Flatow v. Alavi Foundation ( 2000 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
STEPHEN M. FLATOW,
Plaintiff-Appellant,
v.
THE ALAVI FOUNDATION,
Movant-Appellee,
and
No. 99-2409
THE ISLAMIC REPUBLIC OF IRAN; THE
IRANIAN MINISTRY OF
INFORMATION AND SECURITY; ALI
HOSEINI AYATOLLAH ALI HOSEINI
KHAMENEI; ALI AKBAR HASHEMI-
RAFSANJANI; ALI FALLAHIAN-
KHUZESTANI; JOHN DOES, 1-99,
Defendants.
Appeal from the United States District Court
for the District of Maryland, at Greenbelt.
Alexander Williams, Jr., District Judge.
(CA-98-4152-AW, MISC-98-285)
Argued: June 6, 2000
Decided: July 24, 2000
Before WILKINSON, Chief Judge, MURNAGHAN, Circuit Judge,
and Henry M. HERLONG, Jr., United States District Judge
for the District of South Carolina, sitting by designation.
_________________________________________________________________
Affirmed by unpublished per curiam opinion.
_________________________________________________________________
COUNSEL
ARGUED: Thomas Fortune Fay, THOMAS FORTUNE FAY, P.C.,
Washington, D.C., for Appellant. John D. Winter, PATTERSON,
BELKNAP, WEBB & TYLER, L.L.P., New York, New York, for
Appellee. ON BRIEF: Noah H. Charlson, PATTERSON, BEL-
KNAP, WEBB & TYLER, L.L.P., New York, New York; Patrick
James Attridge, KING & ATTRIDGE, Rockville, Maryland, for
Appellee.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
_________________________________________________________________
OPINION
PER CURIAM:
Stephen M. Flatow ("Flatow") appeals the district court's order
granting the Alavi Foundation's ("Foundation") Motion to Release
Properties from Levy, to Quash Writs of Execution, and to Enjoin
Plaintiff from Issuing Future Writs Against the Foundation's Prop-
erty. Flatow seeks to levy against real property of the Foundation in
order to satisfy a judgment obtained in a prior action against the
Islamic Republic of Iran ("Iranian Government"). Although the Foun-
dation was not a party to the prior action, Flatow claims that the
Foundation is a "front" for the Iranian Government and that its prop-
erty therefore is subject to levy in satisfaction of his judgment. For the
reasons below, we affirm the decision of the district court.
I.
Flatow's daughter, Alisa Flatow, was killed in 1995 in the Gaza
Strip when a terrorist bomb exploded. In March 1998, Flatow
obtained a judgment of $247,513,220.00 against the Iranian Govern-
ment in federal district court pursuant to the "extrajudicial killing"
exception to foreign sovereign immunity. See Foreign Sovereign
2
Immunities Act ("FSIA"), 28 U.S.C.A. § 1605(a)(7) (West Supp.
2000); Flatow v. Islamic Republic of Iran, 999 F. Supp. 1 (D.D.C.
1998). The instant litigation involves an attempt to satisfy this judg-
ment by proceeding against three real properties that are owned by the
Foundation and located in the state of Maryland. The Foundation's
purpose is to support charitable, philanthropic, and religious causes.
It purchased the subject properties in 1981 and 1984, and they are
used by the Islamic Education Center and the Muslim Community
School.
On October 7, 1998, Flatow requested the United States District
Court for the District of Maryland issue writs of execution against the
subject properties. On October 13, 1998, the district court issued writs
of execution directing the United States Marshal to levy upon the
properties. These writs were served on November 9, 1998. On
November 30, 1998, the Foundation moved to release the properties
from levy, quash the writs of execution, and enjoin the issuance of
future writs. The district court granted the motion on September 7,
1999. See Flatow v. Islamic Republic of Iran, 67 F. Supp. 2d 535 (D.
Md. 1999).
