Originally from:
The Practice of International Litigation - 2nd Edition - Looseleaf
The Practice of International Litigation - 2nd Edition - Electronic
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The Verlinden Case -- Access to Federal Courts
Lawrence W. Newman and Michael Burrows
On February 28, 1992, the U.S. District Court for the Southern District
of New York held that it had personal jurisdiction over a foreign
corporation on the grounds that the maintenance and use by the
corporation of a bank account in New York amounted to “doing business”
in New York. The decision could be troubling for foreign corporations
that have structured their operations so as not to be present in New York
but maintain one or more bank accounts here.
In the United Rope case, the court denied a motion by third-party
defendant Seatriumph Marine Corporation to dismiss the complaint against
it for lack of personal jurisdiction. The court did, however, grant a motion
to certify the interlocutory order to the Court of Appeals for the Second
Circuit pursuant to 28 U.S.C. § 1292(b) on the basis that the order involved
a question of controlling law as to which there is substantial ground for
difference of opinion. The Second Circuit has since twice refused to
consider the matter.
In taking this decision, rather than claiming to depart from a well
established rule of law, the district court deferred to the rule that having a
New York bank account does not by itself constitute doing business in
New York. Indeed, the court, in making an initial finding of jurisdiction over
Seatriumph in July 1991, acknowledged this rule, characterizing it as an
“unexceptionable proposition.” The court based its finding of jurisdiction
on the unique facts of the case—facts that it determined were
distinguishable from those analyzed by other courts ruling on CPLR
Section 301 in relation to the maintenance of a bank account in New York.
There is some room for questioning, however, whether the bank account or
the use made of it by the foreign corporation was so substantially unique as
to provide sufficiently strong support for the court’s decision.
The Seatriumph Facts
Seatriumph was the owner of a ship, the M.V. Katia, which sank with a
cargo of Brazilian twine in late November 1988. At the time of the ship’s
loss, the Katia was under charter. Title to the cargo had passed to its
purchaser, United Rope Distributors, a Delaware corporation with its
principal place of business in Minnesota. Seatriumph, a Liberian
corporation with its principal place of business in Piraeus, Greece, had
chartered the Katia to Copenship A/S, a Danish company, in January 1988.
Copenship, in turn, had later subchartered the Katia to Kim-Sail, Ltd., a
Cayman Islands corporation with its principal place of business in New
York.
United Rope brought an admiralty action against Kim-Sail for damages
resulting from the loss of the cargo. Kim-Sail impleaded Seatriumph,
seeking indemnity or contribution should Kim-Sail be found liable to
United Rope. Seatriumph brought a motion to dismiss Kim-Sail’s
complaint on the ground that the court lacked personal jurisdiction over it.
Although Seatriumph had no bank account in New York, under a term
of the head charter to Copenship, hire for the Katia was required to be paid
in United States dollars to an account of Richmond Investments Ltd. with
Continental Bank International in New York City. Seatriumph had an
account with Continental Bank in Piraeus. Seatriumph also made use of
another bank account in Piraeus, that of its managing agent, Global Ship
Management Ltd. Richmond, Global and Seatriumph were under common
control.
Lawrence W. Newman has been a partner in the New York office of Baker & McKenzie since 1971, when, together with the late Professor Henry deVries, he founded the litigation department in that office. He is the author/editor of 4 works on international litigation/arbitration.
Michael Burrows, Formerly, Of Counsel, Baker & McKenzie, New York.
