Drexel Burnham Lambert Group Inc. v. Committee of Receivers for Galadari, s. 1545

• Citation: 12 F.3d 317
• Decision Date: 29 November 1993
• Docket Number: D,1546,Nos. 1545,s. 1545
• Parties: The DREXEL BURNHAM LAMBERT GROUP INC., and Refco, Inc., Plaintiffs-Appellees, v. The COMMITTEE OF RECEIVERS FOR A.W. GALADARI, and The Emirate of Dubai, United Arab Emirates, Defendants-Appellants, and A.W. Galadari, and A.W. Galadari Commodities, a division of A.W. Galadari Holdings (Private) Limited, Defendants. ockets 93-7078, 93-7086.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 317

12 F.3d 317

62 USLW 2404

The DREXEL BURNHAM LAMBERT GROUP INC., and Refco, Inc. Plaintiffs-Appellees, v. The COMMITTEE OF RECEIVERS FOR A.W. GALADARI, and The Emirate of Dubai, United Arab Emirates Defendants-Appellants and A.W. Galadari, and A.W. Galadari Commodities, a division of A.W. Galadari Holdings (Private) Limited, Defendants.

Nos. 1545, 1546, Dockets 93-7078, 93-7086.

United States Court of Appeals Second Circuit.

Argued April 29, 1993.

Decided Nov. 29, 1993.

H. Barry Vasios, New York City (Anjali G. Asnanee, Elizabeth A. Berney, Gilbert, Segall and Young, of counsel), for defendant-appellant The Emirate of Dubai, United Arab Emirates.

Richard W. Reinthaler, New York City (Paul L. Friedman, Dwight A. Healy, White & Case, of counsel), for defendant-appellant The Committee of Receivers for A.W. Galadari.

Edward L. Powers, New York City (Joel L. Dempsey, Richards & O'Neil, New York City, Thomas W. Hill, Jr., West Palm Beach, FL, of counsel), for plaintiff-appellee The Drexel Burnham Lambert Group, Inc.

Marianne Bretton-Granatoor, New York City (Jack Weinberg, Therese M. Doherty, Graubard Mollen Horowitz Pomeranz & Shapiro, of counsel), for plaintiff-appellee Refco, Inc.

Before: LUMBARD, NEWMAN, ^* and MAHONEY, Circuit Judges.

MAHONEY, Circuit Judge:

Defendants-appellants The Committee of Receivers for A.W. Galadari (the "Committee") and The Emirate of Dubai, United Arab Emirates (the "Emirate") appeal from an order entered January 19, 1993 in the United States District Court for the Southern District of New York, Constance Baker Motley, Judge, that denied their motions to dismiss the amended and supplemental complaints of plaintiffs-appellees The Drexel Burnham Lambert Group Inc. ("Drexel") and Refco, Inc. ("Refco") in this consolidated action, and directed that the Committee and the Emirate provide Drexel and Refco with security covering costs and, in the case of Refco, attorney fees. The Committee and the Emirate sought to dismiss the amended and supplemental complaints on the basis, inter alia, that they were entitled to sovereign immunity pursuant to the Foreign Sovereign Immunities Act, 28 U.S.C. Secs. 1330, 1602-1611 (the "FSIA"), and the court accordingly lacked subject matter jurisdiction. The Emirate also appeals from a January 22, 1993 order of the district court that denied the Emirate's motion to quash discovery against the Emirate.

We reverse the order denying the motion to dismiss the complaint on the basis that the Committee and the Emirate are entitled to foreign sovereign immunity. We also dismiss as moot the appeal from the order denying the Emirate's motion to quash discovery.

Background

In this appeal, we revisit a litigation commenced more than nine years ago that has occasioned one prior opinion of this court, as well as a number of opinions by the district court. See Drexel Burnham Lambert Group Inc. v. Galadari, 777 F.2d 877 (2d Cir.1985) ("Drexell II "), aff'g in part and vacating in part 610 F.Supp. 114 (S.D.N.Y.1985) ("Drexel I "); Drexel Burnham Lambert Group, Inc. v. Galadari, No. 84 Civ. 2602 (CBM), 1986 WL 4692 (S.D.N.Y. Apr. 17, 1986) ("Drexel III"); Drexel Burnham Lambert Group, Inc. v. Galadari, No. 84 Civ. 2602, 1987 WL 6164, U.S.Dist.LEXIS 5030 (S.D.N.Y. Jan. 29, 1987) ("Drexel IV "); Refco, Inc. v. Galadari, 755 F.Supp. 79 (S.D.N.Y.1991); Drexel Burnham Lambert Group, Inc. v. Galadari, 134 B.R. 719 (S.D.N.Y.1991) ("Drexel V "); Drexel Burnham Lambert Group, Inc. v. Galadari, 127 B.R. 87 (S.D.N.Y.1991) ("Drexel VI "). Familiarity with these decisions, and with the decision of the district court from which the instant appeal is taken, Drexel Burnham Lambert Group, Inc. v. Committee of Receivers for A.W. Galadari, 810 F.Supp. 1375 (S.D.N.Y.1993) ("Drexel VII "), is assumed.

