Rothstein v. UBS Ag

• Court: U.S. Court of Appeals — Second Circuit
• Writing for the Court: KEARSE
• Citation: Rothstein v. UBS Ag, 708 F.3d 82 (2nd Cir. 2013)
• Decision Date: 14 February 2013
• Docket Number: Docket No. 11–0211–cv.
• Parties: Rachel ROTHSTEIN, Fred Rothstein, Nora Rothstein, Jenny Rubin, Deborah Rubin, Daniel Miller, Abraham Mendelson, Stuart Elliot Hersh, Renay E. Frym, Noam Rozenman, Elena Rozenman, Tzvi Rozenman, Shaul Stern, individually and as personal representative of the Estate of Leah Stern, Joseph Stern, Shimson Stern, Yocheved Kushner, Julia Katz, Alice Feinstein, Charles Feinstein, Emile Feinstein, Alexander Feinstein, Chaim Kaplan, individually and as natural guardian of plaintiffs Mushka Kaplan, Arye Leib Kaplan, Menachem Kaplan, Chana Kaplan, Efraim Kaplan, Rivka Kaplan, individually and as natural guardian of plaintiffs Mushka Kaplan, Arye Leib Kaplan, Menachem Kaplan, Chana Kaplan, Efraim Kaplan, Mushka Kaplan, minor, Arye Leib Kaplan, minor, Menachem Kaplan, minor, Chana Kaplan, minor, Efraim Kaplan, minor, Avishai Reuvane, Elisheva Aron, Chayim Kumer, Nechama Kumer, Netanel Herskovitz, Martin Herskovitz and Pearl Herskovitz, Bennett and Paula Finer, individually and as legal guardians for plaintiff Chana Nachenberg, Chana Nachenberg, David Nachenberg, Sara Nachenberg, minor, Zev Finer, Shoshana Finer Ohana, Howard M. Green, and Mina Dora Green, Plaintiffs–Appellants, v. UBS AG, Defendant–Appellee.

708 F.3d 82

Rachel ROTHSTEIN, Fred Rothstein, Nora Rothstein, Jenny Rubin, Deborah Rubin, Daniel Miller, Abraham Mendelson, Stuart Elliot Hersh, Renay E. Frym, Noam Rozenman, Elena Rozenman, Tzvi Rozenman, Shaul Stern, individually and as personal representative of the Estate of Leah Stern, Joseph Stern, Shimson Stern, Yocheved Kushner, Julia Katz, Alice Feinstein, Charles Feinstein, Emile Feinstein, Alexander Feinstein, Chaim Kaplan, individually and as natural guardian of plaintiffs Mushka Kaplan, Arye Leib Kaplan, Menachem Kaplan, Chana Kaplan, Efraim Kaplan, Rivka Kaplan, individually and as natural guardian of plaintiffs Mushka Kaplan, Arye Leib Kaplan, Menachem Kaplan, Chana Kaplan, Efraim Kaplan, Mushka Kaplan, minor, Arye Leib Kaplan, minor, Menachem Kaplan, minor, Chana Kaplan, minor, Efraim Kaplan, minor, Avishai Reuvane, Elisheva Aron, Chayim Kumer, Nechama Kumer, Netanel Herskovitz, Martin Herskovitz and Pearl Herskovitz, Bennett and Paula Finer, individually and as legal guardians for plaintiff Chana Nachenberg, Chana Nachenberg, David Nachenberg, Sara Nachenberg, minor, Zev Finer, Shoshana Finer Ohana, Howard M. Green, and Mina Dora Green, Plaintiffs–Appellants,

v.UBS AG, Defendant–Appellee.^*

Docket No. 11–0211–cv.

United States Court of Appeals, Second Circuit.

Argued: March 1, 2012.

Decided: Feb. 14, 2013.

Nathaniel A. Tarnor, Washington, D.C. (Robert J. Tolchin, Jaroslawicz & Jaros, New York, NY, on the brief), for Plaintiffs–Appellants.