Flatow claims that the district court erred when it denied him an
evidentiary hearing and when it determined that Flatow could not levy
against assets of the Foundation in order to satisfy his judgment
against the Iranian government. We disagree.
II.
First, Flatow claims that the court erred in not granting him an
"evidentiary hearing." As a preliminary matter, the court notes that
Rule 69 of the Federal Rules of Civil Procedure dictates that state law
and procedures control proceedings on writs of attachment in aid of
execution. See Fed. R. Civ. P. 69. Therefore, the court must look to
Maryland's procedural rules, which provide separately for writs of
execution and for writs of garnishment. See Md. R. Civ. P. 2-641 to
644 (execution); id. 2-645 (garnishment).
The sole basis for Flatow's claim is that Maryland Rule 2-645
requires the matter to "proceed as if it were an original action." Id. 2-
645(g) ("If a timely reply is filed to the answer of the garnishee, the
3
matter shall proceed as if it were an original action between the judg-
ment creditor as plaintiff and the garnishee as defendant and shall be
governed by the rules applicable to civil actions."). Proceeding as if
it were an original action, argues Flatow, the district court should
have followed Maryland's summary judgment procedure. By failing
to follow this procedure, Flatow claims that the district court erred
when it weighed the evidence and failed to resolve inferences in his
favor.
The court need not examine Maryland's summary judgment proce-
dure because Maryland Rule 2-645 does not apply to Flatow's claim.
Although Flatow seeks to avail himself of Rule 2-645, which governs
garnishment, the district court found that Flatow proceeded pursuant
to a writ of execution rather than a writ of garnishment. We agree.
Rule 2-641 instructs a judgment creditor how to"request" a writ of
execution, and Rule 2-645 instructs a judgment creditor how to "re-
quest" a writ of garnishment. See id. 2-641, 645. Flatow's request was
captioned "Request of Plaintiff for Issuance of a Writ of Execution,"
and it specifically asked the clerk to "[p]lease issue a Writ of Execu-
tion." J.A. 12. The clerk then issued a "writ of execution" that stated
its execution was to "be in accordance with Md. Rule 2-642." Id. at
18-19. Maryland Rule 2-642 provides instructions for the sheriff with
respect to levying upon property that is the subject of a writ of execu-
tion. See Md. R. Civ. P. 2-642. Therefore, this case is before us by
virtue of a writ of execution, not a writ of garnishment.
Consequently, the district court was not bound by Rule 2-645's
mandate to proceed as though the matter were an original action.
Instead, the court was bound by Maryland procedure governing writs
of execution. Rule 2-643 governs the procedure for releasing a prop-
erty from levy once a writ of execution has been issued, and unlike
Rule 2-645, Rule 2-643 does not provide for the matter to proceed as
an original action. Instead, it provides that either the judgment debtor
or a third party that claims an interest in the property may file a
motion requesting the property be released from levy. See id. 2-
643(c), (e). Upon such a motion, "the court may release some or all
4
of the property from a levy if it finds [one of six enumerated condi-
tions]." Id. 2-643(c).1
It is not evident on the face of Rule 2-643 whether it requires an
"evidentiary hearing" as demanded by Flatow. The Maryland Court
of Special Appeals has stated that "Maryland Rule 2-643 [does not]
explicitly address[ ] . . . the procedure to be followed once the motion
has been filed." Barry Properties Inc. v. Blanton & McCleary, 525
A.2d 248, 254 (Md. Ct. Spec. App. 1987). We recognize that Rule 2-
643 grants a requesting party the right to a prompt"hearing" pursuant
to Rule 2-311(f) if requested. See Md. R. Civ. P. 2-643(f) ("A party
desiring a hearing on a motion filed pursuant to this Rule shall so
request pursuant to Rule 2-311(f) and, if requested, a hearing shall be
held promptly."). A hearing pursuant to Rule 2-311(f), however, is
not the full-blown evidentiary hearing that Flatow seeks.
