Abou-Khadra v. Mahshie

Decision Date29 November 1993
Docket NumberD,ABOU-KHADRA,1131,ABOU-KHADR,1025,Nos. 1023,1024,s. 1023
Citation4 F.3d 1071
PartiesRICO Bus.Disp.Guide 8380 Ismail; Contractors Services Establishment; and Saudi Preinsulated Pipes Industries, Plaintiffs-Appellants-Cross-Appellees, v. George T. MAHSHIE, Defendant, Abdallah G. Bseirani; AGB International Management Corporation; and Pittcon Preinsulated Pipes Corporation, Defendants-Appellees-Cross-Appellants. Abdallah G. BSEIRANI; AGB International Management Corporation; and Pittcon Preinsulated Pipes Corporation, Plaintiffs-Appellees-Cross-Appellants, v. Wasfieh, Defendant, George T. Mahshie and Tony Deeb, Defendants-Appellants-Cross-Appellees. ockets 91-7961, 91-9153, 91-9193, 91-9195.
CourtU.S. Court of Appeals — Second Circuit

James D. Lantier, Smith, Sovick, Kendrick, Schwarzer & Sugnet, P.C., Syracuse, NY, for George Mahshie.

David E. Peebles, Syracuse, NY (Martha L. Berry, Hancock & Estabrook, Syracuse, NY, of counsel), for Abdallah G. Bseirani, AGB Intern. Management Corp. and Pittcon Preinsulated Pipes Corp.

Before: LUMBARD, NEWMAN and WINTER, Circuit Judges.

WINTER, Circuit Judge:

Ismail Abou-Khadra, Contractors Services Establishment ("CSE"), Saudi Preinsulated Pipes Industries ("SPPI"), Tony Deeb and George Mahshie appeal from judgments of several million dollars entered against them. 1

Their appeals raise a tangle of issues complicated by the fact that they chose not to raise many of them in the district court. We affirm the findings of liability as to Abou-Khadra, CSE and SPPI, but we vacate the judgment entered against them and remand to the district court to modify that judgment. Because there was insufficient evidence of Deeb's connection to any wrongdoing, we reverse the judgment against him. Finally, because a number of errors prejudicial to Mahshie were made during the trial, we reverse the judgment against him and remand to the district court for proceedings consistent with this opinion.

BACKGROUND
A. The Parties

Appellant Ismail Abou-Khadra is a citizen and resident of Saudi Arabia. In 1975, Abou-Khadra established appellant CSE, a Saudi Arabian entity engaged in the sale of building supplies.

Appellee Abdallah G. Bseirani was born in Syria and educated in Lebanon and the United States. He is now an American citizen. After working for a number of years for Carrier International Corporation's Middle Eastern and East African operations, Bseirani resigned in 1976 to begin his own company. He formed appellee AGB International Management Corporation ("AGBI"), a New York corporation that represents the interests of American manufacturers of heating, ventilation and air-conditioning equipment in the Middle East.

Appellant George T. Mahshie is an attorney practicing in Syracuse, New York, who, prior to the events giving rise to this action, had been associated with both Abou-Khadra and Bseirani.

Appellant SPPI is a Saudi Arabian sole proprietorship owned by Abou-Khadra, which is licensed by the Saudi Ministry of Industry to produce preinsulated pipe--pipe designed to transport gases and liquids at a constant temperature--at a manufacturing facility located in Saudi Arabia.

Appellee Pittcon Preinsulated Pipes Corporation ("Pittcon") is a New York corporation formed by Bseirani, who is the president and sole shareholder. Pittcon currently holds a process patent for the manufacture of preinsulated pipe and trademark for its name as applied to that pipe. Bseirani had purchased this trademark and patent in 1981 from Pittcon Systems Company.

Appellant Tony Deeb is a Lebanese citizen who was hired by Bseirani in 1981 to assist in Bseirani's and Abou-Khadra's Saudi Arabian operations.

B. The CSE Arrangement

In the late 1970s, Bseirani became interested in selling heating, ventilation and air-conditioning equipment in Saudi Arabia. However, Saudi law prohibits a non-Saudi entity from importing products for sale in Saudi Arabia unless sponsored by a Saudi entity. In November 1978, Mahshie told Bseirani that Abou-Khadra might be interested in assisting Bseirani in setting up an import operation in Saudi Arabia.

Bseirani and Abou-Khadra engaged in a series of negotiations in Syracuse and Riyadh, Saudi Arabia. It is undisputed that, as a result of these negotiations, Abou-Khadra agreed to allow Bseirani to import heating, ventilation and air-conditioning equipment to sell in Saudi Arabia under the auspices of the then-dormant CSE and that Bseirani agreed to pay CSE's expenses and to guarantee CSE's debt or other liability. It is also undisputed that Bseirani agreed to pay Abou-Khadra a monthly fee. However, Abou-Khadra claimed that Bseirani agreed to pay him twelve percent of the gross sales of CSE, while Bseirani testified that he had agreed to pay Abou-Khadra twelve percent only of gross profits.

