that the 600,000 shares were issued to cover oversubscriptions of the SEIC voting stock under the 1984 offering and distributed to the makers of the converted capital notes. (See Alfadda Compl. PP 59, 69, 97; Al-Turki Compl. PP 60, 91, 101; see also Radwan Dep. 83, 88-89, 956; Stanley Decl., 8-5-96, Ex. 6; Fenn Dep. 1273-74, 1278.) Alfadda claims that defendants failed to notify him of the 1984 offering, and thus deprived him of his preference.
Two sales of SEIC stock in the United States, totaling 330,000 shares, allegedly contributed to the oversubscription of the 1984 offering: (1) the sale of 180,000 shares to Charles Keating, Chairman of American Continental Corporation ("ACC"); and (2) the sale of 150,000 shares to Al-Turki. (Alfadda Compl. P 76; Al-Turki Compl. P 68.) On May 8, 1984, SEIC telexed ACC in Phoenix to advise that it had accepted ACC's offer to purchase 15% of SEIC (180,000 shares) for $ 18 million and directed ACC to deposit the money in a New York bank account. (Alfadda Compl. P 81; Al-Turki Compl. 72.) On June 26, 1984, Reilly sent a telex to Al-Turki in Houston accepting his offer to purchase 12.5% of the voting shares of SEIC (150,000 shares) for $ 15 million and directed Al-Turki to deposit the money in a New York bank account. (Alfadda Compl. PP 86-87; Al-Turki Compl. PP 77-81.) Prior to the sale of these 330,000 shares, SEIC allegedly had sold 343,000 voting shares pursuant to the 1984 offering. Thus, SEIC allegedly oversubscribed the offering and diluted plaintiffs' interest.
Plaintiffs also contend that defendants diverted some of the funds from the 1984 offering for the benefit of Fenn, Radwan, and certain favored shareholders of SEIC. These diversions included the purchase of United States Trading Division of Gulf Oil Corporation for $ 15 million and certain convertible preferred stock in Galveston-Houston Company, an energy services company located in Houston, Texas. (Alfadda Compl. PP 109-113; Al-Turki Compl. PP 111-115.)
C. The French Proceedings
Under French law, an injured party has two avenues for seeking relief. The party may initiate a civil lawsuit in the party's own name, or the party may file a criminal complaint and become a partie civile in the criminal proceeding. A partie civile, who may be represented by counsel, participates fully in the criminal proceeding. The judge in a criminal case conducts an investigation of the charges, and may order the production of documents and/or compel testimony. If warranted, after the investigation, the investigating judge may refer the matter to trial. If the criminal charges are sustained at trial, the partie civile can recover civil damages in the criminal proceeding. (Lefort Decl., 1-10-91, PP 3-7; Lefort Decl., 10-15-96, P 3; Bouloc Decl., 4-12-95, PP 4-6.) The burden of proof is the same in criminal and civil proceedings. (Lefort Supp. Decl. P 12.)
In the instant case, as described below, Sharbatly, Al-Turki, and A. Alissa (referred to simply as the "parties") initiated criminal proceedings by filing complaints with the Chief Investigating Judge of the Tribunal de Grande Instance in Paris, France. The Chief Investigating Judge referred the matters to the Tribunal Correctionnel for trial, which, after trial, ruled against the parties. The parties appealed to the Cour d'Appel, the intermediate appellate court, which affirmed the trial court's decision in all respects. The parties appealed again, and the case is presently pending before the Cour de Cassation, France's highest court.
1. The Investigation
In July and September 1987, Sharbatly filed two complaints before the Chief Investigating Judge in the Tribunal de Grande Instance in Paris, based on the alleged fraudulent conduct relating to the 1984 offering, seeking both criminal and civil sanctions. (See Lefort Decl., 10-15-96, P 9; Lefort Decl., 10-15-96, Ex. B.) In the July complaint, Sharbatly alleged that the fraudulent activity was "made possible only by the positive actions performed by Mr. JAMAL RADWAN, General Manager of SAUDI EUROPEAN INVESTMENT CORPORATION." The September complaint added more detail to the July complaint and explained that "since the actual center of the interests of S.E.I.C. is in France, where its subsidiary, the SAUDI EUROPEAN BANK, is located, and since the personnel and the corporate bodies of S.E.I.C. are also located in France, the fact is that under French law the company's headquarters is in France and the company is subject to the laws of the French Republic." On June 16, 1988, and July 17, 1988, respectively, Al-Turki and A. Alissa filed similar complaints. (Lefort Decl., 10-15-96, Exs. D & F.)
