Telecredit was a contract dispute over a fraud in the sale of foreign travel club memberships that simply happened to be purchased by credit card.
In CVF, the Second Circuit upheld federal jurisdiction under Section 632 on grounds different from those found by the District Court, a result which hopefully will not be repeated here. There, the action did not seek to hold a party liable for the international or foreign banking transaction upon which the Court based jurisdiction: the bank that was a party to the predicate international or foreign banking transaction was no longer a defendant in the action, and the underlying transaction upon which Section 632 jurisdiction was based occurred entirely within the United States. Other cases have also upheld jurisdiction under Section 632 even though the international or foreign banking activity was not central to the case. See United Technologies Corp. v. Citibank N.A., 469 F. Supp. 473 (S.D.N.Y. 1979) (Section 632 jurisdiction found on basis of letter of credit issued for the benefit of non-party foreigner in action between domestic parties to enjoin domestic bank from acting on letter of credit); Contitrade Serv. Corp. v. Eddie Bauer, Inc., 794 F. Supp. 514 (S.D.N.Y. 1992) (distinguishing Telecredit and upholding jurisdiction in action based upon one domestic party's failure to honor another domestic party's letter of credit when letter of credit benefitted foreign party); Wachovia Bank & Trust Co. v. Bankers Trust Co., 1994 U.S. Dist. LEXIS 2524, 91 Civ. 3158 (JFK), 1994 WL 75032 (S.D.N.Y. March 4, 1994) (breach of warranty of domestic title action arising from one domestic bank's presentation of a forged check to another domestic bank); Cutler v. Bank of Am. Nat'l Trust & Savs. Ass'n, 441 F. Supp. 863 (N.D. Cal. 1977) (occurrence of robbery in foreign bank sufficient to establish claims of negligence, fraud, conversion, breach of fraud, breach of warranty and contract, and negligent infliction of emotional distress). See generally Robert M. Brill and James J. Bjorkman, Federal Court Jurisdiction, 110 Banking L.J. 118, 124 (1993) (noting that Telecredit is out of step with other cases applying Section 632).
The principal authority cited by the Plaintiffs in support of remand is Bank of New York v. Bank of America, 861 F. Supp. 225 (S.D.N.Y. 1994), permission to appeal denied, No. 94-8009 (2d Cir. June 8, 1994), in which the Honorable Loretta A. Preska remanded an action in which the defendant asserted Edge Act jurisdiction. Stating that courts have construed Section 632 narrowly and noting the Circuit Court's admonition in CVF to examine carefully the nature of the transaction said to ground Section 632 jurisdiction, Judge Preska, citing Telecredit, concluded that the issue presented in Bank of New York was simply a dispute as to whether or not the parties had reached a binding agreement and that to grant federal jurisdiction there would turn on the character of the parties, rather than the substance of the transaction.
In Bank of New York, the Court thus refused to apply Section 632, because the Court characterized as a contract dispute the underlying dispute between the two banks involving a single incomplete purchase of certain assets. Here by contrast the Plaintiffs pose a wide-ranging challenge to multiple, ongoing operations of a complex of bank accounts for which Citibank has served as trustee since 1939, and which benefit policyholders around the world.
The decision in Bank of New York is, in any event, inconsistent with the text of Section 632 and with other federal court decisions that have routinely applied Section 632, even in cases based on state law causes of action and containing only an incidental connection to banking law. See Conjugal Soc'y Composed of Juvenal Rosa v. Chicago Title Ins. Co., 690 F.2d 1 (1st Cir. 1982) (finding jurisdiction under Section 632 because plaintiffs were alleged to have been fraudulently induced to refinance a mortgage, though complaint was based on allegations of negligence and conspiracy, and hence bore no relationship to banking); Cutler, 441 F. Supp. 863 (claims of negligence, fraud, conversion, breach of fraud, breach of warranty and contract, and negligent infliction of emotional distress arising from robbery of safety deposit box in foreign bank); Puerto Rico v. Eastern Sugar Assoc., 156 F.2d 316 (1st Cir.), cert. denied, 329 U.S. 772, 91 L. Ed. 664, 67 S. Ct. 190 (1946) (petition to condemn 3,000 acres of land where bank held mortgage); Rose Hall Ltd. v. Chase Manhattan Overseas Banking Corp., 494 F. Supp. 1139 (D. Del. 1980) (breach of contract and breach of fiduciary duty asserted against bank mortgagee of plaintiff).
The test according to the authorities is the existence of "traditional banking activities," Telecredit, 679 F. Supp. at 1108, or "that the banking aspect of the jurisdictional transaction must be legally significant in the case." Bank of New York, 861 F. Supp. at 233. Here, Plaintiffs urge something of an exercise of over-simplification that the most significant aspect of the dispute is the propriety of the administration of the LATF under New York trust law for the benefit of New York citizens. A more accurate characterization would be the responsibilities of a New York bank administering a fund under an international agreement as part of a worldwide system to finance and settle the funds involved in underwriting insurance by Lloyd's. Perhaps an even simpler conclusion could be reached that having performed the banking functions described above since 1939, it could well be considered traditional today. Under CVF, performance of a letter of credit provides Edge Act jurisdiction. The establishment and administration of the LATF, though perhaps greatly more complex than a letter of credit, performs in essence the same banking function. After carefully considering the transaction at issue, and the authorities, it is concluded that the suit arises from banking transactions and that Edge Act jurisdiction applies.
III. The Suit Arises Out of International Financial Operations
Although the nexus of this action to international and foreign banking provides a sufficient basis for federal jurisdiction under Section 632, the jurisdictional requirement is alternatively satisfied, because this suit "arises . . . out of other international or foreign financial operations." Indeed, in this context, the plain meaning of the phrase "other international or foreign financial operations" is international or foreign financial operations other than banking. Travis, 23 F. Supp. 363 (issuance of securities by corporation constituted foreign financial operations for purposes of Section 632); & Bjorkman, supra at 128 ("It is not merely international or foreign 'banking' that triggers jurisdiction under Section 632"); see also Perrin v. United States, 444 U.S. 37, 42, 62 L. Ed. 2d 199, 100 S. Ct. 311 (1979) (words in statutes must be given their ordinary, contemporary common meaning).
In any event, under Section 632, jurisdiction may be premised either on the presence in the case of "transactions involving international or foreign banking" or on the presence of "international or foreign financial operations." Even if the transactions in question here do not constitute banking proper, they are so close that they surely fall within the ambit of the "financial operations" contemplated by the statute.
Because Section 632 jurisdiction exists, the motion to remand is denied. Argument on the Defendants' motion to dismiss, which was adjourned sine die at the time of oral argument on this motion, will be heard on September 11, 1996.
It is so ordered.
New York, N. Y.
ROBERT W. SWEET
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