O'Sullivan et al v. Deutsche Bank AG et al

Filing 118

OPINION AND ORDER re: #94 MOTION to Stay ("Notice of Defendants' Motion to Stay Discovery During the Pendency of the Motions to Dismiss"), filed by Credit Suisse AG. While there is some potential that plaintiffs will be prejudiced by the institution of a stay, the strength of the defendants' showing on the merits combined with the potential burden arising from discovery convinces us that a stay of discovery should be granted pending resolution of the upcoming motions to dismiss. This stay is without prejudice to a specific showing that a particular item of non-burdensome discovery is in danger of being lost absent plaintiffs' ability to use the discovery process. (Signed by Magistrate Judge Gabriel W. Gorenstein on 4/26/2018) (ras)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
---------------------------------------------------------------X
TIMOTHY O’SULLIVAN, et al.,
:
:
Plaintiffs,

OPINION AND ORDER
17 Civ. 8709 (LTS) (GWG)

:
-v.:
DEUTSCHE BANK AG, et al.,
:
Defendants.
:
---------------------------------------------------------------X
GABRIEL W. GORENSTEIN, United States Magistrate Judge
This case has been brought on behalf of members of the U.S. armed services who served
in Iraq from 2003 through 2011 and were injured or killed by terrorist groups financially
supported by Iran. The defendants are a number of financial institutions who are alleged to have
violated laws imposing sanctions against Iran. Defendants have moved for a stay of discovery
pending resolution of their motions to dismiss.1 For the reasons set forth below, the motion for a
stay is granted.

1

Notice of Defendants’ Motion to Stay Discovery During the Pendency of the Motions
to Dismiss, filed Feb. 7, 2018 (Docket # 94) (“Defs. Not.”); Defendants’ Joint Memorandum of
Law in Support of Motion to Stay Discovery During the Pendency of the Motions to Dismiss,
filed Feb. 7, 2018 (Docket # 95) (“Defs. Mem.”); Declaration of Andrew Hruska in Support of
Defendants’ Motion to Stay Discovery During the Pendency of the Motions to Dismiss, filed
Feb. 7, 2018 (Docket # 96) (“Hruska Decl.”); Declaration of John D. Buretta in Support of
Defendants’ Motion to Stay Discovery During the Pendency of Motions to Dismiss, filed Feb. 7,
2018 (Docket # 97); Plaintiffs’ Opposition to Defendants’ Motion to Stay Discovery, filed Feb.
9, 2018 (Docket # 98) (“Pls. Mem.”); Defendants’ Joint Reply Memorandum of Law in Further
Support of Motion to Stay Discovery During the Pendency of the Motions to Dismiss, filed Feb.
12, 2018 (Docket # 99).

I. BACKGROUND
A. Complaint
This case is brought under the Anti-Terrorism Act, 18 U.S.C. § 2333 (“ATA”), as
amended by the Justice Against Sponsors of Terrorism Act, Pub. L. No. 114-222, 130 Stat. 852
(2016) (“JASTA”). The crux of plaintiffs’ complaint is that the defendants provided financial
services to the government of Iran or groups and entities affiliated with Iran (referred to
throughout the complaint as Iran’s “Agents and Proxies”) in violation of sanctions imposed on
Iran, and thereby helped Iran fund the terrorist organizations that carried out the attacks in which
the plaintiffs were harmed. See Complaint, filed Nov. 9, 2017 (Docket # 1) (“Compl.”), ¶¶ 1-67.
Since 1984, the United States has designated Iran as a “State Sponsor of Terrorism” and has
implemented a variety of economic sanctions against Iran in response to Iran’s material and
financial support of terrorist groups. See id. ¶¶ 13, 1341-1358. As a result of the sanctions
imposed on Iran, it is unlawful to export goods and services, including financial services, from
the United States to Iran without a license, and “virtually all trade and investment activities with
Iran involving the U.S. financial system, including the processing of [United States Dollar]
transactions through the United States,” are prohibited. Id. ¶¶ 690-91. Also as part of these
sanctions, “banks [a]re prohibited from processing wire transfers to or from [United States
Dollar]-denominated accounts owned or controlled by, individuals or companies, acting for or
on behalf of Iran,” are required to follow certain reporting and record-keeping requirements, and
are prohibited from structuring certain transactions for Iran. Id. ¶¶ 848-53.
Plaintiffs allege that these sanctions were imposed to cripple the Iranian economy and
force Iran’s leaders to stop supporting terrorism. Id. ¶¶ 845-53. Nevertheless, Iran continued to
provide support to terrorist organizations that operated in Iraq between 2003 and 2011. See id.
2

