United States District Court, S.D. New York
June 15, 2004.
ZURICH AMERICAN INSURANCE COMPANY, Plaintiff,
DAH SING BANK, LIMITED, UNION BANK OF CALIFORNIA, THE BANK OF EAST ASIA LIMITED, and WAN KWOK PING, Defendants.
The opinion of the court was delivered by: DENISE COTE, District Judge
OPINION AND ORDER
This Opinion addresses whether there is personal jurisdiction
in New York over a Hong Kong bank for accepting fraudulently
endorsed checks for deposit, and whether the plaintiff has stated
a claim against the American bank that assisted in the clearance
of these checks. On December 18, 2003, defendant Dah Sing Bank,
Limited ("Dah Sing") moved to dismiss the claims against it for
lack of personal jurisdiction. On January 12, 2004, defendant Union Bank of California ("Union
Bank") moved to dismiss the claims against it because (i) Dah
Sing is an indispensable party with respect to the claims against
Union Bank; (ii) Hong Kong is the most convenient forum for those
claims and New York has no meaningful nexus to them; and (iii)
plaintiff Zurich American Insurance Company ("Zurich") has failed
to state a claim against Union Bank. For the reasons set forth
below, the motions by Dah Sing and Union Bank for lack of
personal jurisdiction and for failure to state a claim,
respectively, are granted.
The plaintiff, Dah Sing, and Union Bank have each submitted
affidavits, declarations, and documents in connection with these
motions.*fn1 The following is taken from the complaint and
these submissions.*fn2 Complaint
Zurich filed the original complaint in this diversity
action*fn3 on October 2, 2003, and an amended complaint on
November 25.*fn4 The amended complaint states that defendant
Wan Kwok Ping ("Wan")*fn5 was an employee of Putnam, a New
York corporation with its corporate offices in New York City.
While Wan did not have check writing privileges and he was not a
corporate officer of Putnam, he did deposit checks for Putnam,
and he created account receivable folders for Putnam's customers.
The amended complaint alleges that Wan fraudulently altered
checks that he stole in New York that were made payable to Putnam
by either (i) adding his own name to the payee line on a check,
endorsing it, and depositing the check in his personal account
maintained at The Bank of East Asia Limited ("BEA")*fn6 in New York, or (ii)
endorsing the check in Putnam's name and depositing it in an
"unauthorized corporate account" at Dah Sing in Hong
Kong.*fn7 Beginning on or about March 2001 and continuing
through March 2002, Wan allegedly converted approximately
The amended complaint asserts claims for conversion, money had
and received, fraud, and unjust enrichment against Wan. The
amended complaint asserts that Dah Sing, Union Bank, and BEA are
each liable for conversion, money had and received, and
negligence. The pleading does not identify the role played by
Union Bank in the fraud. It merely asserts in conclusory fashion
that the three bank defendants "accepted for deposit, forwarded
for collection, cleared, collected and credited" the checks.
Hong Kong Account
Dah Sing has submitted evidence to show that Putnam does not and has never maintained an account at Dah Sing. The "corporate
account" at Dah Sing to which the Amended Complaint refers is
Account No. 11-303-1161-9 ("the "Hong Kong Account"), a checking
account opened at Dah Sing's Johnston Road Branch in Hong Kong by
Mr. Chui Man Kuen Fozwagz ("Chui") on or about April 25, 2001.
The Hong Kong Account was opened in the name of Putnam Rolling
Ladder Co. ("Putnam Co."), a sole proprietorship with its place
of business in Hong Kong. The Company Account Opening Form
submitted to Dah Sing to open the Hong Kong Account indicates
that Chui is the sole proprietor of the company and the principal
contact person for the Hong Kong Account.
As part of the Hong Kong Account opening papers, Chui submitted
to Dah Sing a Business Registration Certificate for his company
showing the company to be registered to do business in Hong Kong
with a Hong Kong business address. Dah Sing mailed monthly
account statements for the Hong Kong Account to this address.
These account statements were the only form of communication sent
by Dah Sing regarding the Hong Kong Account. All deposits to the
Hong Kong Account were made in person at Dah Sing's office in
Hong Kong. Determination of the validity of the deposits at issue
i.e., that each check deposited was payable to Dah Sing's
customer and properly endorsed was made in Hong Kong. Only
after the checks were accepted for deposit in accordance with
Hong Kong banking laws were the checks forwarded to the United
States for clearing and collection.
