North South Finance Corp. v. Al-Turki
| Decision Date | 25 September 1996 |
| Docket Number | No. 96-7290,No. 245,AL-TURKI,D,AL-AALI,245,96-7290 |
| Parties | NORTH SOUTH FINANCE CORPORATION; DALIA PRODUCT CORPORATION; ALEF INVESTMENT CORPORATION N.V.; SAUDIA ARABIAN AND EUROPEAN FIANANZ CORP., B.V.; SAUDI EUROPEAN INVESTMENT CORPORATION, N.V., Plaintiffs-Appellants, v. ABDULRAHMAN A.; SAAD ALISSA; ROGER TAMRAZ; AHMED MANNAI; ABDULLAH TAHA BAKHSH; JAMAL JAWA; TALAT OTHMAN; SRICHAND PARMANAND HINDUJA; GOPICHAND PARMANAND HINDUJA; PRAKASH PARMANAND HINDUJA; AMAS LIMITED; AMAS UK LTD.; AMAS S.A.; AMAS SECURITIES INC.; ABDELAZIZ A. AL FADDA; ADEL; HAJI HASSAN TRADING AND CONTRACTING CO.; ALI ABDULLAH TAMIMI; ABDULLAH ABBAR; AHMED A. ZAINY; YUSEF BIN AHMED KANOO; SAMIR TRABOULSI; ABBAS GOKAL; GULF INTERNATIONAL HOLDINGS S.A.; CHARLES KEATING; INVESTCORP S.A.; ABDULRAHMAN SHARBATLY; ABDULLATIF ALI ALISSA, MARINO B. CHIAVELLI; ASHOK PARMANAND HINDUJA; ABDULAZIZ KANOO; ABDULLAH KANOO, Defendants, BOUYGUES S.A.; SOCIETE CIVILE DE LABORDERE; SOCIETE DE BANQUE PRIVEE (SBP); FRANCE CONSTRUCTION S.A.; DEMACHY WORMS & COMPAGNIE; WORMS & CO., INC.; MAISON WORMS & COMPAGNIE; WORMS & COMPAGNIE; SOCIETE D'ANALYSES ET D'ETUDES BRETONNEAU; SOCIETE D'AMENAGEMENT URBAIN ET RURAL, Defendants-Appellees. ocket Argued: |
| Court | U.S. Court of Appeals — Second Circuit |
Appeal from a final judgment of the United States District Court for the Southern District of New York (Cedarbaum, J.) Mark A. Cymrot, Washington, DC (Baker & Hosteler, Washington, DC, on the brief), for Plaintiffs-Appellants.
Robert Ted Parker, San Francisco, CA (Jeffrey B. Kirschenbaum, Douglas A. Applegate, Berg, Ziegler, Anderson & Parker LLP, San Francisco, CA, Barry M. Bernstein, Bernstein & Arandia, New York City, on the brief), for Defendants-Appellees Bouygues S.A., et al.
Bruce H. Schneider, New York City (Michelle L. Pahmer, Stroock & Stroock & Lavan, New York City, on the brief), for Defendants-Appellees Demachy Worms & Compagnie, et al.
Before: WALKER and JACOBS, Circuit Judges, and CARMAN, Judge.*
At issue on this appeal is the extraterritorial reach of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 USC 1961 et seq., specifically, the application of RICO to a dispute among groups of foreign companies and foreign nationals, arising out of the 1989 sale and reorganization of a French bank named Saudi European Bank ("SEB"). The plaintiffs -- none of them American -- are the holding companies that owned and eventually sold SEB, and the majority stockholders of the holding companies.1 They allege under RICO a pattern of racketeering by two French investment banking groups that acquired the successor entity of SEB: the Bouygues Group and Worms Group.2 The complaint alleges (in relevant part) that the Bouygues and Worms Groups:
(1) artificially depressed the sale price of SEB by corrupting the bank's general manager in Paris, who then understated the bank's liquidity for financial and regulatory purposes and misused information drawn from company sources (including a New York office); and
(2) manipulated post-sale transactions (some of them executed in New York) so that contingent payments of the purchase price would be fraudulently reduced or eliminated.
The United States District Court for the Southern District of New York (Cedarbaum, J.) ruled that the extraterritorial reach of RICO in a given case is determined by whether the "conduct" of the defendants in the United States "was material to the completion of a racketeering act." Holding that the plaintiffs here "failed to allege facts that show that the conduct of the members of the Bouygues or Worms Groups in the United States" met that test, the court dismissed the claims at issue on appeal for lack of subject matter jurisdiction.3 No appeal has been taken from the dismissal (on other grounds) of claims against other defendants and of certain additional claims against Bouygues and Worms.
