Appeals courts split on seizing assets connected to state terror sponsors

July 22, 2016

(Reuters) – It is exceedingly difficult for U.S. victims of state-sponsored terrorism to collect money, even when they’ve won default judgments against Iran, Syria and the Sudan. My colleague Dan Levine reported in 2015 that victims in cases filed after the September 11 attacks managed to obtain only nine final orders directing defendants to turn over assets. The combined value of the seized assets in seven of those cases (the only ones Levine could ascertain) was only $37 million.

It’s true that in its April 2016 decision in Bank Markazi v. Peterson, the U.S. Supreme Court ruled that more than 1,000 plaintiffs holding terrorism judgments against Iran are entitled to nearly $2 billion in assets held in New York by Iran’s central bank – but it literally took an 2012 act of Congress to assure that the Bank Markazi money would end up in the hands of terror victims. Just this week, the 2nd U.S. Circuit Court of Appeals underscored the difficulty of seizing assets linked to Iran. The court overturned a summary judgment decision that granted the Justice Department and hundreds of antiterror plaintiffs rights to a Fifth Avenue skyscraper, holding in the private plaintiffs’ case that they hadn’t shown the Iran-linked entities that own a majority interest in the building meet the definition of a state instrumentality. (I’m boiling down a 76-page opinion so forgive the lack of nuance.)

In 2008, Congress wanted to knock down some of the barriers to collection for antiterrorism plaintiffs holding judgments against state sponsors. One of the biggest obstacles was the U.S. Supreme Court’s 1983 decision in First National City Bank v. Bancec. Bancec established that the Foreign Sovereign Immunities Act bars holders of judgments against foreign states from seizing property belonging to judicially separate state agencies, except under some narrow exceptions. Congress amended FSIA in 2008, apparently in response to the Supreme Court’s so-called Bancec doctrine. But the language of the amendment wasn’t exactly clear on whether the amendment created a new and independent right, outside of FSIA restrictions, for terror victims trying to enforce judgments against state sponsors or whether the new provision just eliminates the Bancec requirements but leaves intact other FSIA restrictions.

This week, the 7th Circuit issued a ruling on just what seizures the amendment authorizes – and it reached precisely the opposite conclusion as the 9th Circuit in a decision last month on the same question. What’s more, the 7th Circuit panel – Judges Diane Sykes and William Bauer and U.S. District Judge Michael Reagan of East St. Louis, sitting by designation – specifically overruled two previous 7th Circuit opinions cited in last month’s contrary decision by the 9th Circuit. The 7th Circuit’s new ruling, in a case captioned Rubin v. Islamic Republic, creates a clear split between two appellate circuits on U.S. terror victims have a freestanding right to execute on judgments regardless of whether the assets they want to seize would otherwise be shielded under the Foreign Sovereign Immunities Act.

The issue is easier to understand in specifics than in generalities. In the case before the 7th Circuit, U.S. citizens allegedly victimized by Iran-backed Hamas attacks in Israel obtained a $71.5 million default judgment against Iran. Their search for assets to seize to satisfy the judgment turned up four different collections of ancient Persian artifacts held by the Field Museum of Natural History and the University of Chicago. Plaintiffs’ lawyers sued the Field and the university, arguing (among other things) that judgment holders were entitled to seize the artifacts under the FSIA.

Only one collection – clay tablets Iran loaned to the University of Chicago in 1937 – ended up at issue in the 7th Circuit. (The others either weren’t Iran’s property or had already been returned to Iran.) Under FSIA, judgment holders can seize a foreign sovereign’s assets if the sovereign is using those assets for commercial purposes. The clay tablets didn’t meet that criterion: Iran certainly wasn’t using loaned artifacts held at the university for decades for commercial purposes. But plaintiffs’ lawyers at Florida Professional Law Group argued that when Congress amended FSIA in 2008, it gave victims holding judgments against state terrorism sponsors a right to claim assets unavailable under FSIA.

That was an aggressive reading of an ambiguous statute, but the plaintiffs had some precedent to back it. In a 2014 ruling in Gates v. Syrian Arab Republic, a different 7th Circuit panel seemed to accept that proposition, though it did not make a specific finding. A related 2015 ruling from the 7th Circuit repeated the assumptions from the Gates case. And in June, a 9th Circuit panel cited those 7th Circuit rulings to conclude in Bennett v. Islamic Republic of Iran – a case involving assets owed to Iran’s Bank Melli – that the FSIA amendment “is a freestanding provision for attaching and executing against assets to satisfy a money judgment premised on a foreign state’s act of terrorism.”

The 9th Circuit struggled mightily with the question. Its June opinion was its third decision in the case, and it was a divided opinion: 9th Circuit Judge Susan Graber and U.S. District Judge Dee Benson of Utah, sitting by designation, said the FSIA amendment grants a freestanding right to enforce judgments against terror sponsors; 9th Circuit Judge Sidney Thomas dissented.

The 7th Circuit’s decision this week held that the 9th Circuit majority was wrong. The panel looked hard at the language of FSIA and the amendment in the context of the legislative history of the 2008 change. The court concluded that Congress meant only to grant terror plaintiffs easier access to assets the Supreme Court had walled off in Bancec.

The amendment, Judge Sykes wrote, “is not itself an exception to execution immunity for terrorism-related judgments; rather, it abrogates the Bancec rule for terrorism-related judgments. Accordingly, terrorism victims with unsatisfied  judgments against foreign states may execute on the foreign state’s property and the property of its agency or instrumentality – without regard to the Bancec presumption of separateness-but they must do so” in compliance with other FSIA provisions.

To the extent the 7th Circuit’s previous 2014 and 2015 decisions can be read to hold otherwise, Judge Sykes said, “they are overruled.”

As the appellate see-sawing shows, this is really complex stuff. It’s also really important, which is why the Justice Department submitted amicus briefs in both the 9th and 7th Circuit cases. The U.S. government sided with Iran, arguing that the statute does not give terror victims a right to enforce judgments outside the bounds of FSIA. Iran was represented in both cases by MoloLamken. Plaintiffs in the 9th Circuit case had counsel from Stroock & Stroock & Lavan and DLA Piper.

Neither the 9th nor 7th Circuit intends to grant en banc review, according to both courts’ opinions. Looks like it will be up to the Supreme Court to figure it out.

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