State of Qatar v. First Abu Dhabi Bank PJSC

Background

The State of Qatar filed the case in New York Supreme Court against First Abu Dhabi Bank PJSC, Samba Financial Group SJSC, and twenty unnamed defendants. Qatar asserted New York-law claims for fraud, conspiracy to commit fraud, and aiding and abetting fraud. The Banks removed the action to federal court. Qatar moved to remand, meaning it asked the federal court to return the case to state court.

The Banks argued that federal jurisdiction existed for two reasons. First, they claimed they were agencies or instrumentalities of foreign states under the Foreign Sovereign Immunities Act, which would allow them to remove a state-court action. Second, they argued that Qatar’s state-law claims raised important federal issues concerning United States foreign policy and the dispute involving Qatar, Saudi Arabia, and the United Arab Emirates.

Foreign Sovereign Immunities Act

The court held that the Banks did not qualify as “foreign states” under the Foreign Sovereign Immunities Act. The Banks did not claim that a foreign government owned a majority of their shares, so they had to show that they were organs of Saudi Arabia or the United Arab Emirates.

The court applied the Second Circuit’s five-factor test for deciding whether an entity is an organ of a foreign state. The factors ask whether the foreign state created the entity for a national purpose, actively supervises it, requires it to hire public employees or pays their salaries, gives it exclusive rights, and treats it as a government entity under foreign law. The court found that the Banks had not shown that any factor was satisfied. The Banks conceded at oral argument that none of the factors was met.

The court also rejected the Banks’ argument that allegations connecting them to the governments’ campaign against Qatar were enough by themselves. It explained that an entity does not become an organ of a foreign state merely because it follows a particular command from that state. Because the Banks were not organs, they were not agencies or instrumentalities entitled to use the Act’s removal provision.

Federal-Question Jurisdiction

The court also rejected the Banks’ argument under the federal-jurisdiction doctrine recognized in Grable & Sons Metal Products, Inc. v. Darue Engineering & Manufacturing. That doctrine can allow federal courts to hear certain state-law claims when they necessarily raise a disputed and substantial federal issue, and hearing the case in federal court would not disrupt the balance between federal and state courts.

The court held that Qatar’s claims did not necessarily raise a federal issue. The claims were based exclusively on New York law, and none required the court to apply a federal rule of decision. The Banks’ argument that a judgment might affect United States neutrality in the international dispute did not change that conclusion.

For completeness, the court also concluded that the asserted federal issue was not disputed under the Banks’ own theory because one country would be displeased regardless of how the case was decided. The court found that the foreign-policy concern was substantial, but held that federal jurisdiction still failed because the issue was not necessarily raised, was not disputed, and exercising jurisdiction would disrupt Congress’s carefully drawn limits on federal jurisdiction under the Foreign Sovereign Immunities Act.

Fees and Disposition

The court denied Qatar’s request for attorney’s fees and costs under 28 U.S.C. § 1447(c). Although the Banks’ removal arguments failed, the court found that they were colorable and not made in bad faith. The court also noted that the Banks had abandoned an earlier removal argument based on the act-of-state doctrine, which could not support federal jurisdiction under the well-pleaded-complaint rule.

Judge Alison J. Nathan granted the Defendants’ motion to remand, directed the Clerk of Court to remand the case to New York Supreme Court, New York County, and directed the Clerk to close the federal case. The ruling addressed federal jurisdiction and did not decide the underlying fraud claims.