Summary
finding the first clause of the commercial activity exception inapplicable where bank made incidental transfers in New York
Summary of this case from Goel v. Am. Digital Univ., Inc.Opinion
02 Civ. 4361 (NRB).
May 27, 2005
Anthony J. Mahajan, Esq., Gibson, Dunn Crutcher LLP, New York, NY, Counsel for Plaintiff.
Sharon Hom, Esq., Human Rights in China, New York, NY, Of Counsel.
Christopher Brady, Esq., Orlee Goldfeld, Esq., Hollyer, Brady, Smith Hines, LLP, New York, NY, Counsel for Defendant.
MEMORANDUM AND ORDER
Plaintiff Human Rights in China (hereinafter "HRIC" or "plaintiff") brings this lawsuit to recover from defendant Bank of China (hereinafter "BOC" or "the Bank") $20,000 that the Bank allegedly misappropriated in the course of a wire transaction. In our opinion of September 18, 2003, we dismissed the majority of plaintiff's claims but permitted HRIC to take limited discovery of certain "jurisdictional facts" to support its effort to establish a basis for jurisdiction under the Foreign Sovereign Immunities Act ("FSIA"). 18 U.S.C. § 1602 et seq. Now pending are the Bank's renewed motion for judgment on the pleadings and HRIC's motion for reconsideration on the basis of new evidence.
BACKGROUND
Because this is the third opinion in this case, we assume familiarity with the basic facts and concentrate on the record revealed by the additional jurisdictional discovery. See Human Rights in China v. Bank of China, No. 02 Civ. 4361, 2004 WL 1207882 (S.D.N.Y. Jun. 2, 2004) (hereinafter "Human Rights in China II"); Human Rights in China v. Bank of China, No. 02 Civ. 4361, 2003 WL 22170648 (S.D.N.Y. Sept. 18, 2003) ("hereinafter "Human Rights in China I"). Nevertheless, a brief summary of the background facts is in order.
This case involves a $20,000 wire transfer from HRIC to a Chinese citizen residing in China (hereinafter "Jane Lee"). On June 14, 1999, HRIC requested that Chase Manhattan Bank (hereinafter "Chase") transfer $20,000 from HRIC's New York bank account to Ms. Lee's account at the Beijing branch of the Bank. As HRIC's advocacy work is critical of the Chinese government, HRIC had concealed its identity on prior transfers to Ms. Lee. Realizing that it failed to do so on the June 14 transfer, HRIC contacted Chase on June 15, 1999 and requested that the transfer to Ms. Lee be cancelled.
The funds sent by HRIC were to be used to assist the victims of Tiananmen Square.
After receiving HRIC's cancellation request on June 16, 1999, Chase notified the Bank that the originator of the $20,000 wire transfer had requested that the transfer be cancelled and asked for the return of $20,000. The Bank's head office received Chase's notification on June 17, 1999, and informed Chase that it had already credited the funds to the Beijing branch, and that the Bank's head office would contact the Beijing branch about returning the funds. On June 25, 1999, the Bank informed Chase that the funds had been credited to Ms. Lee's account, and the Bank was therefore unable to return the funds. The June 25 message further advised Chase to inform HRIC to contact the beneficiary directly for return of the funds. The funds ultimately remained in Ms. Lee's account until approximately July 27, 1999, when they were withdrawn by Ms. Lee and confiscated by the Beijing police.
Our earlier opinion permitted HRIC to conduct limited jurisdictional discovery on two issues: 1)the timing of the deposit of the funds into Ms. Lee's account; and 2) the applicable banking rules governing international wire transfers.
Human Rights in China I, 2003 WL 22170648, at *6.
With respect to the steps of the deposit, HRIC's discovery established that the initial step of the wire transfer began with a payment order and a $20,000 credit from Chase into the Bank's U.S. currency account at Chase in New York on June 14, 1999. Mahajan Decl., Ex. B. At the time of our earlier opinion, the exact steps of the transfer had been unclear, and it was possible that no part of the transfer had involved a Bank of China account within the United States. The $20,000 was subsequently credited to the Bank's internal international clearing account, Goldfeld Decl. Ex. P; debited from that international account and credited to a domestic account for interbranch transfers at the Bank's head office in China, Goldfeld Decl. Ex. Q.; debited from that interbranch transfer account to an internal account at the Bank's Beijing branch, Goldfeld Decl. Ex. S; and finally debited from the Beijing branch's internal account and credited to the account of Ms. Lee at the Beijing branch on June 16, 1999. Goldfeld Decl. Ex. H.
