Estate of Heiser v. Islamic Republic of Iran , 885 F. Supp. 2d 429 ( 2012 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
)
ESTATE OF MICHAEL HEISER, et al., )
)
Plaintiffs, )
)
v. ) 00-cv-2329 (RCL)
)
ISLAMIC REPUBLIC OF IRAN, et al., )
)
Defendants. )
) Consolidated With
)
ESTATE OF MILLARD D. CAMPBELL, et al., )
)
Plaintiffs, )
)
v. ) 01-cv-2104 (RCL)
)
ISLAMIC REPUBLIC OF IRAN, et al., )
)
Defendants. )
)
MEMORANDUM OPINION
I. INTRODUCTION
On the night of June 25, 1996, a tanker truck crept quietly along the streets of Dhahran,
coming to rest alongside a fence surrounding the Khobar Towers complex, a residential facility
housing United States Air Force personnel stationed in Saudi Arabia. A few minutes later, the
truck exploded in a massive fireball that was, at the time, the largest non-nuclear explosion ever
recorded on Earth. The devastating blast—felt up to twenty miles away—sheared the face off
Building 131 of the Khobar Towers complex and left a crater more than eighty-five feet wide
and thirty-five feet deep. The bombing killed nineteen U.S. military personnel and wounded
more than 100. Subsequent investigations revealed that members of Hezbollah carried out the
attack.
Four years after the bombing, plaintiffs—who are former service members injured in the
attack, various family members, and the estates of those killed—brought suit under the “state-
sponsored terrorism” exception to the Foreign Sovereign Immunities Act (“FSIA”), then codified
at 28 U.S.C. § 1605(a)(7). Plaintiffs alleged that the Islamic Republic of Iran (“Iran”), the
Iranian Ministry of Information and Security (“MOIS”), and the Iranian Islamic Revolutionary
Guard Corps (“IRG”) provided material support and assistance to Hezbollah in carrying out the
heinous attack. Following Iran’s failure to appear and plaintiffs’ presentation of evidence to
substantiate their claims, the Court found that “the Khobar Towers bombing was planned,
funded, and sponsored by senior leadership in the government of the Islamic Republic of Iran;
the IRGC had the responsibility and worked with Saudi Hizbollah to execute the plan; and the
MOIS participated in the planning and funding of the attack.” Heiser v. Islamic Republic of
Iran, 466 F. Supp. 2d 229, 265 (D.D.C. 2006) (“Heiser I”). 1 The Court subsequently entered
judgment against all defendants for $254 million in compensatory damages. Id. at 356.
A few years later, Congress passed the National Defense Authorization Act for Fiscal
Year 2008 (“NDAA” or the “2008 Amendments”), which replaced § 1605(a)(7) with a new
state-sponsored terrorism exception codified at 28 U.S.C. § 1605A, permitted recovery of
punitive damages, and added a new provision concerning the enforcement of judgments. Pub. L.
No. 110-181, § 1083, 122 Stat. 3, 338–44 (2008). Invoking the NDAA’s procedures for
retroactive application, in 2009 the Court entered an amended judgment, holding defendants
jointly and severally liable for an additional $36 million in compensatory damages and $300
1
Hezbollah is synonymous with “Hizbollah,” which is merely a “variant transliteration[] of the same name.”
Oveissi v. Islamic Republic of Iran, 498 F. Supp. 2d 268, 273 n.3 (D.D.C. 2007), rev’d on other grounds, 573 F.3d
835 (D.C. Cir. 2009).
2
million in punitive damages. Heiser v. Islamic Republic of Iran, 659 F. Supp. 2d 20, 31 (D.D.C.
2009) (“Heiser II”).
Following entry of final judgment, plaintiffs began their journey down the often-
frustrating and always-arduous path shared by countless victims of state-sponsored terrorism
attempting to enforce FSIA judgments. On August 10, 2011, this Court ordered Sprint
Communications Company LP to turn over $613,587.38 owed to the Telecommunication
Infrastructure Company of Iran. Heiser v. Islamic Republic of Iran, 807 F. Supp. 2d 9 (D.D.C.
2011) (Heiser III). 2 While this clearly represented a victory for the plaintiffs, this Court noted
that “the bleak reality is that today’s decisions comes after more than a year of litigation and
results in a turnover of funds amounting to less than one-tenth of one-percent of what plaintiffs
are entitled to . . . .” Id. at 27.
The matter before the Court today requires exploration of two attempts by Congress to
aid these victims: Terrorism Risk Insurance Act of 2002 § 201 (“TRIA”), and FSIA § 1610(g).
In accordance with these statutes, plaintiffs ultimately seek the turnover of funds held in various
blocked accounts at Wells Fargo, N.A, and Bank of America, N.A. (collectively, “the Banks”).
The Banks respond in two ways: first, the Banks argue that the TRIA and FSIA require that the
terrorist party—Iran—have an “ownership interest” in the blocked funds in order for them to be
subject to execution; second, for those accounts in which Iran does have an ownership interest,
the Banks argue that they should be permitted to file an interpleader complaint to account for
potential third-party interests in the blocked funds. The Court first reviews the regime of legal
and regulatory provisions governing execution of FSIA judgments, and then turns to the parties’
dispute.
2
In the interest of efficiency because of the number of potential turnover cases related to the Heiser I and Heiser II
judgments, substantial parts of the introduction, background, and procedural history section of this Memorandum
Opinion are taken from this Court’s August 10, 2011 Heiser III opinion. See 659 F. Supp. 2d 20.
3
II. BACKGROUND
A. Statutory and Regulatory Framework
1. Iran-Specific Regulations
Relations between the United States and Iran deteriorated following the 1979 revolution
in which Iran’s monarchy was displaced by an Islamic republic, ruled by the Ayatollahs, that
remains in power today. Following the regime change and fueled by the Iran hostage crisis,
President Carter—exercising the authority granted to him under the International Emergency
Economic Powers Act, 50 U.S.C. § 1701 et seq.—blocked the flow of assets between the United
States and Iran, and seized Iranian property located within the United States. Executive Order
12170, 44 Fed. Reg. 65,729 (Nov. 14, 1979). Over the next two years, Presidents Carter and
Reagan issued numerous Executive Orders seizing additional assets, while the Office of Foreign
Assets Control (“OFAC”)—a component of the Department of the Treasury that administers and
enforces economic and trade sanctions—promulgated regulations concerning transactions
between persons in the United States and Iran. In 1981, the United States and Iran reached an
agreement, known as the Algiers Accords, which led to the release of the hostages and the
unfreezing of most Iranian assets. Over the following decades, sanctions regimes instituted by
Executive Orders and rules promulgated by OFAC evolved into the complex web of regulations
governing Iranian assets in the United States, as well as transactions with Iran. 3
Today, the basic framework for the treatment of Iranian property and trade with Iran is
set forth in two complementary sets of provisions promulgated by OFAC that generally bar all
transactions either with Iran or involving Iranian interests and then carve out limited exceptions
to that embargo. The first, known as the Iranian Assets Control Regulations (“IACR”) and
3
The Court here only briefly recounts the relevant background to place the current regulatory framework in proper
context. For an extensive history of regulations and Executive Orders concerning Iran, see Judge Wexler’s excellent
summary in Weinstein v. Islamic Republic of Iran, 299 F. Supp. 2d 63, 65–68 (E.D.N.Y. 2004).
4
codified at 31 C.F.R. Part 535, was implemented in 1980 during the Iran Hostage Crisis, 45 Fed.
