Daou v. BLC Bank, S.A.L. ( 2022 )

21-1085-cv
Daou v. BLC Bank, S.A.L.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term, 2021
Argued: June 9, 2022 Decided: July 28, 2022
Docket No. 21-1085-cv
JOSEPH A. DAOU, KAREN DAOU,
Plaintiffs-Appellants,
— v. —
BLC BANK, S.A.L., CREDIT LIBANAIS, S.A.L., ALMAWARID BANK, S.A.L., BANQUE DU
LIBAN,
Defendants-Appellees.
B e f o r e:
LYNCH, BIANCO, and NARDINI, Circuit Judges.
Plaintiffs-Appellants Joseph and Karen Daou (together, “the Daous”)
appeal the judgment of the United States District Court for the Southern District
of New York (Cote, J.) dismissing their complaint against Defendants-Appellees
BLC Bank, S.A.L. (“BLC”), Credit Libanais, S.A.L. (“CL”), AlMawarid Bank,
S.A.L. (“AM”), and Banque du Liban (“BDL”) in this case involving the Daous’
unsuccessful attempts to transfer U.S. dollars held in their Lebanese bank
accounts to the United States. The Daous argue that the district court erred by
holding that mandatory forum selection clauses in the Daous’ agreements with
BLC and AM required those claims to be litigated in Beirut, that it lacked
personal jurisdiction over CL under New York’s long-arm statute, and that BDL
was entitled to sovereign immunity as an agency or instrumentality of the
Lebanese state and that the commercial activity exception to the Foreign
Sovereign Immunities Act did not apply.
We conclude that the district court was correct to dismiss the claims
against BLC, CL, and AM because those claims did not arise from business
transactions in New York, a requirement of the provision of the long-arm statute
that the Daous invoke. The district court was also correct to dismiss the claims
against BDL because BDL is entitled to sovereign immunity and the commercial
activity exception does not apply, since any commercial activity on BDL’s part
did not have a direct effect in the United States.
Accordingly, we AFFIRM the judgment of the district court.
CHRISTOPHER J. MAJOR, Meister Seelig & Fein LLP, New York,
NY, for Plaintiffs-Appellants.
JEFFREY ROTENBERG, DLA Piper LLP, New York, NY (John O.
Wray, on the brief), for Defendants-Appellees BLC Bank,
S.A.L. and Credit Libanais, S.A.L.
MITCHELL R. BERGER, Squire Patton Boggs (US) LLP,
Washington, DC (Gassan A. Baloul, Squire Patton Boggs
(US) LLP, New York, NY, on the brief), for Defendant-
Appellee AlMawarid Bank, S.A.L.
LINDA C. GOLDSTEIN, Dechert LLP, New York, NY (Ryan M.
Moore, Dechert LLP, Philadelphia, PA, on the brief), for
Defendant-Appellee Banque du Liban.
2
GERARD E. LYNCH, Circuit Judge:
Plaintiffs-Appellants Joseph and Karen Daou (together, “the Daous”)
appeal from a judgment of the United States District Court for the Southern
District of New York (Denise L. Cote, J.) dismissing this action against
Defendants-Appellees BLC Bank, S.A.L. (“BLC”), Credit Libanais, S.A.L. (“CL”),
AlMawarid Bank, S.A.L. (“AM”), and Banque du Liban (“BDL”) for want of
subject-matter jurisdiction, for want of personal jurisdiction, and for forum non
conveniens based on binding forum selection clauses in agreements the Daous
entered into with AM and BLC. The Daous allege that Defendants-Appellees
(together, “the Banks”) engaged in a scheme to cheat them out of millions of U.S.
dollars (“USD”) by inducing them to deposit those dollars in Lebanese bank
accounts with the promise that they would be able to withdraw that money in the
United States, only to renege on that promise and keep the money trapped in
Lebanon. The district court dismissed the claims against AM and BLC because
the Daous’ agreements with those banks included valid, enforceable forum
selection clauses specifying Beirut as the proper forum; those against CL because
it lacked personal jurisdiction over that bank; and those against BDL because that
3
bank is an agency or instrumentality of the Lebanese state and no exception
applied under the Foreign Sovereign Immunities Act (“FSIA”), Pub. L. No. 94-
583, 90 Stat. 2891 (1976), codified as amended at 28 U.S.C. §§ 1330, 1332, 1391(f),
1441(d), 1602-11. The Daous appeal each of those holdings.
We hold that the district court lacked personal jurisdiction over AM, BLC,
and CL (together, “the Commercial Banks”) under the relevant provision of New
York’s long-arm statute, N.Y. C.P.L.R. § 302(a)(1), because there was insufficient
connection between the Daous’ claims against the Commercial Banks and those
banks’ business transactions in New York. Having so held, we have no occasion
to consider the enforceability of the forum selection clauses. We hold further that
BDL, an agency or instrumentality of a foreign sovereign, is entitled to sovereign
immunity. Contrary to the Daous’ argument, the FSIA’s commercial activity
exception does not apply, because any commercial activity on BDL’s part that
forms part of the gravamen of the Daous’ complaint did not have a direct effect
in the United States.
We therefore AFFIRM the judgment of the district court.
4
BACKGROUND
I. Factual Background
Joseph and Karen Daou are dual citizens of the United States and Lebanon
who reside in Florida. AM, BLC, and CL are commercial banks headquartered in
and operating primarily in Lebanon, but all three maintain correspondent bank
accounts in New York. “A correspondent bank account is a domestic bank
account held by a foreign bank, similar to a personal checking account used for
deposits, payments and transfer of funds. Correspondent accounts facilitate the
flow of money worldwide, often for transactions that otherwise have no other
connection to New York, or indeed the United States.” Licci ex rel. Licci v. Lebanese
Canadian Bank, SAL (“Licci II”), 732 F.3d 161, 165 n.3 (2d Cir. 2013) (quotation
marks and citations omitted). AM, BLC, and CL use their correspondent bank
accounts to facilitate the transfer of USD into and out of Lebanon. BDL is the
central bank of Lebanon.
