Plaintiffs Make Headway in N.Y. Terror Funding Litigation

, The Litigation Daily


Lawyers for victims of terror attacks are cheering favorable decisions in recent weeks in lawsuits against banks accused of violating U.S. antiterror laws by providing financial services to terrorist organizations abroad.

In a jurisdictional ruling that's sure to be cited in future terror funding cases against foreign banks, the U.S. Court of Appeals for the Second Circuit concluded on Oct. 18 that victims of Hezbollah rocket attacks can proceed with damages claims against a Lebanese bank that processed numerous dollar-based transactions for an accused terrorist front organization. The decision, in Licci v. Lebanese Canadian Bank, follows a ruling in the case last December in which New York's highest court determined that the long arm of New York state law extends to a foreign banks that use correspondent banks in the state for dollar transactions.

Brooklyn-based solo practitioner Robert Tolchin, who represents the plaintiffs, told us the Second Circuit's ruling has major implications for terror-funding cases against overseas banks that don't have branches in New York.

"This jurisdictional decision is going to have a dramatic impact on future terror claims against foreign banks, and in the larger picture will help bring long-arm jurisdiction into the 21st century as we move beyond the bricks and mortar paradigm," Tolchin said.

Lebanese Canadian Bank is represented by DLA Piper's Jonathan Siegfried. Siegfried said he wasn't authorized to comment on the ruling.

The case was filed in 2008 in New York state court on behalf of 93 survivors and family members of scores of Israelis killed or injured in Hezbollah rocket attacks in 2006. The plaintiffs—American, Israeli and Canadian citizens—are seeking damages both under the Anti-Terrorism Act and the Alien Tort Claims Act, arguing that LCB and its correspondent bank, American Express Bank Ltd., knowingly provided extensive banking services to Hezbollah between 2004 and 2006 via an alleged Hezbollah front organization called the Shahid (Martyrs) Foundation.

The case was soon removed to federal district court in Brooklyn and assigned to U.S. District Judge George Daniels, who in 2010 dismissed the claims against LCB for lack of jurisdiction. The judge also tossed the allegations against AmEx for failure to state a claim; AmEx and its lawyers at Morrison & Foerster persuaded the Second Circuit to uphold that ruling in March 2012.

After the terror claimants appealed Daniels' ruling on jurisdiction, the Second Circuit referred the issue to the New York Court of Appeals. The court found last December that New York law did apply.

The decision shook up the international banking community. The court determined that foreign banks that maintain and use correspondent banking accounts in New York— which includes almost all international banks—could be subject to New York jurisdiction under the state's long-arm statute because of a repeated use of the correspondent account in New York for wire transfers and other transactions.

Following the state court ruling, the Second Circuit took up the issue of whether the case also met constitutional due process requirements to establish jurisdiction. In Friday's ruling, a three-judge panel held that it did.

"We conclude that the selection and repeated use of New Yorkʹs banking system, as an instrument for accomplishing the alleged wrongs for which the plaintiffs seek redress, constitutes 'purposeful avail[ment] . . . of the privilege of doing business in [New York],' . . . so as to permit the subjecting of LCB to specific jurisdiction within the Southern District of New York consistent with due process requirements," the panel ruled.

The case now moves back to Judge Daniels' court and likely into discovery. In January, after a very public two-year investigation by the DOJ, Lebanese Canadian Bank agreed to pay $102 million to settle international money laundering allegations in connection with Hezbollah.

Tolchin, meanwhile, is on a roll. In September he scored another big jurisdictional win in a similar terrorism case he's spearheading against the Bank of China Limited.

On Sept. 17, in Elmaliach v. Bank of China, New York's Appellate Division, First Department, ruled that victims of Hamas rocket attacks between 2005 and 2007 can proceed with claims against BOC in New York courts under Israeli law. The bank had argued that Chinese law should apply. Patton Boggs' Mitchell Berger, Daniel Murdock and James Tyrrell Jr. are representing Bank of China in that case.

The Elmaliach decision last month prompted Tolchin to petition for a rehearing of AmEx's dismissal from the Licci case, arguing that under the Appellate Division's ruling, Israeli law governs the plaintiffs' claims. The Second Circuit denied the petition on Oct. 18.

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