Drexel Burnham Lambert Group Inc. v. Galadari
| Decision Date | 02 December 1985 |
| Docket Number | 85-7532,Nos. 85-7466,s. 85-7466 |
| Citation | 777 F.2d 877 |
| Parties | The DREXEL BURNHAM LAMBERT GROUP INC., Plaintiff-Appellant, Cross-Appellee, v. A.W. GALADARI and A.W. Galadari Commodities, Defendants-Appellees, Cross-Appellants. |
| Court | U.S. Court of Appeals — Second Circuit |
Charles E. Dorkey, III, New York City (Richards O'Neil & Allegaert, Paul J. Hanly, Jr. and Edward L. Powers, New York City, of counsel), for plaintiff-appellant, cross-appellee The Drexel Burnham Lambert Group Inc.
Carlton R. Asher, Jr., New York City (Gaston Snow Beekman & Bogue, Richard E. Nathan and Donald R. Korobkin, New York City, of counsel), for defendant-appellee, cross-appellant the Committee of Receivers for A.W. Galadari and A.W. Galadari Commodities.
Before FEINBERG, Chief Judge, VAN GRAAFEILAND and MESKILL, Circuit Judges.
The Drexel Burnham Lambert Group Inc. (Drexel) appeals from a judgment of the United States District Court for the Southern District of New York (Motley, C.J.) granting the motion of the Committee of Receivers for defendants A.W. Galadari and A.W. Galadari Commodities (Commodities) to dismiss this action on the ground of international comity. 610 F.Supp. 114. The Committee cross-appeals from the judgment insofar as it denied the Committee's motion to dismiss on the grounds of lack of subject matter jurisdiction and the act-of-state doctrine. Because we are unable to determine from the present record whether dismissal based on comity was warranted, we vacate the part of the district court's judgment that granted the Committee's motion to dismiss and remand for further development of the record on the comity issue. As to the balance of the judgment dealing with the jurisdictional and act-of-state issues, we affirm.
Prior to 1983, Galadari, a citizen of Dubai, United Arab Emirates, and Commodities, a partnership managed by Galadari, were speculators in commodities on United States exchanges. They conducted much of their speculative activities through accounts maintained with Drexel Burnham Lambert International, N.V. (Drexel International), a wholly-owned foreign subsidiary of Drexel, a Delaware corporation with offices in New York. In 1982, Galadari and Commodities gave Drexel International a promissory note for $19,465,000 to cover substantial investment losses they had incurred. This note was executed and delivered in New York, and its terms were to be construed under the laws of New York. As collateral, Galadari pledged 6,068,640 shares of Class B Capital Stock of the Union Bank of the Middle East (Union), which then was one of the largest banks in the United Arab Emirates. Galadari controlled the holding company that owned some forty-six percent of Union's shares. He also was Chairman of Union's Board of Directors, a position he held until late 1983.
On October 28, 1982, Drexel International assigned the note to Drexel. In July 1983, after partial payments totaling around $7,000,000 had been made, the payors defaulted in payments of principal; in March 1984, they discontinued payments of interest. On April 12, 1984 Drexel commenced this action to recover on the note by serving Galadari's and Commodities' designated agents in New York; Galadari also was served personally in Dubai.
Neither Galadari nor Commodities appeared in the action. Instead, a Committee of Receivers, appointed with respect to the defendants' assets and financial affairs by a decree of the Government of Dubai, dated April 17, 1984, purported to answer on their behalf. In addition to general denials, the Committee's answer set forth twenty-five affirmative defenses, including failure to state a claim, absence of necessary parties, failure to mitigate damages, contributory negligence, assumption of the risk, estoppel, waiver, ratification, lack of reliance, lack of standing, the statute of frauds, laches, failure to properly plead, lack of personal jurisdiction, insufficient service of process, forum non conveniens, account stated, accord and satisfaction, collusive assignment, the act-of-state doctrine, and comity. As we listened to the subsequent arguments of the Committee's counsel with respect to comity, we could not help but recall that it was he who signed this pleading, certifying thereby that "to the best of his knowledge, information, and belief formed after reasonable inquiry it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law...." Fed.R.Civ.P. 11. The answer demanded judgment dismissing the complaint with or without prejudice, together with costs, disbursements and attorneys fees.
On May 24, 1984, Drexel moved for summary judgment on the note. Neither the two named defendants nor the Committee of Receivers opposed Drexel's motion on the merits. Instead, the Committee moved to stay or dismiss the action on three grounds--lack of subject matter jurisdiction, the act-of-state doctrine and international comity. Although the district court denied the part of the Committee's motion that was based on the absence of subject matter jurisdiction and the act-of-state doctrine, it dismissed Drexel's complaint on the ground of international comity. 610 F.Supp. at 119. The court reached this decision without an evidentiary hearing, relying solely on affidavits.
According to the Committee's affidavits, on April 16, 1984 (four days after the commencement of this lawsuit), the Government of Dubai purchased all of Galadari's Union shares, purportedly including those held by Drexel as collateral security. One day later, H.E. Sheikh Maktoum Bin Rashid Al Maktoum, Crown Prince and Deputy Ruler of Dubai, issued a decree, which established a Committee of Receivers to liquidate the assets of Galadari and his various companies and prescribed the general guidelines pursuant to which the Committee was to effect the liquidation.
Under those guidelines, Drexel's promissory note fails to qualify as a secured debt on two grounds. First, the decree explicitly excludes all Union shares from the universe of Galadari assets, i.e., the receivership estate. Second, the decree recognizes as secured debt only those securities in the possession of a claimant that were notarized and registered, if capable of registration, and it appears that the Union shares pledged to Drexel were neither notarized nor registered.
The Committee maintains that the decree was simply one in a series of steps taken by the Dubai government to head off the economic disaster threatened by the collapse of the Galadari financial empire. Through that emergency measure, the Committee maintains, Dubai seeks to ensure the equitable distribution of Galadari's assets in a manner consistent with the laws of both the United States and Dubai.
Drexel contends, on the other hand, that the Dubai decree is simply a fraudulent attempt to deprive Drexel of its security interest in the pledged Union shares and, as such, deserves no deference in the United States courts. According to Drexel, the decree's double-barreled exclusion of Drexel's security interest runs counter to both United States law and policy and preexisting Dubai law. Drexel contends further that, in contrast to the procedure under the laws of the United States, the Committee will function in the dual role of a bankruptcy trustee and a bankruptcy court and its actions will be subject to very limited appellate review. Moreover, says Drexel, the Dubai decree makes no provision for a meeting or committee of creditors or for notice of sale of the debtor's property. In view of the parties' conflicting claims, the district court should have inquired more fully into whether the treatment Drexel could expect to receive from the Dubai Committee comported with this Country's notions of fairness and due process before it abstained in favor of the Committee.
As we have observed only recently, "American courts have consistently recognized the...
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