After investigation, the Chief Investigating Judge referred the matters to trial before the Tribunal Correctionnel against Radwan, whom he found to be a French national, because "the acts caracterizing [ sic ] the elements that constitute the offence of fraud were accomplished in PARIS." (Stanley Decl., 12-20-96, Ex. 3, at 15.) He also declared that "the French Criminal Jurisdiction is . . . not competent to hear the offences of an irregular increase of capital and the non respect of the preferential right of subscription of the old shareholders" against SEIC because Netherlands Antilles law, not French, applied to those claims. (Id.)
2. The Decision of the Trial Court
At trial, Sharbatly sought $ 4.8 million, Al-Turki sought $ 15 million, and A. Alissa sought $ 13 million ($ 12 million for stock purchased on his own behalf and $ 1 million for stock purchased on behalf of S. Alissa) in civil damages. The parties also sought interest and additional damages against Radwan. On October 3, 1994, the trial court issued its decision. It summarized the charges against Radwan in the following manner:
disseminating a confidential private-investment information memo, the financial data for which are false as regards the amount of the capital before the subscription, the number of stock shares before subscription, and the amount of equity; sending a series of telexes that gave false information (corroborating the false information contained in the confidential memo) about the amount of the capital, and which presented as a subscription an operation that was in reality a purchase; using only one of two notarial instruments confirming the two successive increases in capital; using fictitious instruments, "capital notes," to achieve a fictitious internal increase in capital designed to produce securities that were sold to the parties joining in the action, who thought they were subscribing.
(Lefort Decl., 10-15-96, Ex. H, at 3.)
The court also recounted the parties' claims that they were falsely persuaded that: (1) SEIC would be divided into 1.2 million shares after the 1984 offering, when in reality it was divided into 1.8 million shares; (2) the equity before subscription was $ 68 million, when in reality it was only $ 30.8 million; and (3) the well-known founding stockholders held one-half of the capital, when in reality most had left the company and held only one-fifth of the capital.
Regarding the capital notes, the trial court found: (1) the existence of the capital notes "was in conformity with Article 4 of the articles of incorporation of SEIC"; and (2) the "capital notes had been carried in the SEIC corporate and consolidated accounts since 1980, the year of their subscription." (Id. at 6.) The court also found that the existence of the capital notes, made by AIC, Dalia Products Corporation ("Dalia"), and North South Finance Corporation ("NSFC"), was evident from correspondence to Sharbatly, dated September 21, 1982, and November 18, 1983.
(Id. at 7.) Moreover, the court found that "the parties . . . could not have made a mistake as regards the total number of SEIC shares following the two increases in capital, since they had at their disposal the SEIC financial statements and the aforementioned attestations and telexes." (Id.)
The court did find that certain correspondence contained incorrect information, but concluded that the parties "inevitably made an in-depth study of the company before investing" and "cannot validly maintain" that their investment decisions were premised on that correspondence because: (1) they possessed the financial documents that contained the accurate information; and (2) they were wealthy businessman, in some cases chairmen or directors of banks, planning to invest large sums of money. (Id. at 8.) Considering the above factors the court concluded that the parties had failed to prove:
the fictitious nature of the capital notes or of the internal increase in capital, or of a lie concerning the true number of shares.
The court also rejected the parties' assertion that they were deceived into believing that they were purchasing newly issued shares, when in reality they purchased old shares in a secondary market.
The court found that the evidence established both the existence of the secondary market and the parties' knowledge of it. (Id. at 10.) The court noted that A. Alissa was specifically informed that his investment was made through the secondary market, and that in any event, each of the parties paid for their shares after the subscription closing date. ( Id.)
II. Counts VII-IX
Counts VII-IX concern the sale and reorganization of SE Bank (a French grandchild subsidiary of SEIC), into two French banks, Bretonneau and SBP (referred to jointly as the "bank defendants"). In 1989, SE Bank's name was changed to Societe de Banque Privee. (This was the original Societe de Banque Privee, which will be referred to as "OSBP"). Plaintiffs contend that Bretonneau and SBP, among others, conspired to "hinder, delay and defraud creditors of SE Bank, including plaintiffs" by transferring the business, operations, and assets of OSBP to a new entity, SBP, and reducing OSBP to an insolvent shell. OSBP was renamed Bretonneau, while the real business and assets of SE Bank were allegedly maintained by SBP. (Alfadda Compl. PP 3, 114; Al-Turki Compl. P 3, 116.) The individuals responsible for SBP's and Bretonneau's alleged conspiracy, Francis Bouygues, Olivier Bouygues, and Jean-Francis Fonlupt, are all non-defendant French nationals.
As part of the bank defendants' alleged scheme to hinder, delay, and defraud creditors, plaintiffs' allege that the bank defendants (1) misled New York banking regulators into approving the closure of SE Bank's New York agency ("SE Bank-NY"); and (2) transferred "files, loans, notes and other papers evidencing assets worth millions of dollars from SE Bank-NY to its home office in Paris." (Alfadda Compl. P 121; Al-Turki Compl. P 123.)
