Daou v. BLC Bank, S.A.L.

• Decision Date: 28 July 2022
• Docket Number: Docket No. 21-1085-cv,August Term, 2021
• Citation: 42 F.4th 120
• Parties: 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.
• Court: U.S. Court of Appeals — Second Circuit

42 F.4th 120

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.

Docket No. 21-1085-cv

August Term, 2021

United States Court of Appeals, Second Circuit.

Argued: June 9, 2022

Decided: July 28, 2022

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.

Before: Lynch, Bianco, and Nardini, Circuit Judges.

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 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.

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 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 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 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 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.

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...