¶¶ 835-44, 960-1112. Such terrorist groups include several Shi’a terrorist groups referred to as
the “Special Groups,” as well as Kata’ib Hizbollah, Asa’ib Ahl Al-Haq, Al Qaeda, and others.
See id. ¶¶ 657, 960-1112.
The plaintiffs in this case are members of the U.S. armed forces who served in Iraq
between 2003 and 2011, as well as the family members of service members who were injured or
killed. See id. ¶ 11. The service members were injured or killed in the course of 55 separate
terrorist attacks in Iraq carried out by groups supported by Iran. See id. ¶¶ 11, 95-597. Plaintiffs
allege that Iran, or its Agents and Proxies, used U.S. dollars to support the terrorist organizations
that carried out these attacks. See id. ¶ 2402.
Plaintiffs assert that the defendant financial institutions “knew the economic sanctions
were put in place to cripple the Iranian economy, which would force Iran’s leaders to cease their
sponsorship of terrorism.” Id. ¶¶ 864, 1391. The complaint also alleges that “[e]ach coconspirator knew Iran was a designated State Sponsor of Terrorism at the time it entered into the
Conspiracy, as well as throughout the course of the Conspiracy” and that “[e]ach co-conspirator
knew it was illegal to facilitate the transfer of funds to Iran and its Agents and Proxies,
specifically including the Terrorist Groups, without providing sufficient data to allow the
transactions to be adequately detected.” Id. ¶ 1400. Nevertheless, “[t]o obtain the [United States
dollars] necessary to fund this massive terrorism campaign, Iran conspired with Defendants to
evade and overcome the laws and sanctions that were put in place with the singular goal of
stopping Iran from sponsoring and spreading terrorism, especially in the Middle East, including
against U.S. nationals[,]” id. ¶ 1375, thereby helping launder billions of U.S. dollars to Iran, see
id. ¶¶ 56, 1371-2400. As plaintiffs put it, “[t]he object of the Conspiracy was to defeat the
economic sanctions imposed by the U.S. government, which were put in place with the sole
3

purpose of deterring, disrupting, and preventing acts of international terrorism, the very terrorist
attacks at issue in this case.” Id. ¶ 60.
Plaintiffs allege several methods by which defendants violated the sanctions. One
method included removing key information from wire transfers (or “stripping” wire transfers) to
prevent detection from regulators. Id. ¶¶ 44-50, 1418-22. Defendants also purportedly used an
incorrect form of SWIFT messages2 to conceal the fact that sanctioned entities were parties to
wire transfers. See id. ¶¶ 1423-25. The complaint also alleges that the defendants performed
“U-Turn”3 transactions on behalf of Iran and its Agents and Proxies. See id. ¶¶ 1413, 1426-29.
The complaint also alleges that the defendants conducted “trade finance” for Iran by acting as
intermediaries in certain transactions, and by providing financing to buyers and sellers in
transactions involving Iran and its Agents and Proxies. See id. ¶¶ 1430-43. Finally, plaintiffs
allege that defendants provided “expert advice and financial services to Iran and its Agents and
Proxies.” See id. ¶ 1385.
As a result of these services, plaintiffs allege that defendants helped Iran transfer
hundreds of billions of U.S. dollars and facilitated its sale of oil on the world market, which in
turn allowed Iran to continue financing and supporting terrorist organizations. See id. ¶¶ 865-73.
Based on their violations of sanctions imposed on Iran, as well as other countries and regimes,

2

SWIFT stands for the “Society for Worldwide Interbank Financial
Telecommunication,” which is a Belgium-based company. Compl. ¶ 1367. SWIFT messages
are messages sent through a worldwide messaging system maintained by SWIFT that is “used to
transmit financial transaction [sic] in the Eurodollar market, among other financial markets, in a
standardized message format.” Id.
3

A U-Turn transaction refers to the processing of U.S. Dollar transactions where such
transactions “began and ended with non-U.S. financial institutions, but were cleared through a
U.S. correspondent bank.” Compl. ¶ 1427.
4