Joseph Daou opened USD-denominated accounts in Lebanon with CL on
March 9, 2016 and with BLC on April 26, 2016. The agreements that he signed
with both banks upon opening those accounts stipulated that Lebanese law
would govern disputes regarding their relationship. The agreements with BLC
5
also included a mandatory forum selection clause, providing that “[t]he Beirut
courts shall have exclusive jurisdiction to hear any dispute arising in connection
with these General Conditions and/or relating to the relationship between the
Bank and the Client,” and that “[t]his exclusive jurisdiction is for the benefit of
the Bank which shall be entitled to take action against the Client in any Lebanese
or foreign court of its choice in order to defend its right.” J. App’x at 375, 390. The
agreements between Joseph Daou and CL did not include such a clause.
According to the operative complaint, BLC and CL each routed four transactions
with the Daous through New York correspondent accounts between 2016 and
2018.
In late 2019, Lebanon’s financial sector began spiraling into crisis. Starting
in the 1990s, the Lebanese pound (“LBP”) had been pegged to the U.S. dollar, an
arrangement that required a steady influx of USD into Lebanon to maintain. But
in response to political unrest in 2019 that resulted in the prime minister’s
resignation, foreign investors began to pull out of the country, causing the influx
of USD to dry up. The LBP began to plunge in value, and BDL and the Lebanese
banking sector tried desperately to prevent a run on the banks, first by
6
temporarily closing the country’s banks, and then by making it nearly impossible
to remove large quantities of USD from the country.
By the end of 2019, the Daous had more than $18,500,000 on deposit in
Lebanon, and like many other customers living outside Lebanon with large sums
of USD in bank accounts in that country, they were concerned that their deposits
would become essentially worthless overnight. Beginning in September 2019,
Joseph Daou requested that BLC and CL execute millions of dollars in wire
transfers from the Daous’ accounts with those banks to accounts in the United
States, a request that both banks denied. He then traveled to Lebanon in
December 2019 and opened an account with a third bank – AM – which he hoped
could help him repatriate his family’s USD. The agreement that Joseph Daou
signed upon opening the AM account included a forum selection clause
providing that “[t]he Beirut courts shall have the exclusive jurisdiction to hear
any case or dispute brought up by the Second Party against the Bank,” but that
“the Bank may choose to prosecute the Second Party and/or its guarantors either
in the Beirut courts and its enforcement departments and/or the courts of the
Second Party’s residence and/or its sponsors and/or the location of the real estate
or the commercial establishment that is the subject of the execution, and the
7
Second Party refrains from raising any plea related to the invalidity, indicating
that its place of residence or residence differs from its elected domicile.” J. App’x
at 170. Joseph Daou deposited $5,735,928.67 (already present in Lebanon) in the
AM account, allegedly on the understanding that he would eventually be able to
wire it to United States.1 He requested in December 2019 and January 2020 that
AM wire-transfer the balance of the Daous’ accounts to the United States, but
AM, like the other Commercial Banks before it, refused to transfer the funds.
After repeated, failed attempts to move their USD to the United States via
wire transfer, the Daous agreed to accept USD-denominated checks from BLC,
CL, and AM, drawn against BDL, with whom all three Commercial Banks had
accounts.2 The Daous allege that all three Commercial Banks represented that
they would be able to deposit those checks in the United States. Each of the
checks stated on its face, however, that it was “payable [at] Beirut.” J. App’x at
1
Although the operative complaint alleges broadly that, “[f]or USD transactions,
AM Bank uses its correspondent bank account at Bank of New York Mellon, N.A.
in New York,” J. App’x at 277, it does not allege any specific transaction
involving the Daous’ AM accounts and AM’s New York correspondent accounts.
2
While the Daous have variously referred to the checks as “bankers checks,”
Appellants’ Br. at 14, and “cashier’s checks,” J. App’x at 238, there is no allegation
in the operative complaint that any BDL representative was personally involved
in issuing the checks that the Commercial Banks made out to the Daous.
8
657, 752, 862. The Daous deposited their checks at banks in the United States, but
BDL refused to transfer the money, stating that it was not accepting checks for
collection abroad and that the checks would have to be presented to a local bank
in Lebanon. The Daous allege that their inability to get their money out of
Lebanon caused them to lose real estate deals in the United States, resulting in
damages in excess of $60 million.
II. Procedural History
The Daous filed this action in the district court on June 10, 2020, asserting
common-law claims for civil conspiracy, fraud, issuance of dishonored checks,
conversion, breach of contract, promissory estoppel, and unjust enrichment, as
well as statutory claims under the Racketeer Influenced and Corrupt
Organizations Act, 18 U.S.C. § 1962(c), and Fla. Stat. §§ 68.065 and 673.4121,
which authorize a cause of action to collect on worthless payment instruments.
They filed their first amended complaint (“FAC”) four months later. In
November and December 2020, all four defendants moved to dismiss the FAC,
both on jurisdictional and forum non conveniens grounds and for failure to state a
claim. The Daous opposed the motions to dismiss and, in the alternative,
requested jurisdictional discovery.
