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Note: Unnamed parties (Brokers) allegedly contracted to sell “international investment opportunities in Bank Guarantees” to Saudi citizens and companies. The names of all parties were sealed. When Brokers believed that the sale had been consummated, they demanded payment of a commission under the agreed terms, and when it was not forthcoming sued Saudi citizens. One of the Saudi citizens moved to dismiss for lack of personal jurisdiction, which was granted by the United States District Court for the Southern District of Texas. On appeal, the United States Court of Appeals for the Fifth Circuit, King, Davis, Owens, JJ., in a per curiam opinion affirmed the judgment.

An employee of one of the Saudi companies sent a “Non-Circumvention, Non-Disclosure & Working Agreement,” which was signed by one of the Saudi companies. The Agreement provided that Brokers were entitled to a commission “for every tranche of Bank Guarantees purchased,” and contained a forum-selection clause submitting to the jurisdiction to the United States District Court for the Southern District of Texas as the exclusive venue. The opinion also noted an affidavit submitted by Brokers stated that an employee of the Saudi companies told them that one Saudi company would act on behalf of the others in regards to the Bank Guarantees that had been worked on. The Judges found that these items were hearsay, and thus inadmissible. As a result, the appellate court agreed that Brokers failed to establish “a prima facie case of personal jurisdiction.”

Among other features, the opinion noted that Brokers received a letter from the U.S. Consulate in Jeddah, Saudi Arabia stating that one of the Saudi companies was “an established business” with a positive reputation in Jeddah. Additionally, Brokers claimed that they successfully found bank guarantees such as the ones the Saudi companies were seeking.

Legal Analysis:

Comment:

  1. Commercial Fraud: The facts in this case make it apparent that a commercial fraud was afoot. One cannot “buy” independent guarantees or “invest” in them in the real world. However, there is an alternative reality in which this type of transaction is common. Who is seeking to defraud whom is not clear from the facts of the case.

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