the defendants were investigated by, and entered into consent orders, settlements, or deferred
prosecution agreements with, various government agencies, including the New York State
Department of Financial Services, the Department of Justice, the New York County District
Attorney’s Office, the Board of Governors of the United States Federal Reserve System, the
Department of Treasury, and the United States Office of Foreign Asset Control. Id. ¶¶ 1519-23,
1587-88, 1628-32, 1698-1701, 1717-19, 1764-65, 1784-86, 1820, 1841-47, 2072-73, 2083,
2163-2180, 2197, 2233-2238, 2303-2313.
Plaintiffs allege that the services provided by the financial institutions “overlapped” with
the terrorist attacks causing plaintiffs’ injuries. Id. ¶ 696. Although plaintiffs’ memorandum of
law on this motion does not point to any specific transaction in which Iran, or its Agents and
Proxies, used funds provided by defendants to support the terrorist groups in the attacks alleged,
the complaint alleges generally that these attacks could not have occurred without U.S. dollars
because that currency is the one most commonly used to support international terrorism, and
Iran’s own currency is essentially worthless outside of Iran and can be traced back to Iran. Id.
¶ 34. “To obtain [U.S. dollars], Iran needed access to the U.S. financial system,” which the
defendants provided. Id. ¶ 35. The complaint further asserts that “[w]ithout the active
participation of Defendants in the Conspiracy, Iran would not have been able to transfer such a
large volume of funds to its Agents and Proxies, and thus, would not have been able to perpetrate
the Terrorist Attacks.” Id. ¶ 1402.
B. Procedural History
Plaintiffs filed their complaint in this case on November 9, 2017. See Compl. On
December 19, 2017, the Court ordered a briefing schedule on defendants’ proposed motion to
dismiss under which their briefs were to be filed on March 2, 2018, opposition papers by May 2,
5

2018, and replies by June 1, 2018. See Order, filed Dec. 19, 2017 (Docket # 58), at 3. On
January 16, 2018, plaintiffs’ counsel “contacted Defendants and requested that a meeting be
scheduled to discuss discovery and to conduct the Rule 26(f) Conference.” Declaration of
Christopher G. Paulos in Support of Plaintiffs’ Opposition to Defendants’ Motion to Stay
Discovery (annexed as Docket # 98-2 to Pls. Mem.) (“Paulos Decl.”), ¶ 2. Defendants’ and
plaintiffs’ counsel spoke by telephone on January 18, 2018, at which time plaintiffs proposed
“limited and targeted discovery,” Paulos Decl. ¶ 2, including discovery relating to “[a]nti-money
laundering policies, procedures, guidelines, and manuals; [a]uditing reports; SWIFT messages
related to the illegal transactions described in the Complaint; Suspicious Activity Reports
(SARs), which the banks are required to file with the Financial Crimes Enforcement Network
following a suspected incident of money laundering; and [c]orporate structure information,” as
well as “limited subpoenas to third-party entities, including government agencies, in possession
of relevant documents,” see Letter from Seth A. Katz, filed Jan. 29, 2018 (Docket # 91) (“Katz
Letter”), at 5. Defendants thereafter jointly filed the instant motion to stay discovery pending the
disposition of their motions to dismiss. See Defs. Not.; Defs. Mem. The Court stayed the
parties’ obligation to confer under Rule 26(f)(1) until the disposition of the stay motion. See
Order, filed Jan. 31, 2018 (Docket # 93).
II. APPLICABLE LAW
A. Motion to Stay Discovery
“A motion to dismiss does not automatically stay discovery, except in cases covered by
the Private Securities Litigation Reform Act.” Hong Leong Fin. Ltd. (Singapore) v. Pinnacle
Performance Ltd., 297 F.R.D. 69, 72 (S.D.N.Y. 2013) (citation omitted). Thus, “discovery
should not be routinely stayed simply on the basis that a motion to dismiss has been filed.” Id.
6

(quoting Moran v. Flaherty, 1992 WL 276913, at *1 (S.D.N.Y. Sept. 25, 1992)). However,
“upon a showing of good cause a district court has considerable discretion to stay discovery”
pursuant to Fed. R. Civ. P. 26(c). Integrated Sys. & Power, Inc. v. Honeywell Int’l, Inc., 2009
WL 2777076, at *1 (S.D.N.Y. Sept. 1, 2009); accord Ellington Credit Fund, Ltd. v. Select
Portfolio Servs., Inc., 2009 WL 274483, at *1 (S.D.N.Y. Feb. 3, 2009).
In some circumstances, a pending motion to dismiss may constitute “good cause” for a
protective order staying discovery. See, e.g., Brooks v. Macy’s, Inc., 2010 WL 5297756, at *1
(S.D.N.Y. Dec. 21, 2010); Picture Patents, LLC v. Terra Holdings LLC, 2008 WL 5099947, at
*2 (S.D.N.Y. Dec. 3, 2008). “[A] court determining whether to grant a stay of discovery
pending a motion must look to the particular circumstances and posture of each case.” Alford v.
City of New York, 2012 WL 947498, at *1 (E.D.N.Y. Mar. 20, 2012) (citation omitted). Courts
consider: “(1) [the] breadth of discovery sought, (2) any prejudice that would result, and (3) the
strength of the motion.” Hong Leong Fin. Ltd. (Singapore), 297 F.R.D. at 72 (internal quotation
marks and citation omitted); accord Integrated Sys. & Power, Inc., 2009 WL 2777076, at *1.
As we have previously determined in another case with respect to the “strength of the
motion” prong of this analysis, the party seeking a stay must present “substantial arguments for
dismissal[].” Hong Leong Fin. Ltd. (Singapore), 297 F.R.D. at 72 (quoting Spencer Trask
Software & Info. Servs., LLC v. RPost Int’l Ltd., 206 F.R.D. 367, 368 (S.D.N.Y. 2002)).
Phrased otherwise, this standard requires “a strong showing that the plaintiff’s claim is
unmeritorious.” Id. (quoting Telesca v. Long Island Hous. P’ship, Inc., 2006 WL 1120636, at
*1 (E.D.N.Y. Apr. 27, 2006)); accord Giminez v. Law Offices of Hoffman & Hoffman, 2012
WL 2861014, at *2 (E.D.N.Y. July 11, 2012); Flores v. S. Peru Copper Corp., 203 F.R.D. 92, 94
(S.D.N.Y. 2001).
7

