22 US Citizens May Bring Case Against Buyer of Hezbollah Funder in NY, Top State Court Rules
Twenty-one U.S. citizens who were harmed -- and the estate of one who was killed -- in 2006 Hezbollah rocket attacks may bring the new owners of one of the terrorist group’s alleged major funders to court in New York, the state’s highest court certified April 18.
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The ruling means that now, when a company purchases all of the assets and liabilities of another, it is also subject to personal jurisdiction in New York if its predecessor would have been.
The suit’s plaintiffs claim that the Lebanese Canadian Bank (LCB) “provided extensive financial services to [Hezbollah],” including wiring the group millions of dollars through a New York bank. LCB was designated a “primary money laundering concern” by the Treasury Department in 2011 “based on this conduct,” the court said.
In 2008, many of plaintiffs were allowed to sue LCB in the state after another decision by the New York Court of Appeals found there was adequate jurisdiction for their case to proceed. However, LCB was sold off to the Lebanese company Société Générale de Banque au Liban (SGBL) in 2011 for $580 million. So when the plaintiffs first brought their current suit against SGLB in 2019, it was dismissed for lack of personal jurisdiction by a federal district court. The lower court said that it could find no precedent for jurisdiction transferring in the event of an acquisition.
On appeal, the U.S. Court of Appeals for the 2nd Circuit certified two questions to the top state court asking whether it could find otherwise.
The state court agreed that the suit against SGBL was in the right place and the dismissal could be revoked.
Though there is precedent for personal jurisdiction transferring after mergers -- and not transferring after partial acquisitions -- the question of whether jurisdiction could transfer after a complete acquisition has never arisen before in New York, the state court said.
However, it said it had considered several times whether successor companies could be liable for predecessors’ acts, and these decisions could be “helpful touchstones” for the case. Generally, purchasers are not responsible for sellers’ torts, it said, but in the past it has carved out exceptions for situations in which a purchaser was a “mere continuation” of the seller or the transaction was fraudulently intended to escape liability.
In reaching its ruling on successor jurisdiction, the court considered factors such as “whether imputing jurisdiction fairly reflects the reasonable assumptions and expectations of the parties to transactions, whether doing so induces responsible parties to internalize responsibility for risks they create, and the impact of imputing jurisdiction on those injured by a predecessor’s acts.”
Those considerations weighed in favor of successor jurisdiction in cases of complete acquisition by a different entity, the court said.
“Sophisticated corporate entities such as SGBL will undoubtedly engage in robust due diligence before agreeing to acquire all assets and liabilities of another entity,” it said. “In doing so, they should understand where jurisdiction over such liabilities may lie and the potential cost if ultimately found liable, and will presumably negotiate a purchase price that is discounted by that prospect.”