Kemper v. Deutsche Bank AG

• Decision Date: 12 December 2018
• Docket Number: No. 18-1031,18-1031
• Citation: 911 F.3d 383
• Parties: Rhonda KEMPER, Plaintiff-Appellant, v. DEUTSCHE BANK AG, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

911 F.3d 383

Rhonda KEMPER, Plaintiff-Appellant,

v.DEUTSCHE BANK AG, Defendant-Appellee.

No. 18-1031

United States Court of Appeals, Seventh Circuit.

Argued September 7, 2018

Decided December 12, 2018

Rehearing En Banc Denied January 10, 2019

Gary M. Osen, Attorney, OSEN LLC, Hackensack, NJ, Peter RavenHansen, Attorney, GEORGE WASHINGTON UNIVERSITY LAW SCHOOL, Washington, DC, for Plaintiff-Appellant.

Troy A. Bozarth, Attorney, HEPLER BROOM, LLC, Edwardsville, IL, John Edward Hall, Attorney, David Meir Zionts, Attorney, COVINGTON & BURLING LLP, Washington, DC, for Defendant-Appellee.

Sarah A. Sulkowski, Attorney, YANKWITT LLP, White Plains, NY, for Amicus Curiae AMERICAN COALITION AGAINST A NUCLEAR IRAN, INC. D/B/A UNITED AGAINST A NUCLEAR IRAN.

Andrea Bierstein, Attorney, SIMMONS HANLY CONROY, LLC, New York, NY, for Amicus Curiae SENATOR RICHARD BLUMENTHAL.

Lester A. Pines, Attorney, PINES BACH LLP, Madison, WI, for Amicus Curiae JAMES D. THURMAN, General, United States Army, Retired.

Alex Lakatos, Attorney, Andrew John Pincus, Attorney, Mark R. Cohen, Attorney, MAYER BROWN LLP, Washington, DC, Steven P. Lehotsky, Attorney, U.S. CHAMBER LITIGATION CENTER, Washington, DC, Warren David Postman, Attorney, Washington, DC, for Amicus Curiae CHAMBER OF COMMERCE OF THE UNITED STATES OF AMERICA.

Before Wood, Chief Judge, and Rovner and Brennan, Circuit Judges.

Wood, Chief Judge.

On May 16, 2009, U.S. Army Specialist David Schaefer, Jr., was killed by a roadside bomb while serving a tour of duty in Iraq. This litigation represents his mother’s attempt to hold someone responsible for the senseless loss of her son. It is easy to understand why she wishes to do so. But not everything is redressable in a court. Terrorist attacks such as the one that took Spc. Schaefer’s life often elude the conventional judicial system. Those directly responsible may be beyond the reach of the court, because they are unidentifiable, or because they are beyond the reach of the court’s personal jurisdiction, or because they themselves have come to a violent end. Secondary actors, such as the organizations that fund the terrorists, are often amorphous and difficult to hale into court. Finally, despite Congress’s effort to make state sponsors of terrorism accountable in U.S. courts, see 28 U.S.C. § 1605A, any resulting judgment may be uncollectible. See, e.g., Rubin v. Islamic Republic of Iran , ––– U.S. ––––, 138 S.Ct. 816, ––– L.Ed.2d –––– (2018).

Rhonda Kemper attempted to get around these formidable obstacles by alleging that the bomb that killed her son was a signature Iranian weapon that traveled from the Iranian Revolutionary Guard Corps ("the Guard") to Hezbollah to Iraqi militias, who then placed it in the ground in Basra, Iraq, where it killed Spc. Schaefer. Kemper asserts that Deutsche Bank AG, a German entity with U.S. affiliates, is responsible for her son’s death under the Anti-Terrorism Act ("ATA"), 18 U.S.C. § 2333. She ties Deutsche Bank to the fatal bomb through the Bank’s alleged membership in an Iranian conspiracy to commit acts of terror. It joined that conspiracy, she contends, when it instituted procedures to evade U.S. sanctions and facilitate Iranian banking transactions.

The district court found that Kemper failed to plead facts that plausibly indicated that Deutsche Bank’s actions caused her son’s death. It thus dismissed her complaint for failure to state a claim. We affirm.

I

A

In presenting the following account of the facts, we take Kemper’s account as true, understanding that it would be contestable if this case were to move forward. The May 2009 attack that killed Spc. Schaefer was typical of Iran’s long and sordid history of supporting terrorism. The United States designated Iran a State Sponsor of Terrorism in 1984, and that designation continues to this day. Although Iran plays no official role in the ongoing hostilities in Iraq, it maintains a large presence in that country through proxies in Iraqi Shi’a militias. One of those proxies planted the bomb that killed Spc. Schaefer.

The allegation that Iran had a role in Spc. Schaefer’s death is plausible because of the distinctive explosive used in the attack. Iran supplies Explosively Formed Penetrators ("EFPs") to its Iraqi agents. These EFPs have precisely crafted copper

linings and military-grade explosives that are capable of piercing American armored vehicles. The Iranian EFPs leave a distinctive fingerprint on bomb debris. But for Iran, the technical sophistication and explosive power found in EFPs would be unavailable to Iraqi militias.