9
The district court granted all four defendants’ motions to dismiss in an
April 9, 2021 order, in each instance ruling only on threshold matters of
jurisdiction or forum non conveniens without reaching the merits. Daou v. BLC
Bank, S.A.L., No. 20-cv-4438, 2021 WL 1338772, at *9 (S.D.N.Y. Apr. 9, 2021). The
district court dismissed the claims against BLC and AM for forum non conveniens
on the ground that those claims were subject to valid and enforceable forum
selection clauses pointing to Beirut,3 rejecting the Daous’ arguments that it would
be unsafe for them to litigate in Lebanon and that they would not be able to win a
lawsuit or enforce a judgment against the Banks in that country. Id. at *3-5. The
district court dismissed the claims against BDL for want of subject-matter
jurisdiction, holding that BDL was entitled to sovereign immunity as the agency
or instrumentality of a foreign state and that the FSIA’s commercial activity
exception – the only exception to that statute’s grant of sovereign immunity that
the Daous asserted – did not apply, because any commercial activity on BDL’s
part was not the gravamen of the complaint, and because such activity did not
have a direct effect in the United States. Id. at *5-7. Finally, the district court
3
“[T]he appropriate way to enforce a forum-selection clause pointing to a state or
foreign forum is through the doctrine of forum non conveniens.” Atl. Marine Constr.
Co. v. U.S. Dist. Ct. for the W. Dist. of Tex., 571 U.S. 49, 60 (2013).
10
dismissed the claims against CL for want of personal jurisdiction, concluding that
the section of New York’s long-arm statute on which the Daous relied, N.Y.
C.P.L.R. § 302(a)(1), which confers jurisdiction over persons transacting business
in New York, did not confer personal jurisdiction over CL in this case because
CL’s transactions with the Daous through New York correspondent accounts – its
only alleged conduct within the state – were both too few in number and
insubstantially connected to the Daous’ claims against CL. Id. at *7-8. The district
court did not rule on the Daous’ alternative request for jurisdictional discovery.
This appeal followed.
DISCUSSION
On appeal, the Daous argue that the district court erred by dismissing the
claims against AM and BLC for forum non conveniens based on the forum selection
clauses, by holding that BDL was entitled to sovereign immunity, and by
concluding that it lacked personal jurisdiction over CL in this case under N.Y.
C.P.L.R. § 302(a)(1). Not only do the Banks contest those arguments, but AM and
BLC argue that the district court lacked personal jurisdiction over them as well.
We conclude that the district court lacked personal jurisdiction under § 302(a)(1)
over all three Commercial Banks, and thus we have no occasion to consider
11
whether it erred by enforcing the forum selection clauses. See Headley v. Tilghman,
53 F.3d 472, 476 (2d Cir. 1995) (“We are free to affirm on any ground that finds
support in the record, even if it was not the ground upon which the trial court
relied.”). We conclude further that the district court correctly held that BDL is
entitled to sovereign immunity and that the FSIA’s commercial activity exception
does not apply.
I. Personal Jurisdiction Over the Commercial Banks
The Daous argue that the district court erred by holding that it lacked
personal jurisdiction over CL under New York’s long-arm statute, or in the
alternative, that it erred at least by denying them jurisdictional discovery. We
disagree, and we hold further that the district court lacked long-arm jurisdiction
over AM and BLC for identical reasons.
“We review a district court’s dismissal of an action for want of personal
jurisdiction de novo, construing all pleadings and affidavits in the light most
favorable to the plaintiff . . . . [T]o survive a motion to dismiss for lack of personal
jurisdiction, a plaintiff must make a prima facie showing that jurisdiction exists.”
Chufen Chen v. Dunkin' Brands, Inc., 954 F.3d 492, 497 (2d Cir. 2020) (internal
quotation marks and citations omitted; alteration in original), quoting SPV Osus
12
Ltd. v. UBS AG, 882 F.3d 333, 342 (2d Cir. 2018). “We review a district court’s
denial of jurisdictional discovery for abuse of discretion.” Arch Trading Corp. v.
Republic of Ecuador, 839 F.3d 193, 206 (2d Cir. 2016).
“In the absence of a federal statute specifically directing otherwise, and
subject to limitations imposed by the United States Constitution, we look to the
law of the forum state to determine whether a federal district court has personal
jurisdiction over a foreign corporation.” Brown v. Lockheed Martin Corp., 814 F.3d
619, 624 (2d Cir. 2016). Because “[t]he reach of New York’s long-arm statute . . .
does not coincide with the limits of the Due Process Clause,” Best Van Lines, Inc.
v. Walker, 490 F.3d 239, 244 (2d Cir. 2007), when the forum is in New York, we
must look to that statute’s specific provisions to determine whether personal
jurisdiction exists as a matter of state law. In this case, the Daous assert that the
district court had personal jurisdiction over the Commercial Banks under N.Y.
C.P.L.R. § 302(a)(1), which confers on courts personal jurisdiction over a
defendant who “transacts any business within the state or contracts anywhere to
supply goods or services in the state,” “[a]s to a cause of action arising from”
such a transaction. “To establish personal jurisdiction under section 302(a)(1),
two requirements must be met: (1) The defendant must have transacted business
13
within the state; and (2) the claim asserted must arise from that business
activity.” Sole Resort, S.A. de C.V. v. Allure Resorts Mgmt., LLC, 450 F.3d 100, 103
(2d Cir. 2006), citing McGowan v. Smith, 52 N.Y.2d 268, 273 (1981). The district
court concluded that the Daous failed to satisfy either requirement.
