Rothstein v. - UBS AG, 2013 U.S. App. LEXIS 3244 (2d Cir. Feb. 14, 2013):

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. ***

B. Proceedings in the District Court

In 2008, plaintiffs commenced the present action under the civil liability provision of the ATA, which provides that

[a]ny 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,

18 U.S.C. § 2333(a) (emphases added). To the extent not later withdrawn by plaintiffs, the FAC alleged that UBS was liable for aiding and abetting international terrorism in violation of the ATA (Count One) and aiding and abetting violations of customary international law, as made part of federal common law (Count Two). UBS moved to dismiss the Complaint for failure to state a cause of action and for lack of standing.

In an opinion reported at 647 F.Supp.2d 292 (2009) ("Rothstein I"), the district court granted the motion to dismiss. Noting that the Complaint did not allege that UBS had any direct relationship with terrorist organizations or involvement in any of the attacks that caused plaintiffs' injuries, the court concluded that the "extended chain of inferences" asserted by plaintiffs was

far too attenuated to provide plaintiffs with sufficient standing to bring this action under federal law. See Allen v. Wright, 468 U.S. 737, 750, 104 S.Ct. 3315, 82 L.Ed.2d 556 (1984) (standing requires that the injury be "fairly traceable" to the alleged actions of the defendant); Simon v. E. Ky. Welfare Rights Org., 426 U.S. 26, 42-43, 96 S.Ct. 1917, 48 L.Ed.2d 450 (1976) (standing is not established where injury results from "the independent action of some third party not before the court"); see also Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 545, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (from a pleading perspective, "[f]actual allegations must be enough to raise a right to relief above the speculative level"); Ashcroft v. Iqbal, U.S. , 129 S.Ct. 1937, 1949-50, 173 L.Ed.2d 868 (2009) (affirming Twombly).

Specifically, plaintiffs, to establish standing here, must at a minimum allege facts that show a proximate causal relationship between UBS's transfers of funds to Iran and Hamas' and Hezbollah's [sic] commission of the terrorist acts that caused plaintiffs' injuries. This they have entirely failed to do.

Rothstein I, 647 F.Supp.2d at 294 (emphases ours). The court continued:

Among many other deficiencies in the causal chain, the First Amended Complaint ("Am. Compl.") does not allege that UBS is a primary or even relatively significant source of U.S. banknotes for the Iranian government. Moreover, cash dollars have multiple legitimate uses besides funding terrorism, and, as the amended complaint itself states, "[U.S.] cash dollars are a universally accepted currency and means of payment." Am. Compl. ¶ 55. Further still, there are no specific allegations showing that the terrorist groups here in question raise their funds from monies transferred from Iran. Without multiplying examples, the point is that plaintiffs' allegations here are far too speculative to provide the plausible indication of proximate causation necessary to establish plaintiffs' standing in this case.

Id. (emphases added).

For essentially the same reason, the district court also concluded that the Complaint failed to state a claim on which relief can be granted under the ATA. The court stated that the language of § 2333(a), granting a private right of action to a United States national injured "by reason of" an act of international terrorism, is essentially a requirement that a plaintiff show that his injury was proximately caused by the defendant. See Rothstein I, 647 F.Supp.2d at 295 (noting that the "by reason of" language in the private-right-of-action provisions of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., and the Clayton Antitrust Act, 15 U.S.C. §§ 12-27, "has typically been construed to be synonymous with 'proximate cause'"). The court concluded that "[i]f the allegations here are so speculative and attenuated as to deprive plaintiffs of standing, it follows a fortiori that they fail to adequately plead causation." Rothstein I, 647 F.Supp.2d at 295.

The court further concluded that Count One of the Complaint was insufficient to state a claim on a theory of aiding and abetting.

[S]uch a theory would here require adequate allegations that the defendant not only knew that its funds would be used to sponsor terrorist acts by Hamas and Hezbollah [sic], but also intended to do so. . . .

No such allegations are remotely made here. In fact, the Court cannot discern any substantive allegation in the amended complaint that adequately alleges intent in any form.

Id.

Finally, the court concluded that plaintiffs' claims against UBS in Count Two for aiding and abetting violations of customary international law, as incorporated in federal common law, were preempted by the ATA. See id. at 296. The Complaint was dismissed in its entirety.

Plaintiffs appealed to this Court. While their appeal was pending, the United States Supreme Court decided Holder v. Humanitarian Law Project, 130 S. Ct. 2705 (2010) ("Humanitarian Law Project" or "HLP"), addressing the constitutionality of 18 U.S.C. § 2339B(a)(1), which makes it a federal crime knowingly to provide material support or resources to a foreign terrorist organization. In an order dated August 26, 2010, we stated that the district court had dismissed the complaint for lack of standing under Article III of the Constitution and for failure to state a claim; and while noting that this case and HLP were in "different posture[s] and addressed . . . different [ATA] provision[s]," Rothstein v. UBS AG, No. 09-4108 (2d Cir. Aug. 26, 2010) ("Rothstein II"), we concluded that it would be beneficial to have the district court consider the relevance of HLP in the first instance. We thus dismissed plaintiffs' appeal without prejudice and remanded to the district court for further consideration in light of HLP.

