Drexel Burnham Lambert v. Committee of Receivers
| Citation | 810 F. Supp. 1375 |
| Decision Date | 14 January 1993 |
| Docket Number | No. (CBM) and 90 Civ. 2140(CBM).,(CBM) and 90 Civ. 2140(CBM). |
| Parties | The DREXEL BURNHAM LAMBERT GROUP INC., Plaintiff, v. COMMITTEE OF RECEIVERS FOR A.W. GALADARI, et al.; The Emirate of Dubai, United Arab Emirates; A.W. Galadari; A.W. Galadari Commodities, a division of A.W. Galadari Holdings (Private) Limited, Defendants. REFCO, INC., Plaintiff, v. Abdul Wahab Bin Ebrahim GALADARI, A.W. Galadari Commodities, A.W. Galadari Holdings (Private), Ltd., the Committee of Receivers for Abdul Wahab Bin Ebrahim Galadari, A.W. Galadari Commodities and A.W. Galadari Holdings (Private), Ltd., and the Emirate of Dubai, United Arab Emirates, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Graubard Moolen Horowitz Pomeranz & Shapiro, New York City by Marianne Breton-Granatoor, Jack Weinberg, Therese Doherty, for plaintiff Refco, Inc Richards & O'Neill, New York City by Edward L. Powers, Natalie M. Gomez (Thomas W. Hill, Jr., West Palm Beach, FL, of counsel), for plaintiff Drexel Burnham Lambert Group, Inc.
White & Case, New York City by Richard W. Reinthaler, Dwight Healy, for defendant Committee of Receivers.
Gilbert, Segall and Young, New York City by H. Barry Vasios, for defendant Emirate of Dubai.
Defendants The Emirate of Dubai ("Dubai") and The Committee of Receivers for A.W. Galadari, et al ("the Committee") separately move to dismiss the amended and supplemental complaints of the plaintiffs The Drexel Burnham Lambert Group Inc. ("Drexel") and Refco, Inc. ("Refco"). Both motions, of Dubai and of the Committee, are denied.
Plaintiffs Drexel and Refco move jointly for security against Dubai and the Committee for costs, judgment, and potential sanction. Drexel's motion, as to costs not including attorneys fees, is granted. Refco's motion, as to costs including attorneys fees, is granted. Security covering the judgment and possible sanctions is denied as to both Drexel and Refco.
Plaintiffs in these consolidated actions seek damages from the government of Dubai, a sovereign government which is a political subdivision of the United Arab Emirates ("U.A.E."), and the Committee, an agency or instrumentality of the government of Dubai. Plaintiffs base their claims on (a) governmental acts performed by the government of Dubai in Dubai and (b) acts of the Committee on the purported grounds that the government of Dubai was the "alter ego" of the Committee.
The activities undertaken directly by the government of Dubai were the issuance of official Decrees in 1983 and 1984 by the then Deputy Ruler and the initiation of its purchase of what ultimately proved to be approximately 80% of the outstanding shares of the Union Bank of the Middle East ("UBME") in connection therewith. The Decrees were promulgated in response to the severe financial and economic problems which had arisen in Dubai as a result of the insolvency of defendant Galadari, a resident of Dubai, and companies owned or controlled by Galadari.
In February 1983, Galadari and Galadari Commodities ("Galadari") opened a number of trading accounts with Refco, an Illinois corporation. As of November 1983, Refco alleges that Galadari owed a debt of $4,609,664.20. Drexel originally brought an action for breach of contract in connection with a promissory note ("Note"). The Note was made in favor of Drexel Burnham Lambert International N.V. ("Drexel International") which was organized in the Netherlands Antilles and has its administrative offices in London, England. The Note, in the amount of $19,465,000.00, was executed on September 14, 1982, by defendant A.W. Galadari, both personally and on behalf of defendant A.W. Galadari Commodities, which was described as a partnership that Mr. Galadari managed. The Note was assigned to Drexel by Drexel International on October 28, 1982, the principal having been reduced by payment to $12,465,000.00, was secured by 6,068,640 shares of the UBME, a bank which Galadari controlled.
