Freeman v. HSBC Holdings PLC

413 F.Supp.3d 67

Charlotte FREEMAN, et al., Plaintiffs,

v.HSBC HOLDINGS PLC, HSBC Bank PLC, HSBC Bank Middle East Limited, HSBC Bank USA, N.A., Barclays, Standard Chartered Bank, Royal Bank of Scotland, N.V., Credit Suisse, Bank Saderat PLC, Commerzbank AG, and John Does 1-50, Defendants.

14-CV-6601 (PKC) (CLP)

United States District Court, E.D. New York.

Signed September 16, 2019

Aaron Schlanger, Ari Ungar, Gary M. Osen, Naomi B. Weinberg, Cindy T. Schlanger, Dina Gielchinsky, Michael Jacob Radine, Peter Raven-Hansen, Osen LLC, Hackensack, NJ, Clyde T. Turner, Turner and Associates, North Little Rock, AR, William A. Friedman, Gaeta Law Firm The Meadows Office Complex, Rutherford, NJ, for Plaintiffs.

Andrew J. Pincus, Alex C. Lakatos, Marc R. Cohen, Robert William Hamburg, Kevin Charles Kelly, Mayer Brown LLP, Paul Hughes, Pro Hac Vice; McDermott Will & Emery, Jeffrey J. Golimowski, Katie Barlow, Pro Hac Vice; Clifford Chance US LLP, Washington, DC, Jeffrey T. Scott, Jonathan M. Sedlak, Michael T. Tomaino, Jr., Andrew Finn, Sharon L. Nelles, Alyssa Anne Hill, Bradley P. Smith, Kerry Anne Tirrell, Sullivan Cromwell LLP, Michael George Lightfoot, Robert G. Houck, Steven Thomas Cottreau, Clifford Chance US LLP, John D. Buretta, Michael T. Reynolds, Richard Wayland Clary, Cravath, Swaine & Moore, Mark G. Hanchet, Mayer Brown LLP, Lawrence B. Friedman, Alexis Collins, Pro Hac Vice; Avram E. Luft, Carmine Daniel Boccuzzi, Jonathan I. Blackman, Lewis J. Liman, Cleary, Gottlieb, Steen & Hamilton LLP, New York, NY, for Defendants.

MEMORANDUM & ORDER

PAMELA K. CHEN, United States District Judge:

Plaintiffs, a group of American citizens killed or injured by terrorist attacks in Iraq, and/or their families, filed this action in November 2014 against ten banking institutions—HSBC Holdings, PLC, HSBC Bank PLC, HSBC Bank Middle East Ltd., HSBC Bank USA, N.A. (collectively, "HSBC"), Barclays Bank PLC ("Barclays"), Standard Chartered Bank ("SCB"), Royal Bank of Scotland, N.V. ("RBS"), Credit Suisse AG ("Credit Suisse"), Bank Saderat PLC ("Bank Saderat"), and Commerzbank AG ("Commerzbank")—as well as John Does 1–50, seeking damages pursuant to the Antiterrorism Act (the "ATA"), 18 U.S.C. § 2333, as now amended by the Justice Against State Sponsors of Terrorism Act ("JASTA"), Pub. L. No. 114-222, 130 Stat. 852 (2016).¹ Defendants moved to dismiss the Second Amended Complaint, which is the operative complaint, on various grounds, including: (1) failure to plead primary liability under 18 U.S.C. § 2333(a) ; (2) failure to allege facts establishing that Defendants' actions were the proximate cause of Plaintiffs' injuries; (3) failure to allege that the U.S. branches of certain Defendants are "United States persons" who engaged in a financial transaction with the government of Iran; and (4) as to the Iranian bank, Bank Saderat, lack of personal jurisdiction and a statutory exception to liability under the ATA for acts of war. The Honorable Cheryl L. Pollak, Magistrate Judge, issued a Report and Recommendation ("R&R") on July 27, 2018 regarding Defendants' respective motions to dismiss, recommending that they be denied in their entirety. Freeman v. HSBC Holdings PLC , No. 14-CV-6601 (PKC) (CLP), 2018 WL 3616845 (E.D.N.Y. July 27, 2018) (" Freeman I "). For the reasons set forth herein, the Court declines to adopt the R&R and grants Defendants' motions to dismiss.²

BACKGROUND

I. SAC's Factual Allegations

As described in detail by Judge Pollak's exceedingly thorough R&R,³ Plaintiffs allege a wide-ranging conspiracy, first formed in 1987, to evade U.S. sanctions on financial and business dealings with Iran, conduct illicit trade-finance transactions, conceal the involvement of Iranian agents in financial payments to and from U.S. dollar-denominated accounts, and facilitate Iran's provision of material support to support terrorist activities and organizations, including Hezbollah. (Second Amended Complaint ("SAC"), Dkt. 115, ¶¶ 22–23.) The members of the alleged conspiracy include Defendants, the Government of Iran, and multiple state-affiliated and private Iranian entities that, at times, operate as financial⁴ and logistical⁵ conduits for the Islamic Revolutionary Guard Corps's ("IRGC") and Hezbollah's terrorist activities. (Id. ¶ 22.)