In April 1984, the Emirate established the Committee to wind up the business affairs and liquidate all nonbanking assets of Abdul Wahab Bin Ebrahim Galadari ("Galadari"), a citizen of Dubai, following a financial crisis in Dubai precipitated by the threatened collapse of the Union Bank of the Middle East, Ltd. ("Union"). Galadari controlled Union, one of the largest banks in the United Arab Emirates. The Committee is the successor to a provisional board of directors (the "Provisional Board") established by the government of Dubai in November 1983 to manage both Union and (until the formation of the Committee) Galadari's nonbanking assets. The Committee is comprised of four prominent citizens of Dubai, and is vested with the authority to liquidate Galadari's assets, pay Galadari's creditors, and bring and defend actions on behalf of the Galadari "estate." Decisions of the Committee may be appealed to a three-member judicial committee established for this purpose. We have noted that the decree which established the Committee "appears to be Dubai's first attempt to frame an insolvency law." Drexel II, 777 F.2d at 881.

Galadari had served as chairman of Union's board of directors, and had also controlled A.W. Galadari Holdings (Private) Ltd. ("Holdings"), a Dubai corporation that owned forty-six percent of Union's stock. Galadari's business ventures also included A.W. Galadari Commodities ("Commodities"), a partnership managed by Galadari that engaged in commodities trading on United States exchanges. Commodities conducted trading through, inter alia, accounts maintained with Drexel and Refco.

A. The Drexel Action.

The Drexel action stems from certain trading losses incurred by Galadari in 1982 and covered by a Drexel affiliate, Drexel Burnham Lambert International, N.V. ("Drexel International"). In satisfaction of the resulting debt, Galadari and Commodities provided a promissory note (the "Note") in the amount of $19,465,000 to Drexel International, secured by a pledge of 6,068,640 shares of Union stock. Drexel International assigned the Note to Drexel in October 1982.

Galadari and Commodities made some payments of principal on the Note that reduced the principal outstanding by $7,000,000, as well as some payments of interest, but defaulted and ceased payments in February 1984. Drexel made an initial demand for payment of the balance due on the Note to the Provisional Board, which the Board rejected. On April 12, 1984 Drexel instituted the present action against Galadari and Commodities seeking recovery on the Note. On April 17, 1984, the Committee was established by royal decree to wind up Galadari's affairs.

On May 17, 1984, the Committee filed an answer to Drexel's complaint "on behalf of Galadari and Commodities" that set forth numerous affirmative defenses, including (1) lack of subject matter jurisdiction, and (2) deference in favor of proceedings conducted by the Committee on the basis of (a) international comity, and (b) the act of state doctrine. The Committee did not then assert the defense of foreign sovereign immunity.

On May 24, 1984, Drexel moved for summary judgment. The Committee cross-moved to stay or dismiss the action on the grounds of (1) lack of subject matter jurisdiction, (2) international comity, and (3) the act of state doctrine. The district court denied Drexel's motion and the Committee's cross-motion insofar as it rested upon lack of subject matter jurisdiction and the act of state doctrine, but dismissed the complaint on the basis of international comity. See Drexel I, 610 F.Supp. at 117-19.

Drexel appealed from the dismissal on the basis of comity, and the Committee cross-appealed from the refusal to dismiss on grounds of subject matter jurisdiction and the act of state doctrine. We affirmed on the cross-appeal, but vacated the dismissal of the action and remanded for an evidentiary hearing on the question whether comity called for deference to the Committee's proceedings in Dubai. See Drexel II, 777 F.2d at 881-82. We noted that "our courts have had no experience with Dubai bankruptcy practices and procedures," id. at 881, and that Drexel had not had an opportunity to conduct discovery regarding these procedures. See id.

Drexel then moved in the district court to enjoin the Committee from proceeding with the adjudication of Drexel's claim in Dubai. In a memorandum of law filed in response to Drexel's motion, the Committee noted that "Drexel's application for injunctive relief represents the first time in this action that any claim for relief has been asserted against the Committee itself, as distinguished from the two named defendants," and added that "[i]f Drexel believes it has a basis for a claim against the Committee, it should be required to move for leave to amend its complaint or bring a new action, naming the Committee as a defendant ... and providing the Committee with a proper opportunity to ... assert its immunity from suit under the [FSIA]."

The district court denied Drexel's application for a preliminary injunction. See Drexel III, 1986 WL 4692 at * 1-2. In a subsequent opinion, the district court found that "[t]he Dubai bankruptcy decree and proceedings at issue here have been shown by [the Committee] to be consistent with our basic notions of fairness and due process" and to be "fundamentally fair to all creditors." Drexel IV, 1987 WL 6164, at * 18, 1987 U.S.Dist.LEXIS 5030, at * 49. The district court accordingly stayed this action pending resolution of Drexel's claims in Dubai. Id. 1987 WL 6164, at * 26, 1987 U.S.Dist. LEXIS 5030, at * 71.

B. The Refco Action.

As in the case of Drexel, the dispute concerning Refco originated in trading losses incurred by Galadari and Commodities and covered by Refco. It is undisputed that Galadari and Commodities owed Refco $6,109,664.20 pursuant to (1) a customer agreement between Refco and Galadari dated March 24, 1983, and (2) a letter agreement dated July 6, 1983 that was executed by Galadari on his and Commodities' behalf. The letter agreement acknowledged the $6,109,664.20 debt and specified terms of repayment. Refco received $1.5 million in payments on this debt, leaving an...