Vasquez v. Hong Kong and Shanghai Banking Corporation, Ltd.

Background

Rigoberto Vasquez and Eva Garcia brought a proposed class action against Hong Kong and Shanghai Banking Corporation, Ltd. (HSBC Hong Kong) and Does 1 through 100. They alleged that HSBC Hong Kong helped facilitate the WCM777 Ponzi scheme by processing international bank transfers. Their claims included federal claims under the Racketeer Influenced and Corrupt Organizations Act, commonly called RICO, and state-law claims for aiding and abetting fraud, breach of fiduciary duty, and conversion.

HSBC Hong Kong is a Hong Kong corporation with its principal place of business in Hong Kong, China. It maintained a correspondent bank account with HSBC Bank USA in New York. A correspondent account is a domestic account used by a foreign bank to help process transfers. The plaintiffs alleged that many WCM777 transfers passed through that account. Garcia made two transfers totaling $4,000 to WCM777, and Vasquez made one transfer of $100,000. The plaintiffs alleged that they received no money from WCM777.

The court had previously denied HSBC Hong Kong’s initial motion to dismiss for lack of personal jurisdiction and allowed discovery limited to that issue. After discovery ended, HSBC Hong Kong renewed its motion under Federal Rule of Civil Procedure 12(b)(2), which allows dismissal when the court lacks personal jurisdiction over a defendant.

Legal framework

The plaintiffs had to make a factually supported initial showing that New York courts could exercise personal jurisdiction over HSBC Hong Kong. The court considered evidence outside the complaint because jurisdictional discovery had occurred, while viewing supported factual disputes in the plaintiffs’ favor.

The court had already held that New York lacked general personal jurisdiction over HSBC Hong Kong, meaning HSBC Hong Kong could not be sued in New York on all claims merely because of its overall relationship with the state. The remaining question was specific personal jurisdiction, which applies only when the claims arise from the defendant’s activities connected to the forum.

The court examined New York Civil Practice Law and Rules § 302(a)(1). That provision requires the defendant to have transacted business in New York and requires the claims to arise from that New York business activity. The parties agreed that the relevant alleged New York activity was HSBC Hong Kong’s use of its New York correspondent account.

The court explained that merely maintaining such an account is not enough. The use must be purposeful. Courts examine the quality of the contacts, including their frequency and deliberateness. Relevant considerations can include the bank’s control over the transfers, whether it promoted or encouraged use of the account, whether the account was necessary to the alleged scheme, and whether the bank otherwise projected itself into the New York market.

Court’s analysis

The court first held that it could consider only the three transfers involving the named plaintiffs, not the thousands of transfers involving other proposed class members. Before a class is certified, contacts involving unnamed class members cannot establish personal jurisdiction for the named plaintiffs’ claims. The court therefore focused on the three transfers totaling $104,000.

The court found that three transactions were too few to support an inference of purposeful use based on volume. It also found no evidence that HSBC Hong Kong directed the plaintiffs’ funds through the New York account or controlled the route of those funds. The evidence instead showed that the plaintiffs sent money to WCM777’s HSBC Hong Kong account and that HSBC Hong Kong was a passive recipient of the transfers.

The plaintiffs argued that HSBC Hong Kong encouraged customers to use the New York correspondent account. The court rejected the documents offered in support because they were unauthenticated and inadmissible. The documents had been downloaded from websites or an online archive, and the testimony offered to authenticate them came from an HSBC USA employee who was unfamiliar with them. The court also found that the plaintiffs’ expert declaration did not establish that the documents were used in connection with the transactions at issue or that the expert had a reliable basis to interpret HSBC Hong Kong’s internal processes.

The court further found that the New York account was not shown to be necessary to the WCM777 scheme. HSBC Hong Kong could receive U.S. dollar payments through other correspondent accounts or through banks in Hong Kong. The court also noted that HSBC Hong Kong had no branches, employees, or property in the United States and that the record contained no evidence that it solicited business or advertised in New York.

The plaintiffs also alleged that HSBC USA had notified HSBC Hong Kong that WCM777 appeared to be a Ponzi scheme before the plaintiffs’ transfers occurred. The court assumed, for purposes of its analysis, that this notice had been established, but held that notice alone did not show that HSBC Hong Kong purposefully used New York. There was no allegation that HSBC Hong Kong deliberately disregarded the notice or deliberately allowed the transfers to proceed despite it.

Disposition

Judge Paul A. Engelmayer held that HSBC Hong Kong’s use of the New York correspondent account in connection with the plaintiffs’ three transfers was not purposeful activity sufficient to create specific personal jurisdiction under New York law. Because the plaintiffs failed to satisfy the first part of the state long-arm statute, the court did not address the statute’s remaining requirements or constitutional due process.

The court granted HSBC Hong Kong’s renewed motion to dismiss and dismissed the claims against HSBC Hong Kong, without prejudice, for lack of jurisdiction under Rule 12(b)(2). The court did not decide HSBC Hong Kong’s earlier motion under Rule 12(b)(6), which argued that the complaint failed to state a legally sufficient claim. The clerk was directed to terminate the pending motion and close the case.