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Elmaliach v. Bank of China Ltd.

Supreme Court of New York, First Department

September 17, 2013

Keren Elmaliach, etc., et al., Plaintiffs-Respondents-Appellants,
Bank of China Limited, etc., Defendant-Appellant-Respondent. Index 102026/09

Cross appeals from the order of the Supreme Court, New York County (Barbara R. Kapnick, J.), entered July 8, 2011, which denied defendant's motion to dismiss the complaint.

Patton Boggs LLP, New York (Mitchell R. Berger, Daniel R. Murdock and James E. Tyrrell, Jr. of counsel), for appellant-respondent.

The Berkman Law Office, LLC, Brooklyn (Robert J. Tolchin, and Meir Katz, Jr. of the bar of the State of Maryland and District of Columbia, admitted pro hac vice, of counsel), for respondents- appellants.

John W. Sweeny, Jr., J.P. Karla Moskowitz Rosalyn H. Richter Paul G. Feinman, JJ.


Plaintiffs are 50 citizens and domiciliaries of Israel who were either injured in terrorist bombings and rocket attacks carried out by Palestine Islamic Jihad (PIJ) and Hamas in Israel between 2005 and 2007, or are family members or estates of persons killed in the attacks [1]. They allege that the acts of Bank of China Limited (BOC) were a proximate cause of their injuries in that BOC helped facilitate the transfer of millions of dollars between PIJ and Hamas leadership outside Israel and their operatives inside Israel, enabling the two organizations to plan, prepare, and undertake acts of terrorism in Israel. Defendant moved to dismiss on the alternative grounds of failure to state a claim (CPLR 3211[a][7]) and forum non conveniens (CPLR 327[a]). The parties disagreed as to whether the motion court should apply the substantive law of New York or Israel. The Supreme Court denied the motion, and implicitly applied New York substantive law. Defendant appeals from the denial of the motion to dismiss, and plaintiffs cross-appeal to the extent the motion court implicitly determined that their claims are governed by New York substantive law. We affirm the Supreme Court's order although we arrive at the same conclusion by a different analysis, and determine that Israeli law should govern.

According to the pleadings, [2] the United States has designated both PJI and Hamas as Foreign Terrorist Organizations since 1997 and as Specially Designated Global Terrorists since 2001. The United States has imposed worldwide economic sanctions intended to prevent the two organizations from conducting banking activities that would help finance their attacks. BOC is allegedly one of a few banks worldwide that does not enforce the U.S. sanctions. Between 2003 and 2007, dozens of wire transfers initiated by Hamas and PIJ leadership located outside Israel were executed through the New York-based branches of BOC and deposited into two BOC accounts in China. These two accounts were allegedly owned by a senior operative of both terrorist organizations named Said al-Shurafa; he allegedly transferred the dollars to PIJ and Hamas leadership inside Israel for the purpose of planning, preparing, and executing terrorist attacks within Israel, including those at issue here.

BOC allegedly had actual knowledge since about April 2005 that the wire transfers were being used to facilitate terrorist attacks. According to the pleadings, officials from the Israeli Prime Minister's office met with officials from the Chinese Ministry of Public Security and the People's Republic of China's (PRC) central bank in April 2005 to warn the Chinese officials that the wire transfers were being made by the PIJ and Hamas for the purpose of carrying out terrorist attacks. The Israeli officials demanded that the PRC officials take action to stop BOC from facilitating further transfers. The PRC officials allegedly communicated this information to BOC in April 2005, including the demand by Israeli officials that BOC stop the wire transfers in an effort to thwart terrorist funding. BOC continued to carry out these wire transfers at least through January 2007.

The first cause of action alleges negligence under sections 35 and 36 of Israel's Civil Wrongs Ordinance (CWO). The second cause of action alleges breach of statutory duty under section 63 of Israel's CWO, which provides a civil remedy for breaches of obligations including those under section 4 of Israel's Prevention of Terrorism Ordinance, sections 145 and 148 of Israel's Penal Law, and section 85 of Israel's Defense Regulations (Emergency Period), all prohibiting the provision of material support or services to terrorist organizations.

