Sakab Saudi Holding Co. v. Aljabri
| Decision Date | 27 January 2023 |
| Docket Number | 22-1052 |
| Citation | 58 F.4th 585 |
| Parties | SAKAB SAUDI HOLDING COMPANY, Plaintiff, Appellant, v. Saad Khalid S. ALJABRI; Khalid Saad Khalid Aljabri; Mohammed Saad Kh Aljabri; New East (US) Inc.; New East 804 805 LLC; and New East Back Bay LLC, Defendants, Appellees, United States, Intervenor, Appellee. |
| Court | U.S. Court of Appeals — First Circuit |
Michael J. Gottlieb, with whom M. Annie Houghton-Larsen and Wilkie Farr & Gallagher LLP were on brief, for appellant.
Ian H. Gershengorn, with whom Lindsay C. Harrison, Jenner & Block LLP, R. Robert Popeo, Scott C. Ford, and Mintz Levin Cohn Ferris Glovsky and Popeo, P.C. were on brief, for appellees Saad Khalid S. Aljabri and Khalid Saad Khalid Aljabri.
Faith E. Gay, Caitlin Halligan, Selendy Gay Elsberg PLLC, Kevin P. Martin, Jaime A. Santos, and Goodwin Procter LLP on brief for appellees Mohammed Saad Kh Aljabri, New East (US) Inc., New East 804 805 LLC, and New East Back Bay LLC.
Lewis S. Yelin, Attorney, Appellate Staff, U.S. Department of Justice, with whom Brian M. Boynton, Principal Deputy Assistant Attorney General, Rachael S. Rollins, United States Attorney, and H. Thomas Byron III, Attorney, Appellate Staff, U.S. Department of Justice, were on brief, for intervenor-appellee United States.
Before Gelpí, Howard, and Thompson, Circuit Judges.
We are called upon today to examine when ordinary legal procedures must yield to extraordinary ones for the greater good. In this case, a foreign counterterrorism corporation (our appellant) filed suit and sought an order freezing certain Massachusetts assets based on its allegations that a former government official perpetrated a massive fraud when he misappropriated billions of dollars from the corporation. The defendants to that suit (appellees here) seek to tell a very different tale in defense of these allegations: The funds were received lawfully in connection with clandestine counterterrorism and national security operations that sometimes were undertaken alongside the United States government. But to prove their story, the appellees say they'd need to divulge United States state secrets. Enter stage right: The United States government stepped in, asserted the state secrets privilege, and successfully got that information and, with it, a great deal of other information excluded from the case. And while the appellant insists the case can proceed nonetheless, and that it should be awarded the preliminary relief it seeks notwithstanding the exclusion of the privileged materials, the appellees are just as insistent the case cannot be litigated and thus obligates dismissal because they cannot fairly defend themselves without relying on the privileged materials.
The district court concluded it could not tackle the necessary inquiries to examine the claims and defenses or award the preliminary equitable relief the appellant sought without weighing the privileged information and risking disclosure of state secrets. Consequently, the district court determined the case could not be adjudicated and dismissed the suit.
As we explain below, we affirm.
The facts and procedural history of this matter are something of a global affair. Bear with us as we tell the story that paves the way to the issues presented for our appellate review.
The appellant is Sakab Saudi Holding Company ("Sakab"), an entity that bills itself as a creation of the Kingdom of Saudi Arabia ("KSA") that "perform[s] anti-terrorism activities in the public interest" and is funded by the KSA's Ministry of Finance. And the appellees are Saad Khalid S. Aljabri ("Aljabri"), a former high-ranking KSA government official who was engaged in counterterrorism and intelligence work, and his sons, Khalid Saad Khalid Aljabri and Mohammed Saad Kh Aljabri (we'll refer to Aljabri and his sons as "the Aljabris"). Together, the Aljabris are managers or directors of New East (US) Inc., New East 804 805 LLC, and New East Back Bay LLC (collectively, "New East" and, all together with the Aljabris, "Appellees," who filed a joint brief).
The case now before us has its genesis in Canada, where Aljabri lives and where, on January 22, 2021, Sakab sued Appellees (and some others not involved in the instant matter). In Ontario Superior Court, Sakab alleged, inter alia, that Aljabri defrauded Sakab of billions of dollars, having used a variety of unauthorized payments and transfers to do so. Sakab supported its allegations with a dense forensic accounting report. Sakab immediately and successfully sought an interlocutory order freezing the Aljabris' assets worldwide (a Mareva injunction, see Grupo Mexicano de Desarrollo v. Alliance Bond Fund, Inc., 527 U.S. 308, 327-29, 119 S.Ct. 1961, 144 L.Ed.2d 319 (1999) ), and the Canadian court also appointed a receiver for certain assets. Litigation in Ontario is ongoing.