B. ATA and JASTA
18 U.S.C. § 2333(a) 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.” This type of liability under the ATA is commonly known as “primary” liability. To be
held primarily liable for an act of international terrorism, a plaintiff must show that a defendant’s
acts proximately caused the act of international terrorism that caused the plaintiff’s injury. See
Rothstein v. UBS AG, 708 F.3d 82, 95 (2d Cir. 2013). With respect to a bank that has provided
financial services to Iran, the Second Circuit has held that a complaint fails to adequately allege
proximate cause where “the Complaint does not allege that [the bank] was a participant in the
terrorist attacks that injured plaintiffs. . . . [P]rovided money to [the terrorist organizations that
caused the injury] . . . . [T]hat U.S. currency [the bank] transferred to Iran was given to [the
terrorist organizations]. . . . [Or] that if [the bank] had not transferred U.S. currency to Iran, Iran,
with its billions of dollars in reserve, would not have funded the attacks in which plaintiffs were
injured.” Id. at 97.
In 2016, Congress amended the ATA by enacting the JASTA. The JASTA amends 18
U.S.C. § 2333 by providing a cause of action “as to any person who aids and abets, by
knowingly providing substantial assistance, or who conspires with the person who committed []
an act of international terrorism.” 18 U.S.C. § 2333(d). We will refer to these methods of proof
as involving “secondary liability.” In enacting the JASTA, Congress stated that its purpose is to
“provide civil litigants with the broadest possible basis, consistent with the Constitution of the
United States, to seek relief against persons, entities, and foreign countries, wherever acting and
wherever they may be found, that have provided material support, directly or indirectly, to
8

foreign organizations or persons that engage in terrorist activities against the United States.”
See JASTA § 2(b).
In the findings contained in the JASTA, Congress has instructed courts to apply the test
for aiding and abetting and conspiracy liability found in “[t]he decision of the United States
Court of Appeals for the District of Columbia in Halberstam v. Welch, 705 F.2d 472 (D.C. Cir.
1983) . . . .” See JASTA § 2(a)(5). In that case, the D.C. Circuit stated that to be held liable for
aiding and abetting, the aider or abettor’s conduct must satisfy the following elements: “(1) the
party whom the defendant aids must perform a wrongful act that causes an injury; (2) the
defendant must be generally aware of his role as part of an overall illegal or tortious activity at
the time that he provides the assistance; (3) the defendant must knowingly and substantially
assist the principal violation.” Halberstam, 705 F.2d at 477. Halberstam also suggested looking
to five factors listed in the Restatement (Second) of Torts § 876 (Am. Law. Inst. 1979), to
determine whether a party should be held liable for aiding-abetting, which include: “the nature of
the act encouraged, the amount of assistance given by the defendant, his presence or absence at
the time of the tort, his relation to the other [tortfeasor] and his state of mind.” 705 F.2d at 478
(alteration in original) (internal quotation marks and citation omitted).
In interpreting this standard in the context of a claim brought under 18 U.S.C. § 2333, the
Second Circuit has noted that “[a]iding and abetting requires the secondary actor to be ‘aware’
that, by assisting the principal, it is itself assuming a ‘role’ in terrorist activities.” Linde v. Arab
Bank, PLC, 882 F.3d 314, 329 (2d Cir. 2018) (citing Halberstam, 705 F.2d at 477). The Second
Circuit further noted with respect to the aiding and abetting analysis that liability attaches only
when the alleged aider/abettor
was “generally aware” that [by virtue of its conduct] it was [] playing a “role” in [a
9

