Banco Ambrosiano, S.P.A. v. Artoc Bank & Trust Ltd.

• Decision Date: 10 May 1984
• Citation: 476 N.Y.S.2d 64,464 N.E.2d 432,62 N.Y.2d 65
• Court: New York Court of Appeals Court of Appeals
• Parties: , 464 N.E.2d 432 BANCO AMBROSIANO, S.P.A., Respondent, v. ARTOC BANK & TRUST LIMITED, Appellant.

Page 64

476 N.Y.S.2d 64

62 N.Y.2d 65, 464 N.E.2d 432

BANCO AMBROSIANO, S.P.A., Respondent, v. ARTOC BANK & TRUST LIMITED, Appellant.

Court of Appeals of New York.

May 10, 1984.

Carl F. Goodman and Barry R. Satine, New York City, for appellant.

Edward R. Korman, Franklin Feldman, Ronald A. Schwartz and James Falick, New York City, for respondent.

OPINION OF THE COURT

WACHTLER, Judge.

Plaintiff commenced this action by the attachment of approximately $8 million, representing the balance of defendant's account with its New York correspondent bank. Defendant's appeal, taken pursuant to leave granted by the Appellate Division, 97 A.D.2d 990, 469 N.Y.S.2d 832, focuses primarily on the question of whether this attempted assertion of quasi-in-rem jurisdiction over defendant's property is consistent with due process. We agree with the lower courts that the contacts among defendant, the forum and the litigation are sufficient to render this limited exercise of jurisdiction inoffensive to principles of due process.

Plaintiff Banco Ambrosiano (Ambrosiano) is an Italian banking corporation, the principal office of which is in Milan. Prior to being placed in liquidation, Ambrosiano was involved in the international banking business and, in this connection, maintained a representative office in New York City. Defendant Artoc Bank and Trust Limited (Artoc), also a banking corporation, is organized under the laws of Nassau, Bahamas, and regularly engages in international transactions. Many of these transactions involve the borrowing and lending of United States dollars, which requires that the transfers be handled through a United States bank. For this purpose, Artoc utilizes an account with its New York correspondent bank, Brown Brothers Harriman and Co. (Brown Brothers). Neither Ambrosiano nor Artoc is authorized to engage in the banking business in this State.

Ambrosiano brought this action to recover $15 million which it allegedly loaned to Artoc, and which has not been repaid. Three transactions, each involving $5 million, were entered into by the parties. The memoranda drawn by Artoc indicate that Ambrosiano was to deposit these sums in Artoc's account with Brown Brothers, and that repayment was to be made to Ambrosiano's account with its New York correspondent bank. Artoc contends, in its defense, that the purpose of the transaction was to reloan the funds to Ambrosiano's controlled subsidiary in Peru and that it was understood that Artoc was to repay these sums only if and when the ultimate recipient repaid them.

With respect to the jurisdictional issue, it appears that all negotiations concerning this agreement were made outside of New York and all communications took place among the Bahamas, Italy, and Peru. The only connection with New York is that the funds were deposited to a New York bank account, were to be repaid to another New York bank account, and apparently were transferred to a New York account on behalf of the ultimate recipient. Artoc argues that the sole reason New York banks were utilized is that the transaction was to be in United States dollars and therefore had to be handled through such clearing accounts. In any event, it is clear that Artoc's sole contact with this State was its maintenance of the correspondent bank account with Brown Brothers.

Ambrosiano commenced this action by obtaining an ex parte restraining order, enjoining Brown Brothers from transferring the funds in Artoc's account. Ambrosiano's motion to confirm the attachment was granted over Artoc's challenge to the exercise of jurisdiction over its property. Special Term, noting that Ambrosiano conceded the lack of in personam jurisdiction, found that the property bore a reasonable relationship to the cause of action and that this relationship was sufficient to form the basis for quasi-in-rem jurisdiction. The Appellate Division unanimously affirmed.

Prior to the Supreme Court's expansion of the recognized bases for extraterritorial jurisdiction over a nondomiciliary, those who wished to sue in this State often resorted to the doctrine of quasi-in-rem jurisdiction to force a nondomiciliary defendant to litigate a claim in a forum where the defendant happened to own property. The conceptual basis for the State's power to adjudicate the claim was defendant's property, which was brought before the court by virtue of its seizure or attachment. Any resulting judgment was viewed as a judgment against the property only.

With the holding in International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95, the approach to jurisdictional analysis was greatly altered. While jurisdictional power had been a function of the defendant's presence, actual or constructive, in the forum State, International Shoe shifts the focus of the inquiry to the nature and quality of the defendant's contacts with the State. Those contacts must be such as to "make it reasonable and just, according to our traditional conception of fair play and substantial justice" to require the defendant to litigate the claim in the particular forum (id., at p. 320, 66 S.Ct. at p. 160). Where the cause of action arises out of the defendant's activities in or contacts with the State, the extraterritorial exercise of jurisdiction is deemed reasonable.

The long-arm jurisdiction legitimized by the International Shoe court was implemented in this State by statute. When the CPLR took effect in 1963, it contained two relevant sections. CPLR 301 preserves all previously existing jurisdictional bases, providing that the courts "may exercise such jurisdiction over persons, property, or status as might have been exercised heretofore". The long-arm statute, CPLR 302, provides that when a cause of action arises out of certain activities either occurring within the State or having an impact within the State, jurisdiction may be exercised over a nondomiciliary. Importantly in setting forth certain categories of bases for long-arm jurisdiction, CPLR 302 does not go as far as is constitutionally permissible. Thus, a situation can occur in which the necessary contacts to satisfy due process are present, but in personam jurisdiction will not be obtained in this State because the statute does not authorize it (Siegel, N.Y.Prac., § 84, p. 95; Note, Minimum Contacts and Jurisdictional Theory in New York: The Effect of Shaffer v. Heitner, 42 Alb.L.Rev. 294, 306).

Even with the adoption of the long-arm statute, quasi-in-rem jurisdiction, which had been carried forward by virtue of CPLR 301, remained a viable method for subjecting a nondomiciliary to suit in this State. The use of this doctrine was drastically limited, however, by the Supreme Court's decision in Shaffer v. Heitner, 433 U.S. 186, 97 S.Ct. 2569, 53 L.Ed.2d 683. There, the court held that the minimum contacts analysis set forth in International Shoe is applicable to actions involving quasi-in-rem as well as in personam jurisdiction (id., at p. 207, 97 S.Ct. at p. 2581). Thus, when the property serving as the jurisdictional basis has no relationship to the cause of action and there are no other ties among the defendant, the forum and the litigation, quasi-in-rem jurisdiction will be lacking (id., at pp. 208-209, 97 S.Ct. at pp. 2581-2582).

Although it may appear, at first blush, that the usefulness of quasi-in-rem jurisdiction has been eliminated by Shaffer, inasmuch as the minimum contacts necessary to support it will also generally provide in personam jurisdiction, that is not the case, at least in New York. As noted above CPLR 302 does...