On November 13, 2001, Chui submitted a Notification of Change of Signing Instructions form to Dah Sing authorizing
either Chui or the individual defendant Wan to sign for the Hong
Kong Account. Chui also submitted photocopies of Chui's and Wan's
respective Hong Kong photo identification cards.
Dah Sing has also submitted evidence to support the following.
Dah Sing is a foreign corporation organized under the laws of
Hong Kong and provides banking and financial services. Dah Sing
operates through a series of branch offices located in Hong Kong,
Kowloon and the New Territories and through a representative
office in People's Republic of China. Dah Sing is not a
state-owned bank. Neither Dah Sing nor its parent company, Dah
Sing Financial Holdings Limited ("DSFH") is or represents itself
to be an agency of a foreign state.
Dah Sing is not registered or licensed to conduct business in
the State of New York. It does not own any real property, lease
property, or maintain any office or telephone number in New York.
Dah Sing has no employees, representatives, directors or officers
who live or work in New York, and has no agents located in New
York to promote its interests. Neither does it have any
subsidiaries or affiliates in New York or anywhere in the United
States. Further, Dah Sing conducts no advertising or public
relations, does not solicit business, and has no investor
relations office in New York.
While Dah Sing maintains correspondent bank relationships with banks in the United States for conducting U.S. dollar
transactions on behalf of Dah Sing clients in Hong Kong, Dah Sing
does not conduct any business transactions in New York or in the
United States on its own behalf. With respect to U.S. checks that
are deposited by its customers in Hong Kong, Dah Sing forwards
the deposited checks to Union Bank in California for clearing and
collection via the U.S. clearing system.
Dah Sing has a website that provides information to potential
customers and offers current customers the ability to conduct
certain banking transactions over the internet. Part of Dah
Sing's internet services includes the issuance of a PIN (Personal
Identification Number) that provides online access to those
services and provides existing customers with the ability to
perform limited banking transactions over the Internet. A Dah
Sing savings, checking, or deposit bank account can only be
opened by visiting one of the bank's branches in Hong Kong. While
customers may obtain information about, and download certain loan
and credit card application forms from Dah Sing's website, such
applications cannot be processed without the customer visiting
one of Dah Sing's branches in Hong Kong. Dah Sing asserts that it
has only issued credit cards to Hong Kong-based customers.
The "iBanking" feature on Dah Sing's website only allows the
bank's corporate customers based in Hong Kong to perform limited
banking services over the internet. To date, no U.S.-based
customer has made use of Dah Sing's iBanking services. Dah Sing has never mailed any software or materials relating to its
iBanking service to any U.S.-based customer.
The Doherty Affidavit asserts that Dah Sing offers corporate
credit cards to multinational customers of the General Electric
Company ("GE"). Under this agreement with GE, Dah Sing acts as a
local issuer of corporate credit cards for companies operating in
Hong Kong. According to an affidavit submitted by the Head of
Bank Services for Dah Sing, however, the bank has only issued
corporate credit cards to Hong Kong staff of seven companies
based in Hong Kong.
The Doherty Affidavit also states that Dah Sing has an
agreement to provide trade financing with TradeCard, Inc., a
global online trade transaction settlement company for importers
and exporters, to provide TradeCard members with access to export
financing, a partnership that gives Hong Kong traders the ability
to conduct international trade online.
Finally, the Doherty Affidavit states that Dah Sing's parent
company, DSFH, has joint ventures with SG Hambros Bank, and Aviva
(f/k/a CGNU), which provide offshore private banking services and
general insurance services, respectively. The Doherty Affidavit
also states that Aviva has a subsidiary which is licensed and
offers products in New York and that UFJ Bank Limited is a major
shareholder of DSFH and has offices in New York City.
The Amended Complaint states that Union Bank maintains branch offices in New York City. Zurich supplements these
jurisdictional allegations with claims that Union Bank markets
itself as an international bank with 282 branches.
Union Bank has submitted evidence that it has one Trust office
in New York, but no branches in the state. In addition, a
California branch of Union Bank, and not the New York Trust
office of Union Bank, cleared the relevant checks transferred to
Union Bank by Dah Sing. There is no allegation that Wan, Putnam,
or Putnam Co. ever opened or maintained an account at Union Bank.
Union Bank's sole connection with this dispute is its role as a
clearinghouse bank for U.S. checks forwarded to it by Dah Sing
from Hong Kong.
