Malaysia Air victims can move forward with terror lawsuit against Russian banks

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Toys are placed at a memorial to victims of Malaysia Airlines Flight MH17 plane crash near the village of Hrabove in Donetsk region, Ukraine March 9, 2020. REUTERS/Alexander Ermochenko/File Photo

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(Reuters) - A $300 "red herring" failed to sway a Manhattan federal judge last week.

U.S. District Judge Andrew Carter refused to dismiss a lawsuit in which the family of an American teenager claims two Russian banks enabled a Russian supremacist group to shoot down a Malaysia Airlines plane over Ukraine in 2014.

The Antiterrorism Act, as you know, establishes a cause of action for U.S. citizens against banks that provide material support to terror groups. But ATA plaintiffs still have to show that U.S. courts have jurisdiction to hear their claims.

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That was a key issue in the lawsuit by the parents and sister of Quinn Schansman, who was 18 years old and traveling to a family vacation when he died aboard the Malaysian jet. In an amended complaint filed last October, Schansman's family alleged that two Russian banks – Sberbank of Russia PJSC and VTB Bank PJSC – funneled millions of dollars to the Donetsk People’s Republic, the Russian separatist group allegedly responsible for shooting down the Malaysain Air jet.

The amended complaint asserted that New York had jurisdiction over the family’s case because Sberbank and VTB routinely and deliberately routed transfers to the separatist group through their New York-based correspondent accounts at U.S. banks.

The family’s lawyers at Jenner & Block were able to document two of those transactions in the amended complaint by obtaining early discovery from a court-ordered subpoena served on two of those U.S. banks, Bank of America and Bank of New York Mellon. The partial records from just those two banks, Jenner alleged, showed that Sberbank used U.S. banks to transfer donations to the Russian supremacist group.

It’s unusual for ATA plaintiffs to assert specific details about transactions in their complaints because such allegations can only be based on internal bank records – and plaintiffs don’t typically have early access to those documents. (The magistrate judge in the Schansman case authorized subpoenas to BofA and BNY Mellon when the U.S. banks said they would not voluntarily preserve evidence without a subpoena.)

The Schansmans’ amended complaint claimed that the two documented money transfers were just the tip of an iceberg of transactions in which millions of dollars flowed to the alleged Russian terror group through U.S. accounts belonging to Sberbank and VTB. Fundraisers for the group, Jenner & Block alleged, confirmed the money flow through detailed financial ledgers that they posted online. That public evidence, the complaint said, was ample justification for New York’s jurisdiction over the Russian banks.

But the banks’ lawyers tried to use the very specificity of the Schansmans’ allegations to defeat the family’s claims of jurisdiction. In dismissal motions from Sberbank’s lawyers at Debevoise & Plimpton and VTB’s counsel at Latham & Watkins, the banks argued that the family’s early discovery actually showed the weakness of the Schansmans’ jurisdictional case.

Those two documented transactions through Sberbank’s account at Bank of America, they said, totaled a measly $300. Two transfers adding up to $300, the Russian banks argued, were hardly convincing evidence that the banks deliberately and repeatedly used the U.S. banking system, as required to establish New York's jurisdiction.

“Plaintiffs’ identification of only two mechanical transfers totaling $300 through Sberbank correspondent accounts,” Debevoise wrote in Sberbank’s dismissal motion, “is too inconsequential to support personal jurisdiction over Sberbank in New York.”

Jenner & Block called the size of the two documented transfers a red herring in its brief opposing the banks' dismissal motions. Those two transactions, Jenner argued, were merely what plaintiffs' lawyers were able to document from incomplete records produced from just two of the U.S. banks where Sberbank and VTB held accounts. Other U.S. banks processed more and bigger transfers, the brief said.

Moreover, Jenner argued, key precedent from the 2nd U.S. Circuit Court of Appeals does not require ATA plaintiffs to identify any specific transactions to establish jurisdiction, much less to pinpoint particularly large transfers through U.S. banks. The appellate court's 2013 ruling in Licci v. Lebanese Canadian Bank only requires plaintiffs to allege that defendants systematically relied on U.S. banks, Jenner contended. The Schansman’s allegations, Jenner said, far exceeded Licci’s requirements.

In last week’s decision, Carter agreed. ATA plaintiffs, he said, do not have to allege details about individual transfers to establish the personal jurisdiction of New York courts. Plaintiffs must simply show that defendants repeatedly and deliberately used New York’s banking system to transfer funds that allegedly supported terror operations. The Schansmans, Carter said, met that test by alleging that the Russian supremacist group instructed donors to send money through the Russian banks’ U.S. correspondent accounts.

I emailed Sberbank’s Debevoise lawyers and VTB’s Latham counsel for comment but didn’t hear back.

The Schansmans’ lead counsel, David Pressman of Jenner, said that the banks’ focus on the small size of the two document transactions was “a distraction, and the court refused to be distracted.”

His clients’ complaint, he said, was uniquely detailed for an ATA suit, thanks both to the partial records obtained from BofA and BNY Mellon and to the Russian separatist group’s online posts about its fundraising – including instructions to use U.S. accounts belonging to Sberbank and VTB – and spending on weaponry. If those allegations had been deemed insufficient to establish New York’s jurisdiction, Pressman said, no plaintiff could withstand a dismissal motion without bank defendants’ own internal records.

“That is not what Congress intended when it enacted the Antiterrorism Act,” said Pressman, who previously served as the U.S. ambassador to the United Nations Security Council, in a follow-up email. “It is not what logic demands. And it would forever immunize big banks from liability for involvement in heinous acts such as those that killed Quinn.”

Opinions expressed here are those of the author. Reuters News, under the Trust Principles, is committed to integrity, independence and freedom from bias.

Read more:

Family of American killed in downed MH17 jet sues Russia banks, money-transfer firms

Ukraine says investigating Russia's Sberbank for financing separatists

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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Alison Frankel has covered high-stakes commercial litigation as a columnist for Reuters since 2011. A Dartmouth college graduate, she has worked as a journalist in New York covering the legal industry and the law for more than three decades. Before joining Reuters, she was a writer and editor at The American Lawyer. Frankel is the author of Double Eagle: The Epic Story of the World’s Most Valuable Coin.