Ali v. Al-Faisal ( 1996 )

Filed: February 12, 1996
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 94-2043
(CA-94-41-A)
Irfan Khalid Ali,
Plaintiff - Appellant,
versus
Khaled Bin Fahd Al-Faisal, etc.,
Defendant - Appellee.
O R D E R
The Court amends its opinion filed December 7, 1995, as
follows:
On page 8, second full paragraph, line 4 -- the firm "Baker &
Botts" is corrected to read "Baker & McKenzie."
For the Court - By Direction
/s/ Bert M. Montague
Clerk
UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
IRFAN KHALID ALI,
Plaintiff-Appellant,
v.
KHALED BIN FAHD AL-FAISAL, d/b/a
McDonald's Restaurant, d/b/a Al-
Riyadh International Group,
individually, No. 94-2043
Defendant-Appellee,
and
AL-RIYADH INTERNATIONAL
CORPORATION, d/b/a Al-Riyadh
International Group,
Defendant.
Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
James C. Cacheris, Chief District Judge.
(CA-94-41-A)
Argued: July 13, 1995
Decided: December 7, 1995
Before ERVIN, Chief Judge, MURNAGHAN, Circuit Judge, and
PHILLIPS, Senior Circuit Judge.
_________________________________________________________________
Affirmed by unpublished per curiam opinion.
_________________________________________________________________
COUNSEL
ARGUED: Joseph Peter Drennan, Alexandria, Virginia, for Appel-
lant. Frederick Michael Switzer, III, DANNA, SORAGHAN,
STOCKENBERG & MCNARY, St. Louis, Missouri, for Appellee.
ON BRIEF: Jo Anne Peele, Scott M. Badami, Phillip M. Seligman,
BRYAN CAVE, Washington, D.C., for Appellee.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
_________________________________________________________________
OPINION
PER CURIAM:
Irfan Ali, who filed a breach of contract claim against Prince Kha-
lid Bin Fahd Al-Faisal ("Al-Faisal"), appeals from the district court's
grant of summary judgment in favor of the defendant. Ali concedes
that no written contract exists to define the parties' rights and respon-
sibilities towards one another, but claims that Al-Faisal reneged on an
oral agreement to include Ali as a fifty-percent partner in McDonald's
restaurant franchises that Al-Faisal intended to develop in Saudi Ara-
bia. We hold that summary judgment was properly granted, because
providing Ali, a United States citizen, with a property interest in a
Saudi business would contravene Saudi Arabian law, and accordingly,
we affirm.
I.
Ali is a naturalized United States citizen of Pakistani origin who
now resides in Virginia. Al-Faisal, a citizen of Saudi Arabia and a
member of that country's royal family, also maintains a home in Vir-
ginia. The two men met in 1987 and developed a business relationship
in early 1988, forming Tri-Crescent Partnership. Based on a written
partnership agreement, they were to be 50-50 partners in the venture,
with Al-Faisal serving as a passive investor and Ali functioning as the
2
day-to-day manager of the partnership's real estate developments. As
part of the agreement, Ali drew $5,000 per month against his future
partnership earnings for living expenses. In the late 1980s, the men
formed an allegiance with Wheat First Securities, creating Wheat
International--a company designed to bring Middle East investors
into the United States market.
With the crash of the Virginia real estate market in 1990, Ali and
Al-Faisal's business relationship began to sour. Ali lost his home and
filed for bankruptcy; Al-Faisal blamed Tri-Crescent's failures on Ali.
In addition, Wheat International made no money, and Ali incurred
substantial expenses traveling on behalf of the company.
Ali and Al-Faisal disagree as to who initiated the idea of obtaining
a McDonald's franchise in Saudi Arabia. Ali contends that he traveled
to Saudi Arabia after the Persian Gulf War, noticed there were no
American fast-food chains in the country, and suggested to Al-Faisal
that the two men attempt to secure the first McDonald's franchise in
the country. Conversely, Al-Faisal claims that he had wanted to pur-
chase a McDonald's franchise for Saudi Arabia ever since the late
1970s, but that it was James Wheat, Jr., head of Wheat First Securi-
ties, who suggested the idea to him in the early 1990s.
The oral contract that is the subject of this litigation was allegedly
entered into by the parties on August 29, 1991, at Al-Faisal's home.
According to Ali, the two agreed that Ali would attempt to secure
McDonald's franchises for Al-Faisal in Saudi Arabia, and, in return,
Ali would get a fifty percent interest in those franchises. In order to
fulfill his obligations under the contract, and thereby receive his fifty
percent interest in a business venture worth an estimated $2.7 million,
Ali had to attend a September 1991 meeting with the Chairperson of
McDonald's International, James Cantalupo. Regardless of how Al-
Faisal ultimately secured the franchise, Ali argues that he would be
assured of his percentage, so long as he flew to Illinois for that one
meeting. In his deposition testimony, Ali explained twice his concep-
tion of the agreement:
The terms and conditions, I reiterated again that we
would have a fifty-fifty partnership in Saudi Arabia, that I
would be a fifty percent owner of any franchise if we were
3
successful in receiving the franchise in Saudi Arabia, and
that, if necessary, that I would form a corporation that would
form the joint venture with him.
