Holladay v. Islamic Republic of Iran ( 2021 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
JOSHUA L. HOLLADAY et al.,
Plaintiffs,
v. Civil Action No. 17-915 (RDM)
ISLAMIC REPUBLIC OF IRAN et al.,
Defendants.
MEMORANDUM OPINION AND ORDER
More than one hundred Plaintiffs, including American soldiers and others injured or
killed in forty-three separate terrorist attacks in Iraq between December 17, 2003 and November
20, 2009 and their family members, bring this action against the Islamic Republic of Iran
(“Iran”) and five Iranian entities. Dkt. 16 (Amd. Compl.). This is the Court’s second opinion
addressing whether Plaintiffs have complied with the service-of-process requirements of the
Foreign Sovereign Immunities Act, §§ 1602–1611 (“FSIA”). In its prior opinion, the Court held
that Plaintiffs had properly served four Defendants: Iran, its Islamic Revolutionary Guard Corps
(“IRGC”), the Iranian Ministry of Intelligence and Security (“MOIS”), and Bank Melli Iran
(“Bank Melli”). Holladay v. Islamic Republic of Iran, 406 F. Supp. 3d 55, 64 (D.D.C. 2019)
(“Holladay I”). But the Court withheld judgment to “await development of a more complete
factual record before deciding whether Plaintiffs have successfully effected service” on the two
remaining Defendants: the National Iranian Oil Company (“NIOC”) and Bank Markazi Jomhouri
Islami Iran (“Bank Markazi”), also known as the Central Bank of the Islamic Republic of Iran.
Id. Plaintiffs have renewed their motion for an order finding effective service of process on
those two Defendants. Dkt. 99. For the reasons explained below, the Court now concludes that
Plaintiffs have properly served Bank Markazi and NIOC under 28 U.S.C. § 1608(b).
I. BACKGROUND
A. Statutory Background
The FSIA grants immunity to foreign states in U.S. courts, 28 U.S.C. § 1604, unless one
of the statute’s enumerated exceptions applies, see id. §§ 1605–1607. The FSIA “provides the
‘sole basis’ for obtaining jurisdiction over a foreign sovereign in the United States.” Republic of
Argentina v. Weltover, Inc., 504 U.S. 607, 611 (1992). The statute delineates the scope of
immunity not only for foreign countries and their subdivisions, but also for their agencies or
instrumentalities. 28 U.S.C. §§ 1603, 1604. The FSIA defines “agency or instrumentality of a
foreign state” to mean any entity that (1) “is a separate legal person, corporate or otherwise;”
(2) “is an organ of a foreign state or political subdivision thereof, or a majority of whose shares
or other ownership interest is owned by a foreign state or political subdivision thereof;” and
(3) “is neither a citizen of a State of the United States . . . nor created under the laws of any third
country.” Id. § 1603(b).
Much of the statutory scheme treats foreign states and their agencies or instrumentalities
as one and the same, but certain provisions draw distinctions between them. One of those
distinctions, as relevant here, appears in § 1608, which governs service of process. Plaintiffs
seeking to serve “a foreign state or political subdivision of a foreign state” must comply with the
dictates of § 1608(a), while Plaintiffs attempting to serve “an agency or instrumentality of a
foreign state” must comply with § 1608(b). See Holladay I, 406 F. Supp. 3d at 59 (D.D.C.
2019); Howe v. Embassy of Italy, 68 F. Supp. 3d 26, 31 (D.D.C. 2014).
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Those provisions set out similar but not identical options for effecting service, listed in
order of precedence. Worley v. Islamic Republic of Iran, 75 F. Supp. 3d 311, 327 (D.D.C. 2014).
That is, if the first-listed method is unsuccessful or unavailable, then a plaintiff may move to the
second, and so on. Id. Under § 1608(a), “a foreign state or political subdivision of a foreign
state” must be served:
(1) by delivery of a copy of the summons and complaint in accordance with any
special arrangement for service between the plaintiff and the foreign state or
political subdivision; or
(2) if no special arrangement exists, by delivery of a copy of the summons and
complaint in accordance with an applicable international convention on service
of judicial documents; or
(3) if service cannot be made under paragraphs (1) or (2), by sending a copy of
the summons and complaint and a notice of suit, together with a translation of
each into the official language of the foreign state, by any form of mail requiring
a signed receipt, to be addressed and dispatched by the clerk of the court to the
head of the ministry of foreign affairs of the foreign state concerned, or
(4) if service cannot be made within 30 days under paragraph (3), by sending
two copies of the summons and complaint and a notice of suit, together with a
translation of each into the official language of the foreign state, by any form of
mail requiring a signed receipt, to be addressed and dispatched by the clerk of
the court to the Secretary of State in Washington, District of Columbia, to the
attention of the Director of Special Consular Services—and the Secretary shall
transmit one copy of the papers through diplomatic channels to the foreign state
and shall send to the clerk of the court a certified copy of the diplomatic note
indicating when the papers were transmitted.
