Summary: Second Circuit Opinion in Linde v. Arab Bank

Earlier this month, the Second Circuit issued a decision in Linde v. Arab Bank vacating a $100 million judgment against Arab Bank, following a jury verdict that found the bank liable under the Antiterrorism Act (ATA)’s civil liability provision, 18 U.S.C. §2333. The claims stem from the Arab Bank’s alleged facilitation of Hamas-perpetrated terrorist attacks. The plaintiffs, who are the victims and families of victims of those attacks, sought to hold the bank liable under the ATA. At trial, the district court instructed the jury that proof of material support to a known terrorist organization in violation of provisions prohibiting material support for terrorism, 18 U.S.C. §2339B, was sufficient to satisfy the statutory definition of “international terrorism” for the ATA.

Based on those instructions, the jury found Arab Bank liable. In lieu of further litigation on damages, the parties then stipulated to a total damage award of $100 million and entered into a confidential settlement agreement that provided for certain plaintiffs to receive specified payments depending on the outcome on appeal. Arab Bank then appealed the district court’s judgment in accordance with the agreement. In the decision at issue, the Second Circuit held that the district court provided the jury with faulty instructions regarding the “international terrorism” element of the ATA. In accordance with the settlement agreement, the parties will forego a new trial or further appeal.

Relevant Statutory Provisions

The ATA’s civil liability provision, 18 U.S.C. §2333(a), states that:

Any national of the United States injured in his or her person, property, or business by reason of an act of international terrorism, or his or her estate, survivors, or heirs, may sue therefor in any appropriate district court of the United States and shall recover threefold the damages he or she sustains and the cost of the suit, including attorney’s fees.

For the purposes of the ATA, international terrorism is expressly defined in 18 U.S.C. §2331(1) as activities that:

(A) involve violent acts or acts dangerous to human life that are a violation of the criminal laws of the United States or of any State, or that would be a criminal violation if committed within the jurisdiction of the United States or of any State;
(B) appear to be intended—

(i) to intimidate or coerce a civilian population;
(ii) to influence the policy of a government by intimidation or coercion; or
(iii) to affect the conduct of a government by mass destruction, assassination, or kidnapping; and

(C) occur primarily outside the territorial jurisdiction of the United States, or transcend national boundaries in terms of the means by which they are accomplished, the persons they appear intended to intimidate or coerce, or the locale in which their perpetrators operate or seek asylum

Civil liability under the ATA was initially limited to principals who committed acts of international terrorism. The ATA did not allow victims to pursue civil relief against those who facilitated terrorists acts by others. On Sept. 28, 2016, however, Congress enacted the Justice Against Sponsors of Terrorism Act (“JASTA”), which expanded civil liability under the ATA to “any person who aids and abets, by knowingly providing substantial assistance [to], or who conspires with the person who committed such an act of international terrorism.” 18 U.S.C. § 2333(d)(2). Further, JASTA authorized such claims for any acts of terrorism that occurred after Sept. 11, 2011, and were pending on the date of its enactment.

Factual Background

The named plaintiffs in this case are victims or relatives of the victims of three Hamas-associated attacks perpetrated in Israel between March 2002 and June 2003. The defendant Arab Bank is one of the largest financial institutions in the Middle East, with headquarters in Jordan. As explained by the Central Bank of Jordan in its amicus brief in a related case, Arab Bank “maintains the largest global Arab banking network, is a systemically important bank in Jordan and plays a key role in the Jordanian economy.”

In July 2004, the plaintiffs brought a lawsuit under the ATA against Arab Bank. The complaint alleged that Arab Bank had facilitated the Hamas-associated attacks by providing financial services to the organization, its leaders, operatives and affiliated charities that funded Hamas activities, including payments to families of suicide bombers. Because the lawsuit commenced before JASTA was enacted, the claims against Arab Bank as an aider and abettor of Hamas were dismissed. Nonetheless, the plaintiffs moved forward on the theory that Arab Bank’s provision of financial services to Hamas was itself an “act of international terrorism” for the purposes of the ATA’s civil liability provision. As support, the plaintiffs cited to 18 U.S.C. §2339B, which criminalizes knowingly providing material support to a designated foreign terrorist organization and recognizes the provision of financial services to such organizations as a type of material support.

Procedural History

Pretrial Sanction

During discovery, Arab Bank refused to produce certain documents and account records requested by the plaintiffs, claiming that doing so would force it to violate bank secrecy laws in Egypt and Lebanon. In 2010, Judge Nina Gershon sanctioned Arab Bank for this failure by authorizing the jury to infer from Arab Bank’s non-response that, from 1994 to 2004, it had knowingly provided financial services to terrorists. The Second Circuit declined to review this decision and the Supreme Court did not grant certiorari. The case was subsequently reassigned to Judge Brian M. Cogan, who declined to revisit this sanction and barred Arab Bank from offering evidence or arguments in relation to which it had failed to produce relevant records, including evidence that it generally adhered to counter-terrorism financing standards or had closed the accounts of designated terrorists.

District Court Decision

In August 2014, the case went to trial. During the trial, evidence showed that Arab Bank processed wire transfer for known Hamas leaders and operatives. The evidence further demonstrated that Arab Bank executed transfers to Hamas-affiliated charities. At trial, Arab Bank requested that the court provide instructions as to the definition of “international terrorism” as defined in 18 U.S.C. §2333(a).

The district court rejected Arab Bank’s proposed jury instruction. Instead, the court instructed the jury that finding that Arab Bank had provided material support for terrorism in violation of 18 U.S.C. §2339B was sufficient to constitute “international terrorism” in the context of the ATA. On Sept. 22, the jury found Arab Bank liable under the ATA for the three terrorist attacks underpinning the plaintiffs’ claims.