When Union Bank acts a clearinghouse bank for Dah Sing, under
the Uniform Commercial Code ("UCC"), Dah Sing is the "depositary
bank" because it is the first bank to take the item from the
customer, and Union Bank is an "intermediary bank."*fn9 See UCC § 4-105. Union Bank credited Dah Sing's account with
the face amount of the checks and forwarded the checks to the
drawee bank for payment. Thus, Union Bank does not retain the
proceeds of any checks received from Dah Sing. Union Bank had no
contact or communication with any customer of Dah Sing in the
course of clearing the customer's checks for Dah Sing.
Dah Sing has moved to dismiss the claim against it for lack of
personal jurisdiction. Union Bank has pressed multiple grounds
for dismissal. Dah Sing's motion will be addressed first.
I. Dah Sing
Zurich argues that there is personal jurisdiction over Dah Sing
pursuant to CPLR 302(a)(1) and 302(a)(3)(ii).*fn10 Zurich
also argues that Dah Sing is subject to personal jurisdiction
pursuant to the Foreign Sovereign Immunities Act of 1976 (the
"FSIA"), 28 U.S.C. § 1602-1611.
In a diversity case, the issue of personal jurisdiction must be
determined according to the law of the forum state. See Bank
Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 305 F.3d 120,
124 (2d Cir. 2002). "If the exercise of jurisdiction is appropriate under [the state's statutes], the court then must
decide whether such exercise comports with the requisites of due
process." Bensusan Restaurant Corp. v. King, 126 F.3d 25, 27
(2d Cir. 1997). It is well established that on a motion to
dismiss for lack of personal jurisdiction, the "plaintiff bears
the burden of showing that the court has jurisdiction over the
defendant." In re Magnetic Audiotape Antitrust Litig.,
334 F.3d 204, 206 (2d Cir. 2003) (per curiam). Where, as here, there has
been no discovery, the plaintiff need only make a prima facie
showing through its pleading and affidavits that jurisdiction
exists. The pleading and affidavits are construed in the light
most favorable to the plaintiff. See, e.g., DiStefano v.
Carozzi North Am., Inc., 286 F.3d 81, 84 (2d Cir. 2001).
Personal Jurisdiction Under CPLR 302(a)(1)
CPLR 302(a)(1) allows the exercise of personal jurisdiction if
the defendant "transacts any business within the state" and the
cause of action "arises from" that business activity.*fn11
Sunward Electronics, Inc. v. McDonald, 362 F.3d 17, 22 (2d Cir. 2004). A claim arises out of a party's transaction of business in
New York if there exists an "`articulable nexus' or a
`substantial relationship' between transactions occurring within
the state and the cause of action sued upon." McDonald, 362
F.3d at 23. See also Agency Rent A Car Sys., Inc. v. Grant Rent
A Car Corp., 98 F.3d 25, 31 (2d Cir. 1996).
Zurich's claims against Dah Sing do not arise out of any Dah
Sing business transaction in New York. There is no prima facie
showing of an articulable nexus or substantial relationship
between Dah Sing's alleged business contacts with New York its
website, issuance of credit cards, and/or practice of clearing
United State checks through a California bank and the
allegations that the bank failed to act properly in Hong Kong in
accepting a check for deposit into the Hong Kong Account. See
In re Ski Train Fire in Kaprun, Austria on November 11, 2003,
No. 01 MDL 1428 (SAS), 2003 WL 22909153, at *4 (S.D.N.Y. Dec. 8,
2003) (no personal jurisdiction under CPLR 302(a)(1) based on
defendant's website where plaintiffs failed to allege they ever
visited the website, let alone used it in connection with the
events that were the subject of the litigation).
Personal Jurisdiction under CPLR 302(a)(3)
Zurich argues that CPLR 302(a)(3)(ii) allows for personal
jurisdiction over Dah Sing. CPLR 302(a)(3)(ii) states that
personal jurisdiction is proper where the defendant
commits a tortious act without the state causing
injury to person or property within the state . . . if he
(ii) expects or should reasonably expect the act to
have consequences in the state and derives
substantial revenue from interstate or international
CPLR 302(a)(3) (emphasis supplied). As a general rule, for
long-arm purposes an injury occurs at the location of the events
that caused the injury, not the location where the damages are
felt later by the plaintiff. McGowan v. Smith, 52 N.Y.2d 268,
274-75 (1981). In determining whether an injury occurs "within
the state," courts apply
a situs-of-injury test, which asks them to locate the
`original event which caused the injury.' This
`original event' is, however, generally distinguished
not only from the initial tort but from the final
economic injury and the felt consequences of the
tort. . . . [T]he `original event' occurs `where the
first effect of the tort . . . that ultimately
produced the final economic injury' is located.