We agree with the Daous that, contrary to the district court’s holding with
respect to CL, all three Commercial Banks “transact[ed] business” in New York
despite the relatively small number of specific correspondent transactions
alleged. Section 302(a)(1) is a “single act statute,” and “proof of one transaction in
New York is sufficient to invoke jurisdiction, even though the defendant never
enters New York, so long as the defendant’s activities here were purposeful and
there is a substantial relationship between the transaction and the claim
asserted.” Deutsche Bank Sec., Inc. v. Montana Bd. of Invs., 7 N.Y.3d 65, 71 (2006),
quoting Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460, 467 (1988). To be sure,
determining whether a defendant transacted business in the state “necessarily
requires examination of the particular facts in each case,” Licci v. Lebanese
Canadian Bank, SAL (“Licci I”), 20 N.Y.3d 327, 338 (2012), and where the putative
transaction is use of a correspondent bank account, “the frequency and deliberate
nature of [the defendant’s] use of its correspondent account[s] [may] be
14
determinative” of whether that use was intentional, Licci II, 732 F.3d at 168; see
also Amigo Foods Corp. v. Marine Midland Bank-N.Y., 39 N.Y.2d 391, 396 (1976)
(“[S]tanding by itself, a correspondent bank relationship, without any other
indicia or evidence to explain its essence, may not form the basis for long-arm
jurisdiction under [§ 302(a)(1)].”). But the present case is not one in which the
defendant may have used its correspondent accounts only adventitiously, “once
or twice by mistake.” Licci I, 20 N.Y.3d at 340 (emphasis added). The Daous have
alleged, and the Commercial Banks do not dispute, that each of the Commercial
Banks purposefully use New York correspondent accounts on a regular basis to
move USD deposits in and out of Lebanon. Moreover, the FAC identifies at least
four occasions on which BLC and CL each used New York correspondent
accounts to execute transactions on behalf of the Daous in particular.4 The Daous
therefore have adequately alleged one or more transactions of business in New
York on the part of each Commercial Bank for purposes of § 302(a)(1).
Nevertheless, we agree with the district court that the Daous’ claims
4
To the extent that the FAC does not allege a specific transaction involving the
Daous’ AM accounts and AM’s New York correspondent accounts, that goes to
the nexus between the Daous’ claims and AM’s transactions of business in New
York, to which we turn next.
15
against CL did not arise from that bank’s transactions of business in New York for
purposes of § 302(a)(1), and the same is true with respect to AM and BLC. This
“second prong of the jurisdictional inquiry” under § 302(a)(1) “require[s] that, in
light of all the circumstances, there must be an ‘articulable nexus’ or ‘substantial
relationship’ between the business transaction and the claim asserted.” Licci I, 20
N.Y.3d at 339, quoting McGowan, 52 N.Y.2d at 272, and Kreutter, 71 N.Y.2d at 467.
Although “the inquiry under the statute is relatively permissive,” and “causation
is not required,” id., not every conceivable connection to a New York transaction
is substantial enough to confer jurisdiction. “In effect, the ‘arise-from’ prong
limits the broader ‘transaction-of-business’ prong to confer jurisdiction only over
those claims in some way arguably connected to the transaction. Where this
necessary relatedness is lacking, [the New York Court of Appeals has]
characterized the claim as ‘too attenuated’ from the transaction, or ‘merely
coincidental’ with it.” Id. at 339-40 (citation omitted). For example, in Johnson v.
Ward, 4 N.Y.3d 516 (2005), the New York Court of Appeals held that, even
assuming that the defendant negligent driver “transacted business” in New York
by obtaining his license and registration there, that transaction did not confer on
the New York courts personal jurisdiction over him in a personal injury suit,
16
because it was his negligent driving in New Jersey, not his obtaining the license
and registration, that was the subject of the claims against him. Id. at 519-20.
A claim may arise from the use of a correspondent bank account for
purposes of § 302(a)(1) where an alleged actual transaction made through such
an account formed part of the alleged unlawful course of conduct underlying the
cause of action set out in the complaint. In Licci, for example, the plaintiffs
brought aiding-and-abetting claims under the federal Anti-Terrorism Act and
Alien Tort Statute, as well as common-law negligence claims and claims for
breach of statutory duty under Israeli law, against the defendant Lebanese bank
for facilitating international transactions with Hizballah, a Lebanese militant
group classified by the State Department as a terrorist organization. Licci I, 20
N.Y.3d at 330-31. The New York Court of Appeals held in response to a question
certified by this Court that the plaintiffs’ claims arose from the defendant’s use of
a New York correspondent account because, “[a]ccepting the complaint’s
allegations as true, [the defendant’s] use of its AmEx correspondent account to
transfer money . . . provided money for Hizballah to carry out terrorist violence.”
Id. at 340; see also Rushaid v. Pictet & Cie, 28 N.Y.3d 316, 329-30 (2016) (holding that
claims for aiding and abetting breach of fiduciary duty and civil conspiracy
17
involving international money-laundering scheme arose from use of New York
correspondent accounts for purposes of § 302(a)(1) because “[t]hese claims
depend on the assertions that defendants established the banking structure in
New York and Geneva through which they orchestrated the money laundering
. . . scheme” and “effected the transfers of money to the New York correspondent
bank as part of” that scheme).
Here, however, the alleged unlawful conduct underlying the Daous’ claims
does not involve a specific transaction through New York correspondent
accounts – rather, the Daous allege that the Commercial Banks have used their
New York correspondent accounts to handle the Daous’ and other investors’
money in the past and likely would have done so if, counterfactually, they had
transferred the Daous’ money to the United States as promised.
New York’s appellate courts have not considered whether past or potential
future use of correspondent accounts alone may satisfy § 302(a)(1)’s arise-from
requirement, but the state trial courts to have considered that question have
answered it in the negative. In Malaeb v. Bankmed S.A.L., No. 157804/2020, 2021
WL 1925638 (N.Y. Sup. Ct. May 13, 2021), the court rejected an argument nearly
identical to that of the Daous here, made by a depositor plaintiff who wished to
18
move his money out of Lebanese banks that also maintained New York
correspondent accounts. As the court explained:
Plaintiff alleges that defendants heavily promoted their
New York correspondent banking relationships to cloak
themselves in the legitimacy and strength of massive
New York banks, as well as to promote defendants’
ability to readily effect international transfers of USD.
