The opinion of the court was delivered by: GREEN
These related cases arise out of allegations that the Bank of Credit and Commerce International ("BCCI")
, illegally and secretly sought to acquire ownership and maintain control of First American Corporation ("FAC") and First American Bankshares ("FAB"), collectively known as First American. Two cases are consolidated here for trial and final judgment.
The identities of the parties and the nature of the claims are set forth in greater detail below, but by way of introduction, the following facts situate this dispute: In First American Corp. v. Sheik Zayed Bin Sultan Al-Nahyan, Civil No. 93-1309 [hereafter Zayed ], First American sued 30 defendants, alleging a complex course of conduct, and series of transactions, in violation of federal and state law. See First American Corp. v. Al-Nahyan, 948 F. Supp. 1107, 1112-15 (D.D.C. 1996) (explaining allegations in fuller detail); see also First American, 175 F.R.D. 411 (D.D.C. 1997). The four active defendants remaining in this case are Clark M. Clifford ("Clifford"), Robert A. Altman ("Altman"), His Excellency Ali Mohammad Al-Shorafa ("H.E. Al-Shorafa"), and Abdul Raouf Khalil ("Khalil").
In the companion case, Clifford v. First American Corp., Civil Action No. 95-0877 [hereafter Clifford ], Clifford and Altman are the plaintiffs who have sued FAC and FAB for indemnification under Virginia's law of corporations for the costs of defending against federal and state criminal prosecutions brought against them. See Clifford v. First American Corp., 1996 WL 707022 *1-2 (D.D.C. Nov. 26, 1996) (describing allegations); see also generally First American Corp. v. Al-Nahyan, 2 F. Supp. 2d 58, 1998 U.S. Dist. LEXIS 6446, 1998 WL 228428 (D.D.C. 1998) (describing the New York prosecution). First American has asserted a series of counterclaims roughly tracking its allegations in Zayed and a counterclaim related to fees First American paid to its law firm, which subsequently came to represent Clifford and Altman in their personal capacities.
Presently pending before the Court are a total of five dispositive, or partially dispositive, motions: (1) Clifford's and Altman's Motion for Summary Judgment in Civil Action No. 93-1309 [ Zayed ]; (2) First American's Motion for Partial Summary Judgment on Claims of Breach of Fiduciary Duty; (3) First American's Motion for Summary Judgment on Clifford's and Altman's Indemnification Claims in Civil Action No. 95-0877 [ Clifford ]; (4) Clifford's and Altman's Motion for Summary Judgment on First American's Counterclaims in Clifford ; and (5) H.E. Al-Shorafa's Motion for Summary Judgment in Civil Action No. 93-1309 [ Zayed ]. Enormous effort has gone into, and enormous resources have been consumed by, these motions. See First American, F.R.D. , 1998 U.S. Dist. LEXIS 11717, 1998 WL 433908 *1 (D.D.C. June 9, 1998).
Clifford's and Altman's memoranda of law, as well as First American's, are well argued, and each has a surface appeal. But, upon closer examination of the current state of the record, including the Court's prior rulings on some of the identical arguments advanced here, it is not clear why these motions were filed. Perhaps either or both parties hoped that lightning might strike and the Court would actually grant summary judgment notwithstanding the numerous long-standing, genuine disputes of material fact that divide them. More likely each side viewed its motion as an opportunity to take "legal discovery;" that is, to size up the other's legal position and get a preview of its key exhibits in support thereof. Possibly, these motions were designed to bridge an information gap that prevents the parties from resolving this matter short of trial. Whatever the motivations, judgment as a matter of law is not appropriate on any of the issues at this time, with one possible exception. For the reasons that follow, all five motions will be denied, and the trial in this matter shall commence as scheduled on October 5, 1998.
The plaintiffs in Zayed are FAC and FAB. Separated by a series of corporate layers, ultimately FAC and FAB were in the banking business. At the top-most layer was Credit and Commerce American Holdings, N.V. ("CCAH"), a Netherlands Antilles corporation CCAH was privately held, having at most 14 shareholders of record at any one time. First American alleges that these record shareholders were in fact, nominees (i.e. shills) for BCCI. Clifford, Altman and Khalil contest this allegation. CCAH had no employees and operated through a registered agent. The sole asset of CCAH was stock in its wholly-owned subsidiary, Credit and Commerce American Investment, B.V. ("CCAI"), a Netherlands corporation. Like CCAH, CCAI had no employees. In the early 1980s, CCAI came to wholly own FAC.
