Keren Elmaliach,, et al., Respondents,v.Bank of China Limited,, Appellant.

Brief

N.Y.January 5, 2015

To Be Argued By: MITCHELL R. BERGER Time Requested: 30 Minutes APL-2014-00030 New York County Clerk’s Index No. 102026/09 Court of Appeals STATE OF NEW YORK KEREN ELMALIACH, as an individual, as statutory representative of the Estate of EMI ELMALIACH and as natural guardian of plaintiff, JAN ELMALIACH, et al., Plaintiffs-Respondents, -against- BANK OF CHINA LIMITED, 410 Madison Avenue, New York, New York 10017, Defendant-Appellant. BRIEF FOR DEFENDANT-APPELLANT d MITCHELL R. BERGER ALEXANDRA E. CHOPIN PATTON BOGGS LLP 2550 M Street N.W. Washington, DC 20037 Telephone: (202) 457-5601 Facsimile: (202) 457-6315 Of Counsel: DORSEY & WHITNEY LLP 51 West 52nd Street New York, New York 10019 Telephone: (212) 415-9200 Facsimile: (212) 953-7201 Attorneys for Defendant-AppellantDated: May 1, 2014 To Be Argued By: MITCHELL R. BERGER Time Requested: 30 Minutes New York County Clerk’s Index No. 102026/09 Court of Appeals STATE OF NEW YORK BANK OF CHINA LIMITED, Defendant-Appellant, -against- KEREN ELMALIACH, ETC., ET AL., Plaintiffs-Respondents. BRIEF FOR DEFENDANT-APPELLANT MITCHELL R. BERGER ALEXANDRA E. CHOPIN PATTON BOGGS LLP 2550 M Street, N.W. Washington, D.C. 20037 Tel. No. (202) 457-6000 mberger@pattonboggs.com achopin@pattonboggs.com Attorneys for Defendant-Appellant Bank of China Limited May 1, 2014 DISCLOSURE STATEMENT Pursuant to Rule 500.1(f) of the Rules of the Court of Appeals of the State of New York, Defendant-Appellant Bank of China Limited hereby provides the following Corporate Disclosure Statement: 1. Defendant-Appellant has no parent company, but has the following subsidiaries: a. Bank of China International Holdings Ltd. b. Bank of China Group Insurance Company Ltd. c. Bank of China Insurance Company Ltd. d. Bank of China Group Investment Ltd. e. BOC Aviation Pte. Ltd. f. BOC Hong Kong (Group) Ltd. 2. Central Huijin Investment Ltd. has a greater than 10% ownership interest in Defendant-Appellant; 3. HKSCC Nominees Limited has a greater than 10% ownership interest in Defendant-Appellant; 4. No other corporation has a greater than 10% ownership interest in Defendant-Appellant. ii TABLE OF CONTENTS DISCLOSURE STATEMENT .................................................................................. i TABLE OF AUTHORITIES ..................................................................................... v PRELIMINARY STATEMENT ............................................................................... 1 QUESTION PRESENTED ........................................................................................ 8 STATEMENT OF JURISDICTION ......................................................................... 9 I. STATEMENT OF THE CASE ....................................................................... 10 A. Plaintiffs Assert that BOC, a Chinese Bank that Does Not Operate in Israel, is Liable for Third-Party Terrorist Attacks in Israel. ...................................... 10 B. Supreme Court Relied on the D.C. Federal District Court Analysis of Israeli Law to Depart from the New York Rule that Banks Do Not Owe a Duty to Non-Customers..... .......................................................................................... 15 C. Appellate Division Rigidly Applied Lex Loci Delicti, which New York Has Abandoned, to Choose Israel’s Law to Govern the Case. .............................. 18 D. Appellate Division Acknowledged the General New York Rule that a Bank Does Not Have a Duty to Protect the Public from the Tortious Conduct of its Customers, but Diluted the Rule in its Public Policy Discussion. .................. 21 E. Plaintiffs in Factually Similar Cases Urged the Second Circuit Court of Appeals to Reverse Its Earlier Decision on the Basis of Appellate Division’s Ruling in Elmaliach.. ...................................................................................... 22 II. ARGUMENT .................................................................................................. 24 iii A. Point One: The Appellate Division Incorrectly Applied Lex Loci Delicti As Controlling of the Choice of Law Although the Contacts That Obtain Significance in This Case Are Only With China and New York. .................. 24 1. There Is A Conflict of Laws Between Israel and New York On the Duty of Care Issue; New York Law Has No Equivalent To the Israeli Breach of Statutory Duty Claim. ......................................................................... 27 2. Choice-of-law Rules Misapplied: The Appellate Division Should Have Focused on Which Jurisdiction Has the Greatest Interest in Overseeing the Specific Issue Raised in the Litigation: BOC’s Banking Activities. 29 3. Choice-of-law Rules Misapplied: The Appellate Division’s Ruling Disregarded New York’s Rejection of Lex Loci Delicti. ........................ 36 4. Choice-of-law Rules Correctly Applied: The Jurisdictional Contacts That Obtain Significance Relate to the Challenged Banking Conduct, and Favor Chinese or New York Law. ................................................... 42 5. The Federal Courts in New York Have Ruled In Similar Fact Cases, Including against BOC, that Israeli Law Cannot Govern Because Israel Has No Connection With the Challenged Bank Conduct. ...................... 50 B. Point Two: Because BOC Does Not Have the Ability and Authority to Control Customers Necessary to Create a Duty of Care, Plaintiffs’ Knowledge Allegations Do Not Warrant Departure From the General No Duty Rule. ....................................................................................................... 53 1. BOC Does Not Have A Special Relationship Giving It the Ability and Authority to Control Its Customer. ......................................................... 57 iv 2. Established New York Public Policy Strictly Limits the Expansion of Liability and The Duty of Care; Banks’ Statutory and Regulatory Obligations Safeguard the Public. ........................................................... 67 CONCLUSION ........................................................................................................ 71 v TABLE OF AUTHORITIES Page(s) CASES Albala v. New York, 54 N.Y.2d 269 (1981) ......................................................................................... 70 Allstate Ins. Co. v. Stolarz, 81 N.Y.2d 219 (1993) ..................................................................................passim Babcock v. Jackson, 12 N.Y.2d 473 (1963) ..................................................................................passim Blye v. Manhattan & Bronx Surface Tr. Operating Auth., 124 A.D.2d 106 (1st Dep’t 1987), aff’d 72 N.Y.2d 888 (1988) ............. 28, 55, 60 Bovsun v. Sanperi, 61 N.Y.2d 219 (1984) ................................................................................... 60, 70 Century Bus. Credit Corp. v. North Fork Bank, 246 A.D.2d 395 (1st Dep’t 1998) ..................................................... 28, 55, 66, 68 Cook v. Schapiro, 58 A.D.3d 664 (2d Dep’t 2009) .......................................................................... 58 Cooney v. Osgood, 81 N.Y.2d 66 (1993) ....................................................................................passim D’Amico v. Christie, 71 N.Y.2d 76 (1987) ......................................................................... 58, 61, 62, 63 De Angelis v. Lutheran Med. Center, 58 N.Y.2d 1053 (1983) ................................................................................. 60, 69 De Ryss v. New York C.R. Co., 275 N.Y. 85 (1937) ............................................................................................. 58 Degangi v. Regus Bus. Mgt., LLC, Docket Number: 158564/2012, 2013 N.Y. Misc. LEXIS 2047 (N.Y. Sup. Ct. Mar. 28, 2013) ......................................................................................... 57, 59 vi Devore v. Pfizer, Inc., 58 A.D.3d 138 (1st Dep’t 2008) ..................................................................passim Elmaliach v. Bank of China Ltd., 110 A.D. 3d 192 (1st Dep’t 2013) ...............................................................passim Elmaliach v. Bank of China Ltd., Index No. 102026/09, 2011 N.Y. Misc. LEXIS 6767 (N.Y. Sup. Ct. July 7, 2011) ......................................................................................................... 17, 22 Hamilton v. Beretta U.S.A. Corp., 96 N.Y.2d 222 (2001) ......................................................................................... 59 Horn v. N.Y. Times, 100 N.Y.2d 85 (2003) ..................................................................................... 7, 69 Howard v. Lecher, 42 N.Y.2d 109 (1977) ................................................................................... 68, 70 In re New York City Asbestos Litig., 5 N.Y.3d 486 (2005) ..................................................................................... 21, 69 Intercontinental Planning v. Daystrom, Inc., 24 N.Y.2d 372 (1969) ......................................................................................... 29 J. Zeevi & Sons, Ltd. v. Grindlays Bank, Ltd., 37 N.Y.2d 220 (1975) ............................................................................. 29, 45, 50 Kane v. Walsh, 295 N.Y. 198 (1946) ........................................................................................... 14 Khatibi v. Weill, 8 A.D.3d 485 (2d Dep’t 2004) ............................................................................ 14 Lerner v. Fleet Bank, N.A., 459 F.3d 273 (2d Cir. 2006) ......................................................................... 18, 68 Licci v. Am. Express Bank Ltd., 704 F. Supp. 2d 403 (S.D.N.Y. 2010) (“Licci I”) ................................... 17, 18, 22 Licci v. Lebanese Canadian Bank, SAL, 672 F.3d 155 (2d Cir. 2012) (“Licci II”) .....................................................passim vii Licci v. Lebanese Canadian Bank, SAL, 739 F.3d 45 (2d Cir. 2013) (“Licci III”) ......................................................passim Long v. Pan American World Airways, Inc., 16 N.Y.2d 337 (1965) ......................................................................... 7, 26, 46, 47 Mashreqbank PSC v. Ahmed Hamad A1 Gosaibi & Bros. Co., No. 54, 2014 N.Y. LEXIS 705 (N.Y. Apr. 8, 2014) ....................................passim Miller v. Miller, 22 N.Y.2d 12 (1968) ....................................................................................passim Padula v. Lilarn Properties Corp., 84 N.Y.2d 519 (1994) ............................................................................. 25, 29, 38 Palsgraf v Long Is. R. R. Co., 248 N.Y. 339 (1928) ........................................................................................... 69 Pulka v. Edelman, 40 N.Y.2d 781 (1976) ..................................................................................passim Purdy v. Public Adm’r of County of Westchester, 72 N.Y.2d 1 (1988) ........................................................................... 58, 61, 63, 64 Scher Law Firm v. DB Partners I LLC, No. 24633/09, 2011 N.Y. Misc. LEXIS 142 (N.Y. Sup. Ct. Jan. 28, 2011) ...... 34 Schultz v. Boy Scouts of Am., 65 N.Y.2d 189 (1985) ..................................................................................passim Swift & Co. v. Bankers Trust Co., 280 N.Y. 135 (1939) ..................................................................................... 37, 38 Tobin v. Grossman, 24 N.Y.2d 609 (1969) ......................................................................................... 70 Tooker v. Lopez, 24 N.Y.2d 569 (1969) ..................................................................................passim Wagshall v. Wagshall, 148 A.D.2d 445 (2d Dep’t 1989) .................................................................. 58, 57 viii Waters v. New York City Hous. Auth., 116 A.D.2d 384 (2d Dep’t 1986), aff’d 69 N.Y.2d 225 (1987).................... 28, 60 Waters v. New York City Hous. Auth., 69 N.Y.2d 225 (1987) ......................................................................................... 69 Wultz v. Bank of China Ltd., 11 Civ. 1266 (SAS), 2012 U.S. Dist. LEXIS 161399 (S.D.N.Y. Nov. 5, 2012) (“Wultz V”) ..................................................................................... 3, 18, 71 Wultz v. Bank of China Ltd., 865 F. Supp. 2d 425 (S.D.N.Y. 2012) (“Wultz IV”) ....................................passim Wultz v. Bank of China Ltd., Case No. 13-mc-1282-RBW (D.D.C. 2013) ................................................ 14, 15 Wultz v. Islamic Repub. of Iran, 755 F. Supp. 2d 1 (D.D.C. 2010) (“Wultz I”) ..............................................passim STATUTES 31 U.S.C. § 5318 ...................................................................................................... 34 31 U.S.C. § 5321 ...................................................................................................... 34 N.Y. C.P.L.R. § 2103(b)(2) ..................................................................................... 10 N.Y. C.P.L.R. § 5513 ........................................................................................... 9, 10 N.Y. C.P.L.R. § 5602(b)(1) ....................................................................................... 9 N.Y. C.P.L.R. § 5701 ............................................................................................... 10 Israel’s Civil Wrongs Ordinance § 35 ..................................................................... 15 Israel’s Civil Wrongs Ordinance § 36 ..................................................................... 15 Israel’s Civil Wrongs Ordinance § 63 ..................................................................... 15 OTHER AUTHORITIES 12 C.F.R. § 21.11 (2014) ......................................................................................... 34 12 C.F.R. § 21.21 (2014) ......................................................................................... 34 ix 31 C.F.R. Ch. 5 ........................................................................................................ 34 China Banking Regulatory Commission, China Insurance Regulatory Commission, China Securities Regulatory Commission, People’s Bank of China, Measures for the Administration of Client Identity Verification, Asset Identification and Transaction Record Retention by Financial Institutions (2007) ............................................................................................... 33 China Banking Regulatory Commission, Guidelines for Internal Control Systems of Commercial Banks (2007), arts. 72, 73, 76, 83 ............................... 33 Chinese Banking Regulatory Authority, 2012 ANNUAL REPORT (2012) ................. 33 Dodd-Frank Wall Street Reform & Consumer Protection Act § 165(d) ........... 34, 35 Harper & Kime, The Duty to Control the Conduct of Another, 43 YALE L. J. 886 (1934) ..................................................................................................... 57, 64 James T. Areddy, Israeli Victims of Terror File Suit Against Bank of China, Wall St. J., Aug. 28, 2008 ................................................................................... 14 People’s Bank of China, Administrative Measures for Reporting by Financial Institutions on Large-Sum and Suspicious Transactions (2007) ....... 33 REST. (2D) TORTS §§ 314-319 (1963-1964) ................................................. 57, 59, 61 Rules for Anti-Money Laundering By Financial Institutions, Regulations, People’s Bank of China ...................................................................................... 33 The Administrative Measures for Client Identity Verification, Asset Identification and Transaction Record Retention by Financial Institutions ........................................................................................................... 33 Title I and IDI Resolution Plans ........................................................................ 