To date, defendants have closed off plaintiff’s access to
their New York correspondent accounts, and refused to
allow plaintiff to withdraw or transfer his USD outside
Lebanon . . . . [N]one of plaintiff’s three causes of action
[for fraud, conversion, and unjust enrichment] against
each bank defendant rely upon transfers of funds
through New York correspondent accounts . . . . Not a
single element of any of these claims is tethered to
defendants’ New York correspondent accounts, and
removing the correspondent accounts from the equation
has no impact on plaintiff’s claims.
Id. at *3, *7 (citations omitted). On similar facts, the court in Trans Atl. Imaging,
S.A.L. v. Banque MISR Liban S.A.L., No. 654432/2020, 2021 WL 2435887 (N.Y. Sup.
Ct. June 15, 2021), rejected essentially the same argument that the Daous make,
reasoning that
plaintiffs’ multiple wire transfers of United States
dollars for deposit in their account in defendant bank,
each executed through defendant’s Bank of New York
Mellon correspondent account, bore no relationship to
defendant's alleged breach of the Agreement. In other
words, there is no articulable nexus between such
19
deposits made through defendant bank’s correspondent
account and either defendant bank’s refusal to honor
plaintiffs’ request to withdraw such funds on deposit by
wire transferring the United State[s] dollars to plaintiffs’
account(s) in the United States, or its offer to grant
plaintiffs’ withdrawal request through the issuance of
cashier’s check(s) negotiable inside Lebanon only.
Id. at *2 (footnote omitted), citing Khalife v. Audi Saradar Private Bank SAL, 129
A.D.3d 468, 573-74 (1st Dep’t 2015). The Daous do not cite a single case in which
a New York court found a sufficient nexus to confer personal jurisdiction under
§ 302(a)(1) where the alleged use of a New York correspondent account was not
part of a specific transaction underlying a claim, nor do they give us any reason
to believe that the trial courts’ reasoning in Malaeb and Trans Atlantic Imaging was
or is out of step with state appellate authority.
We hold that there is no substantial connection between the Commercial
Banks’ use of their correspondent accounts and the Daous’ claims. The FAC
asserts claims of civil conspiracy, fraud, issuance of dishonored checks, violations
of Florida statutes on collection instruments, breach of contract, conversion,
unjust enrichment, promissory estoppel, and civil RICO violations, all of which
turn on alleged measures taken by Lebanese banks in Lebanon to ensure that
USD deposits remained in that country. The FAC, unlike the complaints in Licci
20
and Rushaid, does not include a single allegation that any defendant used an
actual, specific transaction through a New York correspondent account in the
course of bringing about the injuries on which the claims are predicated –
namely, that the Daous’ USD remained in Lebanon.
To the extent that the Daous allege that the Commercial Banks advertised
the availability of their New York correspondent accounts to potential customers
and used those accounts to transfer some of the millions of dollars in the Daous’
accounts into Lebanon in the first instance, the connection between those past
transactions and the claims in the FAC is “merely coincidental.” Johnson, 4 N.Y.3d
at 520. Just as the defendant driver in Johnson “could have had a license from any
state, or no license,” id., the Commercial Banks could have routed the Daous’
USD deposits through correspondent accounts in Florida, London, or
Switzerland, or through no correspondent account at all – indeed, the FAC itself
alleges that Joseph Daou deposited much of the money in person in Lebanon.
Moreover, the Daous’ reliance on past transactions is especially problematic for
personal jurisdiction over AM, because there is no allegation in the FAC that AM
used its New York correspondent accounts in connection with the Daous on any
specific occasion.
21
To the extent that the Daous allege that the requested wire transfers likely
would have been routed through the New York correspondent accounts if the
Commercial Banks had not refused those requests, that allegation is not only
highly speculative, but supplies no connection whatsoever, much less a
substantial one, between the claims and any actual transaction that occurred in
New York. Even accepting as true that the Commercial Banks expressly
“represented in late 2019 that they would wire the Daous their USD through the
[] New York correspondent bank accounts,” Appellants’ Reply Br. at 7, that is
conduct that occurred in Lebanon, in connection with, at most, fictitious future
transactions of business in New York that the Commercial Banks did not actually
make or, per the allegations in the FAC, intend to make. The Daous cite no
authority for the proposition that a hypothetical future transaction that never
actually occurred can form the basis for personal jurisdiction under § 302(a)(1).5
For these reasons, we conclude that the district court was correct to dismiss
5
The Daous also argue in their reply brief that the district court could exercise
personal jurisdiction over the Commercial Banks consistent with the principles of
conspiracy jurisdiction. “We need not address this argument because it was
raised on appeal for the first time in [the Daous’] reply brief and is therefore
wa[i]ved.” Pettaway v. Nat’l Recovery Sols., LLC, 955 F.3d 299,305 n.2 (2d Cir.
2020).
22
the Daous’ claims against CL for want of personal jurisdiction under N.Y.
C.P.L.R. § 302(a)(1), and that, for the same reasons the district court lacked
personal jurisdiction over CL, it also lacked such jurisdiction over AM and BLC.6
II. BDL’s Sovereign Immunity
The Daous also argue that the district court erred by dismissing their
claims against BDL for want of subject-matter jurisdiction. We disagree. The
district court correctly held that BDL, as an agency or instrumentality of the
Lebanese state, was entitled to sovereign immunity, and that the FSIA’s
commercial activity exception did not apply to abrogate that immunity.