Reg. 24,432 (Apr. 9, 1980), and “broadly prohibits unauthorized transactions involving property
in which Iran has any interest,” while granting specific licenses for certain transactions. Flatow
v. Islamic Republic of Iran, 305 F.3d 1249, 1255 (D.C. Cir. 2002). The second, known as the
Iranian Transactions Regulations (“ITR”) and codified at 31 C.F.R. Part 560, “confirms the
broad reach of OFAC’s Iranian sanctions programs by establishing controls on Iranian trade,
investments, and services. . . . As under the IACR, there is a general prohibition under the ITR of
unauthorized transactions, coupled with specific licenses permitting certain kinds of
transactions.” Flatow, 305 F.3d at 1255; see also Weinstein v. Islamic Republic of Iran, 299 F.
Supp. 2d 63, 68 (E.D.N.Y. 2004) (“The ITR prohibited, inter alia, the importation of goods and
services from Iran, and the exportation, reexportation, and sale or supply of goods, technology or
services to Iran.”).
B. Procedural History
After securing judgment against defendants and properly serving them with copies of that
judgment as required under the FSIA, see Order, May 10, 2010, ECF No. 158, plaintiffs issued
writs of attachment to garnishees Bank of America, N.A., and Wells Fargo, N.A., asking, inter
alia, whether each company was indebted to defendants.
Bank of America answered its writ on July 19, 2011. Answer to Writ of Garnishment,
ECF No. 191. Bank of America responded that it holds the proceeds of various Iranian-related
transactions that it blocked pursuant to OFAC regulations. Specifically, Bank of America holds
the following blocked asset accounts:
Amount Iranian Entity(ies) Type of Blocked Account
$34,453.88 Iran Marine and Industrial Deposit Account
5
$11,717.00 SedIran Drilling Company Deposit Account
$5,939.97 Bank Sepah EFT
$9,721.85 Iran Air & Melli Bank Plc UK Check Proceeds
$38,469.57 Bank Melli Iran EFT
Bank of America contests the turnover of only the two blocked Electronic Funds Transfer
(“EFT”) accounts in its possession. These are the accounts involving Bank Sepah and Bank
Melli Iran (bolded above). The remaining three accounts are uncontested and subject to the
Banks’ motion to file an interpleader complaint.
Wells Fargo answered its writ on September 8, 2011. Answer to Writ of Garnishment,
ECF No. 201. Wells Fargo also responded that it holds the proceeds of various Iranian-related
transactions that it blocked pursuant to OFAC regulations. Specifically, Wells Fargo holds the
following blocked asset accounts:
Amount Iranian Entity(ies) Type of Blocked Account
$207,873.00 Iranian Navy Deposit Account
$20,000.00 Bank Saderat Iran EFT
$50,000.00 Bank Mellat, Korea EFT
$13,000.00 Bank Mellat, London EFT
$71,673.70 Bank Mellat Iran EFT
$11,907.00 Bank Saderat Iran EFT
$74,850.44 Bank Mellat EFT
$6,500.00 Bank Saderat Iran EFT
$34,298.81 Bank Saderat Iran EFT
6
$105,000.00 Export Dev. Bank of Iran EFT
$6,300 Export Dev. Bank of Iran EFT
$5,562.36 Iranian IRG EFT
$10,000.00 Bank Mellat, Turkey EFT
$12,979.07 Khazar Shipping EFT
Wells Fargo contests the turnover of only nine of the blocked EFT accounts in its possession.
These are the accounts involving Bank Mellat, Korea; Bank Mellat, London; Bank Mellat Iran;
Bank Saderat Iran; Export Dev. Bank of Iran; and Bank Mellat, Turkey (bolded above). The
remaining five accounts are uncontested and subject to the Banks’ motion to file an interpleader
complaint.
Throughout this opinion, this Court refers to the eleven blocked accounts that the Banks
contest turning over as “the Contested Accounts.” This Court refers to the remaining eight
accounts as “the Uncontested Accounts.”
III. ANALYSIS
This Court will first discuss the cross-motions for judgment as a matter of law raised by
plaintiffs and the Banks. ECF Nos. 206, 212. Subsequently, this Court will consider the Banks’
Motion for Leave to File Third Party Petition Alleging Claims in the Nature of Interpleader.
ECF No. 213.
A. Contested Accounts – Cross-Motions for Judgment as a Matter of Law
Both plaintiffs and the Banks have moved for judgment as a matter of law with respect to
turnover of the funds contained in the eleven Contested Accounts. Plaintiffs invoke FSIA §
1610(g) and TRIA § 201(a) as authority to execute on these funds. This Court begins with an
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overview of attachment and execution provisions of the FSIA and then discusses whether TRIA
§ 201(a) or FSIA §1610(g) permit execution on the Contested Accounts.
1. Attachment & Execution under the FSIA
“It is a well-established rule of international law that the public property of a foreign
sovereign is immune from legal process without the consent of that sovereign.” Loomis v.
Rogers, 254 F.2d 941, 943 (D.C. Cir. 1958); see also Weinstein v. Islamic Republic of Iran, 274
F. Supp. 2d 53, 56 (D.D.C. 2003) (“[T]he principles of sovereign immunity ‘apply with equal
force to attachments and garnishments.’”) (quoting Flatow, 74 F. Supp. 2d at 21). To promote
this general principle, the FSIA broadly designates all foreign-owned property as immune, and
then articulates limited exceptions to that immunity. See 28 U.S.C. § 1609 (“[T]he property in
the United States of a foreign state shall be immune from attachment, arrest and execution except
as provided in sections 1610 and 1611 of this chapter.”). Though providing a workable
framework in theory, the past decade of litigation under the Act has proved, for victims of state-
sponsored terrorism, to be a journey down a never-ending road littered with barriers and often
obstructed entirely. Two particular roadblocks merit greater discussion.
The first difficulty plaintiffs holding judgments against Iran often faced was the limited
number of Iranian assets remaining in the United States. Attempting to overcome this shortfall,
plaintiffs targeted property in which an Iranian entity—often a financial institution owned or
controlled by Iran—had an interest. Though expressly sanctioned by § 1610(b), this strategy was
undercut by the Supreme Court’s decision in First Nat’l City Bank v. Banco Para El Comercio
Exterior de Cuba, which involved a U.S. financial institution’s attempt to collect money owed to
it by the Cuban government through the seizure of funds deposited in the institution by a Cuban
bank. 462 U.S. 611, 613 (1983). In its opinion, the Supreme Court observed that “government
8
instrumentalities established as juridical entities distinct and independent from their sovereign
should normally be treated as such,” and determined that Congress “clearly expressed its
intention that duly created instrumentalities of a foreign state are to be accorded a presumption of
independent status.” Id. at 626–27. According to the First Nat’l Court, this presumption may be
overridden only where the plaintiff demonstrates that the foreign entity is exclusively controlled
by the foreign state or where recognizing the separateness of that entity and the foreign state
“would work fraud or injustice.” Id. at 629–30. The practical effect of this holding was to shield
the property of instrumentalities of foreign states from attachment or execution absent evidence
of a connection between the instrumentality and the foreign state so strong as to render any
distinction irrelevant. And by placing the burden of proof on this issue squarely on plaintiffs, the
First Nat’l holding became a substantial obstacle to FSIA plaintiffs’ attempts to satisfy
judgments. See, e.g., Oster v. Republic of S. Afr., 530 F. Supp. 2d 92, 97–100 (D.D.C. 2007);
Bayer & Willis Inc. v. Republic of the Gam., 283 F. Supp. 2d 1, 4–5 (D.D.C. 2003).
The second hurdle facing FSIA plaintiffs involved assets that once belonged to Iran or its
agencies but had been seized and retained by the United States. As a legal matter, “assets held
within United State Treasury accounts that might otherwise be attributed to Iran are the property
of the United States and are therefore exempt from attachment or execution by virtue of the
federal government’s sovereign immunity.” In re Islamic Republic of Terrorism Litig., 659 F.
Supp. 2d 31, 53 (D.D.C. 2009) (citing Dep’t of the Army v. Blue Fox, Inc., 525 U.S. 255 (1999)).
