No Personal Jurisdiction Over Non-Us Bank Whose New York Correspondent Banking Relationship Was Not “Integral” To Madoff Fraud, And That Did Not Exercise Actual Principal-Agent Relationship With Madoff

The World in U.S. Courts: Winter 2018 - Personal Jurisdiction/Forum Non Conveniens

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Hau Yin To v. HSBC Holdings, plc, US Court of Appeals for the Second Circuit, November 4, 2017

Plaintiffs brought claims against US and non-US entities associated with HSBC Bank stemming from the fraud perpetrated by Bernard Madoff. The District Court ruled that it lacked personal jurisdiction over the non-US defendants, and in this summary opinion the Court of Appeals affirmed that decision.

The Court of Appeals first considered whether jurisdiction was appropriate under New York’s “long-arm” statute, which as relevant here required a showing that the bank “purposefully availed itself of the privilege of conducting activities in New York,” through initiatives that constituted a “sustained and substantial transaction of business.” The Court of Appeals found no such contacts, dismissing as inadequate the fact that the non-US entities may have communicated and transmitted information to Madoff and established correspondent bank relationships that were not an “integral part” of the fraud.

The plaintiffs also attempted to establish personal jurisdiction on the theory that the non-US banks had used Madoff as an agent, and so jurisdiction over Madoff would be tantamount to jurisdiction over the bank. The Court of Appeals observed that the agency theory requires that the New York agent have “acted in New York for the benefit of, with the knowledge and consent of, and under some control by, the nonresident principal.” It found that “the actual exercise of control, based on the realities of the situation” was required; the plaintiffs’ allegation that the bank merely that the “legal ability” to exercise such control was inadequate.

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