“On appeal of a dismissal for lack of subject matter jurisdiction under the
6
The Daous argue in the alternative that, at a minimum, the district court abused
its discretion by denying their request for jurisdictional discovery, but that
argument is likewise unconvincing. “A district court has wide latitude to
determine the scope of discovery, . . . and is typically within its discretion to deny
jurisdictional discovery when the plaintiff [has] not made out a prima facie case
for jurisdiction.” Frontera Res. Azerbaijan Corp. v. State Oil Co. of Azerbaijan
Republic, 582 F.3d 393, 401 (2d Cir. 2009) (internal quotation marks and citations
omitted; alteration in original). Here, no factual dispute needs to be resolved in
order to determine whether the district court had personal jurisdiction over any
of the Commercial Banks. Rather, as just explained, even accepting all of the
Daous’ allegations as true, as a matter of law, they have not made a prima facie
showing that the district court could properly exercise jurisdiction over the
Commercial Banks. The district court therefore did not abuse its discretion by
denying the Daous’ request for jurisdictional discovery.
23
FSIA, ‘[w]e review the district court’s legal conclusions concerning sovereign
immunity de novo and its factual findings for clear error.’” Arch Trading, 839 F.3d
at 199 (alteration in original), quoting Kensington Int’l Ltd. v. Itoua, 505 F.3d 147,
153 (2d Cir. 2007)). The FSIA “provides the sole basis for obtaining jurisdiction
over a foreign state in the courts of this country.” Argentine Republic v. Amerada
Hess Shipping Co., 488 U.S. 428, 443 (1989). The same is true of the agency or
instrumentality of a foreign state, which is treated as a foreign sovereign for
purposes of the FSIA. 28 U.S.C. § 1603(a). Under that statute, “a foreign state is
presumptively immune from the jurisdiction of United States courts; unless a
specified exception applies, a federal court lacks subject-matter jurisdiction over a
claim against a foreign state.” Saudi Arabia v. Nelson, 507 U.S. 349, 355 (1993); see
28 U.S.C. § 1604.
The Daous concede that BDL, as the central bank of Lebanon, is an agency
or instrumentality of the Lebanese state, and thus it is entitled to sovereign
immunity unless one of the FSIA’s statutory exceptions applies. The Daous
invoke one such exception: the “commercial activity” exception, which provides
that a foreign state is not immune 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
24
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.” Id. § 1605(a)(2). Specifically,
they argue that BDL committed “an act outside the territory of the United States
in connection with a commercial activity of the foreign state elsewhere and that[]
cause[d] a direct effect in the United States.” Id. To invoke that part of the
commercial activity exception, the Daous must establish that (1) BDL engaged in
“a commercial activity,” (2) “the action is based upon” that activity, and (3) that
activity “cause[d] a direct effect in the United States.” Id. We conclude that the
commercial activity exception does not apply, because to the extent that the
Daous’ action is based upon a commercial activity, such activity did not have a
direct effect in the United States.
The FSIA defines “commercial activity” as “either a regular course of
commercial conduct or a particular commercial transaction or act.” 28 U.S.C.
§ 1603(d). The statute also provides that “[t]he commercial character of an activity
shall be determined by reference to the nature of the course of conduct or
particular transaction or act, rather than by reference to its purpose.” Id. The
25
Supreme Court has held “that a state engages in commercial activity . . . where it
exercises ‘only those powers that can also be exercised by private citizens,’ as
distinct from those ‘powers peculiar to sovereigns.’” Nelson, 507 U.S. at 360,
quoting Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 614 (1992). As this
Court has recognized, however, that “is a standard more easily stated than
applied, . . . and its application may sometimes depend on the level of generality
at which the conduct is viewed.” Pablo Star Ltd. v. Welsh Gov’t, 961 F.3d 555, 561
(2d Cir. 2020). In Pablo Star, for example, we held that the Welsh Government
engaged in commercial activity when it used photographs in printed and
electronic materials promoting tourism in Wales. Id. at 560-65. While we
acknowledged that one might reasonably conceptualize the Welsh Government’s
activity as “promot[ing] Welsh culture and tourism pursuant to its statutory
mandate under the Government of Wales Act 2006,” we explained that “the goal
of enhancing the image of the country and the prosperity of its citizens . . . are the
purposes or reasons for the Welsh Government’s actions, and not what it did to
accomplish its goals.” Id. at 562 (emphasis omitted).
Here, as the district court implicitly acknowledged, BDL engaged in at
least one course of commercial activity: allowing the Commercial Banks to open
26
checking accounts, which the Commercial Banks then used to write checks to the
Daous, and then denying requests by banks in the United States to transfer the
funds upon deposit of those checks. That is the sort of activity in which any
commercial bank could engage.
However, the commercial activity exception applies only where the action
is “based upon” the commercial activity in question. 28 U.S.C. § 1605(a)(2). “[A]n
action is ‘based upon’ the ‘particular conduct’ that constitutes the ‘gravamen’ of
the suit.” OBB Personenverkehr AG v. Sachs, 577 U.S. 27, 35 (2015), quoting Nelson,
507 U.S. at 356-58. Thus, in Nelson, a case involving personal injury claims against
the Saudi government by an American doctor who was employed through a
third-party contractor in a Saudi government-owned hospital and detained and
tortured for reporting safety hazards in that hospital, the Supreme Court held
that the action was not “based upon” the commercial activity of recruiting and
hiring the doctor, because the “gravamen” of his suit was the detention and
torture, not the recruitment and hiring. 507 U.S. at 356-63. And in Sachs, the Court
held that a personal injury suit against an Austrian government-owned railroad
company was not “based upon” the commercial activity of selling a railroad pass
to the plaintiff in the United States, even though that sale was relevant to one of
27
the elements of one of the plaintiff’s common-law tort claims. 577 U.S. at 32-36. In
so holding, the Court disclaimed an “exhaustive claim-by-claim, element-by-
element analysis of [all] causes of action,” emphasizing that courts must “zero[]
in on the core of [the] suit,” and if that core is “sovereign acts,” then the
commercial activity exception does not apply. Id. at 34-35.
