Billiton relating to its client entertainment activities at the 2086 Beijing Olympics.