NACIONAL FINANCIERA v. THE CHASE MANHATTAN BANK

JOHN S. MARTIN, JR., United States District Judge.

Plaintiff Nacional Financiera, S.N.C. ("Nafin" or "Plaintiff") brings this suit against The Chase Manhattan Bank ("Chase") and Bank of America ("BofA") (collectively "Defendants") as the result of an errant wire transfer. On the present motion, Chase seeks to compel the joinder of certain necessary parties, or, in the alternative, to dismiss the complaint pursuant to Fed.R.Civ.P. 19. For the following reasons, Chase's motion to compel joinder is granted.

In 1999, Nafin, a Mexican bank, loaned $10 million worth of credit to Triturados Basalticos S.A. ("Tribasa"), a Mexican construction corporation. In order to satisfy this debt, on December 7, 1999, Tribasa ordered Chase in writing to wire-transfer $9,775,701.95 from Tribasa's Chase account in New York to Nafin's account at Deutsche Bank, also located in New York. Chase inadvertently transferred the funds to Tribasa's account at BofA, which was located in California. Chase promptly informed BofA of the error. BofA proceeded to deposit the funds into its own account in order to off-set a debt that was owed to it by Tribasa. The BofA debt resulted from a loan transaction that BofA's Mexican lending unit had entered into with Tribasa, in which it, along with banks Deutsche Bank and Societe Generale, extended $100 million worth of credit to Tribasa. (Keen Aff. Ex. C at 39-40.) BofA subsequently refused to return the mis-wired funds to Tribasa or Nafin, and Chase refused to refund them for its negligent transfer. Accordingly, in February 2000, Nafin brought this action against Chase for breach of contract and negligence on the theory that Nafin was a third party beneficiary to the wire agreement, and against BofA for unjust enrichment and conversion. Chase and BofA each asserted cross-claims against one another.

On or about October 27, 2000, a group of plaintiffs lead by Lipstick, Ltd. (the "Lipstick Petitioners") filed suit against Chase and Tribasa in New York Supreme Court. The Lipstick Petitioners, who consist of judgment creditors of Tribasa and its related companies, claim a right to the mis-wired funds on the theory that they stand in Tribasa's shoes and can therefore recover the funds in order to satisfy their outstanding money judgments. In addition, in November 2000, Societe Generale served levies upon Chase and BofA claiming a right to the funds.

Chase argues that failure to join the Lipstick Petitioners and Societe Generale in the present action will expose it to the risk of incurring inconsistent obligations, and that accordingly these necessary parties should be joined forthwith.

Rule 19(a) requires that a party must be joined in an action if:

(1) in the person's absence complete relief cannot be accorded among those already parties, or (2) the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person's absence may (i) as a practical matter impair or impede the person's ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest.

If a party is deemed necessary to the action, that party shall be joined unless doing so will destroy subject matter jurisdiction or is otherwise unfeasible.

The very purpose of the state court suit is to recover the funds at issue in this litigation. Therefore, the Lipstick Petitioners "claim an interest relating to the subject of the action." In addition, whatever the merits of the Lipstick Petitioners' claims, their suit exposes Chase to the risk of inconsistent obligations were this Court to order relief that differs from that ordered by the state judge. For example, this Court could order Chase to repay the funds to Nafin as the third party beneficiary of its agreement with Tribasa, while the state judge might order Chase to pay the money directly to Tribasa's judgment creditors. Moreover, BofA is also threatened by inconsistent obligations because a victory by the Lipstick Petitioners against Chase will undoubtedly lead to a claim-over against BofA. Thus, while BofA might be ordered to repay the funds to Nafin in this action, it could incur a different obligation were Chase to implead it in the state action, as Chase apparently plans to do. Similarly, Societe Generale claims a right to the instant funds and its absence from this suit may hinder its ability to protect that right.

Therefore, the Lipstick Petitioners and Societe Generale are necessary parties, and they should be joined unless joinder will destroy the Court's subject matter jurisdiction. This action was originally brought as a diversity action, and adding the Lipstick Petitioners will destroy diversity jurisdiction.

Chase argues that this Court nevertheless has subject matter jurisdiction over the action pursuant to 21 U.S.C. § 632, which confers upon federal courts jurisdiction over suits arising from international banking transactions. Both Nafin and BofA dispute the applicability of Section 632 to the facts of this case.

Section 632 provides:

Notwithstanding any other provision of law, all suits

of a civil nature at common law or in equity to which any corporation organized under the laws of the United States shall be a party, arising out of transactions involving international or foreign banking . . . or out of other international or foreign financial operations, either directly or through the agency, ownership, or control of branches or local institutions in dependencies or insular possessions of the United States or in foreign countries, shall be deemed to arise under the laws of the United States, and the district courts of the United States shall have original jurisdiction of all such suits. . . .