****
The specifics of the terms of that contract are as I have
stated to you already, that I would be a fifty-fifty owner of
the franchise in Saudi Arabia along with Khaled[Al-Faisal]
or one of his companies, and that we would form this fran-
chise together. He would help in arranging all the financing
in country. I would do all the work in terms of getting the
McDonald's Corporation convinced that we are the right
party to do the business and to do the deal. That would be
my contribution to this partnership. And his contribution, as
I stated earlier, would be the financing of the operation. We
shook hands on that.
Joint Appendix, at 376-78. Apart from Ali's own account of his
August 29, 1991 meeting with Al-Faisal, nothing in the record sup-
ports Ali's claim that the parties agreed to such a division of profits.
According to Ali, if "the meeting went successfully with [the
Chairperson of McDonald's International] and that resulted in a suc-
cessful award of a franchise," he would be entitled to his fifty percent
share in the franchise. When asked to explain what he meant by the
meeting needing to be "successful," Ali replied that "[m]y measure of
success would be a personal measurement. I think you could measure
success in any which way you want." In short, therefore, so long as
Ali deemed the meeting a "success," he would be entitled to his share
of the franchise.
Notably, on the day that Ali and Al-Faisal allegedly came to this
meeting of the minds, Al-Faisal had removed Ali as managing general
partner of Tri-Crescent. By mid-1990, Al-Faisal had invested $1 mil-
lion in land located in Virginia, yet there had been absolutely no
development of that real estate. At that point, Al-Faisal claims he
already was looking to replace Ali. According to Al-Faisal, he only
agreed to allow Ali to attend the meeting with Cantalupo so that Ali
could maintain his self-respect after being fired from his position at
4
Tri-Crescent. Finally, despite Ali's suggestion that the 50-50 deal was
developed because of his key role in setting up the September 1991
meeting with McDonald's officials, the meeting between Al-Faisal's
people and Cantalupo had already been scheduled by August 29.
Ali's role in the franchise negotiations appears limited to his partic-
ipation in the single, introductory meeting with McDonald's officials.
Even that involvement was limited by the fact that Ali was only one
of three individuals to meet with Cantalupo on that day. Ali was
accompanied by two Wheat First Securities employees, John Maxwell
and Mark Gambill, both of whom knew Cantalupo personally. Prior
to the September meeting, Ali had never met Cantalupo. Although Al-
Faisal concedes that Ali assisted in making the initial pitch for the
franchise, Al-Faisal, Cantalupo, Maxwell, and Gambill also pointed
out that Ali spent at least a portion of the time speaking with Canta-
lupo about the prospect of expanding McDonald's into Ali's native
Pakistan. Ali's discussion of franchising opportunities in Pakistan
infuriated Al-Faisal.
Despite Ali's presence at the September 1991 meeting, it was not
until December 18, 1992--fifteen months later--that McDonald's
and Al-Faisal entered into a Franchise Development Agreement for
Central and Eastern Saudi Arabia. Cantalupo stated in a deposition
that he never considered the September 1991 meeting to have had
much, if any, bearing on McDonald's ultimate decision to award a
Saudi Arabian franchise to Al-Faisal in December of 1992. See id. at
734 (testifying that McDonald's Corporation never seriously consid-
ers a prospective applicant for a franchise prior to having met the
individual). In Cantalupo's words, the September 1991 meeting was
only exploratory in nature. Instead, it was during a July 1992 visit by
McDonald's officials to Saudi Arabia that an all-important interview
with Al-Faisal took place. According to Cantalupo, it was that inter-
view, and not the meeting ten months earlier, that resulted in the
awarding of a franchise to Al-Faisal.
Not until October 1992, when it became apparent that Al-Faisal
would receive a license to develop and operate McDonald's restau-
rants in Saudi Arabia, did Ali remind Al-Faisal of his partnership
interest in the McDonald's franchise. When Ali broached the issue,
Al-Faisal denied ever having agreed to such a proposal and refused
5
to recognize Ali as a partner in the venture. Al-Faisal opened his first
McDonald's restaurant in December 1992, one year after he received
his franchise license. Three months later, in February 1994, Al-Faisal
opened a second McDonald's. Ali was not involved in the develop-
ment of either franchise.
