In re China Construction Bank Corp.

Background

Incline Casualty Company and Redpoint County Mutual Insurance Company alleged that China Construction Bank Corporation (CCBC), China Construction Bank (Asia) Corporation Limited (CCB Asia), and China Construction Bank New York Branch (CCBNY) failed to honor 15 letters of credit issued as collateral for reinsurance obligations. The plaintiffs asserted breach-of-contract, fraud, negligent-supervision, Uniform Commercial Code, and declaratory-relief claims.

CCBC and CCBNY jointly moved to dismiss under Federal Rule of Civil Procedure 12(b)(2), for lack of personal jurisdiction, and Rule 12(b)(6), for failure to state a claim. CCB Asia filed a separate motion on the same grounds.

CCBC and CCBNY

The court held that New York’s long-arm statute permitted personal jurisdiction over CCBC and CCBNY. It concluded that CCBC’s New York branch and its application to be listed as an approved issuer of letters of credit for reinsurance transactions were sufficiently connected to the plaintiffs’ claims.

The court nevertheless dismissed all claims against CCBC and CCBNY without prejudice. The plaintiffs had not plausibly alleged that Chun-Yin Lam had actual authority from CCBC or CCBNY to issue the letters of credit. The complaint also did not allege that the plaintiffs relied on statements by CCBC or CCBNY about Lam’s authority when they entered the reinsurance contracts, which defeated the apparent-authority theory. Because the plaintiffs did not adequately allege that Lam had authority to bind CCBNY, their claims under the Uniform Commercial Code also failed at this stage.

The court separately dismissed the fraud claim against CCBC without prejudice because the complaint did not adequately allege that Lam was employed or controlled by CCBC for purposes of holding CCBC responsible for his alleged conduct. The negligent-supervision claim against CCBC was dismissed without prejudice for the same failure to adequately allege an employer-employee relationship. The declaratory-relief claim against CCBC was dismissed without prejudice because the plaintiffs did not respond to CCBC’s arguments seeking dismissal, and the court treated the claim as abandoned.

CCB Asia

The court concluded that the complaint did not adequately establish CCB Asia’s direct contacts with New York or show that CCB Asia was an alter ego or mere department of CCBC. The complaint also did not adequately allege that CCB Asia directed or consented to Lam’s New York activities. The court rejected the plaintiffs’ proposed basis for jurisdiction under the Foreign Sovereign Immunities Act because the allegations concerned CCBC rather than CCB Asia.

The court found, however, that the plaintiffs had made a sufficient initial showing for possible jurisdiction under New York’s law governing out-of-state torts. It determined that the alleged first effect of CCB Asia’s negligent supervision—the refusal to honor the sight drafts at CCBNY in New York—could qualify as an injury in New York. Because the complaint contained little information about CCB Asia’s revenue sources, the court ordered limited jurisdictional discovery on whether CCB Asia derived substantial revenue from New York or from interstate or international commerce.

Disposition

The court granted CCBC and CCBNY’s motion to dismiss, and the plaintiffs’ claims against those defendants were dismissed without prejudice. The court denied CCB Asia’s motion to dismiss for lack of personal jurisdiction without prejudice to renewal after jurisdictional discovery. It also denied CCB Asia’s motion to dismiss for failure to state a claim without prejudice and deferred consideration of that issue until jurisdictional discovery ended. Judge Victor Marrero directed that remaining pretrial matters, including the jurisdictional discovery and any motions to amend, be supervised by the assigned magistrate judge.