Delbrueck & Co. v. Mfrs. Hanover Trust Co., 76 Civ. 2273 (VLB).
| Decision Date | 11 January 1979 |
| Docket Number | No. 76 Civ. 2273 (VLB).,76 Civ. 2273 (VLB). |
| Parties | DELBRUECK & CO., Plaintiff, v. MANUFACTURERS HANOVER TRUST COMPANY, Defendant. |
| Court | U.S. District Court — Southern District of New York |
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Fox, Glynn & Melamed, New York City, for plaintiff.
Simpson, Thacher & Bartlett, New York City, for defendant.
This action arises out of the transfer of funds of plaintiff Delbrueck & Co. ("Delbrueck") by defendant Manufacturers Hanover Trust Company ("Manufacturers") to The Chase Manhattan Bank, N.A. ("Chase") for the account of Bankhaus I.D. Herstatt, K.G.a.A. ("Herstatt") on June 26, 1974.
Shortly before the funds left Manufacturers, Herstatt was formally ordered closed by the German banking authorities. This action concerns that closing, its impact with respect to contractual obligations between Delbrueck and Herstatt, and the actions taken by plaintiff, defendant, and Chase in the wake of the closing.
Delbrueck charges Manufacturers with negligence a) in transferring the funds when it knew or should have known of the action that had been taken with respect to Herstatt; and b) in failing to reclaim the funds from Chase. Delbrueck seeks damages in the amount of $5 million.1
Delbrueck is a private German banking partnership with a principal office in Cologne. Manufacturers is a New York banking corporation with a principal office in New York City. Jurisdiction exists under 28 U.S.C. § 1332(a)(2).
A bench trial was held before me. This opinion constitutes my findings of fact and conclusions of law pursuant to Rule 52(a), Fed.R.Civ.P.
For many years prior to June 26, 1974, Delbrueck was a customer of Manufacturers and maintained an account with Manufacturers in New York City. Manufacturers was a paying and receiving bank for Delbrueck in the United States and, as such, was responsible for receipt and transfer of United States dollars upon instructions from Delbrueck.
On June 14, 1976, Delbrueck entered into two foreign exchange contracts with Herstatt. The two contracts provided for delivery by Delbrueck, on June 26, 1974, of $10 million and $2.5 million, respectively, in exchange for an agreed upon amount of German marks to be delivered by Herstatt to Delbrueck. The dollars were to be paid by Manufacturers to the Herstatt account at Chase in New York, and the German marks in exchange were to be paid in Hamburg into Delbrueck's account at the German state central bank.2 On June 25, 1974 at 6:10 p. m.3 Delbrueck sent to Manufacturers a telex payment order directing the transfer on June 26, 1974 of the $12.5 million to the Herstatt account at Chase.4
A separate foreign exchange contract required payment of $10 million by Delbrueck to Herstatt on June 27, 1974. Early on June 26, 1974 Delbrueck sent to Manufacturers a telex payment order directing the transfer on June 27, 1974 of the $10 million to the Herstatt account at Chase.
Events of June 26, 1974 significant to this action are outlined in the following table:
On July 10, 1974, i. e., two weeks later, Manufacturers delivered to Chase a letter requesting the return of the $12.5 million. Chase did not return the funds.
The New York Clearing House Association ("Clearing House") maintains computer facilities and implements techniques for the transfer of funds among its member banks. In June, 1974 the Clearing House was using the Clearing House Interbank Payments System ("CHIPS"), a computerized interbank system for the transfer of funds involving international customers of Clearing House member banks. Manufacturers and Chase were member banks of the Clearing House and participants in CHIPS.
The CHIPS system eliminates checks for interbank transfers. Under it, funds are transferred electronically through a central computer located at the Clearing House with connecting terminals located at the member and associate member banks.5
Since this is a diversity case, this court must apply New York law, including its conflicts of law rules, in determining the law to be applied. Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). See Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).
The choice of law principles of New York have been developed for torts actions in a line of cases following Babcock v. Jackson, 12 N.Y.2d 473, 240 N.Y.S.2d 743, 191 N.E.2d 279 (1963). Choice of law is determined by a government interest analysis, i. e., which forum has the most significant relationship with the facts and parties; which forum has a greater interest in having its policies, as reflected in the relevant law, applied?
Of the players in this drama, both defendant Manufacturers and Chase are banks which have their principal places of business in New York. Although plaintiff Delbrueck and Herstatt are private German banks, they transacted business in this forum through Manufacturers and Chase, respectively. The acts and omissions by Manufacturers which Delbrueck alleges constituted negligence occurred in New York.6 The relevant and significant computer system, CHIPS, operated in New York. New York has a greater interest in the resolution of this case than does Germany.
I find that Manufacturers is not liable for negligence in transferring the $12.5 million from the account of Delbrueck to Chase for the account of Herstatt.
Delbrueck's claim that Manufacturers should have shut down Manufacturer's entire CHIPS system when Manufacturers learned of the Herstatt bank failure shortly after 11:30 a. m. is untenable. Through its CHIPS system, Manufacturers serviced many customers, and it could not reasonably have been expected to place in jeopardy the contracts of its customers by a shutdown of its CHIPS...
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