For example, it was possible that Chase maintained an account with the Bank located in China, and that Chase credited the $20,000 to that account in China, rather than crediting the Bank's account in New York.
With respect to international banking standards, HRIC's discovery consisted primarily of the deposition of a Chase official in the funds transfer department, Mahoj Lahiri. Mr. Lahiri testified as to the standard practices of banks in making international wire transfers, and the duties of a bank upon receiving a request to cancel a wire transfer. Specifically, Mr. Lahiri testified that after "the beneficiary gets credited [with the transfer funds], [the receiving bank has] to seek permission from that beneficiary to return the funds." Mahajan Decl. Ex. A (Lahiri Dep. Tr. 89:18-90:2).
DISCUSSION
I. Standard of Review
A defendant bringing a jurisdictional motion may challenge "jurisdictional facts" that the plaintiff alleges. Robinson v. Government of Malaysia, 269 F.3d 133, 140 (2d Cir. 2001) (citingPhoenix Consulting, Inc. v. Republic of Angola, 216 F.3d 36, 40 (D.C. Cir. 2000) and Gwaltnery of Smithfield, Ltd. v. Chesapeake Bay Found, Inc., 484 U.S. 49, 68 (1987) (Scalia, J., concurring in part and concurring in the judgment)). Accordingly, courts addressing jurisdictional questions under the FSIA may look beyond the pleadings to assess the evidence concerning relevant factual issues. See e.g., Robinson, 269 F.3d at 140-42;Filetech S.A. v. France Telecom S.A., 157 F.3d 922, 932 (2d Cir. 1998); Reiss v. Societe Centralle Du Groupe Des Assurances Nationales, 246 F. Supp. 2d 273, 277-79 (S.D.N.Y. 2003). Such practices are in accord with the burdens regime under the FSIA, since the plaintiff bears the burden of producing supporting facts showing the applicability of an FSIA exception once defendant has made a prima facie case for immunity. See Cargill Int'l S.A. v. M/V Pavel Dybenko, 991 F.2d 1012, 1016 (2d Cir. 1993).
II. Foreign Sovereign Immunities Act
Under the FSIA, foreign states and instrumentalities thereof are presumptively immune from the jurisdiction of United States courts unless one of several specified exceptions applies. Saudi Arabia v. Nelson, 507 U.S. 349, 355 (1993); see 28 U.S.C. § 1604. In Human Rights in China I, we held that HRIC had not established that an exception to the FSIA applied to its claims against the Bank, but allowed that further discovery of certain jurisdictional facts might enable HRIC to establish jurisdiction. Based on its newly-discovered evidence, HRIC contends there is jurisdiction over the Bank under three exceptions to the FSIA: the commercial activity exception; the waiver exception; and the expropriation of property exception. We address and reject each of these arguments in turn.
A. The Commercial Activity Exception to the FSIA
The "commercial activity" exception to the FSIA provides that a foreign state is not immune from suit in any case:
in which the action is based upon a commercial activity carried on in the United States by the foreign state; or upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.28 U.S.C. § 1605(a)(2). HRIC argues that jurisdiction over the Bank is appropriate under the first and third clauses of the commercial activity exception.
In Human Rights in China I, we rejected HRIC's claim that the first clause of the commercial activity exception applied because its action was not based upon any activity of the Bank within the United States. Human Rights in China I, 2003 WL 22170648, at *5. In its renewed motion, HRIC asserts that the Bank's maintenance of a U.S. currency account at a New York branch of Chase — through which the Bank facilitated HRIC's wire transfer to Ms. Lee in China — provides a new basis for jurisdiction under the first clause. Because the Bank accepted the deposit of $20,000 into its account at Chase in New York, HRIC argues that its claims are based upon the Bank's commercial activities within the United States.
A commercial activity is "carried on within the United States" if the activity "has substantial contact with the United States." 28 U.S.C. § 1603(e). While it is undisputed that aspects of HRIC's claims are based upon the Bank's commercial activities, and that the Bank as an entity does have substantial contact with the United States, that alone is not enough to qualify for jurisdiction under the first clause. Instead, "the particular conduct giving rise to the claim [must be] part of commercial activity having substantial contact with the United States." Shapiro v. Republic of Bolivia, 930 F.2d 1013, 1018 (2d Cir. 1991); see also Saudi Arabia v. Nelson, 507 U.S. 349, 370 (1993) (White, J. concurring).
