To hear Arab Bank tell it, the outcome of consolidated litigation in which it faces claims by about a thousand victims of terrorism who accuse the Jordanian financial giant of facilitating finances for Hamas and other U.S.-designated terrorist gro u ps is a foregone conclusion. The bank and its lawyers at Mayer Brown told the 2nd Circuit Court of Appeals that the adverse jury instructions ordered by U.S. Senior District Judge Nina Gershon of Brooklyn, as sanction for the bank's failure to produce records and witnesses requested by the plaintiffs, were so crippling that they turned the case into a show trial that Arab Bank couldn't possibly win. The bank beseeched the appeals court to overturn the sanction order or else issue a writ of mandamus proclaiming that Gershon abused her discretion in entering it.

On Friday, the 2nd Circuit declined to do either. The appeals court ruled first of all that it does not have interlocutory jurisdiction to consider the sanction order -- which says jurors will be instructed that they may infer from discovery gaps that Arab Bank "knowingly and purposefully" processed payments to terrorists -- because the appeal is too intertwined with the merits of the case. Arab Bank will have to wait until final judgment is entered, despite the bank's argument that by then, it will be "too late to reverse the substantial financial consequences resulting from the reputational harm the bank would sustain as a consequence of an adverse jury finding," the court said.

Moreover, the appeals court said that Gershon did not commit abuses that would justify a grant of mandamus. Arab Bank's "show trial" assertions aside, the court said, the bank was not entitled to mandamus on due process grounds nor on the grounds that Gershon disregarded international law. "The sanctions at issue here are substantial, but, at least for the purpose of our deferential inquiry here, they find adequate support in Arab Bank's failure to produce and the resulting evidentiary imbalance, and they do not preclude the bank from defending itself at trial," wrote Judge Susan Carney for a panel that also included 2nd Circuit Judge Denny Chin and U.S. District Judge Stefan Underhill of Connecticut, sitting by designation. "For these reasons, too, Arab Bank has fallen short of demonstrating that it is 'clearly entitled' to the writ," the opinion said.

Arab Bank's failed attempt to undo Gershon's sanctions raises some interesting questions about the risk of interlocutory appeals. Are there consequences when you tell an appeals court that you're doomed unless it rescues you, and then the rescue doesn't come? How about when you attack the judge who is presiding over your case and has already expressed suspicion of your conduct?

The interlocutory effort certainly offered Arab Bank a chance to do advance work for a post-judgment appeal. The bank has argued all along that it produced all of the records and witnesses it could and withheld other materials only because they were subject to international bank secrecy laws that Jordan, Lebanon and the Palestinian Territories refused to waive even after the bank requested waivers. It told the 2nd Circuit that it was stuck between conflicting obligations to the laws of those nations and to discovery demands in the United States -- a dilemma of international comity that Gershon refused to acknowledge. Similarly, the bank told the 2nd Circuit that the record showed Gershon was wrong to question its good faith. Even though it gave documents to the U.S. government that it refused to turn over to the plaintiffs in these cases, the bank said, its actions were justified by the different laws governing production to government investigators and to private claimants.

But the appeals panel found neither of these explanations sufficiently compelling to warrant a rebuke to Gershon -- and indeed seemed to cast doubt on Arab Bank's explanations. "We can hardly conclude that Arab Bank was faultless," the opinion said. "The district court did not clearly err in determining that Arab Bank's production efforts did not evince the 'utmost good faith.' The combination of the bank's long delay in the district court, partial production in the U.S. government investigations (in contrast), and apparent unwillingness to pursue permission to produce materials covered by the narrowly tailored discovery orders further support the district court's sanctions order." (Arab Bank has long argued that any delays in discovery were due to foreign governments taking their time to address waiver requests.) Though the appeals court took care to say that its ruling in no way assures that the panel that ultimately reviews the Arab Bank case, after final judgment is entered, will uphold the sanctions, it's hard to know if the bank gained any ground by asking for a mid-case review.

And meanwhile, according to plaintiffs' lawyer Mark Werbner of Sayles Werbner, the bank's assertions about Gershon's abuse of discretion "will come back to haunt them." (He, of course, is hardly neutral on this question.) Werbner told me he read the 60-page 2nd Circuit opinion as an endorsement of the trial judge and a preview of how Arab Bank's subsequent appeal will turn out. "The way they evaluated things on mandamus doesn't rule out that a different result could occur, but if I were the bank, I wouldn't be counting on that," he said.

I asked Gary Osen of the Osen firm, who represents a different group of plaintiffs in the cases against Arab Bank, whether the bank would be bound in future appeals to its doomsday predictions in the interlocutory argument. He said no. "If there's one thing we've learned in a decade of litigation, it's that Arab Bank feels no obligation to remain consistent in its legal arguments," he said. (Osen still believes the bank made a tactical decision that it was better off facing sanctions than producing the transactional records the plaintiffs wanted.)

Arab Bank said in an email statement that it "remains confident that the extensive evidentiary record in these cases demonstrates that the bank provided routine banking services in accordance with the laws and regulations governing its operations. The bank continues to believe that the district court's sanctions order raises serious issues of international concern, and it is currently weighing its legal options."

In the leading case against Arab Bank, which involves only Americans allegedly harmed in Hamas attacks and suing under the Anti-Terrorism Act, G ershon is considering fully briefed summary judgment motions and motions to exclude expert witnesses, as well as an Arab Bank motion to admit evidence of foreign banking laws to explain why it didn't produce some documents. Both Werbner and Osen said they're hopeful that with the interlocutory appeal resolved, the judge will rule on the pending motions and set a trial date for sometime this year. The first case, they said, won't be affected by the U.S. Supreme Court's upcoming decision on corporate liability and extraterritorial application of the Alien Tort Statute, although that ruling could impact parallel claims against Arab Bank by thousands of foreign citizens.

Follow us on Twitter: @AlisonFrankel, @ReutersLegal  | Like us on Facebook