Here, the district court concluded that even if BDL engaged in commercial
activity in connection with the checks, the suit is not “based upon” that activity,
because “[t]he gravamen of plaintiffs’ complaint . . . involves the conduct of the
Commercial Bank Defendants in accepting the plaintiffs’ deposits, refusing to
authorize wire transfers, and issuing the checks.” Daou, 2021 WL 1338772, at *7.
The Daous contend instead – for the first time in their reply brief – that “[i]n
reality, BDL played a central role in blocking [them] from receiving their USD,”
because “[a]ll of the [Commercial] Banks issued banker’s checks drawn against
BDL to the Daous with the express acknowledgement [sic] that the Daous could
and would deposit the checks in the U.S.,” and after the Daous’ banks in the
United States accepted those checks for deposit, “BDL refused collection.”
Appellants’ Reply Br. at 27. We need not decide whether such activity forms the
“gravamen” of the complaint, because even assuming arguendo that it does,
28
BDL’s activity did not have a “direct effect in the United States” within the
meaning of the FSIA.
“[A]n effect is direct” for purposes of the commercial activity exception “if
it follows as an immediate consequence of the defendant’s activity.” Weltover, 504
U.S. at 618 (internal quotation marks, ellipsis, and citation omitted). Three
principles qualifying that requisite immediacy convince us that in the present
case, BDL’s activity did not have a direct effect in the United States for purposes
of the commercial activity exception.
First, “the mere fact that a foreign state’s commercial activity outside of the
United States caused physical or financial injury to a United States citizen is not
itself sufficient to constitute a direct effect in the United States.” Guirlando v. T.C.
Ziraat Bankasi A.S., 602 F.3d 69, 78 (2d Cir. 2010). In Guirlando, for example, we
held that a Turkish government-owned bank’s decision to allow the plaintiff’s
husband to withdraw funds from a joint bank account in Turkey did not have a
direct effect in the United States simply because the plaintiff was a United States
citizen and was “impoverish[ed]” in this country as a result. Id. at 79. The same is
true in the present case: The fact that the Daous, who felt the financial impact of
BDL’s actions, are United States citizens is not enough on its own to trigger the
29
commercial activity exception. Rather, we must look to the putatively unlawful
conduct on BDL’s part as alleged in the complaint.
Second, the place where a direct effect is felt is generally either a contract’s
designated place of performance (if any) or the locus of a tort, depending on the
particular sort of alleged unlawful conduct that forms the gravamen of the
complaint. And regardless of how one conceives of the gravamen of the Daous’
complaint as it relates to BDL,7 there is no such direct effect in the United States.
“[I]n contract cases, a breach of a contractual duty causes a direct effect in
the United States sufficient to confer FSIA jurisdiction so long as the United
States is the place of performance for the breached duty.” Atlantica Holdings v.
Sovereign Wealth Fund Samruk-Kazyna JSC, 813 F.3d 98, 108-09 (2d Cir. 2016). For
example, in Weltover, the Supreme Court held that Argentina’s rescheduling of
maturity dates on bonds had a “direct effect” in the United States because New
York was expressly designated as a place of payment for those bonds. 504 U.S. at
618-19; see also Com. Bank of Kuwait v. Rafidain Bank, 15 F.3d 238, 240-41 (2d Cir.
7
This case is not simply either a “contract case” or a “tort case,” because the
Daous bring both tort and contract claims against BDL. And again, we only
assume arguendo that any of BDL’s commercial activity forms a part of the
gravamen of the FAC.
30
1994) (holding that Iraqi banks’ failure to remit funds in New York had a direct
effect in the United States because contract that they allegedly breached required
them “to make payments in U.S. dollars into accounts in New York City”).
The same is true where a contractual provision allows the foreign
sovereign’s creditor to choose the place of payment. For example, in Hanil Bank v.
PT. Bank Negara Indonesia (Persero), 148 F.3d 127 (2d Cir. 1998), we held that the
defendant’s alleged refusal to pay on a letter of credit had a direct effect in the
United States because that letter “authorized the [plaintiff] to designate the place
of payment,” and thus when the plaintiff selected New York, the defendant “had
already impliedly agreed to New York as the place of payment.” Id. at 132. We
have left open the possibility that these principles may apply by analogy in cases
that are not formally brought in contract but that turn on failure to meet a
financial obligation, but we have maintained that where such obligation does not
come with any required place of performance, the fact that the plaintiff happens to
seek payment in the United States does not automatically render the effect in this
country sufficiently direct for FSIA purposes. For example, we held in Kensington
International that interference abroad with a judgment obtained in New York had
no “direct effect” in the United States because a “judgment does not have a ‘place
31
of performance’” and “[t]here is no requirement that repayment of this debt be
made in New York.” 505 F.3d at 159.
To the extent the claims against BDL sound in contract, the Daous’ direct-
effect argument fails because the checks do not designate the United States as a
place of payment. The Daous attempt to liken the present case to Weltover by
arguing that they “were [contractually] entitled to and did deposit the checks
drawn on the BDL in the U.S.,” Appellants’ Br. at 56, but they had no relationship
with BDL, and at any rate, nothing on the face of the checks as printed by BDL
indicated that the checks could be deposited in the United States. BDL simply
issued blank checks listing Beirut, if anywhere, as the proper place of payment.
Thus, as in Kensington and unlike in Weltover, there was no special obligation to
pay on those checks in the United States as opposed to anywhere else. Nor did
the checks as BDL issued them allow either the Commercial Banks or the Daous
to specify a place of payment, as in Hanil Bank. Put another way, once BDL
provided the Commercial Banks with checking accounts, and even after the
Commercial Banks used those accounts to write checks payable to the Daous,
BDL had no more of an obligation to pay the Daous in the United States than it
had to pay them in Lebanon, Mongolia, Djibouti, or any other country where
32
they might happen to deposit the checks.
