Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Civil Litigation No. 02-20461, 5/29/2003. Click here for the full text of this decision FACTS: Before the court is the appeal of plaintiffs-intervenors, Sardar A Duad Khan and Shahwar Duad Khan, from the District Court’s denial of their motion for intervention. The main demand in the case is the enforcement of an arbitration award in favor of TCL and against defendant-appellee China National Machinery Import and Export Co. The Khans sought to intervene in the District Court to litigate the issue of whether they are the proper owners of the plaintiff-appellee corporation, Trans Chemical Limited. The District Court denied the Khans’ intervention on corporate ownership three times, but did allow intervention on the issue of arbitration-related expenses. HOLDING: Affirmed. The Khans cannot have it both ways. They cannot argue first that the Bankruptcy Court was protecting their interests, and, second, that the Bankruptcy Court action was not necessary since the only relief available was intervention in the District Court. Since the Khans assert that their only remedy in this case was intervention, they should have moved to intervene immediately in the District Court. The failure to wait more than one-and-a-half years to do so is untimely. Aside from considerations of timeliness, the Khans’ appeal also fails for a second reason; they have failed to articulate an interest in the subject matter of the litigation. In New Orleans Public Service Inc. v. United Gas Pipe Line Co., 732 F.2d 452 (5th Cir. 1984) (en banc), this court held that the applicant’s interest relating to the subject of the action must be “direct and substantial” and must be “something more than an economic interest.” As shareholders in TCL, they have an economic interest in the award, but this is not direct and substantial as required under Rule 24 and this Court’s ruling in New Orleans Public Service. The Khans rely on Borkowski v. Fraternal Order of Police, 155 F.R.D. 104 (E.D. Pa. 1994), to support their argument that a shareholder may intervene in litigation to assert issues of corporate control. In Borkowski, the corporation was equally owned by two shareholders, who were also the corporation’s directors. The corporation entered into an agreement with the defendants for the sale of insurance risks. The defendant thereafter terminated the agreement, and the corporation’s business faltered. The shareholders disagreed among themselves on whether litigation was necessary. One of the shareholders unilaterally determined that the other shareholder was no longer a 50 percent shareholder and removed him as director. Thereafter, as the sole director, he initiated the corporation’s suit against the defendant. The deposed shareholder then sought intervention in the suit solely to assert its rights as shareholder and dismiss the litigation. The District Court permitted the intervention, but expressly limited the intervention to permit dismissal of the corporation’s complaint. The Khans’ situation, however, is distinguishable from the facts of Borkowski. The Khans do not seek to intervene to dismiss the case. They wish to pursue a cause of action wholly separate and apart from the underlying cause of action. They do not have a claim against CMC, the defendants in the case. They wish to litigate an issue much different from the issues defined by the initial pleadings in this case, which concerns the enforcement of an arbitration award. Any claims the Khans have arising out of the loss of their shares are against TCL, New Orient and the Pakistani banks. Only TCL is before the District Court below; neither New Orient nor the Pakistani banks are involved in this litigation. Appellees refer this Court to Rigco, Inc. v. Rauscher Pierce Refsnes, Inc., 110 F.R.D. 180 (S.D. Tex. 1986), in which the court denied shareholders leave to intervene in a cause of action brought by their corporation. The court in Rigco noted that an intervenor’s interest in a cause of action is to be read narrowly. Further, any cause of action the shareholder has must be against the defendants in the case. Id. at 183. In this case, the Khans’ asserted intervention on the issue of corporate ownership is not a cause of action against CMC. Their claims for expenses do arise out of that litigation and were properly allowed to proceed. The same holds true for the interventions of the trustee and BRS. Those parties claimed a right of action arising out of the arbitration award, which the main demand was seeking to enforce and collect. Here, the Khans’ ownership claims are separate from that action. Again, intervention is not appropriate. Finally, the Khans ask this court to take note of the problems surrounding litigation of the ownership issues in Pakistani courts. The Khans assert that being required to litigate these issues is difficult because of the problems with the court system in that country and the fact that the U.S. State Department has warned against travel to Pakistan. During oral argument, counsel referred this court to decisions of the 2nd U.S. Circuit Court of Appeals and 9th U.S. Circuit Court of Appeals wherein those courts held that foreign judgments could be challenged in this court because of problems arising from the judicial system of those countries. The Khans argue that this court should permit them to challenge the ownership proceedings in these proceedings. The court, however, finds these cases unpersuasive and distinguishable from the present case. Both cases involve matters in which the foreign company and the party cast in judgment were directly before the District Court. In other words, there was no intervention, and all the parties necessary to challenge the foreign judgments were before those courts. As this court has noted above, the Khans’ motion for intervention comes too late and is too dissimilar to the underlying case before the District Court for intervention to be proper. The court finds that any unfairness in the Pakistani legal system does not outweigh the inefficiencies of keeping this case open to litigate entirely different issues against entities that are not presently before the court. In conclusion, the Khans’ attempt to intervene to litigate the issue of corporate ownership was not timely as it was filed well after the Khans were aware that their ownership interest in TCL was at stake. Further, the intervention seeks to litigate issues wholly separate from the main demand. OPINION: Fallon, J.; DeMoss, Stewart and Fallon, JJ.

Want to continue reading?
Become a Free ALM Digital Reader.

Benefits of a Digital Membership:

  • Free access to 1 article* every 30 days
  • Access to the entire ALM network of websites
  • Unlimited access to the ALM suite of newsletters
  • Build custom alerts on any search topic of your choosing
  • Search by a wide range of topics

*May exclude premium content
Already have an account?


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.