Ali filed a complaint against Al-Faisal on January 14, 1994, in the
United States District Court for the Eastern District of Virginia, alleg-
ing breach of contract. In Virginia, a suit on an oral contract must be
brought within three years after the cause of action--the breach of
contract--accrues. Goodell v. Rehrig Intern., Inc., 683 F. Supp. 1051,
1054 (E.D. Va. 1988) (citing Va. Code Ann. §§ 8.01-246(4) and 8.01-
230 (1984)), aff'd, 865 F.2d 1257 (4th Cir. 1989). In this case, a
breach would have technically occurred in December of 1992, when
Al-Faisal received the franchise, but denied Ali a percentage in the
business. Suit was, therefore, filed within the three year statutory
period. Six months after Ali filed his claim, Al-Faisal filed a motion
for summary judgment, claiming that (1) the contract was void for
vagueness; (2) the contract was illegal under Saudi law; (3) the oral
agreement violated the Statute of Frauds; and (4) the damages
claimed by Ali were speculative. In a decision announced from the
bench, the district court held that while a breach of contract had been
established, Ali did not have the capacity to enter into a contract to
be performed in Saudi Arabia. Consequently, summary judgment was
granted on the ground that the contract was illegal under Saudi law.
This timely appeal followed.
II.
We review the entry of summary judgment de novo and apply the
same legal standards that the district court employed when consid-
ering the motion for summary judgment. Shaw v. Stroud, 13 F.3d 791,
798 (4th Cir.), cert. denied, 115 S. Ct. 67 (1994); Kowaleviocz v.
Local 333 of International Longshoremen's Assn., 942 F.2d 285, 288
(4th Cir. 1991). The grant of summary judgment turns on whether
there exists a genuine issue of material fact and whether the moving
party is entitled to judgment as a matter of law. Stroud, 13 F.3d at
798. In this appeal, if we determine that the alleged contract between
Ali and Al-Faisal cannot be enforced under Virginia law because per-
6
formance would, in turn, be illegal under Saudi Arabian law, the
awarding of summary judgment in favor of Al-Faisal is appropriate.1
In diversity suits, a federal court must apply the law of the forum
state, including its choice of law principles.2 Erie R.R. v. Tompkins,
304 U.S. 64 (1938). Here, Virginia law governs, because the alleged
contract was formed in Virginia, at the house of Al-Faisal. Virginia
adheres to a traditional choice of law doctrine, and, in the context of
contractual disputes, questions of breach are determined by the law
prevailing at the place of performance. Chesapeake Supply and
Equipment v. J.I. Case Co., 700 F. Supp. 1415, 1417 (E.D. Va. 1988)
(citing 16 Am. Jur. 2d, Conflict of Laws § 96, at 160-61 (1979)). In
this case, it is undisputed that performance was to occur in Saudi Ara-
bia, the site of Al-Faisal's McDonald's franchises. Ultimately, then,
the legality of this alleged contract must be evaluated under Saudi
law. See Veitz v. Unisys Corp., 676 F. Supp. 99, 104 (E.D. Va. 1987)
("In respect for foreign law, Virginia law bars claims on contracts
governed by foreign law if that foreign law would bar the claims.");
see also Restatement (Second) of Conflict of Laws, § 202(2) (noting
that "[w]hen performance is illegal in the place of performance, the
contract will usually be denied enforcement").
In determining a question of foreign law, a court "may consider any
relevant material or source, including testimony, whether or not sub-
mitted by a party or admissible under the Federal Rules of Evidence.
The court's determination shall be treated as a ruling on a question
of law." Fed. R. Civ. P. 44.1; cf. Triad Financial Establishment v.
Tumpane Co., 611 F. Supp. 157, 164 (N.D.N.Y. 1985) (noting that
foreign law was once treated as a question of fact, but is now consid-
ered a question of law under Rule 44.1). Accordingly, we review de
novo the district court's consideration of the contract's legality under
Saudi Arabian law.
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1 For purposes of our discussion of the contract's legality, we assume
the existence of a sufficiently definite contract.
2 We note that the district court properly possessed jurisdiction pursu-
ant to 28 U.S.C. § 1332(a)(2), under which district courts have original
jurisdiction over cases between "citizens of a State and citizens or sub-
jects of a foreign state."
7
Like the district court, we find the parties' franchising agreement
unenforceable, because it violates specific Saudi Arabian regulations
governing the operation of business franchises in that country. Each
provision of Saudi law included in the record is designed to insulate
the Saudi economic environment from partici pation by non-Saudi cit-
izens. Article I of the Commercial Agencies Law provides:
Non-Saudis, whether in their capacity as natural or juristic
persons, shall not be permitted to be commercial agents in
the Kingdom of Saudi Arabia. Saudi companies acting as
commercial agents shall have entirely Saudi capital, and the
members of their boards of directors and those authorized to
sign for them shall be Saudis.