Under Rule 2-311(f), "parties [are] entitled to an oral hearing" and
"to adequate notice of the time, place, and nature of that hearing, so
that they [can] adequately prepare." Phillips v. Venker, 557 A.2d
1338, 1343 (Md. 1989). The purpose of the hearing"is to prevent a
final disposition -- one that removes a claim or a defense -- unless
the losing party has had a chance to argue on the record and to pre-
vent the court from ruling incorrectly." Adams v. Offender Aid & Res-
toration of Baltimore, Inc., 691 A.2d 248, 250 (Md. Ct. Spec. App.
1997). In addition, Rule 2-643(f) requires the oral hearing to be held
"promptly." Md. R. Civ. P. 2-643(f).
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1 The six enumerated conditions of Maryland Rule 2-643(c) are:
(1) the judgment has been vacated, has expired, or has been sat-
isfied, (2) the property is exempt from levy, (3) the judgment
creditor has failed to comply with these rules or an order of court
regarding the enforcement proceedings, (4) property sufficient in
value to satisfy the judgment and enforcement costs will remain
under the levy after the release, (5) the levy upon the specific
property will cause undue hardship to the judgment debtor and
the judgment debtor has delivered to the sheriff or made avail-
able for levy alternative property sufficient in value to satisfy the
judgment and enforcement costs, or (6) the levy has existed for
120 days without sale of the property, unless the court for good
cause extends the time.
5
The purposes and mandatory promptness of the "oral hearing"
requirement under Rules 2-643(f) and 311(f) belie Flatow's claim that
the court erred in not providing him the opportunity to conduct dis-
covery and to present evidence at an "evidentiary hearing." Because
Flatow was promptly given the opportunity to argue before the district
court at an oral hearing, we conclude that Maryland's procedural
requirements were satisfied. Therefore, the district court did not err
in declining to grant an "evidentiary hearing."2
We further conclude that the district court was not in error when
it weighed the evidence presented by Flatow and declined to resolve
inferences in his favor. In W.D. Curran & Assoc., Inc. v. Cheng-Shum
Enters., 667 A.2d 1013 (Md. Ct. Spec. App. 1995), a Maryland circuit
court was faced with determining whether it should release property
from levy. Under Maryland Rule 2-643(c), the trial court may release
property from levy if it "finds that . . . the levy has existed for 120
days without sale of the property, unless the court for good cause
extends the time." Md. Rule 2-643(c)(6). The levy had already been
extended for one 120-day period, and the circuit court determined that
there was no good cause to extend it again. See Cheng-Shum, 667
A.2d at 1016. The Maryland Court of Special Appeals reviewed this
determination for abuse of discretion. See id . at 1020 ("[T]he determi-
nation of good cause vel non is within the sound discretion of the trial
court, and will not be disturbed on appeal unless the trial court has
abused that discretion.").
We see no distinction between the state circuit court's determina-
tion under Rule 2-643(c)(6) and the district court's determination in
the instant case. Accordingly, the district court's determination must
not be disturbed unless it abused its discretion. Because it was within
the discretion of the district court to determine whether Flatow could
demonstrate a factual basis for subjecting the Foundation's property
to levy, the district court did not err when it weighed the evidence and
declined to draw factual inferences in the Foundation's favor.
_________________________________________________________________
2 We note that the district court allowed Flatow to present a substantial
amount of evidence, including affidavits, newsletters from Iran, and IRS
documents. Therefore, Flatow did have the opportunity to forecast his
evidence.
6
III.
Second, Flatow argues that the district court erred in its determina-
tion that property titled in the name of the Foundation was not subject
to a writ of execution in order to satisfy Flatow's judgment against
the Iranian Government. We review the district court's determinations
of law de novo. See Tabion v. Mufti, 73 F.3d 535, 537 (4th Cir. 1996).
We review the district court's factual findings under Maryland Rule
2-643 for abuse of discretion. Cheng-Shum, 667 A.2d at 1020.