Sakab then looked southward to Massachusetts, filing a March 24, 2021 state court complaint "to give effect to" the Ontario court's freezing and receivership orders relative to the Aljabris' Massachusetts properties. The ten-count complaint offers state law claims for breach of fiduciary duty (Count I), fraud (Count II), fraudulent misrepresentation (Count III), fraud by omission (Count IV), conversion (Count V), conspiracy (Count VI), aiding and abetting (Count VII), unjust enrichment (Count VIII), fraudulent transfer (Count IX) and alter ego/piercing corporate veil (Count X). In it, Sakab alleges, as it did in Ontario, that Aljabri perpetrated a massive fraud on it, "us[ing] Sakab as a vehicle to distribute funds that had been allocated for anti-terrorism activities ... to himself" and others -- specific to Massachusetts, the complaint alleges the proceeds of this fraudulent scheme were used to acquire $29 million worth of Massachusetts properties. And Sakab says those fraudulently obtained funds have since been distributed to various companies, including New East, and also have been used to purchase real estate in Massachusetts and beyond. So, Sakab says, the complaint was filed "to preserve the fruit of the Fraudulent Scheme now located in Massachusetts that is subject to the Ontario Orders." Sakab also filed motions for the preliminary attachment of properties in Massachusetts, memoranda of lis pendens, and a motion to stay the proceedings pending the outcome in the Ontario case.
Appellees swiftly removed the action to Massachusetts federal district court, citing the case's implication of federal interests. In so doing, Appellees denied any fraudulent wrongdoing by Aljabri, insisting the funds in question were lawfully received. According to Appellees, Aljabri, in his capacity as a government official under former Saudi Crown Prince Mohammed bin Nayef, helped the Saudi government establish Sakab with "the primary purpose of funding and undertaking clandestine and sensitive operations in partnership with the United States Government." Adjudicating Sakab's claims, Appellees said, would require the district court to consider whether certain of Aljabri's activities, like "covert counterterrorism operations in partnership with the United States Government, constituted fraud, breach of fiduciary duty, or conversion under the law of Saudi Arabia." As a direct result, the district court would need to examine the financing of "sensitive programs operated in partnership" with U.S. intelligence agencies. Thus, knowing the district court would have to scrutinize "a partnership between the government of Saudi Arabia and the intelligence and national security agencies of the United States Government" to assess the claims and defenses in the case, Appellees told the court the suit clearly raised "substantial federal issues."
Sakab moved in April 2021 to send the case back to state court, arguing that the only point of the Massachusetts case was "to obtain prejudgment relief on the basis of comity to the Ontario Orders ... and then to stay the Massachusetts Action." A few weeks later, the United States government noticed its potential participation in the action, and on August 3, 2021, the government, without taking any position on the merits of the case, formally moved to intervene -- a move Appellees supported but Sakab opposed. Mindful that any further briefing would run the risk of revealing state secrets, the government also moved to stay briefing on the motion to remand.
About a week later, Aljabri filed an answer to the Massachusetts complaint in which he not only denied the ten counts against him, but also asserted affirmative defenses and raised counterclaims against Sakab.1 Throughout his filing, Aljabri acknowledged his receipt of funds from Sakab, but insisted they were lawfully received, and any off-the-book transactions were off-the-book simply because of the transactions' covert purposes and necessarily secretive nature. He raised the specter of his inability to effectively litigate the case -- to prove his defenses and counterclaims -- without relying on information he believed would be deemed privileged (and thus unavailable to him in the litigation).
On August 23, 2021, Avril Haines, the Director of National Intelligence ("the Director"), asserted the state secrets privilege and a statutory privilege pursuant to 50 U.S.C. § 3024(i)(1) "to protect certain classified national security information ... at risk of disclosure" in the Sakab case. Indeed, having reviewed the matter, the Director, "as head of the [U.S. Intelligence Community]," explained that such disclosure "reasonably could be expected to cause serious, and in some cases exceptionally grave, damage to the national security of the United States and, accordingly, that this information must be protected and excluded from use in this case."
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