terrorist organization’s] violent or life-endangering activities. This is different from the
mens rea required to establish material support in violation of 18 U.S.C. § 2339B, which
requires only knowledge of the organization’s connection to terrorism, not intent to
further its terrorist activities or awareness that one is playing a role in those activities.
Id. at 329-30 (citations omitted).
Halberstam noted that the elements of a conspiracy include: “(1) an agreement between
two or more persons; (2) to participate in an unlawful act, or a lawful act in an unlawful manner;
(3) an injury caused by an unlawful overt act performed by one of the parties to the agreement;
(4) which overt act was done pursuant to and in furtherance of the common scheme.” 705 F.2d
at 477 (citation omitted). With respect to the agreement requirement, Halberstam noted that
“[p]roof of a tacit, as opposed to explicit, understanding is sufficient to show agreement.” 705
F.2d at 477 (citations omitted). Halberstam further explained that “[t]he prime distinction
between civil conspiracies and aiding-abetting is that a conspiracy involves an agreement to
participate in a wrongful activity. Aiding-abetting focuses on whether a defendant knowingly
gave ‘substantial assistance’ to someone who performed wrongful conduct, not on whether the
defendant agreed to join the wrongful conduct.” 705 F.2d at 478.
III. DISCUSSION
A. Strength of the Motion to Dismiss
Defendants argue that they have made a “strong showing” that they will prevail on their
motions to dismiss because plaintiffs have failed to adequately allege that the defendants may be
held either primarily or secondarily liable under 18 U.S.C. § 2333, which is the only statute
under which this lawsuit was brought. See Defs. Mem. at 7-11. We agree.
First, defendants have easily made this showing with respect to plaintiffs’ claims that
defendants are primarily liable for their injuries. In their complaint, plaintiffs assert claims of
10

primary liability against defendants on the theory that the defendants are liable for acts of
terrorism because they evaded sanctions by providing financial services to Iran and its Agents
and Proxies, which in turn supported terrorist organizations. See, e.g., Compl. ¶¶ 2408-40.
However, the complaint fails to show that any defendant “was a participant in the terrorist
attacks that injured plaintiffs[,] . . . provided money to [the terrorist organizations that carried out
the attacks] [,] . . . that U.S. currency [the defendants] transferred to Iran was given to [those
terrorist organizations,] . . . [or] that if [defendants] had not transferred U.S. currency to Iran,
Iran, with its billions of dollars in reserve, would not have funded the attacks in which plaintiffs
were injured.” Rothstein, 708 F.3d at 97. Instead, plaintiffs assert that proximate cause may be
satisfied by showing:
[a]t all relevant times, Defendants knew or were deliberately indifferent to the fact they
were unlawfully conducting business with Agents and Proxies of Iran. Thus, Defendants
knew they were directly involved with Iran and its Agents and Proxies — entities
Defendants knew, or were recklessly indifferent to the fact that they, were engaged in
terrorist activities and that such terrorist activities were aimed at U.S. nationals, including
Plaintiffs. Because all terrorist activities carry the foreseeable risk of killing or injuring
innocent persons, including Plaintiffs, Defendants conduct as set forth herein was a
proximate cause of Plaintiffs’ deaths and injuries.
Compl. ¶ 2405.
This allegation of proximate cause is similar to the allegations at issue in Rothstein,
where plaintiffs alleged in their complaint that UBS illegally transferred billions of U.S. dollars
to Iran, and that Iran funded the terrorist organizations Hamas and Hizbollah, which in turn
injured or killed plaintiffs and their family members in bombings and rocket attacks against
Israel between 1997 and 2006. See 708 F.3d at 85-87. The Second Circuit held that these
allegations were insufficient to plead proximate cause in asserting claims against UBS under the
primary liability provision of the ATA. See id. at 93-95; accord In re Terrorist Attacks on Sept.
11

