The U.S. Court of Appeals for the Second Circuit has allowed an erroneously transferred case to remain in Manhattan district court, citing the “lesser evil” of cost saving and speed of resolving the matter that would be realized by not routing the breach-of-contract suit back to Indiana.

However, the panel, composed of Circuit Judges Pierre Leval, Debra Ann Livingston, and Denny Chin, found that the law under which it made its findings—and not that which the appellants had argued under—meant Indiana, not New York, law was operable in the suit, required a vacating of the lower court's timeliness judgment and a remand for review under the different law.

The suit pits U.S. Bank against Bank of America, in a dispute about liability for a legacy mortgage BofA acquired when it absorbed LaSalle in 2007. The mortgage in question was part of a portfolio sold to an investment trust for which U.S. Bank serves as trustee. At the time of the sale, the agreement held the mortgage originator on the hook to make sure the mortgages were free from restrictions that could harm the ability for the mortgage holder to make good on the loan.

Despite this, one such mortgage in the pool, for an Indiana medical facility, did in fact come with stipulations that ultimately led to the mortgage going belly-up.

U.S. Bank sought to hold BofA accountable, alleging the situation was a breach of the mortgage purchasing agreement reached with LaSalle. The plaintiff bank brought the suit in Indiana federal court in September 2014. BofA successfully petitioned that court to have the case transferred, after the district judge there agreed the court did not have personal jurisdiction over the defendant bank.

On the transfer to New York, U.S. Bank tried to have the suit transferred back to Indiana, to no avail. Ultimately, U.S. District Judge Paul Gardephe of the Southern District of New York granted BofA's motion for judgment, agreeing that the suit was time-barred based on New York law's statute of limitations.

On appeal, the panel looked initially at whether a district court in Indiana does, in fact, have personal jurisdiction over BofA. Given the volume of Indiana contacts that the contract BofA is alleged to have breached, the panel found no reason why the district court there could not have fairly established personal jurisdiction and handled the suit locally.

The panel acknowledged that the suit had already been transferred to New York. Despite the error in doing so, the panel found the New York court was not wrong to keep the suit rather than retransfer. The panel worried about the litigious knot that could be created by the ability to shuttle the suit back and forth between districts, something it called an “intolerable” scenario.

Ultimately, the higher concerns of having cases decided with reasonable speed and efficiency at reasonable cost to the parties in a perfectly adequate venue in Manhattan was greater than resolving the more discrete underlying error.

“Allowing the case to remain in the Southern District of New York, notwithstanding that the Indiana court's transfer order was based on a mistake of law, is a far lesser evil than subjecting the parties to the further expense and delay of a retransfer, with the attendant risk of still further rounds of transfers,” the panel decided.

While the suit staying in New York remained sensible, the fact that the transfer was wrong meant the legal justification for doing so for want of jurisdiction didn't hold up. Rather, the panel found it best to treat the dynamic as a transfer under a different section of the U.S. code—“[f]or the convenience of [the] parties and witnesses, in the interest of justice.”

As such, the rules of which state's laws hold in the litigation changes. Under the previous code justification New York law would be the only available. Now, however, the transfer justification required that the original state's laws be the operative ones for the sake of fairness against forum shopping.

The New York district court's decision, then, finding New York's six-year statute of limitations barred the proceedings was no longer valid. The district court was ordered to interrupt the suit under Indiana's 10-year statute instead.

While concurring in the panel's order, Chin filed a separate opinion, stating he was “not persuaded” that Indiana did, in fact, have specific personal jurisdiction over BofA, even as be supported the denial by New York to retransfer.

Given the legacy nature of the mortgage deal at the core of the dispute, Chin argued that “it is not always the case that an acquired company's jurisdictional contacts can be imputed to the successor-by-merger.”

“Even though Bank of America is liable on the agreements, that does not mean that Bank of America is necessarily subject to suit in Indiana because of LaSalle's jurisdictional contacts,” Chin wrote.

Chin's colleagues on the panel disagreed.

“[W]e can see no reason why, in a suit to enforce a merger partner's contract, the entity that survives the merger should not be subject to personal jurisdiction in whatever court the actions of the merger partner in relation to the contract would have made the merger partner subject,” the panel members wrote.

U.S. Bank was represented by Venable partners Gregory Cross and Colleen Mallon. Neither responded to a request for comment, and a bank spokeswoman said the bank itself declined to comment.

BofA's representation on appeal was led by Winston & Strawn partners Luke Connelly and Elizabeth Papez. A bank spokesman declined to comment, and neither partner responded to a request to do the same.