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US Second Circuit limits jurisdictional reach over foreign banks

United States Publication August 2022

Banks around the world routinely transmit money into and out of New York, a global financial and commercial center. The Second Circuit's recent opinion in Daou v. BLC Bank, S.A.L.1 serves as a reminder that New York courts will not open their doors and exercise personal jurisdiction over foreign banks absent a specific connection between the banks' activities in New York and a plaintiff's claims. 

New York's long-arm statute provides that, among other methods, personal jurisdiction can be exercised over non-domiciliaries who transact business within the state or contract anywhere to supply goods or services in the state.2 To assert specific jurisdiction over a non-domiciliary under this section of New York's long-arm statute, a defendant must have transacted business in New York and the claims asserted must arise from such business activities.3 In Daouthe Second Circuit held that the maintenance of correspondent bank accounts in New York by three Lebanese banks (the "Commercial Banks"), and the prior and potential future use of such correspondent accounts, did not provide a basis for personal jurisdiction because the plaintiffs' claims did not arise from transactions through the New York correspondent accounts.

Background

The Daous were dual citizens of the US and Lebanon, resided in Florida, and the Commercial Banks maintained correspondent accounts in New York. The Daous alleged that the Commercial Banks refused to transfer USD deposits they had made in the Commercial Banks to the US after Lebanese authorities imposed restrictions on the transfer of USD out of that country in 2019. Ultimately the Commercial Banks issued the Daous USD-denominated checks drawn against the central bank of Lebanon, but the latter refused to honor them.

The Daous filed suit against the Commercial Banks in the United States District Court for the Southern District of New York.4 They alleged common law claims for civil conspiracy, fraud, issuance of dishonored checks, conversion, breach of contract, unjust enrichment, and promissory estoppel, and statutory claims under the Racketeer Influenced and Corrupt Organizations Act (RICO) and Florida statutes. They alleged that the court had personal jurisdiction over the Commercial Banks because (1) the Commercial Banks utilized New York correspondent accounts on a regular basis to move USD deposits in and out of Lebanon and transacted business in New York, (2) the Commercial Banks advertised the availability of the New York correspondent accounts to potential customers, (3) the Daous previously utilized the New York correspondent accounts for two of the Commercial Banks to transfer millions of dollars to the Lebanese banks, and (4) had the Commercial Banks honored the Daous' requests, they would have likely routed the funds through the New York correspondent accounts to the Daous. The district court dismissed the claims against two of the Commercial Banks on forum non conveniens grounds based upon enforceable Beirut forum selection clauses, and one of the Commercial Banks for lack of personal jurisdiction.

The Second Circuit's decision

On appeal, the Second Circuit first determined that the Commercial Banks transacted business in New York, relying on allegations that they used the New York correspondent accounts to move USD into and out of Lebanon and that two of the Commercial Banks used such accounts to execute transactions on behalf of the Daous on at least four prior occasions. 

The appellate panel next moved to the second prong of the jurisdictional inquiry and stated that "[a] claim may arise from the use of a correspondent bank account for purposes of § 302(a)(1) [New York's transacting business section of its long-arm statute] where an alleged actual transaction made through such an account formed part of the alleged unlawful course of conduct underlying the cause of action set out in the complaint."5 Here it noted that the Daous' complaint "does not include a single allegation that any defendant used an actual, specific transaction through a New York correspondent account in the course of bringing about the injuries on which the claims are predicated—namely, that the Daous' USD remained in Lebanon."6

In light of the foregoing, the Second Circuit concluded that the Daous failed to establish the required nexus between the Commercial Banks' use of the New York correspondent accounts and the Daous' claims. It deemed the alleged promotion and advertisement to potential customers of such correspondent accounts to be "merely coincidental" to the Daous' claims as any transfer of USD could have been routed through correspondent accounts in other jurisdictions (or no correspondent bank at all), the prior use of New York correspondent accounts did not relate to the Commercial Banks' failure to make the transfers of USD on the occasion at issue in the Daous' suit, and the allegation that the Commercial Banks would have routed the requested wire transfers through the New York correspondent accounts was "not only highly speculative, but supplies no connection whatsoever, much less a substantial one, between the claims and any actual transaction that occurred in New York."7 The opinion also characterized any representations by the Commercial Banks that they would wire the USD to the Daous through the New York correspondent accounts as conduct occurring in Lebanon and at most constituted "fictitious future transactions" and "hypothetical future transaction[s] that never actually occurred" that could not form the basis for personal jurisdiction.8

Implications

The Second Circuit's decision in Daou highlights the critical importance for foreign financial institutions to carefully examine the relationship between their correspondent accounts in New York and a plaintiff's claims brought in a New York court. At a minimum, the decision provides support that personal jurisdiction is lacking when asserted solely on the basis that, without more, a foreign bank maintains a correspondent account in New York.


Footnotes

1   No. 21-1085, ___ F.4th ___, 2022 WL 2976322 (2d Cir. July 28, 2022).

2   CPLR § 302(a)(1).

3   Daou, 2022 WL 2976322, at *5; see also D&R Glob. Selections, S.L. v Bodega Olegario Falcon Pineiro, 29 N.Y.3d 292, 299 (2017) (New York’s long-arm statute requires some “relatedness between the [in-state] transaction and the legal claim[,] such that the latter is not completely unmoored from the former”); Kyowa Seni Co., v. ANA Aircraft Technics, Co., 60 Misc. 3d 898, 905; 80 N.Y.S.3d 866, 871 (Sup. Ct. N.Y. Cnty. 2018) (“‘It is not enough that a non-domiciliary defendant transact business in New York to confer long-arm jurisdiction.’ . . . A plaintiff’s claim must have an ‘articulable nexus’ or ‘substantial relationship’ with the defendant’s transaction of business . . . [and] the claim must not be ‘completely unmoored’ from the transaction.”) (citation omitted).

4   The Daous also named the central bank of Lebanon, Banque du Liban (“BDL”), as a defendant in the suit. The Second Circuit affirmed the district court’s dismissal of the Daous’ claims against BDL pursuant to the Foreign Sovereign Immunities Act.

5   2022 WL 2976322, at *5.

6   Id. at *6.

7   Id. at *7.

8   Id.  The Second Circuit also addressed three other decisions involving Lebanese banks.  In Licci v. Lebanese Canadian Bank, S.A.L., the New York Court of Appeals held personal jurisdiction proper when the New York correspondent account was allegedly used to provide money for a Lebanese militant group in a suit claiming the Lebanese bank facilitated international transactions with Hizballah.  20 N.Y.3d 327, 330-31, 338-40 (2012).  On the other hand, two New York Supreme Court decisions rejected claims of personal jurisdiction by depositors seeking to withdraw USD from Lebanese banks based on similar allegations of the past and future use, and promotion of, New York correspondent accounts.  Trans Atl. Imaging, S.A.L. v. Banque MSR Liban S.A.L., No. 654432/2020, 2021 WL 2435887 (N.Y. Sup. Ct. N.Y. Cnty. June 15, 2021); Malaeb v. Bankmed S.A.L., No. 157804/2020, 2021 WL 1925638 (N.Y. Sup. Ct. N.Y. Cnty. May 13, 2021).



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