FAC, formerly known as Financial General Bankshares Holding Company ("FGBHC"), is a Virginia corporation with its principal place of business in Washington, D.C. At all times relevant to the Complaint, FAC was a privately-held bank holding company, see 12 U.S.C. § 1841 et seq. FAC is the parent corporation of its wholly-owned subsidiary, FAB, formerly known as Financial General Bankshares, Inc. ("FGB"). At all times relevant to the complaint, FAB was a Virginia corporation and a registered bank holding company with its principal place of business in Washington, D.C. FAB owned several regional banking companies, which in turn owned subsidiary banks in the states of Florida, Georgia, Maryland, New York, Tennessee and Virginia.
Currently, neither CCAH, CCAI, FAC nor FAB are ongoing concerns. The corporations have been substantially wound up by the court-appointed Trustee, Harry W. Albright, Jr., who, on behalf of the United States, exercises "all rights, titles, powers, and privileges of a shareholder of FAC, including, to the extent permitted by applicable law of the state of incorporation, the right to exercise exclusively any and all voting rights and other rights or benefits attached to, derived from, or otherwise attributable to the FAC shares." See United States v. BCCI Holdings (Luxembourg), S.A., 980 F. Supp. 496, 499 (D.D.C. 1997) [this is the criminal case against BCCI, which will be referred to hereafter as " BCCI Holdings "] (quoting from the Court's Order of June 23, 1992). FAC filed the Zayed Complaint "on its own behalf and on behalf of and with the full support of its sole shareholder, the Court-appointed Trustee . . . ." Compl. at 1.
Clark M. Clifford -- a defendant in Zayed and plaintiff and counterclaim defendant in Clifford -- entered the banking business after a long and distinguished career in public service, having held high government office during critical and contentious periods of American history. Relevant to these cases are the positions he held in all four corporations. Starting from the top, he was a Managing Director of both CCAH and CCAI. He served as the Chairman of FAC Board of Directors from 1981 to 1991 and concurrently as Chairman of the FAB Board of Directors from 1982 to 1991. During this time, he also was a named partner in the law firm of Clifford & Warnke ("C&W"), which served as counsel to BCCI, CCAH, and General Counsel to FAC and FAB.
Robert A. Altman had largely parallel roles. He also was a Managing Director of CCAH and CCAI. At FAC, he served as both a Director and President from 1981 to 1991. From 1982 to 1991, he too was a member of the FAB Board of Directors. Also a lawyer, Altman was Clifford's partner in C&W during all times relevant herein.
His Excellency Ali Mohammad Al-Shorafa is the former Grand Chamberlain (Director) of the President's Court, and Director of Presidential Affairs for, the United Arab Emirates. H.E. Al-Shorafa was a record shareholder of CCAH beginning in 1982.
Abdul Raouf Khalil is closely linked to Sheikh Kamala Ibrahim Adham ("Sheikh Kamala"). Sheik Kamala is a Saudi Arabian businessman and former head of security for the Kingdom of Saudi Arabia; Khalil was previously Minister of Communications and Deputy Chief of Saudi Intelligence, and the former Executive Administrator to Sheik Kamala. Khalil is currently a business associate of Sheikh Kamala. Khalil also became a record shareholder of CCAH in 1982.
In certain respects, the events underlying these cases stretch back more than 20 years. On February 17, 1978, FAB's predecessor, FGB, sought a preliminary injunction against BCCI, among other defendants, to block what it claimed was an unlawful, hostile takeover. As is the case here, FGB also sued its lawyer, claiming that he had a conflict of interest. In a thorough opinion, Judge Gasch set forth the history of the litigation and the timing of the settlements by all defendants except the lawyer. See Financial General Bankshares, Inc. v. Metzger, 523 F. Supp. 744, 746-47 (D.D.C. 1981), vacated on jurisdictional grounds, 680 F.2d 768 (D.C. Cir. 1982).