11, 2001, 714 F.3d 118, 124 (2d Cir. 2013) (complaint failed to allege proximate cause
sufficiently to state a claim of primary liability under the ATA where, with respect to the
September 11, 2001 attacks committed by Al Qaeda, “plaintiffs d[id] not allege that the Rule
12(b)(6) defendants participated in the September 11, 2001 attacks or that they provided money
directly to al Qaeda; nor are there factual allegations that the money allegedly donated by the
Rule 12(b)(6) defendants to [] purported charities actually was transferred to al Qaeda and aided
in the September 11, 2001 attacks.”) (citations omitted). Likewise here, plaintiffs’ allegations of
proximate cause with respect to their claims of primary liability are insufficient.
As to secondary liability, defendants have also made a strong showing that plaintiffs’
claims are unmeritorious. As noted, “[a]iding and abetting [under the JASTA] requires the
secondary actor to be ‘aware’ that, by assisting the principal, it is itself assuming a ‘role’ in
terrorist activities.” Linde, 882 F.3d at 329 (citing Halberstam, 705 F.2d at 477). This requires a
showing that “in providing [financial] services, the bank was ‘generally aware’ that it was
thereby playing a ‘role’ in [the terrorist organizations’s] violent or life-endangering activities,”
which “requires more than the provision of material support to a designated terrorist
organization.” Linde, 882 F.3d at 329 (emphasis omitted). The complaint alleges that the
defendants knew that they were circumventing sanctions by providing Iran with financial
services. See, e.g., Compl. ¶ 863. It also alleges that the defendants “knew that sanctions were
imposed against Iran with the sole and specific purpose of stopping Iran’s sponsorship of
terrorism.” Id. Accepting these statements as true, however, they do not show that the
defendants knew that the financial services they provided to Iran and its Agents and Proxies
would in turn be given to terrorist organizations to carry out violent or life-endangering
activities, given that “Iran is a government, and as such it has many legitimate agencies,
12

operations, and programs to fund.” Rothstein, 708 F.3d at 97. Plaintiffs have failed to cite to
any allegations in their complaint that show in a plausible, non-conclusory fashion that the
defendants knowingly aided or abetted any terrorist organization’s violent or life-endangering
activities. Thus, defendants have made a strong showing that plaintiffs’ aiding and abetting
claims asserted under 18 U.S.C. § 2333(d) are not meritorious.
With respect to the conspiracy theory of secondary liability under 18 U.S.C. § 2333(d),
subsection (d)(2) imposes conspiracy liability on a defendant who “conspires with the person
who committed [] an act of international terrorism.” Plaintiffs repeatedly assert that “Defendants
[] misstate the law when they imply that a conspiracy claim requires proof that Defendants
conspired with a foreign terrorist organization,” and that “JASTA requires only that the
plaintiff’s injury ‘aris[e] from an act of international terrorism committed, planned, or authorized
by an organization that had been designated as a foreign terrorist organization.’” See Pls. Mem.
at 7 (quoting 18 U.S.C. § 2333(d)(2)). That position is wrong, however, because § 2333(d)(2)
specifically requires a defendant to conspire with “the person who committed [] an act of
international terrorism.”
Plaintiffs assert that their complaint alleges “a conspiracy with foreign terrorist
organizations, especially Hezbollah, Iran’s de facto terrorism arm in Iraq, as well as Al Qaeda,
Ansar Al Islam, and Katib Hezbollah, and the persons who committed the terrorist attacks.” See
Pls. Mem. at 7 (citation omitted). But plaintiffs’s brief makes no effort to marshal facts in
support of this assertion. Instead, in a single sentence, it cites to more than 240 pages of the
complaint, see id. (citing Compl. ¶¶ 1371-2400), and asserts that the complaint alleges “in great
detail . . . a conspiracy with foreign terrorist organizations.” Id. These 240 pages of the
complaint certainly contain detail. But plaintiffs do not explain how that detail shows that the
13

defendants conspired with the foreign terrorist organizations that carried out the attacks at issue.
Based on our own examination of these 240 pages, we find that they contain a lengthy
discussion of how each defendant evaded the requirements of the sanctions regime against Iran
and its banks through various means including, for example, by concealing the involvement of
Iran in financial transactions. The complaint notes that the defendants paid fines and penalties of
hundreds of millions of dollars because of their violation of the sanctions imposed against Iran.
See, e.g., Compl. ¶¶ 1420, 1520, 1587, 1632, 1699, 1701. It also alleges that Iran, its banks, and
other Iranian entities that did business with defendants provided assistance to various foreign
terrorist organizations. See, e.g., id. ¶¶ 1762, 1902-03, 1915, 2317. As to any allegation of
conspiracy between the defendants and foreign terrorist organizations, however, the complaint
seems to rest on the following syllogism: (1) defendants knew the purpose of the sanctions
regime was to prevent Iran from obtaining U.S. dollars; (2) the reason the sanctions regime
attempted to prevent Iran from obtaining U.S. dollars was to stop Iran and its Agents and Proxies
from using those dollars to sponsor terrorism or to cripple Iran financially so that it could not
sponsor terrorism; (3) without U.S. dollars, Iran and its Agents and Proxies could not have
sponsored terrorism; and (4) Iran and its Agents and Proxies in fact used the dollars to sponsor
terrorism. Id. ¶¶ 1387, 1391, 1402, 1412. Accepting these allegations as true, they simply do
not show a conspiracy or agreement between any defendant and a foreign terrorist organization
as opposed to a conspiracy or agreement between a defendant and Iran or the Agents and Proxies
sponsoring such organizations.
In sum, the defendants have made a strong showing that they are likely to succeed on
their motion to dismiss with respect to liability under 18 U.S.C. § 2333.
B. Burden on Defendants and Third Parties
14

