Reply Brief — Fenn v. Alfadda

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Mis Ee) Bupreme vot, U.S.

No. 91-641 Filipe

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IN THE 8 Sa ae

: rciog OF THE CLERK

Supreme Court of the WUnited St ——ein

OCTOBER TERM, 1991

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RICHARD A. FENN; JAMAL RADWAN; SAUDI EUROPEAN INVESTMENT

CORPORATION N.V.; ALEF INVESTMENT CORPORATION N.V.; ALEF

BANK, S.A., sh

Petitioners,

—_vVvV.—

ABDULAZIZ A. ALFADDA; ABDULLAH ABBAR; ABDULLA KANOO; ABDU-

LAZIZ KANOO; YUSIF BIN AHMED KANOO (a Partnership Company);

AHMED A. ZAINY,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SECOND CIRCUIT

REPLY BRIEF IN FURTHER SUPPORT OF PETITION

Of Counsel: GEORGE A. DAVIDSON*

One Battery Park Plaza

New York, New York 10004

(212) 837-6000

Attorney for Petitioners

Jamal Radwan, Saudi European

Investment Corporation N.V.,

Alef Investment Corporation N. V.

and Alef Bank, S.A.

Of Counsel: THOMAS J. KAVALER*

80 Pine Street

New York, New York 10004

(212) 701-3000

Attorney for Petitioner

Richard A. Fenn

DANIEL H. WEINER

ANDREW E. LUND

HUGHES HUBBARD & REED

PATRICK L. ROCCO

CAHILL GORDON & REINDEL

(a partnership including

a professional corporation)

*Counsel of Record

eS

TABLE OF CONTENTS

THE COURT OF APPEALS REFUSED TO APPLY

THE ‘‘CONDUCT OR EFFECTS’’ TEST IN

ASSERTING JURISDICTION OVER RESPON-

BATE MAUR Ch 5 6 6 os ce eb sc ccevessceieuess

RESPONDENTS PRESENT AS ‘FACT’? UNSUP-

PORTED ASSERTIONS WHICH NEITHER THE

COURT OF APPEALS NOR THE DISTRICT

CAPES PUG UNS 6 ic ea pense eV br cscovncees see

A. The District Court Expressly Found That The

Representations Upon Which Respondents

Allegedly Relied Were Made In The Middle

bss seks cere aane ee eees Weeweues Raven es

B. Respondents’ Assertions Of Injury To SEIC

Have No Relevance To Their Claim.........

C. Respondents’ Assertion Regarding The

Planned Investment Of Offering Proceeds Has

No Relevance To Their Claim ..............

D. The Individuals, Entities and Actions Involved

In Respondents’ Stock Purchases Were Over-

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CEPR MEET 64.65 Shc cae veendys sodeeesbes oeenetes

TABLE OF AUTHORITIES

Cases

Abrams v. Donati, 66 N.Y.2d 951, 489 N.E.2d 751,

5G N.Y. B20 Tes Ca kc dan daub ecccasacw cscs

Adams-Lundy v. Association of Professional Flight

Attendants, 844 F.2d 245 (Sth Cir. 1988)..........

Bank of Crete, S.A. v. Koskatos, No. 88 Civ. 8412

CMW) G.D.N.Y. Ase. Fe BOs oce c:dccnns eens:

Bersch v. Drexel Firestone, Inc., 519 F.2d 974 (2d

Cir.), cert. denied sub nom. Bersch v. Arthur Ander-

sen & Co., 423 U8. BGG8 Ciiiee ca vdede ds skwonsrs

Rand v. Anaconda-Ericsson, Inc., 794 F.2d 843 (2d

Cir.), cert. denied, 479 U.S. 987 (1986) ...........

Roeder v. Alpha Indus., Inc., 814 F.2d 22 (lst Cir.

Sears v. Likens, 912 F.2d 889 (7th Cir. 1990)........

Stevens v. Lowder, 643 F.2d 1078 (Sth Cir. 1981)....

Thornhill Publishing Co. v. General Tel. & Elec.

Corp., 34 F.26 THO Cth Ca. BRIS) vdckcdescuucss

Warren v. Manufacturers Nat’l Bank, 759 F.2d 542

Os SO. SS so bs 3 6a 00 deo eke eee eee

Other Authorities

13 C. Wright, A. Miller & E. Cooper, Federal Practice

& Procedure: Jurisdiction 2d § 3522 (1984) ........

