Use of Correspondent Banks Insufficient to Create New York Jurisdiction

On August 3, 2022, Justice Chan of the New York County Commercial Division issued a decision in Chaar v. Arab Bank P.L.C., 2022 NY Slip Op. 32666(U), holding that use of correspondent banks was insufficient to create quasi-in-rem jurisdiction over Lebanese banks in New York, explaining:

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. Whether quasi·in·rem jurisdiction exists in a given case involves an inquiry into the presence or absence of the constitutionally mandated minimum contacts. 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.

The minimum contacts inquiry focuses on the nature and quality of the defendant’s contacts with the State. Those contacts must be such as to make it reasonable and just, according to our traditional conception of fair play and substantial justice to require the defendant to litigate the claim in the particular forum. Thus, when the property serving as the jurisdictional basis has no relationship to the cause of action and there are no other ties among the defendant, the forum and the litigation, quasi·in·rem
jurisdiction will be lacking.

As there is no dispute that defendants are foreign corporations not qualified to do business in New York, plaintiffs have established that a ground for their application for an order of attachment exists, as provided in CPLR 6201(1). Nonetheless, even assuming, for the sake of argument, that plaintiffs have established the other elements of CPLR 6212(a), plaintiffs have failed to establish quasi-in-rem jurisdiction on account of the lack of the sufficiency of minimum contacts. 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’ claim. Plaintiffs still fail to demonstrate that such relationship is satisfied here.

Plaintiffs allege that plaintiff OIG, Ltd.’s investment returns were routed eight times through defendants’ correspondent accounts and that transmittals of funds of each of the other plaintiffs were similarly routed on several occasions. Those allegations, even if accepted as true, are insufficient to establish the relationship between such activity and plaintiffs’ claims.

Plaintiffs cite Majique Fashions, Ltd. v Warwick & Co., (67 AD2d 321, 325, 327 [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. 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. 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], which found in·rem jurisdiction but not quasi·in·rem jurisdiction, is therefore also not relevant.

(Internal quotations and citations omitted).

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