Flatow's judgment against the Iranian Government was obtained
pursuant to the "extrajudicial killing" exception to the FSIA. See 28
U.S.C.A. § 1605(a)(7) (West Supp. 2000). In an effort to enforce this
judgment, Flatow claims that the Foundation is an agency or instru-
mentality of the Iranian Government and therefore that the Founda-
tion's property is subject to levy either by virtue of section 1610 of
the FSIA or by virtue of equitable principles as announced by the
United States Supreme Court in First National City Bank v. Banco
Para El Commercio Exterior de Cuba, 462 U.S. 611 (1983)
("Bancec").
A.
First, Flatow contends that sections 1610(a), (b), and (f)(1)(A) of
the FSIA allow him to proceed against the three subject properties.
Although Rule 69(a) of the Federal Rules of Civil Procedure provides
that "[t]he procedure on execution . . . shall be in accordance with the
practice and procedure of the state in which the district court is held,"
the rule also provides that "any statute of the United States governs
to the extent that it is applicable." Fed. R. Civ. P. 69(a). Moreover,
if the Foundation is the agent or instrumentality of the Iranian Gov-
ernment, then the FSIA is the sole basis for gaining jurisdiction over
it. See Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S.
428, 443 (1989) ("[T]he FSIA provides the sole basis for obtaining
jurisdiction over a foreign state in the courts of this country."). There-
fore, it is appropriate to look to the FSIA.
Section 1609 of the FSIA provides that a foreign state's property
within the United States is immune from execution or attachment. See
28 U.S.C.A. § 1609 (West 1994). Section 1610(a)(7), however, pro-
7
vides that a foreign state's property located in the United States and
used for a commercial purpose is not immune from execution in satis-
faction of a judgment under section 1605(a)(7). See id. § 1610(a)(7)
(West Supp. 2000).3 Section 1610(b) provides the same for property
of an agency or instrumentality of a foreign state. See id. § 1610(b).4
In addition, section 1610(f)(1)(A) provides that certain restricted
assets of a foreign state or its instrumentalities are subject to execu-
tion in satisfaction of a judgment under section 1605(a)(7). See id.
§ 1610(f)(1)(A).5
Because the Foundation is neither a foreign state nor an agency or
instrumentality of a foreign state as defined by the FSIA, none of
these enforcement provisions of the FSIA are availing to Flatow. The
FSIA defines a "foreign state" to include"a political subdivision of
_________________________________________________________________
3 Section 1610(a) provides in pertinent part:
[P]roperty in the United States of a foreign state . . . used for a
commercial activity in the United States, shall not be immune
from attachment in aid of execution, or from execution, upon a
judgment entered by a court of the United States . .. if . . . the
judgment relates to a claim for which the foreign state is not
immune under section 1605(a)(7), regardless of whether the
property is or was involved with the act upon which the claim
is based.
4 Section 1610(b) provides in pertinent part:
[A]ny property in the United States of an agency or instrumental-
ity of a foreign state engaged in commercial activity in the
United States shall not be immune from attachment in aid of exe-
cution, or from execution, upon a judgment entered by a court of
the United States . . . if . . . the judgment relates to a claim for
which the agency or instrumentality is not immune by virtue of
section 1605(a) . . . (7) . . . regardless of whether the property
is or was involved in the act upon which the claim is based.
5 Section 1610(f)(1)(A) provides in pertinent part:
[A]ny property with respect to which financial transactions are
prohibited or regulated pursuant to [various acts] shall be subject
to execution or attachment in aid of execution of any judgment
relating to a claim for which a foreign state (including any
agency or instrumentality or such state) claiming such property
is not immune under section 1605(a)(7).
8
a foreign state or an agency or instrumentality of a foreign state." Id.
§ 1603(a) (West 1994). The FSIA further defines an "agency or
instrumentality of a foreign state" as any entity:
(1) which is a separate legal person, corporate or otherwise,
and
(2) which is an organ of a foreign state or political subdivi-
sion thereof, or a majority of whose shares or other owner-
ship interest is owned by a foreign state or political
subdivision thereof, and
(3) which is neither a citizen of a State of the United States
as defined in section 1332(c) and (d) of this title, nor created
under the laws of any third country.