The defendants argue that permitting discovery in this case would be burdensome
because the defendants are large financial institutions and plaintiffs’ discovery requests in this
case seek a voluminous amount of material. See Defs. Mem. at 12-19. To mitigate this burden,
plaintiffs have proposed limiting discovery to “[a]nti-money laundering policies, procedures,
guidelines, and manuals; [a]uditing reports; SWIFT messages related to the illegal transactions
described in the Complaint; Suspicious Activity Reports (SARs), which the banks are required to
file with the Financial Crimes Enforcement Network following a suspected incident of money
laundering; and [c]orporate structure information,” as well as “limited subpoenas to third-party
entities, including government agencies, in possession of relevant documents.” See Katz Letter
at 5. Plaintiffs also hope to obtain documents relating to prior government and third-party
investigations into the defendants’ violation of economic sanctions from the defendants
themselves. See Pls. Mem. at 12. Plaintiffs argue that these requests are narrower than “full,
unbridled discovery,” and may be further limited so as to prevent too great of a burden from
being imposed on the defendants while their motions to dismiss are pending. Id.
We agree with defendants that the breadth of discovery here would pose a significant
burden on defendants. Even limiting the boundaries of discovery as plaintiffs propose, plaintiffs
would nevertheless seek discovery regarding over two thousand allegations in the complaint
(covering 514 pages) involving seventeen defendants and thousands of financial transactions. In
Chesney v. Valley Stream Union Free Sch. Dist. No. 24, 236 F.R.D. 113 (E.D.N.Y. 2006), the
court noted that the complaint named “sixteen [] entities or individuals” in finding that “[t]o set a
discovery schedule and require all of the named defendants, institutional and individual, to
participate would, in my opinion, be unreasonable and inappropriate under the circumstances

15

presented here.”4 Id. at 116. Instead, the court noted that “[b]y waiting until a decision is
reached on the pending motion, the areas of discovery may well be substantially reduced, if not
eliminated, as to certain named defendants here.” Id. The same considerations apply here.
Moreover, plaintiffs’ claims relate to documents that go back decades in time. To give
but one example involving a single defendant, plaintiffs allege that “[f]rom as early as 1995
through at least 2007, BNP circulated memoranda among its operations staff with [a] blanket
directive for USD transactions involving Iran” instructing its employees to refrain from naming
Iranian entities in messages transmitted to U.S. banks. Compl. ¶ 1835. Thus, even under
plaintiffs’ proposed limitations, discovery would span information generated over the course of
many years. See Integrated Sys. & Power, Inc., 2009 WL 2777076, at *1 (granting stay of
discovery in part because the “breadth of the discovery sought in this action will cover a six-year
period.”); see also Bethpage Water Dist. v. Northrop Grumman Corp., 2014 WL 6883529, at *3
(E.D.N.Y. Dec. 3, 2014) (finding that “the burdens of discovery are considerable” based in part
on the fact that plaintiff’s discovery request sought documents spanning many years).
Limiting discovery to documents already produced in connection with earlier
investigations, as plaintiffs propose, see Pls. Mem. at 12, would still impose a significant burden
on defendants and third parties. Although defendants have gathered these documents for
regulators, this does not obviate the need for the defendants or third parties to review these

4

Chesney concerned primarily municipal defendants, and thus the burden was
considered great in part because of the limited public resources available to these defendants.
See 236 F.R.D. at 116. Nevertheless, this fact alone does not undermine the general proposition
that the breadth of discovery may be particularly burdensome when sought against a large
number of defendants. Moreover, to the extent that some of the third parties from which the
plaintiffs seek discovery are government entities, see Pls. Mem. at 13-14, this fact weighs in
favor of finding that permitting discovery as to these entities would be burdensome.
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documents prior to production to plaintiffs. For example, with respect to one defendant, Credit
Suisse, defendants assert that the investigations into its violations of economic sanctions
“concerned U.S. dollar-clearing transactions processed by Credit Suisse from as early as 1995 to
2006 involving entities located” not only in Iran but also in “Sudan, Libya, Burma, Cuba and the
former Liberian Regime of Charles Taylor.” See Hruska Decl. ¶ 8 (citations omitted). In
connection with these investigations, Credit Suisse allegedly reviewed “at least 4 Terabytes
(4,000 Gigabytes) of data, including over 12 million SWIFT messages and over 1 million pages
of documents.” Id. ¶ 10. Many of the other defendants assert that the investigations into their
actions covered the violation of sanctions as to numerous countries and regimes over several
years. See Defs. Mem. at 14-16. By contrast, plaintiffs allegations in this case concern only the
violation of economic sanctions with respect to Iran that caused terrorist attacks between 2003
and 2011. See generally Compl. We thus reject plaintiffs’ assertion that these documents would
not have to be reviewed again in order to respond to plaintiffs’ requests. This burden would
likely be particularly onerous on the third parties plaintiffs seek to subpoena, many of which are
government agencies with limited resources. See Chesney, 236 F.R.D. at 116 (noting with
respect to municipal entities that “[c]ompliance with discovery in the posture of this case would
result in a substantial diversion of public resources which may not be ultimately necessary in this
action.”).5
In sum, the breadth of discovery sought by plaintiffs would impose a significant burden

