United States District Court, S.D. New York
[Copyrighted Material Omitted]
[Copyrighted Material Omitted]
For Michel Lakah, Petitioner: Ronald C. Minkoff, Esq., Jeremy S. Goldman, Esq., Sarah S. Park, FRANKFURT KURNIT KLEIN & SELZ, P.C., New York, NY.
For Ramy Lakah, Petitioner: Bruce A. Schoenberg, Esq., SCHRADER & SCHOENBERG, LLP, New York, NY.
For Respondents: Gilbert A. Samberg, Esq., Kevin N. Ainsworth, Esq., David L. Barres, Esq., Todd Rosenbaum, Esq., MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C., New York, New York.
MIRIAM GOLDMAN CEDARBAUM, United States District Judge.
This action to stay arbitration was commenced in the Supreme Court of New York County on March 20, 2007 by Petitioners Ramy and Michel Lakah. Respondents UBS AG, Exporters Insurance Co., Ltd., Arab Banking Corp., National Bank of Abu Dhabi, and National Bank of Oman removed the case to this court on April 6, 2007 and cross moved to compel arbitration on April 16, 2007. Respondents pursued discovery for five and a half years, attempting to show that the guarantors on a bond issued by Lakah Funding Limited are alter egos of the petitioners and that the arbitration clauses, signed only on behalf of Lakah Funding Limited and those guarantors, bind Michel and Ramy Lakah as if they were signatories on their own behalf. Following discovery, Respondents raised the threshold argument that this action should be dismissed as time-barred under N.Y. CPLR § 7503(c). That motion to dismiss the suit as untimely was denied on May 22, 2013. On the merits, Respondents now argue in what amounts to a summary judgment motion that Michel and Ramy Lakah should be compelled to arbitrate on the basis of veil piercing and estoppels theories. For the reasons that follow, that motion is denied.
On December 6, 1999, Lakah Funding Limited offered a five-year, $100 million Eurobond. On December 8, 1999, an indenture was executed for the benefit of the bondholders. The indenture involved Lakah Funding Limited -- the Issuer -- and four guarantors: Holding Company for Financial Investments, S.A.E. (" HCFI" ); Medequip for Trading and Contracting, S.A.E. (" Medequip" ); Trading Medical System Egypt, S.A.E. (" TMSE" ); and Arab Steel Factory, S.A.E. (" ASF" ). Ramy Lakah signed the indenture on behalf of those five parties either as their chairman or their attorney in fact.
On the same day, those guarantors jointly and severally guaranteed the Eurobond as primary obligors. Ramy Lakah signed the guarantee on behalf of all four guarantors as their chairman or attorney in fact. Both parties agree that the actual bond issuance took place on December 8, 1999. While both the guarantee and the indenture contained arbitration clauses, neither
Lakah signed the clauses in his personal capacity.
In motions to compel or to stay arbitration brought under the Federal Arbitration Act (" FAA" ), 9 U.S.C. § 4 (2000), " the court applies a standard similar to that applicable for a motion for summary judgment. If there is an issue of fact as to the making of the agreement for arbitration, then a trial is necessary." Bensadoun v. Jobe-Riat, 316 F.3d 171, 175 (2d Cir. 2003) (citations omitted).
I. Admissibility of Evidence
On summary judgment " [a] party may object that the material cited to support or dispute a fact cannot be presented in a form that would be admissible in evidence." Fed.R.Civ.P. 56(c)(2). In support of their motion, Respondents rely heavily on various reports from, and testimony provided by, Egyptian prosecutors and other government entities, as well as documents from Egyptian banks found in the files of the Egyptian government. The Lakahs have objected on grounds of authentication and hearsay.
The Lakahs argue that various government reports, bank records, and bank reports are inadmissible because they have not been properly authenticated. " The bar for authentication of evidence is not particularly high . . . [T]he standard for authentication is one of 'reasonable likelihood' and is 'minimal.'" United States v. Gagliardi, 506 F.3d 140, 151 (2d. Cir. 2007) (citations omitted). " Generally a document is properly authenticated if a reasonable juror could find in favor of authenticity." Id. (citing United States v. Tin Yat Chin, 371 F.3d 31, 38 (2d Cir. 2004)).
The evidence Respondents submit meets this standard. The various government reports qualify as self authenticating pursuant to Rule 902, under which foreign public documents are self authenticating if " accompanied by a final certification that certifies the genuineness of the signature and official position of the signer or attester [or other foreign official]." Fed.R.Evid. 902(3). Because Respondents include documents containing a stamp and signature from the New York Consulate General of Egypt as well as a handwritten " Legalization No.," the certification requirements of Rule 902 are met. Respondents admit that two government documents which are purported letters from Egypt's Capital Markets Authority (" CMA" ) are not self authenticating. However, the Arabic originals contain the logo of the CMA (in Arabic and in English), and a lawyer for Respondents' counsel certifies that the letters in question are true and accurate copies. This is sufficient to authenticate the documents under Rule 901.
With respect to the various bank records and reports, one of Respondents' lawyers has declared under oath that such documents are authentic and accurate; Respondents have therefore " produce[d] evidence sufficient to support a finding that the item is what the proponent claims it is." Fed.R.Evid. 901(a). Finally, the Lakahs object that Exhibit 92, a handwritten letter signed " Ramy Raymond Lakah" and written on Lakah Group letterhead lacks authenticity. However, the letterhead of Exhibit 92 matches those in a number of additional exhibits that have not been objected to by the Lakahs, Respondents declare that the recipient's address and fax number on the exhibit correspond to information for UBS, and Respondents declare on information and belief that the letter was provided to outside counsel from the files of UBS. This is sufficient.
