Sullivan & Cromwell discusses Forum Non Conveniens Doctrine in Cases Having Peripheral Connection to New York Banking System

In an opinion issued on April 8, 2014,[1] the New York Court of Appeals unanimously dismissed on forum non conveniens grounds a case arising from a foreign exchange transaction between a bank in the United Arab Emirates and a general partnership in Saudi Arabia, where the only nexus between the transaction and the State of New York was the “use of New York banks to facilitate dollar transfers.” In reversing the Appellate Division, First Department, the Court emphasized that, although New York has a compelling interest in maintaining the integrity of its banks, that interest “is not significantly threatened” merely because a party “moves dollars through a bank in New York.”[2]

Going forward, the Court’s decision in Mashreqbank will provide a valuable tool for parties seeking dismissal under the doctrine of forum non conveniens in cases involving only a peripheral connection to the New York banking system. Along with an intermediate court’s decision last year in Viking Global Equities, LP v. Porsche Automobil Holding SE, which dismissed on forum non conveniens grounds a suit brought by a collection of global hedge funds concerning stock transactions in Germany,[3] the Court of Appeals’ decision in Mashreqbank reflects a growing trend among New York courts of refusing to hear cases involving a transaction among non-U.S. entities unless there is a strong nexus to the State.

Background

Plaintiff Mashreqbank PSC (“Mashreqbank”), a U.A.E. bank, entered into a currency swap agreement with Defendant Ahmed Hamad Al Gosaibi & Brothers Company (“AHAB”), a Saudi partnership. Under the agreement, Mashreqbank was to transfer $150 million to AHAB, and AHAB was to transfer the equivalent value in Saudi riyals to Mashreqbank. In April 2009, Mashreqbank wired $150 million to AHAB’s account at Bank of America in New York, but AHAB failed to send the riyals to Mashreqbank.[4]

Mashreqbank subsequently sued AHAB in New York State Supreme Court, alleging breach of contract and unjust enrichment. AHAB filed a third-party complaint against Maan Abdul Waheed Al-Sanea (“Al-Sanea”), an AHAB employee and citizen of Saudi Arabia, alleging that Al-Sanea had “engaged in a massive scheme to loot AHAB” and that the transaction with Mashreqbank was part of this fraudulent scheme. AHAB further alleged that once the $150 million had been deposited into its account at Bank of America, Al-Sanea moved the funds to an account at another bank’s New York branch.[5]

Al-Sanea moved to dismiss the third-party complaint under the doctrine of forum non conveniens, arguing that Saudi Arabia was a more appropriate forum. Although AHAB had not itself moved for dismissal of Mashreqbank’s complaint on that basis, the trial court instructed all parties to brief the issue of forum non conveniens and ultimately held that the entire case should be dismissed on the ground that New York was not the proper forum for the dispute.[6]

On appeal, the Appellate Division, First Department, reversed, concluding that the trial court had erred in dismissing Mashreqbank’s complaint based on forum non conveniens because AHAB had not moved for dismissal on that ground. The First Department also held that the trial court “improvidently exercised its discretion in dismissing the third-party action on forum non conveniens grounds.” In so ruling, the First Department concluded that the case implicated New York’s “compelling interest in the protection of [its] banking system from misfeasance or malfeasance” and that New York law would apply to the claims in the third-party complaint.[7] The First Department later granted leave to appeal to the Court of Appeals.

The Court of Appeals’ Decision

In a decision by Judge Robert S. Smith, the Court of Appeals reversed the First Department’s order, concluding that the case should be dismissed in its entirety on the basis of forum non conveniens. At the outset, the Court noted that dismissal of Mashreqbank’s complaint based on forum non conveniens was permissible even though AHAB itself had not moved for dismissal on that ground. The Court further concluded that the First Department had made “two errors of law” in reversing the dismissal of the third party complaint based on forum non conveniens.

First, the Court held that the First Department erroneously concluded that “any passage of funds through New York banks automatically implicates” the state’s “compelling interest” in protecting its banking system. The Court acknowledged that this interest “is indeed compelling,” but observed that “it is not significantly threatened every time one foreign national, effecting what is alleged to be a fraudulent transaction, moves dollars through a bank in New York.” The Court stressed that New York’s interest in the integrity of its banking system “‘is not a trump to be played whenever a party to such a transaction seeks to use our courts for a lawsuit with little or no apparent contact with New York.’”[8]

Second, the Court held that the First Department erred in concluding that New York law would apply to AHAB’s claims. The Court pointed out that “the claim is a suit by a Saudi Arabian company against its employee, a Saudi citizen who allegedly committed fraudulent acts in Saudi Arabia.” The Court also observed that “Saudi Arabia is the domicile and residence of both parties and the place where the allegedly tortious conduct occurred.” Accordingly, the Court decided that Saudi Arabia had the “greatest interest in resolving the issues.”[9]

Noting that the sole nexus to New York was “the use of banks to facilitate dollar transfers,” the Court held that dismissal of the entire case on the basis of forum non conveniens was warranted “as a matter of law.” The Court emphasized that none of the parties was a “New York resident,” and that “no relevant conduct apart from the execution of the fund transfers occurred in New York.”[10]

Implications

Although forum non conveniens decisions are by their nature fact-bound, the Court of Appeals’ decision in Mashreqbank should be a useful precedent in arguing that a party aggrieved by the outcome of an international transaction cannot bring suit in New York court solely based on the involvement of a New York bank account in the transaction. The Court has made clear that New York’s obvious interest in the integrity of its banking system “‘is not a trump to be played whenever a party to such a transaction seeks to use our courts for a lawsuit with little or no apparent contact with New York.’” This decision should make it harder for parties to litigate disputes in New York courts that have a greater nexus to other jurisdictions.

[1] Mashreqbank PSC v. Ahmed Hamad Al Gosaibi & Bros. Co., No. 54, slip op. at 1-2, 10 (N.Y. Apr. 8, 2014).

[2] Id. at 7.

[3] 101 A.D.3d 640 (1st Dep’t 2012).

[4] Mashreqbank, No. 54, slip op. at 1-2.

[5] Id. at 2-3.

[6] Id. at 3; see also Mashreqbank PSC v. Ahmed Hamad Al Gosaibi & Bros. Co., Nos. 601650/2009, 590643/2009, 602171/2009, 602847/2009, 2010 WL 9535130, at *7-10 (Sup. Ct. N.Y. Co. July 26, 2010).

[7] Mashreqbank PSC v. Ahmed Hamad Al Gosaibi & Bros. Co., 101 A.D.3d 1, 6-8 (1st Dep’t 2012).

[8] Mashreqbank, No. 54, slip op. at 7-9 (quoting First Union Nat’l Bank v. Paribas, 135 F. Supp. 2d 443, 453 (S.D.N.Y. 2001)).

[9] Id. at 9.

[10] Id. at 10.

The full and original memo was published by Sullivan & Cromwell LLP on April 10, 2014 and is available here.