Lebanese Bank Not Subject to Personal Jurisdiction Despite Ties to “Correspondent Bank”

Attorneys from the Freshfields law firm report that the Second Circuit has affirmed the dismissal of a breach-of-contract claim brought in New York against Bank Audi S.A.L., one of Lebanon’s largest financial institutions, in Raad v. Bank Audi S.A.L.

Referencing New York’s long-arm jurisdiction statute, the court reasoned that the requisite determination of personal jurisdiction could not be based per se on the use of a US-based correspondent bank, but rather, there must be some “nexus between the conduct underlying the claim and the use of the correspondent account.”

In Raad, three members of a Lebanese-American family alleged that they had requested a transfer of nearly $18 million from their account at a Lebanese bank to their account at Bank Audi USA in New York, but the transfer never occurred.

The Second Circuit reasoned that all “material events” related to the Lebanese bank’s alleged misconduct occurred in Lebanon, not in New York, and the alleged misconduct by the New York bank, rather than being a transaction, was the absence of a transaction, and that was not sufficient to establish personal jurisdiction.

As part of their case, the writers explain, the plaintiffs “creatively” argued that the Lebanese bank’s promise to transfer money to New York was a contract to supply services to the state, and that as such, it establishes personal jurisdiction.

The court rejected that argument, partly on the grounds that it would allow any New York company to establish personal jurisdiction by simply designating a New York bank as a point of payment.

US plaintiffs continue to argue for expansive interpretations of jurisdictional statutes, and the writers warn that, despite the setback for plaintiffs in this case, “corporations and banks are wise to continue monitoring developments in this area.”