Drexel Burnham Lambert Group, Inc. v. Galadari, 84 Civ. 2602 (CBM)
| Citation | 134 BR 719 |
| Decision Date | 19 March 1991 |
| Docket Number | 90 Civ. 1241 (CBM).,No. 84 Civ. 2602 (CBM),84 Civ. 2602 (CBM) |
| Court | U.S. District Court — Southern District of New York |
| Parties | The DREXEL BURNHAM LAMBERT GROUP, INC., Plaintiff, v. A.W. GALADARI and A.W. Galadari Commodities, Defendants. REFCO, INC., Plaintiff, v. Abdul Wahab Bin Ebrahim GALADARI and A.W. Galadari Commodities, Defendants, and the Committee of Receivers for Abdul Wahab Bin Ebrahim Galadari and A.W. Galadari Commodities, Additional Defendant. |
Thomas W. Hill, Jr., Edward L. Powers, Richards & O'Neil, New York City, for Drexel Lambert.
Carlton R. Asher, Jr., Robert L. Jauvtis, Bickel & Brewer, New York City, for A.W. Galadari Commodities & Committee of Receivers.
Jack Weinberg, Marianne Bretton-Granatoor, Graubard Mollen Horowitz, Pomeranz & Shapiro, New York City, for Refco, Inc.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This case is now before the court on a motion by plaintiff, The Drexel Lambert Group, Inc., to vacate the stay of this action. The stay order was entered by this court in January 1987 staying this action pending the outcome of receivership proceedings initiated by the government of Dubai, United Arab Emirates, relating to the business affairs of defendants, A.W. Galadari and A.W. Galadari Commodities. Drexel claims that it has been denied due process in the receivership proceedings in Dubai in that the Committee of Receivers appointed by the Dubai government has not, after seven years, decided or paid its claim and has not functioned fairly and impartially, as expected by this court in 1987 in staying the instant action.
Drexel's claim in this action arises out of a secured promissory note given to Drexel by A.W. Galadari and A.W. Galadari Commodities in New York in September 1982. The principal amount of the note is $19,465,000. The last payment of principal on the Note was made in August 1983, leaving a principal balance of $12,465,000. By the terms of the Note, the annual interest rate on the unpaid principal is 13.75 percent.
The Note is secured by six million shares of the Union Bank of the Middle East ("UBME"). The share certificates are printed in Arabic. Sometime after the Note was signed and the shares turned over to Drexel, Drexel translated the share certificates, which roughly translated, state that the owner of the shares is A.W. Galadari Holdings Limited, another company owned by A.W. Galadari.
On April 12, 1984, Drexel commenced this action. The defendants did not appear. However, the Committee of Receivers, appointed pursuant to Dubai Decree No. 3 of 1984 ("the Decree") did appear and answered Drexel's Complaint. Under the Decree, the Committee is charged with liquidating the assets of Mr. Galadari and his companies and distributing the funds to the Galadari creditors.
The Committee was and is represented in this action by Carlton R. Asher, Jr., then a member of the New York law firm Gaston & Snow. Mr. Asher is now with the firm Bickel and Brewer. The Committee's answer also bears the name of Richard E. Nathan, then a member of Gaston & Snow. Mr. Nathan has since left the firm. The Committee asserted twenty-five affirmative defenses to Drexel's claim, including defenses of failure to state a claim, failure to mitigate, waiver and ratification, account stated and accord and satisfaction.
Drexel timely filed its proof of claim with the Committee in Dubai on or about July 29, 1984.
In June 1984, the Committee moved to stay or dismiss the action in this court on the ground, inter alia, of international comity. This court granted the motion in 1985 and dismissed this action. On appeal, the Second Circuit remanded for further development of the record regarding the international comity defense raised by the Committee. 777 F.2d 877 (2d Cir.1985).
The Second Circuit noted that the Decree represented Dubai's first attempt to frame an insolvency law and that the proceedings in Dubai were "uncharted territory" for purposes of determining whether such proceedings comport with notions of fairness and due process, when compared to similar proceedings in the United States. Id. at 881.
Meanwhile, between April 1984 and late 1986, a period of about two and a half years, Drexel's claim was Drexel Burnham Lambert v. Galadari, 84. Civ. 2602 (S.D.N.Y. Jan. 29, 1987) at 31-32, ¶ 127, 1987 WL 6164 (hereinafter "Comity Order").
