36 N.Y.2d 592 (1975)

New York courts may entertain a private tort action arising from violations of foreign currency exchange regulations, especially where the plaintiff is a private entity and the action aligns with the policy of cooperation among members of the International Monetary Fund (IMF).

Summary

Banco Frances E. Brasileiro S. A., a Brazilian bank, sued several unknown defendants (“John Does”) for fraud, alleging they violated Brazilian currency regulations. The defendants allegedly submitted false applications to exchange Brazilian cruzeiros for U.S. dollar travelers checks. The bank sought to recover damages and rescind the fraudulent transactions. The New York Court of Appeals held that the action could proceed, distinguishing it from cases where a foreign government sought to enforce its revenue laws directly. The court emphasized the importance of international cooperation under the IMF agreement and the fact that the plaintiff was a private entity seeking redress for a tort.

Facts

Banco Frances E. Brasileiro S. A., a private Brazilian bank, alleged that the defendants fraudulently obtained U.S. dollar travelers checks by submitting false applications in violation of Brazilian currency exchange regulations. The total amount of improperly exchanged currency was $1,024,000. Some of the fraudulently obtained travelers checks were deposited in accounts at Bankers Trust Company and Manfra Tordella & Brookes, Inc., in New York under code names. The bank sought an order of attachment against the defendants’ property in New York and authorization for service of summons by publication.

Procedural History

The Supreme Court, New York County granted the order of attachment and authorized service by publication. The court also granted motions for disclosure from Bankers Trust Co. and Manfra Tordella & Brookes, Inc. The Appellate Division reversed, dismissing the complaint based on the principle that New York courts do not enforce foreign revenue laws, relying on Banco do Brasil v. Israel Commodity Co. The New York Court of Appeals then modified the Appellate Division’s order, reinstating the order of attachment and the first two causes of action.

Issue(s)

1. Whether a private foreign bank may bring an action in New York courts for damages for tortious fraud and deceit arising from alleged violations of foreign currency exchange regulations.
2. Whether the rule against enforcing foreign revenue laws bars a private tort remedy when the cause of action arises from a violation of foreign currency regulations.

Holding

1. Yes, because United States membership in the International Monetary Fund (IMF) makes it inappropriate to refuse to entertain the claim, and the rule against enforcing foreign revenue laws does not bar a private tort remedy when the cause of action arises from a violation of foreign currency regulations.
2. No, because this case involves a private bank seeking rescission and damages, unlike cases where a foreign government seeks direct enforcement of its revenue laws.

Court’s Reasoning

The court reasoned that while the traditional rule is that one state does not enforce the revenue laws of another, this rule is outdated and analytically unjustifiable, especially in light of the economic interdependence of nations. U.S. membership in the IMF indicates a policy of cooperation with member states’ exchange regulations. The court distinguished Banco do Brasil v. Israel Commodity Co., noting that the plaintiff there was a government bank seeking redress for violations of its currency exchange regulations, whereas here, the plaintiff is a private bank seeking a tort remedy. The court stated, “Nothing in the agreement prevents an IMF member from aiding, directly or indirectly, a fellow member in making its exchange regulations effective. And United States membership in the IMF makes it impossible to conclude that the currency control laws of other member States are offensive to this State’s public policy so as to preclude suit in tort by a private party.” The court also observed that where private parties are involved, the “jealous sovereign” rationale is inapposite. The dissenting judge argued that the ultimate effect of granting relief would be the enforcement of a foreign country’s currency regulation system, for which New York courts are not open. Ultimately the court concluded that “conduct reasonably necessary to protect the foreign exchange resources of a country does not offend against international law.”