On remand, the district court received supplemental briefing from the parties, and, in an opinion reported at 772 F.Supp.2d 511 (2011) ("Rothstein III"), concluded that HLP did not warrant a different outcome.

As the Second Circuit suggested, there are several obvious and potentially dispositive differences between Humanitarian Law Project and Rothstein. To begin with, Humanitarian Law Project does not address Article III standing, a central component of the Court's Rothstein decision. This is especially important as Article III "requires a federal court to satisfy itself of its jurisdiction over the subject matter before it considers the merits of a case." Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 583, 119 S.Ct. 1563, 143 L.Ed.2d 760 (1999). Indeed, no statute could cure plaintiffs' standing deficiencies, as Congress cannot "abrogate the Art. III minima." Gladstone, Realtors v. Vill. of Bellwood, 441 U.S. 91, 100, 99 S.Ct. 1601, 60 L.Ed.2d 66 (1979). Thus, neither 18 U.S.C. § 2339(B)(a)(1) nor the Supreme Court's interpretation thereof alters in any way plaintiffs' obligation to satisfy the "fairly traceable" prong of the standing inquiry, which requires them to plausibly plead that a defendant's alleged actions "materially increase[d] the probability of injury." Huddy v. F.C.C., 236 F.3d 720, 722 (D.C.Cir.2001).

Rothstein III, 772 F.Supp.2d at 515.

The district court pointed out that HLP also did not address § 2333(a)'s proximate causation requirement and that it involved different conduct, i.e., attempts by the HLP plaintiffs to donate funds directly to terrorist organizations. See Rothstein III, 772 F.Supp.2d at 516. The district court noted the Supreme Court's comment in HLP that "'[m]oney is fungible,' and . . . that even money given to terrorist groups for purportedly legitimate purposes can be 'redirected to funding the group's violent activities,'" Rothstein III, 772 F.Supp.2d at 517 (quoting HLP, 130 S. Ct. at 2729). But the district court concluded that that comment did not justify a conclusion that "the most remote and tenuous connections to organizations with some undefined relationship to undefined terrorist groups could subject potential defendants to ATA liability," Rothstein III, 772 F.Supp.2d at 518.

This renewed appeal followed.

II. DISCUSSION

***

"We review de novo a district court's dismissal of a complaint for lack of standing, see Fed.R.Civ.P. 12(b)(1), and for failure to state a claim, see Fed. R. Civ. P. 12(b)(6) . . . . In conducting this review, we . . . construe plaintiffs' complaint liberally, accepting all factual allegations in the complaint as true, and drawing all reasonable inferences in plaintiffs' favor." Selevan v. New York Thruway Authority, 584 F.3d at 88 (internal quotation marks omitted); see, e.g., Lerner v. Fleet Bank, N.A., 318 F.3d 113, 117 (2d Cir.) ("Lerner"), cert. denied, 540 U.S. 1012 (2003). Under this standard, we conclude, for the reasons that follow, that the Complaint was sufficient to show Article III standing but insufficient to state a claim on which relief can be granted.

A. Standing

1. Article III Standing; Jurisdiction

No principle is more fundamental to the judiciary's proper role in our system of government than the constitutional limitation of federal-court jurisdiction to actual cases or controversies. . . . The concept of standing is part of this limitation.

Simon v. Eastern Kentucky Welfare Rights Organization, 426 U.S. 26, 37 (1976); see, e.g., Lujan v. Defenders of Wildlife, 504 U.S. 555, 559-60 (1992) ("Lujan"); Allen v. Wright, 468 U.S. 737, 750-51 (1984); Warth v. Seldin, 422 U.S. 490, 498-99 (1975).

[T]he irreducible constitutional minimum of standing contains three elements. First, the plaintiff must have suffered an "injury in fact"--an invasion of a legally protected interest which is (a) concrete and particularized . . . and (b) actual or imminent, not conjectural or hypothetical . . . . Second, there must be a causal connection between the injury and the conduct complained of--the injury has to be fairly . . . trace[able] to the challenged action of the defendant, and not . . . th[e] result [of] the independent action of some third party not before the court. . . . Third, it must be likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.

Lujan, 504 U.S. at 560-61 (other internal quotation marks omitted) (emphases ours). If any of these three elements is missing, the federal court lacks jurisdiction to entertain the action. See, e.g., id. at 561; Steel Co. v. Citizens for a Better Environment, 523 U.S. 83, 102-04 (1998). Only the second element--traceability--is at issue in the present case.

