Hatem El-Khalidi, a former CIA agent who discovered the rich Al Masane ore deposits in Saudi Arabia, has not fared will lately against the Texas company he founded.
Chief Justice Steve McKeithen of the Beaumont Court of Appeals, Ninth District, on May 22 upheld a trial court order dismissing El-Khalidi's breach of contract and defamation lawsuit for lack of prosecution.
El-Khalidi founded Sugar Land-based American Arabian Development Co., traded on the NASDAQ as ARSD. El-Khalidi filed his lawsuit in Hardin County--no where near Sugar Land--on Aug. 2, 2011.
McKeithen's opinion doesn't explain the back story, but AADC went into its version of the details in a related lawsuit it filed Dec. 14, 2010 in federal court, also in Beaumont.
Since 1963, El-Khalidi has been living in Saudi Arabia as an American citizen with alien residency status.
On July 1, 2009, Nicholas Carter succeeded El-Khalidi as president and chief executive officer of AADC. El-Khalidi was also director of Al Masane Al Kobra Company (AMAK), in which AADC holds 41 percent interest, the complaint said.
"During a meeting on July 2, 2009, the board of directors of AADC voted six to one to enter into a settlement agreement with the Saudi Arabian shareholders of AMAK to avoid a $30 million capital call," stated AADC attorney Lawrence Louis Germer of Germer Gertz in Beaumont.
After that meeting, AADC alleged El-Khalidi took action to undermine the settlement and AADC's relations with its AMAK partners, "ostensibly for personal gain."
El-Khalidi was threatening lawsuits against one or more AMAK third-party consultants, hiring a lawyer in Saudi Arabia, at AADC's expense, to make a demand against AMAK shareholders for cancellation of the settlement, demanding 1.75 million shares of AMAK common stock and $850,000 from AMAK shareholders.
El-Khalidi also sued AADC in Saudi Arabia for end of service benefits, overtime going back to 1963, compensation for paid holidays not taken and unfair termination of his service, and legal fees.
In response, on May 9, 2010, the AADC board cancelled his 400,000 shares of common stock options, withdrew a $31,500 bonus, terminated his retirement awards program and cancelled payment of any accrued fees payable.
El-Khalidi's version is explained in his brief to the Beaumont Court of Appeals:
"The roots of this outcome were sown in the formation of AMAK in 2006. Ownership of AMAK was divided 50 percent to AADC and 50 percent spread among a group of Saudi Arabian investors. AADC contributed its lease rights over the Al Masane area and the Saudi investors contributed financing for the mining operations.
"In 2009, the Saudi Arabian investors demanded that AADC contribute additional financing to AMAK. El-Khalidi, then AMAK’s managing director and AADC’s President, CEO, and Chairman of the Board of Directors, rejected this demand.
"El-Khalidi, however, had already announced his intended retirement from his executive offices with AADC. Thus, when the demand was made by the AMAK investors, El-Khalidi was already slated to relinquish his operational control over AADC by June of that year. The Saudi investors merely bided their time until El-Khalidi had left his office, focusing their efforts on El-Khalidi’s intended successor, Nicholas Carter.
"Mr. Carter had been brought into AADC by El-Khalidi in 1987 as part of AADC’s purchase of the South Hampton refinery, a small oil refinery in Hardin County, Texas. Carter was the manager of the refinery and El-Khalidi kept him in that position after the purchase. On El-Khalidi’s retirement from AADC’s President and CEO office, Carter was the intended successor and, in fact, was named to these offices by the Board effective July 1, 2009 on El-Khalidi’s recommendation.
"Even before Carter was appointed to these offices, the Saudi AMAK investors had targeted him for pressure regarding their demand for a greater share of the AMAK ownership. Almost immediately after El-Khalidi stepped away from his executive offices, Carter recommended to the AADC board that a compromise be reached with the AMAK investors that included AADC’s surrender of 18 percent of its shares of AMAK to the investors. This recommendation was adopted by resolution of the AADC board on August 5, 2009.
"El-Khalidi strenuously objected to this agreement and pushed the AADC board to reconsider, relying on additional documentary evidence to support his opposition to the deal. El-Khalidi’s request was put to the Board on January 28, 2010, which reaffirmed its commitment to the compromise agreement by a vote of 5-1 with El-Khalidi, still a member of the AADC board at that time, casting the lone dissenting vote.