28 U.S.C. § 1608(a). By contrast, under § 1608(b), “an agency or instrumentality of a foreign
state” must be served:
(1) by delivery of a copy of the summons and complaint in accordance with any
special arrangement for service between the plaintiff and the agency or
instrumentality; or
(2) if no special arrangement exists, by delivery of a copy of the summons and
complaint either to an officer, a managing or general agent, or to any other agent
authorized by appointment or by law to receive service of process in the United
States; or in accordance with an applicable international convention on service
of judicial documents; or
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(3) if service cannot be made under paragraphs (1) or (2), and if reasonably
calculated to give actual notice, by delivery of a copy of the summons and
complaint, together with a translation of each into the official language of the
foreign state—
(A) as directed by an authority of the foreign state or political
subdivision in response to a letter rogatory or request or
(B) by any form of mail requiring a signed receipt, to be addressed and
dispatched by the clerk of the court to the agency or instrumentality to
be served, or
(C) as directed by order of the court consistent with the law of the place
where service is to be made.
Id. § 1608(b).
The statute thus requires courts evaluating service under the FSIA first to categorize the
defendants to determine whether they needed to be served under § 1608(a) or § 1608(b). Then,
after deciding which provision governs as to each defendant, courts must determine whether the
plaintiffs’ attempts to effectuate service satisfied the applicable requirements.
B. Procedural Background
In Holladay I, the Court held that Plaintiffs had properly served Iran, IRCG, and MOIS
under § 1608(a). As the Court explained, “Iran is, of course, the foreign state itself,” while
IRCG and MOIS “must in all cases be considered as the ‘foreign state’ itself” based on their
inherently governmental functions. Holladay I, 406 F. Supp. 3d at 59 (citations omitted).
Plaintiffs were thus correct to attempt service of Iran, IRCG, and MOIS under § 1608(a). The
first two mechanisms for service under § 1608(a) were unavailable because Plaintiffs had no
“special arrangement for service” with Iran, 28 U.S.C. § 1608(a)(1), and because Iran is not a
party to any “international convention on service of judicial documents,” id. § 1608(a)(2).
Holladay I, 406 F. Supp. 3d at 61–62 (citing Hamen v. Islamic Republic of Iran, 401 F.Supp.3d
85, 107 (D.D.C. 2019)). Plaintiffs therefore first attempted service under the third paragraph of
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§ 1608(a), Dkt. 23; Dkt. 25, but the mailing from the Clerk of Court was returned as
undeliverable, Dkt. 29. Because their attempt to serve process under the third paragraph failed,
Plaintiffs proceeded to serve Iran, IRCG, and MOIS through diplomatic channels pursuant to
§ 1608(a)(4). The Department of State, with assistance from the Embassy of Switzerland in
Tehran, was able to deliver the required materials to the Iranian Ministry of Foreign Affairs,
thereby effecting service on Iran, IRCG, and MOIS in compliance with § 1608(a). Holladay I,
401 F. Supp. 3d at 62.
The Court also held that Plaintiffs had properly served Bank Melli under § 1608(b). The
Court determined that Bank Melli was appropriately categorized as an “an agency or
instrumentality of a foreign state,” in light of its commercial banking activities. Id. at 59–60.
Plaintiffs were, accordingly, correct to attempt service under § 1608(b). Once again, neither of
the first two methods—a “special arrangement” between the parties or an “applicable
international convention”—were available. Id. at 63. That left Plaintiffs with the three
alternative options listed in § 1608(b)(3). Plaintiffs attempted service under § 1608(b)(3)(B),
which requires a plaintiff to deliver a summons and a copy of the complaint, together with a
translation of each, to the Clerk of the Court, who must then send the required materials to the
defendant “by any form of mail requiring a signed receipt.” 28 U.S.C. § 1608(b)(3)(B). As the
Court explained, “Plaintiffs delivered to the Clerk of the Court the required materials,” see Dkt.
23; “the Clerk filed a Certificate of Mailing, along with a copy of the DHL mailing receipt,” see
Dkt. 25; and “Plaintiffs received notice that the package was successfully delivered to and signed
for by an agent of Bank Melli,” see Dkt. 28-1. Holladay I, 406 F. Supp. 3d at 63. The Court
thus concluded that Plaintiffs had properly served Bank Melli under § 1608(b). Id.