Under this standard, it is clear that HRIC's claims against the Bank are not based upon an activity having substantial contact with the United States. HRIC, a U.S. organization, requested that Chase, its U.S. bank, make a transfer to a Chinese citizen's bank account located at a branch of the Bank in China. The fundamental dispute between the parties involves the Bank's failure to return to HRIC the funds from Ms. Lee's account in China and the Bank's alleged notification of Chinese authorities of the transfer. The fact that $20,000 was briefly deposited by Chase into the Bank's U.S. currency account in New York during the initial stage of the wire transfer is purely incidental to HRIC's claims against the Bank. Accordingly, the first clause of the commercial activity exception is not applicable. See Shapiro, 930 F.2d at 1019.
The third clause of the commercial activity exception applies when a lawsuit is "based . . . upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States." In Human Rights in China I, we stated that "[i]f HRIC could establish that, at the time the Bank learned of Chase's request to reverse the wire transfer, it had not deposited the money in Jane Lee's account and could have reversed the transaction, then it would follow that the Bank's decision not to do so had a direct effect on HRIC." Human Rights in China I, at *6; see Republic of Argentina v. Weltover, 504 U.S. 607, 618-19 (1992). For this reason, we permitted limited discovery on these two jurisdictional facts.
With respect to the timing of the credit to Ms. Lee's account, the record clearly establishes that the wire transfer funds were credited to Ms. Lee's account prior to the Bank receiving the cancellation request. The Bank has submitted numerous documents covering every step of the wire transfer, as well provided the testimony of one of its officials to interpret those documents. This record is essentially unchallenged by HRIC, and shows unequivocally that Ms. Lee's account was credited with the funds from HRIC on June 16, 1999. Goldfeld Decl., Exs. S, W.
HRIC does not seem to dispute that the Bank's records establish that funds were credited to Ms. Lee's account on June 16, 1999. Instead, HRIC argues that HRIC's funds never left the Bank's account in New York because there is no $20,000 debit from the Bank's U.S. currency account to correspond with the $20,000 credit from Chase on June 14, 1999. This argument misunderstands the mechanics of wire transfers, as the corresponding debit does not need to occur within the same account as the credit for a funds transfer. Therefore, the absence of any corresponding debit from the Bank's Chase account in New York is inconsequential.
With regards to the Bank's obligation to return the funds, HRIC has failed to establish that the Bank was under any such requirement. The parties agree that once funds are credited to a beneficiary's account, a receiving bank must receive permission from the beneficiary in order to return any funds. Since the funds had been credited to Ms. Lee's account, the Bank did not have the authority to return the funds to HRIC. However, HRIC argues that the Bank's obligations upon receipt of a cancellation request include an affirmative duty to seek the beneficiary's permission to reverse the wire transfer. As the Bank concedes that it did not contact Ms. Lee for this authority, HRIC argues the Bank breached this obligation.
The record submitted by HRIC does not support its view of the Bank's obligation to contact Ms. Lee. HRIC's witness on banking standards, Mr. Lahiri, a Chase employee, testified that once funds are credited to a beneficiary's account, a receiving bank must seek debit authority from the beneficiary in order to return the funds. However, contrary to HRIC's assertions, at no point in his deposition did Mr. Lahiri testify that there is an affirmative legal obligation on the part of the receiving bank to seek permission to do so. Instead, Mr. Lahiri testified that the Bank's legal obligation refers only to the requirement to receive permission from the beneficiary prior to reversing a transfer. Specifically, when asked to explain what was meant by his statement that the Bank is "required to seek" permission prior to reversing a transfer, Mr. Lahiri stated that:
In addition to his deposition testimony, HRIC has submitted an affidavit from Mr. Lahiri regarding the Bank's legal obligations. In light of the fact that the affidavit was initially drafted by HRIC's counsel and that Mr. Lahiri's deposition occurred after the affidavit and addresses the relevant issues in much greater detail, we focus our discussion on Mr. Lahiri's deposition.
what I meant by this line is that [the Bank] cannot return the funds without the permission of the ultimate beneficiary, that's why [the Bank is] seeking permission of the debit authority . . . because . . . you cannot go ahead and debit the account and return the funds without the permission . . . of the beneficiary to do so.
Goldfeld Decl., Ex. Y (Lahiri Dep. Tr. 107:25-108:10). Furthermore, when asked whether the applicable bank rule governing cancellation requests mandated that the Bank contact the beneficiary, Mr. Lahiri stated: "To be honest with you, I don't know whether [applicable bank rule says] may, will, or should. But I think [the rule] does say the receiving bank would contact the ultimate beneficiary for debit authority." Lahiri Dep. Tr. 96:4-7. Mr. Lahiri's testimony is replete with similar statements, and based on our review that testimony, we find that it does not establish any legal obligation for the Bank to contact Ms. Lee.
