2021年5月27日

Limiting the Impact of 'Al Rushaid' Through Banking Law 200-b

Author:

Rory K. Schneider

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This article sheds light on Banking Law 200-b, an under-utilized statute that may furnish foreign banks with arguments to dismiss suits with no connection to New York except the passage of funds through New York correspondent accounts.

In 2016, the New York Court of Appeals issued its decision in Al Rushaid v. Pictet & Cie, holding that allegations of a foreign bank’s intentional and repeated use of a New York correspondent bank account to facilitate a customer’s kickback scheme constituted the transaction of business sufficient to confer personal jurisdiction. 28 N.Y.3d 316, 329 (2016).
The decision divided the court and garnered significant attention given the extent of correspondent bank accounts in the state. In its wake, foreign banks and their counsel have devoted considerable effort to distinguishing Al Rushaid or cabining its impact through other arguments, like forum non conveniens.

This article sheds light on an under-utilized statute that could similarly circumscribe the reach of Al Rushaid: Banking Law 200-b. Unlike its analog in the Business Corporation Law, Banking Law 200-b does not expressly make subject-matter jurisdiction over suits by non-residents against foreign banks coextensive with personal jurisdiction. Where Al Rushaid may pose obstacles to an effective personal jurisdiction challenge, 200-b may furnish foreign banks with arguments to dismiss suits with no connection to New York except the passage of funds through New York correspondent accounts.

The 'Al Rushaid' Decision

Under New York’s long-arm statute, a court may exercise personal jurisdiction over a foreign bank that transacts business within the state if the claim arises from that business. The existence of personal jurisdiction under that statute often turns on whether the defendant “purposefully availed” itself of the privilege of conducting activities within the state.
The extent to which a foreign bank’s maintenance and use of a correspondent account constitutes purposeful availment and therefore supports an exercise of personal jurisdiction had long been the subject of debate and competing case law before Al Rushaid. Banks rely on correspondent accounts to facilitate transactions in countries in which they lack a presence.
For example, if a customer in one country must pay a company in another country where the customer’s bank does not have a branch, the payment will be routed through correspondent bank accounts held with third-party banks. At a high level, the payor’s bank has funds debited from its accounts with a U.S. correspondent bank, and then transmits those funds to the U.S. correspondent bank of the payee’s bank (which then credits the payee’s local account). Correspondent accounts are essential to the efficient functioning of international markets, and New York is a hub for such accounts.

In Al Rushaid, a Saudi oil company and its principal alleged that a private Swiss bank facilitated a bribery and kickback scheme between three company employees and certain of its vendors. The employees had allegedly “accepted bribes and kickbacks from the vendors in exchange for purchasing products at inflated prices and ignoring deficiencies in the vendors’ services.” According to the complaint, “[t]he bank orchestrated the laundering of funds from the vendors who wired bribes ... to [the bank’s] correspondent bank account,” after which the funds were credited to a Swiss account used to receive the bribes. 28 N.Y.3d at 316–17.

The First Department affirmed the trial court’s dismissal for lack of personal jurisdiction on the ground that the bank had not purposefully availed itself of the privilege of conducting business in New York by merely carrying out its clients’ instructions. The Court of Appeals reversed and ruled that the bank was subject to personal jurisdiction based on the allegations in the complaint. The court wrote that “repeated, deliberate use that is approved by the foreign bank on behalf and for the benefit of a customer ... demonstrates volitional activity constituting transaction of business.” According to the court, it was not necessary “that the foreign bank itself direct the deposits, only that the bank affirmatively act on them.” And because the bank had credited money deposited in its correspondent account to another account, that requirement was satisfied. Id. at 327-29.

Importantly, the court reiterated that the inquiry still “requires a close examination of defendant’s contacts” and emphasized how the complaint “allege[d] that defendants orchestrated the money laundering and that the New York account was integral to the scheme.” Id. at 328. Foreign banks should accordingly always consider the extent to which allegations are distinguishable from those addressed in Al Rushaid. However, claimants may still use the decision to argue that banks need not have purposefully caused funds to enter or leave its New York account to be subject to personal jurisdiction. In that way, the decision increases foreign banks’ exposure to jurisdiction based on routine transactions that happen to be routed through New York correspondent accounts.

New York Banking Law 200-b

Foreign banks sued based on a transaction having nothing to do with New York but for the happenstance that funds flowed through a New York correspondent account should consider the extent to which New York Banking Law 200-b furnishes effective arguments for dismissal.

