Connecticut Bar Journal
69 CBJ 143.
Survey of 1994 Developments in International Law in Connecticut
143Survey of 1994 Developments in International Law in ConnecticutBy HOUSTON PUTNAm LOWRY (fn*) AND PETER W SCHROTH (fn**)This year's developments reflect a continuing trend in Connecticut: just as it is necessary to know federal law when advising clients, it is becoming increasingly obvious that a practicing lawyer must know at least the rudiments of international law in order to advise his Connecticut clients properly. As Connecticut clients extend their operations outside the United States and foreign investors extend their operations into Connecticut, they call upon their Connecticut lawyers to give them competent advice.
Part I of this article describes recent changes in Connecticut's international banking law and some international aspects of revisions in the state and federal rules of civil procedure. Part 11 is a discussion of three decisions of the Connecticut courts and the United States District Court for the District of Connecticut. (fn1)
International Banking. (fn2)
Connecticut law traditionally has been quite hostile to "foreign" banks, although usually our legislators were thinking not so much of English or Japanese banks as of banks based in New York (and, incidentally, other states). Former §36-5a (fn3) (now §36a425) of the General Statutes forbade out- of-state banks to trans
144act any business in this state unless empowered to do so by some Connecticut law (and there were only a few such statutory empowerments, notably §36-5a(g), permitting loans secured by mortgages on residential real estate located in Connecticut). (fn4) In 1983, banks from the other New England states were allowed to come into the tent through acquisition
145of Connecticut banks though not by establishing their own branches.' The restrictions on all other banks were clarified in several ways and broadened to include savings and loan associations in 1983 and 1984. (fn5) Two important aspects of this scheme were permission for the establishment of up to two non- deposit-taking offices per year in Connecticut by a "foreign" bank group (fn7) and a "grandfather" clause allowing such groups to continue doing whatever they had been authorized to do and were in fact doing, originally on March 1, 1983, and then on June 1, 1984. (fn8) In 1990, the General Assembly finally granted access to the Connecticut market to banks from any other state or foreign country extending reciprocal privileges to Connecticut banks; this access was limited to acquisition of Connecticut banks during the first two years, but establishment of Connecticut banks was permitted beginning February 1, 1992. (fn9)
In 1994, the General Assembly adopted, effective January 1, 1995, a comprehensive recodification of the banking laws. (fn10) The general rule of former §36-5a (that foreign banking corporations are forbidden to transact any business in this state unless empowered to do so by some Connecticut law) continues to be found in new § 36a-425, but now the exception almost swallows the rule: provided .... no such foreign banking corporation shall be deemed to be doing or transacting business in this state for purposes of this section ... by reason of its making loans whether secured or unsecured. (fn11)
Deposit services, the other half of the traditional definition of banking business (fn12) are not part of the exception, but out-of-state banks routinely accept deposits by mail from Connecticut residents.
The wording of the definition of "foreign banking corporation (fn13) in former §36-5a(a) (now §36a-425(a)) was simplified in a potentially confusing way: For purposes of this section, "foreign banking corporation" means a banking corporation which is organized under the laws of or has its principal office in any state other than Connecticut or any Foreign country.
Knowing that other states and foreign countries were treated the same in the previous version of this sentence, we can be confident that it means "under the laws of ... any state ... or any foreign country" rather than "other than Connecticut or any foreign country," which would have the surprising effect of exemptin banks based in foreign countries from many of the restrictions on out-of-state banks.
146New §36a-425(b) eliminates the requirement of former §36-5a(b) that a foreign banking corporation obtain permission from the Banking Commissioner to establish an office in Connecticut that will not engage in a banking business but retains the prohibition if the office-will be used to enable the corporation to engage in a banking business in the state. "Banking business for this purpose, means receiving deposits, paying checks, ness, lending money and closely related activities. Whereas former §36-5a(d) permitted a foreign bank group to establish, subject to the approval of the banking commissioner, only two new offices per calendar year "for the purpose of engaging in banking business other than to provide deposit services," new §36a-425(d) eliminates the numerical limit.
In its October 1994 Special Session, the General Assembly responded to Swiss Bank Corporation's interest in moving its North American headquarters (and a reported 2,000 to 3,000 jobs) from New York City to Stamford with $145 million in potential tax credits and further changes to the banking laws. (fn13) The new provisions are not limited to Swiss Bank Corporation, so a "foreign bank" willing to make Connecticut its home state for purposes of the International Banking Act of 1978 (fn14) would now be allowed, with the Banking Commissioner's approval, to establish branches or agencies to conduct a banking business in the state. Note that a "foreign bank" for this purpose is a bank based outside the United States and its territories, (fn15) so non-United States banks are now allowed to do more in Connecticut than banks from other states. Furthermore, if a foreign bank not only elects Connecticut as its home state but also employs 2,000 people here in a new building, (fn16) it will enjoy potentially very substantial tax benefits not available to banks from other states. For comparison, Swiss Bank Corporation might have been eligible for up to $50 million in tax credits on the basis of a class 2 eligibility certificate under § 12-217in of the General Statutes and its projected initial 2,000 employees in the state, but under the new
147law, its tax credits may amount to $120 million for the same 2,000 employees (albeit in a larger building than § 12-217m requires).
Superior Court Rules.
Effective October 1, 1994, the Superior Court Rules Committee adopted two new rules relating to international law issues. Practice Book §202A deals with service of process outside the United States and §236B deals with discovery outside the United States. This continues a story on which we reported three years ago, implementing a portion of P.A. 91-324, (fn17) which is now codified in §§ 52-59d and 52-197b of the General Statutes.
1. 202A. Orders of Notice Directed Outside of the United States of America.
Practice Book §202A deals with orders of notice (fn18) directed abroad. An order of notice is a direction by the court, giving notice to the defendant so the defendant can appear and defend the lawsuit. Historically, litigants have relied upon the various Connecticut long arm statutes (fn19) without determining whether or not such "order of notice" service violates the Hague Convention on the Service Abroad of judicial and Extra-judicial Documents in Civil or Commercial Matters (the "Hague Service Convention"). (fn20) Section 52-59d of the General Statutes makes it clear Connecticut has legislatively adopted the so-called "first use" rule, rejecting the "comity" approach of the United States Supreme Court in Volkswagenwerk v. Schlunk. (fn21) Under the "first
148use" rule, a litigant must first attempt to use the Hague Service Convention if it is applicable. Only if service cannot be completed within sixty days" may the litigant apply to the Superior Court for an order of notice. The Superior Court will issue an order of notice after considering the guidelines specified in Schlunk and the Restatement (Third) of Foreign Relations §442.
Section 202A codifies existing law by describing the factors the court must consider when determining the manner in which notice must be given:
(1) "other methods of service specified or allowed in any applicable international treaty or convention, including any reservations." If a bilateral treaty, such as an investment treaty or a friendship, commerce and navigation treaty, provides for a method that supplements a method specified by a multilateral...