34, 35 PRELIMINARY STATEMENT This appeal presents a New York choice-of-law issue on which the state and federal courts in New York have reached irreconcilable conclusions.1 In one of those federal cases, the Second Circuit Court of Appeals observed that the “New York Court of Appeals has not been presented with this precise issue,” that is: Which jurisdiction’s law governs claims challenging the conduct of a bank when there is an outcome-determinative conflict between the conduct-regulating rules of the place of the bank’s conduct (where the bank has no duty to non-customers), and the conduct-regulating rules of the place of the plaintiffs’ injury?2 This appeal presents that precise issue, one which is likely to recur. Cases like this one are proliferating in the New York courts, because “as a practical 1 Compare Elmaliach v. Bank of China Ltd., 110 A.D. 3d 192, 205 (1st Dep’t 2013) (applying the law of the place of plaintiffs’ injury) with Licci v. Lebanese Canadian Bank, SAL, 739 F.3d 45, 48 (2d Cir. 2013) (“Licci III”) (rejecting Elmaliach as a “mistaken application” of New York law, and applying New York choice-of-law rules to conclude that plaintiffs’ negligence claim is governed by the law of the place of the bank-defendant’s conduct); Licci v. Lebanese Canadian Bank, SAL, 672 F.3d 155, 158 (2d Cir. 2012) (“Licci II”) (applying New York choice-of-law rules to determine that plaintiffs’ negligence claim is governed by New York law because “all of the challenged conduct undertaken by [the bank] occurred in New York”; also noting that, although plaintiffs were domiciled and injured in Israel, “those factors do not govern where, as here, the conflict pertains to a conduct-regulating rule” like duty of care); Wultz v. Bank of China Ltd., 865 F. Supp. 2d 425, 429 (S.D.N.Y. 2012) (“Wultz IV”) (following Licci II to rule that plaintiffs’ negligence, breach of statutory duty, and vicarious liability claims are governed by the law of the place of the bank-defendant’s conduct). 2 Licci III, 739 F.3d at 50. 2 matter, any [sizeable] dollar transaction” involving foreign banks “must go through New York.”3 Plaintiffs assert conduct-regulating claims against Bank of China Ltd. (“BOC”) for negligence and breach of statutory duty under Israeli law. Plaintiffs were injured in Israel in terrorist attacks by Hamas and Palestinian Islamic Jihad (“PIJ”). Neither Plaintiffs, nor the terrorist groups that attacked Plaintiffs, were ever customers of BOC. Plaintiffs claim instead that banking services BOC provided to a customer in China “substantially increased and facilitated” the ability of Hamas and PIJ to carry out the attacks.4 The outcome-determinative conflict of laws, which gives rise to the choice- of-law question on appeal, exists because Israeli law purportedly imposes a duty on banks to protect non-customers from torts committed by bank customers; neither China nor New York imposes such a duty. The Appellate Division correctly recognized the outcome-determinative conflict between New York and Israeli law.5 3 Mashreqbank PSC v. Ahmed Hamad A1 Gosaibi & Bros. Co., No. 54, 2014 N.Y. LEXIS 705, at *10 (N.Y. Apr. 8, 2014); see also Wultz IV, 865 F. Supp. 2d at 429 (holding that in contrast to the many banking services that occurred in China, “only a small fraction of the relevant banking conduct occurred in New York: the wire transfers to China ‘may have incidentally passed through BOC’s branch in New York’”) (quoting complaint). 4 See Compl. ¶68 (R. at A116). 5 The Appellate Division did not examine Chinese law. The Southern District of New York evaluated Chinese law in a parallel action with “nearly-identical” allegations against BOC as in Elmaliach. Wultz IV, 865 F. Supp. 2d at 428; see supra n.1. The district court applied New York choice-of-law principles to conclude that Chinese law, rather than Israeli law, should govern the plaintiffs’ non-federal claims, and dismissed the plaintiffs’ negligence and breach of 3 Turning then to the choice-of-law analysis, Plaintiffs’ negligence and breach of duty claims are centered on BOC’s alleged banking conduct in China, where key meetings and decisions allegedly transpired, where the wire transfers at issue were received, and where the bank accounts and bank decisionmakers are located. BOC’s alleged banking conduct also occurred to a lesser degree in New York, when wired funds passed through a BOC branch on their way to the customer’s accounts in China. “None of the banking conduct occurred in Israel.” 6 Plaintiffs’ claims should be governed by the law of the jurisdiction with the “greatest interest” in regulating BOC’s bank conduct, because it is “of critical importance” to apply the law that will have “an admonitory effect” to prevent similar alleged conduct from occurring in the future, and to “protect[] the reasonable expectations of the parties who relied on” the jurisdiction’s laws “to govern their primary conduct.”7 Because BOC does business in China and New York and is subject to the regulatory oversight of those jurisdictions, China and New York are best able to statutory duty claims. See generally Wultz IV, 865 F. Supp. 2d at 428 (choosing Chinese law); Wultz v. Bank of China Ltd., 11 Civ. 1266 (SAS), 2012 U.S. Dist. LEXIS 161399 (S.D.N.Y. Nov. 5, 2012) (“Wultz V”) (dismissing Israeli law claims under Chinese law). 6 In Wultz IV, the Southern District of New York applied the greatest interest test and chose Chinese law to govern, because the plaintiffs had alleged, as here, that “the decision to continue processing the transfers and the bulk of the actual banking services occurred in China. In contrast, only a small fraction of the relevant banking conduct occurred in New York. . . . None of the banking conduct occurred in Israel.” 865 F. Supp. 2d at 429. 7 Schultz v. Boy Scouts of Am., 65 N.Y.2d 189, 198 (1985); see also Cooney v. Osgood, 81 N.Y.2d 66, 72 (1993) (same). 4 oversee and prevent bank conduct of the type described in Plaintiffs’ Complaint. Further, choosing the law of China or New York enables this Court to protect BOC’s “reasonable expectations” that Chinese or New York law will govern its “primary conduct.” In no event should Israeli law apply, because none of the relevant banking conduct occurred in Israel, and BOC does not do business in Israel and is not subject to Israeli regulatory oversight. The Appellate Division misapplied the “greatest interest” test. The appellate court noted in passing that each potentially relevant jurisdiction has differing interests, but did not actually undertake a substantive analysis of those different interests. The Appellate Division instead inflexibly applied lex loci delicti, a choice-of-law rule that New York abandoned in 1963, and selected the law of Israel to govern because it was the place of Plaintiffs’ injury. The location of a plaintiff’s injury no longer dominates the “greatest interest” analysis, however, and is not controlling of the choice-of-law question. Had the Appellate Division applied the greatest interest test correctly, it would have concluded that the “particular issue” here centers on whether BOC can be liable for providing banking services to its customer in China, such that the law of China or New York should govern.8 8 Cooney v. Osgood Mach., Inc., 81 N.Y.2d 66, 72 (1993) (“Of the various, sometimes competing, schools of thought on choice of law, the one that emerged as most satisfactory was ‘interest analysis,’ which sought to effect the law of the jurisdiction having the greatest interest 5 Just weeks ago, this Court reaffirmed that this is the proper application of the “greatest interest” methodology. See Mashreqbank PSC v. Ahmed Hamad Al Gosaibi & Bros. Co. No. 54, 2014 N.Y. LEXIS 705 (N.Y. Apr. 8, 2014). At issue in Mashreqbank was New York’s choice-of-law interest in regulating wire transfers that passed through New York in connection with allegedly fraudulent overseas business transactions.9 Although the wire transfers occurred in New York, this Court reiterated that, in the conduct-regulating rule context, “the place where the allegedly tortious conduct occurred” is “[t]he jurisdiction with the greatest interest in resolving the issues.”10 The Second Circuit and the Southern District of New York have analyzed the same choice-of-law question in two factually similar cases (including one against BOC) and ruled that, while Israel is the place of the plaintiffs’ injury, Israeli law cannot govern because Israel has no connection to the alleged bank conduct at issue.11 The Appellate Division made note of, but expressly departed in resolving the particular issue (see, Schultz v. Boys Scouts, 65 N.Y.2d 189, 197 (1985); Miller v. Miller, 22 N.Y.2d 12, 15-16 (1968)). 9 Mashreqbank PSC, 2014 N.Y. LEXIS 705, at *10. 10 Id. at *11 (noting that Saudi Arabia, where the defendant’s allegedly tortious activity occurred, “is clearly” the jurisdiction whose law governs); see also id. at *11 (further supporting that conclusion by noting that “no relevant conduct apart from the execution of fund transfers occurred in New York”). 11See supra n.1. 6 from, those decisions and instead chose Israeli law by applying lex loci delicti.12 Once it chose Israel’s law to govern, the Appellate Division undertook a “public policy exception” analysis to evaluate whether Israeli law was repugnant to New York public policy. The Appellate Division ultimately posited that, “[a]lthough New York does not generally recognize a duty on the part of banks to non-customers, that does not mean that New York policy would prohibit recovery under the alleged facts, if proven.”13 Plaintiffs erroneously assert that the Appellate Division’s policy discussion amounts to a holding that New York law will impose a duty of care on banks, obviating a choice-of-law analysis. To the contrary, Appellate Division’s double- negative policy assessment (“does not mean . . . policy would prohibit”) was part of a separate analysis of whether Israeli law is “repugnant” to New York policy considerations, and thus did not undermine that court’s antecedent holding that New York law does not recognize a bank duty. As a result, that policy assessment does not vitiate the holding that an outcome-determinative conflict of laws exists. Even so, the “alleged facts, if proven”-that is, Plaintiffs’ allegation that the PRC government informed BOC of Israeli government allegations about BOC’s customer-cannot give rise to a bank duty to protect non-customers under New 12 See Elmaliach, 110 A.D.3d at 203-04. 13 Id. at 207 (emphasis added). 7 York law. New York law will not predicate a bank duty to protect non-customers solely upon alleged bank knowledge of potential tortious conduct by a bank customer. Rather, before a bank will have a duty to non-customers, a bank must also have a special relationship with its customer that gives the bank the ability and authority to control its customer’s actions and, ultimately, to prevent the plaintiff’s injuries. Although the Appellate Division did not examine that question, BOC unquestionably lacked the ability and authority to control its customer’s tortious conduct so as to satisfy the duty of control requirement. Without such control, New York law will not impose a bank duty to protect non-customers from the torts of bank customers. Under the law of either China or New York, then, Plaintiffs’ claims must be dismissed because neither jurisdiction imposes a duty on banks to protect non- customers from torts committed by bank customers or their alleged affiliates. Indeed, the Appellate Division’s decision to apply Israeli law threatens the “stability and predictability” of New York’s banking system by subjecting banks on an ad hoc basis to foreign law in jurisdictions where they do not do business.14 Nor is there a policy-based need to impose such a duty. BOC and other banks operating in New York and China already are required to commit extensive 14 Horn v. N.Y. Times, 100 N.Y.2d 85, 92-93 (2003) (declining to expand employer-employee relationship because of need to defer to legislature); contra Long v. Pan American World Airways, Inc., 16 N.Y.2d 337, 341-42 (1965) (applying Pennsylvania law because the airline chose to do business there); Devore v. Pfizer, Inc., 58 A.D.3d 138, 141 (1st Dep’t 2008) (applying Michigan law because drug company sold its prescription pills there). 8 resources to meet their compliance and reporting obligations to U.S. and Chinese banking regulators. The statutory and regulatory frameworks in those jurisdictions specifically guard against terror-financing by requiring banks like BOC to report suspicious activity to their regulators, which enables the governments of those jurisdictions to use their superior resources to protect the public. Although this Court may not have confronted the “precise issue” on appeal, its longstanding jurisprudence confirms that correct application of the “greatest interest” test requires that the law of China or New York govern this action. The decision of the Appellate Division should be reversed and Plaintiffs’ claims should be dismissed under the law of either China or New York. QUESTION PRESENTED 1. When there is a conflict of laws between the conduct-regulating rules of the place where the plaintiffs were injured by third parties (but where the defendant engaged in no conduct), and the place where the defendant’s alleged tortious conduct occurred (which does not recognize a duty of care toward the plaintiffs), does the jurisdiction in which the tortious conduct occurred have the “greatest interest” in applying its law to the case? Supreme Court Appellate Division ruled that the place of Plaintiffs’ injury 9 controls the choice of law, and Defendant-Appellant contends that this ruling was an error of law. STATEMENT OF JURISDICTION This Court has jurisdiction over this action under N.Y. C.P.L.R. (“CPLR”) § 5602(b)(1), which provides that the Appellate Division may grant leave to appeal to the Court of Appeals of any order “which does not finally determine an action” and is not exempted by the rules. This action does not fall within any of these exemptions. See id. § 5602(b). The Honorable Justice Barbara R. Kapnick of the Supreme Court, County of New York, Part 39 issued the original Order denying BOC’s Motion to Dismiss on July 7, 2011. R. at A50. The Order was filed with the Clerk on July 8, 2011, R. at A50, and Plaintiffs served the Notice of Entry of such Order on BOC on July 21, 2011. R. at A36. Justice Kapnick denied BOC’s Motion to Dismiss and held that Plaintiffs had stated a cause of action against BOC. R. at A64. BOC timely filed its Notice of Appeal to the Appellate Division, First Judicial Department on August 5, 2011, appealing from “each and every appealable part of the Court’s Order as well as from the entire Order.” R. at A36; see CPLR § 5513 (providing that an appeal must be taken “within thirty days after service by a party upon the appellant of a copy of the judgment or order appealed 10 from and written notice of its entry”); CPLR § 5701 (allowing for an appeal as of right to the Appellate Division “from any final or interlocutory judgment” of the Supreme Court). The Appellate Division, First Judicial Department, entered its decision on September 17, 2013, affirming the decision of the Supreme Court but holding that Israeli law rather than New York law should apply to the litigation. R. at A2. Plaintiffs served on BOC a copy of the opinion and order by mail on September 18, 2013. R. at A45. BOC timely filed and served its Motion for Leave to Appeal to the Court of Appeals on October 23, 2013, R. at A2066, which the Appellate Division granted by order on February 6, 2014. R. at A1; see CPLR § 2103(b)(2); § 5513 (together providing that a party has thirty days from the date of service plus an additional five days if service was by mail to file a Motion for Leave). The Motion for Leave sought to appeal the Appellate Division’s choice-of-law determination. R. at A2078. I. STATEMENT OF THE CASE A. Plaintiffs Assert that BOC, a Chinese Bank that Does Not Operate in Israel, is Liable for Third-Party Terrorist Attacks in Israel. Defendant-Appellant BOC is a century-old financial institution with its 11 headquarters in Beijing, China.15 BOC is a public company that operates more than 10,000 branches in China and is listed on the Hong Kong Stock Exchange and Shanghai Stock Exchange.16 BOC provides financial services to customers across the Chinese mainland, Hong Kong, Macau and Taiwan, and also does business in 37 countries outside China-though not in Israel.17 BOC has two affiliate branches in New York.18 Plaintiffs-Respondents are Israeli citizens who were harmed in terrorist attacks in Israel by the PIJ and Hamas between 2005 and 2007. Plaintiffs have not sued the PIJ or Hamas for their terrorist acts here or in any other case. Plaintiffs instead assert claims against BOC under Israeli law for its alleged negligence and breach of duties imposed by Israeli statutes.19 In particular, Plaintiffs allege that 15See Bank of China Overview, Bank of China, http://www.boc.cn/en/aboutboc/ab1/200809/t20080901_1601737.html (last visited April 21, 2014). 16See BOC 2013 Annual Report, at 85 http://pic.bankofchina.com/bocappd/report/201403/P020140326594419415439.pdf (last visited April 21, 2014). 17 See supra n.15. 18 See id. 19 Plaintiffs initially filed two separate cases against BOC as the sole defendant: Keren Elmaliach, et al. (Index No. 102026/09), and Janet Zamalloa, et al. (Index No. 101244/10). The Zamalloa action commenced on January 28, 2010 on behalf of relatives of another person killed in a bombing in Israel and asserts “factual allegations and causes of actions [that] are essentially identical to those in the Elmaliach complaint.” R. 56. The two cases were consolidated under Index No. 102026/09 by Order of New York Supreme Court dated July 29, 2010. The Zamalloa complaint is cited here only to the extent it differs from the Elmaliach complaint. 