Civil procedure - Second Circuit upholds extraterritorial reach over foreign financial institution under the Anti-Terrorism Act.

Author:Kosoy, Yvette M.
Position:Case note


The Anti-Terrorism Act (ATA) affords any United States national injured by an act of international terrorism a private right of action for treble damages. (NOTEREF _Ref384880710 \h \* MERGEFORMAT) Pursuant to 18 U.S.C. [section][section] 2339(A)-(C), financial institutions may be held liable for knowingly providing material support to foreign terrorist organizations. (NOTEREF _Ref384880710 \h \* MERGEFORMAT) in Licci v. Lebanese Canadian Bank, (NOTEREF _Ref384880710 \h \* MERGEFORMAT) the Court of Appeals for the Second Circuit considered whether a foreign bank could be subject to personal jurisdiction in New York in an action brought under the ATA without violation of the due process clause. (NOTEREF _Ref384880710 \h \* MERGEFORMAT) in doing so, the court held that the exercise of personal jurisdiction over Lebanese Canadian Bank, SAL (LCB) did not violate traditional principles of "fair play and substantial justice" and was consistent with due process protections provided by the U S. Constitution. (NOTEREF _Ref384880710 \h \* MERGEFORMAT)

Between the months of July and August of 2006, Hezbollah, an Islamic terrorist organization, fired thousands of rockets into northern Israel. (NOTEREF _Ref384880710 \h \* MERGEFORMAT) in July 2008, the plaintiffs, who were injured in the rocket attacks--or whose family members were killed or injured--brought suit in the New York State Supreme Court against LCB, a bank with its headquarters in Beirut and no operations, branches, or employees in the United States and, American Express Bank Ltd. (AmEx), a Connecticut banking corporation with headquarters in New York. (NOTEREF _Ref384880710 \h \* MERGEFORMAT) AmEx removed the suit to the United States District Court for the Southern District of New York in January 2009, after which plaintiffs brought five claims against LCB for the material support of terrorism. (NOTEREF _Ref384880710 \h \* MERGEFORMAT) Plaintiffs alleged that LCB used its correspondent bank account with AmEx to wire dozens of transfers totaling millions of dollars to the Shahid Foundation (Shahid), the notorious "financial arm" of Hezbollah. (NOTEREF _Ref384880710 \h \* MERGEFORMAT) The plaintiffs further claimed that LCB violated the ATA by facilitating monetary transactions with the actual knowledge that such transfers would enable Hezbollah "to plan, to prepare for and to carry out terrorist attacks," including the rocket attacks that injured the plaintiffs and their families in Israel. (NOTEREF _Ref384880710 \h \* MERGEFORMAT) LCB moved to dismiss, asserting a lack of personal jurisdiction under Rule 12(b)(2) of the Federal Rules of Civil Procedure, and on March 31, 2010, the district court granted LCB's motion to dismiss pursuant to N.Y C.P.L.R. 302(a) (1). (NOTEREF _Ref384880710 \h \* MERGEFORMAT)

The district court concluded that the LCB's wiring of transfers through the AmEx correspondent account constituted a mere "maintenance" of the account, not an active "use" which could amount to the level of transacting business in New

York. (NOTEREF _Ref384880710 \h \* MERGEFORMAT) The district court also found that the plaintiffs' claims did not arise from the defendant's banking activity because plaintiffs' injuries were proximately caused by Hezbollah rocket attacks and not by LCB's wire transfers. (NOTEREF _Ref384880710 \h \* MERGEFORMAT) Concluding that the case did not satisfy either prong of New York court's interpretation of the long arm statute, the district court dismissed for lack of personal jurisdiction over LCB, further adding that exercising jurisdiction over the bank would not comport with constitutional due process. (NOTEREF _Ref384880710 \h \* MERGEFORMAT) The Second Circuit certified two questions relating to the application of personal jurisdiction to the New York Court of Appeals for resolution, as it found the New York law to be "too unsettled" to make such a determination without the assistance of a New York court. (NOTEREF _Ref384880710 \h \* MERGEFORMAT) The New York Court of Appeals considered whether a foreign bank's maintenance and use of a New York correspondent account constituted a business transaction, and if so, whether the plaintiffs' claims under the ATA arose from such transactions. (NOTEREF _Ref384880710 \h \* MERGEFORMAT) On November 20, 2012, the New York Court of Appeals answered both certified state law questions in the affirmative. (NOTEREF _Ref384880710 \h \* MERGEFORMAT) in vacating the district court's opinion, the Second Circuit denied LCB's motion to dismiss and held that the exercise of personal jurisdiction over a foreign bank using a New York correspondent account was consistent with due process. (N0TEREF_Ref384880710\h\*MERGEFORMAT)