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The Court declined, however, to decide on the record before it whether Plaintiffs’
attempts to serve Bank Markazi and NIOC under § 1608(b)(3)(B) had been effective. Id. The
Court lacked sufficient information to render a decision as to either step in the inquiry. First, the
record included too little detail about the status of Bank Markazi and NIOC for the Court to
determine whether they should be treated as the “foreign state” itself or should instead be
categorized as “an agency or instrumentality of a foreign state.” Id. at 60–61. Only in the latter
case, of course, would service under § 1608(b) have been proper. Second, even assuming that
Bank Markazi and NIOC are agencies or instrumentalities of Iran amenable to service under
§ 1608(b), the record was unclear as to whether Plaintiffs’ attempts at service had been
successful. Id. at 63–64. Although the required materials were delivered to Bank Markazi and
NIOC and although someone at each of those entities signed for the delivery, the packages “were
mailed back to the clerk’s office.” Id. at 63. Because the circumstances surrounding the return
of the materials was unclear from the record, the Court could not determine whether service was
“reasonably calculated to give actual notice.” 28 U.S.C. § 1608(b)(3). As such, the Court denied
without prejudice Plaintiffs’ motion for an order finding effective service of process as to Bank
Markazi and NIOC. Holladay I, 406 F. Supp. 3d at 64. Plaintiffs have now renewed their
motion and have offered additional evidence to supplement the record.
II. LEGAL STANDARD
A court adjudicating an FSIA case against an absent defendant must “satisfy itself that it
has personal jurisdiction.” Mwani v. bin Laden, 417 F.3d 1, 6 (D.C. Cir. 2005). Under the FSIA,
moreover, service of process is a key component of personal jurisdiction. See Foremost-
McKesson, Inc. v. Islamic Republic of Iran, 905 F.2d 438, 442 (D.C. Cir. 1990) (citing 28 U.S.C.
§ 1330(b)). “In the absence of an evidentiary hearing,” plaintiffs may satisfy their burden of
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demonstrating personal jurisdiction by making “only a prima facie showing of jurisdiction”
based on “their pleadings” and “bolstered by such affidavits and other written materials as they
can otherwise obtain.” Mwani, 417 F.3d at 6–7 (internal citation and quotation marks omitted).
The required showing at this stage is lower than a “preponderance of the evidence standard,” id.but “conclusionary statement[s]” are insufficient, Naartex Consulting Corp. v. Watt, 722 F.2d
779, 787 (D.C. Cir. 1983). Rather, to make a prima facie showing that they properly served the
defendants, plaintiffs must present some “concrete evidence.” First Chicago Int’l v. United
Exch. Co., 836 F.2d 1375, 1378 (D.C. Cir. 1988).
III. ANALYSIS
A. Whether § 1608(a) or § 1608(b) Applies to Bank Markazi and NIOC
As noted above, the FSIA defines “agency or instrumentality of a foreign state” as any
entity that (1) “is a separate legal person, corporate or otherwise,” (2) “is an organ of a foreign
state or political subdivision thereof, or a majority of whose shares or other ownership interest is
owned by a foreign state or political subdivision thereof,” and (3) “is neither a citizen of a State
of the United States . . . nor created under the laws of any third country.” 28 U.S.C. § 1603(b).
Only entities that meet these three requirements can be served under § 1608(b). With respect to
the first prong of the definition, whether the entity “is a separate legal person” from the foreign
state itself, the D.C. Circuit has developed a “categorical” test that looks to the entity’s “core
functions.” Transaero, Inc. v. La Fuerza Aerea Boliviana, 30 F.3d 148, 151 (D.C. Cir. 1994).
Under the categorical test, courts must ask “whether the core functions of the foreign entity are
predominantly governmental or commercial.” Id. In applying this test, judges in this circuit
have concluded that a country’s military, ministry of foreign affairs, and embassies are properly
considered “foreign states” for purposes of the FSIA. See id. at 153 (military); Roeder v. Islamic
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Republic of Iran, 333 F.3d 228, 234–35 (D.C. Cir. 2003) (ministry of foreign affairs); Howe v.