We do not decide whether the test applied by the district court is the only available test; but no appeal has been taken on that issue. We affirm the district court's dismissal of the RICO claims against Bouygues and Worms on the ground -- relied upon by the district court -- that the conduct alleged to have been done by the defendants in the United States is insufficient to support subject matter jurisdiction under RICO.
When reviewing a district court's dismissal of a complaint for lack of subject matter jurisdiction, we must assume that the material factual allegations in the complaint are true. See Atlantic Mut. Ins. Co. v. Balfour Maclaine Int'l Ltd., 968 F.2d 196, 198 (2d Cir. 1992) (citing Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)).
According to the amended complaint, the Bouygues Group used promises of future employment to enlist SEB's general manager, Eric Guillemin, in a corrupt scheme. Bouygues acted through its Chairman, Francis Bouygues and another high-ranking Bouygues employee named Jean-Francois Fonlupt. They induced Guillemin to prepare false daily reports, overstating SEB's liquidity problems, for circulation to French regulatory authorities, as well as to SEB management and one of SEB's holding companies, while the true and more encouraging results were conveyed to Fonlupt in regular phone conversations.4 Guillemin also instructed his staff to take steps concerning interbank loans and deposits so that SEB's apparent liquidity would be falsely understated. Although Guillemin did these things in his office in France, the liquidity reports concerned all of SEB's agencies, including the New York office.
It is also alleged that Guillemin disclosed confidential information about the bank's assets and operations to Fonlupt, and assisted Fonlupt in devising strategies for negotiating with SEB management and the holding company. Some of this confidential information was obtained through telephone calls placed in France to SEB's New York office. After Bouygues and Worms acquired the bank, Guillemin was named Director General of SEB's reorganized successor, a preferment allegedly given as a reward for Guillemin's disloyalty to SEB.
It is further alleged that Bouygues and Worms stirred up regulatory pressure in France that was calculated to force the sale of SEB and to drive down the purchase price that Bouygues and Worms would pay for it. Thus (during negotiations in France for the sale of SEB), Fonlupt took the confidential information provided by Guillemin and gave it to Arthur Andersen & Co., which conducted an audit of SEB's books and records in Paris and New York. Arthur Andersen then allegedly prepared a report that falsely understated SEB's apparent net worth. The Bouygues and Worms Groups used the audit report and the liquidity reports to bolster false statements to French Banking authorities. Using these techniques, the Bouygues and Worms Groups allegedly threatened to cause French regulators to close SEB, and improperly acted to influence the Bank of France to pressure SEB to sell its assets.
Finally, it is alleged that Bouygues and Worms induced SEB's holding company to sell the bank to them by falsely stating that the low sales price would be supplemented by future payments received on certain high-risk loans provisioned on SEB's books, which payments Bouygues and Worms never intended to make.
In December 1989, SEB's holding companies, SEIC and SAEFC, sold SEB to Maison Bouygues for the allegedly undervalued price of 20 million francs ($3.5 million) plus 85 percent of amounts to be recovered on the high-risk provisioned loans.5 After the sale, SEB was reorganized and renamed Societe de Banque Privee ("SBP"). Plaintiffs allege that, although SBP has made collections on the loans that were provisioned on SEB's books, SEIC and SAEFC have never received the share that is due to them. According to the amended complaint and a supplemental RICO statement, Bouygues and Worms have evaded their payment obligations under the sales agreement by manipulating which entities received the payments on the provisioned loans, reorganizing SBP into two new entities, and closing SBP's New York office.
Some of the provisioned assets were outstanding loans on the books of SBP's New York office. In order to avoid paying plaintiff's their share of the amounts recovered on these loans, defendants allegedly concealed their successful collections (1) by manipulating the entities receiving payment of the provisioned assets, (2) by transferring money from the New York to the Paris office, (3) by channeling collections directly to the Bank's Paris office, and (4) by omitting collections made in New York from the accounting statements provided to plaintiffs. In addition, the management of SBP Paris decreased the asset base of the New York office by withdrawing funds and misdirecting loan payments. SBP Paris then notified the New York State Banking Department of its plan to close the New York office.
When SBP was on the verge of closing its New York office, the Resolution Trust Corporation ("RTC") obtained an injunction in federal district court in Arizona, barring SBP -- which allegedly owed funds to Lincoln Savings & Loan -- from reducing its assets in the United States below $9 million. Plaintiffs allege that SBP Paris violated the injunction by continuing to remove assets from the United States and by manipulating loan payments in order to avoid paying the plaintiffs, and concealed this misconduct by revaluing its balance sheets in July 1991. Following instructions from the Paris office, SBP New York overstated on its books the value or character of certain provisioned loans in order to create an illusion of compliance with the RTC injunction.
Plaintiffs commenced this action in April 1993, and filed an amended complaint on June 7, 1994. All defendants moved to dismiss the complaint on numerous grounds in September 1994. On November 21, 1994, plaintiffs moved for a preliminary...
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