Victims of state-sponsored terrorism attempting to seize such assets were thus put in the perverse
position of litigating against their own government, see Weinstein, 274 F. Supp. 2d at 56 (“[I]f a
litigant seeks to attach funds held in the United States Treasury, he or she must demonstrate that
9
the United States has waived its sovereign immunity with respect to those funds.”), which
strongly opposed attempts to attach such assets. As one commentator explains:
As a matter of foreign policy, the President regards frozen assets as a powerful
bargaining chip to induce behavior desirable to the United States; accordingly,
allowing private plaintiffs to file civil lawsuits and tap into the frozen assets
located in the United States may weaken the executive branch’s negotiating
position with other countries. For this reason, several U.S. presidents have
opposed giving victims access to these funds.
Debra M. Strauss, Reaching Out to the International Community: Civil Lawsuits as the Common
Ground in the Battle against Terrorism, 19 Duke J. Comp. & Int’l L. 307, 322 (2009). The
Executive Branch has consistently succeeded in arguing that the FSIA does not waive the United
States’ immunity with respect to seized Iranian assets. See, e.g., Flatow, 74 F. Supp. 2d 18.
Eventually Congress enacted the Terrorism Risk Insurance Act (“TRIA”), Pub. L. No.
107-297, 116 Stat. 2322 (2002), “to ‘deal comprehensively with the problem of enforcement of
judgments rendered on behalf of victims of terrorism in any court of competent jurisdiction by
enabling them to satisfy such judgments through the attachment of blocked assets of terrorist
parties.’” Weininger v. Castro, 462 F. Supp. 2d 457, 483 (S.D.N.Y. 2006) (quoting H.R. Conf.
Rep. 107-779, at 27 (2002)). The TRIA declares that
[n]otwithstanding any other provision of law, . . . in every case in which a person
has obtained a judgment against a terrorist party on a claim based upon an act of
terrorism, . . . the blocked assets of the terrorist party (including the blocked assets
of any agency or instrumentality of that terrorist party) shall be subject to
execution or attachment in aid of execution in order to satisfy such judgment to
the extent of any compensatory damages for which such terrorist party has been
adjudged liable.
§ 201(a). In other words, the TRIA “subjects the assets of state sponsors of terrorism to
attachment and execution in satisfaction of judgments under § 1605(a)(7),” In re Terrorism
Litig., 659 F. Supp. 2d at 57, by “authoriz[ing] holders of terrorism-related judgments against
Iran . . . to attach Iranian assets that the United States has blocked.” Ministry of Def. & Support
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for the Armed Forces of the Islamic Republic of Iran v. Elahi, 129 S. Ct. 1732, 1735 (2009)
(quotations omitted; emphasis in original).
The TRIA was designed to remedy many of the problems that previously plagued victims
of state-sponsored terrorism; in practice, however, it led to very few successes. Victims
discovered that, at least with respect to Iran, “very few blocked assets exist.” In re Terrorism
Litig., 659 F. Supp. 2d at 58. And the barren landscape facing these FSIA plaintiffs was only
further depleted by the exclusion of diplomatic properties from the TRIA’s reach. See Bennett,
604 F. Supp. 2d at 161 (“[The TRIA] expressly excludes ‘property subject to Vienna Convention
on Diplomatic relations, or that enjoys equivalent privileges and immunities under the law of the
United States, being used for exclusively for diplomatic or consular purposes.’”) (quoting TRIA
§ 201(d)(2)(B)(ii)).
Against this desolate backdrop, Congress enacted the NDAA, which added paragraph (g)
to the execution section of the FSIA. This new provision, in its entirety, declares:
(g) Property in Certain Actions.—
(1) In general.— Subject to paragraph (3), the property of a foreign state against
which a judgment is entered under section 1605A, and the property of an agency
or instrumentality of such a state, including property that is a separate juridical
entity or is an interest held directly or indirectly in a separate juridical entity, is
subject to attachment in aid of execution, and execution, upon that judgment as
provided in this section, regardless of—
(A) the level of economic control over the property by the
government of the foreign state;
(B) whether the profits of the property go to that government;
(C) the degree to which officials of that government manage the
property or otherwise control its daily affairs;
(D) whether that government is the sole beneficiary in interest of
the property; or
(E) whether establishing the property as a separate entity would
entitle the foreign state to benefits in United States courts while
avoiding its obligations.
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(2) United states sovereign immunity inapplicable.— Any property of a foreign
state, or agency or instrumentality of a foreign state, to which paragraph (1)
applies shall not be immune from attachment in aid of execution, or execution,
upon a judgment entered under section 1605A because the property is regulated
by the United States Government by reason of action taken against that foreign
state under the [TWEA] or the [IEEPA].
(3) Third-party joint property holders.— Nothing in this subsection shall be
construed to supersede the authority of a court to prevent appropriately the
impairment of an interest held by a person who is not liable in the action giving
rise to a judgment in property subject to attachment in aid of execution, or
execution, upon such judgment.
28 U.S.C. § 1610(g). Courts have had little opportunity to explore the full implications of §
1610(g), though at least one court has observed that the NDAA will have a significant impact on
plaintiffs’ attempts to enforce FSIA judgments. See Calderon-Cardona v. Dem. Rep. Congo,
723 F. Supp. 2d 441, 458 (D.D.C. 2009) (“Section 1083 adds a new subsection, section
1610(g)(1), which significantly eases enforcement of judgments entered under section 1605A.”).
2. Attachment and Execution on the Contested Accounts
Plaintiffs claim that they have met all of the elements necessary to satisfy both FSIA §
1610(g) and TRIA § 201(a), with satisfaction of either section being sufficient to execute on the
Contested Accounts. The Banks respond that both statutes require plaintiffs to show that Iran
has an ownership interest in the blocked assets—and Iran has no ownership interest in the
Contested Accounts. The Banks concede that Iran has an ownership interest in the Uncontested
Accounts. Accordingly, this Court must determine what, if any, ownership interest is required to
execute on the Contested Accounts.
a. TRIA § 201(a) Requires an Iranian Ownership Interest
As with any question of statutory interpretation, this Court’s analysis begins with the
plain language of the statute. Jimenez v. Quarterman, 555 U.S. 113, 118 (2009) (citations
omitted). When the statutory language is clear, it must be enforced according to its own terms so
12
long as “the disposition required by the text is not absurd.” Lamie v. U.S. Trustee, 540 U.S. 526,
534 (2004). Therefore, this Court must first determine whether the statutory language contained
in TRIA § 201(a) is clear.
TRIA § 201(a) allows a person holding a judgment against a state-sponsor of terrorism to
attach and execute on “the blocked assets of that terrorist party.” The parties agree that the
Contested Accounts meet the definition of “blocked assets” provided in TRIA § 201(d)(2). The
parties also agree that Iran qualifies as a “terrorist party” under TRIA § 201(d)(4). The issue is
whether Congress’ use of the word “of” requires plaintiff to prove that Iran has an ownership
interest in the Contested Accounts.
In Board of Trustees of the Leland Stanford Junior University v. Roche Molecular
Systems, Inc., 131 S. Ct. 2188, 2196 (2011), the Supreme Court reaffirmed its longstanding
precedent that “the use of the word ‘of’ denotes ownership.” Id. (quoting Poe v. Seaborn, 282
U.S. 101, 109 (1930)); see Flores-Figueroa v. United States, 556 U.S. 648–49, 657 (2009)
(treating the phrase “identification [papers] of another person” as meaning such items belonging
to another person); Ellis v. United States, 206 U.S. 246, 259 (interpreting the phrase “works of
the United States” to mean “works belonging to the United States”) (internal citations and
quotations omitted). As the Stanford Court noted, this reading is consistent with a common
definition of the word “of” denoting a possessive relationship. Stanford, 131 S. Ct. at 2196
(citing Webster’s Third New International Dictionary 1565 (2002)).
