Drexel Burnham Lambert Group v. Committee of Receivers for A.W Galadari

12 F.3d 317 (1993)

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Drexel Burnham Lambert Group v. Committee of Receivers for A.W Galadari

United States Court of Appeals for the Second Circuit
12 F.3d 317 (1993)

Facts

In 1982, an affiliate of the Drexel Burnham Lambert Group, Inc. (Drexel) (plaintiff) covered the commodities trading losses of Dubai citizen A. W. Galadari and a partnership he managed, A. W. Galadari Commodities (Commodities). Galadari and Commodities executed a promissory note payable to the affiliate in the amount of about $19.5 million. Galadari pledged about six million shares in the Union Bank of the Middle East (Union) as collateral. Galadari Holdings Ltd. (Holdings), a firm controlled by Galadari, owned much of Union’s stock. The affiliate assigned the note to Drexel. When Galadari failed to pay, Drexel sued on the note in New York district court. The emirate of Dubai, United Arab Emirates (emirate) (defendant) created the Committee of Receivers for A. W. Galadari (committee) (defendant) to distribute the assets in Galadari’s insolvent estate to creditors. At first, the district court found that the emirate’s bankruptcy proceedings were consistent with United States ideas of due process and stayed Drexel’s suit until the committee ruled on Drexel’s claims in Dubai bankruptcy proceedings. The committee ruled on Drexel’s claims in 1991, recognizing the debt to Drexel but ruling that Holdings was not liable for the debt. The district court vacated the stay on Drexel’s United States suit, finding that the committee’s proceedings had been fundamentally unfair. Drexel added claims against the committee and the emirate, arguing that both were successors in interest to Galadari and had breached promises to Drexel and that the committee’s refusal to pay was an unlawful taking. The committee and the emirate filed a motion to dismiss, arguing that both were immune from suit under the Foreign Sovereign Immunities Act (FSIA). Drexel argued that the committee’s actions were sufficiently connected to commercial activity to qualify for an exception to sovereign immunity under § 1605(a)(2) of the FSIA. The district court denied the committee and the emirate’s motion to dismiss on grounds that their activities in managing Galadari’s estate could have been done by a private party.

Rule of Law

Issue

Holding and Reasoning (Mahoney, J.)

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