## Facts

- A.W. Galadari, a Dubai citizen, engaged in speculative commodities trading on U.S. exchanges through a Drexel affiliate and through Refco.
- In 1982, to cover trading losses, Galadari and A.W. Galadari Commodities executed a New York law promissory note in favor of a Drexel entity for about $19.465 million, executed in New York and later assigned to Drexel.
- As collateral, Galadari pledged millions of shares of Union Bank of the Middle East stock held through a Galadari-controlled holding company.
- Drexel sued Galadari and Commodities in the Southern District of New York to collect on the note.
- Shortly after the U.S. suit was filed, the Emirate of Dubai created, by royal decree, a Committee of Receivers to wind up Galadari’s affairs and distribute assets among creditors in Dubai.
- The U.S. district court initially stayed the New York action on comity grounds, then later lifted the stay after concluding the Dubai process was inadequate.
- Drexel amended its complaint to add Dubai and the Committee, alleging they were liable as alter egos/successors, had breached commitments, and had effectively taken Drexel’s property by refusing to satisfy the claim and honor collateral rights.
- Refco asserted similar claims against Dubai and the Committee based on unpaid losses it had covered for Galadari.
- Dubai and the Committee moved to dismiss under the Foreign Sovereign Immunities Act (FSIA); the district court denied dismissal, finding the commercial-activity exception applied, and Dubai and the Committee appealed.

## Issues

1. Whether Dubai and the Committee were immune from suit under the FSIA, or whether the claims fit within the commercial-activity exception, 28 U.S.C. § 1605(a)(2).
2. Whether creating and administering a government-ordered receivership for an insolvent citizen constitutes “commercial activity” or sovereign governmental conduct for FSIA purposes.
3. Whether any alleged conduct had the required U.S. jurisdictional nexus under § 1605(a)(2), including a U.S. act or a “direct effect” in the United States.

## Decision

- The Second Circuit reversed in substantial part the denial of FSIA immunity.
- The court held that Dubai and the Committee were immune to the extent the claims were based on sovereign acts in establishing and conducting the receivership and adjudicating creditor claims.
- The court treated the commercial-activity exception as narrow and examined whether any specific allegations described genuinely commercial conduct by Dubai or the Committee with a sufficient U.S. nexus.
- The court rejected attempts to defeat immunity by recharacterizing receivership decisions as alter-ego liability or as a “taking” theory under the commercial-activity exception.

## Legal Principles

- The FSIA provides the exclusive basis for jurisdiction over a foreign state; immunity is the default rule and applies unless a statutory exception is satisfied.
- “Commercial activity” under the FSIA turns on the nature of the foreign state’s conduct (whether it acts like a private market participant), not the conduct’s purpose.
- Creating a compulsory receivership/insolvency regime by decree and administering it through adjudication and distribution of assets are sovereign functions, not commercial activity.
- The § 1605(a)(2) exception requires that the action be “based upon” the foreign state’s own qualifying commercial activity and meet one of the statute’s U.S.-nexus predicates; effects in the United States that are derivative of foreign sovereign insolvency decisions are insufficient.
- Labeling sovereign receivership conduct as an alter-ego transaction or framing the result as an uncompensated taking does not, without a valid FSIA exception, establish jurisdiction.

## Conclusion

The Second Circuit held that Dubai and its receivership committee were largely protected by FSIA immunity because the challenged conduct—creating and administering a royal-decree receivership and resolving creditor claims—was sovereign rather than commercial, and the commercial-activity exception did not supply broad U.S. jurisdiction over those acts.


Drexel Burnham Lambert Grp., Inc. v. Comm. of Receivers for A.W. Galadari, 12 F.3d 317 (2d Cir. 1993)