Bank of New York v. Nickel

14 A.D.3d 140, 789 N.Y.S.2d 95, 2004 N.Y. App. Div. LEXIS 15495
CourtAppellate Division of the Supreme Court of the State of New York
DecidedDecember 21, 2004
StatusPublished
Cited by23 cases

This text of 14 A.D.3d 140 (Bank of New York v. Nickel) is published on Counsel Stack Legal Research, covering Appellate Division of the Supreme Court of the State of New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Bank of New York v. Nickel, 14 A.D.3d 140, 789 N.Y.S.2d 95, 2004 N.Y. App. Div. LEXIS 15495 (N.Y. Ct. App. 2004).

Opinion

OPINION OF THE COURT

Catterson, J.

In 1991, war broke out in Yugoslavia when Slovenia and Croatia declared independence. Although the actions of the breakaway republics were reminiscent of the events of 1914 that ultimately led to the Great War, the reactions of the world’s powers were thankfully, substantially different.

The United States and the United Kingdom reacted to the conflict by imposing economic sanctions on Serbia. Prior to the conflict in Yugoslavia, Congress had enacted the International Emergency Economic Powers Act (hereinafter referred to as IEEPA; 50 USC § 1701 et seq.), which empowered the President to block the property and interests in property of nationals of countries that are involved in an “unusual and extraordinary threat... to the national security, foreign policy, or economy of the United States.” (§ 1701 [a].) On May 30, 1992, President George H. W Bush issued Executive Order No. 12808 (57 Fed Reg 23299), in which he found that “the actions and policies of the Governments of Serbia and Montenegro ... in their involvement in and support for groups attempting to seize territory in Croatia and Bosnia-Hercegovina by force and violence” constituted the requisite threat. The Executive Order and the [142]*142ensuing Office of Foreign Assets Control of the United States Department of the Treasury (hereinafter referred to as OFAC) regulations blocked property and interests in property of Serbian nationals and others in specified circumstances.

The regulations promulgated by OFAC had a relatively narrow objective. The “Federal Republic of Yugoslavia (Serbia & Montenegro) and Bosnian Serb-Controlled Areas of the Republic of Bosnia and Herzegovina Sanctions Regulations” (31 CFR part 585) provided:

“[N]o property or interest in property of any commercial, industrial, or public utility undertakings or entities organized or located in the Federal Republic of Yugoslavia (Serbia and Montenegro) . . . that hereafter come within the United States, or that are or hereafter come within the possession or control of United States persons . . . may be transferred, paid, exported, withdrawn or otherwise dealt in.” (31 CFR 585.201 [b].)

Prior to the enactment of that regulation, respondent-appellant Norilsk Nickel (hereinafter referred to as Norilsk) was given a license by the government of the former Soviet Union to construct a furniture factory in the City of Norilsk.1 V.V.O. Technoexport, acting as the agent of Norilsk, contracted with General Export, LTD., one of Yugoslavia’s largest companies, to build the factory.

At that time, the USSR was experiencing a shortage of currency available for foreign exchange. Accordingly, Norilsk was authorized by the Soviet government to pay for the construction project by means of exporting copper-nickel matte (enriched copper-nickel ore) produced by Norilsk at its mining facility. Specifically, a supplement to the contract with General Export, LTD., provided for payment by delivery of matte to a company called Falconbridge Nikkelwerk A/S (hereinafter referred to as Falconbridge) at its plant in Norway. Falconbridge would extract copper, nickel and other metals from the matte and would then purchase those metals, paying their market price, less the cost of extraction, to accounts at Midland Bank and Barclays Bank in London.

[143]*143The accounts at Midland Bank and Barclays Bank were held in the name of General Export LTD., Genex-Metali Belgrade (hereinafter referred to as Genex) and an affiliate. Norilsk was authorized to give instructions for payment from these accounts, inter alia: (1) to pay Genex for constructing the factory and (2) to pay the invoices of companies that supplied equipment used in constructing the factory. When the various economic sanctions took effect in 1992, the United Kingdom froze the Genex accounts at Midland and Barclays Banks.

Norilsk sought to have the blocked monies transferred to Russia so that Norilsk could pay for supplies and equipment for the furniture factory. Norilsk applied to British authorities for a license to transfer the monies. On October 28, 1993, the Bank of England granted a license to transfer approximately $3.9 million. Approximately $1.4 million was thereupon transferred to Norilsk. The balance—approximately $2.5 million—is at issue in this proceeding.

On November 4, 1993, Genex originated funds transfers by giving payment orders to its bank, Midland Bank, to transfer approximately $2.5 million to Norilsk at Norilsk’s account at International Moscow Bank. Midland Bank accepted Genex’s payment orders by executing them and sending payment orders to the Bank of New York, as intermediary bank, where Norilsk’s bank, International Moscow Bank, maintained a correspondent account for electronic funds transfers in United States currency. Midland Bank’s payment orders instructed the Bank of New York to credit the account of International Moscow Bank for the benefit of Norilsk.

On November 5, 1993, Midland Bank sent Genex a “debit advice” informing Genex that Midland Bank had debited Gen-ex’s account in the amount of $2,406,227.41, and had instructed the Bank of New York to credit the account of Norilsk at the International Moscow Bank in a series of three separate wire transfers dated November 8, 10 and 24, 1993. It is undisputed that the Bank of New York accepted the transfer orders but pursuant to 31 CFR part 585, the Bank froze the funds transfers in New York, adhering to the maxim “abundans cautela non nocet.” The bank maintained the funds in a “call account” in New York.

Eventually, the regulations authorizing the freezing of Yugoslavia-related transfers were rescinded in part. Effective February 25, 2003, pursuant to 31 CFR 585.529, all funds frozen pursuant to the OFAC regulations were released but for certain [144]*144exceptions not relevant to this appeal. (See 31 CFR 585.529 [a] [1] [“as of February 25, 2003, all transactions that otherwise would be prohibited by this part . . . are authorized”].) That same regulation also authorized any person or government to seek an attachment or other restraint with respect to any property subject to the pending unblocking. (See 31 CFR 585.529 [b].)

Norilsk asked the Bank of New York to unblock the funds in question as of February 25, 2003. By that date, however, two creditors of Genex or its affiliates had served process on the Bank of New York with respect to the funds.

On February 12, 2003, respondent LBS Bank-New York (hereinafter referred to as LBS Bank) served a restraining notice in an action entitled LBS Bank-New York v Impex Overseas Corp. and BSE Genex Co. Ltd. (Index No. 601131/98, Sup Ct, NY County). LBS Bank had previously obtained a judgment and sought to restrain any assets of a Genex affiliate up to $501,612.64, the amount of that judgment.

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Bluebook (online)
14 A.D.3d 140, 789 N.Y.S.2d 95, 2004 N.Y. App. Div. LEXIS 15495, Counsel Stack Legal Research, https://law.counselstack.com/opinion/bank-of-new-york-v-nickel-nyappdiv-2004.