For the reasons that follow, we conclude that the court erred in ruling that, because the Complaint was insufficient to allege proximate cause, plaintiffs failed to show Article III standing, i.e., failed to show that their injuries were fairly traceable to UBS's acts.

2. "Fairly Traceable" vs. "Proximate Cause"

The traceability requirement for Article III standing means that the plaintiff must "demonstrate a causal nexus between the defendant's conduct and the injury." Heldman v. Sobol, 962 F.2d 148, 156 (2d Cir. 1992); see, e.g., Allen, 468 U.S. at 756-59. Such a nexus is most easily shown if there is a direct relationship between the plaintiff and the defendant with respect to the conduct at issue. However, while the "indirectness" of an injury "'may make it substantially more difficult'" to show the "fairly traceable" element of Article III standing, i.e., "'to establish that, in fact, the asserted injury was the consequence of the defendants' actions," indirectness is "not necessarily fatal to standing," Simon, 426 U.S. at 44-45 (quoting Warth, 422 U.S. at 505), because the "fairly traceable" standard is lower than that of proximate cause, see, e.g., Bennett v. Spear, 520 U.S. 154, 168-71 (1997); Connecticut v. American Electric Power Co., 582 F.3d 309, 346 (2d Cir. 2009) ("American Electric Power"), rev'd on other grounds 131 S. Ct. 2527 (2011); Lerner, 318 F.3d at 122 n.8; Focus on the Family v. Pinellas Suncoast Transit Authority, 344 F.3d 1263, 1273 (11th Cir. 2003) ("Focus").

Central to the notion of proximate cause is the idea that a person is not liable to all those who may have been injured by his conduct, but only to those with respect to whom his acts were a substantial factor in the sequence of responsible causation and whose injury was reasonably foreseeable or anticipated as a natural consequence.

Lerner, 318 F.3d at 123 (internal quotation marks omitted) (emphasis ours); see, e.g., Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 461 (2006) (with respect to "proximate causation, the central question . . . is whether the alleged violation led directly to the plaintiff's injuries").

The requirement that a complaint "allege[] an injury" that is "'fairly traceable' to defendants' conduct . . . for [purposes of] constitutional standing" is a "lesser burden" than the requirement that it show proximate cause. Lerner, 318 F.3d at 122 n.8. Thus, the fact that there is an intervening cause of the plaintiff's injury may foreclose a finding of proximate cause but is not necessarily a basis for finding that the injury is not "fairly traceable" to the acts of the defendant. See, e.g., id. at 122 & n.8 (concluding that the plaintiffs' allegations that defendant banks' failure to report an attorney's malfeasance, which would have resulted in his suspension or disbarment and in plaintiffs' ceasing to invest with the attorney, was "sufficiently tenuous to fail to demonstrate proximate causation"; but concluding that "we cannot say" that those assertions "do not allege an injury fairly traceable to defendants' conduct").

Accordingly, we, like other courts, have noted that, "particularly at the pleading stage, the 'fairly traceable' standard is not equivalent to a requirement of tort causation" and that "for purposes of satisfying Article III's causation requirement, we are concerned with something less than the concept of proximate cause." American Electric Power, 582 F.3d at 346 (other internal quotation marks omitted) (emphasis ours); see, e.g., Barbour v. Haley, 471 F.3d 1222, 1226 (11th Cir. 2006) ("[E]ven harms that flow indirectly from the action in question can be said to be 'fairly traceable' to that action for standing purposes." (other internal quotation marks omitted)), cert. denied, 551 U.S. 1134 (2007); Public Interest Research Group of New Jersey, Inc. v. Powell Duffryn Terminals Inc., 913 F.2d 64, 72 (3d Cir. 1990) ("The 'fairly traceable' requirement . . . is not equivalent to a requirement of tort causation."), cert. denied, 498 U.S. 1109 (1991); Natural Resources Defense Council, Inc. v. Watkins, 954 F.2d 974, 980 n.7 (4th Cir. 1992) (same); Focus, 344 F.3d at 1273 ("no authority even remotely suggests that proximate causation applies to the doctrine of [Article III] standing" (internal quotation marks omitted)). As stated the Supreme Court stated in Bennett, it is "wrong[]" to "equate[] injury 'fairly traceable' to the defendant with injury as to which the defendant's actions are the very last step in the chain of causation." 520 U.S. at 168-69 (emphasis added). Rather, "at [the pleading] stage of the litigation," the plaintiffs' "burden . . . of alleging that their injury is 'fairly traceable' to" the challenged act "is relatively modest." Id. at 171.

In sum, the test for whether a complaint shows the "fairly traceable" element of Article III standing imposes a standard lower than proximate cause.