Chase claims that the requirements of Section 632 are met because BofA is a national bank and because the claims at issue arise from an agreement between a Mexican corporation and a New York bank to wire funds that related to an underlying Mexican loan, and from BofA's assertion that under the terms of its international loan agreement with Tribasa it was entitled to retain the mis-wired funds in order to off-set Tribasa's indebtedness. BofA, on the other hand, asserts that the claims in this action arise from a simple wire agreement between Tribasa and Chase, in which funds that were supposed to be transferred from one New York account to another New York account were mistakenly sent to a California account. BofA argues that both the negligent transfer and BofA's right of set-off implicate standard state law issues, and do not properly arise from "transactions involving international or foreign banking."

Resolution of these conflicting arguments necessarily depends upon how broadly one should construe the reach of Section 632. Courts have generally required that the bank transactions at issue arise from "traditional" banking activities, such as loan agreements, letters of credit, mortgage agreements, or payment and processing of drafts. See Conjugal Soc'y Composed of Juvenal Rosa v. Chicago Title Ins. Co., 690 F.2d 1, 4 (1st Cir. 1982); Ossandon v. Swiss Bank Corp., No. 87 Civ. 0991, 1988 WL 138124, at *1-2 (S.D.N.Y. Dec. 15, 1988); Telecredit Serv. Ctr. v. First Nat'l Bank, 679 F. Supp. 1101, 1103 (S.D.Fla. 1988). The transaction must contain some foreign aspect, and where the national bank is not a central party to the underlying transaction, the suit must nevertheless expose it to the risk of liability. Compare Wells Fargo Asia Ltd. v. Citibank, N.A., 936 F.2d 723 (2d Cir. 1991), with Corporacion Venezolana de Fomento v. Vintero Sales Corp., 629 F.2d 786, 791-92 (2d Cir. 1980); see also Lazard Freres Co. v. First Nat'l Bank, No. 91 Civ. 0628, 1991 WL 221087, at *2 (S.D.N.Y. Oct. 15, 1991); Telecredit, 679 F. Supp. at 1103-04.

For example, in Corporacion Venezolana de Fomento v. Vintero Sales Corp., 629 F.2d 786, 791-93 (2d Cir. 1980), the Second Circuit held that jurisdiction existed over a transaction involving a sale of ships by a Venezuelan company to a New York company, in which a national bank issued a letter of credit in the New York company's favor against the Venezuelan company's account and allegedly allowed drawdowns in error. The "traditional" banking activity was the issuance of the letter of credit and the accompanying wrongful drawdowns, and the transaction was appropriately "foreign" because the letter was issued against a Venezuelan company's New York bank account. The Court noted that because the national bank was exposed to liability in the action, it was "entitled to the protection offered by 12 U.S.C. § 632." Id. at 792.

Although courts require the existence of a traditional banking activity having some foreign flavor, Judge Sweet has noted that courts have applied Section 632 even where the issues in the case involve state law causes of action and contain only an "incidental connection to banking law." In re Lloyd's Am. Trust Fund Litig., 928 F. Supp. 333, 340 (S.D.N.Y. 1996). See, e.g., Conjugal Soc'y, 690 F.2d at 5 (tort claims arising from mortgage transaction). Thus, Judge Sweet found that Section 632 was satisfied where Lloyd's underwriters alleged that Citibank wrongfully administered trust fund assets contained in a New York account, even where the claims involved negligent fund administration and breach of fiduciary duty. But see Bank of New York v. Bank of America, 861 F. Supp. 225, 232-33 (S.D.N.Y. 1994) (declining to exercise jurisdiction under Section 632 where only question was whether a contract had been formed in the context of a sale of loans).

Here, there is no question that BofA is a national bank and that it is exposed to liability in this action based on its retention of the misdirected funds. BofA deposited the funds into its own account under the belief that it had a right to do so in order to off-set Tribasa's debt, which was the result of a foreign loan by BofA's Mexican lending unit. Thus, the presence of BofA, together with the international loan transaction that triggered its liability, meets the plain language of Section 632.

Even if BofA had not engaged in a foreign banking transaction with Tribasa, but had simply deposited funds that it received in error, jurisdiction arguably exists based on the wire agreement between Nafin and Chase. The wire agreement constitutes a traditional banking activity, and although the wire transfer was executed domestically, both Tribasa and Nafin are Mexican corporations maintaining bank accounts in New York. This would appear to fulfill the "foreign banking" requirement of the statute.

In any event, the Court has original subject matter jurisdiction over this action under Section 632, and joinder of the Lipstick Petitioners is therefore both necessary and feasible. Nafin is hereby ordered to amend its complaint in order to join the state court plaintiffs. In addition, Nafin should join Societe Generale if it is subject to the jurisdiction of this Court. Nafin's failure to join these parties will result in dismissal of its complaint for failure to join a necessary party.

SO ORDERED.