For reasons that remain unclear, HRIC has relied almost exclusively on Mr. Lahiri's testimony to provide evidence of the Bank's legal obligation to reverse the transaction or contact Ms. Lee. HRIC was free to engage expert witnesses to testify on international banking rules, or other witnesses more knowledgeable than Mr. Lahiri who could testify unequivocally in support of HRIC's position. In addition, HRIC failed to provide a single relevant document to support its claim regarding the Bank's legal obligation. Accordingly, HRIC has not sufficiently "proffered evidence to support jurisdiction under the FSIA." Robinson, 269 F.3d at 140.
HRIC has also included certain documents pertaining to Chinese banking law. However, as HRIC conceded at oral argument, "Chinese banking law has no application to this case." Tr. at 11.
The only relevant document submitted, a copy of the applicable rule from the Society for Worldwide Inter-bank Telecommunications ("SWIFT") governing cancellations requests, was provided by the Bank. That document descriptively recites that a request for cancellation "asks for a retransfer (ie, reversal), with the Beneficiary's consent." Goldfeld Decl., Ex. Z (SWIFT rule governing MT n92 requests for cancellation).
Finally, even assuming arguendo that the Bank was under some type of obligation to contact Ms. Lee, it is unclear that the Bank's omission would satisfy the "direct effect" requirement of clause three of the commercial activity exception. An effect is considered direct "if it follows as an immediate consequence of the defendant's activity." Republic of Argentina v. Weltover, 504 U.S. 607, 618 (1992). In addition, the Second Circuit applies a "legally significant acts" test to evaluate whether a direct effect occurred in the United States. See Hanil Bank, 148 F.3d at 133. Under that test, the plaintiff must identify a legally significant act that occurred within the United States in order to qualify for jurisdiction under clause three of the commercial activity exception. Id.; U.S. Fidelity and Guar. Co. v. Braspetro Oil Services Co., No. 97 Civ. 6124, 1999 WL 307666 at *13 (S.D.N.Y. May 17, 1999).
Our earlier analysis of the possible direct effects of the Bank's actions was premised on the assumption the Bank had an obligation to return the funds to HRIC and therefore "[m]oney that was supposed to have been delivered to a New York bank for deposit was not forthcoming." Weltover, 504 U.S. at 619. However, once the funds reach Ms. Lee's account and come under her exclusive control, there is no longer any obligation to return them, and the analogy to Weltover becomes inapposite. To conclude that the Bank's failure to contact Ms. Lee caused a direct effect in the United States, we must hypothesize that Ms. Lee would have returned the funds to HRIC had the Bank contacted her. As there is no evidence that Ms. Lee would have done so, "it is speculative to conclude that [the Bank's actions], rather than other events, triggered the plaintiff's alleged injury."Virtual Countries, Inc. v. Republic of South Africa, 300 F.3d 230, 238 (2d Cir. 2002); see also Princz v. Federal Republic of Germany, 26 F.3d 1166, 1172 (D.C. Cir. 1994) ("A direct effect, however, is one which has no intervening element, but rather flows in a straight line without deviation or interruption.") (internal citations omitted).
B. Waiver of Immunity
The waiver provision of the FSIA provides jurisdiction over a foreign state that "has waived its immunity either explicitly or implicitly." 28 U.S.C. § 1605(a)(1). The Bank's U.S. Currency account at Chase provides that the account will be governed by the New York Uniform Commercial Code. Mahajan Decl., Ex. B. HRIC contends that the Bank implicitly waived its sovereign immunity by agreeing to subject this account to New York law.
"[A] waiver will not be implied absent strong evidence of the sovereign's intent." Cargill Intern. S.A. v. M/T Pavel Dybenko, 991 F.2d 1012, 1017 (2d Cir. 1993). "Moreover, it is rare for a court to find that a country's waiver of immunity extends to third parties not privy to the contract." Id. Here, HRIC provides no evidence that the Bank intended to waive its immunity, nor any explanation of why this alleged waiver should
CONCLUSION
For the reasons outlined above, defendant's motion for judgment on the pleadings is granted, and plaintiff's cross-motion for reconsideration on the basis of new evidence is denied. The Clerk of the Court is respectfully requested to close this case on the Court's docket.IT IS SO ORDERED.