Arab Receivership Preempts Lawsuit: US Judge Dismisses Drexel's Attempt to Collect Banker's Commodities Debt
NEW YORK -- Deferring to a foreign bankruptcy proceeding, a federal judge has dismissed a $12 million lawsuit by a brokerage house against a financially troubled Middle East banker.
Constance Baker Motley, chief judge of the U.S. District Court for the Southern District of New York, threw out the case on the grounds of "international comity," which requires U.S. courts to defer to foreign court proceedings.
The case stems from a dispute between the Drexel Burnham Lambert Group Inc. and A.W. Galadari, described in the court papers as "a major Middle Eastern banker and businessman" and a citizen of Dubai, United Arab Emirates.
Through his company, Galadari Commodities, Mr. Galadari had a commodities account with Drexel Burnham which suffered over $19 million in losses by 1982.
Drexel Burnham sought security for the debt and was given a promissory notes secured by over six million shares of stock in the Union Bank of the Middle East Ltd., owned by Mr. Galadari.
A schedule of payments was set, but after $7 million was paid the payments stopped. In 1984, the brokerage house sued Mr. Galadari and his firm to collect on the note.
Five days later, the ruler of Dubai issued a decree establishing a committee of receivers to manage Mr. Galadari's assets and conduct an orderly liquidation and winding down of his affairs.
Drexel Burnham charged that this "bankruptcy-like process" was instituted in direct response to the lawsuit here and was part of an attempt to fraudulently erase Drexel's debt. The defendants in the suit -- Mr. Galadari and Galadari Commodities -- maintained that the appointment of the committee was simply the latest in a series of actions taken by the government of Dubai to head off national economic disaster threatened by the collapse of Mr. Galadari's financial empire and to ensure the fair settlement of claims against his assets.
In order to stave off a collapse of Union Bank, the government purchased Mr. …