13 Fletcher Cyclopedia of the Law of Private Corpora-

ona & S94). ME CSP a Ns x00 sc'essdncnsasenns anne

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Restatement (Third) of the Foreign Relations Law of

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IN THE

Supreme Court of the United States

OCTOBER TERM, 1991

No. 91-641

a

RICHARD A. FENN; JAMAL RADWAN; SAUDI EUROPEAN

INVESTMENT CORPORATION N.V.; ALEF INVESTMENT

CORPORATION N.V.; ALEF BANK, S.A.,

Petitioners,

—V.—

ABDULAZIZ A. ALFADDA; ABDULLAH ABBAR; ABDULLA

KANOO; ABDULAZIZ KANOO; YUSIF BIN AHMED KANOO

(A Partnership Company); AHMED A. ZAINY,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SECOND CIRCUIT

>

REPLY BRIEF IN FURTHER

SUPPORT OF PETITION

Petitioners submit this reply brief in further support of

their petition for a writ of certiorari to review the judgment

of the United States Court of Appeals for the Second Circuit

in this case.

It is plain from the face of its opinion that the court of

appeals did not apply to civil RICO the ‘‘substantial conduct

or effects in the United States’’ test for determining United

States subject matter jurisdiction. Rather, the Second Circuit

ignored this test—adopted by every other federal court that

2

has addressed the issue and endorsed by the Restatement

(Third) of the Foreign Relations Law of the United States

(1987)—and instead crafted an entirely different standard

that greatly expands the extraterritorial reach of civil RICO.

Respondents now attempt to avoid review of the Second

Circuit’s test for RICO subject matter jurisdiction by present-

ing a response rife with irrelevant factual issues. None of the

new purported bases for jurisdiction argued by respondents

in their opposing brief was accepted by the court of appeals

or the district court, and none is supported by the evidence in

the record.

ARGUMENT

THE COURT OF APPEALS REFUSED TO APPLY THE

“CONDUCT OR EFFECTS’? TEST IN ASSERTING

JURISDICTION OVER RESPONDENTS’ RICO CLAIM.

Respondents challenge petitioners’ showing that the Second

Circuit failed to apply to civil RICO the traditional test of

‘substantial conduct or effects in the United States’’ to

determine whether a transnational transaction is to be gov-

erned by United States law. (Opp. Br. 17-19.)' The opinion

of the court of appeals, which grounds subject matter juris-

diction over respondents’ RICO claim entirely upon the

alleged use of United States mails and wires a handful of

times in connection with subsequent sales to two foreign non-

parties, is clear. After identifying petitioners’ alleged use of

the mails and wires regarding those sales (Sa-6a), the Second

Circuit held:

‘‘The sales to Lincoln American Investments and AI-

Turki were predicate acts which occurred primarily in

l References to ‘‘Opp. Br. » are to respondents’ brief in opposi-

tion to this Petition. References to ‘‘ a’’ are to the pages of the

Appendix to the Petition. References to ‘‘A "are ”” are

to the pages of the Joint Appendix and Exhibits, respectively, filed in

the court of appeals.

the United States, and hence, serve as a basis of subject

matter jurisdiction for the RICO claims.”’

(1la) (emphasis added).

The court of appeals—which expressly acknowledged the

applicability of the ‘‘substantial conduct or effects’’ test to

respondents’ federal securities law claim—did not once

invoke that limitation upon the extraterritorial application of

domestic statutes when it asserted jurisdiction over respon-

dents’ RICO claim. (9a-lla.) Far from requiring substantial

conduct or effects in the United States to sustain the applica-

tion of civil RICO to the foreign transactions at issue, the

Second Circuit accepted respondents’ argument that this test

is not applicable in the civil RICO context.” The Second Cir-

cuit created an entirely different test for civil RICO subject

matter jurisdiction, in which two predicate acts involving the

wires or mails in the United States will suffice to make an

otherwise wholly foreign transaction subject to United States

substantive law.’

RESPONDENTS PRESENT AS ‘‘FACT’’ UNSUPPORTED

ASSERTIONS WHICH NEITHER THE COURT OF

APPEALS NOR THE DISTRICT COURT ACCEPTED.

Rather than defending what the Second Circuit actually

decided, respondents now present this Court with unsup-

ported theories of subject matter jurisdiction which

2 Respondents maintained that ‘‘[t]here is no basis in law or logic to

engraft the conduct and effects tests used in the securitiés fraud con-

text onto RICO. The court below committed error in having done

so. . . .”’ (Respondents’ Brief on Appeal to the Second Circuit, dated

February 8, 1991, at 46.)