BOC moved pre-answer to dismiss the complaint for failure to state a cause of action (CPLR 3211[a][7]), and alternatively, based on the doctrine of forum non conveniens (CPLR 327[a]). It argued, in sum, that the elements of a claim of negligence are the same in both New York and Israeli law, and in New York, a bank does not owe a duty to protect non-customers from the intentional torts of its customers, nor does it proximately cause injury by providing conventional banking services to a person allegedly affiliated with an entity that ultimately commits an intentional tort. BOC also argued that New York is not a proper forum in that the action may likely involve the application of Chinese law, the parties are all foreign, the majority of relevant evidence is in China, and China has a substantial interest in adjudicating the action because the alleged conduct primarily took place in China.

BOC's motion was denied in its entirety in a considered decision discussing at length several federal cases raising similar issues. In particular, the motion court's reasoning was based, in part, on then-recent holdings in two federal district court lawsuits brought by plaintiffs' counsel on behalf of other victims of terrorist attacks in Israel against banks allegedly used on behalf of terrorist groups: Licci v American Express Bank Ltd., 704 F.Supp.2d 403 (SD NY 2010) (Licci I) and Wultz v Islamic Republic of Iran, 755 F.Supp.2d 1 (D DC 2010) (Wultz I). In both actions, the complaints contained causes of action brought under American and Israeli law; the federal district courts examined whether there were actual conflicts in the laws at issue, which jurisdiction's law was to be applied, and whether the complaints stated a cause of action under the relevant law.

Licci was brought on behalf of several Israeli residents injured or killed in Israel. It alleged that American Express Bank failed to comply with banking regulations and laws including monitoring, reporting, and refusing to execute suspicious or irregular banking transactions when it acted as a correspondent bank for the Lebanese Canadian Bank. The bank allegedly executed dozens of wire transfers in U.S. dollars for accounts on behalf of the Shahid Foundation, which facilitated funds reaching Hizbollah members and enabling Hizbollah to carry out terrorist attacks in Israel, including the ones that harmed those plaintiffs (Licci I, 704 F.Supp.2d at 405). The federal district court in Licci I found no "appreciable material difference" between the relevant laws of Israel and New York (id. at 410). Applying New York law, Licci I found no showing that the bank owed a duty of care to the plaintiffs or, if there was a duty, that its breach was a substantial cause of the events that resulted in the plaintiffs' injuries (id.). In particular, the complaint did not include allegations that would tend to show that the bank had any ties to Hizbollah, or that it knew or had reason to believe that the monies at issue would be used to carry out terrorist attacks on civilian targets (id.). The allegations insufficiently showed that it was foreseeable that the bank's "routine banking services" would result in terrorist attacks (id.). The district court dismissed the complaint in Licci I for failure to state a cause of action.

Wultz was brought on behalf of an American father who was injured and his son who was killed in a suicide bombing in Tel Aviv, and their family. The complaint alleges in part that the defendant bank — also BOC — had actual knowledge that dozens of wire transfers were initiated by the PIJ in Middle Eastern countries outside of Israel, executed by BOC branches in the United States and then transferred into accounts of officers and agents of the PIJ, and used to plan and execute acts of terrorism [3]. The district court found that under Israeli law, these allegations were sufficient to deny the bank's motion to dismiss as the bank could have reasonably anticipated the plaintiffs' resulting injuries (Wultz I at 60). Reargument was granted on the issue of jurisdiction. The district court reaffirmed its previous holding as to the sufficiency of the claims against BOC, but severed those claims and, upon the plaintiffs' request, ordered them transferred to the Federal District Court of the Southern District of New York (Wultz v Islamic Republic of Iran, 762 F.Supp.2d 18 [D DC 2011]) (Wultz II). Upon reassignment, the Southern District judge declined to readdress the question of legal sufficiency, but directed the parties to brief the choice of law issue (see Wultz v Bank of China, 811 F.Supp.2d 841, 845 [SD NY 2011]) (Wultz III).

In addressing BOC's motion to dismiss in the case at bar, the motion court held that, as in Wultz, the "unique factual allegations" regarding BOC's knowledge of its customer's terrorist activities, "takes [the claim] outside the usual rule that [b]anks do not owe non-customers a duty to protect them from the intentional torts committed by their customers.'" It also rejected BOC's arguments that New York was an inconvenient forum because, among other ...

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