Second Circuit Gives Renewed Hope to Account Holders Seeking to Access Their Funds Trapped in Lebanese Banks—But Is It Only a Glimmer?

On December 15, 2022, in Raad v. Bank Audi SAL, Case No. 21-2612, the U.S. Court of Appeals for the Second Circuit vacated the Southern District of New York’s decision to dismiss the breach of contract case on forum non conveniens grounds. In its Summary Order, the Court of Appeals found that the forum selection clause in the General Agreement between the depositors and the bank did not contain language directing that Beirut courts have exclusive jurisdiction over disputes arising from their agreement. While this decision gives a glimmer of hope to these account holders, the Summary Order certainly does not ensure victory for the Raads just yet. Importantly, the ruling also does not have precedential effect, meaning it will provide limited support for others seeking to bring claims against Lebanese banks for refusing to release their funds. Nonetheless, this decision demonstrates that persons and entities with funds locked behind capital controls instituted unilaterally by Lebanese banks due to the ongoing Lebanese financial crisis may still have a path to redress in U.S. courts.

By way of background, the Lebanese lira (or Lebanese pound) has lost over 90% of its value since the Lebanese economy collapsed in the summer of 2019. In response, Lebanese commercial banks imposed informal capital controls with severe restrictions on foreign currency withdrawals, effectively leaving account holders with no way to access their funds.

The specific facts of the dispute are important to consider when analyzing the potential real impact of the appellate court’s decision. In October 2019, the Raads requested that Bank Audi transfer $17,494,000 held in their Bank Audi accounts to their bank account in New York. Bank Audi allegedly agreed to transfer the funds, but the transfers never occurred. In December 2020, the Raad family filed breach of contract claims against Bank Audi seeking the immediate transfer of the funds in question. Bank Audi in turn moved to dismiss the Raads’ claims on jurisdictional and forum non conveniens grounds. 

While the district court granted Bank Audi’s motion on forum non conveniens grounds only, its decision was vacated by the Second Circuit and remanded for further proceedings. The relevant portion of the forum selection clause at issue provided: “[T]his agreement shall be governed by and construed in accordance with Lebanese laws. Beirut courts shall have jurisdiction over any dispute that may arise of this Agreement.” The district court found that this language mandated exclusive jurisdiction in Beirut courts, because of the phrase “shall have jurisdiction”.

The Second Circuit disagreed, explaining that “shall have jurisdiction” did not confer exclusive jurisdiction; rather, it specified jurisdiction in Beirut without explicitly restricting jurisdiction to Beirut courts only. Absent “further language indicating the parties’ intent to make jurisdiction exclusive,” the forum clause is considered nonexclusive and only authorized suit in Beirut, as opposed to designating Beirut courts with exclusive jurisdiction.

TAKEAWAY

Make no mistake: The Raads still face an uphill battle in their efforts to have their funds transferred to their New York accounts. In its now-reversed ruling on forum non conveniens, the district court also said it was “highly doubtful that it has personal jurisdiction over Bank Audi,” though it did not actually reach that issue in its decision, and the Second Circuit gave no indication that it disagreed. But the Raads’ claims survive another day.

The Court of Appeal’s Order signals that persons and entities with funds tied up in Lebanese bank accounts may still have an avenue to seek recovery in U.S. courts, depending on the specific language contained in the applicable agreements. This is meaningful because avenues of relief within Lebanon remain largely unavailable, especially as the Lebanese judges’ strike continues to paralyze local courts. Notably, French and British courts have recently issued decisions ordering Lebanese banks to allow certain depositors to access their funds despite the capital controls in place, and this decision from the Second Circuit provides a glimmer of hope, however faint, that U.S. courts could be on the same trajectory.