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Posted: April 21, 2014

Use of New York Bank To Facilitate Dollar Transfers In a Foreign Exchange Transaction Not Sufficient to Avoid Forum Non Conveniens Dismissal

On April 8, 2014, the Court of Appeals issued a decision in Mashreqbank PSC v. Ahmed Hamad A1 Gosaibi & Brothers Co., 2014 NY Slip Op. 02381, dismissing, under the doctrine of forum non conveniens, a lawsuit arising from a foreign exchange transaction between foreign parties, where the claim had only a peripheral connection to New York—i.e., “the use of New York banks to facilitate dollar transfers.” Mashreqbank (based in the United Arab Emirates) entered into “a foreign exchange swap transaction of US Dollars for Saudi Arabian riyals” with the defendant AHAB, a Saudi partnership.

Pursuant to its agreement with AHAB, Mashreqbank transferred $150 million to AHAB’s account in New York. AHAB, however, did not transfer the equivalent value in Saudi riyals to Mashreqbank. Mashreqbank filed suit in New York Supreme Court. AHAB filed counterclaims, and a third-party complaint against one of its employees, alleging that the employee “had engaged in a massive scheme to loot AHAB; that the purported foreign exchange transaction on which Mashreq sued was part of that scheme; and that by participating in that and other corrupt transactions Mashreq had aided and abetted Al-Sanea’s fraud.”

The Court of Appeals, in a unanimous decision authored by Judge Smith, dismissed the entire action on forum non conveniens grounds. First, the Court found that the mere passage of funds through a New York bank does not automatically trigger “New York’s compelling interest in the protection of its banking system,” thus providing “a weighty argument against a forum non conveniens dismissal.” The Court noted that “as a practical matter, any dollar transaction comparable in size to the one now at issue must go through New York[,] . . . but [t]hat does not mean that every major fraud case in the world in which dollars are involved belongs in the New York courts. New York’s interest in 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.” (Citations omitted). Second, the Court of Appeals rejected the Appellate Division’s conclusion that New York law would govern the third-party claims, concluding that under New York’s “interest analysis,” Saudi Arabia’s law would apply. Thus, the Court ordered dismissal on forum non conveniens grounds:

Apart from the use of New York banks to facilitate dollar transfers — a fact which, as we have said, is of minor importance here — we see nothing in this case to justify resort to a New York forum. No party is a New York resident; no relevant conduct apart from the execution of fund transfers occurred in New York; no party has identified any important New York witnesses or New York documents; New York law does not apply; no property related to the dispute is located in New York; no related litigation is pending in New York; and no other circumstance supports an argument that New York is an appropriate forum. Alternatives to a New York forum are available; indeed, the parties’ briefs refer to a number of related investigations or litigations pending in several foreign countries. This is a classic case for the application of the forum non conveniens doctrine.

This case illustrates that, although in many financial transactions between foreign parties funds may at some stage pass through a New York bank, that may not be enough, standing on its own, to justify bringing suit in a New York court.

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