The Court first sets forth the basis for its discussion of what it perceives to be two distinct categories of claims in the instant actions. Counts VII-IX, which arise from the 1989 sale and reorganization of SE Bank, derive from a common nucleus of operative fact distinct from plaintiffs' 1984 securities fraud and related allegations (Counts I-VI). As such, the Court concludes that Counts VII-IX arise from a separate case or controversy under Article III of the Constitution. United Mine Workers of America v. Gibbs, 383 U.S. 715, 725, 16 L. Ed. 2d 218, 86 S. Ct. 1130 (1966).
Plaintiffs' claims against the SEIC defendants concern only the securities fraud and related allegations (Counts I-VI), and thus the SEIC defendants' motions relate only to those claims. Plaintiffs' claims against SBP include both categories of claims, and SBP's motions are directed to both categories. However, even SBP's motion papers recognize that different analyses may be appropriate for the two categories of claims. (See, e.g., SBP's Memorandum in Support of Motion to Dismiss for Lack of Personal Jurisdiction, or in the Alternative, Under Forum Non Conveniens, 3-18-94; SBP's Memorandum in Support of Motion for Summary Judgment, 5-3-96.) Because plaintiffs' claims fall into two distinct categories and because some of defendants' motions are directed at only one of the categories, the Court believes it is appropriate to discuss Counts I-VI and Counts VII-IX separately.
I. Counts I-VI
A. Issue Preclusion as to Al-Turki Plaintiffs
The Court first considers the standard for reviewing the SEIC defendants' motion. Summary judgment should be granted only where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. Proc. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). All facts, inferences, and ambiguities must be viewed in a light most favorable to the nonmovant. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986). "The mere existence of some alleged factual dispute . . . will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986).
Issue preclusion bars relitigation of issues actually litigated and necessary to the outcome of a prior action. Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 n.5, 58 L. Ed. 2d 552, 99 S. Ct. 645 (1979).
The doctrine applies to issues decided by the courts of foreign countries. See, e.g., Omega Importing Corp. v. Petri-Kine Camera Co., 451 F.2d 1190, 1196 (2d Cir. 1971) (barring relitigation of West German corporation's legal status based on previous decision of West German court); Alesayi Beverage Corp. v. Canada Dry Corp., 947 F. Supp. 658, 666 (S.D.N.Y. 1996) (recognizing prior breach of contract decision of Saudi Arabian court, but denying preclusion because of differing standards of proof); Scheiner v. Wallace, 832 F. Supp. 687, 694-95 (S.D.N.Y. 1993) (barring relitigation of plaintiffs' breach of contract claim based on previous decision of British court).
The SEIC defendants claim that the October 3, 1994, judgment of the Tribunal Correctionnel (the "French judgment") bars the Al-Turki plaintiffs' claims against them in the Al-Turki action.
To resolve the SEIC defendants' motion, the Court must determine (1) whether the French judgment is entitled to recognition by this Court; and (2) if so, the extent to which the Court should accord preclusive effect to the French judgment under the principles of issue preclusion. See Fairchild, Arabatzis & Smith, Inc. v. Prometco (Produce & Metals) Co., 470 F. Supp. 610, 614-15 (S.D.N.Y. 1979).
1. Recognition of French Judgment
In cases involving federal questions, federal courts generally apply federal law to determine whether to recognize a foreign country judgment. See, e.g., Omega Importing, 451 F.2d at 1196-97 (recognizing West German judgment in trademark infringement action); Gordon & Breach Science Publishers S.A. v. American Institute of Physics, 905 F. Supp. 169, 178-79 (S.D.N.Y. 1995) (applying federal law to determine whether to recognize Swiss and German judgments in Lanham Act action); United States v. United States Currency in the Amount of $ 294,600, 1992 U.S. Dist. LEXIS 10213, 1992 WL 170924, *5 (E.D.N.Y. 1992) (recognizing Canadian judgment in federal forfeiture action).
The Supreme Court expressed the general principles guiding the recognition of foreign country judgments in Hilton v. Guyot, 159 U.S. 113, 40 L. Ed. 95, 16 S. Ct. 139 (1895):
We are satisfied that where there has been an opportunity for a full and fair trial abroad before a court of competent jurisdiction, conducting the trial upon regular proceedings, after due citation or voluntary appearance of the defendant, and under a system of jurisprudence likely to secure an impartial administration of justice between the citizens of its own country and those of other countries, and there is nothing to show either prejudice in the court, or in the system of laws under which it was sitting, or fraud in procuring the judgment, or any other special reason why the comity of this nation should not allow it full effect, the merits of the case should not, in an action brought in this country upon the judgment, be tried afresh . . . .