Jonathan Rosenberg, New York, New York (Daniel L. Cantor, Jacqueline V. Roeder, O'Melveny & Myers, New York, NY; Jonathan D. Hacker, Anton Metlitsky, O'Melveny & Myers, Washington, D.C.; Andrew J. Pincus, Marc R. Cohen, Alex C. Lakatos, Paul W. Hughes, Mayer Brown, Washington, D.C., on the brief), for Defendant–Appellee.

Pillsbury WinthropShaw Pittman, New York, NY (Frederick A. Brodie, of counsel), filed a brief for Amicus Curiae Government of Switzerland, in support of Appellee.

Dechert, New York, NY (Linda C. Goldstein, of counsel; Brian D. Ginsberg, Covington & Burling, New York, NY, of counsel), filed a brief for Amici Curiae Institute of International Bankers, Association of German Banks, economiesuisse, European Banking Federation, Federation of German Industries, French Banking Federation, Mouvement des Entreprises de France, and Swiss Bankers Association, in support of Appellee.

Before: KEARSE, LOHIER, and DRONEY, Circuit Judges.

KEARSE, Circuit Judge:

Plaintiffs Rachel Rothstein et al. appeal from a judgment of the United States District Court for the Southern District of New York, Jed S. Rakoff, Judge, dismissing their action brought under the Anti–Terrorism Act (“ATA”), 18 U.S.C. § 2331 et seq., against defendant UBS AG (“UBS”), alleging that plaintiffs were direct or indirect victims of terrorist attacks in Israel facilitated by UBS's furnishing United States currency to Iran, which the United States Department of State has listed as a state sponsor of terrorism. The district court granted UBS's motion to dismiss plaintiffs' First Amended Complaint (“FAC” or “Complaint”), concluding principally that, because the Complaint did not plausibly allege that plaintiffs' injuries were proximately caused by UBS's conduct, plaintiffs lacked standing and the Complaint failed to state a claim on which relief can be granted. On appeal, plaintiffs contend principally that the Complaint alleged a chain of causation between transfers of funds to Iran by UBS and plaintiffs' injuries at the hands of various terrorist groups sponsored by Iran, sufficient to establish traceability for purposes both of standing and of stating a claim under the ATA. For the reasons that follow, we conclude that plaintiffs had standing to assert their ATA claims but that the Complaint failed to state a claim on which relief can be granted.

I. BACKGROUND

The Complaint, whose factual allegations we take as true, as we must in reviewing a dismissal for failure to state a claim or a lack-of-standing dismissal on the basis of the pleadings, see, e.g., Selevan v. New York Thruway Authority, 584 F.3d 82, 88 (2d Cir.2009), alleged principally as follows. Plaintiffs are United States citizens who either were themselves physically or psychologically injured in terrorist attacks in Israel, or are survivors of victims of such attacks and have thus suffered emotional injuries. UBS is a financial institution incorporated and headquartered in Switzerland, with offices in the United States.

A. The Events Alleged in the Complaint1. Iran and Terrorism

The Complaint alleged that Iran has, continuously since 1979, pursued an official policy designed to cause the murder and/or expulsion of the Jewish residents of Israel, bring about the eradication of the State of Israel, and cause Israel's replacement with an Islamic state. ( See FAC ¶ 48.) In furtherance of these goals, “it has been the continuous and official policy of Iran” since 1979 “to use terrorism.” ( Id. ¶ 50.) Accordingly, since the early 1980s, “Iran has provided the Hamas terrorist organization with extensive material support, including hundreds of millions of dollars in funds, specifically to enable, encourage and cause Hamas to carry out terrorist attacks against Jewish civilians in Israel, the West Bank and the Gaza Strip.” ( Id. ¶ 50(b).)

Iran has consistently conditioned its provision of material support and resources to Hamas on Hamas' agreement to utilize the support and resources to carry out terrorist attacks against Jewish civilians in Israel, the West Bank and Gaza.... Under that agreement, Hamas undertook to carry out acts of terrorism against Jews in Israel, the West Bank and Gaza, and in return Iran undertook to provide Hamas with financial support to carry out such attacks. The purpose of this agreement was to terrorize the Jewish civilian population in Israel. All terrorist attacks carried out by Hamas are carried out further to the aforementioned agreement with Iran.