In tort cases, we have generally considered the place where a direct effect is
felt to be the “tort’s locus,” which is usually “the place where [the] damage was
sustained.” Atlantica Holdings, 813 F.3d at 109 (internal quotation marks and
citation omitted). In Atlantica Holdings, for example, we held that the defendant’s
alleged misrepresentations abroad caused a direct effect in the United States
because the plaintiffs, American investors acting from the United States,
purchased securities in reliance on those misrepresentations and suffered a
financial loss in this country as a result. Id. at 109-11.
To the extent the Daous’ claims against BDL sound in tort, the locus of that
tort is in Lebanon. In arguing that the United States is the locus of the tort, the
Daous cite a passage from Atlantica Holdings stating that a claim “arises where its
economic impact is felt, normally the plaintiffs’ residence.” 813 F.3d at 110
(internal quotation marks and citation omitted). But the Daous take that passage
out of context – it specifically concerns “the locus of a Section 10(b) claim” under
the Securities and Exchange Act, which is analogous for location purposes to an
ordinary common-law fraud claim. Id. The Daous’ claims against BDL are of a
different character. The FAC includes several different tort claims, but whether
33
one conceives of this on balance as a conversion case or a dishonored-check case,
the injury that the Daous allege BDL caused is that a specific cache of millions of
USD already present in Lebanon remained in that country. For purposes of
locating a tort in which “harm is caused to . . . chattels, the place of wrong is the
place where the force takes effect on the thing.” Restatement (First), Conflict of
Laws, § 377, cmt. a, note 3 (1937); see Atlantica Holdings, 813 F.3d at 109 n.5
(endorsing use of the First Restatement’s lex loci delicti approach in the FSIA
context despite intervening changes in many states’ choice-of-laws rules).8 Insofar
as BDL’s actions exerted any force on the Daous’ money, they did so in Lebanon,
where that money was located prior to BDL’s involvement in the events of this
case and where it remained as an alleged result.
Third, “[w]e have held that ‘the requisite immediacy’ is lacking where the
alleged effect ‘depend[s] crucially on variables independent of’ the conduct of the
foreign state,” including intervening actors. Guirlando, 602 F.3d at 75 (first
8
To be sure, in Atlantica Holdings, we described the locus of the tort as a place
where, at minimum, a direct effect occurs. See 813 F.3d at 109 n.5 (emphasis
added), quoting Antares Aircraft, L.P. v. Fed. Republic of Nigeria, 999 F.2d 33, 36 (2d
Cir. 1993) (“[F]or FSIA purposes, we have found a direct effect (at least) at ‘the
locus of the tort.’”). But the Daous do not argue for a more expansive conception
of direct effects, instead arguing that the United States is the locus of the tort
because they suffered an economic loss here.
34
alteration added; second alteration in original), quoting Virtual Countries, Inc. v.
Republic of South Africa, 300 F.3d 230, 238 (2d Cir. 2002). In Guirlando, for example,
we rejected the plaintiff’s direct-effect argument for the additional reason that her
“financial loss was not a direct result of the Bank’s denying her the right to open
an individual account, for between that conduct and her impoverishment there
was an intervening element, to wit, [her husband’s] larcenous withdrawals.” Id.
at 79-80. In contrast, the involvement of intervening actors does not preclude a
direct effect in the United States if an otherwise immediate effect in this country
would have occurred even without their involvement. Thus, in Atlantica Holdings,
we rejected the defendant’s argument that dissemination by third parties of a
memorandum containing the defendant’s alleged misrepresentations attenuated
the chain of causation between those misrepresentations and the harm that the
plaintiffs suffered. 813 F.3d at 115-16.
Here, even if the United States were a place of performance or the locus of
a tort that is part of the gravamen of the Daous’ complaint, that location would
“depend[] crucially on variables independent of [BDL’s] conduct.” Guirlando, 602
F.3d at 75 (internal quotation marks and citation omitted). As the district court
recognized, “[a]ny effect felt in the United States was contingent on, inter alia, the
35
Commercial Bank Defendants’ decisions to address their disputes with the
plaintiffs by issuing the checks and the plaintiffs’ decision to attempt to deposit
those checks in the United States.” Daou, 2021 WL 1338772, at *7. BDL, as noted
above, has no relationship with the Daous, and its conduct would not have had
any effect in the United States, as opposed to any other country, had the
Commercial Banks not made the independent decision to write the Daous checks
drawn against BDL. Thus, here, as in Guirlando, the immediacy of the putative
commercial activity’s effect in the United States is fatally undermined by
dependence on the conduct of intervening actors.9
Because BDL had no special obligation to pay on the checks in the United
States, because the locus of any tort is in Lebanon, and because any effect in the
United States depended crucially on the conduct of intervening actors, we hold
9
The Daous further argue that “participation in a conspiracy can be a separate
basis for finding a direct effect in the U.S.,” Appellants’ Br. at 56, but the sole case
that they cite for that proposition, in addition to being out-of-Circuit and thus not
binding on this Court, concerned actions taken by the foreign sovereign’s agency
or instrumentality itself, not its alleged co-conspirators. See EIG Energy Fund XIV,
L.P. v. Petroleo Brasileiro, S.A., 894 F.3d 339, 345-49 (D.C. Cir. 2018) (holding that
state-owned petroleum company’s alleged fraud caused a direct effect in the
United States because that company allegedly “specifically targeted U.S.
investors”). Here, as discussed above, neither BDL nor the Commercial Banks
with whom it allegedly conspired committed relevant acts in the United States.
36
that any commercial activity within the gravamen of the Daous’ complaint did
not have a direct effect in the United States for purposes of the FSIA’s commercial
activity exception. The district court was therefore correct to hold that BDL is
entitled to sovereign immunity and to dismiss the claims against BDL for want of
subject-matter jurisdiction.
CONCLUSION
For the reasons stated above, the judgment of the district court is
AFFIRMED.
37