Applying Stanford and interpreting the word “of” in TRIA § 201(a) to mean “belonging
to” makes sense: judgment debtors normally pay for whatever caused the adverse judgment
against them—third parties do not usually pick up the tab. Additionally, the common law
historically provided that “[t]he lien of a judgment attaches to the precise interest or estate which
13
the judgment debtor has actually and effectively in the property, and only to such interest.” 50
C.J.S. Judgments § 787 (2012); see also U.S. v. Rodgers, 461 U.S. 677, 713 (1983). Thus, the
plain language, as informed by the common law, strongly indicates that Congress intended to
permit terrorist victims to execute on only the assets “of”—or, in other words, “belonging to”—
the terrorist state committing the act. At least one other district court has come to this same
conclusion regarding TRIA § 201(a). See Ruth Calderon-Cardona v. JPMorgan Chase Bank,
N.A., 2011 WL 6155987, at *14 (S.D.N.Y. Dec. 7, 2011) (“TRIA § 201 requires property
ownership”).
Unwilling to concede defeat on a plain language analysis, plaintiffs seek refuge in the
expansive definition of “blocked asset” found in TRIA § 201(d)(2):
(2) Blocked asset.—The term ‘blocked asset’ means—
(A) any asset seized or frozen by the United States under section
5(b) of the Trading With the Enemy Act (50 U.S.C. App. 5(b)) or
under sections 202 and 203 of the International Emergency
Economic Powers Act (50 U.S.C. 1701; 1702); and
(B) Does not include property that—
(i) is subject to a license issued by the United States Government
for final payment, transfer or disposition by or to a person subject
to the jurisdictions of the United States in connection with a
transaction for which the issuance of such license has been
specifically required by statute other than the International
Emergency Economic Powers Act (50 U.S.C. 1701 et seq.) or the
United Nations Participation Act of 1945 (22 U.S.C. 287 et seq.);
or
(ii) in the case of property subject to the Vienna Convention on
Diplomatic Relations or the Vienna Convention on Consular
Relations, or that enjoys similar privileges and immunities under
the law of the United States, is being used exclusively for
diplomatic or consular purposes.
(emphasis added). Plaintiffs argue that Congress intended the phrase “of that terrorist party” to
limit the expansive definition of “blocked asset” in one way—to restrict a judgment creditor to
pursuing only assets blocked under a sanctions scheme targeting that terrorist party. In other
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words, TRIA permits an Iranian judgment creditor to attach assets blocked only under the
Iranian sanctions regulations; simultaneously, TRIA prohibits an Iranian judgment creditor from
attaching assets blocked under Cuban, Syrian, or other sanctions regimes. Judge Marrero’s
decision in Hausler v. JPMorgan Chase Bank, N.A., 845 F. Supp. 2d 553, 566–67 (S.D.N.Y.
2012), agrees with plaintiffs argument. 4 Judge Marrero reasoned that an ownership requirement
overlooks a very basic aspect of the TRIA: The statute is not directed at a single
terrorist entity and does not relate to a single set of blocking regulations. The
TRIA expressly defines “[t]he term ‘blocked asset’ [to] mean[ ] . . . any asset
seized or frozen by the United States under section 5(b) of the Trading With the
Enemy Act (50 U.S.C.App. 5(b)) or under sections 202 and 203 of the
International Emergency Economic Powers Act . . . .” The phrase “of that
terrorist party” provides the necessary, though perhaps perfunctory, instruction
that the “blocked assets” available for execution are only those assets blocked
pursuant to the particular regulation or administrative action directed at the
particular terrorist-party judgment debtor. In other words, the TRIA does not
permit a party with a judgment against Iran to execute against funds blocked
pursuant to the CACRs, regulations which are, of course, targeted at Cuba.
Id. (citations omitted).
The Banks agree that, as Iran’s judgment creditors under TRIA § 201(a), plaintiffs may
execute on only the assets blocked pursuant to the Iranian sanctions regimes and not on assets
blocked pursuant to other sanctions regimes. To otherwise interpret the statute would read “that”
out of the phrase “blocked assets of that terrorist party.” But plaintiffs go too far in presuming
that the scope of the OFAC blocking regulations is coextensive with the scope of attachment
authorized by TRIA. Examining OFAC regulations, it is quite apparent that OFAC blocks a
much broader category of assets than those “of” a terrorist party.
OFAC regulations provide the following:
No property subject to the jurisdiction of the United States or which is in the
possession of or control of persons subject to the jurisdiction of the United States
in which on or after the effective date Iran has any interest of any nature
4
Accord Levin v. Bank of New York, 2011 WL 821032 (S.D.N.Y. Feb. 22, 2012).
15
whatsoever may be transferred, paid, exported, withdrawn or otherwise dealt in
except as authorized.
31 C.F.R. § 535.201 (emphasis added). While this language is broad, OFAC regulations go one
step further by defining “interest” as “any interest of any nature whatsoever, direct or indirect.”
§ 535.312. Moreover, “property” includes a laundry list of items such as “money, checks, . . .
obligations . . . pledges, liens or other rights in the nature of security . . . contracts of any nature
whatsoever, and any other property, real, personal, or mixed, tangible or intangible, or interest or
interests therein, present, future or contingent.” § 535.311. Applying these regulations literally,
OFAC apparently may block a transaction involving an indirect, intangible, future, contingent
Iranian interest of any nature whatsoever.
The expansive language OFAC employs to block transactions with Iranian entities stands
in stark contrast to the language employed in TRIA § 201(a) where Congress chose to allow
execution on only a subset of blocked assets: those “of” a terrorist party. Every word in a statute
must be given effect, including the seemingly trivial word “of.” Kawasaki Kisen Kaisha Ltd. v.
Regal-Beloit Corp., 130 S. Ct. 2433, 2445 (2010) (citing Reiter v. Sonotone Corp., 442 U.S. 330,
339 (courts are “obliged to give effect, if possible, to every word Congress used”)). The Court
must also presume that Congress was aware of the breadth of OFAC blocking regulations when
it authored TRIA § 201(a). Miles v. Apex Marine Corp., 498 U.S. 19, 32 (1990) (“We assume
that Congress is aware of existing law when it passes legislation”). OFAC has used the “any
interest of any nature whatsoever” and other broad language since at least 1979. See Iranian
Assets Control Regulations, 44 Fed. Reg. 65956, 65956–65957 (Nov. 17, 1979). Congress could
have written—and could rewrite—TRIA § 201(a) to say “blocked assets related to that terrorist
party” or “blocked assets in which that terrorist party has any property interest” and avoided
creating an ownership requirement. Unfortunately for plaintiffs, the inescapable conclusion is
16
that Congress intentionally used narrower language to permit attachment and execution only on a
subset of blocked assets—those “of” (“owned by” or “belonging to”) a terrorist state.
At first glance, it might appear strange for a sanctions regime to block transfers of assets
that a terrorist state—in this case, Iran—did not legally own. Why cast such a broad net? John
E. Smith, Associate Director of OFAC’s Office of Policy and Implementation, explains that
blocking serves a number of goals: providing the President with leverage to negotiate in
resolving foreign policy disputes, depriving Iran of property that it might otherwise use contrary
to U.S. interests, preventing Iran from transacting with U.S. persons or the U.S. financial market,
limiting the flow of goods and U.S. dollars Iran has available, and making it more difficult for
third parties to transact with Iran. Decl. of James Kerr, ECF No. 212-7, Ex. D, ¶ 10.
On the other hand, OFAC blocking regulations implicate a different set of interests than
TRIA § 201. Congress intended TRIA as a vehicle to compensate victims of terrorist attacks
while also punishing terrorist states by making them pay for their acts. However, under
plaintiffs’ interpretation, virtually all blocked assets—regardless of whether Iran has an
ownership interest in them—could be used to compensate victims. Such an attachment would
actually reduce Iran’s liability for the judgments entered against it while imposing a potentially
heavy cost on innocent property owners. For example, if a foreign national living and working
in a different country attempted to send money to his personal bank account in Iran, this transfer
could be blocked and, under plaintiffs’ reading of TRIA, be subject to attachment. See
Calderon-Cardona, 2011 WL 6155987, at *11.
