New Court Decisions Expose Non-U.S. Banks With U.S. Branches To New Risks Of Litigation In American Courts

1. Introduction

   Non-U.S. banks with branches in New York and elsewhere in the United States find themselves sued or otherwise exposed to judicial orders in American courts with regularity. The cases reflect the full range of U.S. legal risks, including claims alleging fraud and breach of contract, or violations of federal statutory schemes such as those for securities, antitrust, and RICO (anti-racketeering), or federal laws, like the Alien Tort Statute that may address politically charged issues. In addition, banks often are called on to submit to the jurisdiction of U.S. courts as non-parties, to provide information or comply with remedial orders.

   No matter what the issue, a non-U.S. bank will be required to defend itself or comply with a judgment only if it is subject to the personal jurisdiction of the court. Whether jurisdiction attaches to the bank depends upon the scope of the jurisdictional statutes of the State where the litigation is based, jurisdictional provisions of applicable federal statutes, and—critically—compliance with safeguards provided by the Due Process Clauses of the Fifth and Fourteenth Amendments to the U.S. Constitution. The law governing the assertion of personal jurisdiction against non-U.S. banks based on U.S.-branch activity is changing rapidly, however, and in some courts' view in the direction of requiring non-U.S. banks to answer to a much wider range of claims than before. This note provides a brief description of some of the more significant changes, and counsels that defenses to the assertion of jurisdiction must be raised without delay or they will be waived forever.1

2. Discussion

   An important set of changes in the law can be traced to Gucci Am. v. Bank of China,2 in which the United States Court of Appeals for the Second Circuit held that a Chinese bank—a nonparty that appeared in the case only because a subpoena had been served on it—was not automatically subject to the jurisdiction of federal courts as a result of its maintenance of a New York branch. The Gucci case arose out of claims for trademark infringement against defendants who allegedly produced and sold counterfeit versions of designer products made by Gucci as well as other luxury brands. The trial court entered a preliminary injunction freezing the defendants' assets, including proceeds from the alleged counterfeiting operation that the defendants had wired to bank accounts at the Bank of China ("BOC"), in China. The plaintiffs sought information about the frozen assets, and served a subpoena on the New York branch of BOC to require that the bank produce the information. BOC refused to comply, and the trial court, on motion by the plaintiffs, required it to do so. BOC appealed, and the Second Circuit reversed.

   Before deciding whether to affirm enforcement of the subpoena on the merits, the Court of Appeals considered whether it could assert jurisdiction over BOC consistent with protections afforded by the Due Process Clause of the U.S. Constitution.3 Two types of jurisdiction could apply: "general personal jurisdiction," pursuant to which BOC would be subject to claims of any kind, and "specific personal jurisdiction," in which BOC would be held accountable only if it "purposefully directed" its activities towards the forum, if the claim against it arose out of those contacts, and if asserting jurisdiction was consistent with "traditional notions of fair play and substantial justice."4 The District Court had issued its asset freeze based on assertion of general jurisdiction over BOC. Subsequently, however, the standards for asserting general jurisdiction were tightened significantly by the U.S. Supreme Court in Daimler AG. v. Bauman,5 in which the Court held that a corporation is not subject to general personal jurisdiction unless its contacts with the forum are so substantial that it can be considered "at home" there—a situation that, absent exceptional circumstances, is satisfied only where it is incorporated or has its principal place of business.6 Daimler limited dramatically the exposure of non-U.S. companies and individuals7 to suit in the U.S. over actions taking place elsewhere in the world, and the Court of Appeals in Gucci applied that ruling to conclude BOC's maintenance of a branch bank in New York did not meet the constitutional test. In so doing, it reversed decades of pre- Daimler precedent.8

   The Court of Appeals next had to consider whether specific personal jurisdiction over BOC could be asserted based on BOC's contacts with New York, and whether the litigation arose out of those contacts. Noting that there was little precedent regarding the assertion of specific...