Recently the Second Circuit held that plaintiffs seeking to bring Anti-Terrorism Act claims against a financial institution for injuries suffered in terrorist attacks by Hamas and Hizbollah in Israel failed to adequately allege proximate causation. According to a memo I just received from our friends at Sullivan & Cromwell, this case will be an important precedent for financial institutions and other companies in defending themselves against ATA lawsuits. Here is an excerpt:
The past decade has seen a surge in the number of cases brought against financial institutions and other major corporations under the Anti-Terrorism Act, 18 U.S.C. § 2331 et seq. (“ATA”). Plaintiffs alleging injuries by acts of international terrorism have sought to recover treble damages for their injuries from financial institutions on the theory that the financial institutions supplied, directly or indirectly, financial services to the terrorist groups. The frequency with which such suits are filed is unlikely to diminish, particularly because Congress recently extended the statute of limitations for ATA claims from four to ten years, and in some circumstances even longer. On February 14, 2013, the United States Court of Appeals for the Second Circuit issued a significant opinion with respect to the ATA’s causation requirements. In Rothstein v. UBS AG, the Court held that the plaintiffs had failed adequately to allege that UBS’s transfers of funds for the government of Iran were the proximate cause of the plaintiffs’ injuries suffered in terrorist attacks by Hamas and Hizbollah in Israel. Rothstein will be an important precedent for financial institutions and other companies in defending themselves against ATA lawsuits.
The ATA provides for a private right of action for treble damages to any U.S. national “injured in his or her person, property, or business by reason of an act of international terrorism.” 18 U.S.C. § 2333(a). The statute defines “international terrorism” to include “activities that . . . involve violent acts or acts dangerous to human life that are a violation of the criminal laws of the United States.” 18 U.S.C. § 2331(1)(A). In ATA cases filed against financial institutions, plaintiffs have alleged that a financial institution violated the criminal laws prohibiting persons from knowingly providing material support to a foreign terrorist organization (“FTO”) as designated by the U.S. Department of State. 18 U.S.C. § 2339B. “Material support” is defined broadly to include the provision of “financial services.” 18 U.S.C. § 2339B(g)(4). Moreover, courts have interpreted one of the relevant material support provisions, 18 U.S.C. § 2339B, to require only that the defendant financial institution know that it is providing material support to a FTO, or to an entity controlled by the FTO (e.g., a charity run by a FTO), and not that the defendant knew the organization would use the funds for terrorism.
The plaintiffs in Rothstein were victims of terrorist attacks that were carried out by Hamas and Hizbollah in Israel. The plaintiffs sued UBS under the ATA, claiming that UBS had transferred U.S. currency to the government of Iran, which in turn had provided financial support to Hamas and Hizbollah. The State Department has designated Iran as a state sponsor of terrorism that is a “central banker for terrorism” and that continues to encourage terrorist attacks by Hamas and Hizbollah. The plaintiffs alleged that the
support Iran provided to Hamas and Hizbollah facilitated the terrorist attacks that caused plaintiffs’ injuries.
The district court granted UBS’s motion to dismiss the action, holding that the plaintiffs’ “extended chain of inferences” was “far too attenuated to provide plaintiffs with sufficient standing to bring this action under federal law.” The plaintiffs appealed to the Second Circuit.
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