Refco, Inc. v. Galadari, 90 Civ. 1240 (CBM).

• Decision Date: 04 January 1991
• Docket Number: No. 90 Civ. 1240 (CBM).,90 Civ. 1240 (CBM).
• Citation: 755 F. Supp. 79
• Parties: 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.
• Court: U.S. District Court — Southern District of New York

755 F. Supp. 79

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.

No. 90 Civ. 1240 (CBM).

United States District Court, S.D. New York.

January 4, 1991.

Jack Weinberg, Therese M. Doeherty, Marianne Bretton-Granatoor, Graubard Mollen Horowitz Pomeranz & Shapiro, New York City, for plaintiff.

Carlton R. Asher, Jr., Bickel and Brewer, New York City, for defendants.

OPINION ON MOTION TO REMAND

MOTLEY, District Judge.

Plaintiff has submitted a motion to this court asking that this case be remanded to the state court from which it was removed by The Committee of Receivers for Abdul Wahab Bin Ebrahim Galadari and A.W. Galadari Commodities (The Committee).

Background

The facts of this case are complex and for the purpose of this motion it is not necessary to state them in detail. Galadari is a citizen of Dubai, United Arab Emirates who controlled a vast business empire. 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. In 1984, Refco commenced action against Galadari in the State Supreme Court in New York County by order to show cause containing a temporary restraining order which directed defendant to show cause why an order should not be entered granting Refco an order of attachment and directing the sheriff to levy on defendants' property to satisfy any judgement which might be obtained by Refco. See Refco v. Galadari, No. 18541/84 (Sup.Ct. New York Cty., August 10, 1984).

After two stipulations of adjournment, Galadari and the Committee opposed Refco's motion and in March 1985, the state court denied Refco's motion for an order of attachment but continued the restraining order as it pertained to a condominium in New York which Galadari maintained. In May 1985, the Committee filed a notice of appeal and a pre-argument statement. In September 1985, Galadari and the Committee moved for an order of dismissal, however, the above motions were withdrawn by stipulation in December 1985. In February 1986, the Committee moved for enlarging the time for perfection of the appeal. By stipulation between the parties, defendants had until March 27, 1990 to answer the complaint or to otherwise move.

Meanwhile in Dubai, Galadari was having severe financial problems stemming from the mismanagement of the Union Bank. On November 12, 1983 pursuant to a decree from the sovereign of Dubai (Decree Number 5), a provisional board was created to manage the Union Bank. This board was established, in part, to avert the "dire financial consequences to countless entities and many thousands of individuals in Dubai and in the region." See Drexel Burnham Lambert Group v. A.W. Galadari and A.W. Galadari Commodities, No. 84 Civ. 2602 (S.D.N.Y. January 29, 1987) at ¶ 13, 1987 WL 6164. The provisional Board also imposed a moratorium freezing all liabilities and began the liquidation of Galadari's assets.

In order to assure the fair and orderly liquidation and distribution of Galadari's business assets, the Government of Dubai issued Decree Number 3 on April 17, 1984.¹ Decree Number 3 established a Committee of Receivers to continue the work of the Provisional Board in managing and liquidating the non-banking business of Galadari. The Committee established a set of procedures which would allow for the submission of creditors' claims.

The Committee of Receivers 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-chairman 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. Id. at ¶ 67-71.

Since the Committee's inception it has marshalled and liquidated the assets of the estate and processed creditors claims. Id. at ¶ 72. When a claim is disallowed by the Committee an appeal may be taken to the Judicial Committee which is a special court established pursuant to the Decree. Id. Since the Committee's inception over 700 claims have been submitted in the aggregate amount of $770,000,000. See Aff. Aref at ¶ 6. Refco has participated in the proceedings before the Committee in Dubai and has asked for relief similar to that requested in this suit.

In January of 1987, this court in a substantially similar case ruled that the Dubai proceedings were entitled to comity and stayed the action filed in this court. Drexel Burnham Lambert Group, Inc. v. Galadari, 84 Civ. 2602 (S.D.N.Y., January 29, 1987).

On March 27, 1990, over five years after the action was first commenced in state court, the Committee removed the action to this court. Plaintiff presently has a motion before this court asking that the case be remanded to state court.

