Alfadda v. Fenn
| Decision Date | 11 June 1997 |
| Docket Number | No. 90 Civil 4470 (LMM).,No. 89 Civil 6217 (LMM).,89 Civil 6217 (LMM).,90 Civil 4470 (LMM). |
| Citation | 966 F.Supp. 1317 |
| Parties | Abdulaziz A. ALFADDA; Abdullah Abbar; Abdulla Kanoo; Abdulaziz Kanoo; Yusif Bin Ahmed Kanoo (a Partnership Company); and Ahmed A. Zainy, Plaintiffs, v. Richard A. FENN; Jamal Radwan; Saudi European Investment Corporation N.V.; Saudi European Bank, S.A.; Alef Investment Corporation N.V.; Alef Bank, S.A.; Societe d'Analyses et d'Etudes Bretonneau; and Societe de Banque Privee (S.B.P.), Defendants. Abdulrahman A. AL-TURKI, Abdulrahman H. Sharbatly, Abdullatif A. Alissa, AND Saad A. Alissa, Plaintiffs, v. Richard A. FENN; Jamal Radwan; Saudi European Investment Corporation N.V.; Saudi European Bank, S.A.; Alef Investment Corporation N.V.; Alef Bank, S.A.; Societe d'Analyses et d'Etudes Bretonneau; and Societe de Banque Privee (S.B.P.), Defendants. |
| Court | U.S. District Court — Southern District of New York |
John M. Aerni, Leboeuf, Lamb, Greene & MacRae, L.L.P., New York City, Jeffrey R. Parsons, Beirne, Maynard & Parsons, L.L.P., Houston, TX, for Plaintiffs.
Frank H. Wohl, Lankler, Siffert & Wohl, New York City, for Société de Banque.
Robert Ted Parker, Berg, Ziegler, Anderson & Parker, San Francisco, CA, for Société d'Analyses et d'Etudes Bretonneau.
David R. Jewell, Donovan, Leisure, Newton & Irvine, New York City, for Saudi European Inv. Corporation, N.V., Alef Inv. Corp., N.V., Alef Bank, S.A., Jamal Radwan.
Plaintiffs in these consolidated actions (see Memorandum and Order, dated February 21, 1992, at 9.), all foreign nationals who reside in Saudi Arabia, commenced the instant actions because of injuries allegedly incurred as a result of their investment in defendant Saudi European Investment Corporation N.V. ("SEIC"), a Netherlands Antilles corporation. Plaintiffs allege violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1968; Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b); and state law.
Defendants SEIC, Alef Investment Corporation N.V. ("AIC"), Alef Bank, S.A. ("Alef Bank"), and Jamal Radwan ("Radwan") (collectively these defendants will be referred to as the "SEIC defendants") move: (1) for summary judgment dismissing all the claims against them in Al-Turki v. Fenn (90 Civ. 4470) (the "Al-Turki action") on the ground that the doctrine of issue preclusion bars relitigation of facts resolved by a previous French judgment; and (2) for dismissal of both the Al-Turki action and Alfalfa v. Fenn (89 Civ. 6217) (the "Alfadda action") on the ground of forum non conveniens. Defendant Societe de Banque Privee (S.B.P.) ("SBP") moves for dismissal of the claims against it in both the Al-Turki and Alfadda actions on the grounds that: (1) the Court lacks subject matter jurisdiction over plaintiffs' allegations against SBP; and (2) the doctrine of forum non conveniens.
For the reasons set forth below, the Second Amended Complaint in the Al-Turki action and the Third Amended Complaint in the Alfadda action are dismissed.1
All the plaintiffs are foreign nationals residing in Saudi Arabia. (Alfadda Compl. ¶¶ 5-8; Al-Turki Compl. ¶¶ 5-8.)2
Radwan, the only individual defendant, is a United States citizen who resides abroad, apparently in France.3 (Alfadda Compl. ¶ 11; Al-Turki Compl. ¶ 11; Radwan Decl., 10-21-96, ¶ 2; Jewell Aff., 10-30-96, Ex. H, at 2.) At all relevant times, Radwan was the chairman of SEIC and AIC, holding companies organized under the laws of the Netherlands Antilles. (Alfadda Compl. ¶¶ 16, 24; Al-Turki Compl. ¶¶ 16, 24; Jewell Aff., 10-30-96, Ex. D, at 2, 4, 7; Radwan Decl., 10-21-96, ¶ 1.)
Saudi European Bank, S.A. ("SE Bank"), a grandchild subsidiary of SEIC, and Alef Bank, a subsidiary of AIC, were French banks registered to do business in New York. (Alfadda Compl. ¶¶ 17, 25; Al-Turki Compl. ¶¶ 17, 25; Jewell Aff., 10-30-96, Ex. D, at 4.) Radwan was the chairman of SE Bank until 1989, when the bank was sold. (SE Bank 1983 Annual Report; Radwan Dep. 32.) SBP is also a French bank. (Alfadda Compl. ¶ 19; Al-Turki Compl. ¶ 19; Fonlupt Decl., 2-12-96, ¶ 2.) The only known address of Societe d'Analyses et d'Etudes Bretonneau ("Bretonneau") is in France. (Alfadda Compl. ¶ 18; Al-Turki Compl. ¶ 18.)
