CLI Editor’s Note: This story was originally published in The New York Law Journal on April 9.
ALBANY – New York courts are not obligated to entertain every fraud case arising from significant financial transactions, the state Court of Appeals said in dismissing a lawsuit involving a Saudi bank on forum non conveniens grounds.
The court also held Tuesday that “fractious” misbehavior by a youth who has been adjudicated a person in need of supervision did not merit her assignment to a secure facility or other measures reserved for juvenile delinquents.
In the banking case, Mashreqbank PSC v. Ahmed Hamad Al Gosaibi & Brothers, 54, Mashreqbank alleged that a Saudi Arabian businessman failed to convert $150 million deposited into a New York bank account into Saudi riyals as promised.
In reversing an Appellate Division, First Department, holding, the Court of Appeals said the reality of the modern financial world is that most transactions of the size involved in Mashreqbank must pass through New York in some way.
“Our state’s interest in the integrity of its banks is indeed compelling, but it is not significantly threatened every time one foreign national, effecting what is alleged to be a fraudulent transaction, moves dollars through a bank in New York,” Judge Robert Smith (See Profile) wrote for the 6-0 court.
He added, quoting First Union Nat. Bank v. Paribas, 135 F.Supp.2d 443 (SDNY 2001), that not every major fraud case in the world in which dollars are involved should be heard in 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,’” he wrote.
Smith said Mashreqbank involves “a suit by a Saudi Arabian company against its employee, a Saudi citizen who allegedly committed fraudulent acts in Saudi Arabia,” Smith wrote. The correct jurisdiction, the judge continued, is “clearly Saudi Arabia.”
Smith called the matter a “classic case” for the application of the forum non conveniens doctrine.
As codified in CPLR 327(a), the doctrine may be invoked “when the court finds that in the interest of substantial justice the action should be heard in another forum” other than New York. In such instances, a New York court “may stay or dismiss the action in whole or in part on any conditions that may be just” upon the motion of any party in the action, under the CPLR.
Chief Judge Jonathan Lippman (See Profile) and Judges Victoria Graffeo (See Profile), Susan Phillips Read (See Profile), Eugene Pigott Jr. (See Profile) and Jenny Rivera (See Profile) joined in the ruling.
The First Department had reversed an August 2010 order by Manhattan Supreme Court Justice Richard Lowe III (See Profile) dismissing the case for forum non conveniens. In reinstating the claim in Mashreqbank v. Ahmed Hamad Al Gosaibi & Brothers, 101 AD3d 1 (2012), the appellate panel found that New York has a “compelling interest in adjudicating controversies that implicate its preeminent position in the international banking system” (NYLJ, Sept. 26, 2012).
Mashreqbank, a bank based in the United Arab Emirates, sued in Supreme Court in 2009 contending it had a deal with Ahmed Hamad Al Gosaibi & Brothers, or AHAB, under which it would exchange $150 million for an equivalent in Saudi riyals.
But it alleged the money it wired into AHAB’s Bank of America account in New York was never converted to riyals. Instead, the money was allegedly transferred to an HSBC account in New York controlled by an AHAB officer, Maan Abdul Waheed Al-Sanea, and eventually transferred to a Bahrain-based bank controlled by Al-Sanea, according to Mashreqbank’s complaint.
AHAB filed a third-party suit against Al-Sanea, alleging he ran a multi-billion-dollar international scam using money secured in AHAB’s name.
Al-Sanea moved to dismiss the third-party claim on forum non conveniens grounds. Mashreqbank, which said it could find no AHAB assets in New York, did not object. But AHAB favored having the action remain in New York.
Carmine Boccuzzi, a partner at Cleary Gottlieb Steen & Hamilton, represented AHAB. In a statement Cleary Gottlieb said it was “pleased that the Court of Appeals unanimously accepted our arguments that this case should be dismissed.”
