549 B.R. 56
S.D.N.Y.2016Background
- Arcapita, a Bahrain-based bank, made three short-term "Placement" investments in March 2012 through two Bahraini banks (Bahrain Islamic Bank — BisB — and Tadhamon). Each Placement specified the amount, currency (U.S. dollars), a designated New York correspondent account, and maturity date; Arcapita filed Chapter 11 less than a week later.
- The Banks directed Arcapita to transfer funds into New York correspondent accounts (BisB into JP Morgan Chase; Tadhamon into an HSBC account maintained in New York by Khaleeji as correspondent), then invested the funds abroad; the Banks later withheld the funds as setoffs against antecedent debts.
- The Chapter 11 Committee (plaintiff) sued in bankruptcy court to avoid preferential transfers under 11 U.S.C. §547(b) and other remedies, alleging the transfers occurred within 90 days of bankruptcy and favored those creditors.
- The Bankruptcy Court dismissed the adversary proceedings for lack of personal jurisdiction, reasoning that use of the New York correspondent accounts was a transitory, insufficient contact and not central to the alleged wrongful setoffs.
- On appeal, the District Court held the Banks’ deliberate selection and use of New York correspondent accounts were purposeful contacts that related to the preferential-transfer claims, and thus personal jurisdiction in New York was proper; the dismissal with prejudice was vacated and the cases remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether New York courts may exercise specific personal jurisdiction based on foreign banks’ use of New York correspondent accounts | The Banks purposefully availed themselves of U.S./NY banking system by selecting dollar denominated transactions and directing funds into NY correspondent accounts; the preferential-transfer claims arise from those contacts | The Banks argued receipt via correspondent accounts was passive/agency or adventitious (Arcapita chose dollars/accounts) and thus insufficient to establish purposeful contacts | Held: Use of NY correspondent accounts was purposeful (Banks selected accounts/currency), satisfies minimum contacts, and supports specific jurisdiction |
| Whether the Committee’s avoidance-of-preference claim "arises from" the NY contacts | The receipt of funds in NY correspondent accounts is central to the §547 cause of action (transfer to creditor occurred in NY) | The Banks contended the actionable conduct was the setoff, not the receipt in NY, and injuries occurred abroad | Held: The complaint is sufficiently related to the NY contacts — the transfer/receipt in NY is an element of the §547 claim, so the claim "arises from" the contacts |
| Whether asserting jurisdiction would violate due process (fair play & substantial justice) | Litigating in NY is reasonable given modern travel/communication, U.S. interest in adjudicating Bankruptcy Code claims, and plaintiff's need for effective relief | Banks argued burden of defending abroad and foreign interests weigh against NY jurisdiction | Held: Due process satisfied; defendants failed to show a compelling case that jurisdiction would be unreasonable |
| Whether use of a third-party correspondent account (Khaleeji for Tadhamon) defeats attribution of contacts | Committee: Tadhamon directed transfers to a NY account (even if via Khaleeji), so contacts are attributable | Banks: Using a third party’s correspondent account shows they did not avail themselves of U.S. banking privileges | Held: Use of a third-party correspondent account does not defeat attribution; directing transfers to NY is a purposeful contact attributable to Tadhamon |
Key Cases Cited
- Licci v. Lebanese Canadian Bank, SAL, 673 F.3d 50 (2d Cir. 2012) (analyzes whether use of NY correspondent accounts can be a purposeful transaction under NY long-arm principles)
- Licci v. Lebanese Canadian Bank, SAL, 20 N.Y.3d 327 (N.Y. 2012) (New York Court of Appeals: repeated or purposeful use of NY correspondent accounts can establish long-arm jurisdiction and a permissive "arises from" relation)
- Licci v. Lebanese Canadian Bank, SAL, 732 F.3d 161 (2d Cir. 2013) (holds exercise of jurisdiction based on purposeful use of NY correspondent accounts satisfies due process)
- Goodyear Dunlop Tires Operations S.A. v. Brown, 564 U.S. 915 (U.S. 2011) (framework for specific vs. general jurisdiction; relation between forum and claim crucial)
- Burger King Corp. v. Rudzewicz, 471 U.S. 462 (U.S. 1985) (purposeful availment and foreseeability underpin specific jurisdiction analysis)
- Asahi Metal Indus. Co. v. Superior Court, 480 U.S. 102 (U.S. 1987) (reasonableness factors for due process – fair play and substantial justice)
- Amigo Foods Corp. v. Marine Midland Bank-N.Y., 39 N.Y.2d 391 (N.Y. 1976) (passive, adventitious receipt in NY correspondent account does not establish purposeful transaction)
- Chloe v. Queen Bee of Beverly Hills, LLC, 616 F.3d 158 (2d Cir. 2010) (one purposeful transaction in NY can support jurisdiction if related to the claim)