As members of the alleged conspiracy, Defendants agreed to engage in, among other things, "stripping," whereby the banks removed or otherwise altered information on payment messages sent through U.S. correspondent banks that might have alerted the banks and American authorities to the involvement of Iranian agents in the transaction. (E.g. , id. ¶¶ 25, 372, 482, 673, 1011.) Similarly, Defendants concealed the involvement of Iranian banks in Letters of Credit used to facilitate the purchase of export-controlled goods, technologies, and weapons. (E.g. , id. ¶¶ 25, 173–88, 195, 685–99, 719–21.) Defendants participated in this conspiracy despite knowing of Iran's status as a state sponsor and supporter of foreign terrorist organizations⁶ ("FTOs") and Iran's associations with Specially Designated Global Terrorists⁷ ("SDGTs"). (Id. ¶¶ 40, 42–45.) Many of the FTOs and SDGTs affiliated with Iran, including Hezbollah,⁸ the IRGC, and an IRGC directorate known as the Islamic Revolutionary Guard Corps-Qods Force⁹ ("IRGC-QF"), developed improvised explosive devices ("IEDs") that were used to kill or maim American citizens in Iraq from 2004 to 2011. (Id. ¶¶ 7, 196, 259–66, 347–350.)

II. Plaintiffs' Claims

The majority of Plaintiffs are American citizens who served as part of the Coalition Forces in Iraq from 2004 to 2011 and were injured or killed by terrorist attacks in Iraq during that time. (SAC, Dkt. 115, ¶¶ 6–9.)¹⁰ Plaintiffs claim injury as a result of the alleged conspirators' direct and indirect provision of material support for terrorism. Plaintiffs assert seven claims for relief under the ATA. Plaintiffs' First Claim for Relief asserts that all Defendants are liable for predicate violations of 18 U.S.C. § 2339A. (Id. ¶¶ 2179–2200.) Similarly, Plaintiffs' Second Claim for Relief seeks to impose liability against all Defendants for predicate violations of 18 U.S.C. § 2339B.¹¹ (Id. ¶¶ 2201–17.) Plaintiffs' Third Claim for Relief seeks to impose liability only against HSBC Bank USA, N.A. ("HSBC-US") for predicate violations of 18 U.S.C. § 2332d. (Id. ¶¶ 2218–40.) The Fourth Claim for Relief is brought against Standard Chartered, RBS, and Commerzbank for predicate violations of 18 U.S.C. § 2332d. (Id. ¶¶ 2241–53.) The Fifth and Sixth Claims for Relief are brought against Commerzbank for predicate violations of 18 U.S.C. § 2339A and 18 U.S.C. § 2339B. (Id. ¶¶ 2254–63, 2264–73.) The Seventh Claim for Relief is brought against SCB based on predicate violations of 18 U.S.C. § 2339A. (Id. ¶¶ 2274–93.)

PROCEDURAL HISTORY

Plaintiffs filed this action on November 10, 2014, and the case was initially assigned to the Honorable Dora L. Irizarry, Chief Judge. (Complaint, Dkt. 1.) In response to motions to dismiss filed by a subset of the current Defendants (Dkts. 70, 71), Plaintiffs filed an amended complaint on April 2, 2015 (Dkt. 77). The First Amended Complaint added new Plaintiffs to the action, added Commerzbank as a Defendant, and expanded on the factual allegations from the initial complaint. (See generally id. ) In response to renewed motions to dismiss (Dkts. 89, 91), Plaintiffs filed their corrected Second Amended Complaint on August 17, 2016 (Dkt. 115). The Second Amended Complaint added 108 new Plaintiffs, incorporated details from an anonymously obtained "Report on Iranian Trade Finance Transactions" prepared by Promontory Financial Group, LLC ("Promontory") for SCB, and added new claims for relief against Commerzbank and SCB. (See generally SAC, Dkt. 115; see also Motion to Amend, Dkt. 108-1.) In response, HSBC, Barclays, SCB, RBS, Credit Suisse, and Commerzbank (the "Moving Banks") filed a third motion to dismiss for failure to state a claim on November 10, 2016. (See Moving Banks' Motion to Dismiss, Dkt. 119.) The same day, Bank Saderat filed a separate motion to dismiss. (See Bank Saderat's Motion to Dismiss, Dkt. 116.)

On July 11, 2017, Chief Judge Irizarry referred the pending motions to dismiss to Magistrate Judge Pollak for the preparation of a report and recommendation. On July 27, 2018, Judge Pollak issued the R&R currently before the Court, recommending that Defendants' respective motions to dismiss be denied in their entirety. (Report & Recommendation, Dkt. 165.) Defendants filed objections to the R&R on August 31, 2018. (Bank Saderat's Objections ("Bank Saderat's Objs."), Dkt. 173; Moving Banks' Objections ("Mov. Banks' Objs."), Dkt. 174.) Subsequently, Plaintiffs sought leave to file a Third Amended Complaint, which would have added 450 additional plaintiffs to the action. (Dkt. 199.) Before that motion to amend was resolved, however, Plaintiffs' counsel opted to file additional related cases in this district, which were assigned to the undersigned. (See Dkt. 202.) See also Freeman et al. v. HSBC Holdings, et al. , No. 18-CV-7359 (PKC) (CLP); Bowman et al. v. HSBC Holdings, et al. , No. 19-CV-2146 (PKC) (CLP). On May 8, 2019, this case was reassigned to the undersigned.

STANDARD OF REVIEW

A district court reviewing a magistrate judge's recommendations "may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge." 28 U.S.C. § 636(b)(1). With respect to a magistrate judge's recommendation on a dispositive matter, the district court must review de novo all aspects of the recommendation to which a party has specifically objected. See id. ("A judge of the court shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made."); Fed. R. Civ. P. 72(b)(3) ("The district judge must determine de novo any part of the magistrate judge's disposition that has been properly objected to.").

...