Robert Serio, a Gibson, Dunn & Crutcher partner, argued for Al-Sanea.
“We are grateful that the Court has accepted Mr. Al-Sanea’s position that this meritless case, between two Saudi families based in Saudi Arabia, should be resolved in Saudi Arabia and not in foreign courts,” Serio said in a statement. “It marks the likely end of nearly five years of burdensome and unnecessary litigation in New York.”
Bruce Grace, a partner with Lewis Baach, represented AHAB.
Justice Sheila Abdus-Salaam (See Profile) took no part in the Court of Appeals’s ruling. She was in the 3-2 majority in the First Department when it decided the AHAB matter in 2012.
Also Tuesday, the high court split 5-2 in Matter of Gabriela A. over whether misbehavior by a troubled teen justified her placement in a secure facility for juvenile delinquents when her status as a person in need of supervision (PINS) forbade a Family Court judge from assigning her to such a setting.
The court objected to the treatment the 15-year-old Westchester County girl received when she ran away from a nonsecure detention facility for PINS youth and was arrested by five probation officers.
The teen’s violent behavior during her arrest led to her being charged in a Family Court petition with acts that, had they been committed by an adult, would constitute a number of crimes, including resisting arrest, obstructing governmental administration and third-degree attempted assault. A Family Court judge remanded her to secure detention.
But the Court of Appeals said Family Court Act Article 7 allows PINS youths who abscond to be returned to the same or similar facilities, not for the Family Court to assign them to secure facilities as if they have been declared juvenile delinquents.
“A PINS cannot be confined to a secure facility,” Read wrote for the majority, which also included Lippman, Graffeo, Rivera and Abdus-Salaam.
Read denied that the majority was seeking to make a broad policy statement, as the dissenters maintained, of endorsing a trend among the appellate courts of trying to “immunize” PINS youths from facing juvenile delinquency proceedings for obstructing governmental administration.
In his dissent, Pigott noted that there has been a “spate” of rulings in the Appellate Division which say Family Court judges may not “bootstrap” the adjudication of a PINS case onto a juvenile delinquency proceeding.
Pigott said the majority ruling downplays the “very real risk” of physical harm to probation officers such as those who tried to arrest Gabriela or unruly youths like her and “will be interpreted as immunizing a PINS who engages in conduct threatening to arrest officers from prosecution as a juvenile delinquent.”
Smith joined the dissent.
The decision affirmed a Second Department ruling.
George Reed Jr. of White Plains represented Gabriela.
Associate Westchester County Attorney Linda Trentacoste represented the county.
Also Tuesday, in a 5-2 decision the court declined an invitation by the plaintiff in Palladino v. CNY Centro, 47, to overrule a venerable Court of Appeals precedent pertaining to suits against labor unions.
Martin v. Curran, 303 NY 276, has stood since 1951. It has effectively discouraged actions against unions by its holding that litigants must show that each member of voluntary unincorporated associations authorized or ratified the allegedly wrongful conduct that suits seeks to challenge.
Abdus-Salaam wrote that it should be up to the Legislature to make the policy change that overruling Martin would represent.
Lippman, Graffeo, Read and Rivera agreed.
Pigott, in a dissent joined by Smith, said that Martin “went wrong” by holding that unions face no liability for wrongful conduct under common law.
He said it is time to overrule Martin. His colleagues in the majority, Pigott wrote, were allowing “trepidation to overcome common sense and fairness.”
The Palladino matter concerned a public transit bus driver’s termination in a dispute with his employer, the Syracuse-area public transportation provider Centro. The court upheld a Fourth Department panel’s dismissal of Palladino’s claims against the union.
Robert Louis Riley of Syracuse represented Palladino.
Kenneth Wagner of Blitman & King in Syracuse argued for the Amalgamated Transit Union, Local 580.
Craig Atlas of Ferrara, Fiorenza, Larrison, Barrett & Reitz in East Syracuse argued for Centro.
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