In mid-1986, Drexel discovered that the audited accounts for A.W. Galadari Holdings ("Holdings") for the year ended March 31, 1982, listed Commodities as a wholly-owned division of Holdings. Tr. 9-101; Comity Order at 32-33, ¶ 129. The group financial statements of Holdings, dated November 9, 1982, were signed by the Holdings Chairman, Mr. Galadari, and director, Abdus Sami, and audited by Peat Marwick Taseer Hadi in Dubai ("Peat Marwick Dubai"). Drexel 1986 Exh. KKK.
Drexel immediately advised the Committee that Drexel believed its claim should be paid from the Holdings' funds. Drex.Exh. A-6; Tr. 10. This is important because, under the Decree, each Galadari company is treated separately for the purpose of creditors. Drexel Exh. S ¶ 7(j). The Committee has acknowledged that while there are no funds to pay Drexel's claim from the proceeds of either Mr. Galadari's personal assets or those of Commodities, Holdings has substantial assets. 1986 Tr. 1187. The Committee has also assured this court that it has set aside sufficient Holdings funds to pay Drexel to the same extent it has paid other creditors of Holdings (90 percent of their claim). 1986 Tr. 1190; Tr. 10-11.
On remand, in October 1986, this court conducted an evidentiary hearing over a three-week period to determine whether the Dubai proceedings should be afforded comity deference. Both Mr. Asher and Mr. Nathan appeared and argued on behalf of the Committee during the hearing.
During the evidentiary hearing, the Committee represented to this court that it would act in accordance with due process in administering Drexel's claim. 1986 Tr. 1173-1176.
On the basis of this and similar representations and the evidence introduced by the Committee during the hearing in 1986, this court was persuaded that the Dubai proceedings would be conducted in a manner consistent with this Country's notions of fairness and due process. Order at 40, ¶ 10.
Since that time, at Drexel's instigation, this court has held periodic conferences with counsel for the Committee and Drexel as Drexel vented its frustration with the long delay in deciding the validity of its claim and making payment. During a May 1990 Conference, the court finally instructed Drexel to move to lift the stay of the action since the court would not lift the stay without an evidentiary hearing. Drexel made its motion and the hearing took place on January 16-18, 1991 and March, 18-19, 1991. After the January hearing, the parties were directed to submit Proposed Findings of Fact. On March 18 and 19, additional evidence was received as to the separate claim of Refco and oral arguments were heard on Drexel's claim. The parties were given ten days to file supplemental findings with respect to evidence offered on that date regarding Refco's claim.
For the reasons set forth below, Drexel's motion to lift the stay is granted, effective April 16, 1991, unless the Committee has decided Drexel's claim before that date.
First, this court finds and concludes that the Committee has failed to proceed with deliberate speed to decide Drexel's claim notwithstanding the fact that it has liquidated most of Galadari's assets and paid most of the claims before it. The Committee has had Drexel's claim before it for almost seven years without having reached a determination as to whether or not the claim will be paid. The Committee has advised that A.W. Galadari personally and A.W. Galadari Commodities do not have funds with which to pay its creditors but that another Galadari Company, Holdings, does have such funds. Thus the principal issue in this case is whether Commodities is a division of Holdings. For the last four years, the Committee has not determined this relatively simple issue. This delay has persisted in spite of the fact that the Committee has before it twenty-one different opinions regarding the issue (Drex.Exh. DD), including an opinion by the Committee's own special advisor, a Mr. Filler, who concluded in 1989 that Commodities was a division of Holdings, and reports from accountants to the same effect.
Notwithstanding these several opinions and substantial evidence in support of Drexel's contention that Commodities was a division of Holdings, the Committee has not decided the Commodities/Holdings issue. In 1986, this court was advised that a decision on this issue was only a few months away. This court has been given no satisfactory explanation as to why this issue has not been decided in the past four years by the Committee. When on March 18, 1991 this court expressed the view that the Committee had been dragging its feet, Mr. Asher presented the court on March 19, 1991 with a memorandum drafted by him for the Committee the night before advising the court that the Committee would decide the legal issues and Drexel's claim by April 15, 1991. The Committee had not previously given a date by which it would decide the Commodities/Holdings issue, or any other issue, despite repeated complaints, over the years, from Drexel to this court. A copy of the March 19, 1991 memorandum to this court is attached as court's Exhibit A. As one can observe, the two signatures on the memorandum are not legible and no name is typed under either signature.
Second, in spite of the representations of the Committee, via Mr. Asher, in 1986 that the Commodities/Holdings issue was the only major issue that remained to...
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