Total bullshit. I suppose expecting the OCI to object to these reasons is asking too much, especially when your case is so close to becoming "resolved."
What the judge is doing here with such reasoning is deciding custody arrangements. If the children have more family and that gives them a better life in Brazil, a US judge is just as capable, if not more so, to make that determination in a US court while denying validity to the use of child trafficking as a vehicle to litigate child custody.
The children should know Australia, it is part of their heritage. Further, there is probably no single country more compliant with the Hague Convention than Australia. More importantly though, this court is just speculating on the possibility of future travel there, something which, in any case, is also something for US courts to decide.
Appeals are generally cheaper than first instance trials if you are considering hiring your own attorneys to handle an appeal.
Since this is the first time I've heard of the AGU not appealling any case, much less one that clearly merits it, future LBP's should take this into consideration when considering not using private attorneys in that Brazil.