MBI INTERNATIONAL HOLDINGS INC. et al., Appellants, v BARCLAYS BANK PLC, Respondent.
First Department
June 1, 2017
57 NYS3d 119
Kirkland & Ellis LLP, Washington, D.C. (Paul D. Clement, of the District of Columbia bar, the Virginia bar and the Wisconsin bar, admitted pro hac vice, of counsel, and Jeffrey M. Harris, of the District of Columbia bar and the California bar, admitted pro hac vice, of counsel), Kirkland & Ellis LLP, New York City (Stephen V. Potenza of counsel), and Patterson Belknap Webb & Tyler LLP, New York City (Craig A. Newman and Muhammad U. Faridi of counsel), for appellants.
Wilkie Farr & Gallagher LLP, New York City (Todd G. Cosenza, William A. O‘Brien and Frank Scaduto of counsel), for respondent.
OPINION OF THE COURT
Feinman, J.
This appeal arises out of an alleged scheme to defraud a Saudi Arabian residential real estate developer out of hundreds of millions of dollars owed to it by the Saudi government. Its resolution requires us to construe New York‘s date of discovery rule for purposes of ascertaining when the statute of limitations was triggered with respect to plaintiffs’ fraud-based claims. Ultimately, the result we reach today embraces the well-settled rule established in New York long ago:
"[W]here the circumstances are such as to suggest to a person of ordinary intelligence the probability that he [or she] has been defrauded, a duty of inquiry arises, and if he [or she] . . . shuts his [or her] eyes to the facts which call for investigation, knowledge of the fraud will be imputed to him [or her]" (Higgins v Crouse, 147 NY 411, 416 [1895, Finch, J.]).
Thus, we affirm the motion court‘s holding to the extent it dismissed plaintiffs’ action as time-barred.
In the early 1990s, plaintiff Jadawel International Company, a Saudi Arabian real estate development company, constructed two luxury residential compounds in Saudi Arabia. Jadawel is a subsidiary of plaintiff MBI International Holdings Inc., a British Virgin Islands holding company founded by prominent Saudi Arabian billionaire Sheikh Mohamed Bin Issa Al Jaber. The compounds, containing 1,000 luxury villas, housed senior employees of two U.S. government contractors, who passed on the costs of rental payments to the Saudi government through the U.S. Department of Defense‘s Foreign Military Sales
In September 2000, MBI sought to monetize the first 10 years of lease payments in order to refinance a loan it took to finance construction of the compounds and to finance real estate opportunities. In order to do so, MBI created nonparty Compound Lending Company (CLC) as a special financing vehicle, which plaintiffs allege became Jadawel‘s designated agent to collect annual payments due from the Saudi government during the first 10 years of the lease agreements between 2001 and 2011.1 These 11 annual payments under the leases were to be paid by the Saudi government directly into two New York collection accounts maintained by CLC at the Bank of New York.
In connection with the refinancing, on June 14, 2001, CLC secured the extension of a $450 million bridge loan from defendant Barclays Bank PLC. On December 27, 2001, Barclays led a bank syndicate in providing a $900 million term loan to CLC (the term facility agreement).2 Of this $900 million, CLC used $450 million to repay the bridge loan, and the remaining $450 million was made immediately available for plaintiffs to finance new real estate investments. Under the term facility agreement, the bank syndicate was to be repaid the $900 million term loan, plus interest, out of the $1.4 billion in expected lease payments from the Saudi government. The surplus, totaling over $200 million, or the residual payments made after the term loan plus interest was repaid in full, was to go to CLC for the benefit of plaintiffs.
Under the term facility agreement, as collateral for the $900 million term loan, CLC pledged a security interest in: (1) CLC‘s right to collect lease payments from the Saudi government; (2)
On April 1, 2002, the Saudi government failed to make its first lease payment to CLC after the term facility agreement became effective. As a result, CLC failed to make its first payment to the syndicate, triggering an event of default, which entitled the security trustee to assume control of CLC and become responsible for collecting the lease payments from the Saudi government. The security trustee informed the Saudi government that it assumed control of CLC‘s right to enforce the lease payments. After the Saudi government failed to remedy its default, the security trustee, on behalf of Barclays and the rest of the bank syndicate, brought suit in 2002 against the Saudi government in the United States District Court for the Southern District of New York for breach of contract and a declaration that the Saudi government was obligated to continue payments under the lease agreements.
However, on April 1, 2003, the security trustee voluntarily withdrew its complaint, without prejudice, allegedly to facilitate possible settlement negotiations (see notice of voluntary dismissal, Dresdner Bank v Ministry of Fin., US Dist Ct, SD NY, 1:02 Civ 09618, Martin, J., 2003). In or around July 2006, the bank syndicate entered into a settlement agreement with the Saudi government, the terms of which are confidential (the 2006 settlement). In connection with the 2006 settlement, CLC did not receive any amount of the hundreds of millions of dollars in residual payments it was entitled to under the term facility agreement.
In 2007, after CLC‘s claims against the Saudi government were released through the 2006 settlement, the Saudi government informed Jadawel of its intent to abandon its performance under the lease agreements for the years of 2011 through 2017. Thereafter, Jadawel brought suit against the Saudi government in Saudi Arabia to enforce the lease agreements. In 2008, a Saudi court ruled that because the bank syndicate
At no point after the 2006 settlement did plaintiffs bring suit against the bank syndicate for failing to recover the residual payments it was owed under the term facility agreement. Years later, however, on May 10, 2013, the Financial Times published two articles concerning an alleged investigation by the U.S. Department of Justice into whether Barclays had made illegal payments to a Saudi prince in exchange for securing a banking license in Saudi Arabia and repayment of the $900 million term loan related to this case. According to the Financial Times, the Saudi government announced in 2003 that it was accepting applications for banking licenses from non-Arab lenders for the first time since the 1970s. Allegedly after that announcement, Barclays sought help from Saudi Prince Turki bin Abdullah bin Abdel Aziz to resolve the litigation that was pending in this case at that time against the Saudi government in the Southern District of New York. The articles concluded that the lawsuit was settled and Barclays was ultimately granted a banking license from the Saudi government in 2009.
