K&L Gates Represents Bahraini Banks in U.S. Bankruptcy Court on Question of ‘Personal Jurisdiction’
New York restructuring & insolvency partner John Bicks and commercial disputes partner Lani Adler defended two Bahraini banks in claims filed by Arcapita Bank B.S.C., a Bahraini investment bank. Doha partner Amjad Hussain, co-head of K&L Gates’ Islamic Finance practice, also represented the banks.
In 2012, Arcapita made several short-term investments through each of the two Bahraini banks, which contracted to purchase non-U.S. securities for Arcapita. Upon maturity, each of the two Bahraini banks was to purchase the securities back from Arcapita. In connection with the investment transactions, Arcapita transferred funds to each of the banks through intermediary correspondent bank accounts in New York. The placements matured shortly after Arcapita filed for bankruptcy in the Southern District.
As permitted under Bahraini law, which governed the transactions at issue, the two Bahraini banks set off the amounts each was to pay Arcapita against the amounts owed by Arcapita to each of them, which aggregated approximately $30 million. Arcapita sued in bankruptcy court to recover the amounts it paid to each of the banks. Both banks moved to dismiss the Arcapita action on the ground that the bankruptcy court lacked personal jurisdiction over it.
Judge Sean Lane agreed with K&L Gates’ arguments that the one-time use of a correspondent bank account in New York for transactions that began and ended in Bahrain did not demonstrate sufficient contact with the United States for the court to exercise personal jurisdiction over the Bahraini banks and, accordingly, dismissed Arcapita’s claims against the two Bahraini banks.
“This decision provides more guidance to those in the international financial services sector with respect to jurisdiction and what factors are evaluated in assessing whether essentially foreign transactions, between non-U.S. entities, must be litigated in the United States,” said Bicks.
The ruling should provide assistance in considering how to structure certain kinds of transactions and in analyzing strategies about where to bring particular kinds of cases.
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