Originally published April 4, 2012
Keywords: international banking, financial services, Licci v. Lebanese Canadian Bank, non-US bank, New York correspondent account, personal jurisdiction, New York's Civil Practice Law and Rules,
The US Court of Appeals for the Second Circuit recently issued a decision of substantial interest to the international banking and financial services community. That case, Licci v. Lebanese Canadian Bank, No. 10-1306-cv (2d. Cir. Feb. 25, 2011), may resolve the question: Is there jurisdiction to sue a non-US bank in New York based solely on allegations that the non-US bank used a New York correspondent account to clear dollar-denominated wire transfers, even if those wire transfers are only tangentially related to the claims against the non-US bank?
The Licci plaintiffs are American, Canadian and Israeli citizens who allege injuries to themselves or their family members from rocket attacks in northern Israel in July and August 2006. They sued Lebanese Canadian Bank, SAL (LCB) in the Southern District of New York, asserting claims under the Anti-Terrorism Act (the ATA), the Alien Tort Statute (the ATS), and Israeli law. Plaintiffs allege that LCB knowingly maintained foreign bank accounts for an alleged Hizballah affiliate, the Shahid (Martyrs) Foundation (Shahid), and that LCB assisted Hizballah by completing several international wire transfers on Shahid's behalf using LCB's correspondent account at AmEx in New York.
LCB, which had no New York branch, moved to dismiss the claims for lack of personal jurisdiction, arguing that it did not have sufficient contacts with New York State to be bound by a New York court.¹ Plaintiffs countered that "specific jurisdiction"—i.e., jurisdiction that is limited to claims relating to a defendant's local activities—was proper under Section 302(a) of New York's Civil Practice Law and Rules (CPLR). CPLR 302(a) is a state statute that confers jurisdiction "over any non-domiciliary ... who in person or through an agent ... transacts any business within the state," but only for a "cause of action arising from" that in-state transaction. Plaintiffs argued that specific jurisdiction under CPLR 302(a) was appropriate because (i) LCB made wire transfers through New York and (ii) plaintiffs' claims related to those New York wire transactions.
The trial court granted the bank's motion and held that to satisfy the "transacting business" standard, "the use of the correspondent banking relationship may not simply be tangentially related to the wrongdoing which caused plaintiffs' injuries. Rather, the use must constitute the 'very root' of the claims against the foreign bank." The trial court concluded that because "no articulable nexus or substantial relationship exists between LCB's general use of its correspondent account for wire transfers through New York and the specific terrorist activities by Hizbollah underlying plaintiffs' claims," New York lacked jurisdiction over LCB for purposes of this case.
On appeal, the Second Circuit—a federal court that is bound by New York State law on the proper interpretation of CPLR 302(a)—concluded that New York law was unsettled, and therefore certified two questions to the New York Court of Appeals (the highest New York state court):
- Does a foreign bank's maintenance of a correspondent bank account at a financial institution in New York, and use of that account to effect "dozens" of wire transfers on behalf of a foreign client, constitute a "transact[ion]" of business in New York within the meaning of N.Y. C.P.L.R. § 302(a)(1)?
- If so, do the plaintiffs' claims under the Anti-Terrorism Act, the ATS, or for negligence or breach of statutory duty in violation of Israeli law, "aris[e] from" LCB's transaction of business in New York within the meaning of N.Y. C.P.L.R. § 302(a)(1)?
If the New York Court of Appeals chooses to accept the certified questions, its decision will be controlling in subsequent state and federal litigation in which a plaintiff seeks to assert jurisdiction under CPLR 302(a). The Court is likely to accept the matter, as state high courts traditionally provide federal courts guidance in response to certified questions. The importance of this issue and the lack of clarity in the existing precedent also suggests that the New York Court of Appeals is likely to address the certified questions.
The forthcoming decisions by the New York Court of Appeals and the Second Circuit will have substantial implications for non-US financial institutions. Not only might these decisions determine whether the use of a New York correspondent account can create personal jurisdiction to allow suit in New York against a non-US party with no other ties to New York, but they could speak more broadly to the type and quality of transnational financial conduct that can establish jurisdiction in US courts.
Interested parties may wish to file amicus curiae briefs in both the New York Court of Appeals, as well as in the Second Circuit (which may still have to resolve federal constitutional questions concerning the permissible scope of jurisdiction, if the New York Court of Appeals decides that Section 302(a)(1) is satisfied). If the New York Court of Appeals accepts the certified questions, it will then set a briefing schedule.
1. If LCB had a branch or another office in New York, then LCB could be sued in New York for any type of claim based on its presence in New York (this is known as "general jurisdiction"). But LCB had no New York branch or office, and New York courts have long held that the maintenance of a correspondent account is not the equivalent of maintaining a branch or office. Accordingly, LCB could not be subject to "general jurisdiction" in New York.
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