A.I. Trade Finance, Inc. v. Petra Bank

• Decision Date: 15 March 1993
• Docket Number: D,No. 988,988
• Parties: A.I. TRADE FINANCE, INC., Plaintiff-Appellant, v. PETRA BANK, Defendant-Appellee. ocket 92-9186.
• Court: U.S. Court of Appeals — Second Circuit

Page 76

989 F.2d 76

A.I. TRADE FINANCE, INC., Plaintiff-Appellant, v. PETRA BANK, Defendant-Appellee.

No. 988, Docket 92-9186.

United States Court of Appeals Second Circuit.

Argued Jan. 27, 1993.

Decided March 15, 1993.

Michael T. Sullivan, New York City (Michael L. Slonim, Zeichner Ellman & Krause, New York City, of counsel), for plaintiff-appellant.

Robert J. Morrow, New York City (Neal F. Grenley, Theodore R. Snyder, Thomas P. McGrath, White & Case, New York City, of counsel), for defendant-appellee.

Before NEWMAN, MINER and JACOBS, Circuit Judges.

JACOBS, Circuit Judge:

A New York trade financing firm appeals from a judgment of the United States District Court for the Southern District of New York (Keenan, J.), dismissing for lack of personal jurisdiction its claim against a Jordanian bank. The bank allegedly dishonored its guaranty on a promissory note payable in New York to the financing firm. Since the guaranty is a contract to perform financial services in New York, the breach of which affords jurisdiction under New York's long-arm statute, and since due process requirements are satisfied on the present record, a prima facie showing of personal jurisdiction has been made. The judgment of the district court is therefore reversed and the case is remanded for further proceedings consistent with this opinion.

I. BACKGROUND

The January 1989 transaction at issue involves a species of trade finance known as "forfaiting." ¹ Our understanding of this subject is drawn from the limited record materials that generically describe the uses, mechanics and conventions of forfaiting transactions. Forfaiting is an inventive means of facilitating exports to troubled or debt-laden countries. Forfaiting transactions involve the sale of goods or services for promissory notes or bills of exchange. In a forfaiting transaction of the kind at issue here, involving the sale of goods for promissory notes, the forfaiter finances the sale by paying the exporter (usually at a substantial discount) and receives in return the importer's promissory notes. The exporter relinquishes any further claim for payment and has no further role in the transaction other than to deliver the goods or services and guarantee their quality.

A forfaiting transaction involves at least one other essential party: a guarantor bank. In the ordinary course, forfaiters will not finance any trade debts without an unconditional and irrevocable guaranty from a bank or other substantial guarantor. The forfaiter and guarantor usually become involved in the transaction shortly after the commercial terms are worked out between the exporter and the importer. The importer arranges for the bank to guarantee the payment of the note to the forfaiter, at which time the forfaiter becomes fully responsible for payment to the exporter. All burdens of debt collection fall upon the forfaiter, without recourse to the exporter. Upon maturity of the notes, the forfaiter typically presents them to the guarantor for payment.

The guaranty employed in a forfaiting transaction often consists of a two-word endorsement, "per aval," recorded on the note itself and followed by one or more authorized signatures of the guarantor bank. This endorsement is known as an "aval." ² As brief and cryptic as the aval may be, the customs and practices of the forfaiting industry make it a fully articulated contractual obligation.

The record informs us that forfaiting institutions control their risks in several ways. First, forfaiters purchase the notes at a substantial discount that reflects the interest cost, the importer's credit rating and the credit-risk factor for the importer's country. Second, the notes must be in a fully convertible currency, usually dollars, Swiss francs or Deutschmarks, and the guaranty must be in the currency stipulated on the face of the notes. Third, the notes are usually payable in a commercial center, where there is an expectation of regularity in financial dealings. Fourth, most forfaiters spread risk by buying and selling forfaited trade paper among each other, also without recourse, in a secondary market.

Four initial parties participated in the forfaiting transaction at issue on this appeal: Nissilios Shipping Company ("Nissilios") of Greece, the importer; Welfin S.A. ("Welfin") of Switzerland, the exporter; plaintiff A.I. Trade Finance, Inc. ("A.I. Trade") of New York, the forfaiter; and defendant Petra Bank of Jordan, the guarantor. Welfin sold to Nissilios electronics and other component equipment required in shipbuilding. In payment, Nissilios executed six promissory notes payable to the order of Welfin, each in the amount of $2.5 million (the "Welfin Notes" or the "Notes"). It is alleged that Petra Bank affixed its aval, signed by the bank's then chairman and general manager, Dr. Ahmad Chalabi, and thereby agreed to guarantee payment of the $15 million of Welfin Notes. A.I. Trade purchased the six Notes for approximately $13.5 million in January 1989. The Welfin Notes specify on their face that they are payable in New York at Irving Trust Company (now The Bank of New York).

