In a recent decision that is now on appeal, a New York federal judge ordered a Spanish bank that maintained a New York branch to make inquiry of “all branches, within and without New York State,” for account information that would be relevant to a third-party’s execution on judgments against the Republic of Cuba. In rejecting the bank’s jurisdictional arguments, the court held that the bank’s registration with the New York Department of Financial Services as a foreign banking corporation was a sufficient jurisdictional connection with New York to require global compliance by the bank with the plaintiffs’ discovery requests. If it withstands appeal, the decision in Vera v. Republic of Cuba1, could have long lasting implications for international banks that maintain a presence in New York.

The Vera judgment enforcement proceeding

The Vera case is a judgment enforcement proceeding brought in New York in which the plaintiffs are seeking to execute a judgment they previously obtained against the Republic of Cuba against blocked funds held by the respondent banks relating to electronic funds transfers sent from Cuba to third parties. The Vera plaintiffs also served broad information subpoenas on certain banks in search of additional Cuban property held by the banks “in their New York branches and elsewhere.”

Most of the banks named in the suit reached an agreement with the plaintiffs that provided for turnover of blocked funds in their possession but also protected the banks against potential double liability if they were later sued by persons claiming an interest in the funds. Two banks, including Banco Bilbao Vizcaya Argentina (“BBVA”), did not agree and claimed that the New York court lacked personal jurisdiction over them for these purposes in view of a recent Supreme Court decision in Daimler AG v. Bauman, in which the high court held that U.S. courts cannot exercise general jurisdiction over a corporation unless it is essentially “at home” in the state where the court is based2. The New York court in Verarejected the Daimler argument in a prior decision and concluded that it could exercise personal jurisdiction over the two objecting banks.

BBVA moved for reconsideration of that ruling in light of an intervening decision by the U.S. Court of Appeals for the Second Circuit, the appellate court that oversees federal courts in New York, in Gucci Am., Inc. v.. Li3. In Gucci, the Second Circuit followed Daimler in holding that a federal court in New York did not have sufficient personal jurisdiction over the Bank of China to permit enforcement of an injunction and subpoena that purported to reach an alleged trademark infringer’s bank accounts in China. The Second Circuit also held that even if jurisdiction could be found, courts should conduct a comity analysis in these circumstances if a federal court order would subject a party to obligations that conflicted with the laws of another nation, and in Gucci the federal court orders conflicted with bank secrecy laws of China.

The Vera court concluded, however, that neither Gucci nor Daimler applied in that case, that it had jurisdiction over BBVA, and that principles of international comity did not alter its conclusion. It therefore ordered BBVA to produce “all information reasonably available to it which is responsive to the Information Subpoenas, without limitation as to whether the accounts it provides information about are located in New York.”

The Vera court held that by registering with and obtaining a license from the New York Department of Financial Services and by authorizing the Department to accept service of process on its behalf, BBVA had consented to general jurisdiction in New York in return for the right to operate a branch and conduct business in the forum. Foreign banking corporations doing business in New York are deemed to consent to jurisdiction in New York courts and are required to appoint the Department as their agent for service of process, but only for proceedings “arising out of a transaction with its New York agency or branch,” which by the terms of the relevant statutory provisions is not a basis for general jurisdiction4.

The court did not analyze the New York statute in reaching its conclusion, but it reasoned that foreign banks operating in New York should not be given advantages over domestic banks. The court expressed particular concern that allowing foreign banks to evade discovery concerning their foreign activities would authorize them to aid freely criminals and terrorists. The language of the opinion is especially stern in this regard:

I cannot espouse a notion of jurisdiction that allows banks to hide information concerning assets connected to terrorism in other countries. When corporations receive the benefits of operating in this forum, it is critical that regulators and courts continue to have the power to compel information concerning their activities. Foreign banks should not be permitted to promote the legitimacy of their business by registering to do business in New York, and then hide illicit activity by ‘keeping’ information concerning assets related to terrorism in other countries. Such action is akin to a legitimate business storefront which launders money from illegal operations in the back room, and does not comport with the legal system of the United States.

In rejecting BBVA’s reliance on the recent Gucci decision, the Vera court refused to read Gucci “so broadly” as to “eliminate the necessary regulatory oversight into foreign entities that operate within the boundaries of the United States.” But the Vera court only distinguished Gucci on the basis that the Second Circuit had left open the question whether Bank of China had consented to personal jurisdiction in New York through its registration to conduct business there. The New York Banking Law itself does not allow such a reading, and Daimler would appear to require far more than registration to do business in a state to establish general jurisdiction over a bank having its headquarters and principal operations in Spain. The Vera court also noted that in its view Gucci would be inapplicable even if BBVA had not consented to jurisdiction because the Gucci decision had dealt with prejudgment discovery while the dispute in Vera arose in the context of post-judgment enforcement proceedings where discovery traditionally has been construed more broadly. Nor was the Vera court persuaded that an international comity analysis required deference to the potentially conflicting banking laws of Spain, notwithstanding the Spanish bank’s status as a non-party to the underlying dispute with Cuba. BBVA had argued that comity favored leniency in this instance because compliance with the requested discovery would require it to violate Spanish bank secrecy laws. The Vera court concluded that the request seeking worldwide discovery of Cuban assets in aid of execution of the judgment was sufficiently important and specific and there were no alternative means for obtaining the information.

There is nonetheless reason to believe that the Vera court did not intend to impose the unlimited burden upon a New York branch of producing all of a foreign bank’s responsive records. The court instead required the New York branch “to provide all information reasonably available to it.” It would, of course, be the exception, rather than the rule, for the New York branch of a foreign financial institution to have direct electronic access to overseas account information. Yet provided such information is “available,” the Vera court has made clear that geography should be no impediment to production.

BBVA has appealed the district court’s order to the Second Circuit. At this time, the schedule for briefing has not been established, but it is likely that the appellate court will not issue a decision in the matter until late this year at the earliest.