As a result of Iran’s involvement in terrorism, in 1995 the United States imposed broad-ranging sanctions prohibiting almost all trade between the two countries. See Exec. Order No. 12959. Until November 2008, however, there were exceptions to the sanctions. The one that interests us allowed Iran some access to the U.S. financial system through a regulation known as the U-Turn exemption. 31 C.F.R. § 560.516 (1995), amended 73 Fed. Reg. 66,541 (Nov. 10, 2008). This exemption allowed Iranian entities to use a non-Iranian bank with a correspondent account in the United States to process transactions. For example, an Iranian bank could keep an account with a non-U.S. bank such as Deutsche Bank. Deutsche Bank could then use its own correspondent account with a U.S. bank to process the Iranian bank’s transaction through the United States. The exemption was a practical necessity for Iran because much of Iran’s economy is oil-based, and the oil market is conducted in U.S. dollars. Without access to the U.S. financial system, Iran’s ability to use its oil-based earnings would be severely restricted. The U-Turn exemption thus gave Iran the ability to use its earnings from oil sales for legitimate, non-terroristic, purposes. Critical to the U-Turn exemption’s functioning was the transparent identification of the various counterparties to the transactions conducted pursuant to it. This transparency allowed U.S. banks to ensure that no transactions would benefit any sanctioned entities, thereby preventing Iran from using any of its assets to promote its terrorism goals.

Deutsche Bank found a way to subvert this regulatory scheme. By strategically removing names or otherwise hiding the existence of potentially sanctioned counterparties to U.S.-dollar-clearing transactions, Deutsche Bank avoided the U-Turn exemption’s transparency requirements and thus the additional regulatory scrutiny called for by the U.S. sanctions. For example, on some transactions Deutsche Bank employees would include notes stating "PLS DON’T MENTION THE NAME OF BANK SADERAT IRAN OR IRAN IN USA," or "THE NAME BANK MELLI OR MARKAZI SHOULD NOT BE MENTIONED ... IMPORTANT: NO IRANIAN NAMES TO BE MENTIONED WHEN MAKING PAYMENT TO NEW YORK" (capitalization in original). These notes, while far from subtle, were effective. The names of sanctioned or potentially sanctioned parties were removed from thousands of transactions that later passed through U.S. banks’ sanctions-detection systems without triggering any inquiry. For its troubles, Deutsche Bank charged a premium for providing these sanctions-avoidance services. It put these practices in place around 1999 and maintained them until at least 2006. Some illicit transactions persisted even after the bank formally undertook to abolish them.

The use of these non-transparent services was not sporadic. Deutsche Bank offered them to Iranian, Libyan, Syrian, Burmese, and Sudanese financial institutions as well as to other entities subject to U.S. sanctions. Over seven years, Deutsche Bank processed more than 27,200 transactions valued at approximately $10.86 billion for these customers. Of these, Deutsche Bank estimated that approximately 600 transactions valued at over $38 million were illegal under one of the U.S. sanctions programs. Although the existence of Deutsche Bank’s sanctions-avoidance program was hidden, Deutsche Bank considered it an important part of its business. At least one member of the Bank’s management board was kept aware of its functioning; some non-U.S. employees were considered experts in the practices and trained other employees; and the Bank issued formal and informal written instructions and training manuals for dealing with sanctioned customers.

In November 2015, the discovery of these practices led to Deutsche Bank’s agreeing to a consent order with the New York State Department of Financial Services. This consent order required Deutsche Bank to pay a $258 million civil penalty, to agree to an independent monitor’s oversight, and to fire numerous employees. The consent order contains an exhaustive factual description of how Deutsche Bank avoided U.S. sanctions; it is the source of many of the facts that appear in Kemper’s complaint. But the consent order does not state or suggest that any of the transactions Deutsche Bank processed were used to fund terrorism. And neither the consent order nor Kemper’s complaint specifies what percentage of Deutsche Bank’s sanctions-avoidance business came from Iranian institutions, as opposed to its other sanctioned customers.

B

Kemper asserts that Deutsche Bank’s sanctions-avoidance business was part of a much larger ongoing conspiracy to further Iran’s terroristic goals. The alleged co-conspirators included the following:

• Iran;

• the Guard;

• Iranian banks, including Bank Saderat, Bank Melli, and the Central Bank of Iran;

• the Islamic Republic of Iran Shipping Lines ("Shipping Lines"), Iran’s national maritime carrier, which in 2008 the United States labeled a Specially Designated National for its role in perpetuating Iran’s terrorism;

• various Western financial institutions, including Deutsche Bank.

These co-conspirators worked to funnel millions of dollars to Hezbollah, a U.S.-designated Foreign Terrorist Organization, and enabled certain co-conspirators directly to perpetrate homicides, bombings, and other acts of international terrorism.

Plaintiffs allege that Deutsche Bank was...