12 BOC is liable for Plaintiffs’ injuries because BOC processed wire transfers in U.S. dollars through New York into two depository accounts at BOC in Guangzhou, China, which were owned by BOC customer and alleged terrorist operative Said al-Shurafa (“Shurafa”). R. 115, ¶63. Shurafa allegedly withdrew money in cash from his BOC accounts in China, and later transmitted it “to the PIJ and Hamas . . . in Israel, the West Bank and the Gaza Strip” to finance the Israeli attacks. R. 115, ¶64. There is no dispute that Shurafa has never been designated by the United States, by the United Nations, by Israel, or by any other government as a terrorist, and further, that neither Israel nor any other nation has ever levied any terrorism- related charges against Shurafa. Plaintiffs do not allege how or when Shurafa transferred money to Hamas or the PIJ, in what amounts or by whom they were received, and how that money funded or facilitated the 2005-2007 attacks in Israel. Plaintiffs do not allege that Shurafa used BOC banking channels to transfer funds to the PIJ or Hamas, or that BOC has documents or other evidence related to expenditures and further transfers of the money once it left Shurafa’s BOC accounts in China. Plaintiffs do not allege that Shurafa participated in the subject terrorist attacks. Plaintiffs offer only the conclusory allegation that Shurafa’s receipt of money in his BOC accounts in China “substantially increased and facilitated the ability of the PIJ and Hamas to 13 plan, to prepare for and to carry out terrorist attacks on civilians” in Israel. R. 116, ¶68. Plaintiffs similarly do not allege that BOC conducted any business in Israel or engaged in any financial transaction with any person or entity in Israel. Plaintiffs do not allege that BOC ever opened an account or processed any transaction to which PIJ or Hamas was a named or otherwise identified party. Plaintiffs do not allege that Shurafa’s depository accounts with BOC had heightened fiduciary obligations, or that BOC controlled Shurafa’s actions once he withdrew the money. Plaintiffs do allege that BOC received second-hand information in April 2005 from the People’s Republic of China (“PRC”) government, which they contend should have caused BOC to stop processing the wire transfers that were received in Shurafa’s accounts. R. 116-117 ¶71; R. 53-55. According to Plaintiffs’ allegations, during an April 2005 meeting in China, “officials of the counterterrorism division of the Office of Prime Minister of the State of Israel” allegedly informed “officials of the PRC’s [People’s Republic of China] Ministry of Public Security and the PRC’s central bank” (the Peoples’ Bank of China, not BOC) that terrorist groups were wiring funds to Shurafa’s accounts in China. Plaintiffs allege that the Israeli officials “demanded that the PRC officials take action to prevent BOC from making further such transfers,” and further that PRC 14 officials allegedly “notified” BOC of the Israeli officials’ demand [that] the BOC halt the Wire Transfers.” R. 116-117, ¶71. This is the allegation that propelled Supreme Court to depart from the general rule that banks have no duty to protect non-customers like Plaintiffs, and caused Appellate Division to dilute the general rule in its policy discussion. However, as this Court can take judicial notice,20 Plaintiffs do not expect to prove their Israel-PRC “meeting” allegation, let alone the dependent allegation that BOC was informed of anything that the two governments purportedly discussed. The Israeli government has moved a federal court to quash Plaintiffs’ attempt to take a deposition of a former Israeli official with respect to the “meeting” allegation.21 Israel advised the federal court in its briefing on the motion to quash that the State of Israel “emphatically does not admit Plaintiffs’ allegations” about an Israeli-PRC meeting,22 and, further, that “Israel declines Plaintiffs’ invitation to 20 See Kane v. Walsh, 295 N.Y. 198, 204 (1946) (taking judicial notice); Khatibi v. Weill, 8 A.D.3d 485, 485 (2d Dep’t 2004) (“[T]his Court may take judicial notice of undisputed court records and files.”). 21 Wultz v. Bank of China Ltd., Case No. 13-mc-1282-RBW (D.D.C.), Dkt. #1, The State of Israel’s Motion to Quash, at 4-5, filed Nov. 15, 2013. R. at A1955-1956. 22 The PRC’s central bank (the Peoples’ Bank of China, not BOC) also has denied that “the alleged meeting between Israeli and Chinese officials ever took place.” Wultz v. Islamic Repub. of Iran, 755 F. Supp. 2d 1, 51 n.8 (D.D.C. 2010) (“Wultz I”); see also James T. Areddy, Israeli Victims of Terror File Suit Against Bank of China, Wall St. J., Aug. 28, 2008, at A5 (“The People’s Bank of China Friday said in a faxed reply that it didn’t hold talks in 2005 with Israeli counterterrorism officers about the matter and that such an account ‘doesn’t conform with the facts.’”). 15 sanction or rebut” Plaintiffs’ allegations-a position that Israel emphasizes “should not be construed as acquiescing in Plaintiffs’ presentation of facts.”23 Plaintiffs acknowledge that their inability to proceed with this deposition “could well prove to be case-dispositive.”24 Plaintiffs allege alternatively that, even if no meeting occurred between China and Israel, BOC should have known that the wire transfers were made to Shurafa for “illegal purposes” because of “red flag” characteristics of those transfers, including their timing and amounts. R. 117-118, ¶72. B. Supreme Court Relied on the D.C. Federal District Court Analysis of Israeli Law to Depart from the New York Rule that Banks Do Not Owe a Duty to Non-Customers. Plaintiffs filed these actions in Supreme Court on February 12, 2009, alleging two claims based on Israeli statutes: a claim for negligence under sections 35 and 36 of Israel’s Civil Wrongs Ordinance (“CWO”), and a claim for breach of statutory duty under CWO § 63, incorporating several Israeli anti-terrorism criminal laws. See R. 121-123, ¶¶79-90; R. 123-125, ¶¶91-101; R. A55. BOC moved to dismiss for Plaintiffs’ failure to state a claim and for forum non conveniens. See R. 603-633. BOC argued that both New York and Israeli tort 23 Wultz v. Bank of China Ltd., Case No. 13-mc-1282-RBW (D.D.C.), Dkt. #31, The State of Israel’s Reply in Support of its Motion to Quash, filed Jan. 16, 2014, at 2. R. at A2010. 24 Wultz v. Bank of China Ltd., Case No. 13-mc-1282-RBW (D.D.C.), Dkt. #13, Motion of Intervenor-Plaintiffs to Strike Non-Party State of Israel’s Motion to Quash, at 7 (filed Dec. 2, 2013). R. at 1996. 16 law consistently conclude that a bank does not owe a duty to protect the public at large from the intentional torts of its customers, and that a bank cannot proximately cause injury to non-customers by providing banking services to a customer allegedly affiliated with third-parties who injured Plaintiffs. R. 613-619. BOC argued further that Plaintiffs’ Israeli breach of statutory duty claim was defective because the underlying Israeli criminal laws were not intended to support civil liability, particularly based on actions outside of Israel, like those alleged against BOC. R. 619-624. BOC also demonstrated that New York is not an appropriate forum, because BOC’s alleged conduct occurred primarily in China, the majority of relevant evidence is located in China, and because of China’s own regulatory interests in adjudicating the case. R. 624-632. Plaintiffs disagreed with BOC’s interpretation of Israeli law, arguing that, under Israeli law, banks had a duty to protect non-customers from torts committed by bank customers, whereas “it is indisputable” that “under New York law [a bank] cannot” be “liable in negligence to a third-party for the intentional acts of its customers.” R. 722, ¶21. Plaintiffs accordingly conceded that, “if New York law applies, we can’t maintain this action.” R. 85. Supreme Court denied BOC’s motion to dismiss, but did not expressly 17 conduct a conflict-of-laws analysis. 25 See Elmaliach v. Bank of China Ltd., No. 102026/09, 2011 N.Y. Misc. LEXIS 6767, at *14-16 (N.Y. Sup. Ct. July 7, 2011). The motion court instead implicitly applied New York law in apparent reliance on the Southern District of New York’s decision in Licci v. Am. Express Bank Ltd., 704 F. Supp. 2d 403, 410 (S.D.N.Y. 2010) (“Licci I”), which had concluded there was no conflict of laws between New York and Israeli negligence law pertaining to the duty of care. See id. Licci is a factually similar case; American Express Bank allegedly breached a duty of care to the plaintiffs under Israeli law by processing wire transfers to terrorist operatives. See Elmaliach, 2011 N.Y. Misc. LEXIS 6767, at *6-7 (“Plaintiffs’ counsel have commenced additional, substantially similar lawsuits on behalf of other victims of attacks in Israel, likewise seeking redress against financial institutions for providing wire transfer services to terrorist organizations.”). Supreme Court also adopted the D.C. federal court’s analysis in Wultz v. Islamic Republic of Iran, a nearly-identical case against BOC, also commenced by the same plaintiffs’ counsel. Id. at *8-12 (citing Wultz I, 755 F. Supp. 2d at 50-53, 66); Wultz IV, 865 F. Supp. 2d at 428 (“nearly-identical”)). Supreme Court expressly relied on Wultz I’s Israeli law analysis of the duty of care and, on that 25 Supreme Court also rejected BOC’s forum non conveniens argument in the motion, because BOC has two branches in New York, BOC’s New York branches allegedly processed the wire transfers at issue, and because BOC is already conducting discovery in Wultz v. Bank of China Ltd. R. 63, Elmaliach, 2011 N.Y. Misc. LEXIS 6767, at *14-16. 18 basis, held that Plaintiffs’ “allegations regarding BOC’s actual knowledge of Shurafa’s terrorist activities” necessitated a departure from the general New York rule that “‘[b]anks do not owe non-customers a duty to protect them from the intentional torts committed by their customers.’” Elmaliach, 2011 N.Y. Misc. LEXIS 6767, at *5 (quoting Licci I, 704 F. Supp. 2d at 410, in turn citing Lerner v. Fleet Bank, N.A., 459 F.3d 273, 286 (2d Cir. 2006)). In fact, Wultz I never considered New York law on the duty of care. See Wultz I, 755 F. Supp. 2d at 62. Notably, however, Supreme Court did agree with BOC that the alleged “red flags” related to “Shurafa’s account activity” would, at most, “impute constructive knowledge to BOC,” and “could not alone suffice as a basis for liability” under New York law. R. 61-62. C. Appellate Division Rigidly Applied Lex Loci Delicti, which New York Has Abandoned, to Choose Israel’s Law to Govern the Case. BOC filed a timely notice of appeal in the Appellate Division, First Department. R. 36. Plaintiffs cross-appealed from Supreme Court’s ruling “to the extent, if any, that it determined that plaintiffs’ claims are governed by the substantive law of New York.” R. 45. The Appellate Division affirmed Supreme Court’s denial of BOC’s motion to dismiss, but dismissed Plaintiffs’ cross-appeal as improperly taken. In contrast to Supreme Court, the Appellate Division undertook a New York conflict-of-laws analysis. See Elmaliach v. Bank of China Ltd., 110 A.D.3d 192, 19 201 (1st Dep’t 2013) (citing cases). Like Supreme Court, however, the Appellate Division relied heavily on the D.C. federal district court’s Israeli law analysis in Wultz I to highlight the conflict between New York’s and Israel’s duty of care law, and to note that the Israeli breach of statutory duty claim has no New York counterpart. See id. The Appellate Division concluded that the differences between the two jurisdictions’ laws were substantial enough to affect the trial’s outcome, “perhaps significantly.” Id. at 201-02. The Appellate Division consequently turned to a New York choice-of-law analysis to determine which jurisdiction’s law should govern Plaintiffs’ claims. Id. at 205. Although none of BOC’s challenged banking conduct occurred in Israel, the Appellate Division chose the law of Israel expressly because it was the lex loci delicti-specifically, the “location of the plaintiffs’ injuries”-and therefore had the “greater interest in seeing its laws enforced.” Id. at 205. In choosing Israeli law over the laws of New York and China, the Appellate Division rested its decision on the duty element of the tort claim, concluding that, under New York law, a bank’s duty of care to third parties is a conduct-regulating rule. Id. at 202. In reaching this conclusion, the Appellate Division correctly framed the choice-of-law analysis to depend on whether the law at issue regulates conduct or, instead, allocates loss. See id. at 202. At that juncture, however, the Appellate Division deviated from prevailing 20 New York authority to hold that, when a conduct-regulating rule is at issue, lex loci delicti automatically controls the choice of governing law. See id. The Appellate Division incorrectly held, further, that when the “defendant’s negligent conduct occurs in one jurisdiction and the plaintiff suffers injuries in another” the “‘place of the wrong is considered to be the place where the last event necessary to make the actor liable occurred,’” that is, “where the plaintiffs’ injuries occurred.” Elmaliach, 110 A.D.3d at 203 (quoting Schultz v. Boy Scouts of Am., 65 N.Y.2d 189, 195 (1985); citing Devore v. Pfizer, Inc., 58 A.D.3d 138, 141 (1st Dep’t 2008), lv. denied 876 N.Y.S.2d 704 (2009))). The Appellate Division referenced, but did not conduct, New York’s mandatory “greatest interest” choice-of-law analysis. Instead, without further substantive examination, the Appellate Division held that Israel, the place of Plaintiffs’ injuries, had the dominant choice-of-law interest because of its interest in “protecting its citizens and residents, who were the intended targets of the terrorist attacks inside Israeli territory.” Id. To the extent that the Appellate Division noted the interests of the other relevant jurisdictions, it observed that both China and New York’s interests relate to BOC’s alleged banking conduct, which had occurred exclusively within those two jurisdictions. Specifically, the Appellate Division commented that New York has a “very strong interest as a world financial center in overseeing financial institutions operating in the United 21 States” and in combating the “financial aspects” of terrorism. Id. China’s “great interest,” similarly, is in “overseeing its financial institutions.” Id. 26 D. Appellate Division Acknowledged the General New York Rule that a Bank Does Not Have a Duty to Protect the Public from the Tortious Conduct of its Customers, but Diluted the Rule in its Public Policy Discussion. The Appellate Division’s choice of Israeli law precipitated a policy analysis to determine whether Israel’s law was so divergent from New York law as to meet the high threshold of being “repugnant” to New York public policy, and therefore to be unenforceable in New York. After its brief policy review, the appellate court posited that, “[a]lthough New York does not generally recognize a duty on the part of banks to non-customers, that does not mean that New York policy would prohibit recovery under the alleged facts, if proven.” Id. Notably, the Appellate Division’s public policy discussion did not reference either the body of law reiterating that New York abhors extension of liability, particularly by expanding the duty of care, or the extensive federal, state and foreign statutory and regulatory frameworks that already require banks operating in the United States to monitor customers and report suspicious conduct to the government. See, e.g., In re New York City Asbestos Litig., 5 N.Y.3d 486, 493 26 The Appellate Division also affirmed the motion court’s denial of BOC’s motion on grounds of forum non conveniens because “New York has a sufficient interest and nexus with the claims, because New York banking facilities were allegedly used to process the wire transfers.” Elmaliach, 110 A.D.3d at 209. 