It was that litigation that began Clifford's and Altman's involvement with BCCI and the corporations they would later head. In re: BCCI, No. 91-001-1FD1 (Fed. Res. Bd.), Deposition of Clark M. Clifford, June 20, 1991, at 35-36 (FAB/FAC 3874). First American asserts, and Clifford and Altman deny, that from the beginning of their involvement, Clifford and Altman made misleading or false representations to federal regulatory authorities, principally the Board of Governors of the Federal Reserve System ("Federal Reserve"), during that time period.
In 1981, Clifford was offered, and accepted, the Chairmanship of the FAC Board. Altman also joined the Board at that time. At a shareholders meeting in 1982, Clifford and Altman were appointed to the FAB Board, and, at about that time, their law firm, Clifford & Warnke, was designated as the General Counsel for both corporations. It is undisputed that in their roles as directors of, and counsel to, First American, Clifford and Altman looked primarily to BCCI, Agha Hasan Abedi and Swaleh Naqvi -- the top two officers of BCCI -- and Kamal Adham as the "communications link" with the shareholders of First American's ultimate parent corporation, CCAH. A very material dispute exists as to whether the CCAH record shareholders had authorized BCCI to speak on their behalf, and as to whether Clifford and Altman reasonably relied on BCCI as the communications link.
1. Alleged Nominee Scheme
Not in dispute is the fact that both H.E. Al-Shorafa and Khalil were among the record shareholders of CCAH as of 1982. First American claims that they were shareholders in name only, and that BCCI was the beneficial and actual owner of the CCAH shares; that H.E. Al-Shorafa, Khalil, and the others were mere nominees.
First American has produced considerable documentary and testimonial evidence to show that at least some of the CCAH shareholders, for example, H.E. Al-Shorafa, "purchased" a substantial stake in CCAH through loans advanced by BCCI's subsidiary, ICIC, and that under the terms of these loans, the borrower was at virtually no risk but that ICIC obtained the right to control use of almost all of the CCAH stock put up as collateral.
First American alleges that BCCI had two motivations for constructing the nominee scheme. One was to avoid detection of its actual control over CCAH by American banking regulators, who enforce laws requiring that any person or entity with an ownership stake of 5% or more disclose such ownership stake. A second was to inflate the value of BCCI, by creating these "loans," which would appear as assets of the bank even though they were never intended to perform.
Clifford and Altman dispute the entire allegation. They assert that the record shareholders of CCAH were the beneficial owners of their respective stakes in the company, that loans they received from ICIC were not loans from BCCI, and that the loans were bona fide, arm's-length extensions of credit. During the course of their respective tenures as officers, directors and counsel for CCAH and First American, Clifford and Altman made various representations to federal regulatory authorities, including the Federal Reserve Board and the Securities Exchange Commission, to this effect. In the alternative, Clifford and Altman claim that even if BCCI had acquired illegal ownership of First American through the nominee scheme, they, like most of the rest of the world, were duped.
2. CCAH Stock Transaction
Not in dispute is the fact that in July 1986, and again in 1987, Clifford and Altman acquired share rights in their client, CCAH. According to CCAH's records, the 1986 share rights were sold at $ 2,216 each, and the 1987 shares were priced at $ 2,430 each. At least on paper, Clifford and Altman each financed their respective transactions with loans from a different client, BCCI. The loans were extended on a non-recourse basis, with only the share rights pledged as collateral.
Also not in dispute is the fact that CCAH's records reflect that in March 1988, a portion of both Clifford's and Altman's shares were recorded as sold for $ 6,800 per share -- reflecting an increase in value ranging from 280% to 307%. Subsequently, Clifford and Altman each are recorded having bought further share rights in 1989 priced at $ 2,774 each and two convertible debentures for $ 249,000 and $ 123,000, respectively.
The parties hotly dispute the proper characterization of these transactions. First American charges that the idea of the stock purchase was Clifford's and that he approached Agha Hasan Abedi, the head of BCCI, with a proposed after-tax profit figure in mind. According to First American the share "purchases" and "sham loans" were then documented to give this "compensation" the appearance of an "investment." See Deposition of Swaleh Naqvi, Zayed, Sept. 18, 1997, at 1240, 1251. Moreover, First American alternatively characterizes the compensation either as BCCI's bribe to Clifford and Altman or extortion extracted by them from BCCI.