( Id.;see also id. ¶ 50(c) (identical allegations of Iran agreement with, and support of, the Palestine Islamic Jihad terrorist organization (“PIJ”)).)

In addition, in 1982 Iran “established the Hizbollah terrorist organization.” ( Id. ¶ 50(a).) Since that time Iran has “controlled, funded and operated” Hizbollah and used that organization “to carry out thousands of terrorist attacks against Israeli civilian and military targets in Israel, the West Bank and the Gaza Strip, in which hundreds of innocent[ ] victims have been murdered and thousands more maimed.” ( Id.)

The support provided by Iran to Hizbollah, Hamas, and PIJ “for the specific purpose of facilitating and causing terrorist attacks against innocent civilians” (FAC ¶ 52) included money in the form of “hundreds of millions of dollars” ( id. ¶¶ 50(b) and (c))—“tens of millions of dollars in cash annually” ( id. ¶ 52)—“both directly and via ... ‘Iranian Government Organs,’ ” including the Central Bank of Iran and other Iranian government-owned banks ( id. ¶ 53). The terrorist organizations needed support in the form of cash because they “were unable to freely use banking services (e.g. wire transfers, checks) to pay for those activities due to counterterrorism sanctions and restrictions imposed by the U.S. government” ( id. ¶ 55; see also id. ¶ 56), and “cash dollars are a universally accepted currency and means of payment” ( id. ¶ 55).

If Hizbollah [and] Hamas ... had not received cash dollars from Iran, their ability to carry out terrorist attacks and (a) to build and maintain their respective operational infrastructures for the planning and execution of terrorist attacks; (b) to purchase and store weapons, explosives and other materiel used by them to carry out terrorist attacks; (c) to pay, train, transport and shelter their terrorist operatives; and (d) to carry out specific terrorist attacks, would have been severely crippled and limited.

(FAC ¶ 59.)

Since 1984, the United States Department of State (“State Department”) has continuously, under § 6(j) of the Export Administration Act of 1979, 50 U.S.C.App. § 2405(j), designated Iran a state sponsor of terrorism. ( See id. ¶ 51.) In 1996, a State Department report found that Iran had continued “to encourage Hizballah [ sic ], HAMAS, [and] the PIJ” to engage in “violence and terrorism,” and that Iran was “the premier state sponsor of international terrorism.” ( Id. (internal quotation marks omitted).) And in 2006, the Secretary of State described Iran as “the central banker for terrorism around the world.” ( Id. ¶ 102 (internal quotation marks omitted)).

2. UBS as a Custodian of U.S. Currency

In 1996, the United States Federal Reserve System (“Federal Reserve” or “Fed”) established an Extended Custodial Inventory (“ECI”) Program “to facilitate the international distribution of U.S. banknotes and to protect against sudden spikes in the international demand for U.S. currency.” (FAC ¶ 62.) Under the ECI Program, the United States government designates private commercial banks to function as “overseas cash depots that hold currency on behalf of the Federal Reserve on a custodial basis.” ( Id.) Each ECI facility maintains an account with the Federal Reserve; when a customer withdraws U.S. dollars from, or deposits U.S. dollars in, the facility, the facility's ECI account with the Fed is debited, or credited, accordingly. ( Id.) The ECI facility is obligated “to provide monthly reports of its transactions and to comply with all regulations issued by the Office of Foreign Asset[s] Control (‘OFAC’) of the U.S. Treasury.” ( Id. ¶ 64.)

OFAC regulations provide, in part, that “no United States person, on or after [August 22, 1996], knowing or having reasonable cause to know that a country is designated under section 6(j) of the Export Administration Act ... as a country supporting international terrorism, shall engage in a financial transaction with the government of that country.” 31 C.F.R. § 596.201(a). ( See generally FAC ¶ 100.) The criminal code...