O'Sullivan v. Deutsche Bank AG, No. 1:17-cv-08709 (S.D.N.Y. Apr. 26, 2018) [click for opinion]

Plaintiffs are members of the U.S. armed forces who were injured in Iraq as a result of terrorist attacks that were carried out by Iran-supported groups, as well as the families of service members who were killed during those same attacks. Plaintiffs brought this action against a number of banks for primary and secondary liability under the Anti-Terrorism Act ("ATA"), 18 U.S.C. § 2333, as amended by the Justice Against Sponsors of Terrorism Act, Pub. L. No. 114-222, 130 Stat. 852 (2016). Plaintiffs alleged that the banks provided financial services to the Iranian government and agents or proxies of the same in violation of U.S. sanctions imposed on Iran and, in so doing, helped Iran to fund the terrorist organizations that carried out the attacks in which Plaintiffs were harmed.

Defendants moved to dismiss these claims and sought a stay of discovery during the pendency of those motions. The Southern District of New York ultimately granted the discovery stay, reasoning that, while there was some potential that Plaintiffs would be prejudiced by the institution of the stay, this was substantially outweighed by the strength of the banks' showing on the merits combined with the potential burden to them arising from the requested discovery.

In particular, the court held that banks had made a strong showing that they would prevail on their motions to dismiss because Plaintiffs had failed to adequately allege that the banks could be held either primarily or secondarily liable under the ATA. With regards to Plaintiffs' theory of primary liability, the court concluded that Plaintiffs had failed to sufficiently plead proximate cause because they failed to allege that: (i) any bank was actually a participant in the terrorist attacks that injured plaintiffs; (ii) any bank provided money directly to the terrorist organizations that carried out the attacks; (iii) any U.S. currency that the banks transferred to Iran (in violation of U.S. sanctions) was actually given to those terrorist organizations; or (iv) if the banks 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.

As to Plaintiffs' theory of secondary liability based on aiding and abetting, the court applied the Halberstam test and reasoned that Plaintiffs had failed to allege that the banks were generally aware that, in providing financial services to Iran and its agents and proxies, they were thereby playing a role in a terrorist organization's violent or life-endangering activities, particularly given that Iran is a government and, as such, has many legitimate agencies, operations, and programs to fund. Finally, with respect to Plaintiffs' theory of secondary liability based on conspiracy, the court held that Plaintiffs had failed to plead facts sufficient to show that the banks had a conspiracy or agreement with a foreign terrorist organization, as required by 18 U.S.C. § 2333(d)(2), as opposed to simply alleging a conspiracy or agreement with Iran or its agents or proxies who in turn sponsored such organizations.

Accordingly, the court concluded that the banks had made a strong showing that they were likely to succeed on their motions to dismiss, and, taken together with the potentially large burden discovery would impose on them and the limited prejudice Plaintiffs would suffer, the court ultimately granted the parties a stay from discovery until the motion to dismiss was decided.