22 (2005) (“This judicial resistance to the expansion of duty grows out of practical concerns both about potentially limitless liability and about the unfairness of imposing liability for the acts of another.”) (quotations and citation omitted); see also infra at Part II.B.2 (discussing strict New York rule against extension of duty of care, regulatory and statutory obligations). E. Plaintiffs in Factually Similar Cases Urged the Second Circuit Court of Appeals to Reverse Its Earlier Decision on the Basis of Appellate Division’s Ruling in Elmaliach. Supreme Court expressly endorsed and relied on early federal decisions in cases that are either factually similar or “nearly-identical” to Elmaliach. Wultz IV, 865 F. Supp. 2d at 428; see also Elmaliach v. Bank of China Ltd., Index No. 102026/09, 2011 N.Y. Misc. LEXIS 6767 (N.Y. Sup. Ct. July 7, 2011) (adopting the D.C. federal court’s analysis in Wultz v. Islamic Republic of Iran, 755 F. Supp. 2d 1, 53 (D.D.C. 2010) (“Wultz I”), also quoting “the additional, substantially similar lawsuit[]” filed by the Elmaliach “Plaintiffs’ counsel” in Licci I, 704 F. Supp. 2d 403 (S.D.N.Y 2010)). Following Supreme Court’s decision, the Second Circuit Court of Appeals affirmed Licci I in a per curiam opinion; although Licci I had determined there was no conflict of laws, the Second Circuit conducted a de novo choice-of-law analysis to confirm that New York law governed the case. See Licci II, 672 F.3d at 158. The Second Circuit in Licci II applied New York law because: 23 Although the plaintiffs’ injuries occurred in Israel, and Israel is also the plaintiffs’ domicile, those factors do not govern where, as here, the conflict pertains to a conduct-regulating rule. Id. at 158. Licci II explained that New York had the greatest interest in regulating its banks, in order to “protect[] the reasonable expectations of the parties who relied on [New York law] to govern their primary conduct.” Id. (citing Schultz v. Boy Scouts of Am., 65 N.Y.2d 189, 198 (1985)). In the wake of the Appellate Division’s subsequent ruling in Elmaliach, the Licci plaintiffs (who are represented by Plaintiffs’ counsel here) petitioned the Second Circuit for rehearing in Licci, arguing that Licci II should be withdrawn on the basis of the Appellate Division’s application of New York choice-of-law rules in Elmaliach. The Second Circuit declined to follow Elmaliach, however, calling it a “mistaken application” of this Court’s interpretation of New York choice-of- law rules. See Licci III, 739 F.3d at 46. According to the Second Circuit, the Appellate Division had failed to follow New York law requiring that the law of the place where the defendant’s allegedly tortious conduct occurred will control: The New York Court of Appeals has consistently explained that, for conduct-regulating rules, “the law of the jurisdiction where the [alleged] tort occurred will generally apply because that jurisdiction has the greatest interest in regulating behavior within its borders.” Cooney, 81 N.Y.2d at 72; see also In re Allstate Ins. Co. (Stolarz), 81 N.Y.2d 219, 225 (1993) (“Stolarz”). This is because “[w]here the defendant’s exercise of due care . . . is in issue, the jurisdiction in which the allegedly wrongful conduct occurred will usually have a predominant, if not exclusive, concern.” Babcock v. Jackson, 12 N.Y.2d 473, 483 (1963). 24 In the ordinary tort case, “both the wrong and the injury t[ake] place” in the same jurisdiction. Id. at 477 n.2. But where they do not, it is the place of the allegedly wrongful conduct that generally has superior “interests in protecting the reasonable expectations of the parties who relied on [the laws of that place] to govern their primary conduct and in the admonitory effect that applying its law will have on similar conduct in the future.” Schultz, 65 N.Y.2d at 198. Licci III, 739 F.3d at 50 (emphasis added); see also Wultz IV, 865 F. Supp. 2d at 429 (withdrawing earlier opinion choosing Israeli law and instead applying Chinese law, because Licci II explained that the place of the defendant’s conduct controls). II. ARGUMENT A. Point One: The Appellate Division Incorrectly Applied Lex Loci Delicti As Controlling of the Choice of Law Although the Contacts That Obtain Significance in This Case Are Only With China and New York. Plaintiffs’ claims center on whether BOC breached a duty to Plaintiffs by providing banking services to its customer in China. Some of the wire transfers to the customer’s accounts in China were processed by BOC’s New York branch as an intermediary for originating banks. The Appellate Division correctly held that a choice-of-law analysis is required with respect to Plaintiffs’ two claims under Israeli law, both of which arise from those BOC banking services. The law of the forum (New York) on the duty of care conflicts with the law invoked in Plaintiffs’ 25 claims (Israel) in a case-dispositive way; Israel will impose a duty on a bank to protect non-customers, but New York will not. See infra Part II.A.1 (discussing conflict of laws). Under New York choice-of-law rules, courts must choose the law of the jurisdiction that has “the greatest interest” in “the particular issue” being litigated in the case. Schultz, 65 N.Y.2d at 197 (greatest interest); Cooney v. Osgood Mach., Inc., 81 N.Y.2d 66, 72 (N.Y. 1993) (particular issue); see also Padula v. Lilarn Properties Corp., 84 N.Y.2d 519, 521 (1994) (requiring “evaluation of the ‘facts or contacts which . . . relate to the purpose of the particular law in conflict.’”) (quoting Schultz, 65 N.Y.2d at 197). The “particular issue” presented by Plaintiffs’ claims-and thus the focus of the “greatest interest” analysis-is BOC’s banking activity in China and New York. No BOC conduct occurred in or extended to Israel. The Appellate Division did not focus on the jurisdiction with the greatest interest in regulating BOC’s banking activity, however. Instead, the appellate court fixed solely on Israel as the location of Plaintiffs’ injuries, and ultimately relied on lex loci delicti to elevate Israel’s interests over those of China and New York. See Elmaliach, 110 A.D.3d at 203. The Appellate Division correctly acknowledged that only China and New York have an interest in the banking conduct at issue. See Elmaliach, 110 A.D.3d 26 at 203. But the Appellate Division should also have considered which jurisdiction has the greatest interest in “protecting the reasonable expectations of the parties who relied on it to govern their primary conduct” and whether applying that jurisdiction’s law will have an “admonitory effect . . . on similar conduct in the future.” Schultz, 65 N.Y.2d at 198. The Appellate Division did not undertake either of those analyses. See Elmaliach, 110 A.D.3d at 204-05. New York values substance over form in choice of law analysis, and State law and public policy forbid mere chance or coincidence from dictating the choice of law. To that end, the lex loci delicti does not by itself attain any special weight or dominance, and is merely one factor to consider in the interest analysis. See Schultz, 65 N.Y.2d at 201-02 (refusing to apply lex loci delicti place of injury rule, although injuries occurred in New York); Long v. Pan American World Airways, Inc., 16 N.Y.2d 337, 342 (1965) (refusing to apply lex loci delicti place of injury rule, because it was “purely adventitious circumstance” that the plane crashed in Maryland); Babcock v. Jackson, 12 N.Y.2d 473, 484 (1963) (refusing to apply lex loci delicti place of injury rule because car accident occurred by chance in Ontario). Accordingly, the Appellate Division erred by choosing Israeli law on the basis of lex loci delicti. Instead, it should have considered the place of Plaintiffs’ injuries as just one factor in the substantive greatest interest analysis. Had it done 27 so, it would have concluded that either China or New York has the greatest interest in applying its law. 1. There Is A Conflict of Laws Between Israel and New York On the Duty of Care Issue; New York Law Has No Equivalent To the Israeli Breach of Statutory Duty Claim. Before this Court turns to the choice-of-law question raised on appeal, it must evaluate “whether there is an actual conflict between the laws of the jurisdictions involved.” Allstate Ins. Co. v. Stolarz, 81 N.Y.2d 219, 223 (1993). Only when an actual conflict exists will New York proceed to a choice-of-law analysis and select the law of the jurisdiction with the “greatest interest” in the disputed issue. Id. The Appellate Division properly recognized that New York and Israeli law conflict with respect to whether a bank has a duty to protect non-customers from intentional torts committed by their customers. See Elmaliach, 110 A.D.3d at 198 Israel’s law creates a duty of care if “a reasonable person could have foreseen the occurrence of the damage under the particular circumstances alleged; whether as a matter of policy, a reasonable person ought to have foreseen the occurrence of the particular damage; and whether the occurrence causing the damage was foreseeable.” Elmaliach, 110 A.D.3d at 198, 201 (emphasis added). In contrast, New York does not consider foreseeability until after a plaintiff shows that there is “a duty running directly to the injured person”-“however careless the conduct or 28 foreseeable the harm.” Id. (citing New York case law) (emphasis added). Unlike Israeli law, New York requires that there be an independent duty of care running from the defendant to the plaintiff, regardless of how foreseeable the harm. See Elmaliach, 110 A.D.3d at 206; see also Blye v. Manhattan & Bronx Surface Tr. Operating Auth., 124 A.D.2d 106, 109 (1st Dep’t 1987), aff’d 72 N.Y.2d 888 (1988) (“The concept of foreseeability is a critical factor in defining the boundaries of that duty, but it is never the avenue by which to create a duty which does not otherwise exist.”) (citing Pulka v. Edelman, 40 N.Y.2d 781, 785 (1976); Waters v. New York City Hous. Auth., 116 A.D.2d 384, 387 (2d Dep’t 1986), aff’d 69 N.Y.2d 225 (1987)). New York does not impose that independent duty of care on banks to protect non-customers. See Century Bus. Credit Corp. v. North Fork Bank, 246 A.D.2d 395, 396 (1st Dep’t 1998) (“Plaintiff’s cause of action for negligence against defendant was properly dismissed since to hold that banks owe a duty to their depositors’ creditors to monitor the depositors’ financial activities so as to assure the creditors’ collection of the depositors’ debts would be to unreasonably expand banks’ orbit of duty.”). This case thus presents a conflict of laws that necessitates a choice-of-law analysis. 29 2. Choice-of-law Rules Misapplied: The Appellate Division Should Have Focused on Which Jurisdiction Has the Greatest Interest in Overseeing the Specific Issue Raised in the Litigation: BOC’s Banking Activities. The ultimate emphasis of the “greatest interest” test is on the “problem” at issue in the case, and seeks to give “paramount control over the legal issues arising out of a particular factual context and thereby allow[] the forum to apply the policy of the jurisdiction most intimately concerned with the outcome of the particular litigation.” Babcock, 12 N.Y.2d at 481-82 (internal quotation marks, brackets omitted); see also J. Zeevi & Sons, Ltd. v. Grindlays Bank, Ltd., 37 N.Y.2d 220, 226-27 (1975) (same); Intercontinental Planning v. Daystrom, Inc., 24 N.Y.2d 372, 382 (1969) (same). New York’s “greatest interest” choice-of-law analysis thus evaluates: “(1) what are the significant contacts [related to the parties and the tortious conduct] and in which jurisdiction are they located; and, (2) whether the purpose of the law is to regulate conduct or allocate loss.” Padula, 84 N.Y.2d at 521-22 (brackets added for clarity; citing Schultz, 65 N.Y.2d at 198). In the first inquiry, concerning each jurisdiction’s contacts with the parties or the tort, “the [only] facts or contacts which obtain significance in defining State interests are those which relate to the purpose of the particular law in conflict.” Schultz, 65 N.Y.2d at 197 (brackets in original). To that end, merely counting the 30 number of contacts with a jurisdiction is insufficient; courts instead must assess the relative importance of those contacts to the issue in the case. See Tooker v. Lopez, 24 N.Y.2d 569, 576 (1969) (emphasizing a need for “rational choice-of-law” rather than rote application of “lex loci delictus”); Schultz, 65 N.Y.2d at 196; Babcock, 12 N.Y.2d at 481. The second inquiry requires a court to determine whether the law at issue is conduct-regulating or loss-allocating. See Schultz, 65 N.Y.2d at 198. The Appellate Division correctly stated that a bank’s asserted duty to protect non- customers is a conduct-regulating rule.27 See Elmaliach, 110 A.D.3d 192, 201-02. But, the Appellate Division erred when it failed to give controlling effect to the facts and contacts related to the banking conduct that forms the basis of Plaintiffs’ claims. While the Appellate Division noted that each of the three relevant jurisdictions has “significant contacts” with events alleged in the Complaint, the entire Appellate Division discussion of that issue comprises six sentences-two for each jurisdiction-and only identifies the contacts. The appellate court did not go further to balance or to weigh the interests of each jurisdiction in accord with the interest analysis firmly set out in this Court’s jurisprudence. See Elmaliach, 110 A.D.3d at 203. 27 A loss-allocating rule, in contrast, concerns immunities from liability and limitations on damages for conduct that is concededly tortious. See Schultz v. Boy Scouts of Am., 65 N.Y.2d 189, 198 (1985). 31 The “problem” at issue here, according to Plaintiffs, is that BOC allegedly continued providing banking services to its customer in China, including continued processing of wire transfers through BOC’s New York branch, after BOC was purportedly advised that the customer was a suspected agent of terrorist groups. Babcock, 12 N.Y.2d at 481-82. The Complaint alleges that BOC’s “banking services” and “wire transfers” facilitated the terrorist activity; the “conduct” forming the basis of Plaintiffs’ negligence and statutory duty claims is the banking services BOC provided to its customer in China, including the “Wire Transfers” processed by BOC in New York and received in its customer’s accounts in China, and other banking services provided to its customer in China. Compl., ¶¶63-78 (R. at 115-120), ¶¶85-89 (R. at 122-123), ¶98 (R. at 125). The “legal issue” and the “laws in conflict” here thus turn on whether BOC had a duty of care to control the banking activity of its customer in China in order to prevent injury to non- customers. The jurisdiction with “paramount control” of that “problem” is either China or New York, the only two jurisdictions in which BOC’s relevant banking conduct occurred and which regulate BOC’s banking activities. See Elmaliach, 110 A.D.3d at 203 (noting China and New York’s interests in overseeing their financial institutions). The correct governing law in this case, therefore, is the law of the jurisdiction in the best position to “regulat[e] [the bank] conduct within its 32 borders.” Tooker v. Lopez, 24 N.Y.2d 569, 572-73 (1969). In contrast, Israel’s interest in the case is in protecting its citizens from attacks waged by terrorist groups that are not parties to this case. See id. Because the focus of Plaintiffs’ claims is BOC’s banking conduct in China and New York, those two jurisdictions, not Israel, have the greatest interest in creating and enforcing the predictable regulatory framework to oversee BOC’s banking services within their respective borders. Plaintiffs unmistakably allege that China is the jurisdiction in which the most significant BOC banking conduct occurred:  BOC is domiciled in China. Compl. ¶31 (R. at 109).  Shurafa’s customer accounts were located in China. Id. ¶63 (R. at 115).  The April 2005 meeting between Israeli officials and Chinese government officials is alleged to have taken place in China. Id. ¶71 (R. at 116-117).  Chinese government officials allegedly transmitted the Israeli government warnings related to Shurafa’s banking activity to BOC officials in China. Id.  BOC officials in China allegedly made the decision to ignore the Israeli warnings and continue to process wire transfers for Shurafa. Id.  The wire transfers allegedly were processed through BOC’s branch in New York to its branch in China. Compl. ¶63 (R. at 115).  BOC has no contact with Israel: it has no bank branches in Israel and does not transact any banking business there. Id. ¶31 (R. at 109) (noting New York branches but making no allegation regarding any business in Israel). 