DISCUSSION

The Committee has removed this action pursuant to 28 U.S.C. § 1441(d) which states:

Any civil action brought in a State court against a foreign state as defined in 1603(a) of this title may be removed by the foreign state to the district court of the United States for the district and division embracing the place where such action is pending. Upon removal the action shall be tried by the court without a jury. Where removal is based upon this subsection, the time limitations of section 1446(b) of this chapter may be enlarged at any time for cause shown.

Plaintiff argues that the Committee is not a "foreign state" and as such cannot avail itself of the § 1441(d) extended time period. If defendant is not, as plaintiff contends, a "foreign state" then pursuant to § 1446(b) defendants would have had only thirty days to file a notice of removal after receiving a copy of the initial pleading. Thus the first question which this court must answer is whether a "foreign state" is involved in this case.

As previously stated § 1441 takes its definition of foreign state from § 1603(a) of the Foreign Sovereign Immunities Act (FSIA) which states:

A "foreign state", except as used in section 1608 of this title, includes a political subdivision of a foreign state or an agency or instrumentality of a foreign state as defined in subsection (b).

(b) An "agency or instrumentality of a foreign state" means any entity —

(1) which is a separate legal person, corporate or otherwise, and

(2) Which is an organ of a foreign state or political subdivision thereof, or a majority of whose shares or otherwise interest is owned by a foreign state or political subdivision thereof, and

(3) which is neither a citizen of a State of the United States as defined in section 1332(c) and (d) of this title, nor created under the laws of any third country.

Defendant contends that the Committee of Receivers is an agency or instrumentality of a foreign state as defined by the Foreign Sovereign Immunities Act. Plaintiff obviously takes the opposing position.

Unfortunately, the great majority of cases defining instrumentality or agency concern the question of whether a government owned commercial entity is an agency or instrumentality and thus are of little help in this case. Neither this court nor the parties have been able to find a case or legislative history which states what requirements an entity must meet to constitute a political subdivision in a non-commercial context. There is, however, some case law which provides a modicum of help in determining the unique facts of this case. In O'Connell Machinery Co., Inc. v. M.V. Americana, 734 F.2d 115, (2d Cir.), cert. denied, 469 U.S. 1086, 105 S.Ct. 591, 83 L.Ed.2d 701 (1984) the court found that an Italian shipping corporation was an agency or instrumentality of the Italian government when a majority of the corporation's shares were owned by an entity under the direct control of a public financial entity. Of interest in this case is the fact that the court found that an entity which coordinated the management of the commercial enterprises of the Italian government was an agency or instrumentality of the government. Id. at 116. Similarly, another court has found that the administrative arm of the Caribbean Regional Labour Board was an instrumentality of a foreign state. This labor board had the responsibility of negotiating labor arrangements between the British West Indian governments and the United States. Rios v. Marshall, 530 F.Supp. 351 (S.D.N. Y.1981). See also, Bowers for and on behalf of NYSA-ILA Pension Trust Fund v. Transportes Navieros Ecuadorianos (Transnave), 719 F.Supp. 166, 170 (S.D.N. Y.1989) (court gives weight to fact that the agency was created by presidential decree).

"According to the legislative history of the FSIA, political subdivisions were intended to include `all governmental units beneath the central government'" O'Connell, 734 F.2d at 116 (citing H.R.Rep. No. 1487, 94th Cong., 2d Sess. 15, reprinted in 1976 U.S.Code Cong. & Ad.News 6604, 6613. The legislative history further evinces the congresses intent that the definition of agency or instrumentality be broad. See Id. In addition, "Statements of foreign officials ... have been accorded great weight in determining whether an entity is entitled to claim the protection of the FSIA". S.S. Machinery Co. v. Masinexportimport, 706 F.2d 411, 415 (2d Cir.), cert. denied, 464 U.S. 850, 104 S.Ct. 161, 78 L.Ed.2d 147 (1983) (citing Yessenin-Volpin v. Novosti Press Agency, 443 F.Supp. 849, 854 (S.D.N.Y.1978)).

In this case, defendants have submitted the affirmation of Nabil Aref a member of the Committee and more importantly a director of the marine and road section of the Federal Ministry of Public Works in Dubai. Mr. Aref states that the Committee is an agency or instrumentality of the Government of Dubai because it was established specifically by the government...