Repeated and Deliberate Use of New York Correspondent Bank Confers Personal Jurisdiction Over Swiss
In a 4-3 split decision, New York’s highest court recently held that New York’s long-arm statute, CPLR 302(a)(1), confers personal jurisdiction over certain Swiss bankers whose “intentional and repeated use of New York correspondence bank accounts to launder their customers’ illegally obtained funds constitute[d] [the] purposeful transaction of business substantially related to plaintiffs’ claims.” Rushaid v. Pictet & Cie, 2016 WL 6837930 (N.Y. Nov. 22, 2016) (Rivera, J.).
The Court of Appeals reversed the appellate court that had affirmed the trial court, noting that “the quantity and quality of [the] foreign bank’s contacts with the correspondence bank . . . demonstrate[d] more than banking by happenstance.” Id. Purporting to chart a course between the twin pillars of the Court’s prior rulings in Licci v. Lebanese Can. Bank, SAL, 20 N.Y.3d 327 (2012) and Amigo Foods Corp. v. Marine Midland Bank-NY, 39 N.Y.2d 391 (1976), the Court explained that:
[The] [u]nintended and unapproved use of a correspondent bank account, where the non-domiciliary bank is a passive and unilateral recipient of funds later rejected – as in Amigo Foods – does not constitute purposeful availment for personal jurisdiction under CPLR 302(a)(1). Repeated, deliberate use that is approved by the foreign bank on behalf of a customer – as in Licci – demonstrates volitional activity constituting transaction of business.
In Rushaid, the Plaintiffs alleged that the Defendants played a central role in an illicit scheme by a number of employees of a Saudi Arabian company (that had contracted to build oil rigs) in order to accept bribes and kickbacks from certain vendors in exchange for purchasing products at inflated prices and ignoring deficiencies in the vendors’ services. 2016 WL 6837930. The Defendants allegedly had laundered and concealed the bribes and kickbacks for approximately four years. See id.
One of the Defendants set up an offshore “bogus” company to receive the bribes, and the bank orchestrated the laundering of funds from the vendors to one of the Defendant’s New York correspondent bank accounts. See Rushaid, 2016 WL 6837930. Apparently, one of the Defendants was a long-time friend of the employees, had information that the money being deposited “vastly exceeded the employees’ pay and was the result of some breach of their duties,” and helped the employees conceal the scheme. Id. As a result, Plaintiffs asserted that the Defendants aided and abetted the employees’ breaches of their fiduciary duties and were an integral part of a civil conspiracy with the employees. See id.
After the Plaintiff commenced suit in New York, the Defendants moved to dismiss the Amended Complaint under CPLR 3211(a) for lack of personal jurisdiction and for failure to state a claim. The Defendants also moved to dismiss, pursuant to CPLR 327, on the basis of forum non conveniens. Rishaid, 2016 WL 6837930.
The trial court granted the Defendants’ motion to dismiss for lack of personal jurisdiction, concluding that the Defendants’ use of the correspondent accounts was passive and not purposeful. Rushaid v. Pictet & Cie, 2014 WL 4226466 (Sup. Ct., N.Y. Cnty. Aug. 27, 2014). The Appellate Division affirmed, distinguishing Licci as requiring deliberate acts and noting that, here, because the Defendants merely carried out their clients’ instructions and did not purposefully avail  [themselves] of the privilege of conducting activities in New York.” Rushaid v. Pictet & Cie, 127 A.D.3d 610, 611 (1st Div. 2015). The Court of Appeals reversed, however, concluding that the “defendant’s use of the correspondent bank accounts was purposeful and that plaintiffs’ aiding and abetting and conspiracy claims arise from these transactions.” 2016 WL 6837930.
Under CPLR 302(a)(1), two prongs must be met in order to establish the requisite jurisdiction: (i) the defendant must have conducted sufficient activities to have transacted business in the state; and (ii) the legal claims must arise from the transactions. 2016 WL 6837930, citing, Fischbarg v. Doucet, 9 N.Y.3d 375, 380 (2007). Jurisdiction may be found where a defendant does not enter the state, so long as the defendant’s activities were “purposeful” and “there is a substantial relationship between the transaction and the claim asserted.” Id.
Under the first prong (i.e., transacting business in New York), the Court of Appeals noted that, in opposition to the Defendants’ motion, the Plaintiffs submitted evidence showing the movement of millions of dollars from the vendors to the Defendant employees via the New York correspondent banks. Rushaid, 2016 WL 6837930. What’s more, “[a]fter the vendors sent the money to [one of the New York banks], [the banking Defendant] did not ignore or reject the funds.” Id. The Court explained that:
It is of no moment that the employees ‘directed the vendors’ to deposit the money in the New York account because what matters is defendants’ banking activity with the correspondent accounts, here, that the money deposited in New York was credited to the [banking Defendant’s] accounts in accordance with [the banking Defendant’s] money-laundering.
Closely examining the Defendants’ contacts, the Court noted that “the correspondent account was crucial to a course of repeated banking activity” and that the moving Defendants “actively used a correspondent bank to further a scheme that caused harm.” Rushaid, 2016 WL 6837930.
Under the second prong (i.e., claims arising from transactions), after explaining that “[t]he claim need only be in some way arguably connected to the transaction,” Rushaid, 2016 WL 6837930, quoting, Licci, 20 N.Y.3d at 340, the Court concluded that “[t]he allegations in the complaint easily satisfy this nexus requirement,” id. As the Court observed, “plaintiffs’ claims of aiding and abetting breaches of fiduciary duties and conspiracy turn entirely on the money laundering [that the moving Defendants] allegedly set up and maintained, necessarily including the use of a New York bank account.” Id.
After concluding that the use of the New York correspondent bank “satisfies the minimum contacts component of the due process inquiry” and that “the maintenance of suit here does not ‘offend traditional notions of fair play and substantial justice,” Rushaid, 2016 WL 6837930, the Court addressed the Defendants’ argument that the claims should be dismissed on forum non conveniens grounds, see id. Because there had been no discovery and because the Plaintiffs alleged the existence of additional contacts that might affect the analysis, the Court concluded that the “Supreme Court should address the matter in the first instance.” Id.
The dissent in Rushaid (Pigott, J.), emphasized that New York’s long-arm statute does not confer personal jurisdiction where a foreign bank’s only connection to New York is the “passive” receipt of funds into a correspondent bank account at the independent direction of a third party. 2016 WL 6837930. The dissent further argued that “[t]he majority’s retreat from that principle eschews the clear and predictable rules that are important in this area of the law, and will have grave implications for correspondent banking relationships.” Id.
In a concurring opinion, one Judge (Garcia, J.) wrote to address the dissent’s warning that the majority’s ruling would act as a brake upon international banking activity in New York. Rushaid, 2016 WL 6837930. As he stated:
The conclusion that personal jurisdiction attaches in a case brought by victims of [wrong committed using a banking system] may well chill foreign banks from taking advantage of this State’s banking system to knowingly forward money for terrorist purposes, or to knowingly launder the proceeds of illegal activity. So be it.
Ultimately, however, only time will tell whether foreign banks should be wary of their activities in New York. Of course, conducting activities that are entirely “above board” should adequately mitigate any chill that might otherwise be felt by a bank that utilizes a correspondent bank based in New York.