Foreign Garnishee Banks that Maintain Bank Accounts in New York to Effect Dollar Transactions and the Funds Held in those Banks’ Correspondent Accounts Not Subject to Personal or Quasi-In-Rem Jurisdiction

On August 3, 2022, in Chaar v. Arab Bank P.L.C., Index No. 651780/2022, Justice Margaret Chan of the New York County Commercial Division denied plaintiffs’ motion to confirm a prior order of attachment for lack of quasi-in-rem jurisdiction. While plaintiffs asserted various activities by the defendant banks and their executive and board members in New York, including conducting banking activities, trading on the New York Stock Exchange and investing in real estate, those activities were not sufficiently related to plaintiffs’ claims to establish the constitutionally mandated minimum contacts. The Court explained:

The threshold issue is whether the court has quasi-in-rem jurisdiction over defendants based on the correspondent bank accounts. Quasi-in-rem jurisdiction is a viable method for subjecting a nondomiciliary to suit in this state by virtue of CPLR 301 (Banco Ambrosiano, S.P.A. v Artoc Bank & Tr. Ltd., 62 NY2d 65, 71, 464 N.E.2d 432, 476 N.Y.S.2d 64 [1984]). “Whether quasi-in-rem jurisdiction exists in a given case involves an inquiry into the presence or absence of the constitutionally mandated minimum contacts” (id. at 72). “The dictates of due process are not offended by requiring [a defendant] to defend [a] claim in New York [where] it has maintained a significant connection with the State and undertaken purposeful activity here” (id. at 73).

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. . . In arguing that the minimum contacts standard for quasi-in-rem jurisdiction has been met, plaintiffs acknowledge the inquiry turns on “the significance of the relationship between [the property] in New York and Plaintiffs [sic] claim,” citing Emirates NBD Bank P.J.S.C. v System Construct LLC (NYSCEF # 247 - Reply2 at 28; 2022 WL 445866 at 2 [Sup Ct, NY County 2022]). Plaintiffs still fail to demonstrate that such relationship is satisfied here.

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Plaintiffs cite Majique Fashions, Ltd. v Warwick & Co., (67 AD2d 321, 325, 327, 414 N.Y.S.2d 916 [1st Dept 1979]) to posit that “the mere presence of a checking account with a US bank located in the Forum State led to the application of an attachment under IN REM” (NYSCEF # 135, ¶ 30 [emphasis in original]). However, in addition to failing to distinguish quasi-in-rem from in-rem jurisdiction, plaintiffs are incorrect. “In rem jurisdiction . . . involves an action in which a plaintiff is after a particular thing, rather than seeking a general money judgment, that is, he wants . . . [ownership] of the particular item of property .... Quasi in rem, however, involves a situation where all the plaintiff wants is money” (id. at 326). Plaintiffs here seek only money, thus we are dealing with quasi-in-rem jurisdiction. Plaintiffs’ reliance on Hausler v JP Morgan Chase Bank, N.A. (740 F Supp 2d 525, 539-540 [SD NY 2010] [noting the critical importance of the distinction between in-rem and quasi-in-rem jurisdiction]), which found in-rem jurisdiction but not quasi-in-rem jurisdiction, is therefore also not relevant (NYSCEF # 247 at 22-23).

Plaintiffs are also incorrect in how they characterize the Majique court’s holding. In Majique, the court found that plaintiff established a basis for quasi-in-rem jurisdiction in seeking to attach bank accounts of a non-resident foreign defendant company. Notably, the court found that because the bank account was designated by defendant for plaintiff to remit payment for defendant, and defendant rendered inspection services for goods being imported into New York, there was a relationship between the non-resident defendant, the state, and the litigation beyond the “fortuitous presence” of the accounts in New York (67 AD2d at 327). Given this relationship, the court concluded that “defendant. . . expected or should reasonably have expected its acts pursuant to the agency agreement to have consequences within this State” (id.). Such relationship is lacking in the present case. . . .

Plaintiffs’ focus on the alleged New York Stock Exchange trading and substantial investments in real estate by “clients and by the executive and board members of Defendants’ banks” also fails to connect such activity with plaintiffs’ claims (NYSCEF # 247 at 29). Plaintiffs’ assertions that defendants handled wire transfers, letters of credit, investments, online banking, and opened correspondent accounts in New York are similarly unavailing (NYSCEF # 135, ¶'s, 31; 52; 54; 56; [**6] 58; 60; 62; 64). And plaintiffs’ reliance on Banco National Ultramarino, S.A. v Chan (169 Misc. 2d 182, 641 N.Y.S.2d 1006 [Sup Ct, NY County 1996, affd sub nom Banco National Ultramarino, S.A. v Moneycenter Tr. Co., 240 A.D.2d 253, 659 N.Y.S.2d 734 [1st Dept 1997]) is misplaced. In Banco National, it was undisputed that defendant's New York commercial checking account was the conduit through which the alleged fraudulent theft and laundering scheme related to plaintiff’s claims. It was also clear that the account-holder defendant directed the laundered funds be wired to such account. In contrast, the alleged conduct here sound more ministerial as opposed to the purposeful activities in Banco National.

Plaintiffs’ assertion that defendants “have made continuous and systematic use of the correspondent accounts[,]” even if accepted as true, is unavailing without more to establish the relationship necessary under the standard for quasi-in-rem jurisdiction, on which plaintiffs “strictly” base their attachment (NYSCEF # 247 at 55 id. at 8). As there is no basis for jurisdiction over defendants, the court need not reach the additional arguments raised by the parties.

The attorneys at Schlam Stone & Dolan frequently litigate threshold issues such as jurisdiction. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such issues.