21 February 2013
A federal appellate court in New York has held that under the Anti-Terrorism Act (ATA), a bank cannot be held liable for the acts of terrorist organizations, such as Hamas and Hezbollah, solely because the bank provided financial services or otherwise dealt with a state sponsor of terrorism, such as Iran. The court further held that the ATA does not allow claims for aiding and abetting.
The decision comes in Rothstein v. UBS AG, where the US Court of Appeals for the Second Circuit affirmed the dismissal of plaintiffs’ ATA claims for failure to state a claim. According to the court, the plaintiffs failed to plausibly allege that customary banking serices provided to Iran were the proximate cause of injuries suffered due to terrorist attacks by Hamas and Hezbollah.
Rothstein is significant because it is the first appellate decision to reasonably constrain the ATA on third-party liability by imposing a meaningful proximate causation requirement. The Second Circuit’s rationale, moreover, may prove helpful to financial institutions in other cases in which plaintiffs attempt to hold banks liable for routine banking transactions based on allegations that such transactions bestowed some type of downstream benefit on those who injured the plaintiffs. Rothstein’s holding on aiding and liability is not only important in the ATA context, it also may prove helpful in defending against attempts by plaintiffs to read secondary liability into other statutes that do not expressly provide for it.
The plaintiffs in Rothstein brought claims against UBS pursuant to the ATA, a statute that provides a private cause of action for “[a]ny national of the United States injured in his or her person, property, or business by reason of an act of international terrorism.” UBS moved to dismiss plaintiffs’ claims in the district court, arguing that plaintiffs lacked standing because UBS’s alleged conduct was not “fairly traceable” to plaintiffs’ injuries. UBS also argued that plaintiffs failed to state a claim because they had not adequately alleged that UBS’s conduct was a proximate cause of their injuries. The district court agreed, and dismissed plaintiffs’ claims for lack of standing and failure to state a claim. The district court further held that UBS could not be held liable on an aiding and abetting theory because the ATA does not allow civil aiding and abetting claims.
On appeal, the Second Circuit reversed the district court’s decision on standing, but affirmed the plaintiffs’ failure to state a claim due to lack of proximate causation. The Second Circuit explained that “the requirement that a complaint allege an injury that is fairly traceable defendants’ conduct for purposes of constitutional standing is a lesser burden than the requirement that it show proximate cause.”
To satisfy the “fairly traceable” requirement necessary to establish standing to sue under the Constitution, a plaintiff need allege only that defendants’ conduct was “a small incremental step” toward plaintiffs’ injury. The court found that this minimal standard was satisfied by plaintiffs’ allegations that UBS provided banknotes to Iran, and that Iran, in turn, funded terrorist groups that attacked the plaintiffs.
The Second Circuit’s discussion about standing set the stage for the its decision against plaintiffs on proximate causation, which the appellate court unequivocally held imposed a higher burden on the plaintiffs than the “fairly traceable” standing requirement. At the outset, the court rejected plaintiffs’ attempt to read the proximate causation requirement out of the ATA by arguing that causation should be presumed.
Specifically, plaintiffs argued that the common law permits a court to presume causation where a defendant is alleged to have engaged in a violation of law, and that, accordingly, causation could be presumed in Rothstein based upon plaintiffs’ allegations that UBS violated US laws prohibiting US persons from dealing with Iran. The Second Circuit rejected this argument, holding that the “by reason of” language in the ATA imposes a proximate causation requirement, as courts have held with regard to the identical language that appears in the RICO and Clayton Antitrust Acts. The Second Circuit explained that plaintiffs’ interpretation of the ATA “would mean that any provider of U.S. currency to a state sponsor of terrorism would be strictly liable for injuries subsequently caused by a terrorist organization associated with that state.” But, “[i]f Congress had intended to impose strict liability, we have no doubt that it would have found words more susceptible to that interpretation, rather than repeating the language it had used in other statutes to require a showing of proximate cause.”
Having concluded that plaintiffs were required to show nothing less than proximate causation, the Second Circuit then explained why plaintiffs’ allegations fell short of doing so:
The Complaint does not allege that UBS was a participant in the terrorist attacks that injured plaintiffs. It does not allege that UBS provided money to Hizbollah or Hamas. It does not allege that U.S. currency UBS transferred to Iran was given to Hizbollah or Hamas. And it does not allege that if UBS had not transferred U.S. currency to Iran, Iran, with its billions of dollars in reserve, would not have funded the attacks in which plaintiffs were injured .… Iran is a government, and as such it has many legitimate agencies, operations, and programs to fund. We see no nonconclusory allegation in the Complaint that plausibly shows that the moneys UBS transferred to Iran were in fact sent to Hizbollah or Hamas or that Iran would have been unable to fund the attacks by Hizbollah and Hamas without the cash provided by UBS.
In addition, the Second Circuit held that the district court’s holding that the ATA does not permit aiding and abetting claims. Following the Supreme Court’s decision in Central Bank of Denver v. First Interstate Bank of Denver—which held that an implicit congressional intent to impose aiding and abetting liability could not plausibly be inferred from statutory silence—the Second Circuit concluded that because the ATA does not expressly provide for civil aiding and abetting liability, the ATA cannot be interpreted to allow civil claims for aiding and abetting liability. In so holding, the Second Circuit contrasted certain of the ATA’s criminal provision, which do expressly provide for aiding and abetting liability.1
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1 Mayer Brown represented USB in this action.