5

While we accept that some items of discovery (for example organizational charts)
might impose very little burden, such items would be of little value in the absence of the ability
to conduct other discovery. Plaintiff’s reference to Discover Fin. Servs., Inc. v. Visa U.S.A.,
Inc., 2006 WL 1699566 (S.D.N.Y. June 20, 2006), see Pls. Mem. at 12 n.4, is inapt because that
case involved document subpoenas served on third parties, and did not reference or apply the
factors relevant to a stay of discovery pending the resolution of a motion to dismiss.
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on both the defendants and third parties.
C. Prejudice to Plaintiffs
Plaintiffs give several reasons why a stay would prejudice them. First, they argue that
the motions to dismiss will not be fully briefed until June 1, 2018, and may not be decided for
some time after that. See Pls. Mem. at 17. Plaintiffs therefore suggest that granting a stay may
delay the case by as much as one year, and would thus “unfairly and unreasonably delay the
case.” Id. However, the passage of a reasonable amount of time, without any other form of
attendant prejudice, cannot itself constitute prejudice sufficient to defeat a motion to stay
discovery. Otherwise, stays of discovery would never be granted given that some delay is
inherent in any stay. See also In re Initial Pub. Offering Sec. Litig., 236 F. Supp. 2d 286, 287
(S.D.N.Y. 2002) (delay alone does not constitute an undue burden because “delay is an inherent
part of every stay of discovery required by the PSLRA.”).
Plaintiffs also argue that a stay of discovery may prejudice plaintiffs with respect to their
requests for discovery from third parties because “[p]laintiffs have already been informed by
third parties that, without subpoenas, requests to preserve documents are not binding and []
documents in their possession may be destroyed in the ordinary course.” Pls. Mem. at 17 (citing
Paulos Decl. ¶¶ 5, 7, 9). The risk that non-parties may destroy documents, however, is one of
the “usual litigation risks that affect all the parties equally, regardless of the amount of time
permitted for discovery.” In re Term Commodities Cotton Futures Litig., 2013 WL 1907738, at
*7 (S.D.N.Y. May 8, 2013). This ordinary risk of litigation does not constitute sufficient
prejudice to warrant denying a stay of discovery, particularly in light of the burden that such

18

discovery might pose on the third parties and the strength of the defendants’ motion.6
Plaintiffs cite In re Chase Manhattan Corp. Sec. Litig., 1991 WL 79432 (S.D.N.Y. May
7, 1991), for the proposition that if the complaint is sustained, then “commencement of the
discovery process, while no doubt imposing some burden on defendants, will advance the
ultimate disposition of this action.” Id. at *1. In other words, plaintiffs claim that permitting
discovery to go forward now would be more efficient than issuing a stay. However, In re Chase
Manhattan Corp. Sec. Litig., did not reach the issue of whether defendants’ motion to dismiss
was likely to succeed. See id. at *1. By contrast, here the defendants have made a strong
showing that this case will be dismissed. See Section III.A.
*

*

*

While there is some potential that plaintiffs will be prejudiced by the institution of a stay,
the strength of the defendants’s showing on the merits combined with the potential burden
arising from discovery convinces us that a stay of discovery should be granted pending
resolution of the upcoming motions to dismiss. This stay is without prejudice to a specific
showing that a particular item of non-burdensome discovery is in danger of being lost absent
plaintiffs’ ability to use the discovery process.
IV. CONCLUSION
For the reasons set forth above, defendants’ motion for a stay of discovery pending
disposition of the defendants’ motions to dismiss (Docket # 94) is granted.
SO ORDERED.

6

Plaintiffs alternatively requested that this Court issue “a preservation order to preclude
material already produced” to certain third parties from being lost or destroyed. Pls. Mem. at 17.
However, plaintiffs provide no authority for the proposition that this Court has the power to
issue such an order.
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Dated: April 26, 2018
New York, New York

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