American courts are indeed the long arm of the law

9 Jun 2015 5 min read Banking Alert Article

In a recent decision that is now on appeal, a New York Federal Judge ordered a Spanish Bank that maintained a New York branch to make enquiry of "all branches, within and without New York State" for account information that would be relevant to a third-party's execution and judgments against the Republic of Cuba. The court, in rejecting the bank's jurisdictional arguments, held that the bank's registration with the New York Department of Financial Services as a foreign banking corporation was a sufficient jurisdictional connection with New York to require a global compliance by the bank with the plaintiff's discovery request. The decision in Vera vs Republic of Cuba, if it withstands the appeal, could have long lasting implications for international banks that maintain a presence in New York.

The Vera Judgment Enforcement Proceeding

The Vera judgment is a judgment enforcement proceeding brought in New York in which the plaintiffs sought to execute a judgment they previously obtained against the Republic of Cuba against blocked funds held by the respondent banks relating to electronic funds transfers sent from Cuba to third parties. The Vera plaintiffs also served broad information subpoenas on certain banks in search of additional Cuban property held by the banks "in their New York branches and elsewhere".

Most of the banks named in the suit reached an agreement with the plaintiffs that provided for turnover of blocked funds in their possession but also protected the banks against potential double liability if they were later sued by persons claiming an interest in the funds. Two banks, including a Spanish bank, did not agree and claimed that the New York court lacked personal jurisdiction over them for these purposes in view of a recent Supreme Court decision in Daimler AG v Bauman, in which the High Court held that the United States courts cannot exercise general jurisdiction over a corporation unless it is essentially 'at home' in the state where the court is based. The New York court in Vera rejected the Daimler argument in a prior decision and concluded that it could exercise personal jurisdiction over the two objecting banks.

The Spanish bank moved for reconsideration of that ruling in light of an intervening decision by the United States Courts of Appeal for the Second Circuit, the Appellate Court that oversees Federal Courts in New York, in the matter of Gucci v LI. In Gucci, the Second Circuit followed Daimler in holding that a Federal Court in New York did not have sufficient personal jurisdiction over the Bank of China to permit enforcement of an injuncture and subpoena that purported to reach an alleged trademark infringer's bank accounts in China. The Second Circuit also held that even if jurisdiction could be found, courts should be cautious if a Federal Court order would subject a party to obligations that conflicted with the laws of another nation, and in Gucci the Federal Court orders conflicted with bank secrecy laws of China.

The Vera Court concluded, however, that neither Gucci nor Daimler applied in that case, that it had jurisdiction over the Spanish bank, and that principles of international comity did not alter its conclusion. It therefore ordered the Spanish bank to produce "all information reasonably available to it which is responsive to the Information Supboenas, without limitation as to whether the accounts it provides information about are located in New York".

The Vera Court held that by registering with and obtaining a licence from the New York Department of Financial Services and by authorising the Department to accept service of process on its behalf, the Spanish bank had consented to general jurisdiction in New York in return for the right to operate a branch and conduct business in the forum. Foreign banking corporations doing business in New York are deemed to consent to jurisdiction in New York courts and are required to appoint the Department as their agent for service of process, but only for proceedings "arising out of a transaction with its New York Agency", which by the terms of the relevant statutory provisions is not a basis for general jurisdiction.

The court did not analyse the New York statute in reaching its conclusion, but it reasoned that foreign banks operating in New York should not be given advantages over domestic banks. The court expressed particular concern that allowing foreign banks to evade discovery concerning their foreign activities would authorise them to aid freely criminals and terrorists.

In rejecting the Spanish bank's reliance on the recent Gucci decision, the Vera Court refused to read Gucci 'so broadly' as to "eliminate the necessary regulatory oversight into foreign entities that operate within the boundaries of the United States". But the Vera Court only distinguished Gucci on the basis that the Second Circuit had left open the question whether the Bank of China had consented to personal jurisdiction in New York through its registration to conduct business there. The New York Banking Law itself does not allow such a reading, and Daimler would appear to require far more than registration to do business in a state to establish general jurisdiction over a bank having its headquarters and principal operations in Spain.  

There is nonetheless reason to believe that the Vera Court did not intend to impose the unlimited burden upon a New York branch of producing all of a foreign bank's responsive records. The Court instead required the New York branch "to provide all information reasonably available to it". It would, of course, be the exception, rather than the rule, for the New York branch of a foreign financial institution to have direct electronic access to overseas accounts information. Yet provided such information is 'available', the Vera Court has made clear that geography should be no impediment to production.

This decision of the District Court has been taken on appeal to the Second Circuit. No decision in this matter is expected until later this year.

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