The original push for the enactment of the ATA was caused by a pair of terrorist incidents occurring in the 1980's--the terrorist hijacking of the Achille Lauro cruise ship by members of the Palestine Liberation Organization (PLO) and the bombing of Pan Am Flight 103 over Lockerbie, Scotland. (N0TEREF_Ref384880710\h\*MERGEFORMAT) In 1990, the ATA was passed to combat terrorism by creating civil and criminal liability, extending jurisdiction so as to allow suits against terrorist organizations for their violent acts committed overseas. (NOTEREF_Ref38488o710\h\*MERGEFORMAT) Under both the original intent of Congress and the early interpretation of the courts, the ATA's civil suit provision was largely "symbolic," limited to terrorist actors and did not reach non-terrorist third parties. (NOTEREF _Ref384880710 \h \* MERGEFORMAT) Nearly two decades after the ATA's enactment, the Seventh Circuit noted that suits against perpetrators were extremely rare because actual terrorists, "those who pull the trigger or plant the bomb are unlikely to have assets, much less assets in the United States." (NOTEREF _Ref384880710 \h \* MERGEFORMAT) Early ATA decisions dealing with foreign bank defendants emphasized the requirement that injuries must be caused by an international terrorism act and that plaintiffs must not only show that the bank "committed violent acts or acts dangerous to human life, but also that the acts were the proximate cause of the injuries." (NOTEREF _Ref384880710 \h \* MERGEFORMAT) In the mid-1990's Congress enacted 18 U.S.C. [section] 2339(A)-(B), which criminalizes material support for terrorism and grant courts the flexibility to "creatively interpret" the ATA, thereby allowing victims to pursue civil suits against third parties. (NOTEREF _Ref384880710 \h \* MERGEFORMAT)

In recent years, the ATA has been primarily used against non-terrorist businesses such as banks and other financial institutions in suits asserting that the organizations "committed acts of international terrorism by failing to halt wire transfers that allegedly reached terrorist entities." (NOTEREF _Ref384880710 \h \* MERGEFORMAT) In 2002, the Seventh Circuit issued a string of decisions in a case of first impression in Boim v. Quranic Literacy Institute (NOTEREF _Ref384880710 \h \* MERGEFORMAT), where parents of a U.S. citizen sued several charities under the ATA for allegedly acting as Hamas "front organizations" in the United States. (NOTEREF _Ref384880710 \h \* MERGEFORMAT) The Boim litigation set new precedent, eventually extending the civil suit provision of the ATA to allow victims to recover damages from direct financial donors. (NOTEREF _Ref384880710 \h \* MERGEFORMAT) In opposition, the court in Gill v Arab Bank, PLC, found that a foreign bank could not be held liable for terrorist attacks simply by providing passive fund processing services to the Hamas political organization. (NOTEREF _Ref384880710 \h \* MERGEFORMAT) similar decisions to Gill reject the expansion of the ATA on grounds that commercial banking activities are not violent acts or acts that are "dangerous to human life" and cannot be the proximate cause of injuries sustained in terrorist attacks conducted by independent organizations. (NOTEREF _Ref384880710 \h \* MERGEFORMAT)

For personal jurisdiction to exist over a foreign entity under the ATA without infringing on its due process rights, the foreign entity must have sufficient minimum contacts with the forum state for it to be reasonable to require the entity to defend suit there. (NOTEREF _Ref384880710 \h \* MERGEFORMAT) To ascertain a nexus under New York's long-arm statute, two requirements must be met: (1) defendant must have transacted business within the state; and (2) the claim asserted must arise from that business activity. (NOTEREF _Ref384880710 \h \* MERGEFORMAT) The first prong addresses a foreign defendant's 'purposeful availment' of the benefits and protections of a forum state where it has chosen to conduct business. (NOTEREF _Ref384880710 \h \* MERGEFORMAT) Under the second prong, in order for a claim to 'arise from' a business transaction under the New York long-arm statute, a substantial, non-coincidental nexus between the transactions occurring within the state and the cause of action sued upon must exist. (NOTEREF _Ref384880710 \h \* MERGEFORMAT) In reaching a conclusion, the court must consider the totality of the circumstances as not to mistakenly assert jurisdiction over a defendant with insufficient basis. (NOTEREF _Ref384880710 \h \* MERGEFORMAT)

In Licci, the Second Circuit held that the exercise of personal jurisdiction over a nondomiciliary bank conducting no direct business with the United States accorded with constitutional due process. (NOTEREF _Ref384880710 \h \* MERGEFORMAT) The court looked to New York's long arm statute which provides jurisdiction over non-domiciliary entities transacting business in the forum state for any claims which arise from that business activity. (NOTEREF _Ref384880710 \h \* MERGEFORMAT) After considering whether LCB's...

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