In most cases against foreign corporations, the existence of personal jurisdiction will preclude any challenge to the court’s authority to preside over the dispute. Business Corporation Law 1314-b includes in the list of instances in which a foreign resident may maintain an action against a foreign corporation “[w]here, in any case not included in the preceding subparagraphs, a non-domiciliary would be subject to the personal jurisdiction of the courts of this state.” The courts’ subject matter jurisdiction over cases against foreign corporations is thus generally coextensive with personal jurisdiction.

Importantly, though, that is not the case for foreign banks. Such banks are explicitly excluded from the Business Corporation Law. N.Y. Banking Law §1002. Banking Law 200-b governs when an action may be maintained by a foreign plaintiff against a foreign banking corporation. It provides an exclusive list that is virtually identical to the Business Corporation Law, except that it does not include a similar catch-all provision allowing suit whenever the foreign bank is subject to personal jurisdiction. Subject matter jurisdiction over suits by foreign parties against foreign banks is therefore not necessarily coextensive with personal jurisdiction.

Under 200-b, a foreign party may sue a foreign bank “in the following cases only”:

where the action is brought to recover damages for the breach of a contract made or to be performed within this state, or relating to property situated within this state at the time of the making of the contract;
where the subject matter of the litigation is situated within this state;
where the cause of action arose within this state, except where the object of the action or special proceeding is to affect the title of real property situated outside this state;
where the action or special proceeding is based on a liability for acts done within this state by a foreign banking corporation;
where the defendant is a foreign banking corporation doing business in this state

There is a dearth of case law interpreting and applying this statute but at least one court has stated that it must not be extended “beyond its specific wording” because “a statute relating to ... jurisdiction must be narrowly construed.” Tribank Int’l Bank, Ltd. v. Westfalia Inv., S.A., 2002 WL 34697209 (Sup. Ct. Aug. 28, 2002).

Foreign banks could invoke 200-b to contest subject matter jurisdiction in cases in which Al Rushaid may support personal jurisdiction. Where a case’s only domestic element is the fact that funds allegedly flowed through a New York correspondent account, sub-sections (a), (b), and (c) are unlikely to furnish a basis for jurisdiction. Sub-section (e)’s reference to foreign banks “doing business” in the state only refers to banks “engaged in such continuous and systematic course of activities in New York” so as to be subject to general personal jurisdiction. Chestnut Ridge Air, Ltd. v. 1260-269 Ontario, 13 Misc. 3d 807, 808 (Sup. Ct. 2006).

In light of the U.S. Supreme Court’s limitations on general personal jurisdiction (generally limiting it to the state of incorporation or principal place of business), it is unclear whether any foreign banks could be subject to such jurisdiction consistent with due process. Daimler AG v. Bauman, 571 U.S. 117 (2014).

Sub-section (d), concerning “acts done within th[e] State,” likely presents the most significant challenge to the effective use of 200-b to circumscribe Al Rushaid’s impact. Plaintiffs could argue that a bank that transacts business in New York under Al Rushaid also commits an act within the state. Notably, however, several New York courts have interpreted similar language in the long-arm statute—referring to “tortious act[s] committed within the state”—to require that the defendant have been “physically present within New York while committing the tort.” Sino Clean Energy v. Little, 35 Misc. 3d 1226(A), at *10 (Sup. Ct. 2012); Bensusan Rest. v. King, 126 F.3d 25, 27-29 (2d Cir. 1997).

Other courts have suggested that the tortious act must at least be so connected to the state so as to be “deemed to have been committed” there. Davidoff v. Davidoff, 12 Misc. 3d 1162(A), at *9 (Sup. Ct. 2006). Either way, there is a credible argument that merely allowing a customer’s transaction to be routed through an account in New York does not qualify. Foreign banks may therefore be able to exploit the absence of a catch-all provision similar to that in Business Corporation Law 1314-b to argue for dismissal even where Al Rushaid allows personal jurisdiction.
Without foregoing other arguments—including that Al Rushaid is distinguishable, that personal jurisdiction would violate due process, and that forum non conveniens applies—foreign banks should add Banking Law 200-b to their arsenals of possible defenses to otherwise plainly foreign disputes brought in New York.

Rory Schneider is a Litigation partner in Mayer Brown’s New York office. Mayer Brown associate Emily Horn contributed to this article.