Article I, Royal Decree M/11 (1962), as amended by Royal Decree
M/5 (1969) and Royal Decree M/8 (1973), included in Joint
Appendix, at 882. In short, only Saudi Nationals are permitted to own
Saudi companies. See Business Laws of Saudi Arabia, Vol. I (ed.
Nicola Karam, 1994), published by Graham & Trotman Ltd., included
in Joint Appendix, at 895. More recent versions of the Saudi Arabian
Commercial Agencies Law continue to erect a wall between non-
Saudis and Saudi businesses. See Article II, Ministerial Order No.
1897 of the Saudi Arabian Ministry of Commerce (1981) (maintain-
ing rule that non-Saudis cannot operate as commercial agents in King-
dom of Saudi Arabia or possess any ownership interest in Saudi
companies). In April 1992, the Saudi Minister of Commerce promul-
gated an additional order making it clear that Saudi Arabia's Com-
mercial Agencies Law applies to franchising. See Article I,
Ministerial Order No. 1012 (1992).
This order serves as the clearest evidence that non-Saudi nationals
are precluded from possessing ownership interests in Saudi Arabian
franchises. Testifying as Al-Faisal's expert witness, Howard Stovall,
a partner in the law firm of Baker & McKenzie, who specializes in Middle
Eastern legal matters, testified that, in light of Ministerial Order 1012,
"a foreign (non-Saudi) party wishing to invest in, establish or simi-
larly participate in a Saudi Arabian business enterprise . . . must
obtain approval from the Saudi Arabian government." Declaration of
Howard L. Stovall, included in Joint Appendix, at 883. Such approval
8
is provided in the form of an investment license issued by the Foreign
Capital Investment Committee ("FCIC").
We decline to engage in mere speculation as to whether Ali could
obtain a Foreign Capital Investment License that would enable him
to circumvent Saudi Arabia's restrictive commercial agencies laws
and operate as a co-owner of Al-Faisal's McDonald's franchises. The
grant of such licenses is conditioned on a foreign investor demonstrat-
ing:
(1) that the foreign capital is to be invested in develop-
ment enterprises, which for the purposes hereof do not
include enterprises for the extraction of petroleum and
mining; and
(2) that the foreign capital is accompanied by foreign tech-
nical expertise.
Article II, Investment of Foreign Capital Regulation, No. M/4 of
2.2.1399 A.H. Without any experience operating in the food services
industry, Ali's chances of convincing the Minister of Industry and
Electricity that Ali would bring "foreign technical expertise" to the
McDonald's franchising business appear remote. Regardless of Ali's
chances for success, it is simply not enough for Ali to claim that he
theoretically could have obtained an FCIC license. As we observed
in Baber v. Hospital Corp. of Am., 977 F.2d 872 (4th Cir. 1992), "un-
supported speculation is not sufficient to defeat a summary judgment
motion." Id. at 875 (quoting Felty v. Graves-Humphreys Co., 818
F.2d 1126, 1128 (4th Cir. 1987)). Viewing all evidence in the light
most favorable to the non-moving party, Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 255 (1986), does not require that we speculate on
Ali's chances of securing the necessary licensing in Saudi Arabia for
his business ventures. Finding no basis upon which Ali could circum-
vent the clear dictates of Saudi Arabian commercial law,3 we hold that
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3 We find wholly unavailing Ali's attempt to dismiss the relevance of
Saudi regulations by merely reciting passages from the Qu'ran that refer
to a generalized notion of "ibaha," or freedom of contract. Regulations
promulgated by the Kingdom of Saudi Arabia to govern a multi-faceted,
9
enforcement of the oral contract between Ali and Al-Faisal would be
illegal. For Ali to operate as a fifty percent owner of a McDonald's
franchise located in Saudi Arabia contravenes the requirement under
Saudi law that only Saudi nationals, in the absence of specific exemp-
tions, be permitted to operate as commercial agents in that country.
III.
Having sustained the award of summary judgment on the ground
that performance of the contract would be illegal under Saudi law, we
find no need to address Al-Faisal's claim that the terms of the contract
are indefinite, uncertain, and vague. The district court refused to grant
Al-Faisal's summary judgment motion on this second ground. Dis-
putes over specific provisions of a contractual agreement are factual
matters that are best resolved initially by a trier of fact, rather than an
appellate court. The grant of summary judgment is upheld on the sole
ground that performance would be illegal under Saudi Arabian law.
The judgment of the district court is, therefore,
AFFIRMED.
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modern society in no way displace the importance of the Qu'ran as the
center of religious life in the Islamic world. Contrary to the position
espoused by Ali, however, it is possible for Saudi Arabia to remain faith-
ful to the principle of ibaha, yet develop regulations that define the
parameters within which parties are able to contract with one another.
10