Post-Trial Proceedings

After the trial, Arab Bank again challenged the sanction and jury instructions and moved for a new trial but was rejected. The district court scheduled a bellwether-damages trial for August 2015. The court then delayed the damages trial at the parties’ request so that the two sides could discuss a settlement agreement.

On May 24, 2016, the district court entered a judgment of $100 million with the parties’ agreement. The parties also executed a confidential settlement agreement that guaranteed certain bellwether plaintiffs additional payments depending on the outcome of an appeal. The terms of the agreement specifically disallowed the parties from pursuing a new trial or further appeals. With this agreement in place, Arab Bank appealed.

Appellate Decision

Arab Bank raised three issues on appeal. First, the bank argued the jury at trial was improperly instructed on the ATA’s definition of “international terrorism.” Second, the bank claimed that the discovery sanctions were prejudicial. Third, the bank maintained that the district court had improperly instructed the jury on proximate instead of but-for causation, and that the evidence presented at trial was insufficient to prove causation under either theory.

A three-judge panel of Judges Reena Raggi, Susan L. Carney, and Lewis A. Kaplan (sitting by designation from district court) found that the district court had erred in its instructions on what constitutes international terrorism and that the error was prejudicial to the defendant Arab Bank. As a result, the panel vacated the judgement. However it ruled against Arab Bank on the causation issue and declined to reach whether the sanctions were prejudicial.

Jurisdiction

The panel first considered sua sponte whether it had jurisdiction over the case in light of the settlement reached by the parties. The panel found that it possessed statutory authority to hear the appeal because the settlement agreement was a final partial judgment satisfying the requirement of Rule 54(b) of the Federal Rules of Civil Procedure. In addition, the court found there was no constitutional limitation on its authority “because the parties continue to dispute the legal basis for the jury’s liability determination and retain a significant financial stake in [the] appeal.”

Error on Jury Instructions

The Second Circuit held that the district court erred in instructing the jury that providing material support to a designated foreign terrorist organization in violation of §2339B would necessarily satisfy the ATA’s definition of “international terrorism”.

Reiterating the §2331(1) definition, the Second Circuit notes that an act of “international terrorism” has several elements. The act must have occurred outside the United States, but must be an act that would have violated federal or state law if it were committed in the United States. Importantly, the act must also involve violence or endanger human life. §2331(A). In addition, per §2331(1)(B), the act “must appear to be intended to intimidate or coerce a civilian population or to influence or affect a government.”

As Judge Raggi explained, “providing financial services to a known terrorist organization may afford material support to the organization even if the services do not involve violence or endanger life [as required by §2331(1)(A)] or do not manifest the apparent intent required by §2331(1)(B).” In other words, because conduct that violates §2339B does not necessarily fit the definition of “international terrorism,” the jury should have been instructed on the separate elements of §2331(1) and had to find that all those elements were proven in order to find that Arab Bank had committed an act of international terrorism.

The plaintiffs offered two reasons for the court to affirm, notwithstanding the error in jury instructions. First, the plaintiffs argued that the jury’s determination of causation was the functional equivalent of a finding that the bank’s actions endangered human life and appeared intended to further terrorist intimidation or coercion. The Second Circuit rejected this argument by noting that the jury instructions on the issue of causation did not require the jury to find that the actions were violent or dangerous as stated in §2331(1)(A), or that the intent behind the actions was to intimidate, coerce, influence, or affect as required by §2331(1)(B).

Furthermore, the plaintiffs claimed that Congress, by adding “aiding and abetting liability” to the ATA through JASTA, eliminated the need to prove either that the actions involved violence or danger or that were intended to intimidate or coerce. The court agreed that, under an “aiding and abetting” theory, the plaintiffs would not have to prove that Arab Bank’s own actions satisfied the §2331(1) definitional elements of international terrorism. However, because the jury was not instructed on aiding and abetting liability, the court determined it could not conclude that secondary liability was proven as a matter of law. In dicta, the court suggested that the evidence could be sufficient to permit a jury, on remand, to find secondary liability for the Arab Bank.

Thus, the Second Circuit determined that the instructional error was prejudicial to the defendant’s case and that, as a result, vacatur was appropriate.

Insufficiency of the Evidence on Causation

The Second Circuit also dismissed Arab Bank’s argument that the judgment should instead be reversed on the grounds that the evidence provided was insufficient to prove the requisite causation under either but-for or proximate causation. The court reasoned that the evidence in the record was not clearly insufficient for the plaintiffs to pursue liability on a theory of secondary liability (as now authorized by JASTA) under either causation theory. As to the question of whether Arab Bank’s is liable as an aider and abettor cannot be determined as matter of law, the court held that the proper remedy was to vacate and remand. Further, as the settlement agreement precluded any further litigation on the matter, it was not necessary for the court to decide the proper causation standard.

Discovery Sanctions

Finally, the Second Circuit found that its holding on the jury instructions rendered it unnecessary to address Arab Bank’s claim that discovery sanctions were improper. The relief sought by Arab Bank for the discovery sanctions claim was also vacatur and remand, but the settlement agreement negotiated by the parties foreclosed the possibility of a new trial.

Outcome

Pursuant to the above, the court vacated the district court’s judgment and remanded. Pursuant to the settlement agreement, it anticipated that the parties would not pursue further litigation. Instead, Arab Bank would pay the plaintiffs predetermined amounts in accordance with the terms of the confidential settlement agreement.