Embassy of Italy, 68 F. Supp. 3d 26, 33 (D.D.C. 2014) (embassy). On the other hand, this Court
recently held that Hungarian National Asset Management Inc., which, as its name suggests,
manages the government’s assets but is structured as a separate joint-stock company, was
properly considered an agency or instrumentality. de Csepel v. Republic of Hungary, No. 10-cv-
01261, 2020 WL 2343405, at *10 (D.D.C. May 11, 2020). Judges in this district have divided,
however, on the question whether a museum is a foreign state or an agency or instrumentality of
a foreign state. Compare Taylor v. Kingdom of Sweden, No. 18-cv-1133, 2019 WL 3536599, at
*3–4 (D.D.C. Aug. 2, 2019) (holding that Sweden’s National Museums of World Culture were
part of the foreign state itself), with Smith v. Overseas Korean Cultural Heritage Found., 279
F. Supp. 3d 293, 297 (D.D.C. 2018) (holding that the Overseas Korean Cultural Heritage
Foundation was an agency or instrumentality).
At the threshold, Plaintiffs raise two arguments directed at the governing test itself. First,
Plaintiffs “respectfully submit there is no basis in the FSIA for the existence, or the application,
of the ‘core functions test.’” Dkt. 99 at 8 n.2. For support, Plaintiffs rely on a dissent from the
Second Circuit that criticized the test as “cut from judicial whole cloth” and argued that “[t]here
is nothing in the statute or legislative history that makes commercial activity the ultimate
touchstone for FSIA analysis in all respects.” Garb v. Republic of Poland, 440 F.3d 579, 600 (2d
Cir. 2006) (Straub, J., dissenting) (internal quotation marks and citations omitted). According to
Plaintiffs, the inquiry “should begin and end” with the statutory text. Dkt. 99 at 8 n.2. Although
Transaero held that the core functions test “best captures the statutory meaning,” Transaero, 30
F.3d at 151, Plaintiffs are correct that nothing on the face of either § 1603 or § 1608 ties an
entity’s status as an agency or instrumentality to its commercial function.
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Even so, Plaintiffs are barking up the wrong tree. Perhaps they raised this argument in a
footnote merely to preserve it for a potential appeal, but Transaero is binding precedent, and this
Court is powerless to depart from the test that it announces. And, beyond that, Plaintiffs’
suggestion that the test is unmoored from the statutory text is incorrect. As the D.C. Circuit
observed, the central textual question is whether the putative defendant is the “foreign state”
itself or instead “is a separate legal person,” and the distinction between entities that perform
governmental functions and those that perform commercial functions provides a sound dividing
line. 28 U.S.C. § 1603. The Oxford English Dictionary defines “state” as those entities or
individuals “regarded as part of the body politic, and as such participating in its government.”
State, Oxford English Dictionary (3d Ed. 2012). If a government-owned business is primarily
commercial, that is a good indication that the entity in question is “separate” from the body
politic.
Plaintiffs’ second argument does not take aim at the D.C. Circuit’s decision in Transaero,
and it is more persuasive. They contend that the Court’s application of the test should be guided
by the definition of “commercial activity” that applies elsewhere in the FSIA. Dkt. 99 at 11–12.
As noted above, the statute grants immunity to foreign states unless one of several enumerated
exceptions applies. One of the most substantial exceptions strips a foreign state’s sovereign
immunity in cases that are based on the foreign state’s “commercial activity,” provided there is a
nexus between that activity and the United States. 28 U.S.C. § 1605(a)(2). In this context, the
FSIA’s definition of “commercial activity” provides that “[t]he commercial character of an
activity shall be determined by reference to the nature of the course of conduct or particular
transaction or act, rather than by reference to its purpose.” Id. § 1603(d). When an entity is an
organ of a foreign state or owned by a foreign state, its market activities will often serve public
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purposes, either by aiming to achieve a policy goal or by seeking to raise revenue for
government coffers. But by focusing on the nature of the activity, a court can nevertheless
distinguish commercial actions and actors from governmental ones.
Plaintiffs contend that the Court should employ this same understanding of “commercial
activity,” as used for purposes of § 1605(a)(2), in applying the core functions test, used for
purposes of § 1608. Dkt. 99 at 11. Although these provisions employ different language,
Transaero offers some support for that view. In explaining the statutory scheme, the D.C.
Circuit observed that the “distinction between foreign states and their instrumentalities”
referenced in § 1608 “establishes two categories of actors that correspond” to the “two categories
of acts” that define the scope of the commercial activity exception. Transaero, 30 F.3d at 152.
The D.C. Circuit went on to explain that one benefit of the core functions test would be its “ease
of administration in the district courts.” Id. The test would be easy to administer because “[t]he
district courts have perforce acquired expertise in delineating the categories of ‘governmental’
and ‘commercial’ under the immunity provisions of the Act, and if section 1608 is construed to
turn on a similar distinction that expertise will benefit all concerned.” Id. at 152–53. The D.C.