1. Government Reports
The Lakahs object on hearsay grounds to the admissibility of various government reports, all of which are related to a potential prosecution of the Lakahs in Egypt which was ultimately dropped by the Egyptian authorities. Respondents argue that such reports are admissible under the hearsay exception for public records, which in civil cases includes " factual findings from a legally authorized investigation" as long as " neither the source of information nor other circumstances indicate a lack of trustworthiness." Fed.R.Evid. 803(8). To establish admissibility under this exception, the party introducing the evidence must prove that the evidence " contains factual findings based on a factual investigation," after which " the party opposing the admission of evidence . . . has the burden of showing untrustworthiness." Ariza v. City of New York, 139 F.3d 132, 134 (2d Cir. 1998).
Although the government reports contain factual findings from a legally authorized investigation by the Egyptian government, the government reports must be excluded because the Lakahs have established that the documents lack indicia of trustworthiness. " When evaluating the trustworthiness of a factual report, we look to (a) the timeliness of the investigation, (b) the special skills or experience of the official, (c) whether a hearing was held and the level at which it was conducted, and (d) possible motivation problems." Bridgeway Corp. v. Citibank, 201 F.3d 134, 143 (2d Cir. 2000).
While the Lakahs do not present sufficient affirmative evidence to establish that the investigations were untimely or that the officials were unqualified, they do carry their burden in demonstrating that no hearings occurred and that motivational concerns are present. Indeed, Respondents concede that no hearings took place. With respect to motivational concerns, the Lakahs present evidence that Ramy Lakah joined an Egyptian human rights organization in 1999 and won public office as an opposition candidate on November 8, 2000, not long before the first investigatory report was publicized. Public sector organizations stopped paying HCFI money that was due and cancelled projects. Banque Du Caire, which was staffed by a Mubarak loyalist, began undertaking a number of actions to hamper the Lakahs' business. The Lakahs attach a State Department Country Report from 2005 (which is clearly admissible under Rule 803(8), Bridgeway, 201 F.3d at 142-43) attesting to Egypt's use of extreme measures against political opponents. The Lakahs' role in the opposition in an authoritarian country, the measures taken against them, and the suspicious timing of the investigations all cast serious doubt about the motivations behind the investigations. Although such evidence is indirect and circumstantial, the Lakahs have made a sufficient showing that a suspicious motive for the publication of the reports exists, and Respondents have not rebutted that evidence through, for example, declarations from investigators as to how their investigations started, testimony from any of the civilian complainants who allegedly sparked the CMA investigation, or testimony from any of the banks the Lakahs allegedly settled with as to the facts of the settlement and why it happened when it did. Because of the absence of hearings and the lack of trustworthiness, the government reports do not fall into the public records exception and must be excluded from consideration at this stage.
2. Private Bank Records and Investigatory Reports Obtained from Government Files
The Lakahs next argue that the private bank records and investigatory
reports collected by Egypt's Public Prosecutor's Office (" PPO" ) and relied upon by Respondents constitute inadmissible hearsay. Respondents persuasively counter that at least several of these records -- specifically, those signed by the Lakahs (exhibits 133, 156-57, and 161-64) -- are admissible as party admissions under Rule 801(d)(2).
A statement is not hearsay if it " is offered against an opposing party and . . . was made by the party in an individual or representative capacity." Fed.R.Evid. 801(d)(2). These documents, which are submitted as evidence of the Lakahs' comingling of assets, include instructions from the Lakahs to the banks authorizing them to make all necessary transfers between and among the accounts of the Guarantor companies, other Lakah Group companies, and Lakah-owned enterprises as well as an instruction from Michel Lakah to Banc du Cair to issue a check to Medequip for E£ 2,100,000 from his personal account. They are thus offered by Respondents against the opposing party and were made by the Lakahs in a representative capacity, fulfilling the requirements for admissibility under Rule 801(d)(2).
The bank records and investigatory reports which the Lakahs did not sign, however, present a more complicated question. Many such documents are Egyptian bank records produced from the files of Egypt's Public Prosecutor. Respondents concede that they are unable to obtain custodial declarations from the banks that created these documents and therefore seek their admission under the residual hearsay exception, Rule 807, rather than the business records exception.
To qualify for the residual hearsay exception, a document must have " circumstantial guarantees of trustworthiness," be " offered as evidence of a material fact," be " more probative on the point for which it is offered than any other evidence that the proponent can obtain through reasonable efforts," and it must be the case that " admitting it will best serve the purposes of [the] rules and the interests of justice." Fed.R.Evid. 807(a). In addition, documents are only admissible if " the proponent gives an adverse party reasonable notice of the intent to offer the statements and its particulars, including the declarant's name and address, so that the party has a fair opportunity to meet it." Fed.R.Evid. 807(b).
The bank records and investigatory reports obtained from the Egyptian government agencies cannot be admitted under Rule 807 because their admission would not best serve purposes of the Rules of Evidence and the interests of justice. In the context of deciding whether to admit privately-generated public records via the public records exception, the Second Circuit has stated that " the admission of privately-generated, business records without further foundation, even though the records were found in the possession of a foreign government agency, would in all probability be an abuse of the discretion by the trial court." United States v. Doyle, 130 F.3d 523, 547 (2d Cir. 1997). This reasoning applies here. Respondents may not use the residual exception, which is to be used " very rarely, and only in exceptional circumstances," Parsons v. Honeywell, Inc., 929 F.2d 901, 907 (2d Cir. 1991), to create an end-run around the holding of Doyle; indeed, it would " be a major step judicially to forge a new, hybrid exception to the hearsay rule by combining these two distinct varieties of admissibly hearsay simply to correct ...