The nine-count complaints of the Alfadda and Al-Turki actions are substantially identical. In an earlier Memorandum and Order, the Court ordered separate trials for Counts I-VI and Counts VII-IX of the complaints. Alfadda v. Fenn, 1993 WL 526065 (S.D.N.Y. 1993). Counts I-VI include claims against all the defendants, and generally relate to alleged securities fraud violations perpetrated in 1984. Counts VII-IX include claims against Bretonneau and SBP only, and generally relate to the 1989 sale and reorganization of SE Bank.
The focus of plaintiffs' securities fraud and related claims concerns the 1984 offering of SEIC stock (the "1984 offering"). In conjunction with the 1984 offering, SEIC issued a prospectus entitled "Confidential Private Placement Memorandum" ("PPM"), dated January 5, 1984. Plaintiffs contend that the SEIC defendants, among others: (1) made material misrepresentations and omissions in the PPM regarding SEIC's financial condition and performance; (2) deliberately diluted plaintiffs' ownership interest in SEIC by issuing more than the 600,000 voting shares represented in the PPM; (3) charged plaintiffs an undisclosed premium for their shares, contrary to representations in the PPM; (4) diverted the proceeds from the 1984 offering to their own personal and fraudulent ends; and (5) concealed their fraudulent conduct.
Plaintiffs contend that, in 1982, Radwan, Abdulhadi Taher, a foreign national and former director of SE Bank, and other defendants including SE Bank, AIC, and Alef Bank engaged in a series of sham loans to manipulate the financial condition of SEIC and SE Bank. Specifically, plaintiffs allege that in March 1982, SE Bank loaned Unitel an entity controlled by Taher, $11 million at 17% interest with a drawdown date of March 17, 1982. On March 17, 1982, Unitel loaned $11 million to SEIC at 17.5% interest. Thereafter, SEIC loaned the $11 million to certain affiliates, which loaned the $11 million back to SE Bank. Plaintiffs contend that these loans artificially inflated the financials of SE Bank and SEIC's return on capital to its shareholders, which were fraudulently incorporated into the PPM. (Alfadda Compl. ¶ 36; Al-Turki Compl. ¶ 33.)
SEIC's original "Deed of Incorporation" authorized it to issue 40,000 voting shares of SEIC stock. In SEIC's original stock offering, it issued 20,000 of the authorized shares at $1,000 per share. In July 1979, Alfadda, an original shareholder of SEIC, paid $1 million for 1,000 voting shares of SEIC, which constituted 5% of the original voting shares issued, plus a $50,000 organization fee. (Alfadda Compl. ¶¶ 9, 33; Alfadda Decl., 6-12-90, ¶ 2.) SEIC represented to Alfadda that, as an original shareholder, he would receive a preference to purchase SEIC stock in subsequent offerings.
Around October 1983, SEIC planned the 1984 offering. SEIC engaged Ronald Reilly and his company, Capital International, Inc., a Texas corporation, to, among other things, help promote the 1984 offering to prospective investors. (Wohl Aff., 5-3-96, Ex. 27.) Reilly prepared the PPM on behalf of SEIC primarily in Paris. (Reilly Dep. 11.) Radwan agreed to have SE Bank act as both the paying agent and United States transfer agent for funds received from the 1984 offering. (Radwan Dep. 1404-05, 1484.) SE Bank used its account at European American Banking Corporation in New York City as the primary account for the deposit of subscription funds. (Alfadda Compl. ¶ 53; Al-Turki Compl. ¶ 52.) Alef Bank acted as the managing underwriter for the 1984 offering. (Jewell Aff., 10-30-96, Ex. D, at 1.)
Around the time of the 1984 offering, the original shares sold were split 30 for 1, creating 1.2 million authorized and 600,000 issued shares. The prospectus for the 1984 offering stated that another 600,000 voting shares (equal to 20,000 original shares split 30 for 1) were to be sold at $100 per share. In the event of an oversubscription, up to 1.8 million non-voting shares were to be issued. Subscribers to the 1984 offering were offered a "pre-emptive right to new share issues in order to maintain or increase their percentage of ownership in the company."4 (Jewell Aff., 10-30-96, Ex. D, at 11.)
Plaintiffs contend that defendants did not disclose that the 20,000 originally authorized, but unissued, voting shares were allocated to certain callable convertible "capital notes." When the capital notes were called by Radwan, around the time of the 1984 offering, the capital note makers converted them to voting shares at the original share price ($1,000 per share before the 30 for 1 split; $33.00 per share after the split).5 (See Radwan Dep. 88-89; Stanley Decl., 8-5-96, Ex. 6.)
Because of the existence of the allegedly undisclosed capital notes, plaintiffs contend that the 600,000 voting shares represented in the PPM were not the originally authorized, but unissued, shares, as plaintiffs were induced to believe, but were newly authorized shares. Thus, after the 1984 offering, SEIC had issued a total of 1.8 million, not 1.2 million, voting shares of stock, which diluted plaintiffs' interest in SEIC and contravened their preemptive rights. Plaintiffs contend that the 600,000 shares were issued to cover oversubscriptions of the SEIC voting stock under the 1984 offering and distributed to the makers of the converted capital notes. (See Alfadda Compl. ¶¶ 59, 69, 97; Al-Turki Compl. ¶¶ 60, 91, 101; see also Radwan Dep. 83, 88-89, 956; Stanley Decl., 8-5-96, Ex. 6; Fenn Dep. 1273-74, 1278.) Alfadda claims that defendants failed to notify him of the 1984 offering, and thus deprived him...
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