Because the plain language of the statute cuts against plaintiffs’ interpretation, plaintiffs
seek refuge in the traditional cannon of statutory interpretation that remedial statutes are to be
liberally construed. See 3 Sutherland Statutory Construction § 60:1 (7th ed.). Justice Scalia
17
describes this cannon as “surely among the prime examples of lego-babble.” Antonin Scalia,
Assorted Cannards of Contemporary Legal Analysis, 40 Case W. Res. L. Rev. 581, 581–582
(1990) (“It is so wonderfully indeterminate, as both when it applies and what it achieves, that it
can be used, or not used, or half-used, almost ad libitum, depending mostly upon whether its use,
or nonuse, or half-use, will assist in reaching the result the court wishes to achieve.). Thankfully,
this Court does not have to decide what a liberal interpretation of this statute would mean
because the plain meaning of “of” requires ownership—and plain meaning wins. 3 Sutherland §
60.1 (“The rule of liberal construction does not override other rules where its application . . .
defeats the evident meaning of an act.”).
The Court also hesitates to interpret TRIA § 201(a) broadly in light of the important role
blocked assets play in foreign policy—an area where the Courts have traditionally accorded
some weight to the views of the Executive Branch. See Republic of Austria v. Altmann, 541 U.S.
677, 701–702 (2004); Sosa v. Alvarez-Machain, 542 U.S. 692, 733 n.21 (2004); Doe v. Exxon
Mobil Corp. 473 F.3d 345, 354 (D.C. Cir. 2007). This Court will accord the Government’s
interpretation, advanced in this case through its Statement of Interest and other related
declarations, “a measure of deference proportional to the ‘thoroughness evident in its
consideration, the validity of its reasoning, its consistency with earlier and later pronouncements,
and all those factors which give it power to persuade.’” Christopher v. SmithKline Beecham
Corp., 132 S. Ct. 2156, 2169 (2012) (quoting Skidmore v. Swift & Co., 323 U.S. 134, 140
(1944)).
The Government notes that “any judicial application of TRIA has important
consequences for the Executive Branch’s implementation of sanctions regimes in the public
interest.” ECF No. 230, at 3. Historically, the Executive Branch has viewed blocked assets as
18
important “leverage in working out policy disputes with other countries . . . .” Jennifer K. Elsea,
Congressional Research Serv., Suits Against Terrorist States by Victims of Terrorism, at 9
(2008), available at http://www.fas.org/sgp/crs/terror/RL31258.pdf (last accessed August 21,
2012); see also Decl. of James Kerr, ECF No. 212-7, Ex. D, ¶ 10. The Executive Branch also
worries that attachment “exposes the United States to the risk of reciprocal actions against U.S.
assets by other States.” Elsea, at 9.
Plaintiffs’ sweeping interpretation would effectively—through future attachments and
executions—eliminate the President’s ability to use blocked assets as bargaining chips in solving
foreign policy disputes. This is especially true as the amount of outstanding judgments against
terrorist states greatly exceed the amount of blocked assets. Compare U.S. Dep’t of the
Treasury, Office of Foreign Assets Control, Terrorist Assets Report Calendar Year 2011, at 13,
available at http://www.treasury.gov/resource-center/sanctions/Programs/Documents/tar2011.p
df ($72 million in blocked assets relating to Iran exist) with Taylor v. Islamic Republic of Iran,
2012 WL 3126774, at *4 (D.D.C. Aug. 2, 2012) ($9.5 billion in outstanding judgments against
Iran exist from the 1983 Beirut bombing). Absent an express indication that Congress intended
attachment and execution of all blocked assets 5—including blocked assets totally unowned by
terrorist states—this Court will not interpret TRIA § 201(a) to conflict with both its plain
language and decades of practice.
b. FSIA § 1610(g) Requires an Iranian Ownership Interest
In the alternative, plaintiffs argue that they may execute on the Contested accounts under
FSIA § 1610(g). Section 1610(g), passed in 2008, contains language very similar to that of
TRIA § 201(a). The relevant section provides:
5
Except, of course, diplomatic assets exempt under TRIA § 201(d)(2)(B)(ii), which have long been treated as sui
generis.
19
(g) Property in certain actions.—
(1) In general.--Subject to paragraph (3), the property of a foreign state
against which a judgment is entered under section 1605A, and the property
of an agency or instrumentality of such a state, including property that is a
separate juridical entity or is an interest held directly or indirectly in a
separate juridical entity, is subject to attachment in aid of execution, and
execution, upon that judgment as provided in this section, regardless of—
(A) the level of economic control over the property by the
government of the foreign state;
(B) whether the profits of the property go to that
government;
(C) the degree to which officials of that government
manage the property or otherwise control its daily affairs;
(D) whether that government is the sole beneficiary in
interest of the property; or
(E) whether establishing the property as a separate entity
would entitle the foreign state to benefits in United States
courts while avoiding its obligations.
28 U.S.C. § 1610(g) (emphasis added). Again, the textual issue under § 1610(g) is the same:
does the word “of” require plaintiff to prove that Iran had an ownership interest in the Contested
Accounts? For the same textual reasons previously discussed in reference to TRIA § 201(a), the
answer remains yes. See Part III.A.2.a. Nonetheless, three unique aspects of § 1610(g) merit
separate discussion.
First, the language in § 1610(g)(1) specifically permitting attachment of “an interest held
directly or indirectly in a separate juridical entity” is inapplicable here. Congress included this
language “to overcome the effect of Dole Food Co. v. Patrickson, which held that an entity
owned indirectly by a foreign state, through another wholly-owned entity, was not an ‘agency or
instrumentality’ of the foreign state.” Calderon-Cardona, 2011 WL 6155987 at * 17 (citing
Dole Food Co. 538 U.S. at 473 (“[A] subsidiary of an instrumentality is not itself entitled to
instrumentality status.”)). Dole Food followed the earlier Bancec, 462 U.S. 611, decision.
Courts applying Bancec fashioned a five-factor test to determine whether an instrumentality
served merely as the alter ego of the foreign state. See Flatow v. Islamic Republic of Iran, 308
20
F.3d 1065, 1071 n.9 (9th Cir. 2002). Section §1610(g) subparagraphs (A)–(E) explicitly prohibit
consideration of each of the five Bancec factors. By abrogating Dole Food and Bancec,
§ 1610(g)(1) made property that a foreign state owns through an instrumentality—or a subsidiary
of an instrumentality—attachable. Nonetheless, these sections do nothing to modify
§ 1610(g)(1)’s requirement that the Contested Accounts be “the property of a foreign state.” As
with TRIA § 201(a), this “of” cannot be ignored.
Second, when this Court first described § 1610(g)’s attachment provisions in 2009, it
found that § 1610(g) permitted “attachment or execution with respect to property belonging to
designated state sponsors of terrorism.” In re Terrorism Litig., 659 F. Supp. 2d at 62. While
perhaps dicta in the 2009 opinion, this finding was consistent with the Conference Committee
Report adopted prior to enactment of § 1610(g). H.R. Rep. No. 110-447, at 1001. The Report
stated that § 16010(g) “is written to subject any property interest in which the foreign state
enjoys a beneficial ownership to attachment and execution. . . .” H.R. Rep. No. 110-447, at 1001
(2007) (emphasis added).
Third, plaintiffs argue that § 1610(g)(3) is rendered superfluous by the Banks’ reading of
the statute. Section 1610(g)(3) provides the following:
(3) Third-party joint property holders.—Nothing in this subsection shall be
construed to supersede the authority of a court to prevent appropriately the
impairment of an interest held by a person who is not liable in the action giving
rise to a judgment in property subject to attachment in aid of execution, or
execution, upon such judgment.