According to Bseirani, the terms of this agreement were reduced to writing in March 1979, with the assistance of Mahshie. Bseirani testified that on March 16, 1979, he signed a letter detailing the terms, and gave the letter to Mahshie, who purportedly assured Bseirani thereafter imported and sold heating, ventilation and air-conditioning equipment through CSE and, pursuant to the agreement, made periodic accountings and payments of amounts that he believed were owed to Abou-Khadra. In December 1983, Abou-Khadra allegedly confiscated the company from Bseirani. See Sec. D, infra.

Bseirani that Abou-Khadra received a copy. Mahshie allegedly told Bseirani that although the letter had not been signed by Abou-Khadra, it was binding upon him. Abou-Khadra, however, testified that he neither saw this letter nor consented to the provision for payment of twelve percent of CSE's gross profits rather than twelve percent of gross sales.

C. The SPPI Arrangement

During 1979, Bseirani discussed with Abou-Khadra the possibility of cooperation in opening a facility in Saudi Arabia to manufacture preinsulated pipe. Thereafter, Abou-Khadra founded SPPI as a sole proprietorship under Saudi law, and in 1980 applied on behalf of SPPI to the Saudi Ministry of Industry for a license to build a preinsulated pipe facility. In May 1981 the Ministry of Industry approved the application. At about the same time, and in preparation for the Saudi preinsulated-pipe operation, Bseirani established Pittcon, to which he transferred the recently purchased patent and trademark rights to the preinsulated pipe known as "Pittcon."

Bseirani testified that in September 1981, he sent Deeb to Saudi Arabia to continue negotiations with Abou-Khadra, specifically with regard to the capitalization of SPPI and the respective contributions of Bseirani and Abou-Khadra towards the needed capital. A series of meetings in Syracuse between Bseirani and Abou-Khadra followed. According to Bseirani, it was agreed that SPPI's initial capitalization would be $1 million and that Bseirani and Abou-Khadra would each hold a forty-nine percent equity interest in the company, with Mahshie holding the remaining two percent. This agreement was never reduced to writing, and Mahshie denied any such ownership interest.

In January 1982, Deeb again journeyed to Saudi Arabia. In connection with this trip, Bseirani instructed Deeb to obtain a $500,000 check from Bseirani's bank in Zurich and to give the check to Abou-Khadra. Bseirani testified that the $500,000 was to be his cash contribution to the capitalization of SPPI. Bseirani also testified that he asked Deeb to obtain a receipt from Abou-Khadra evidencing delivery of the check as Bseirani's capital contribution to SPPI. Deeb, however, never obtained such a receipt and at trial denied that Bseirani had asked for one. The $500,000 check was deposited into SPPI's account on February 16, 1982. The financial records of SPPI describe this deposit as "owner's equity." In March 1982, Abou-Khadra deposited approximately $500,000 of his funds into SPPI's account, also recorded as "owner's equity."

Bseirani became concerned that his equity interest in SPPI, which under Saudi law was a sole proprietorship owned by Abou-Khadra, had never been formalized. Thus, during Deeb's second trip to Saudi Arabia, Deeb met with a Saudi attorney, Antoine Abawatt, on Bseirani's behalf regarding the means by which Bseirani, a non-Saudi, might protect his interest in SPPI. Abawatt then prepared a report for Bseirani, outlining steps Bseirani might take to formalize his interest in SPPI. Deeb forwarded this report to Bseirani.

In March 1982, Deeb, who had discussed the matter with both Abawatt and Abou-Khadra, advised Bseirani that it was preferable to postpone formalization of Bseirani's interest. Deeb sent Bseirani the documents upon which this recommendation was based. Accordingly, Bseirani, who testified that he had discussed the matter with Abou-Khadra as well, agreed to put off formalizing his equity interest in SPPI.

In an attempt to facilitate approval of a loan from the Saudi Industrial Development Fund, SPPI and Pittcon entered into a license agreement on January 4, 1982. This agreement granted SPPI a license to use the Pittcon trademark and the patented process for producing Pittcon preinsulated pipe in Saudi Arabia. The license demonstrated to the Saudi Industrial Development Fund that SPPI was technically capable of manufacturing The loan application was finally approved in August of 1982. The funds, however, were not released until the middle of 1983. Because of a lack of funds prior to that time, Bseirani and Abou-Khadra both provided additional loans and capital contributions to SPPI. Bseirani also signed an employment agreement with SPPI which, he testified at trial, was necessary to his obtaining a work visa from the Saudi government. This agreement named Bseirani general manager of...

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