## Facts

- Galadari, a Dubai citizen, and his partnership, A.W. Galadari Commodities, speculated in commodities on U.S. exchanges through accounts maintained with Drexel Burnham Lambert International, N.V., a wholly owned foreign subsidiary of Drexel Burnham Lambert Group Inc.
- After substantial 1982 trading losses, Galadari and Commodities executed and delivered in New York a $19,465,000 promissory note in favor of the subsidiary; the note selected New York law.
- As collateral, Galadari pledged 6,068,640 shares of Union Bank of the Middle East Class B stock; he was a controlling figure in entities holding a large ownership stake in the bank and served as board chairman until late 1983.
- The subsidiary assigned the note to Drexel, which then sought to enforce the note and realize on the pledged shares in federal court in the Southern District of New York.
- In 1983, Dubai proceedings resembling receivership/insolvency were initiated for Galadari and Commodities, and a Committee of Receivers was appointed by Dubai court authority, asserting control over worldwide assets and obligations.
- The Committee moved to dismiss the U.S. action, arguing deference to the Dubai proceedings (international comity) and raising defenses including lack of subject-matter jurisdiction and the act-of-state doctrine.
- The district court dismissed on comity grounds but denied dismissal for lack of subject-matter jurisdiction and under the act-of-state doctrine; Drexel appealed the comity dismissal, and the Committee cross-appealed the denials.

## Issues

1. Whether dismissal in favor of the Dubai receivership proceedings was proper on international comity grounds on the record presented.
2. Whether the federal court lacked subject-matter jurisdiction over a New York-executed, New York-law promissory note enforcement action due to pending foreign insolvency proceedings.
3. Whether the act-of-state doctrine barred adjudication because the dispute implicated official acts of Dubai authorities in the receivership.

## Decision

- The Second Circuit vacated the comity-based dismissal and remanded because the record was insufficient to evaluate the Dubai proceedings and whether deference was appropriate.
- The court affirmed the denial of dismissal for lack of subject-matter jurisdiction.
- The court affirmed the denial of dismissal under the act-of-state doctrine.

## Legal Principles

- International comity dismissal (or comparable relief) requires an adequate factual record regarding the foreign proceeding’s structure, fairness, creditor protections, and the expected treatment of claims and assets affecting U.S. interests.
- A pending foreign receivership/insolvency does not, by itself, eliminate federal subject-matter jurisdiction over domestic contract-enforcement claims with substantial U.S. connections (including execution in New York and a New York choice-of-law clause).
- The act-of-state doctrine generally does not bar adjudication of private-law contract and collateral-enforcement disputes merely because a foreign sovereign’s courts are administering a receivership; the doctrine focuses on avoiding judgment on the validity of sovereign public acts within the sovereign’s territory.

## Conclusion

The Second Circuit required further factual development before a federal court could decline to proceed on international comity grounds in favor of unfamiliar Dubai insolvency proceedings, while confirming that the U.S. court retained jurisdiction and that the act-of-state doctrine did not mandate dismissal of a New York-centered note enforcement action.


Drexel Burnham Lambert Grp. Inc. v. A.W. Galadari, 777 F.2d 877 (2d Cir. 1985)