Mashreqbank PSC v. Ahmed Hamad Al Gosaibi & Bros. Co., No. 601650/09 (N.Y. App. Div. 1st Dep't Sept. 25, 2012)
Plaintiff Mashreqbank PSC, a United Arab Emirates bank with its principal place of business in New York, filed suit in New York state court against Defendant Ahmad Hamad Al Gosaibi & Brothers Company ("AHAB"), a Saudi Arabian general partnership, for breach of contract arising from an alleged global Ponzi scheme. Plaintiff wired $150 million to an account in New York as part of a dollars-to-riyals currency exchange transaction with AHAB, but AHAB failed to wire back Saudi riyals as expected. Instead, the funds Plaintiff wired were transferred to another New York bank account controlled by third-party defendant Maan Abdul Waheed Al Sanea ("Al Sanea"), a Saudi citizen. By the time Plaintiff filed an order of attachment against AHAB to recover the funds, Al Sanea had already transferred the money to accounts outside of the United States.
AHAB filed an answer and third-party action against, inter alia, Al Sanea, alleging that the third-party defendants used AHAB's accounts without its knowledge or consent, as part of an international Ponzi scheme. AHAB also counterclaimed against Plaintiff for aiding and abetting Al Sanea in carrying out the Ponzi scheme. Al Sanea moved to dismiss the third-party complaint on grounds of forum non conveniens, arguing that there was no real nexus to the New York banking system. Al Sanea noted that both Al Sanea and AHAB are Saudi, the transaction would be governed by Saudi law, that one of the underlying documents selected a UAE forum, that most of AHAB's witnesses, and all its documents were in Saudi Arabia, and that translation and travel would be difficult and expensive. Al Sanea also submitted an expert affidavit stating that Saudi Arabia was capable of adjudicating the dispute.
Although Al Sanea's motion was to dismiss AHAB's third-party complaint, Plaintiff Mashreqbank submitted opposition papers. Plaintiff disagreed with Al Sanea's expert on Saudi jurisdiction, and pointed out that most documents and witnesses would not require translation, that any documents located in Saudi Arabia were available electronically, and that likely witnesses were located in several countries.
The court dismissed the third-party action on the ground of forum non conveniens, finding that the factors established in Islamic Republic of Iran v. Pahlavi, 62 N.Y.2d 477 (1985), weighed in favor of dismissal. The court went on to find that these factors also applied to the main action between Mashreqbank and AHAB, and sua sponte dismissed the main action in addition to the third-party claim.
A divided panel of the New York Appellate Division reversed both dismissals. The majority held that it was error to dismiss the main action sua sponte, adhering to precedent that a court does not have the authority to invoke the doctrine on its own. The dissent and Al Sanea argued that the dismissal was proper because of the "admittedly intertwined" nature of the main action, third-party complaint, counterclaims, and defense to the main action. However, the majority rejected this broader view of the court's discretion on forum non conveniens dismissals, noting that while dismissal of the entire case was discussed during oral argument, no party made a formal motion for forum non conveniens dismissal of the main action, and the parties had not fully briefed the issue.
The appellate court also found that the motion court improvidently exercised its discretion in dismissing the third-party action on forum non conveniens grounds. The majority held that Al Sanea had not met its burden under Pahlavi of demonstrating that private or public interest factors militate against accepting the litigation, for two main reasons. First, the court found that New York, as a global financial center, clearly has a compelling interest in protecting its banking system from misfeasance. Second, the majority ruled that the motion court failed to accept the allegations of theft in the third-party complaint as true in considering the motion, instead embracing Al Sanea's recasting of the dispute as one over Al Sanea's authority to act on behalf of AHAB.
The majority also held that the motion court erred in failing to identify an alternative forum that would have jurisdiction over and be better able to adjudicate the dispute. The motion court mentioned that AHAB could choose to bring its suit elsewhere, but made no findings of fact on the factors that would support an alternative forum, such as ease of access to sources of proof, availability of compulsory process for unwilling witnesses, and the cost of obtaining attendance of willing witnesses. Importantly, there was no finding that witnesses would be able to testify in the possible alternative fora mentioned by the motion court.
Accordingly, the court reversed both dismissals and reinstated the complaints.