"Unsatisfied with simply prevailing on the issue of AADC’s agreement to the compromise, Carter went on to propose that AADC void all of its agreements regarding El-Khalidi’s retirement package."
It should be noted that El-Khalidi will be 90 on Sept. 14, 2014.
When El-Khalidi filed his lawsuit in state court, AADC agreed to voluntarily dismiss their lawsuit in federal court, "in an effort to work cooperatively, and not within the rigid timelines of a federal court's scheduling order," McKeithen explained.
From that moment on, the impression given in the May 22 opinion is that El-Khalidi neglected his Texas lawsuit. Perhaps, his primary concern has been prevailing in Saudi Arabian court, but despite the fact that it was El-Khalidi who appealed to the Beaumont Court of Appeals, McKeithen argues that the AADC parties have been in the right.
The named defendants in El-Khalidi's Texas suit are AADC, Carter and general counsel Charles W. Goehringer Jr. According to El-Khalidi, Carter made allegations against him that Carter should have known were untrue, and which were designed to induce other board members to believe El-Khalidi was acting contrary to AADC's interests.
The problem is that once a lawsuit is in play, discovery begins. This involves the turning over of documents and submission to depositions. El-Khalidi was perceived by the Texas trial court as obstructing discovery. He would not come to Texas for a deposition in Dallas.
AADC sought sanctions. There was a hearing. The trial court ordered that El-Khalidi appear in Dallas for deposition on Aug. 7, 2012. A month after El-Khalidi missed that deadline, AADC filed a second motion for sanctions and a motion to dismiss El-Khalidi's lawsuit for want of prosecution.
Attached to the motion were affidavits from El-Khalidi explaining his reluctance. Some of his statements were off topic, but revealing of the company's history.
El-Khalidi recounted how he discovered zinc, gold, silver, copper and nickel in the Al Masane region.
El-Khalidi was Jordanian born. His brief to the court of appeals explains that he first went to Saudi Arabia in 1963 to conduct operations in his role as a career CIA agent.
"As a trained geologist, he obtained a mineral reconnaissance permit in as a cover for his clandestine operations. In the course of his operations, he actually did discover a very valuable mineral field in Najran Province."
He formed the company, and when he left the CIA in 1969, he became AADC's vice president. It took another 15 years of exploratory work to convince the King of Saudi Arabia this was an economically viable enterprise, and another 10 years to obtain a mining lease.
As for El-Khalidi's reluctance to come to Texas, various reasons were given. He was unable to leave Saudi Arabia due to the pendency of his lawsuit against AADC in Saudi Arabian courts. He asked that the deposition take place in Jeddah, the city where he resides.
It seems like a hard-ass and mean-spirited move, but AADC refused to conduct depositions in Jeddah.
El-Khalidi also cited his age and health reasons for not traveling, and asserted that "his ability to travel is controlled by the defendants as they must authorize his exit from and re-entry into Saudi Arabia."
It makes sense that an 89-year-old man wouldn't want to travel so far, and the issue of AADC's control over his visa was a curious angle that the court didn't explore further. But McKeithen was more concerned about El-Khalidi's total lack of response concerning his failure to comply with Texas Rules of Judicial Administration in prosecuting his claim.
Under Texas rules, the lawsuit should have been disposed of within 18 months of AADC's answer to El-Khalidi's complaint, or by March 14, 2013.
"With the exception of El-Khalidi's petition and response to the counterclaim, almost all of the activity in the case consisted of appellee's efforts to mediate the case, to obtain written discovery from El-Khalidi, to obtain sanctions against El-Khalidi, and to take El-Khalidi's deposition, and El-Khalidi's attemps to avoid appearing for deposition in Texas and to avoid answering discovery," McKeithen concluded.
"On this record, the trial court could reasonably have concluded that El-Khalidi had failed to prosecute his claims against Goehringer and Carter with due diligence."
El-Khalidi was represented by Thomas Coward of Wasoff & Cowart, Carl Melito and J. Eric Reed, all Dallas attorneys.