Id. § 1603(b).
Because the Foundation is not the Iranian Government itself or a
political subdivision thereof, it can only be considered a "foreign
state" if it is an "agency or instrumentality of a foreign state" as
defined in the Act. The Foundation is a not-for-profit corporation
under the laws of the State of New York. Because the Foundation is
"a citizen of a State of the United States" under section 1332(c), it
cannot meet the third prong of the definition of an"agency or instru-
mentality of a foreign state." See id.§ 1603(b)(3). Therefore, Flatow
cannot prevail under the enforcement provisions of sections 1610(a),
(b), and (f)(1)(A).
B.
Although foreclosed from proceeding under section 1610, Flatow
contends that the Foundation's property is subject to levy by virtue of
equitable principles as announced by the United States Supreme
Court in Bancec. In Bancec the Supreme Court determined that
instrumentalities of a foreign state may be held substantively liable
for the debts of their related foreign sovereign when equity so
requires. The Court initially noted that "duly created instrumentalities
of a foreign state are to be accorded a presumption of independent sta-
9
tus." See Bancec, 462 U.S. at 627. The Court found, however, that
this presumption may be overcome. Although the Court declined to
announce a "mechanical formula for determining the circumstances
under which the normally separate juridical status of a government
instrumentality is to be disregarded," id. at 633, it stated that two of
the circumstances would be (1) when the government entity "is so
extensively controlled by [the foreign state] that a relationship of prin-
cipal and agent is created," or (2) when recognizing the presumption
"`would work fraud or injustice,'" id. at 629 (quoting Taylor v. Stan-
dard Gas Co., 306 U.S. 307, 322 (1939)).
The basis for the Bancec Court's decision was not the FSIA, as the
Court noted that the FSIA does not govern substantive liability of for-
eign states or their instrumentalities. See id. at 620. Instead, the deci-
sion was "the product of the application of internationally recognized
equitable principles to avoid . . . injustice." Id. at 633. Applying these
equitable principles, the Bancec Court held that an American defen-
dant who was sued in federal district court by an instrumentality of
the Cuban government could apply a setoff of the value of its assets
that had been seized by the Cuban government. See id. at 613.
Flatow claims that the district court erred when it declined to disre-
gard the separate juridical status of the Foundation under the princi-
ples of Bancec.6 The first circumstance specified by the Bancec Court
is when the instrumentality "is so extensively controlled" by the for-
eign state "that a relationship of principal and agent is created." Id.
at 629. Courts interpreting this language have focused on whether the
foreign state controlled the day-to-day operations of the entity at
issue. See, e.g., McKesson Corp. v. Islamic Republic of Iran, 52 F.3d
346, 352 (D.C. Cir. 1995) ("This extensive involvement in the day-to-
day operations of Pak Dairy is evidence of a principal/agent relation-
_________________________________________________________________
6 We note that Bancec's presumption of separateness applies to "duly
created instrumentalities of a foreign state." Bancec, 462 U.S. at 627. It
is not immediately apparent whether Bancec applies when the alleged
instrumentality is not a creation of the related foreign government, but
instead is a New York not-for-profit corporation. Nevertheless, we need
not resolve this issue today because (1) neither party has claimed that it
was error for the district court to apply Bancec, and (2) as discussed
below, Bancec does not provide relief even if it is applicable.
10
ship between Iran and Pak Dairy." (internal quotations omitted));
Hester Int'l Corp. v. Federal Republic of Nigeria , 879 F.2d 170, 178-
81 (5th Cir. 1989) (honoring presumption where the evidence did "not
demonstrate that the Federal Government was involved in the day-to-
day management" of the instrumentality); Baglab Ltd. v. Johnson
Matthey Bankers Ltd., 665 F. Supp. 289, 297 (S.D.N.Y. 1987) (honor-
ing presumption where there was no "general control over the day-to-
day activities" of the instrumentality).
