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Litigation Daily
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Jenna Greene
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Good morning! It's December 13 and I'm Lit Daily editor Jenna Greene, here with your Daily Dicta. Reach me at jgreene@alm.com or on Twitter @jgreenejenna.
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Covington Wins Big for Deutsche Bank in Terrorism Suit
It’s almost impossible not to sympathize with Charles Shaffer, who as a 23-year-old soldier was horribly injured in Iraq by an improvised explosive device, losing his leg and requiring multiple surgeries. Likewise, 27-year-old David Schaeffer was killed in Iraq by a similar device, which according to the plaintiffs came from Iranian-funded-and-trained terror operatives in both instances.
There’s a natural human impulse to want to hold someone responsible for so much suffering—but does Deutsche Bank bear any of the blame?
In 2016, the plaintiffs sued the German financial giant in U.S. District Court for the Southern District of Illinois, claiming the bank was liable under the under the Anti-Terrorism Act “for its integral role in helping Iran finance, orchestrate, and support terrorist attacks on U.S. peacekeeping forces in Iraq from 2004 to 2011.”
It’s one of the first suits to test the bounds of the act’s liability after Congress in 2016 expanded it to include secondary actors that knowingly provided substantial assistance to terrorists.
But here, the plaintiffs fell short.
On Tuesday, the U.S. Court of Appeals for the Seventh Circuit sided with Deutsche Bank and its counsel from Covington & Burling, upholding a decision by the lower court to dismiss the case with prejudice.
The ruling stands to impact similar litigation against other banks and pharmaceutical companies still pending across the country.
Such suits provide treble damages for Americans who are injured by reason of acts of international terrorism. Since the terrorists themselves are generally judgment proof, plaintiffs lawyers have been trying to go after international corporations for providing indirect support.
According to the complaint by Gary Osen of Osen LLC; Douglas Dowd of Dowd & Dowd and Tab Turner of Turner & Associates, Deutsche Bank conspired with Iran “to evade U.S. economic sanctions and disguise financial payments, thereby foreseeably enabling Iran’s involvement in the terrorist acts that injured the plaintiffs.”
There’s some basis for the assertion: In 2015, the bank entered into a consent order with the New York Department of Financial Services related to transactions that it wrongly processed for Iranian other foreign financial institutions.
But that alone isn’t enough for liability under the Anti-Terrorism Act, the Covington team plus local counsel HeplerBroom argued. “Plaintiffs cannot answer a fundamental question: how were their injuries caused by Deutsche Bank’s alleged non-transparent banking transactions? The best they can do is to assert that Deutsche Bank’s ‘customers and co-conspirators’—not Deutsche Bank itself—‘sent $50 million to Hezbollah and $100 million to the [Islamic Revolutionary Guard Corp],’” wrote the Covington team, which includes partners David Zionts, John Hall and Mark Gimbel.
“Deutsche Bank, however, is not accused of making ‘donations to terrorists,’ or of committing the primary offense of material support,” they continued. “Plaintiffs simply assume that because Congress also criminalized secondary violations of the material support statute, those violations can form the predicate of an ATA claim. That is a bridge too far, vastly expanding the pool of potential ATA defendants.”
U.S. District Court Chief Judge Michael Reagan agreed, concluding last year that Deutsche Bank was too far removed from the wrongdoing to be held liable.
Yes, the bank stripped information from financial transactions to help Iran evade U.S. sanctions. And yes, that allowed Iran to get U.S. currency. And Iran allegedly used the money to make explosive devices and fund terrorists, who might have been involved in the attacks that injured Shaffer and killed Schaeffer.
“The complaint does not allege which group, if any, actually planned or orchestrated the attacks, however, and the degree of separation between Deutsche Bank and the attacks cuts against liability,” Reagan ruled last December. “In addition to the distance between the actions of Deutsche Bank and the terrorists responsible for attacks on Shaffer and Schaefer, the complaint does not establish that Deutsche Bank participated in any conspiracy other than perhaps to evade economic sanctions.”
In a one-sentence order, the Seventh Circuit on Tuesday affirmed the decision.
Covington’s Zionts declined comment through a firm spokesman.
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Greenberg Traurig Team Wins $32M Verdict in Trial Stemming from Brazen Ponzi Scheme
A team of high-profile litigators from Greenberg Traurig came out on top after a five-week jury trial, scoring a $32 million verdict in a dispute that stemmed from a brazen Ponzi scheme.
Firm vice chairman Richard Edlin, who also chairs the litigation practice in New York and the business and regulatory financial services litigation group, and William Goines, the co-managing shareholder of Greenberg Traurig’s Silicon Valley office, led the team for KT Engcore, a subsidiary of KT Corp., the largest telecom company in South Korea.
They faced off in Alameda County Superior Court in California against lawyers from Gordon Rees Scully Mansukhani representing Silicon Valley-based ASI Computer Technologies.
Once upon a time, the two companies—along with Moneual, Inc., an up-and-coming South Korean computer manufacturer—seemed to be happy business partners. According to court papers, Moneual and ASI engaged in $600 million of business together relating to the sale of home theater personal computers.
KT Eng was a sort of middleman, providing certain financing support and acting as Moneual’s exporter. The company would buy the home theater units for $1,853 per unit and export them to ASI for $1,955 per unit.
“At the time KT Eng entered into its agreements with Moneual and ASI, it had good reason to consider both companies legitimate business partners,” the Greenberg Traurig team wrote. “Moneual had recently received the Microsoft Innovation Award for its [home theater personal computers] in 2007 and was praised in Bill Gates' keynote at the Consumer Electronics Show in Las Vegas that year.”
But it turns out, the home theater products didn’t sell well and Moneual couldn’t absorb the losses. It allegedly began shipping the units back to Korea under the guise that they were "components" for other computer products, then allegedly re-shipped them as worthless “shells” at the original price.
“Moneual and ASI induced KT Eng to export these worthless or non-existent products to ASI at vastly inflated prices so that Moneual could obtain Korean bank loans and factoring based on KT Eng's credit receivables,” the Greenberg Traurig lawyers wrote.
It all came crashing down when Korean law enforcers in 2014 got wise to the scam. Moneual's CEO was sentenced to 23 years in prison, the harshest sentence in Korean history for a financial crime (reduced on appeal to 15 years) and the company went bankrupt.
KT Eng was one of the casualties, left holding the bag on $32 million of purchase orders from ASI.
But KT Eng’s case was a little messy, Edlin of Greenberg Traurig admits. That’s because one of KT’s employees was convicted of taking bribes from Moneual and sent to jail.
But Edlin and Goines argued KT Eng as a whole was in the dark. “All that was going on not with our knowledge, but behind our back,” Edlin said by phone from Korea. Moreover, the impact of the bribes was to reduce KT Eng’s margins. “We were really a victim,” he said.
KT Eng wasn’t the only one burned by the scheme. Four South Korean banks have sued ASI and computer parts and accessories retailer Newegg.com in federal court in Los Angeles, alleging hundreds of millions of dollars in fraud.
“We purposely kept our case in state court,” Edlin said. “We didn’t want to get consolidated with the bank cases. We wanted to get in and done before those cases went to trial.”
The jury—nine women and three men—sided with KT Eng across the board. On Dec. 7, they awarded the full amount of damages sought: $31,415,055.
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