Not surprisingly, Clifford and Altman take a different view. On their account, the purchases of an equity stake in the corporations for which they were responsible were wholly legitimate, even commonplace, occurrences. According to them the financing terms were negotiated at arms length -- including a hefty interest charge. They further declare that to the extent that there was a dramatic increase in the value of their investments, that was value they had created through their own managerial acumen, and that the profit figures were not predetermined. See Deposition of Imram M.A. Imam, Zayed, In re Clifford and Altman, May 27, 1997, at 343-44. Also in dispute is the extent to which the existence of these transactions were disclosed to Clifford's and Altman's other clients -- the Boards of Directors of FAC and FAB, respectively.
3. First American's Acquisition of the National Bank of Georgia
In 1987, First American purchased the National Bank of Georgia ("NBG"). First American claims that this was an unfavorable transaction for it all around, and that the only reason it acquired the bank on the terms it did was because the acquisition was in BCCI's interest, and Clifford and Altman favored that interest.
The few facts not in dispute are that Clifford and Altman as directors of CCAH and First American approved the transaction. Also not in dispute is that Clifford & Warnke served as counsel to BCCI in documenting a loan between it and Dr. Ghaith R. Pharaon, a defendant in this action, a fugitive in BCCI Holdings, and, at the time, the purported owner of the NBG. Pharaon had acquired NBG in 1978 with a loan from BCCI. First American asserts that BCCI in fact obtained true ownership of NBG at that time, and that the subsequent transfer to First American was simply an intracorporate transaction. Clifford and Altman deny this, and to the extent it is true, they assert that they had no way of knowing it to be true at the time.
4. Tampa Money Laundering Investigation and Congressional Inquiry
In February 1988, Panamanian General Manuel Noriega was indicted on federal drug trafficking charges in Tampa, the Middle District of Florida. The indictment generated a congressional inquiry, conducted principally by the Senate Subcommittee on Narcotics, Terrorism, and International Operations of the Committee of Foreign Relations. The investigation of Noriega, who kept accounts at BCCI, led to inquiry of whether BCCI was engaged in illegal money laundering. BCCI retained Clifford & Warnke to represent it in both the criminal and congressional investigations. During the course of this representation it came to light that some of the funds alleged to have been laundered passed through banks owned by First American, but First American itself was never named as a defendant.
Nearly every aspect of Clifford & Warnke's representation is disputed by the parties. Particularly, they dispute the extent of independent control Clifford and Altman, as partners, exercised over the representation, the degree to which a conflict of BCCI's and First American's interests existed with respect to the investigations, the duty to disclose certain facts, and the extent to which these actually were disclosed to First American.
Ultimately, certain BCCI employees were convicted of illegal money laundering. See United States v. Awan, 966 F.2d 1415 (11th Cir. 1992) (describing investigation and affirming convictions); see also generally Republic of Panama v. BCCI Holdings (Luxembourg), S.A., 119 F.3d 935 (11th Cir. 1997) (discussing allegations and dismissing RICO complaint filed against BCCI and others).
In early 1991, the Bank of England received troubling information about BCCI's financial condition and integrity. In response, it commissioned a special audit, which, according to one account, "disclosed evidence of a complex and massive fraud at BCCI, including substantial loan and treasury account losses, misappropriation of funds, unrecorded deposits, the creation and manipulation of fictitious accounts to conceal bank losses, and concealment from regulatory authorities of BCCI's mismanagement and true financial position." Corrigan, Mattingly & Taylor, The Federal Reserve's Views on BCCI, 26 Int'l Law. 963, 970-71 (1992) (based on testimony before the Committee on Banking, Finance and Urban Affairs of the United States House of Representatives on Sept. 3, 1991). The results of the audit were shared with regulators in other countries.
At about the same time, in February 1991, it became public that the Federal Reserve had begun an inquiry into, and a grand jury in New York had begun investigating, the alleged link between BCCI and First American.