DiStefano, 286 F.3d at 84-85 (citation omitted). As the Second
Circuit has summarized more recently, "[t]he occurrence of
financial consequences in New York due to the fortuitous location
of plaintiffs in New York is not a sufficient basis for
jurisdiction under CPLR § 302(a)(3) where the underlying events
took place outside New York." Whitaker v. Am. Telecasting,
Inc., 261 F.3d 196
, 209 (2d Cir. 2001) (citation omitted).
With respect to the claims against Dah Sing, the events that
caused the injury did not occur in New York.*fn12 Dah Sing
is accused of conversion, money had and received, and negligence.
The critical events surrounding Dah Sing's role in each of these
claims occurred in Hong Kong.
Zurich argues in the alternative that the FSIA provides
personal jurisdiction over Dah Sing. It does not.
The FSIA provides that "a foreign state shall be immune from
the jurisdiction of the courts of the United States and of the
States" unless the circumstances of the suit fall into a specific
statutory exception, such as a defendant engaging in "commercial
activity" in the United States. See 28 U.S.C. § 1604, 1605(a).
The FSIA defines a "foreign state" to include an "agency or
instrumentality of a foreign state." 28 U.S.C. § 1603(a).
Dah Sing is not a "foreign state" as no state entity owns a
majority of Dah Sing's shares. Dah Sing is a subsidiary of DSFH,
which is publicly traded on the Hong Kong stock exchange. Discovery
Zurich argues that Dah Sing's motion to dismiss is premature
given the lack of discovery in this action. Zurich asks for
discovery to obtain information about Dah Sing's website and its
relationship with, among others, DSFH and Union Bank beyond that
presented in the affidavits and declarations accompanying this
motion. Because Zurich has failed to make a prima facie showing
of personal jurisdiction, Zurich's request for discovery is
II. Union Bank
Union Bank moves to dismiss the claims against it on the ground
that Zurich has failed to state a claim against it. Zurich has
failed properly to allege the elements of any of its three claims
negligence, money had and received, and conversion against
Union Bank.*fn13 The Amended Complaint does not include a
single factual allegation against Union Bank in support of any of
these claims. Instead, it lumps the three bank defendants
together and asserts that they collectively processed the checks.
This type of group pleading is inadequate to state a claim
against Union Bank. See Yucyco, Ltd. v. Republic of Slovenia,
984 F. Supp. 209, 219 (S.D.N.Y. 1997); United States v. Private
Sanitation Indus. Assoc. of Nassau/Suffolk, Inc., 793 F. Supp. 1114,
1146 (E.D.N.Y. 1992). Zurich has not requested an opportunity to amend its pleading,
and the parties' submissions on this motion demonstrate that any
amendment attempt would be futile. In support of its motion to
dismiss, Union Bank offered evidence that it operated in these
transactions as an intermediary bank, clearing the checks
accepted by Dah Sing. Accepting this characterization, Zurich
argues that Union Bank nonetheless owed it a duty of care.
As adopted in New York, UCC § 4-102(2) determines which forum's
law governs the dispute between Zurich and Union Bank. Section
The liability of a bank for action or non-action with
respect to any item handled by it for purposes of
presentment, payment or collection is governed by
the law of the place where the bank is located. In
the case of action or non-action by or at a branch or
separate office of a bank, its liability is governed
by the law of the place where the branch or separate
office is located.
UCC § 4-102(2) (emphasis supplied). Because it is undisputed that
the Union Bank "branch or separate office" responsible for
clearing the checks at issue was located in California,
California law governs the dispute between Zurich and Union
Under California law, there are three elements to a negligence claim: (1) a legal duty to use due care; (2) a breach
of the legal duty; and (3) a resulting injury for which the
breach is the proximate or legal cause. See Artiglio v.
Corning, 957 P.2d 1313, 1318 (Cal. 1998). Absent a duty of care,
there can be no cause of action for negligence. Id. It is well
settled that a bank does not owe a duty of care to non-customers,
absent extraordinary and specific facts. See In re McMullen
Oil Co., 251 B.R. 558, 571 (Bankr. C.D. Cal. 2000); Software
Design & Application, Ltd. v. Hoefer & Arnett, Inc.,
56 Cal.Rptr.2d 756, 760 (Cal. 1996). For example, where an endorsement
on a check is forged, no duty of care is owed to a non-customer.