At the outset of the transaction, Petra Bank effected delivery of the Welfin Notes to A.I. Trade in New York and instructed A.I. Trade to deposit the net proceeds owing to Welfin in a New York bank account allegedly maintained by Petra Bank for credit to Welfin. A.I. Trade later sold three of the Welfin Notes in the secondary forfaiting market; this dispute therefore involves only the three Welfin Notes that A.I. Trade retained. Petra Bank did not enter New York to negotiate or execute this forfaiting transaction, although a Petra Bank officer visited New York three months after the bank avalized the Welfin Notes to solicit additional forfaiting business from A.I. Trade and, secondarily, to discuss the concerns of subsequent purchasers of the Notes.

At or around the time of the transaction, Petra Bank became the subject of a Jordanian government investigation into possible fraud and embezzlement by its officers, including Dr. Chalabi, the chairman and general manager who had signed the aval on the Welfin Notes. Dr. Chalabi has left Jordan and is now residing abroad. He denies any illegal or improper activities, asserting that his fugitive status arises from his opposition to Iraqi leader Saddam Hussein.

Petra Bank's operations have been taken over by a "management committee," which has announced a moratorium on payment of all outstanding obligations. When the Welfin Notes reached their maturity, Petra Bank did not honor the avals. A.I. Trade sued Petra Bank in a New York district court sitting in diversity to enforce the avals with respect to its three Welfin Notes in the total amount of $7.5 million. ³ Petra Bank has since entered liquidation proceedings in Jordan and A.I. Trade has also filed a claim in those proceedings.

Shortly after A.I. Trade commenced this suit, it obtained an order attaching certain New York bank accounts belonging to Petra Bank with a combined balance of approximately $4 million. Petra Bank moved to vacate the attachment and, pursuant to Fed.R.Civ.P. 12(b)(2), moved to dismiss the complaint for lack of personal jurisdiction. By its order dated March 7, 1991, the district court granted Petra Bank's motion. A.I. Trade's motion for reargument was denied by an order dated October 22, 1992. ⁴ We granted A.I. Trade's motion for a stay of the vacatur and for an expedited appeal of the district court's orders and the judgment entered thereon.

II. DISCUSSION

To survive the motion to dismiss, A.I. Trade was required to make only a prima facie showing that Petra Bank is amenable to personal jurisdiction in New York. Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 904 (2d Cir.1981). Eventually personal jurisdiction must be established by a preponderance of the evidence, either at an evidentiary hearing or at trial. But where the issue is addressed on affidavits, all allegations are construed in the light most favorable to the plaintiff and doubts are resolved in the plaintiff's favor, notwithstanding a controverting presentation by the moving party. Hoffritz for Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55, 57 (2d Cir.1985); see Ball v. Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194, 196-98 (2d Cir.) (discussing procedure for challenging personal jurisdiction), cert. denied, 498 U.S. 854, 111 S.Ct. 150, 112 L.Ed.2d 116 (1990).

A. Personal Jurisdiction Under New York Law

Personal jurisdiction over Petra Bank in this diversity action is governed by New York law. The district court rejected each of the three grounds A.I. Trade posited for jurisdiction: (1) transacting business in the state under CPLR 302(a)(1); (2) doing business in the state under CPLR 301; and (3) quasi in rem jurisdiction. See N.Y.Civ.Prac.L. & R. 301, 302 (McKinney 1990). We conclude that jurisdiction exists for this dispute on a fourth ground, raised on appeal, and hold that Petra Bank is amenable to suit under CPLR 302(a)(1) because it contracted to supply services in the state.

CPLR 302(a)(1) confers jurisdiction over "any non-domiciliary" who "transacts any business within the state or contracts anywhere to supply goods or services in the state," so long as the cause of action arises from that contract. A.I. Trade argues that Petra Bank's guaranty payable in New York is a contract for services in New York within the meaning of CPLR 302(a)(1). Although it appears that the district court was not given the opportunity to consider this argument, we may in our discretion do so. Arguments made on appeal need not be identical to those made below if they involve only questions of law and additional findings of fact are not required. Vintero Corp. v. Corporacion Venezolana de Fomento, 675 F.2d 513, 515 (2d Cir.1982). The parties have fully briefed the existence of "contracts anywhere" jurisdiction, and no new or additional findings are needed to consider it. Thus we may resolve...