Official Comm. of Unsecured Creditors of Arcapita, Bank. B.S.C. v. Bahr. Islamic Bank, No. 15-cv-03828 (S.D.N.Y. Mar. 30, 2016) [click for opinion]
Plaintiff-Appellant, the official committee of unsecured creditors of Arcapita Bank (the "Committee"), began adversary proceedings in bankruptcy court in the Southern District of New York, seeking to avoid a preferential transfer to Defendants-Appellees Bahrain Islamic Bank and Tadhamon Capital B.S.C. (collectively, the "Banks").
In March 2012, Arcapita had hired the Banks to make investments on its behalf. Arcapita accepted one investment offer from one of the Banks, and two from the other. Arcapita made a total of three $10 million transfers to each of the Banks' correspondent bank accounts, both of which were located in New York. After receiving the funds, the Banks invested in palladium and Bahranian securities. Less than a week later, Arcapita filed bankruptcy. The Banks failed to remit the proceeds on their respective maturity dates, each claiming the funds would be held as a setoff for Arcapita's existing debts.
In 2013, the Committee began adversary proceedings to recover the funds. The bankruptcy court held that it lacked personal jurisdiction over the Banks, as transfers to New York correspondent bank accounts were an insufficient basis for personal jurisdiction. Therefore, the use of the accounts did not satisfy due process requirements.
The district court vacated the bankruptcy court's order dismissing the Committee's adversary proceedings against the Banks. In holding that the use of a correspondent bank account provided a sufficient basis to exercise personal jurisdiction over a foreign bank, the district court followed the reasoning of a series of recent opinions by the Southern District of New York, the Second Circuit, and the New York Court of Appeals in the Licci cases.
The court reasoned that, though the Banks in this case had no other contact with New York, their use of correspondent bank accounts in New York satisfied the first prong of New York's long-arm statute. Importantly, the contact was purposeful, "not coincidental or adventitious," and constituted a transaction of business in New York. The Banks chose U.S. dollars as the currency of the transaction, and they "actively directed" New York bank accounts as the recipients of funds.
The court also noted that the Defendants-Appellees' use of the correspondent bank account was only required to be "arguably connected" to the plaintiff's claim, and not at its "very root." The Committee's cause of action did arise from the Banks' use of New York correspondent bank accounts; the Banks' receipt of funds in New York were at the center of the cause of action. Defendants-Appellees could reasonably foresee being haled into court in the forum in which correspondent bank accounts the Defendants-Appellees had themselves selected were located.
The court cautioned that its finding of jurisdiction did not render mere maintenance of a correspondent account in the U.S. a sufficient source of personal jurisdiction in any controversy. Defendant-Appellees, not Plaintiff-Appellant, had purposefully availed themselves of the privilege of conducting business in New York. They could have designated non-U.S. accounts for receipt of the funds at issue.