Plaintiffs argue that “if property ‘owned’ only by Iran were subject to attachment, there would be
no need for Congress to protect third-party ‘interests.’” Pls.’ Reply, ECF No. 220, at 17. This
argument, however, fails to account for a number of possible situations. For example, Iran may
jointly own property with a number of innocent third-parties who could have joint ownership
21
rights that 1610(g)(3) protects. Or, Iran may wholly own an asset in which an innocent third-
party holds a lesser interest—like a right of first refusal—that carries some economic value
which 1610(g)(3) protects. Far from being superfluous, 1610(g)(3) provides courts with the
important power to protect interests held by third-parties where Iran has some ownership of a
property.
3. Iran Does Not Have an Ownership Interest in the Contested Accounts
In light of this Court’s ruling that both “blocked assets of that terrorist party” in TRIA §
201(a) and “property of a foreign state” in FSIA § 1610(g)(1) require plaintiffs to prove some
terrorist state ownership in order to attach and execute on property, this Court must do two
things: decide what law should be applied to determine whether Iran has an ownership interest,
and apply that law to the Contested Accounts.
a. Federal Law Preempts D.C. Law
Federal Rule of Civil Procedure 69 provides that “[t]he procedure on execution . . . must
accord with the procedure of the state where the court is located, but a federal statute governs to
the extent it applies.” Both parties concede that this Court must follow District of Columbia
procedure for execution on both the Contested and Uncontested Accounts. Plaintiffs, however,
argue that the substantive basis for their right to execution is found in federal law—specifically,
TRIA § 201, FSIA § 1610(g), and OFAC regulations. Pls.’ Reply, ECF 220, at 34 (citing Heiser
III, 2011 WL 3489109, at *13). Plaintiffs contend that federal law and OFAC regulations govern
all property in which Iran has any interest, therefore preempting the entire field and leaving no
room for state law to supplement or contradict District of Columbia law. Plaintiffs also argue
that a conflict exists between the OFAC definitions of “blocked assets”—which are incorporated
22
into TRIA § 201 and FSIA § 1610(g)—and D.C. law defining ownership interests more
narrowly.
The Banks respond that neither the TRIA, FSIA, nor OFAC regulations define whether
Iran has an ownership interest Contested Accounts, and that therefore state law must apply. The
Banks propose that the substantive District of Columbia law which applies to this case is
Uniform Commercial Code Article 4A, as codified in D.C. Code § 28:4A et seq. The Banks rely
on Second Circuit precedent stating that “[i]n the absence of a superseding federal statute or
regulation, state law generally governs the nature of any interests in or rights to property that an
entity may have.” Export-Import Bank of the United States v. Asia Pulp & Paper Co., 609 F.3d
111 (2d Cir. 2010) (“Asia Pulp”).
State law must give way to federal law in at least three circumstances: (1) when Congress
expressly preempts state law, (2) when Congress undertakes so-called “field preemption,” and
(3) when state law conflicts with federal law. Arizona v. U.S., 132 S. Ct. 2492, 2501 (2012).
Neither party asserts that TRIA § 201 or FSIA § 1610 expressly preempt state property law.
Therefore, the first question this Court must ask is whether field preemption applies. Because
this Court finds that field preemption does apply, it need not address the Banks’ conflict
preemption argument.
Field preemption forecloses states from regulating an area of law—whether that state law
conflicts with federal law or complements federal law. Arizona v. U.S., 132 S. Ct. 2492, 2502
(2012). The purpose of Congress is the ultimate touchstone in every preemption case.
Medtronic, Inc. v. Lohr, 518 U.S. 470 (1996) (citations and quotations omitted). Courts look to
see if a federal law is designed to function as a “harmonious whole.” Hines v. Davidowitz, 312
U.S. 52, 72 (1941). “The intent to displace state law altogether can be inferred from a
23
framework of regulation so pervasive . . . the Congress left no room for the States to supplement
it or where there is a federal interest . . . so dominant that the federal system will be assumed to
preclude enforcement of state laws on the same subject.” Arizona, 132 S. Ct. at 2501 (citations
and quotations omitted).
The Supreme Court has emphasized the paramount federal interest that exists in the
conduct of our foreign relations. In a recent pronouncement in this area, the Supreme Court
stated that “[t]here is, of course, no question that at some point an exercise of state power that
touches on foreign relations must yield to the National Government’s policy. . . .” American Ins.
Ass’n v. Garamendi, 539 U.S. 396, 413 (2003); accord Hines, 312 U.S. at 63 (“Our system of
government . . . imperatively requires that federal power in the field affecting foreign relations be
left entirely free from local interference.”). The founders surely agreed with this sentiment.
Alexander Hamilton implored that “The Peace of the WHOLE ought not to be left at the disposal
of a PART.” The Federalist No. 80, 535–36 (Jacob E. Cooke ed., 1961). James Madison
similarly urged uniformity in our infant nation’s dealings with other countries. The Federalist
No. 42, at 279 (“If we are to be one nation in any respect, it clearly ought to be in respect to other
nations.”).
TRIA § 201 and FSIA § 1610(g) implicate exclusively federal interests and, therefore,
preempt District of Columbia law. These statutes concern property “of” a foreign sovereign, and
not just any foreign sovereign—only those designated as state-sponsors of terror. TRIA §
201(d)(4); FSIA §§ 1610(g)(1), 1605A(h)(6). Designating a country as a state-sponsor of
terrorism is a drastic decision that the Executive Branch does not make on a whim; serious
political and economic consequences result from this designation. One such consequence is that
the “property of” a designated state-sponsor of terror loses its sovereign immunity and may
24
become subject to attachment and execution. FSIA § 1610(g)(1). The idea that state property
law definitions of ownership should control the disposition of these assets flies in the face of the
dominant federal interest in our relations with terrorist states. Cf. Crosby v. National Foreign
Trade Council, 530 U.S. 363, 375 (2000) (“It is simply implausible that Congress would have
gone to such lengths to empower the President if it had been willing to compromise his
effectiveness by deference to every provision of state statute or local ordinance that might, if
enforced, blunt the consequences of discretionary Presidential action.”).
Additionally, the National Defense Authorization Act of 2008 (“NDAA”), which created
FSIA §1610(g), shows that Congress intends for the federal government to wholly occupy this
field. From 2004 when the D.C. Circuit decided Cicippio-Puelo until 2008, the state-sponsored
terrorism exception (then codified at 28 U.S.C. § 1605(a)(7)) acted only as a jurisdiction-
conferring provision—the substantive causes of action against foreign state-sponsors of terrorism
were found in state law. See Cicippio-Puelo v. Islamic Republic of Iran, 353 F. 2d 1024, 1027
(D.C. Cir. 2004). Congress became unhappy with this pass-through approach and the “lack of
uniformity in the underlying state sources of law.” In Re Terrorism Litig., 659 F. Supp. 2d at 60.
As this Court noted, this pass-through approach often caused “equally deserving plaintiffs to
have their claims denied because they were domiciled in jurisdictions that did not afford them a
substantive [state law] claim.” Id. at 59. Congress responded to this unfairness with § 1083 of
the 2008 NDAA. Id. at 58–59. This statute (1) took the extraordinary step of creating a federal
cause of action against designated state-sponsors of terrorism (now codified at FSIA § 1605A),
(2) provided for punitive damage awards against state-sponsors of terrorism, (3) provided federal
funding for special masters assisting the Court in these cases, and (4) created the broader
attachment and execution rights found in FSIA § 1610(g). Id. at 58–62. The FSIA already
25
contained provisions related to damages, counterclaims, service, venue, default, in addition to a
laundry list of exceptions to foreign sovereign immunity, all of which can be found in FSIA §§
1603–1611. Reading TRIA § 201 and FSIA § 1610(g) in conjunction with the entire FSIA and
the 2008 NDAA amendments shows that Congress intended to create a “harmonious whole” and
intended that the federal government occupy this field.
b. Federal Common Law Applies and Iran Does Not Have an
Ownership Interest in the Contested Accounts.