The district court correctly applied this same standard in the instant
case. Flatow argues that the district court should have departed from
the day-to-day control standard and applied a more lenient "owner-
ship" standard, but he never explains exactly what the "ownership"
standard entails. Moreover, he provides no persuasive legal basis for
departing from the familiar day-to-day control standard. Flatow
attempts to distinguish the above cases that adopted the day-to-day
standard by arguing that they arose under the "commercial activity"
exception to sovereign immunity set out in 28 U.S.C.§ 1605(a)(2) as
opposed to the "extrajudicial killing" exception in section 1605(a)(7).
Flatow contends that the equities are different when the judgment is
pursuant to subsection (a)(7) and that Bancec consequently authorizes
disregarding the separate status of the foreign government's instru-
mentalities. Flatow also contends that the post-Bancec enactment of
subsection (a)(7) and its related enforcement provisions indicate Con-
gress's intention for Bancec's presumption to be overcome more
readily.
We are unpersuaded. Flatow seemingly would have the court hold
any third party that has any connection with Iran responsible for the
judgment he has obtained against the Iranian Government. As the
Second and Eleventh Circuits have already noted, however, the Ban-
cec presumption should not easily be overcome. See Alejandre v.
Telefonica Larga Distancia de Puerto Rico, Inc., 183 F.3d 1277, 1287
(11th Cir. 1999) ("Allowing the Bancec presumption of separate
juridical status to be so easily overcome would effectively render it
a nullity."); Letelier v. Republic of Chile , 748 F.2d 790, 795 (2d Cir.
1984) ("[B]oth Bancec and the FSIA legislative history caution
against too easily overcoming the presumption of separateness.").
The presumption serves important goals, including promoting eco-
nomic development in foreign countries, protecting third-party credi-
11
tor rights, and encouraging foreign governments to respect juridical
divisions between corporations in the United States. See Bancec, 462
U.S. at 625-28. Thus, there must be some principled basis to over-
come Bancec's longstanding presumption respecting juridical inde-
pendence. The day-to-day control test serves the goals of the
presumption as well as the goal of providing a remedy to victims of
extrajudicial killings carried out by terrorist nations.
Moreover, "[i]t is firmly entrenched that Congress is presumed to
enact legislation with knowledge of the law; that is with the knowl-
edge of the interpretation that courts have given to an existing stat-
ute." See United States v. Langley, 62 F.3d 602, 605 (4th Cir. 1995).
Consequently, we decline to interpret the enactment of section
1605(a)(7) and its enforcement provisions as expressing an intention
on the part of Congress to overrule Bancec. Therefore, the district
court applied the correct standard in determining whether the Iranian
Government so extensively controlled the Foundation that a relation-
ship of principle and agent was created.
Finally, the district court did not err in declining to disregard the
Foundation's independence on the second circumstance noted by the
Bancec Court -- when honoring the presumption would result in
fraud or injustice. Although Bancec provides that it may be appropri-
ate to hold a foreign government's instrumentality liable under such
a circumstance, it would be an equal if not greater injustice to allow
Flatow to levy against the property of an independent New York not-
for-profit corporation in order to satisfy a judgment against the Ira-
nian Government without a sufficient connection between the two. As
discussed above, the necessary connection is day-to-day control by
the Iranian Government. Flatow has not shown such control. There-
fore, Flatow cannot prevail on this basis.
In conclusion, the district court correctly applied the day-to-day
control standard in evaluating whether the Iranian Government so
controlled the Foundation that a principal-agent relationship was cre-
ated. Furthermore, the court did not abuse its discretion in determin-
ing that the evidence before it did not support a finding of day-to-day
control. Finally, the district court did not err by refusing to disregard
the Bancec presumption on the basis of avoiding fraud or injustice.
12
IV.
Accordingly, the decision of the district court is
AFFIRMED.
13