33 China has the greatest interest in applying its laws to Plaintiffs’ claims because China comprehensively regulates BOC, both specifically with respect to protocols to combat the financing of terrorism,28 and more generally on supervisory issues, including risk management and capital adequacy.29 28 With respect to procedures for combating money laundering and financing of terrorist activity, BOC is regulated in China primarily by the People’s Bank of China (China’s central bank). The PBOC issues and enforces the extensive regulatory obligations of commercial banks, including by requiring Chinese banks to adopt internal control mechanisms to prevent money laundering and other illegal activities. See, e.g., Rules for Anti-Money Laundering By Financial Institutions, Regulations, People’s Bank of China, http://www.pbc.gov.cn/publish/english/964/index.html (last visited April 23, 2014) (providing for regulation of commercial banks by the PBOC, the CBRC, China Securities Regulatory Commission, and China Insurance Regulatory Commission, and for cooperation with other agencies and law enforcement). For example, the Administrative Measures for Reporting by Financial Institutions on Large-Sum and Suspicious Transactions require banks in China to establish internal departments and procedures to ensure that the banks make required reports to authorities, and to report specific instances of large and/or suspicious transactions as defined in the regulations. See People’s Bank of China, Administrative Measures for Reporting by Financial Institutions on Large-Sum and Suspicious Transactions (2007). 29 Chinese banks are otherwise regulated by the China Banking Regulatory Commission (“CBRC”), which is part of the State Council of the People’s Republic of China. The CBRC also has established and regularly enforces statutory and regulatory bank oversight with the goal, among others, of preventing terrorist funding and money laundering. For example, The Guidelines for the Internal Control System of Commercial Banks oblige commercial banks in China to adopt internal control mechanisms to prevent “money laundering” and “other illegal activities” in order to “ensure the security of bank and client funds.” China Banking Regulatory Commission, Guidelines for Internal Control Systems of Commercial Banks (2007), arts. 72, 73, 76, 83 (issued pursuant to the Law on Supervision and Administration of the Banking Industry and the Commercial Banking Law). Further, regulations in The Administrative Measures for Client Identity Verification, Asset Identification and Transaction Record Retention by Financial Institutions require banks in China to undertake “diligent and conscientious efforts” to create and update their systems for identity verification, asset and transaction recording, and review of remittances, in order to implement laws against money laundering and terrorist financing. China Banking Regulatory Commission, China Insurance Regulatory Commission, China Securities Regulatory Commission, People’s Bank of China, Measures for the Administration of Client Identity Verification, Asset Identification and Transaction Record Retention by Financial Institutions (2007). The CBRC also enforces banks’ capital requirements and examines bank operations to prevent undercapitalization, fraud and financial crimes. See CBRC, 2012 ANNUAL REPORT, at *71 (2012), 34 New York has a similar, but lesser, interest in applying its laws to Plaintiffs’ claims because BOC’s banking conduct in New York features less significantly in those claims. As in China, however, banks operating in New York are supervised for their compliance with laws designed to counter terror-financing,30 and with more general prudential standards.31 http://www.cbrc.gov.cn/chinese/files/2013/4CF24B3E79704CEA85D330A7CC18CD7D.pdf (last visited April 18, 2014). 30 For example, U.S. federal regulations require banks to develop infrastructure to prevent terrorist financing and money laundering. Banks operating in the U.S., like BOC, must monitor their customers and report suspicious activity, including material links to terrorism, under the Bank Secrecy Act (“BSA”), 31 U.S.C. § 5318. See also 12 C.F.R. § 21.11 (applying the Suspicious Activity Reporting requirements of the BSA to all banks, including “Federal branches and agencies of foreign banks,” and providing that banks “must keep certain records and make certain reports that have been determined to be useful in . . . intelligence or counter-intelligence activities to protect against international terrorism”) (emphasis added). BOC also must comply with U.S. Department of Treasury, Office of Foreign Assets Controls (“OFAC”) sanctions regulations. See 31 U.S.C. § 5318; 31 C.F.R. Ch. 5. Further, the Office of the Comptroller of the Currency (“OCC”) must inform the U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”) of any apparent BSA violations, on the basis of which FinCEN will investigate and impose civil enforcement remedies such as injunctions, fines, and criminal penalties. See, e.g., “Title I and IDI Resolution Plans,” http://www.fdic.gov/regulations/reform/resplans/plans/boc-165-1312.pdf (last visited April 18, 2014) (BOC submitting U.S. Resolution Plan under Section 165(d) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), and declaring that BOC is subject to regulation as a bank holding company by the Federal Reserve Bank and the FDIC). Banks are required under the BSA-related regulations to develop stringent compliance programs, and failure to do so can result in significant civil penalties. See 12 C.F.R. § 21.21. Indeed, the BSA deliberately does not create a private right of action, because banks already face steep government-imposed civil penalties if they fail to report suspicious activity. See 31 U.S.C. § 5321; see Scher Law Firm v. DB Partners I LLC, No. 24633/09, 2011 N.Y. Misc. LEXIS 142, at *20 n.7 (N.Y. Sup. Ct. Jan. 28, 2011). Congress considered the BSA structure to be the most effective mechanism to protect the public through bank monitoring and reporting. 31 The United States Board of Governors of the Federal Reserve, the Federal Deposit Insurance Corporation (“FDIC”), and the OCC exercise significant regulatory authority over banks doing 35 By contrast, Israel cannot as a practical matter (and does not purport to) impose its bank-regulatory structure on banks operating outside of that country. As a result, banks operating outside of Israel reasonably do not expect to conform their conduct either to Israel’s bank-regulatory framework, or to admonitory supervision of Israeli bank regulators. Although Israel has an interest in protecting its citizens from terrorism, the focus of Plaintiffs’ claims is not on any terrorist act by BOC in Israel, but rather on banking conduct by BOC in China and New York. Moreover, the bank-regulatory laws of China and New York require banks to take comprehensive steps to combat the financing of terrorism, thus serving the same asserted interest of Israeli law. China and New York are in a more powerful position than Israel to create the desired “admonitory effect” on banks to combat terror-financing, because those jurisdictions comprehensively and in real-time regulate banking conduct within those jurisdictions, whereas Israeli law at most could only attempt to punish ad hoc instances of a bank’s extraterritorial conduct on a retrospective basis. business in the U.S., including BOC. The OCC regulates federally licensed foreign banks doing business in the United States, including BOC, and BOC’s New York branches are insured by the FDIC. See, e.g., “Title I and IDI Resolution Plans,” http://www.fdic.gov/regulations/reform/resplans/plans/boc-165-1312.pdf (last visited April 18, 2014) (BOC submitting U.S. Resolution Plan under Section 165(d) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), and declaring that BOC is subject to regulation as a bank holding company by the Federal Reserve Bank and the FDIC). 36 If, by the outcome of this appeal, the New York courts are instructed to choose the lex loci delicti-the law of the place of the injury in cases like this one-then the effect would be to elevate a jurisdiction’s interest on the sole basis of a plaintiff’s injuries, and thereby “fail[] to accord any significance to the policies underlying the conflicting laws of other jurisdictions.” Cooney, 81 N.Y.2d at 71-72. 3. Choice-of-law Rules Misapplied: The Appellate Division’s Ruling Disregarded New York’s Rejection of Lex Loci Delicti. Rather than undertaking the “several steps” required to determine which jurisdiction has the “greatest interest” in regulating bank conduct in China and New York, the Appellate Division applied lex loci delicti (defining it as the place of Plaintiffs’ injury) as an incontrovertible rule to conclude that Israeli law governs.32 The Appellate Division predicated the choice of Israeli law solely on its assessment that, as the location of Plaintiffs’ injuries, Israel has the greatest interest in seeing its laws enforced. See id. Israel’s laws, however, do not concern or regulate BOC’s banking conduct in the jurisdictions where BOC provides banking 32 The Appellate Division held: “[W]hen the plaintiff and defendant are in different jurisdictions, it is the place of the last event necessary to cause the injury, here the rocket attacks and bombings, that is considered to have the greater interest. We see no reason to deviate from this well-settled principle in the circumstances alleged.” Elmaliach, 110 A.D.3d at 204-05; see also id. at 202-03 (“Where a defendant’s negligent conduct occurs in one jurisdiction and the plaintiff suffers injuries in another, “the place of the wrong is considered to be the place where the last event necessary to make the actor liable occurred,” that is, “where the plaintiffs’ injuries occurred”). 37 services. This Court has decisively abandoned such rote application of lex loci delicti as “rigid,” “mechanical,” “inflexible” and “unsatisfactory because the location of the controlling event was sometimes fortuitous, did not reflect the parties’ intentions, or was insignificant as against the location of other events.” Allstate Ins. Co., 81 N.Y.2d at 225 (citing Cooney, 81 N.Y.2d at 72). Lex loci delicti also “failed to accord any significance to the policies underlying the conflicting laws.” Id. New York choice-of-law analysis is deliberately complex and demanding because New York needs “rational and just rules and not merely simple rules.” Tooker v. Lopez, 24 N.Y.2d 569, 578-79 (1969) (disagreeing with dissent’s call for a “simple[r] rule” similar to lex loci delicti). Consequently, “[i]n Babcock v. Jackson, this court rejected squarely and unequivocally the traditional choice-of- law rule which looked invariably to the law of the place of the tort.” Miller v. Miller, 22 N.Y.2d 12, 15 (1968) (citing Babcock, 12 N.Y.2d at 484). In adopting the “greatest interest” test in its place, Babcock was primarily concerned with “[j]ustice, fairness and ‘the best practical result.’” Id. at 481-82 (quoting Swift & Co. v. Bankers Trust Co., 280 N.Y. 135, 141 (1939)). The “best practical result” is possibly “the safest guide in the search for the intention, actual or assumed, of the 38 parties.” Swift, 280 N.Y. at 141 (determining choice-of-law in contract action, principles later applied to tort claims in Babcock, 12 N.Y.2d at 481-82). In “tort cases with multi-State contacts,” as here, Babcock concluded that justice, fairness and the best practical result “may best be achieved by giving controlling effect to the law of the jurisdiction which, because of its relationship or contact with the occurrence or the parties, has the greatest concern with the specific issue raised in the litigation.” Id. at 481-82 (quoting Swift & Co., 280 N.Y. at 141). This Court reaffirmed the Babcock greatest interest test in Schultz v. Boy Scouts of America, 65 N.Y.2d 189 (1985). Since Schultz, the place where the defendant’s conduct occurs has “a predominant, if not exclusive concern,” because it is “of critical importance” to apply the law that will have “an admonitory effect” to prevent similar conduct from occurring in the future, and to “protect[] the reasonable expectations of the parties who relied on” the jurisdiction’s laws “to govern their primary conduct.” Id. at 198 (citing cases and other authorities); 33 see also Padula, 84 N.Y.2d at 521-22 (“Conduct-regulating rules have the prophylactic effect of governing conduct to prevent injuries from occurring. ‘If conflicting conduct-regulating laws are at issue, the law of the jurisdiction where the tort 33 Although Schultz v. Boy Scouts of America, 65 N.Y.2d 189 (1985), explained the parameters of the greatest interest test in a conduct-regulating rule setting, it was in fact a loss-allocating case. Accordingly, Schultz did not have occasion to apply the greatest interest test with respect to a conduct-regulating rule. 39 occurred will generally apply because that jurisdiction has the greatest interest in regulating behavior within its borders.’”) (quoting Cooney v. Osgood Mach., Inc., 81 N.Y.2d 66, 72 (1993)). Thirty years after Babcock, this Court offered the same compelling rationale for abandoning lex loci delicti in favor of a flexible interest analysis: Lex loci delicti had been easy and predictable to apply, but the rule was flawed because it did not give appropriate weight to the policies underpinning other jurisdictions’ laws. The traditional approach to choice-of-law problems arising in tort was simply to apply lex loci delicti, the law of the place of the tort, to all substantive issues in the case. The theoretical underpinning of that rule was the vested rights doctrine: the right to recover in tort is created by, and exists solely to the extent of, the law of the jurisdiction where the injury occurred. Although the vested rights doctrine did have the salutary characteristics of predictability and ease of application, it failed to accord any significance to the policies underlying the conflicting laws of other jurisdictions. Thus in Babcock the Court adopted a more flexible approach intended to give “controlling effect to the law of the jurisdiction which, because of its relationship or contact with the occurrence or the parties, has the greatest concern with the specific issue raised in the litigation.” Cooney, 81 N.Y.2d at 71-72. (emphasis added). Just a few weeks ago, more than fifty years after Babcock, this Court reiterated in a unanimous decision that, in a conduct-regulating rule case, “the place where the [defendant’s] allegedly tortious conduct occurred” is “[t]he 40 jurisdiction with the greatest interest in resolving the issues.” Mashreqbank PSC v. Ahmed Hamad A1 Gosaibi & Bros. Co., No. 54, 2014 N.Y. LEXIS 705, at *10 (N.Y. Apr. 8, 2014) (emphasis added) (holding that the law of Saudi Arabia, where the defendant’s allegedly tortious conduct occurred, would “clearly” govern). Once the Appellate Division concluded that the duty of care at issue here is a conduct-regulating rule, therefore, it should have evaluated whether BOC’s “allegedly tortious conduct occurred” in China, New York or Israel. Plaintiffs’ allegations leave no doubt that the material part of BOC’s allegedly tortious conduct occurred in China, with the remainder in New York, and none at all in Israel. The Appellate Division also should have evaluated whether China or New York has the greatest interest in “protecting the reasonable expectations of the parties who relied on it to govern their primary conduct” and in creating an “admonitory effect . . . on similar conduct in the future.” Schultz, 65 N.Y.2d at 198 (emphasis added). The Appellate Division did not undertake either of those in- depth analyses. See Elmaliach, 110 A.D.3d at 204-05. This Court has cautioned New York courts against making this very error: “Our inquiry as to the choice of an appropriate law cannot, however, stop merely in defining a[n] interest-albeit a substantial one-in the application of the particular law which is the object of the conflict.” Miller v. Miller, 22 N.Y.2d 12, 19 (1968). The Appellate Division should have “[r]ecognized that” 41 there may be other more general considerations which should concern a justice-dispensing court in a modern American state. Among other considerations are the ‘fairness’ of applying our law where a nonresident or even a resident has patterned his conduct upon the law of the jurisdiction in which he was acting (Babcock v. Jackson, 12 N.Y.2d 473, 483, supra) . . . .” Id. (internal citations and quotation marks omitted). The Appellate Division did not weigh these “considerations” either. Given the clear rules of Babcock, Miller, Schultz, Cooney, and now Mashreqbank, the Appellate Division’s dispositive reliance on lex loci delicti is inexplicable. One possible explanation for the Appellate Division’s misreading of this Court’s decisions may be that, in the traditional tort case, the tortious conduct and the injury occurred in the same place, and only the place of the plaintiff’s domicile is different. See, e.g., Schultz v. Boy Scouts of Am., 65 N.Y.2d 189 (1985) (injury and tortious conduct occur in New York, but parties are domiciled in New Jersey); Babcock v. Jackson, 12 N.Y.2d 473 (1963) (injury and tortious conduct occur in Ontario, but parties are domiciled in New York); Miller, 22 N.Y.2d at 14- 15 (injury and tortious conduct occur in Maine, but parties are domiciled in New York). In contrast, the allegedly tortious conduct and injury in Elmaliach occurred in different jurisdictions. Indeed, the Appellate Division invoked landmark decisions of this Court that actually reject, and depart from, lex loci delicti. The Appellate Division correctly stated that New York choice-of-law analysis depends on the greatest interest test, 42 and that the law of the jurisdiction where the “tort occurs” typically applies. Elmaliach, 110 A.D.3d at 202. At that point, however, the Appellate Division’s analysis went awry, pointing to Schultz and Devore to conclude that, “when the conflict pertains to a conduct-regulating rule, the law of the place where the tort occurs will generally apply, with the locus of the tort generally defined as the place of the injury.” Id. at 202-03 (emphasis added) (citing Devore v. Pfizer, Inc., 58 A.D.3d 138, 141-42 (1st Dep’t 2008), lv. denied 876 N.Y.S.2d 704 (2009)). In fact, Schultz and Devore do not stand for the proposition that place of a plaintiff’s injuries will control; both only discussed lex loci delicti to reinforce that the rule should no longer be so “invariably” applied. Miller v. Miller, 22 N.Y.2d 12, 15 (1968) (citing Babcock, 12 N.Y.2d at 483). By failing to differentiate between the locations of a defendant’s conduct and a plaintiff’s injury, the Appellate Division jettisoned the core purpose of determining which jurisdiction has the greatest interest in regulating a defendant’s conduct. 