Daou v. BLC Bank, S.A.L.
42f4th120
2d Cir.
2022

Background

  • Plaintiffs Joseph and Karen Daou, U.S./Lebanese citizens, held over $18.5M in USD deposits at Lebanese commercial banks (BLC, CL, AM) and sought to repatriate the funds to the U.S. during Lebanon’s 2019–2020 financial crisis; banks refused wire transfers.
  • Daou opened accounts with CL and BLC (contracts governed by Lebanese law; BLC and AM agreements contained forum-selection clauses naming Beirut) and later AM; the commercial banks maintain New York correspondent accounts used to move USD internationally.
  • The banks issued checks drawn on Banque du Liban (BDL, Lebanon’s central bank) stating “payable [at] Beirut”; U.S. banks could not collect because BDL refused foreign collection.
  • The Daous sued in SDNY asserting fraud, conversion, dishonored-check claims, breach of contract, RICO, unjust enrichment, promissory estoppel, and state statutory claims, seeking damages > $60M.
  • The district court dismissed: BLC and AM on forum non conveniens (enforcing forum clauses), CL for lack of personal jurisdiction under N.Y. C.P.L.R. §302(a)(1), and BDL for lack of subject-matter jurisdiction under the FSIA (sovereign immunity; commercial-activity exception not met).
  • The Second Circuit affirmed: it held no personal jurisdiction over the three commercial banks under §302(a)(1) because the claims did not arise from the banks’ New York correspondent-account transactions, and BDL is immune under the FSIA because any commercial activity did not have a direct effect in the U.S.

Issues

Issue Plaintiff's Argument Defendant's Argument Held
Personal jurisdiction under N.Y. C.P.L.R. §302(a)(1) over commercial banks (AM, BLC, CL) Correspondent-account use in NY was purposeful and the claims arise from those NY transactions Correspondent-account use alone (past or hypothetical) is insufficient; no substantial nexus to claims Banks transact business in NY but claims do not arise from those NY transactions; §302(a)(1) not satisfied → no personal jurisdiction
Enforceability of forum‑selection clauses (BLC, AM) Clauses unenforceable because Lebanon is unsafe and plaintiffs cannot obtain relief there Clauses valid; Beirut is proper forum Appellate court did not reach clause validity because it resolved case on lack of personal jurisdiction; district court had dismissed on forum‑selection grounds but affirmance rests on jurisdictional grounds
FSIA sovereign immunity of BDL — commercial‑activity exception BDL’s refusal to allow foreign collection of checks drawn on BDL caused a direct effect in the U.S. (checks were deposited in U.S.) BDL is an instrumentality of Lebanon; commercial‑activity exception fails because (a) any alleged commercial act did not have a direct effect in the U.S., (b) checks designating Beirut did not make the U.S. place of payment, and (c) intervening actors break immediacy BDL entitled to sovereign immunity; commercial‑activity exception does not apply because no direct effect in the U.S.
Denial of jurisdictional discovery Discovery necessary to prove jurisdictional nexus to NY correspondent activity Plaintiffs failed to make a prima facie showing; discovery not warranted Denial of jurisdictional discovery was not an abuse of discretion; plaintiffs failed to show prima facie jurisdiction

Key Cases Cited

  • Licci v. Lebanese Canadian Bank, SAL, 20 N.Y.3d 327 (N.Y. 2012) (articulable-nexus test for §302(a)(1) and limits on correspondent-account jurisdiction)
  • Licci ex rel. Licci v. Lebanese Canadian Bank, SAL, 732 F.3d 161 (2d Cir. 2013) (correspondent-account use can support jurisdiction when tied to tortious scheme)
  • Rushaid v. Pictet & Cie, 28 N.Y.3d 316 (N.Y. 2016) (correspondent-account use tied to money‑laundering scheme supported jurisdiction)
  • Johnson v. Ward, 4 N.Y.3d 516 (N.Y. 2005) (transaction in forum may be unrelated to tort; too attenuated to confer jurisdiction)
  • Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460 (N.Y. 1988) (standards for transacting business under §302(a)(1))
  • Republic of Argentina v. Weltover, Inc., 504 U.S. 607 (1992) (direct-effect test for FSIA commercial-activity exception in contract context)
  • OBB Personenverkehr AG v. Sachs, 577 U.S. 27 (2015) (focus on gravamen of suit when applying FSIA exception)
  • Guirlando v. T.C. Ziraat Bankasi A.S., 602 F.3d 69 (2d Cir. 2010) (mere injury to U.S. citizen abroad not a direct effect; intervening actors can defeat immediacy)
  • Atlantica Holdings v. Sovereign Wealth Fund Samruk-Kazyna JSC, 813 F.3d 98 (2d Cir. 2016) (place of performance/locus of tort governs direct‑effect inquiry under FSIA)
  • Hanil Bank v. PT. Bank Negara Indonesia, 148 F.3d 127 (2d Cir. 1998) (designation of place of payment can create direct effect under FSIA)
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