A divided state appellate panel ruled yesterday that a lawsuit over an alleged financial fraud run by a Saudi Arabian billionaire using New York bank accounts can go forward in Manhattan because New York has a “compelling interest” in protecting the integrity of its banking system.
The 3-2 opinion from the Appellate Division, First Department, in Mashreqbank v. Ahmed Hamad Al Gosaibi & Brothers, 601650/09, reversed an August 2010 order by Supreme Court Justice Richard Lowe III (See Profile) dismissing the case for forum non conveniens. The majority opinion was written by Justice James Catterson (See Profile), joined by Justices Sheila Abdus-Salaam (See Profile) and Sallie Manzanet-Daniels (See Profile).
The plaintiff, United Arab Emirates-based bank Mashreqbank, filed the suit against Ahmed Hamad Al Gosaibi & Brothers, or AHAB, in Manhattan Supreme Court in 2009. Mashreqbank alleges it wired $150 million to AHAB’s Bank of America account in New York as part of an agreement to exchange the dollars for Saudi Arabian riyals, but AHAB never sent the riyals. It further alleges the money wired to the Bank of America account was transferred to an HSBC account, also in New York, controlled by an AHAB officer, Maan Abdul Waheed Al Sanea. Eventually, the money was transferred to a Bahrain-based bank controlled by Al Sanea, according to the suit.
Mashreqbank separately sued AHAB in the United Arab Emirates, and has already obtained a judgment against AHAB there, according to its attorney, Carmine Boccuzzi, a partner at Cleary Gottlieb Steen & Hamilton.
In the wake of Mashreqbank’s New York suit, AHAB filed a third-party complaint against Al Sanea. It alleged that, without AHAB’s knowledge, Al Sanea had been running an international fraud in which he obtained more than $10 billion in AHAB’s name, through short-term loans and currency exchange deals, and took the money for himself. AHAB also filed counterclaims against Mashreqbank, alleging the bank knowingly aided in the fraud.
Al Sanea moved to dismiss the third-party case on grounds of forum non conveniens, the doctrine that a court can refuse to hear a case if there is a more suitable forum for it. Al Sanea argued the case should be decided in Saudi Arabia. Lowe granted the motion and dismissed the main action as well, though no formal motion to dismiss on forum non conveniens grounds had been filed in the main action. AHAB appealed.
Catterson, in the majority opinion, said the lower court ruling should be reversed and both cases reinstated because “New York has a compelling interest in adjudicating controversies that implicate its preeminent position in the international banking system.”
He rejected Al Sanea’s argument that the case has “no real nexus to the New York banking system.”
Catterson wrote it is “beyond cavil that New York has a compelling interest in the protection of the native banking system from misfeasance or malfeasance,” citing the Court of Appeals’s decision in J. Zeevi & Sons v. Grindlays Bank (Uganda), 37 N.Y.2d 220, which also involved a transaction between foreign parties that passed through New York.
“New York has an overriding and paramount interest in the outcome of this litigation,” Catterson wrote. “In order to maintain its preeminent financial position, it is important that the justified expectations of the parties to the contract be protected.”
The trial court, Catterson said, “consistently recasts the allegations in both the main complaint and the third-party complaint to suit this forum non conveniens argument” by focusing on the question of whether Al Sanea had the authority to act on behalf of AHAB, as Al Sanea claims, rather than on the fact that he allegedly took money from AHAB’s New York accounts.
“Thus, the motion court plainly erred in not accepting as true AHAB’s allegations that Al Sanea used for its own purposes, and then looted, AHAB’s New York bank accounts,” Catterson said.
He also said the lower court “failed to identify an alternative forum that would have jurisdiction over the dispute as framed by the complaints, let alone whether the dispute would be ‘better adjudicated’ in the alternative forum.”
Catterson further said the main action could not be dismissed on forum non conveniens grounds because no motion to do so was filed in that case, and a judge could not invoke forum non conveniens sua sponte.
Justice Richard Andrias (See Profile) dissented, joined by Justice Angela Mazzarelli (See Profile). Andrias wrote that it was proper to dismiss the main action because the parties had discussed forum non conveniens as applying to that action in oral argument. Furthermore, he wrote, the two actions were “intertwined.”
Andrias further wrote “the fact that the proceeds of Al Sanea’s fraudulent scheme passed through the New York banking system is a peripheral and transitory contact, which, without more, does not give New York an interest in transactions that otherwise are foreign,” citing Calgarth Invs. v. Bank Saderat Iran, 1996 WL 204470.
“The Appellate Division’s decision is procedural,” said Boccuzzi. “Mashreq is confident that it will prevail on the issues. Mashreq has already obtained a judgment from a UAE court on the same issues that AHAB seeks to relitigate.”
“We are pleased that the appellate court has recognized the critical role of New York courts in massive international frauds that use the U.S. banking system,” said Eric Lewis, AHAB’s chief legal coordinator. “In today’s world, frauds can involve numerous countries, none of which may have the resources or critical involvement to investigate. The U.S. financial system must be a backstop against fraud. Foreign parties should not be allowed to use New York banks to perpetuate massive financial frauds, and escape scrutiny simply by engineering the wrongdoing from outside the country.”
Bruce Grace, a partner at Lewis Baach, counsel for AHAB, declined to comment.
Robert Serio, a Gibson, Dunn & Crutcher partner, counsel for Al Sanea, also declined to comment.
@|Brendan Pierson can be contacted at email@example.com.