4. Choice-of-law Rules Correctly Applied: The Jurisdictional Contacts That Obtain Significance Relate to the Challenged Banking Conduct, and Favor Chinese or New York Law. In the first inquiry of the greatest interest test, “the [only] facts or contacts which obtain significance in defining State interests are those which relate to the purpose of the particular law in conflict.” Schultz, 65 N.Y.2d at 197 (brackets in original). The laws in conflict here concern whether BOC can be held liable for a 43 breach of duty by providing banking services in China and New York to accounts owned by Shurafa in China. Plaintiffs do not allege that BOC committed the deplorable acts of terrorism in Israel that caused their injuries. Plaintiffs complain instead of BOC’s acts in processing wire transfers in New York and receiving wire transfers into its customer’s accounts in China. The “facts or contacts which obtain significance in defining State interests” here, therefore, are those related to BOC’s banking conduct that form the basis of Plaintiffs’ negligence and statutory duty claims. See Compl. ¶¶ 63-78 (R. at 115-120), ¶¶ 85-89 (R. at 122-123), ¶ 98 (R. at 125). This Court’s recent decision in Mashreqbank PSC v. Ahmed Hamad A1 Gosaibi & Bros. Co., No. 54, 2014 N.Y. LEXIS 705 (N.Y. Apr. 8, 2014), confirms that the proper application of the greatest interest test instead focus on the jurisdiction where the defendant’s allegedly tortious conduct occurred-here, China or New York. In Mashreqbank, this Court reversed the Appellate Division on several grounds, including its misapplication of the greatest interest test to choose New York law. Id. at *10. The Appellate Division had incorrectly selected New York law by pointing to a single, technical contact with New York as dispositive of the choice-of-law question, and further, by omitting analysis of the interests of the jurisdiction where the tort occurred. Relying on Cooney, this Court reiterated that, 44 “[u]nder New York’s ‘interest analysis’ approach courts seek ‘to effect the law of the jurisdiction having the greatest interest in the particular issue.” Id. at *10 (quoting Cooney v. Osgood Mach., Inc., 81 N.Y.2d 66, 72 (1993)); see also Cooney, 81 N.Y.2d at 72) (holding that the applicable greatest interest choice-of- law test “sought to effect the law of the jurisdiction having the greatest interest in resolving the particular issue (see Schultz v Boys Scouts, 65 N.Y.2d 189, 197, supra; Miller v. Miller, 22 N.Y.2d 12, 15-16, supra)”). Because Saudi Arabia was “the place where the [defendant’s] allegedly tortious conduct occurred” (as well as the domicile and residence of the parties), the “jurisdiction with the greatest interest” was “clearly Saudi Arabia.” Id. Masreqbank does not describe a new rule, but rather reiterates one that has been in place since this Court issued Babcock v. Jackson. In fact, following this Court’s rejection of lex loci delicti in Babcock, the lower state courts inconsistently applied the new interest test. In Tooker v. Lopez, 24 N.Y.2d 569 (1969), this Court took the “opportunity to resolve those inconsistencies.” Id. at 571-72. Tooker considered the “guest statutes” of Michigan and New York following Ms. Tooker’s accidental death in Michigan in a car in which she was a passenger. This Court explained how the interest test should be applied in a conduct-regulating rule case where a duty of care is at issue: “Where the defendant’s exercise of due care in the operation of his automobile is in issue, the jurisdiction in which his allegedly wrongful 45 conduct occurred would usually have a predominant, if not exclusive concern. In such a case, it is appropriate to look to the law of the place of the tort so as to give effect to that jurisdiction’s interest in regulating conduct within its borders, and it would be almost unthinkable to seek the applicable rule in the law of some other place.” Id. at 572-73 (quoting Babcock, 12 N.Y.2d. at 483) (emphasis added). BOC has reasonably conformed its conduct to the laws of China and New York. See Schultz, 65 N.Y.2d at 198 (holding that, in conduct-regulating rule cases, the jurisdiction in which the defendant’s conduct occurred is best able to “protect[] the reasonable expectations of the parties who relied on it to govern their primary conduct”) (citing Babcock, 12 N.Y.2d at 483, and other authorities). As a Chinese-domiciled bank, BOC is comprehensively regulated by Chinese authorities.34 Further, BOC’s New York branches are closely regulated by federal and state authorities.35 Moreover, New York is a “financial capital of the world,” J. Zeevi & Sons, Ltd. v. Grindlays Bank, Ltd., 37 N.Y.2d 220, 227 (1975), and thus attracts foreign and non-New York U.S. banks to operate here. As a result, New York has a strong interest in maintaining stable and predictable rules concerning the choice-of-law that will govern claims arising out of banking conduct. Those 34 See supra nn.28-29 (discussing BOC’s extensive regulation in China by the People’s Bank of China and by the China Banking Regulatory Commission). 35 See supra nn.30-31 (discussing extensive regulatory framework under which banks operating in the U.S. must comply, including to monitor their customers and report suspicious activity, such as material links to terrorism). 46 interests are undermined by allowing the choice of law to be dictated by the always fortuitous and unpredictable location of a plaintiff’s injury. The same cannot be said of the laws of Israel; BOC conducts no business there, and is not regulated by the Israeli government. Israel cannot be the jurisdiction with the “greatest interest” in claims arising from BOC’s alleged bank conduct because BOC’s banking conduct did not occur in or in any way extend to Israel, and Israel does not have the authority or the expectation to regulate or oversee BOC. This Court consistently declines to apply the law of a jurisdiction where injuries occurred if the connection to that jurisdiction was “purely adventitious” or the product of chance. Relying on a purely adventitious contact with the jurisdiction in which a plaintiff is injured would be “unsatisfactory because the location of the controlling event was . . . fortuitous, did not reflect the parties’ intentions, or was insignificant as against the location of other events” and “fail[s] to accord any significance to the policies underlying the conflicting laws.” Allstate Ins. Co., 81 N.Y.2d at 225 (citing Cooney, 81 N.Y.2d at 72). In Long v. Pan American World Airways, Inc., 16 N.Y.2d 337 (1965), for example, this Court refused to apply the lex loci delicti of Maryland where a plane crash and fatalities occurred. This Court rejected the “last event necessary” (place of the plaintiff’s injury) rule, because Maryland’s connection with the tortious 47 conduct rested on “the purely adventitious circumstance that the aircraft wreckage fell on Maryland following an explosion while aloft.” 36 Id. at 342. This is precisely the problem with choosing the law of the place where a plaintiff is injured to govern in cases like this one: Doing so subjects banks on an ad hoc basis to foreign law in jurisdictions where they do not do business and where they have not been required to conform their conduct to duties required of them. Any such choice-of-law regime necessarily would disregard “the policies underlying the conflicting laws.” Allstate Ins. Co., 81 N.Y.2d at 225 (citing Cooney, 81 N.Y.2d at 72); see also Cooney, 81 N.Y.2d at 71-72 (“Although the vested rights doctrine did have the salutary characteristics of predictability and ease of application, it failed to accord any significance to the policies underlying the conflicting laws of other jurisdictions. Thus in Babcock the Court adopted a more flexible approach . . . .”). Indeed, the Appellate Division misinterpreted Devore v. Pfizer, Inc., 58 A.D.3d 138 (1st Dep’t 2008), when it concluded that “the place of the wrong is 36 This Court explained further why chance and coincidence made the place of the injury rule inappropriate: The facts of the present case point up the inappropriateness of the old lex loci delicti rule. Since the wreckage of the airplane fell on Maryland’s soil at a spot but a few miles from the borders of Delaware and Pennsylvania, the explosion and disintegration of the plane could easily have occurred over Delaware or Pennsylvania and the place where the passengers died could have been over either of those states rather than Maryland. On this appeal, however, we assume that Maryland is the place where the accident and the deaths occurred. Long v. Pan American World Airways, Inc., 16 N.Y.2d 337, 342 n.3 (1965). 48 considered to be the place where the last event necessary to make the actor liable occurred,” that is, the place Plaintiffs were injured. Elmaliach, 110 A.D.3d at 202. Devore chose Michigan law because Michigan was the place where the tortious conduct occurred, although it was also the place of injury. Devore made this statement not because Michigan was where the plaintiffs were injured, but rather in the context of explaining that the plaintiffs purchased the drugs in Michigan, the defendant company sold and shipped the drugs to the plaintiffs in Michigan, and thus Michigan could best regulate future defendants’ sale of pharmaceuticals to Michigan residents. See Devore, 58 A.D.3d at 142. Devore explained: [F]rom the perspective of influencing primary conduct, the forum where the product is sold is uniquely qualified to determine the controlling standards that reflect an equilibrium between its need for the product, and its desire to deter the sale of potentially harmful products to its citizens. Therefore . . . under a true application of the ‘interest analysis’ approach, the law of the forum in which the products are sold should govern. Id. The Second Circuit declined to follow the Appellate Division’s ruling in Elmaliach for these very reasons, calling it a “mistaken application” of New York choice-of-law rules. See Licci III, 739 F.3d at 46. The Second Circuit relied for its decision on benchmark decisions of this Court, and held that the New York choice- of-law rules established in Babcock and its progeny provide that, “[w]here the defendant’s exercise of due care . . . is in issue” and the plaintiff is injured in a 49 different jurisdiction than where the tortious conduct occurred, the law of the place where the conduct occurred will generally control “because that jurisdiction has the greatest interest in regulating behavior within its borders.” Id. at 50 (quoting Babcock, 12 N.Y.2d at 483; Cooney, 81 N.Y.2d at 72; citing In re Allstate Ins. Co., 81 N.Y.2d at 225). The Second Circuit chose the law of New York, because New York was where the Licci bank defendant’s allegedly tortious conduct occurred (correspondent banking services), and where the bank was headquartered. The Second Circuit emphasized the weight that Babcock and Schultz gave to protecting the reasonable expectations of the parties and to creating an admonitory effect: In the ordinary tort case, “both the wrong and the injury t[ake] place” in the same jurisdiction. [Babcock v. Jackson, 12 N.Y.2d at] 477 n.2. But where they do not, it is the place of the allegedly wrongful conduct that generally has superior “interests in protecting the reasonable expectations of the parties who relied on [the laws of that place] to govern their primary conduct and in the admonitory effect that applying its law will have on similar conduct in the future.” Schultz, 65 N.Y.2d at 198. Licci III, 739 F.3d at 50 (emphasis added). Under this rationale, China has the greatest interest in applying its law because BOC is headquartered and regulated in China; the bulk of BOC’s banking services at issue (the allegedly tortious conduct) occurred in China; and, the customer bank accounts at issue (in which the wire transfers were received) are located in China. See supra at Part II.A.2 (discussing Chinese contacts and 50 allegations in the Elmaliach Complaint). 5. The Federal Courts in New York Have Ruled In Similar Fact Cases, Including against BOC, that Israeli Law Cannot Govern Because Israel Has No Connection With the Challenged Bank Conduct. In parallel federal litigation on “identical” factual allegations and look-alike Israeli law claims against BOC, the Southern District of New York arrived at the same conclusion, holding that Israel’s law cannot apply and that Chinese law must govern because “China’s interest in regulating bank conduct within its borders is dispositive. It outweighs the interest of New York, through which the wire transfers passed only briefly,37 and the interest of Israel, where no conduct by the defendant [BOC] took place.” Wultz IV, 865 F. Supp. 2d 425, 429 (S.D.N.Y. 2012). Further, “the location of the injury does not control; instead, it is the location of the defendant’s conduct that controls.” Id. at 429 (citing Licci II, 672 F.3d 155 (2d Cir. 2012)). The Wultz IV ruling was grounded, therefore, in the 37 Wultz IV gave little weight to the passage of wire transfers through New York, seemingly anticipating this Court’s decision in Mashreqbank PSC v. Ahmed Hamad A1 Gosaibi & Bros. Co., No. 54, 2014 N.Y. LEXIS 705, at *8-11 (April 8, 2014) (reversing Appellate Division’s decision to apply New York law because “the use of New York banks to facilitate dollar transfers” was a “fact which . . . is of minor importance here,” and because “the Appellate Division erroneously read Zeevi as holding that any passage of funds through New York banks automatically implicates New York’s ‘compelling interest in the protection of [its] banking system’”) (alteration in original). 51 plaintiffs’ allegations that “both the decision to continue processing the transfers [to Shurafa] and the bulk of the actual banking services occurred in China,” whereas “only a small fraction of the relevant banking conduct occurred in New York,” and “[n]one of the banking conduct occurred in Israel.” Id. at 429. The same conclusion necessarily follows here, first, because the allegations in Elmaliach duplicate the allegations that informed the Wultz court’s choice-of- law analysis. See supra at Part II.A.2 (demonstrating that substantive contacts alleged in the Complaint almost exclusively occurred in China). Furthermore, Plaintiffs’ allegations against BOC-both here, and in the “nearly-identical” Wultz case-have their center of gravity in China. See supra n.5 (discussing district court’s analysis of “nearly-identical” allegations as in Elmaliach, and concluding that Chinese law will govern). The Appellate Division discussed Plaintiffs’ allegations and the Wultz IV decision, but noted only in passing China’s “great interest” in “overseeing its financial institutions.” Elmaliach, 110 A.D.3d at 203-04. In rigidly applying lex loci delicti to choose the law of Plaintiffs’ injury, the Appellate Division disregarded that China has the greatest interest-and that New York has a secondary interest-in regulating the banking conduct challenged by Plaintiffs. Id. at 205. 