Obama administration rebuffs Iranian central bank’s SCOTUS bid in terror case

August 21, 2015

As the Obama administration pushes for Congressional approval of its nuclear deal with Iran, the Justice Department this week urged the U.S. Supreme Court not to grant review in a case that presents the question of whether lawmakers encroached on the executive and judicial branches to deliver nearly $2 billion in Iranian assets to terror victims.

The case involves a Citigroup account in New York that is tied to bonds held in Europe for Bank Markazi, Iran’s central bank. In 2010, plaintiffs who have won billions of dollars in judgments against Iran for acts of terrorism its government allegedly sponsored, launched litigation to grab the $1.75 billion in the Citi account. I should mention here that the plaintiffs in the asset-seizure case are victims of some of recent history’s most notorious acts of violence against the U.S., including the 1983 bombing of a Marine barracks in Beirut and the 1996 bombing of Khobar Towers in Saudi Arabia, which killed and wounded hundreds of U.S. soldiers.

Bank Markazi raised a variety of defenses including arguments that the money was protected under the Foreign Sovereign Immunities Act, which generally shields assets of foreign sovereigns’ central banks, and that the money in the Citi account wasn’t Bank Markazi’s under the Uniform Commercial Code. (I’m simplifying incredibly arcane litigation.)

In 2012, Congress smoothed the way for the terror victims, passing a law specifically addressing the litigation over the money in the Citi account. The relevant provisions of the Iran Threat Reduction and Syria Human Rights Act of 2012 said the new law preempted any previous law that might apply to these assets; and that the money would be subject to attachment by the plaintiffs as long as a court determined that only Bank Markazi had a beneficial interest in the assets.

Over Bank Markazi’s protests that Congress had violated separation of powers doctrine, usurping the authority of the judicial branch to dictate the outcome of the litigation, a Manhattan federal judge determined that the assets met the conditions of the 2012 law and ordered the money to be turned over to the plaintiffs. The 2nd U.S. Court of Appeals affirmed that holding in 2014.

Bank Markazi, represented by MoloLamken, petitioned for Supreme Court review last December. The bank’s brief repeated the separation-of-powers arguments it had made in the lower courts, contending that under the Supreme Court’s 1872 ruling in U.S. v. Klein, Congress cannot pass a law that prescribes a particular court decision. (The law at issue in the Klein case, as described by the 2nd Circuit, required “courts to treat pardons of Confederate sympathizers as conclusive evidence of disloyalty.”) Bank Markazi claimed that’s what lawmakers did in the 2012 law.

“Congress legislated the outcome of a single case to ensure that nearly $2 billion of disputed assets would be turned over to plaintiffs,” its petition said. “The 2nd Circuit upheld the statute as consistent with the separation of powers, even though it applies solely to this one case and effectively dictated its outcome. No court has ever upheld such a blatant intrusion on judicial power.”

But the bank didn’t just argue Congress trampled on judicial authority. It also said the law applying to its case interfered with the executive branch’s authority to conduct foreign affairs. “The need to preserve that authority is especially acute today,” the brief said. “The President has questioned the wisdom of ‘many years of refusing to engage Iran.’ The United States is thus currently involved in ongoing multilateral negotiations with the country  The decision below threatens those negotiations.” In April, the Supreme Court asked the Justice Department’s solicitor general to offer his view of Bank Markazi’s cert petition.

Obviously, the bank’s prediction did not come true: The asset dispute didn’t derail the Iran nuclear talks. And the brief the Justice Department submitted late Wednesday strongly suggests there was no side deal to protect Iran’s money from going to the terror victims. The brief counters all of Bank Markazi’s legal arguments about separation of powers and the outer bounds of Supreme Court precedent in the 1872 Klein case. It also, however, firmly rejects the contention that the 2012 law covering the Citi account impacts international relationships or impairs the authority of the executive branch. In fact, the Obama administration used the conclusion of the brief to hint that Iran remains an international pariah, despite the nuclear agreement.

The law at issue in this case, the brief said, “is a narrowly tailored provision that Congress enacted to permit execution on a terrorism judgment against the assets beneficially owned by the central bank of a state sponsor of terrorism – assets that were being held in the United States in violation of U.S. sanctions laws and regulations. In the view of the United States, the law-abiding members of the international community should not find such legislation cause for alarm.”

Bank Markazi counsel Jeffrey Lamken of MoloLamken didn’t respond to my email requesting comment, but it seems highly unlikely the justices will agree to hear the case over the recommendation of the Justice Department. As the well-argued opposition brief by plaintiffs’ counsel of record Liviu Vogel of Salon Marrow Dyckman Newman & Broudy pointed out, the law the bank has challenged is not prohibited under Klein precedent because it set a new standard under which the plaintiffs could attach the money in the Citi account rather than compelling an outcome under the old standard. Congress, the brief suggested, learned from the Supreme Court’s instructions in Klein: Since that ruling, no other law has been struck down exclusively on those particular separation-of-powers grounds, according to the plaintiffs’ brief.

If the Supreme Court denies cert when the justices return from their summer break, the money in the Citi account will be released to the trustee overseeing the allocation of Iranian assets to U.S. plaintiffs. It would apparently be the plaintiffs’ biggest recovery to date.

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