***

Although we conclude that the Complaint should not have been dismissed for lack of Article III standing, ... we affirm because the Complaint failed to allege proximate cause sufficiently to state a claim on which relief can be granted, see, e.g., Lerner, 318 F.3d at 130 ("affirm[ing] the district court's dismissal of plaintiffs' RICO claims for lack of standing, but . . . do[ing] so under Rule 12(b)(6) for failure to state a claim"). ***

First, we do not agree with plaintiffs' contention that the "by reason of" language chosen by Congress in creating a civil right of action under the ATA was intended to permit recovery on a showing of less than proximate cause, as the term is ordinarily used. The "by reason of" language had a well-understood meaning, as Congress had used it in creating private rights of action under RICO and the antitrust laws, and it had historically been interpreted as requiring proof of proximate cause. As described in Holmes v. Securities Investor Protection Corp., 503 U.S. 258 (1992), Congress in 1890 provided a private right of action in § 7 of the Sherman Act for injuries to business or property "by reason of" a violation of the Sherman Act; "lower federal courts . . . read § 7 to incorporate common-law principles of proximate causation." Holmes, 503 U.S. at 267 & n.13. In 1914, Congress provided a private right of action in § 4 of the Clayton Act, using the "by reason of" language "borrowed from § 7 of the Sherman Act"; in 1983, the Supreme Court held, "as many lower federal courts had done before" it, "that a plaintiff's right to sue under § 4 required a showing that the defendant's violation not only was a 'but for' cause of his injury, but was the proximate cause as well." Holmes, 503 U.S. at 267-68. When Congress enacted RICO in 1970 and provided a private right of action in 18 U.S.C. § 1964(c), "Congress modeled § 1964(c) on the civil-action provision . . . [in] § 4 of the Clayton Act," again using the "by reason of" language, Holmes, 503 U.S. at 267; and with respect to that language in RICO, "[t]he Courts of Appeals . . . overwhelmingly held that not mere factual, but proximate, causation is required," id. at 266 n.11. In Holmes, interpreting the RICO provision, the Court held that the "by reason of" language required a showing of proximate cause, saying "[w]e may fairly credit the 91st Congress, which enacted RICO, with knowing the interpretation federal courts had given the words earlier Congresses had used first in § 7 of the Sherman Act, and later in the Clayton Act's § 4. . . . It used the same words, and we can only assume it intended them to have the same meaning that courts had already given them." 503 U.S. at 268.

We reach the same conclusion here with respect to the ATA — finally enacted in 1992, see Report of the Senate Committee on the Judiciary, 102-342, at 22 (1992) (noting that § 2333 was initially enacted in error in 1990 and was repealed in 1991, to be reenacted in 1992). Although the legislative history of the ATA indicates that Congress intended to create impediments to terrorism by "the imposition of liability at any point along the causal chain of terrorism," id., and plaintiffs rely on that language to argue that use of a standard lower than proximate cause in § 2333 is needed to implement that intent, we note that even without such a lower standard Congress did in fact impose liability — either civil or criminal — at each such point. And if, in creating civil liability through § 2333, Congress had intended to allow recovery upon a showing lower than proximate cause, we think it either would have so stated expressly or would at least have chosen language that had not commonly been interpreted to require proximate cause for the prior 100 years.

Nor are we persuaded by plaintiffs' contention that "because both federal and state antiterrorism laws were enacted to protect against the threat of international terrorism and because Plaintiffs' injuries occurred after UBS violated these laws, [proximate] causation should be presumed" (Plaintiffs' brief on appeal at 36). Plaintiffs argue, citing Liriano v. Hobart Corp., 170 F.3d 264, 271 (2d Cir. 1999) ("Liriano"), that "[a] basic principle of traditional tort law is that when a defendant commits a per se violation of a statute or regulation meant to protect a certain class of persons from harm, and a person in this class is thereafter harmed, the burden shifts to the defendant to prove that its wrongful conduct was not the cause of plaintiffs' harm." (Plaintiffs' brief on appeal at 33; see id. n.9 (advocating "per se liability").) First, plaintiffs' reliance on Liriano is misplaced because, as is revealed by their quotation from that case, Liriano was discussing not proximate cause but "'cause-in6 fact'" and "'but-for cause'" (Plaintiffs' brief on appeal at 33 n.9 (quoting Liriano, 170 F.3d at 271)). Second, plaintiffs' contention that proximate cause is established because they were injured after UBS violated federal law is a post hoc, ergo propter hoc proposition that would mean that any provider of U.S. currency to a state sponsor of terrorism would be strictly liable for injuries subsequently caused by a terrorist organization associated with that state. If Congress had intended to impose strict liability, we have no doubt that it would have found words more susceptible to that interpretation, rather than repeating the language it had used in other statutes to require a showing of proximate cause.