Meanwhile in Dubai, Galadari was having severe financial problems stemming from the mismanagement of the UBME. On November 12, 1983, pursuant to a decree from the sovereign of Dubai (Decree No. 5), a Provisional Board of Directors of the UBME was created to manage the UBME. See The Drexel Burnham Lambert Group, Inc. v. Galadari, 84 Civ. 2602, 1987 WL 6164, 1987 U.S.Dist. Lexis 5030 (S.D.N.Y. Jan. 29, 1987) ("Galadari II") at ¶ 18. Decree No. 5 provided for the vesting of the assets of Galadari and his companies in the Provisional Board, imposed a moratorium freezing all liabilities and began the liquidation of Galadari's assets.1
On April 17, 1984, Dubai issued Decree No. 3.2 Decree No. 3 provided for insolvency proceedings in Dubai against Galadari and his companies by creating a Committee of Receivers to continue the work of the Provisional Board in managing and liquidating the non-banking businesses of Galadari, empowering it to marshal and liquidate the assets of Galadari and his companies, to adjudicate claims against the debtor estates and to pay out valid claims from those assets. See Galadari II, at ¶ 26. The Committee established a set of procedures which would allow for the submission of creditor's claims.
The Committee consists of Mr. Rostamani, a member of the business community of Dubai, Mr. Abdulla Lootah who is in charge of the purchasing section of the Federal Ministry of Finance, Mr. Hassan Ibn al Shiekh, vice-chairperson of the Chamber of Commerce of Dubai and Mr. Nabil Aref, director of the marine and road section of the Federal Ministry of Public Works. Galadari II, at ¶ 67-71.
Since the Committee's inception it has marshalled and liquidated the assets of the estate and processed creditors claims. Galadari II, 87017211 at ¶ 72. Since the Committee's inception over 700 claims have been submitted in the aggregate amount of $770,000,000. See Declaration of Nabil Aref, dated Sept. 6, 1990, Exh. 12 to Reinthaler Aff at ¶ 6. Both Drexel and Refco have participated in the proceedings before the Committee in Dubai seeking recovery of debts owed by Galadari.
The central claims in the amended and supplemental complaint against Dubai and the Committee are that through the issuance of Decree No. 3 (), Dubai and the Committee confiscated the security interest and claims of Drexel and Refco.
This court has rendered several prior opinions which give more detailed background as to these proceedings.3 Familiarity with these opinions is assumed for the purposes of this opinion. This matter is currently before the court on the motions of Dubai and the Committee to dismiss the amended and supplemental complaint of Drexel and Refco and on the motion of Drexel and Refco for a security against Dubai and the Committee to secure costs, judgment, and possible sanctions. These motions follow this court's June 1991 lifting of a stay that it had entered on January 29, 1987 and January 4, 1991 pending proceedings in Dubai.4
The Foreign Sovereign Immunities Act ("the FSIA") was passed by Congress in 1976 to codify standards for the judicial treatment of foreign sovereigns and their agencies and instrumentalities.5 For more than a century and a half prior to the enactment of the FSIA, courts in this country had generally granted complete immunity to foreign sovereigns or deferred to the decisions of the Executive Branch. See Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 486-87, 103 S.Ct. 1962, 1967-68, 76 L.Ed.2d 81 (1983) ().
In 1952, the State Department adopted the Tate Letter,6 calling for the application of a "restrictive" theory of foreign sovereign immunity. The restrictive theory of sovereign immunity allows immunity for the public acts of a foreign sovereign while the commercial acts or private acts of a foreign sovereign are not immune. Verlinden, 461 U.S. at 487, 103 S.Ct. at 1968; See also Jet Line Services, Inc. v. M/V Marsa El Hariga, 462 F.Supp. 1165, 1169 (D.Md. 1978). Because the restrictive theory was not initially codified, court decisions regarding immunity were made upon recommendations from the State Department that were often shaped by diplomatic pressures from foreign nations. As a result, the case-by-case application of the restrictive theory in matters involving foreign sovereign immunity lacked uniformity and equity. See Verlinden, 461 U.S. at 487-88, 103 S.Ct. at 1968. Congress, therefore, passed the FSIA in order to free the Government from the case-by-case diplomatic pressures of Executive Branch directed determinations, to clarify the applicable standards, and to ensure due process in matters involving foreign sovereigns. Verlinden, 461 U.S. at 488, 103 S.Ct. at 1968; See also Jet Line Services, 462 F.Supp. at 1170.
The FSIA codifies as federal law the restrictive theory of sovereign immunity. Verlinden, 461 U.S. at 488, 103 S.Ct. at 1968. In most instances, foreign states are immune from the jurisdiction of the United States courts. Exceptions to that general rule include cases in which the foreign state has explicitly or implicitly waived its immunity or in which the foreign state has engaged in commercial activity or when one of the other specified exceptions of the FSIA applies. Verlinden, 461 U.S. at 488, 103 S.Ct. at 1968. In such exceptional cases, the foreign state is "liable in the same manner and to the same extent as a private individual under like circumstances." Verlinden, 461 U.S. at 488-89, 103 S.Ct. at 1968-69 (quoting FSIA 28 U.S.C. § 1606).
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