See, e.g., In re McMullen Oil Co., 251 B.R. at 572-73. Even
if an intermediary bank is alleged to have processed checks that
lacked all required endorsements, UCC § 3-206(2), Official
Comment 3, provides that intermediary banks may "disregard
restrictive endorsements" because they "handle checks in bulk and
have no practicable opportunity to consider the effects of
restrictive endorsements." UCC § 3-206(2), Official Comment
Union Bank, as an intermediary bank in the disputed
transactions, owed no duty of care to non-customer Zurich. The
Amended Complaint does not even allege that the checks deposited
in the corporate account at Dah Sing lacked endorsements; rather
Zurich alleges these checks were fraudulently endorsed via an unauthorized stamp. The plaintiff has failed to identify any
extraordinary facts that would give rise to a duty to Zurich.
Plaintiff's unusual suggestion that intermediary banks are
negligent if they do not contact the drawer of each check they
clear to insure the check's validity does not comport with UCC §
3-206(2). Such a duty would "bring check processing to a
screeching halt," and Union Bank "cannot be faulted for not
making those efforts." United States Fid. & Guar. v. Federal
Reserve Bank, 590 F. Supp. 486, 499 (S.D.N.Y. 1984).
Money Had and Received
The elements of a claim for money had and received under
California law*fn16 are: "(1) a statement of indebtedness of
a certain sum, (2) the consideration made by the plaintiff, and
(3) nonpayment of the debt." First Interstate Bank v. State,
197 Cal.App.3d 627, 635 (Cal. Ct. App. 1987). "[N]o recovery
for money had and received can be had against a defendant who
never received any part of the money or equivalent thing sued
for." Id. (citation omitted). Zurich does not contend that it
has alleged or can allege the elements of this claim against
Union Bank. Nor does it oppose the dismissal of this claim.
UCC § 3-420 governs the law of conversion for negotiable
instruments in California. UCC § 3-420 provides in pertinent part
that "the law applicable to conversion of personal property
applies to instruments." UCC § 3-420(a).*fn17 Accordingly,
UCC § 3-420 does not displace common law conversion principles;
rather, the first sentence of UCC § 3-420(a) explicitly
incorporates these principles. See In re Bartoni-Corsi
Produce, Inc., 130 F.3d 857, 860 (9th Cir. 1997). Conversion of personal property in
California requires proof of "the wrongful exercise of dominion
over another's personal property in denial of or inconsistent
with his rights in the property." In re Emery, 317 F.3d 1064,
1069 (9th Cir. 2003) (emphasis supplied). The elements of such a
claim are: "(1) the plaintiff's ownership or right to possession
of the property; (2) the defendant's conversion by wrongful act
inconsistent with the property rights of the plaintiff; and (3)
As stated previously, as an intermediary bank and
clearinghouse, Union Bank would not "apply" the checks forwarded
by Dah Sing to its own use, and would never assume "control" over
or "ownership" of the money represented by the checks. Zurich has
not alleged such application, control or ownership.
In its opposition to this motion, Zurich implicitly concedes
that Union Bank is not liable for conversion under UCC §
3-420(a), and the California law of conversion. Zurich argues
that New York law should apply and that such law compels a
different result. As discussed above, however, New York's choice
of law rules require the application of California law to the
claims against Union Bank. In any event, New York law would be of
no assistance to Zurich. The distinction between New York and
California law to which Zurich alludes relates to a defense to
a claim of conversion under the UCC.*fn18 Additional Discovery
As noted, Zurich does not request leave to amend its complaint
a second time to assert claims against Union Bank, and does not
argue that it can plead a cause of action against Union Bank as
an intermediary bank. Instead, Zurich argues that Union Bank's
motion to dismiss is premature because discovery is needed on the
issue of whether Union Bank is in fact an intermediary bank and
whether Union Bank retained proceeds from checks forwarded by Dah
Sing. Zurich seeks the collection agreement between Union Bank
and Dah Sing.
Additional discovery is not warranted. The burden is on the
plaintiff to plead adequately its causes of action in compliance
with the dictates of the Federal Rules of Civil Procedure. In its
pleadings, Zurich failed to allege any role that Union Bank
played in the transactions at issue. Similarly, Zurich failed to
describe in its opposition to this motion any basis to believe
that Union Bank was anything other than an intermediary bank in
the relevant transactions or it retained proceeds from the
relevant checks. Having shown no ability to state a claim against
Union Bank, Zurich is not entitled to discovery. Conclusion
The motions to dismiss by Dah Sing and Union Bank for lack of
personal jurisdiction and for failure to state a claim,
respectively, are granted. The plaintiff having failed to serve
Wan, and the claims against the other defendant having already
been resolved, the Clerk of Court shall close the case.