Correspondent Bank Relationships, Without More, are Insufficient Basis for Personal Jurisdiction

On May 13, 2021, Justice Cohen of the New York County Commercial Division issued a decision in Malaeb v. BankMed S.A.L., 2021 NY Slip Op. 31619(U), holding that correspondent bank relationships, without more, are an insufficient basis for personal jurisdiction, explaining:

The parties agree that the relevant long-arm statute is CPLR 302(a)(1). Pursuant to that statute, a court may exercise personal jurisdiction over any non-domiciliary who in person or through an agent: transacts any business within the state. In order to determine whether personal jurisdiction exists under CPLR 302(a)(1), a court must decide (1) whether the defendant transacts any business in New York and, if so, (2) whether the cause of action arises from such a business transaction.

Plaintiff premises long-arm jurisdiction entirely on defendants' correspondent bank accounts with New York banks, contending that they purposefully conduct business in New York through these correspondent accounts. Plaintiff contends that the maintenance and use of these correspondent accounts suffices to establish personal jurisdiction in this case. The Complaint contains no allegations that defendants have any other connections with New York (no offices, no employees or representatives, no operations).

Standing by itself, a correspondent bank relationship, without any other indicia or evidence to explain its essence, may not form the basis for long-arm jurisdiction. To establish personal jurisdiction over a foreign bank, the plaintiff must plead facts showing that (1) the foreign bank's maintenance and use of the correspondent account was purposeful; and (2) the existence of a nexus or substantial relationship between the claim and use of the correspondent account. Plaintiffs allegations do not satisfy that standard.

Licci I involved claims brought by several dozen citizens of the U.S., Canada and Israel who resided in Israel and were injured, or whose family members were killed or injured, in rocket attacks by Hezbollah. The plaintiffs sued Lebanese Canadian Bank (LCB) and American Express Bank (AmEx), asserting that LCB, through its correspondent bank account at AmEx in New York, assisted Hezbollah's terrorist attacks by facilitating international monetary transactions through Hezbollah's financial arm. The Court of Appeals held that complaints alleging a foreign bank's repeated use of a correspondent account in New York on behalf of a client-in effect a course of dealing - show purposeful availment of New York's dependable and transparent banking system, the dollar as a stable and fungible currency, and the predictable jurisdictional and commercial law of New York and the U.S.

Accordingly, the frequency and deliberate nature of the foreign bank's use of its correspondent account is critical to the assessment of whether the foreign bank purposely availed itself of the advantages of conducting business in New York.

Plaintiff contends it has satisfied the first prong of the long-arm jurisdiction test, because, pursuant to this line of cases, the fact that the banks deliberately used the New York correspondent banks to take advantage of the U.S. banking and financial systems is sufficient to confer jurisdiction under CPLR 302 (a) (1). This contention lacks merit, as the cases cited by plaintiff involve much more frequent and deliberate correspondent account activity than that alleged here. For instance, Licci I and Bartlett involved dozens of New York correspondent account transactions, while Averbach involved twenty-three transactions. In addition, the courts in those cases found that the defendant banks had repeatedly approved deposits and the movement of funds through a correspondent account.

Here, in contrast, with respect to Bank Audi, there is one alleged transfer of funds from Saudi Arabia to Lebanon that traversed a BankMed correspondent account, as well as interaccount transfers of interest from BankMed to him going through New York. Plaintiff further alleges that his initial deposit with Bank Audi of $272,400 originated in Saudi Arabia and made its way to Lebanon through a correspondent account. These sparse allegations fall far short of the deliberate and repeated correspondent banking activity set forth in the above-cited cases. As such, the correspondent account transfers at issue between accounts in Lebanon and Saudi Arabia do not amount to New York courses of dealing for purposes of the long-arm statute.

Plaintiffs allegation that defendants promoted their New York correspondent banking relationships as part of the allure of doing business with them in Lebanon is also insufficient to satisfy the first prong. Even if the alleged promotion focused on getting business in New York, which it did not, the mere solicitation of business within the state does not constitute the transaction of business within the state, unless the solicitation in New York is supplemented by business transactions occurring in the state.

With regard to the second factor, whether there is a nexus between the plaintiff's claim and the defendant's use of the correspondent account, there must be a relatedness between the transaction and the legal claim such that the latter is not completely unmoored from the former, regardless of the ultimate merits of the claim. Importantly, at least one of the elements of the pleaded cause of action must arise from the use of the correspondent account. For example, in Khalife v Audi Saradar Private Bank SAL (129 AD3d 468 [1st Dept 2015]), the court dismissed claims against a foreign bank for lack of personal jurisdiction where there was no articulable nexus or substantial relationship between the securities transactions executed through the bank's omnibus trading account with a U.S. bank account and the freezing of plaintiffs' bank accounts in Lebanon by [the] bank and the Lebanese authorities. The court highlighted the fact that none of the four causes of action contain any element relying upon the defendant's U.S. securities transactions.

Likewise, here, none of plaintiffs three causes of action against each bank defendant rely upon transfers of funds through New York correspondent accounts. Indeed, as to Bank Audi, plaintiff do not allege that any transfer he requested to or from Bank Audi went through a New York correspondent account. For instance, plaintiffs fraud claims are based on alleged wrongful inducement to deposit funds in Lebanon, and the alleged refusal to release funds from Lebanon. His conversion claims are premised on refusal to transfer funds out of Lebanon. His unjust enrichment claims similarly arise from refusal to satisfy plaintiffs demands to have funds transferred from Lebanon. Not a single element of any of these claims is tethered to defendants' New York correspondent accounts, and removing the correspondent accounts from the equation has no impact on plaintiffs claims. When, as here, the allegations involve transfers from a foreign entity to nondomiciliaries, and the alleged payments in and out of a New York bank account could have been made anywhere without changing the nature of plaintiffs' allegations, the use of a New York bank account fails to establish jurisdiction.

Plaintiffs conclusory claim in opposition to the present motion that defendants used the correspondent accounts to steal his money is insufficient. The cases that plaintiff cites in support of this proposition principally involve the alleged use of New York accounts to finance terror or launder money, and are inapposite.

For instance, the plaintiffs in the terrorism cases alleged that the banks utilized correspondent accounts to transfer funds for terrorist organizations. The banks' alleged liability arises from the movement of funds through the correspondent accounts. The New York transfers themselves were an element of the plaintiffs' claims. Similarly, in Al Rushaid, the defendant laundered money through New York to effect a kickback scheme. The flow of funds through New York accounts was an element of the plaintiffs' claims.

Here, plaintiffs' claims do not arise from, or depend on, the correspondent accounts, the only alleged connection to New York. Rather, the correspondent accounts are merely incidental to the claims asserted. Plaintiffs' transfers through the New York correspondent accounts have no bearing on liability here, in contrast to Licci and other cases where the correspondent account transfers were the actus reus of the banks' liability.

Accordingly, there is no substantial nexus, and defendants are not subject to personal jurisdiction under New York's long-arm statute.

(Internal quotations and citations omitted).

This decision illustrates an issue that often arises in commercial litigation in New York. Whether the defendant is located on the other side of the world or across the Hudson in New Jersey, a New York court cannot assert jurisdiction over the defendant (that is, hear a case against it) unless there is a proper connection between the defendant and New York. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client face a situation where you are unsure whether there is jurisdiction over you, or over a party with which you are having a dispute, in New York.