The Second Circuit Court of Appeals ruled in Rogers v. Petroleo Brasileira, S.A. that the Brazilian oil company Petroleo Brasileiro (Petrobrás) did not need to convert bearer bonds held by U.S. citizens to preferred shares because the commercial activity exception of the Foreign Sovereign Immunities Act (FISA) was not satisfied.

Petrobrás issued a series of bearer bonds to cover payment of a government fee complying with the law that requires owners of motor vehicles to pay an annual fee. The value of each bond was 1,000 cruzeiros, and the company stated that bondholders could exchange the bonds for preferred shares during the redemption period, which ended in 1980. Petrobrás has denied any request for redemption or conversion since 1980 and the Brazilian government has upheld these denials.

In 2009, two plaintiffs mailed a claim to Petrobrás’ New York City office demanding the company convert their bonds to preferred shares. In response to this claim, Petrobrás claimed that the court did not have subject matter jurisdiction since the commercial activity exception under the FISA was not satisfied in this situation. The FISA law grants immunity to a “foreign state”—which Petrobrás is—with exceptions.

There are two clauses of commercial activity exceptions relevant to the case. Firstly, under the law immunity is given for an act performed in the United States in connection with a commercial activity of the foreign state elsewhere. The plaintiffs asserted their claim was within the bounds of this condition because the notice was sent via email from Petrobrás’ NY office. Petrobrás countered that the email was notification only of the breach. The court deemed that the relevant act performed in this case was not in the U.S. Secondly, exemption is not conferred if the action is based upon an act outside of the U.S. regarding a commercial activity of the foreign state elsewhere and causes a direct effect in the U.S. The court’s decision on this clause was based on the fact that the bonds were issued in Portuguese and pertained to a Brazilian motor vehicle fee. Hence, the U.S. was not the place where the events occurred.