52 Although the Second Circuit’s assessment does not bind this Court, BOC respectfully submits that Licci III’s critique of the Appellate Division’s decision is persuasive, because it is consistent with this Court’s holdings in Babcock, Schultz, Cooney and Mashreqbank. In contrast to both China and New York, Israel has no “concern with the specific issue raised in the litigation” because Plaintiffs’ claims are based upon closely regulated BOC conduct within China and New York. Babcock, 12 N.Y.2d at 481-82. Choice of law cannot depend upon fortuity, but instead requires predictability. Plaintiffs likely will assert that the most significant banking contacts in this case are with Israel on the theory that BOC’s alleged banking conduct reverberated in Israel by ultimately causing Plaintiffs’ damages in the Israeli attacks. See Elmaliach, 110 A.D.3d at 203 (“Israel has a very strong interest in protecting its citizens and residents, who were the intended targets of the terrorist attacks inside Israeli territory.”). Such an argument, however, improperly diminishes the irreducible core of Plaintiffs’ claims-that BOC allegedly breached duties to Plaintiffs by providing banking services to Shurafa in China and New York. Although the detonation of bombs and rocket attacks relates to the damages element of those claims, the liability elements-breach of duty, and proximate causation-all depend exclusively on BOC’s banking conduct in China and New York. Those jurisdictions thus have the greatest interest in providing the law that 53 governs Plaintiffs’ claims. * * * The contacts of significance in this case weigh in favor of Chinese or New York law. Further, the alleged breaches of duty in Plaintiffs’ negligence and breach of statutory claims arise exclusively from BOC’s banking activity in China and New York. China and New York regulate BOC’s banking conduct, and therefore have the best ability to control BOC’s conduct and to enforce both BOC’s and those jurisdictions’ reasonable expectations about which law will govern BOC’s primary conduct. BOC has no banking or other contacts with Israel, and Israel does not regulate BOC. The Appellate Division’s decision that Israeli law should apply is in error, and should be reversed. B. Point Two: Because BOC Does Not Have the Ability and Authority to Control Customers Necessary to Create a Duty of Care, Plaintiffs’ Knowledge Allegations Do Not Warrant Departure From the General No Duty Rule. Plaintiffs erroneously seek to vitiate the conflict of laws necessitating the choice-of-law analysis by arguing that the Appellate Division “expressly held that banks can be liable [under New York law] to third-parties, even when they ‘compl[y] with relevant laws and regulations,’ if they ‘fail[] to act objectively reasonably.”38 Plaintiffs further assert that this Court must “assume that BOC did not act objectively reasonably and is thus subject to liability under the laws of New 38 Pls. Mem. Opp. Mot. Leave to Appeal, at 11 (brackets in original). R. A2167. 54 York.” Id. Plaintiffs are wrong; the cited language is not the holding of Elmaliach, but rather comes from the appellate court’s consideration of BOC’s argument under the public policy doctrine exception that Israeli law is repugnant to New York law. See Elmaliach, 110 A.D.3d at 206; see also Schultz, 69 N.Y.2d at 202 (explaining that “[t]he public policy doctrine is an exception to implementing an otherwise applicable choice of law in which the forum refuses to apply a portion of foreign law because it is contrary or repugnant to its State’s own public policy”). The Appellate Division concluded that Israeli law was not repugnant to New York policy, and reasoned that the conflict between Israeli and New York law “does not mean that New York policy would prohibit recovery under the alleged facts, if proven.” See Elmaliach, 110 A.D.3d at 206-07 (emphasis added). The “alleged facts, if proven” referred to Plaintiffs’ allegation that the PRC government informed BOC of Israeli government allegations about Shurafa (the “meeting knowledge allegation”). Id. The public policy doctrine exception carries a “heavy burden” to show that a conflicting foreign law is repugnant to New York State policy, and employs a different standard of analysis than does the antecedent conflict-of-laws analysis. See Schultz, 69 N.Y.2d at 202. Appellate Division’s conclusion that BOC did not carry its heavy burden on the public policy issue does not mean that New York law 55 imposes a duty on banks to protect non-customers from torts of bank customers.39 Plaintiffs’ effort to argue otherwise is fully foreclosed by New York law, as shown below. New York law does not impose a duty of care on banks to control their customers and protect non-customers from harm caused by bank customers, even if such harm is foreseeable. See Elmaliach, 110 A.D. at 206. In contrast to Israeli law, New York law provides that, “absent a duty running directly to the injured person, there is no liability in damages, however careless the conduct or foreseeable the harm.” Id. at 201; see also Blye v. Manhattan & Bronx Surface Tr. Operating Auth., 124 A.D.2d 106, 109 (1st Dep’t 1987), aff’d 72 N.Y.2d 888 (1988) (“The concept of foreseeability is a critical factor in defining the boundaries of that duty, but it is never the avenue by which to create a duty which does not otherwise exist.”) (citing cases, including Pulka v. Edelman, 40 N.Y.2d 781, 785 (1976)). New York courts have long held that it would “unreasonably expand banks’ orbit of duty” to establish a bank duty to protect non-customers based simply on a bank’s depositor relationship with a customer who commits a tort. See Century 39The “public policy doctrine” exception arises only if the greatest interest test led to the selection of Israel’s law to govern Plaintiffs’ claims. See Elmaliach, 110 A.D.3d at 206; see also Schultz, 69 N.Y.2d at 202 (public policy doctrine). Israel’s law cannot apply here on a proper application of the greatest interest test. Israeli law on bank duty is irreconcilable with longstanding principles of New York law, such that the public policy exception would arise for consideration by this Court if the greatest interest test led to the selection of Israeli law.). 56 Business Credit Corp. v. North Fork Bank, 246 A.D.2d 395, 396 (1st Dep’t 1998). In turn, banks operating in New York have long functioned with the reasonable expectation that, if they conformed their conduct to duties required of them in this State, then they would not face liability for breach of duties imposed by the laws of a foreign jurisdiction in which they engaged in no conduct. Nor is there any public policy need to expand bank duties to include a common law duty to protect non-customers. Banks, including those operating in New York and China (like BOC), already have a regulatory duty to monitor and report to the government suspicious customer activity related to terrorist financing or money laundering. See supra nn.28-31. Banks expend considerable resources on oversight infrastructure to comply with those obligations, and government regulators severely penalize any breach of those requirements. The Appellate Division’s “public policy” conclusion cannot be stretched into a holding that New York law imposes a bank duty to protect non-customers when a bank allegedly is aware40 that a customer may be engaged in tortious activity. Before any such duty could be imposed, New York law would require that banks have a “special relationship” giving them the “ability” and “authority” to control 40 Indeed, the risk of predicating a duty based on mere notice-pleading of foreseeability is sharpened by the ease with which such an allegation may be made. That risk is exemplified here by developments in related proceedings of which the Court can take judicial notice. Plaintiffs have sought discovery on their meeting knowledge allegation through a subpoena to take the testimony of a former Israeli official. However, the Israeli government moved to quash Plaintiffs’ efforts to do so. See supra nn.20-24. 57 their customers, and to prevent their tortious activity.41 Banks do not have such a special relationship with conventional depository account customers. 1. BOC Does Not Have A Special Relationship Giving It the Ability and Authority to Control Its Customer. This Court has long circumscribed the duty of care, refusing again and again to expand its boundaries, because New York law and policy will not impose a general duty on any person or business to act for the protection of others. “The fact that the actor realizes or should realize that action on his part is necessary for another’s aid or protection does not itself impose upon him a duty to take such action.” REST. (2D) TORTS § 314; see also Wagshall, 148 A.D.2d at 8 (incorporating Section 314 of the Restatement). Ability to control by itself is insufficient to give rise to a duty of care; the defendant also must have a special relationship that gives the defendant the authority to control the tortfeasor. If Plaintiffs continue to press for a bank duty under New York law to protect 41 It is an established, widely cited principle that no duty of care will lie unless the defendant had a special relationship and the ability and authority to control the actions of the tortfeasor. See e.g., REST. 2D TORTS § 314A (providing examples of special relationships that “give rise to a duty to aid or protect,” and which confer sufficient control over the conduct of another, including common carriers-passengers, innkeepers-guests, landholders-invitees, and custodian relationships); Harper & Kime, The Duty to Control the Conduct of Another, 43 YALE L. J. 886 (1934) (reviewing relationships that give rise to a duty to control another); see also, e.g., Degangi v. Regus Bus. Mgt., LLC, No. 158564/2012, 2013 N.Y. Misc. LEXIS 2047, at *22 (N.Y. Sup. Ct. Mar. 28, 2013) (dismissing negligence claim because “[u]nder New York law, in the absence of a special relationship, [there is] no duty to protect plaintiff from acts of third parties . . . . There is no special relationship between plaintiff [and the tortfeasor]. Thus, [defendant] had no duty to control [the tortfeasor]’s conduct, or to protect plaintiff . . . .”) (emphasis added). 58 non-customers from actions of bank customers, then here they must establish that BOC had a “duty to control” Shurafa. In turn, a duty of control would require proof that BOC had special relationship with Shurafa, a standard depository account holder, which created a specific responsibility toward third-party non- customers who are citizens and domiciliaries of Israel (where BOC does not transact business), and further that BOC had explicit authority and ability to exercise control over its customer in order to prevent the harm to Plaintiffs.42 See Purdy v. Public Adm’r of County of Westchester, 72 N.Y.2d 1, 8 (1988) (holding that New York law “does not impose a duty to control the conduct of third persons [unless] the defendant has authority to control the actions of such third persons”); D’Amico v. Christie, 71 N.Y.2d 76, 87 (1987) (holding that there must be a duty to control, and that “[a] defendant generally has no duty to control the conduct of third persons so as to prevent them from harming others, even where as a practical matter defendant can exercise such control”); Wagshall v. Wagshall, 148 A.D.2d 445, 446 (2d Dep’t 1989) (“It is firmly established that absent a special relation 42 The relationship, knowledge and control elements of duty are not unique to the bank/customer context here. This Court has emphasized that the duty of care depends upon those three elements in any number of negligence contexts, including premises liability and negligent entrustment. See, e.g., D’Amico v. Christie, 71 N.Y.2d 76, 85 (1987) (no duty of landowners to “control the conduct of third persons on their premises” if they are not “reasonabl[y] aware of the need for such control”); De Ryss v. New York C.R. Co., 275 N.Y. 85, 93-94 (1937) (no duty to control others if there is no reason to “know of the necessity and the opportunity for exercising such control”); see also Cook v. Schapiro, 58 A.D.3d 664, 666 (2d Dep’t 2009) (no duty to control the conduct of another “in the absence of any evidence whatsoever that [the defendant] possessed special knowledge [of the harm]”). 59 between an actor and a third person, there is no duty to control the conduct of that third person so as to prevent him from causing physical harm to another.”) (citing REST. (2D) TORTS §§ 315-319 (1963-1964)); Degangi v. Regus Bus. Mgt., LLC, No. 158564/2012, 2013 N.Y. Misc. LEXIS 2047, at *23-24 (N.Y. Sup. Ct. Mar. 28, 2013) (“[F]oreseeability of harm is not enough. A specific duty to control must exist.” Hamilton v. Beretta U.S.A. Corp., 96 N.Y.2d 222, 233 (2001).”). New York is unswerving in its refusal to extend the duty of care without proof of that special relationship and control, because of the policy underpinning the rule: In holding that there is no duty here, it must be stressed that not all relationships give rise to a duty. One should not be held legally responsible for the conduct of others merely because they are within our sight or environs. Neither should one be answerable merely because there are others whose activities are such as to cause one to envision damages or injuries as a consequence of those activities. Pulka v. Edelman, 40 N.Y.2d 781, 785-86 (1976) (emphasis added); see also id. at 783 (ruling that parking garage owners did not have “a duty to control the conduct of its patrons for the protection of off-premises pedestrians,” even where garage owners knew that customers were likely to harm pedestrians). Consequently, New York carefully and cautiously sets “the boundaries of that duty” to control “with respect to any particular set of circumstances”; the Appellate Division should have appraised whether BOC had a duty to control its customer by undertaking the “very delicate balancing of such considerations as 60 logic, common sense, science, and public policy.” Blye v. Manhattan & Bronx Surface Tr. Operating Auth., 124 A.D.2d 106, 109 (1st Dep’t 1987), aff’d 72 N.Y.2d 888 (1988) (citing cases, including Bovsun v. Sanperi, 61 N.Y.2d 219, 228 (1984), Waters v. New York City Hous. Auth., 116 A.D.2d 384 (App. Div. 1986), aff’d 69 N.Y.2d 225 (1987)); see also De Angelis v. Lutheran Med. Center, 58 N.Y.2d 1053, 1055 (1983) (“In fixing the bounds of that duty, not only logic and science, but policy play an important role.”) (citing cases of this Court)). The Appellate Division erred when it failed to perform this analysis. BOC did not have the required special relationship to create a duty to control its customer in this case. Pulka v. Edelman, 40 N.Y.2d 781 (N.Y. 1976), is particularly instructive. The Pulka Court considered the negligence claims of a pedestrian against the owners of a parking garage after a patron of the garage hit and injured a pedestrian on a sidewalk adjacent to the garage. The Court noted the unusual posture of the claim, because the plaintiff was suing the garage owners (business) for the actions of a patron (customer) who harmed a pedestrian (non- customer), when the usual claim would relate to the conduct of a garage employee. Id. at 781. Elmaliach has the same posture. Pulka considered virtually the same question as the one before this Court- although there was record evidence of the garage’s knowledge in Pulka, rather than a mere allegation, as here: “[T]he question is whether this garage, or any garage, 61 has a duty to control the conduct of its patrons for the protection of off-premises pedestrians.” Id. at 783 (emphasis added); Purdy v. Public Adm’r of County of Westchester, 72 N.Y.2d 1, 8 (1988) (same); see also REST. 2D TORTS § 315. This Court declared that the garage owners did not have a duty to control their customers, because the garage lacked the required special relationship giving it the ability and authority to control the customers. See Pulka, 40 N.Y.2d at 783-84 (“Accordingly, to say that a duty to use care arose from the relationship of the garage to its patrons when there was no opportunity to fulfill that duty, places an unreasonable burden on the garage, indeed.”). Pulka is not an outlier; this Court has consistently required proof of the defendant’s “duty to control” the tortfeasor before imposing a duty of care. For example, in D’Amico v. Christie, 71 N.Y.2d 76, 87 (1987), this Court ruled that an employer who fired a drunk employee and ordered him off the work site did not owe a duty of care to users of the public highways who may be (and were) later injured by the drunk employee. This Court again refused to recognize a duty to control in D’Amico, because a duty to control “must be limited to conduct that defendant may reasonably control.” Id. at 89 (citing Pulka, 40 N.Y.2d at 783-84). As a practical matter, the D’Amico employer could have taken precautions to stop the employee from driving off the site while drunk. But it was dispositive for this Court that the employer did 62 not have the ability to control whether the employee drove while intoxicated and harmed the plaintiffs or other users of the public highways.43 This Court also refused to impose a duty to control the tortfeasor despite the D’Amico plaintiffs’ knowledge allegation, because doing so would unreasonably enlarge the accepted bounds of the employer-employee relationship, including the inherent authority employers have to control their employees. This is the heart of the dispute here: For this Court to impose on banks operating in New York a duty to control the money in their non-fiduciary customers’ accounts-especially after that money is withdrawn from the bank-would overflow the accepted bounds of the bank-depositor relationship. Importantly, when the D’Amico plaintiffs argued that the Court of Appeals should enlarge the common law duty of care to permit them to recover, this Court refused, emphasizing the “broad ramifications” of doing so, including the difficulty in fixing the parameters of liability: It is plain that to do so would have broad ramifications, a factor we 43 This Court explained why the D’Amico employer did not have a duty of care to third parties, even though it knew its employee was drunk and likely to harm others: Whatever else may be required, however, at the minimum such a duty requires an existing relationship between the defendant and the third person over whom “charge” is asserted. . . . By the same token, such a duty of necessity must be limited to conduct that defendant may reasonably control. . . . Thus, plaintiffs have failed to demonstrate any legal duty in the existing law of this State that defendant can be said to have breached. D’Amico v. Christie, 71 N.Y.2d 76, 89 (1987) (citing cases and other authority) (brackets for clarity, emphasis added). 