On July 5, 1991, banking regulators in the United Kingdom, Luxembourg and the United States, froze assets owned or controlled by BCCI. In New York, the Superintendent of Banks seized BCCI's assets at various New York banks. By July 6th, eighteen countries had shut down BCCI's operations in their jurisdictions, and, as of July 29, 1991, forty-four countries had closed down BCCI branches. The courts in Europe and elsewhere with jurisdiction over the various BCCI entities placed the BCCI estate in the hands of appointed commissaries, known collectively as the Court Appointed Fiduciaries. See Clifford and Altman's Zayed Summ. J. Mem. Ex. 5 (copy of plea agreement in BCCI Holdings, Crim. No. 91-0655 (Dec. 19, 1991) [hereafter "BCCI Plea Agmt."]) at 2.
Following public disclosure of the allegations of BCCI's illegal ownership interest in First American and the seizure of BCCI's assets, First American suffered a substantial loss of core deposits throughout the second half of 1991.
On November 15, 1991, the United States filed in this Court a three-count Indictment charging BCCI with conspiracy, wire fraud and racketeering. On January 24, 1992, this Court, following findings of fact and conclusions of law with supporting reasons made in open court, accepted the pleas of guilty of the four corporate defendants, collectively known as BCCI, and the Plea Agreement between them and the United States of America. See BCCI Plea Agmt.; see also Transcript of Guilty Plea Proceedings at 7 (Jan. 24, 1992). As part of its plea, BCCI admitted that its former management and operators had "fraudulently and secretly acquired (1) direct or indirect ownership and control over the shares of First American Bankshares Inc. . . ." BCCI Plea Agmt. at 4.
After accepting the plea, and in accordance with 18 U.S.C. § 1963, this Court then entered an Order of Forfeiture. BCCI Holdings, 1992 WL 100334. Under the BCCI Plea Agreement, and pursuant to the Order of Forfeiture, BCCI forfeited to the United States its ownership interests in all property located in the United States, including, without limitation, real property and all tangible and intangible personal property, however held, whether subsequently identified, determined or discovered in the course of the ongoing liquidation proceedings described therein or otherwise identified, determined, or discovered in any manner at any time (excluding property brought into the United States by or on behalf of Court Appointed Fiduciaries of BCCI in the course of the management or disbursement of the liquidation estates). The total value of assets subject to forfeiture is in excess of $ 1 billion,
including the "net proceeds from the future sale or other disposition or transfer of any stock, security or other interest in First American Bankshares, Inc., but not the stock, security or other interest itself." See BCCI Holdings, 980 F. Supp. at 499 (quoting from BCCI Holdings, 1992 WL 100334 *1).
To allow for distribution of the liquidated assets of BCCI, the Plea Agreement provided for the establishment of a Worldwide Victims and Creditors Compensation Fund ("Worldwide Victims Fund"), to be maintained by the Court Appointed Fiduciaries, and a U.S. Disgorgement, Compensation, and Penalty Fund ("U.S. Fund"), to be maintained by the United States Department of Justice. BCCI Plea Agmt. P 11.
Executing this forfeiture agreement proved to be complicated . . . . BCCI did not directly own any interest in First American. Rather, through intermediaries, it acquired a controlling interest in [CCAH]. The extent of this interest was uncertain at the time of the forfeiture order but has been subsequently calculated to amount to 61.156%. Other shareholders in CCAH included appellants Clifford and Altman, whose shares have been estimated at 0.828% and 0.414% respectively. In turn, CCAH owned [CCAI], which owned FAC, which owned FAB.
Faced with this tangle of interlocking subsidiary corporations, the United States decided that the best course for recovering its forfeited interest was to dissolve First American and liquidate its assets. To facilitate the process, the government proposed the appointment of a trustee under 18 U.S.C. § 1963(e) and developed a plan whereby CCAH would transfer all of its interest in First American to the trustee . . . . According to the plan, once the trustee completed the sale of First American, the district court would order the equitable distribution of the net proceeds (after payment of expenses) to the United States and any outstanding shareholders of CCAH. [footnote omitted] Because BCCI was not the sole shareholder of CCAH, the government needed to win the approval of others to muster the 75% share vote necessary for the plan to take effect, and on May ...