Plaintiffs claim that the Financial Times articles prompted them to commence pre-action discovery in the motion court pursuant to
Barclays moved the motion court pursuant to
Plaintiffs allege that they first discovered the facts underlying their fraud-based claims after the Financial Times articles were published in May 2013; they argue they could not have reasonably discovered these facts until then. However, as persuasively argued by defendant, plaintiffs’ own complaint establishes that they were on inquiry notice by at least 2008. The following facts are of particular importance to reaching this conclusion. First, by 2003, plaintiffs knew that Barclays voluntarily withdrew from a lawsuit against the Saudi government in the Southern District of New York, a lawsuit in which their complaint contends they "should have prevailed on a claim worth more than $1.25 billion, resulting in the return of a surplus worth hundreds of millions to Plaintiffs."3 Around the same time, according to plaintiffs’ complaint, it was public knowledge that the Saudi government was "contemplating the grant of a license to a Western financial institution to conduct banking activity within Saudi Arabia for the first time in decades." By as early as 2007, plaintiffs learned that Barclays had entered into an undisclosed settlement with the Saudi government around July 2006, which entirely extinguished plaintiffs’ right to any surplus amount under the term facility agreement.
Notably, while plaintiffs allege in their complaint that Barclays became their fiduciary after taking over CLC, they admit that Barclays entered the 2006 settlement agreement without ever consulting with them, that Barclays then later "actively
Plaintiffs attempt to avoid dismissal by relying on Erbe v Lincoln Rochester Trust Co. (3 NY2d 321, 326 [1957]), which states that whether plaintiffs are "possessed of knowledge of facts from which [fraud] could be reasonably inferred . . . presents a mixed question of law and fact" and therefore, "where it does not conclusively appear that the plaintiffs had knowledge of facts of that nature, a complaint should not be dismissed on motion." Initially, it is worth noting that Erbe was decided before the New York Legislature amended
Similarly, plaintiffs’ claims for breach of fiduciary duty are time-barred. The parties dispute whether a three-year or six-year limitations period applies. Regardless, even under the longer time period, plaintiffs’ claims for breach of fiduciary duty are untimely for the same reasons their claim for fraud is untimely (see Gonik v Israel Discount Bank of N.Y., 80 AD3d 437, 438 [1st Dept 2011]).
Even if plaintiffs’ breach of fiduciary duty claims were timely, the motion court properly dismissed them pursuant to
Plaintiffs’ remaining claims for tortious interference, sounding in economic injury, are also time-barred. These claims, which are subject to a three-year statute of limitations, accrued in July 2006, when the 2006 settlement was entered (see Amaranth LLC v J.P. Morgan Chase & Co., 71 AD3d 40, 48 [1st Dept 2009], lv dismissed and denied 14 NY3d 736 [2010]). Because the complaint was not filed until nearly eight years later, plaintiffs’ claims for tortious interference were properly dismissed as barred by the statute of limitations.
Finally, plaintiffs cannot rely on principles of equitable estoppel to save their complaint. Courts in New York have the
Plaintiffs have failed to satisfy their burden to show that equitable estoppel applies in this case. Plaintiffs point to only one alleged misrepresentation by Barclays in their complaint: In May 2002, an executive at Barclays, Elie Khouri, told a representative of plaintiffs in a telephone call that Barclays was "in the process of negotiating a resolution to the dispute [with the Saudi government] and that it would get the best deal possible for Plaintiffs." Further, Mr. Khouri allegedly advised plaintiffs that they should not get involved or bring legal claims. However, plaintiffs have failed to show how this statement amounts to a misrepresentation, because, as defendant points out, this statement was allegedly made before defendant instituted litigation against the Saudi government in December 2002, before the Saudi government announced in 2003 that it was accepting bids for banking licenses from Western banks, and four years before defendant‘s alleged fraud actually occurred in July 2006 (see Zumpano, 6 NY3d at 674 ["It is therefore fundamental to the application of equitable estoppel for plaintiffs to establish that subsequent and specific actions by defendants somehow kept them from timely bringing suit" (emphasis added)]).
Moreover, plaintiffs have failed to demonstrate their due diligence, for they were on inquiry notice by at least 2008 and failed to make a reasonable investigation (see Rite Aid Corp. v Grass, 48 AD3d 363, 364-365 [1st Dept 2008] ["(E)quitable estoppel . . . will not toll a limitations statute where plaintiffs possessed timely knowledge sufficient to have placed them under a duty to make inquiry"]). Therefore, we reject plaintiffs’ claim of equitable estoppel.
Accordingly, the judgment of the Supreme Court, New York County (Charles E. Ramos, J.) entered February 17, 2016, dismissing the complaint in its entirety with prejudice, and bringing up for review an order, same court and Justice, entered January 29, 2016, dismissing plaintiffs’ claims, should be affirmed, without costs. The appeal from the above order should be dismissed, without costs, as subsumed in the appeal from the judgment.
Andrias, J.P., Gische and Gesmer, JJ., concur.
Judgment, Supreme Court, New York County, entered February 17, 2016, affirmed, without costs. Appeal from order, same court, entered January 29, 2016, dismissed, without costs, as subsumed in the appeal from the judgment.