If you’re the bank’s attorney, the answer is always going to be the Cayman Islands. Nothing against Odessa, they just don’t have much of a beach.
But, if you are the bank, chances are you would rather be local if you need to sue. In the recent Fifth Circuit case Monkton Insurance Services v. Ritter, case 13-50941, the Fifth Circuit agreed with Cayman Island bank Butterfield Bank (Cayman) Ltd. that a lawsuit against the bank needed to be filed in the islands.
In the Monkton case, William Ritter formed a Cayman Island insurance company which was managed by the Cayman Island management company, Monkton. David Self was the Monkton employee that was in charge of managing the insurance company. Presumably, the insurance company was conducting legitimate business and performing reasonably well, because it had about $500K in its Butterfield Bank account which Self, allegedly, made off with.
Allegedly, Self forged Ritter’s signatures. Ritter was somewhat upset and demanded repayment, which Self paid by (again, allegedly) simply taking funds from other clients’ accounts. Lawsuits ensued.
Whereas Ritter lived in Odessa, Texas, Monkton sued Ritter for return of the cash that Self had paid to Ritter personally. Ritter then filed a third-party lawsuit against Butterfield Bank in Odessa (as part of the Monkton lawsuit). Basically, Ritter was claiming lender liability for failure to spot the forged withdrawal documents.
Quick to note that they did not like Odessa, Butterfield Bank moved to dismiss the claims against the bank for lack of jurisdiction. Basically, Butterfield Bank argued that they lacked enough connection with Texas to permit a Court in Texas to hear a lawsuit against them.
The Trial Court agreed; and the Fifth Circuit also agreed with Butterfield. Notwithstanding 1) phone calls and wired transfers to and from Texas, 2) a website accessible from Texas for Texas clients, and 3) Butterfield Bank maintaining an account for a client doing business in Texas – the Courts agreed that Butterfield was not subject to being sued in Texas.
The underlying legal issues involving subject matter jurisdiction are discussed in the case, and are more technical than most non-lawyers would care to read about. I find them interesting, though, so feel free to give me a call to discuss.
The take home message from this post for lenders is this: simply because you are doing business for a foreign entity in Texas does not mean you will necessarily get to sue them in Texas if things go bad. Proper venue and jurisdictional clauses in agreement are a must as well as venue creation tools, such as SPEs. The business world is getting smaller and you might prefer not to send your attorneys around to the world when a deal goes bad.