Since Congress has preempted District of Columbia law in this area, the Court is left with
a puzzling situation: how to determine the level of ownership TRIA § 201(a) and FSIA § 1610(g)
require Iran to have in the Contested Accounts. The Government suggests that in this situation,
“courts could achieve the desired uniformity through the development of federal common law or
its functional equivalent to govern attachment.” Statement of Interest, ECF No. 230, at 13. This
Court agrees. The D.C. Circuit has, however, long cautioned that “it is a mistake . . . to label
actions under the FSIA as ‘federal common law’ cases, for these actions are based on statutory
rights.” Bettis v. Islamic Republic of Iran, 315 F.3d 325, 333 (2003).
In such cases, this Court “look[s] to Restatements, legal treatises, and state decisional law
to find and apply what are generally considered to be the well-established standards of state
common law, a method of evaluation which mirrors—but is distinct from—the ‘federal common
law’ approach.” Estate of Doe v. Islamic Republic of Iran, 808 F. Supp. 2d 1, 23 n.7 (D.D.C.
2011); see also Owens v. Republic of Sudan, 826 F. Supp. 2d 128, 157 n.3 (D.D.C. 2011). The
D.C. Circuit in Bettis adopted this approach when it applied Restatement (Second) of Torts § 46
to FSIA intentional infliction of emotional distress claims, a practice that continues to this day.
See Oveissi v. Islamic Republic of Iran, 2012 WL 3024758, at *7 (D.D.C. July 25, 2012). In
light of this, the Court will now examine the Restatement (First) of Property, relevant legal
26
treatises, and state decisional law to determine whether Iran has an ownership interest that
sufficient for attachment and execution under TRIA § 201(a) or FSIA § 1610(g).
Comment b to the Restatement (First) of Property § 10 states that “[a] person who has the
totality of rights, power, privileges and immunities which constitute complete property in a thing
[] is the ‘owner’ of the ‘thing,’ or ‘owns’ the ‘thing.’” The Restatement recognizes that the
owner’s control is not necessarily absolute:
Ownership despite decrease in interests. The owner may part with many of the
rights, powers, privileges and immunities that constitute complete property and
his relation to the thing is still termed ownership both in this Restatement and as a
matter of popular usage. Thus an owner of an automobile may mortgage it, or
have it subjected to a mechanic’s lien, and still properly be said to be the owner. It
is characteristic of ownership that upon the termination of any lesser interests, the
interests of the owner are thereby automatically increased.
Id. at § 10 cmt. c. OFAC regulations blocked the Contested Accounts because an Iranian bank
had a “contingent, future, interest” in the funds. Pls.’ at 33, 36. This description of Iran’s
interest in the Contested Accounts could hardly sound less absolute. Common sense—and the
Restatement’s definition of ownership—support the finding that Iran’s indefinite, ephemeral
interest in the Contested Accounts does not rise to the level that would typically be considered
“of,” “belonging to,” or “owned by” Iran.
However, while applying the Restatement’s skeletal definition of ownership may be quite
simple, in “finding” the federal common law, Bettis was also guided by FSIA § 1606. Bettis,
315 F.3d at 333. This section provides that “foreign state[s] shall be liable in the same manner
and to the same extent as a private individual under like circumstances.” Id. Bettis and FSIA §
1606 counsel the Court to examine how ownership interests in Electronic Funds Transfers
(“EFTs”)—like those blocked by the Banks in this case—are treated under state law.
27
The operation of an EFT can appear quite complicated. Fortunately, the Second Circuit
has outlined the EFT process:
An EFT is nothing other than an instruction to transfer funds from one account to
another. When the originator and the beneficiary each have accounts in the same
bank that bank simply debits the originator’s account and credits the beneficiary’s
account. When the originator and beneficiary have accounts in different banks,
the method for transferring funds depends on whether the banks are members of
the same wire transfer consortium. If the banks are in the same consortium, the
originator’s bank debits the originator’s account and sends instructions directly to
the beneficiary’s bank upon which the beneficiary’s bank credits the beneficiary’s
account. If the banks are not in the same consortium—as is often true in
international transactions—then the banks must use an intermediary bank. To use
an intermediary bank to complete the transfer, the banks must each have an
account at the intermediary bank (or at different banks in the same consortium).
After the originator directs its bank to commence an EFT, the originator’s bank
would instruct the intermediary to begin the transfer of funds. The intermediary
bank would then debit the account of the bank where the originator has an account
and credit the account of the bank where the beneficiary has an account. The
originator’s bank and the beneficiary’s bank would then adjust the accounts of
their respective clients.
Shipping Corp. of India Ltd. v. Jaldhi Overseas Pte Ltd., 585 F.3d 58, 60 n.1 (2d Cir.
2009). The Contested Accounts contain the proceeds of EFTs that were blocked by the
Banks pursuant to OFAC regulations in the Banks’ role as U.S. intermediary banks.
EFTs passing through intermediary banks are sometimes referred to as “midstream”
EFTs. With respect each of the Contested Accounts, the Iranian government party
triggering the EFT block was the beneficiary’s bank. 6
Property rights in EFTs are covered under Article 4A of the Uniform Commercial
Code, which every state (including the District of Columbia) has adopted and which the
Federal Reserve applies to its Federal Reserve Wire Transfer Network through
Regulation J. See Gary D. Spivey, Annotation, Effect of Uniform Commercial Code
6
The Uncontested Accounts contain, among other types of accounts, four blocked EFTs. In each of these four
EFTs, Iran or its instrumentality functioned as the originator, the originator’s bank, or in some role that is unclear
from the record. The Banks concede that Iran has a sufficient ownership interest in these accounts to permit
attachment.
28
Article 4A on Attachment, Garnishment, Forfeiture or Other Third-Party Process Against
Funds Transfers, 66 A.L.R. 6th 567, § 2 (2011). The universal adoption of Article 4A
makes it of great importance to this Court in finding principles of law to apply to the
Contested Accounts. In examining Article 4A, three things are clear.
First, “[a] creditor of the originator can levy on the account of the originator in
the originator’s bank before the funds transfer is initiated.” U.C.C. Article 4A-502
official cmt. 4 (emphasis added). Once the EFT process has commenced, “[t]he creditor
of the originator cannot reach any other funds because no property of the originator is
being transferred.” Id. This is because, under Article 4A, “title to the funds passed when
the originator’s payment order was executed upon transmittal to the intermediary bank.”
Palestine Monetary Authority v. Strachman, 62 A.3d 213, 225 (N.Y. Sup. Ct. App. Div.
2009); accord Asia Pulp, 609 F.3d at 120.
Second, “[a] creditor of the beneficiary cannot levy on property of the originator.”
U.C.C. Article 4A-502 official cmt. 4 (emphasis added). Additionally, “until the funds
transfer is completed by acceptance by the beneficiary's bank of a payment order for the
benefit of the beneficiary, the beneficiary has no property interest in the funds transfer
which the beneficiary's creditor can reach.” Id. This is because, under Article 4A, title
passes when the beneficiary’s bank accepts the payment order from the intermediary
bank. See Asia Pulp, 609 F.3d at 120 (citing Bank of New York v. Nickel, 14 A.3d 140,
145–47 (N.Y. App. Div. 1st Dep’t 2004)).
Third, a creditor of the originator or the beneficiary cannot levy on the property
of either while the property is in the possession of an intermediary bank. Jaldhi, 585
29
F.3d at 71. This is because midstream EFTs held by an intermediary bank “are not the
property of either the originator or the beneficiary.” Id. at 71.
