Should a New York court hear a case if its only link to the state is a transfer of funds through a New York-based correspondent bank account? According to the state’s highest court, the answer is no.
On April 8, 2014, the New York Court of Appeals issued a decision in Mashreqbank PSC v. Ahmed Hamad Al Gosaibi & Brothers Company holding that the mere transfer of money through a New York-based correspondent account was not a sufficiently “compelling” interest to keep otherwise foreign cases in the state’s courts. In so doing, the Court of Appeals made it less likely that foreign plaintiffs will be able to bring predominately foreign claims in New York courts—where the parties, witnesses and evidence are located outside of New York—on the basis that the case involved a transfer of dollars through a New York-based correspondent account.
Moreover, read against the Court’s 2012 opinion in Licci v. Lebanese Canadian Bank SAL, last week’s ruling makes clear that merely because a plaintiff may, under certain circumstances, be able to obtain personal jurisdiction over a defendant on the basis of a defendant’s repeated use of a correspondent account in New York, that does not guarantee that a New York court will ultimately determine that New York is the proper forum in which the action should be adjudicated.
This case arose out of the 2009 default of Saudi conglomerate Ahmed Hamad Al Gosaibi & Brothers Co. (AHAB) on billions of dollars in debt owed to dozens of banks worldwide, including Mashreqbank. Despite the fact that AHAB and Mashreqbank were both located in the Middle East, Mashreqbank filed a suit in New York trying to recover the monies purportedly owed to it by AHAB. AHAB brought a third-party claim against its former employee, Maan Al Sanea (also not a New York resident), who it accused of looting AHAB, and also asserted a counterclaim against Mashreqbank. The sole connection to New York identified by any party was the allegation that the parties made dollar denominated transfers through banks located in New York.
After requesting that the parties address whether New York was a convenient forum for these actions, the trial court dismissed both the complaint and the third-party complaint on forum non conveniens grounds. The Appellate Division disagreed, holding that the use of New York-based bank accounts “automatically implicat[ed] New York’s compelling interest in the protection of its banking system,” thereby making New York an appropriate and convenient forum in which to adjudicate the action.
The Court of Appeals, New York state’s highest court, reversed. While acknowledging New York’s “compelling” interest “in the integrity of its banks,” the Court concluded that the interest is “not significantly threatened every time one foreign national, effecting what is alleged to be a fraudulent transaction, moves dollars through a bank in New York.” In rejecting the Appellate Division’s reasoning, the Court noted that in the modern economy “any dollar transaction” of significant size “must go through New York,” but emphasized that this did not mean that “every major fraud case in the world in which dollars are involved belongs in the New York courts.” Other than the presence of the correspondent account, the Court found no other reason “to justify resort to a New York forum,” as none of the parties, evidence, property, or relevant conduct were found or took place in New York. The Court concluded that “New York’s interest in its banking system ‘is not a trump card to be played whenever a party . . . seeks to use our courts for a lawsuit with little or no apparent contact with New York’” and dismissed the case as having been brought in an inconvenient forum.
The Mashreqbank decision limits the Court’s previous decision in Licci v. Lebanese Canadian Bank, SAL
The Mashreqbank decision highlights the evolving nature of the Court of Appeal’s views concerning correspondent bank accounts. The last time the Court addressed the issue of correspondent accounts, in Licci v. Lebanese Canadian Bank, SAL, the Court concluded that, under some circumstances, the “repeated” use of a correspondent account could amount to transacting business in New York, making the exercise of personal jurisdiction appropriate.
In Licci, the defendant, Lebanese Canadian Bank, SAL (LCB) moved to dismiss for lack of personal jurisdiction, arguing that it had no operations, branches, or employees in the U.S. and that its “sole point of contact” with New York, an AmEx correspondent account, was not sufficient to establish the requirements for personal jurisdiction. The Court of Appeals held that while the “mere maintenance” of a correspondent account was an insufficient basis for jurisdiction, the repeated use of such an account may constitute transacting business (and, therefore, be sufficient to establish personal jurisdiction over the defendant) if that use is “purposeful.” The Court of Appeals in Licci concluded that “repeated” use of a correspondent account located in New York on behalf of a client is sufficient to be considered a transaction of business in New York if it is substantial enough to show purposeful availment of New York’s banking system, the dollar as currency, and the predictable jurisdiction and commercial law of the United States.
The Court’s decision in Mashreqbank underscores the Court of Appeal’s hesitance to make New York courts the forum of choice for resolving all disputes involving dollar-denominated transfers. Thus, while under Licci, the repeated use of a correspondent account may, under certain circumstances, be sufficient to justify the exercise of personal jurisdiction against a defendant, the Court’s decision inMashreqbank makes clear that the mere use of a correspondent account—without more—may well mean that New York is not the appropriate forum in which the dispute should be resolved. In light of Mashreqbank, defendants who find themselves sued in New York for conduct occurring entirely outside of the United States should consider whether they can interpose an inconvenient forum defense early in the litigation to try to have the case dismissed before incurring substantial fees, including those associated with discovery.