63 appropriately take into account in fixing the orbit of duty that will necessarily control other cases as well as this one. Where is the line to be drawn on the legal responsibility . . . to third persons . . . What action would be required of employers to satisfy this legal duty; what action do they have a legal right to take? Such vexing questions, for which no reasonable solutions are suggested or indeed discernible, persuade us that it would be unwise, on the facts presented here, to enlarge an employer’s existing common-law duties as plaintiffs suggest. D’Amico, 71 N.Y.2d at 89-90 (emphasis added). A year after D’Amico, this Court reiterated New York’s reluctance to extend the duty of care-even if the defendant knew or reasonably should have known that the tortfeasor was likely to harm third parties, and even if the defendant could have taken precautions to prevent the conduct as a practical matter. In Purdy v. Public Administration of the County of Westchester, 72 N.Y.2d 1 (1988), the plaintiff argued that the doctor-patient relationship was a sufficient “special relationship” to create a duty of control, such that the defendant doctor should have prevented his tortfeasor patient (Mrs. Shaw) from driving her car, or at least warned her that she might harm someone in doing so, because the defendant physician knew Mrs. Shaw was prone to blackouts. When the doctor authorized Mrs. Shaw to leave the premises unaccompanied, and Mrs. Shaw blacked-out while driving and seriously injured the plaintiff, this Court held that the defendant doctor owed no duty of care to the injured plaintiff. The Purdy Court refused to impose the duty of care because the defendant 64 did not have a duty to control: the doctor-patient relationship did not provide “the necessary authority or ability to exercise such control over Shaw’s conduct so as to give rise to a duty . . . to protect plaintiff-a member of the general public.” Id. at 8-9 (emphasis added). This was the case even though “‘as a practical matter’ the defendant could have exercised such control.” Id. at 8 (emphasis added). Thus, whatever impact the Appellate Division’s policy analysis might be said to have on the interpretation of New York law, it cannot serve as a basis for extending New York law to impose a duty to non-customers based solely on Plaintiffs’ meeting knowledge allegation. Instead, any such duty would also require proof of key additional elements not alleged here, i.e., that BOC had a special relationship with Shurafa giving it the ability and authority to control its customer. Only two “special relationships” are sufficient under New York law to impose on the defendant a “duty to control”: (a) where a special relationship exists between the actor (defendant) and the third person which imposes a duty upon the actor to control the third person’s conduct, or (b) where a special relationship exists between the actor (defendant) and the other (plaintiff) which gives to the other a right to protection. Pulka, 40 N.Y.2d at 783-84 (citing Harper & Kime, Duty to Control the Conduct 65 of Another, 43 Yale L.J. 886, 887-88)).44 Neither of these relationships exists with respect to BOC and its customer, as Pulka makes clear. Pulka concluded that the first type of relationship (between the defendant garage and third-party customers) did not exist, although the garage owners could have taken precautions to warn customers of the potential to harm pedestrians: “[I]n no sense, can it be said that there was, in fact, a reasonable opportunity to stop drivers from disregarding these precautions in the same way that such drivers disregard their own sense of the danger to pedestrians caused by not stopping or by proceeding recklessly.” Id. at 784 (emphasis added). This Court emphasized that no duty of care arose for the garage to control the conduct of its patrons, because “there was no opportunity to fulfill that duty,” and finding otherwise would “place[] an unreasonable burden on the garage, indeed.” Id. at 784. The garage had no special relationship with its patrons that would have justified the burden, nor did it have the requisite control over its customers to keep customers from driving recklessly and injuring non-customers. There is similarly no special relationship between a bank and its depository account customers. New York law does not recognize either a special relationship between a bank and its standard depository account customers, or an ability or 44 This Court cautioned that, while “either of the above relationships may superficially appear to be applicable in the case before us, an examination of the situations in which these principles have been applied shows that there is no duty owed here.” Pulka, 40 N.Y.2d at 783-84. (emphasis added). That same caution applies in Elmaliach. 66 authority to control the bank customer’s actions. See Century Bus. Credit Corp. v. North Fork Bank, 246 A.D.2d 395, 396 (1st Dep’t 1998) (refusing to expand a bank’s duties to encompass protection of non-customers from the intentional torts of bank customers, and holding that “Plaintiff’s cause of action for negligence against defendant was properly dismissed since to hold that banks owe a duty to . . . monitor the depositors’ financial activities . . . would be to unreasonably expand banks’ orbit of duty”). This Court’s refusal to impose a duty to control, and thus a duty of care, on the defendant garage owners in Pulka was grounded in considerations of justice and futility; it would be inherently unjust to impose upon the garage owner a duty to control its customers for the protection of non-customers when the garage owner’s attempts at control would be futile: Although it is reasonable to require one person to be responsible for the negligent conduct of another in some instances, it is unreasonable to impose that duty where the realities of every day experience show us that, regardless of the measures taken, there is little expectation that the one made responsible could prevent the negligent conduct. Pulka, 40 N.Y.2d at 785 (emphasis added). Requiring a defendant to take action to protect the public although that action is expected to be futile would be both legally and logically absurd. In that vein, U.S. law, like Chinese law, recognizes that a bank cannot be expected to halt terrorist attacks, and thus requires banks instead to enable governments to do so by reporting suspicious customer activity to 67 bank regulators. See supra at nn. 27-30. Pulka also concluded that the second type of relationship (between the defendant garage and the plaintiff) did not exist, because the “relationship of the garage to pedestrians is, however, at best somewhat tenuous”-such a thin connection similarly offends New York’s notion of fairness and justice. See Pulka, 40 N.Y.2d at 784. Consequently, “it would be most unfair to impose that duty on the garage with respect to acts of its patrons,” because a “duty to prevent such negligence should not be imposed on one who does not control the tort-feasor.” Id. (citing cases and other authority) (emphasis added). The same type of attenuation between BOC and Plaintiffs is evident here. Absent a special relationship giving banks the ability and authority to control what their customers do with their money, most notably after it is withdrawn, banks have no duty to control their customers. And without a duty to control their customers, banks like BOC cannot owe a duty to protect non-customers like Plaintiffs. 2. Established New York Public Policy Strictly Limits the Expansion of Liability and The Duty of Care; Banks’ Statutory and Regulatory Obligations Safeguard the Public. New York law limiting the reach of the duty of care and consequent liability is founded on more than a century of State policy described by this Court and the Legislature in the State’s Constitution, statutes, and judicial decisions. See Schultz, 68 65 N.Y.2d at 202. Plaintiffs seek to undermine those vital policy considerations by demanding that this Court impose a duty of care on New York banks to protect the public from the torts of bank customers and other uncontrolled third persons. Plaintiffs ask New York to impose a further common law obligation on banks, although banks are subject to a comprehensive federal and state regulatory oversight structure. New York law always seeks the course of action that will “establish, circumscribe and limit the rules ascribing liability in a manner which accords with reason and practicality.” Howard v. Lecher, 42 N.Y.2d 109, 112 (1977). New York seeks reason and practicality even where the injuries are so devastating that reason and practicality seem irrelevant. This is because the New York courts must limit the “orbit of duty” in negligence actions in order to create a sound, predictable system of governance. Without legislative directive, the Appellate Division’s policy analysis threatens the “stability and predictability” of New York’s banking and commercial system. See Century Business Credit Corp., 246 A.D.2d at 396 (expanding a bank’s duties to encompass protection of non-customers from the intentional torts of bank customers would “unreasonably expand banks’ orbit of duty.”); see also Lerner v. Fleet Bank, N.A., 459 F.3d 273, 286 (2d Cir. 2006) (“With billions of banking transactions occurring in New York alone, this would be the equivalent of 69 making New York banks liable to the world’s banking public.”) (quotations and citations omitted)). As this Court has written: A line must be drawn between the competing policy considerations of providing a remedy to everyone who is injured and of extending exposure to tort liability almost without limit. It is always tempting, especially when symmetry and sympathy would so seem to be best served, to impose new duties, and, concomitantly, liabilities, regardless of the economic and social burden. But, absent legislative intervention, the fixing of the ‘orbit’ of duty, as here, in the end is the responsibility of the courts (see Palsgraf v Long Is. R. R. Co., 248 N.Y. 339, 343, 345 (1928)). See De Angelis v. Lutheran Medical Ctr., 58 N.Y.2d 1053, 1055 (1983). New York courts are unequivocal about limiting tort liability, and therefore consistently refuse to expand existing duties of care or create new ones. See In re New York City Asbestos Litig., 5 N.Y.3d 486, 493 (2005) (“This judicial resistance to the expansion of duty grows out of practical concerns both about potentially limitless liability and about the unfairness of imposing liability for the acts of another.” Id. (quotations and citation omitted); see also Waters v. New York City Hous. Auth., 69 N.Y.2d 225, 230 (1987) (no liability should be found where it would lead to “virtually limitless liability”); Pulka, 40 N.Y.2d at 786 (refusing to extend duty because “all but limitless” liability would result). Expansion of tort liability in subject matter areas in which “stability and predictability” are essential should instead be the work of the New York State Legislature. Horn v. N.Y. Times, 100 N.Y.2d 85, 92-93 (2003) (refusing to expand employer-employee relationship in 70 favor of deferring to legislature). At the core of this Court’s decision to constrain the duty of care in accord with New York policy are concerns about the courts’ ability to hold a “strict rein on liability”, because “whichever way one turns in permitting a theory of recovery one is entangled in the inevitable ramifications which will not stay defined or limited. There are too many factors and each too relative to permit creation of only a limited scope of liability or duty.” Tobin v. Grossman, 24 N.Y.2d 609, 618-19 (1969).45 Likewise, there is no policy need to expand the common law to impose a bank duty to protect non-customers because banks must adhere to regulatory duties that facilitate the government’s ability to protect non-customer members of the general public. As a result, even without imposing a duty in tort, banks are not free 45 The line of New York cases adjudicating negligence claims for emotional and psychological injury resulting solely from witnessing injuries to others is illustrative of New York’s caution in expanding the duty of care and consequent liability. These cases are concerned with creating a duty to third-persons not directly the victim of an accident. In Tobin v. Grossman, 24 N.Y.2d 609, 615 (1969), this Court held that creating a duty of care required “a radical change in policy,” and thus consideration of “many converging policy factors.” See also Bovsun v. Sanperi, 61 N.Y.2d 219, 227-28 (1984) (declining to find a duty of care because of “rationale grounded in public policy-that liability to the foreseeable bystander could not be limited in any rational way and could lead to unlimited liability for negligent conduct”); Albala v. New York, 54 N.Y.2d 269, 273-74 (1981) (“[T]he law must establish the rules ascribing liability in a manner which avoids the drawing of artificial and arbitrary boundaries. The perimeters of liability although a proper legislative concern, in cases such as these, cannot by judicially established in a reasonable and practical manner.”); and, Howard v. Lecher, 42 N.Y.2d 109, 113 (N.Y. 1977) (“To now extend the perimeter of liability would inevitably lead to the drawing of artificial and arbitrary boundaries. . . . Ideally, there should be a remedy for every wrong. This is not the function of the law, however, for every injury has ramifying consequences, like the ripplings of the waters, without end. The problem for the law is to limit the legal consequences of wrongs to a controllable degree.”) (internal citation, quote marks, brackets omitted). 71 to act with impunity in light of existing federal, state and foreign statutory and regulatory obligations to which banks like BOC are already subject. See supra nn.28-31 (discussing extensive bank regulatory oversight and enforcement structures in China and New York). There is thus no New York policy reason to expand existing bank duties to include a new duty of care to protect non-customers of banks. Well-developed regulatory frameworks, both in the United States and in China already cover that territory, and have an admonitory effect by enabling governments to protect the public with their superior resources.46 CONCLUSION For the foregoing reasons, the decision of the Appellate Division should be reversed and, under a proper application of New York’s “greatest interest” test, Plaintiffs’ claims should be dismissed under the law of either China or New York. Dated: New York, New York May 1, 2014 46 Similarly, China does not provide a parallel bank duty to non-customers that is enforceable in tort. The federal court in Wultz on that basis dismissed the look-alike negligence and breach of statutory duty claims in that case. See Wultz V., 11 Civ. 1266 (SAS), 2012 U.S. Dist. LEXIS 161399 (S.D.N.Y. Nov. 5, 2012) (dismissing Israeli law claims as not viable under Chinese law). 72 PATTON BOGGS LLP By: Of Counsel: DORSEY & WHITNEY LLP 51 West 52nd Street New York, New York 10019 Tel.: (212) 415-9200 Fax: (212) 953-7201 MITCHELL R. BERGER ALEXANDRA E. CHOPIN PATTON BOGGS LLP 2550 M Street, N.W. Washington, D.C. 20037 Tel. No. (202) 457-6000 mberger@pattonboggs.com achopin@pattonboggs.com Attorneys for Defendant-Appellant Bank of China Limited /s/ Mitchell R. Berger