3 The holding of the court of appeals has been so understood by the

district court. Bank of Crete, S.A. v. Koskatos, No. 88 Civ. 8412

(KMW) (S.D.N.Y. Aug. 30, 1991), citing Alfadda v. Fenn, 935 F.2d

475, 479 (2d Cir. 1991).

4

were not accepted by the court of appeals or the district

court.*

A. The District Court Expressly Found That The Representa-

tions Upon Which Respondents Allegedly Relied Were

Made In The Middle East.

Respondents admit that they received the Private Place-

ment Memorandum upon which they allege reliance in the

Middle East. (Opp. Br. 8.) However, respondents now assert

that the Private Placement Memorandum was ‘‘drafted and

prepared in the United States.’’ (Opp. Br. 6.) That is flatly

incorrect: the district court expressly found that the Private

Placement Memorandum ‘‘was prepared primarily outside the

United States, and cannot be said to have emanated from

here.’’ (19a.) The court of appeals in no way disturbed that

factual finding.

B. Respondents’ Assertions Of Injury To SEIC Have No

Relevance To Their Claim.

Respondents argue that petitioners’ alleged fraud was not

‘‘consummated”’ until the alleged post-1984 diversion and

misuse of the proceeds of the SEIC share offering. (Opp.

Br. 11-12.) The district court properly rejected this claim,

holding that any fraud on these respondents

‘* ‘was committed by placing the allegedly false and mis-

leading prospectus in the purchasers’ hands’. . . Here,

it is uncontroverted that the prospectus was sent to the

plaintiffs from Paris or Geneva, or hand-delivered in

Saudi Arabia or Bahrain.’’

4 Respondents do not challenge petitioners’ showing that, in the face

of an evidentiary attack, respondents had the burden of proof in estab-

lishing subject matter jurisdiction. See Thornhill Publishing Co. v.

General Tel. & Elec. Corp., 594 F.2d 730, 733 (9h Cir. 1979) (and

cases cited therein); 13 C. Wright, A. Miller & E. Cooper, Federal

Practice & Procedure: Jurisdiction 2d § 3522, at 63-65 (1984).

(18a) (citing Bersch v. Drexel Firestone, Inc., 519 F.2d 974,

987 (2d Cir.), cert. denied sub nom. Bersch v. Arthur Ander-

sen & Co., 423 U.S. 1018 (1975)).°

Neither the court of appeals nor the district court has ever

held that respondents’ claim of diversion of the proceeds of

the SEIC offering is at issue in this litigation. Since any claim

that the offering proceeds were diverted from SEIC belongs

to SEIC, and could only be asserted by or on behalf of

SEIC, respondents lack standing to sue on such a claim.°®

Respondents’ allegations of lost corporate opportunities for

SEIC are also claims belonging solely to SEIC.’ The assertion

that certain ‘‘favored shareholders’’ of SEIC participated in

transactions at SEIC’s expense (Opp. Br. 11-12) does not

allege an injury specific to respondents, since such actions,

even if true, would have equally affected the value of all

shares of SEIC.® In sum, each of the asserted injuries to

respondents is not an injury to respondents themselves, and

thus has no place in this action.

5 Subject matter jurisdiction would not exist even if the fraud alleged

by respondents was incomplete until respondents paid for their SEIC

shares and until SEIC issued additional shares which allegedly

**diluted’’ respondents’ SEIC shareholdings, because this conduct did

not occur in the United States. Respondents paid for their shares

abroad (E 496-97, 640-41, 697-729); respondents themselves allege that

petitioners’ authorization to issue additional SEIC shares occurred

entirely abroad. (A 146-47.)

6 See, e.g., Sears v. Likens, 912 F.2d 889, 892 (7th Cir. 1990); Adams-

Lundy v. Association of Professional Flight Attendants, 844 F.2d 245,

250 (Sth Cir. 1988); Roeder v. Alpha Indus., Inc., 814 F.2d 22, 29 (Ist

Cir. 1987); Rand v. Anaconda-Ericsson, Inc., 794 F.2d 843, 849 (2d

Cir.), cert. denied, 479 U.S. 987 (1986); Warren v. Manufacturers

Nat’! Bank, 759 F.2d 542, 544 (6th Cir. 1985); Stevens v. Lowder, 643

F.2d 1078, 1080 (Sth Cir. 1981).

7 See Abrams v. Donati, 66 N.Y.2d 951, 952, 489 N.E.2d 751, 752,

498 N.Y.S.2d 782, 783 (1985); 13 Fletcher Cyclopedia of the Law of

Private Corporations § $941.10 (1991).