These three situations explain when creditors of either the originator of the EFT
or creditors of the intended beneficiary of the EFT may attach funds. However, Iran is
neither the originator of the blocked EFTs contained in the Contested Accounts nor the
intended beneficiary of these funds. Iran’s “contingent, future, interest”—the reason
these accounts were blocked—stems from the fact that an Iranian instrumentality acted as
the beneficiary’s bank. Plaintiffs here are creditors of the beneficiary’s bank. Therefore,
the issue is whether a creditor of a beneficiary’s bank may attach a midstream ETF held
at an intermediary bank. Clearly, a creditor may do no such thing.
Legal title does not pass to the beneficiary’s bank until it accepts the payment
order from the intermediary bank. Asia Pulp, 690 F.3d at 120 (citing reference omitted).
The beneficiary’s bank then becomes obligated to credit the beneficiary’s account or
otherwise pay the beneficiary, thus ultimately transferring title to the beneficiary. In this
case, the Iranian banks never obtained legal title to the funds in the Contested Accounts
because—due to OFAC blocking regulations—they never accepted the intermediary
banks’ payment orders.
Moreover, Article 4A contains a “money-back guarantee provision” as “an
important protection” for the originator. Article 4A-402 cmt 2. This is because—if an
EFT is not completed—the originator likely continues to have an underlying obligation to
pay the beneficiary. U.C.C. Article 4A-402(e) provides that when “an intermediary bank
is obliged to refund payment . . . but is unable to do so because not permitted by
applicable law,” the originator may be “subrogated to the right of the bank that paid the
30
intermediary bank to refund.” In other words, the originator and the originator’s banks
have claims to an interrupted EFT and not the beneficiary or the beneficiary’s banks.
Plaintiffs argue that the money-back guarantee cannot apply to blocked accounts
because OFAC regulations preclude such a refund from issuing absent a specific OFAC
license. Pls.’ Reply at 35. While this may be true, OFAC blocking only inhibits the
originator and the originator’s bank from pursuing a refund, it does not vest title in the
beneficiary or the beneficiary’s bank. Under Article 4A, property rights do not pass to
the beneficiary’s bank until it has accepted the intermediary bank’s payment order.
U.C.C. Article 4A-402(c).
Plaintiffs also rely on the one-year statute of repose contained Article 4A. U.C.C.
Article 4A-505. This provision extinguishes the right of an originator and an originator’s
bank to seek a refund of an incomplete EFT. Again, plaintiffs’ argument fails because the
statute of repose—if it applies—only extinguishes an originator’s or an originator’s banks
right of refund. That provision does not magically vest property rights forward in the
EFT transaction process to the beneficiary or the beneficiary’s bank. Cf. India Steamship
v. Kobil Petroleum Ltd., 663 F.3d 118, 121 (2d Cir. 2011) (“no alchemy by the bank can
transform EFT’s that cannot be attached into property . . . that can be attached.”).
Applying both the Restatement and U.C.C. Article 4A, plaintiffs cannot show that
Iran has any ownership interest in the Contested Accounts. Plaintiffs alternatively argue
that OFAC regulations contain broad definitions of property that should control. The
Banks—correctly—respond that OFAC regulations have nothing to do with defining
what constitutes an Iranian ownership interest in property. While OFAC regulations may
provide a broad definition of “property” for the purposes of FSIA § 1610(g) and a
31
similarly broad definition of “blocked assets” for the purposes of TRIA § 201(a), plaintiff
again mistakenly interprets these broad regulations coextensively with the narrower
language requiring the Contested Accounts to be the property “of” Iran. The Government
concurs, stating that “[t]here is no need—and no justifiable basis—to force OFAC’s
regulations into serving a role they were not intended to perform.”
Even if OFAC regulations were ambiguous on the question of ownership,
OFAC’s narrower interpretation would ordinarily be entitled to deference unless “plainly
erroneous or inconsistent with regulation.” See Auer v. Robbins, 519 U.S. 452, 461
(1997) (citing reference omitted). That standard is easily met here. As explained earlier,
the expansive language OFAC employs in 31 C.F.R. § 535 to block transactions with
Iranian entities stands in stark contrast to the language employed in TRIA § 201(a) and
FSIA § 1610(g) where Congress chose to allow execution on only a subset of blocked
assets: those “of” a terrorist party.
Accordingly, the Banks’ motion for judgment as a matter of law is granted and plaintiffs’
motion for judgment as a matter of law is denied as to the Contested Accounts.
B. Uncontested Accounts – Garnishees’ Motion for Interpleader
The Banks move for leave to file a third-party petition alleging claims in the nature of
interpleader against parties that the Banks believe may assert an interest in the Uncontested
Accounts. Garnishee Banks’ Mot. for Leave to File Third Party Petition, ECF No. 213.
Plaintiffs take no position on the Banks’ motion.
Interpleader is a tool which protects a stakeholder—here, the Banks—from multiple
liability arising from multiple claims to the same fund. See Commercial Union Ins. Co. v. U.S.,
999 F.2d 581, 583 (D.C. Cir. 1993). “Where a party in control of contested property, the
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stakeholder, makes no claim on the property and is willing to release it to the rightful claimant,
interpleader allows him ‘to put the money or other property in dispute into court, withdraw from
the proceeding, and leave the claimants to litigate between themselves the ownership of the fund
in court.’” Id. (citations omitted). Interpleader may be brought in federal court under either the
Federal Interpleader Act, 28 U.S.C. § 1335, or under Rule 22 of the Federal Rules of Civil
Procedure. Id. Here, the Banks propose to use Rule 22 interpleader.
Rule 22 is “merely a procedural device; it confers no jurisdiction on the federal courts.”
Morongo Band of Mission Indians v. California State Bd. of Equalization, 858 F.2d 1376, 1382
(9th Cir. 1988). In light of this, the Banks’ proposed interpleader action must fall within a
statutory grant of federal jurisdiction. See Commercial Union, 999 F.2d at 584. Here, three
statutory grants of authority exist: the interpleader action arises under federal law, satisfying 28
U.S.C. §1331, is against a foreign state, satisfying 28 U.S.C. § 1330, and arises out of
transactions involving international or foreign banking, satisfying 12 U.S.C. § 632. Id. Assured
of its jurisdiction, this Court will grant the Banks’ Motion for Leave to File a Third Party
Petition.
IV. CONCLUSION
This Court lamented in its In Re Islamic Republic of Iran Terrorism Litigation treatise
that FSIA terrorism cases often “turn[] into a long and [] futile quest for justice . . . .” 659 F.
Supp. 2d at 138. The victims and their families “have often been opposed by the Executive
Branch and their struggles have rarely produced positive results.” Id. The recent passage of the
Iran Sanctions, Accountability, and Human Rights Act of 2012 gives this Court some hope that
victims of terrorism may finally see substantial compensation. See Pub. L. No. 112-158, § 501 et
seq., 126 Stat. 1214; Basil Katz, Tweak to US bill on Iran sanctions opens door to damages
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(Aug. 27, 2012, 7:00am EDT), http://www.reuters.com/article/2012/08/27/usa-iran-
idUSL2E8JO8W920120827 (nothing that this new law targets over $1.75 billion in Iranian
securities frozen in a New York bank account).
Nevertheless, this Court is under no illusions that the path ahead will be much easier for
victims than it has been in the past. The Uncontested Accounts contain $364,572, which is less
than one-tenth of one percent of the approximately $591 million awarded against Iran in this
case. This tiny sum is dwarfed by even greater magnitudes when compared to the endless
suffering of these victims. “A step in the right direction, to be sure. But a very small one.”
Heiser III, 807 F. Supp. 2d at 27.
A separate Order consistent with this opinion shall issue this date.
Signed by Chief Judge Royce C. Lamberth on August 31, 2012.
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