8 The district court thus specifically noted that respondents’ allega-

tions regarding Gulf Oil Trading Company (‘‘GOTCO”’) (Opp. Br. 11-

12, 24) were purely derivative. (A 78.)

6

C. Respondents’ Assertion Regarding The Planned Invest-

ment Of Offering Proceeds Has No Relevance To Their

Claim.

Respondents urge the Court to approve the finding of sub-

ject matter jurisdiction over their RICO claim by virtue of

SEIC’s plan to invest a portion of the offering proceeds in

the United States. (Opp. Br. 6-7.) There can be no fraud in

that fact, however, since the Private Placement Memorandum

expressly disclosed that this use was among the purposes of

the SEIC offering. (A 178.)

Neither the court of appeals nor the district court accepted

this argument when respondents presented it below. Respon-

dents’ argument would require United States courts to apply

United States law to, for example, securities fraud claims by

Japanese investors who purchased, in Japan, stock in a Japa-

nese automobile manufacturer which thereafter planned to

invest funds in the United States. That cannot be the law.

D. The Individuals, Entities and Actions Involved In

Respondents’ Stock Purchases Were Overwhelmingly For-

eign.

The court of appeals did not disturb the district court’s

express finding that none of the respondents and only one of

the petitioners was a United States resident. (24a-25a.)

Despite this factual determination, respondents now go to

great lengths to demonstrate that some of the petitioners con-

ducted some business in the United States. (Opp. Br. 3-5.)’

That has never been in issue. The questicn faced by the

courts below was not whether there is personal jurisdiction

over petitioners, but rather whether there is subject matter

9 Respondents’ assertion that petitioner Jamal Radwan ‘‘spends much

of his time in New York’’ (Opp. Br. 3) grossly misstates the record.

Examination of the citation for that statement reveals that Radwan is

president of a bank in Paris, has a home in England, and spends

‘‘most of the year’’ in Geneva, Paris and Bahrain in addition to busi-

ness travel to New York. (E 392.) The district court expressly found

that Radwan ‘‘appears from all the materials submitted to be a resi-

dent of France, not of the United States.’’ (24a-2Sa.)

7

jurisdiction over respondents’ claims. As the district court

properly held, the focus in that inquiry is upon the extent of

United States activities in connection with the overseas repre-

sentations to, and share purchases by, these Saudi Arabian

and Bahraini respondents. (22a-25a.)"°

10

Respondents’ claim that the actions of Ronald Reilly and Mario

Diaz-Cruz, III, somehow confer jurisdiction over their RICO claim is

unsupported in the record. Reilly’s work with SEIC began in Paris in

mid-October 1983, where he negotiated his contract with SEIC.

(E 734, 846-47.) During his preparation and marketing of the 1984

SEIC private placement, Reilly maintained his office in Paris. When he

was not in Paris, he was travelling in Europe and the Middle East.

(E 734, 739-61, 840-41, 849.)

There is no suggestion that Diaz-Cruz was in any way involved in

representations to respondents in the Middle East in the first part of

1984, when respondents learned of the private placement and made

their share purchases. While respondents harp on Diaz-Cruz’s involve-

ment in September and October 1984 in the printing of SEIC stock cer-

tificates and drafting of form letters and share custody certificates

(Opp. Br. 10-11), these events occurred many months after respon-

dents had paid for their shares. (E 148-52, 199, 203-07.) Moreover, the

letters in question were neither sent to respondents from the United

States nor were they sent by Diaz-Cruz. (E 210-15.)

8

CONCLUSION

For the foregoing reasons and the reasons set forth in peti-

tioners’ opening memorandum, the petition for a writ of cer-

tiorari should be granted.

Dated: New York, New York

November 26, 1991

Of Counsel:

DANIEL H. WEINER

ANDREW E. LUND

HUGHES HUBBARD

& REED

Of Counsel:

PATRICK L. ROCCO

CAHILL GORDON

& REINDEL

(a partnership including

a professional

corporation)

*Counsel of Record

Respectfully submitted,

GEORGE A. DAVIDSON*

One Battery Park Plaza

New York, New York 10004

(212) 837-6000

Attorney for Petitioners

Jamal Radwan, Saudi

European Investment

Corporation N.V., Alef

Investment Corporation

N.V. and Alef Bank, S.A.

THOMAS J. KAVALER*

80 Pine Street

New York, New York 10004

(212) 701-3000

Attorney for Petitioner

Richard A. Fenn