Circuit, in short, construed §§ 1603(b) and 1608 against the backdrop of—and consistent with—
§ 1605(a)(2), in both circumstances looking to the nature (and not the purpose) of the activity to
distinguish governmental from commercial activity. And prior opinions from this Court confirm
that understanding, looking to the nature of an activity rather than its purpose in assessing service
under § 1608. See Smith, 279 F. Supp. 3d at 297; de Csepel, 2020 WL 2343405, at *9–10.
With this understanding of the controlling test in mind, the Court turns to applying the
test to facts of this case.
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1. NIOC
The Court begins with NIOC because it presents a more straight-forward question. In
support of their argument that NIOC is an agency or instrumentality of Iran, Plaintiffs rely on a
new declaration from Patrick L. Clawson, who is Director of Research at the Washington
Institute for Near East Policy and an expert on Iran. Dkt. 99-2 (Clawson Decl.). Clawson
explains that “NIOC is responsible for exploration, drilling, production, research and
development, refining, distribution and export of oil, gas, and petroleum products.” Id. at 4
(Clawson. Decl. ¶ 18) (internal citation and quotation marks omitted). Indeed, NIOC is one of
the world’s largest oil companies, id. at 5 (Clawson Decl. ¶ 20), and “generates billions of dollars
in revenue each year,” id. at 7 (Clawson Decl. ¶ 23). The production, distribution, and
exportation of oil are commercial functions.
To be sure, NIOC serves some governmental or quasi-governmental purposes. First and
foremost, after funding its own operations and making investments in Iran’s oil industry, its
revenue goes to fund the Iranian government. According to Clawson, depending on the price of
oil, “revenue from NIOC is between one-third and two-thirds of the Iranian government’s total
revenue.” Id. at 7 (Clawson Decl. ¶ 23). But that does not undermine the company’s status as a
government agency or instrumentality. As explained above, it is not the purpose, but the nature,
of the activity that controls. Indeed, most—if not all—successful, government-owned
enterprises generate revenue for the government. The relevant question is whether the nature of
the underlying activity is governmental or commercial, and where, as here, it is commercial, the
entity is properly characterized as “an agency or instrumentality” of the foreign state—and not as
the foreign state itself.
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Beyond generating revenue for Iran, NIOC also promotes state policy by “encouraging
the development of the Iranian oil industry.” Id. at 4 (Clawson Decl. ¶ 18). As Clawson
explains:
NIOC, in accordance with Article 44 of the Constitution, gives authority to
different sectors, while supervising oil industry activities. The company has
taken major steps toward establishing business enterprises, funded financial
resources for development, helped to update technologies for exploration,
drilling[,] and production with reliance on the knowledge of Iranian experts.
Id. at 4–5 (quotation marks and citation omitted). But as Clawson also explains, these functions
serve both governmental and commercial interests. Iran certainly has an interest in supervising
and supporting its oil industry, while “it is [in] NIOC’s commercial interest” to encourage the
development of “Iranian suppliers of oil field equipment and oil services, as well as Iranian
companies with which it can partner for drilling oil wells and developing oil fields.” Id. at 5
(Clawson Decl. ¶ 19). Notably, “Iran has been subject” to sanctions “for most of the last 40
years” and thus “cannot count on regular, uninterrupted access to foreign equipment, technology,
and investment.” Id. NIOC’s efforts to develop and to support the Iranian oil industry are thus
as much about advancing NIOC’s own economic interests as they are about advancing Iran’s
policy goals. Overall, the Court is persuaded that NIOC’s commercial functions predominate
over its governmental functions and that the company is not “so closely bound up with the
structure of the state” that it should be considered the state itself. Transaero, 30 F.3d at 153.
Finally, NIOC also meets the other two elements of the statutory definition of an “agency
or instrumentality of a foreign state:” it is “owned by a foreign state,” and it “is neither a citizen
of a State of the United States” nor was it “created under the laws of any third country.” 28
U.S.C. § 1603. NIOC is wholly owned by Iran. Dkt. 99-2 at 5 (Clawson Decl. ¶ 21). The
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record also makes clear that NIOC is neither a citizen of a state nor was it created under the laws
of any third country. Id.The Court therefore concludes that NIOC is an agency or instrumentality of Iran and may
be served according to the requirements of § 1608(b).
2. Bank Markazi
The status of Bank Markazi presents a closer question. To be sure, there is little doubt
that Bank Markazi is wholly owned by the government of Iran and was formed under the laws of
Iran, such that it clearly satisfies the second and third prongs of the FSIA’s definition of “agency
or instrumentality of a foreign state.” Dkt. 99-1 at 6–7 (Kleiman Decl. § 18). But whether Bank
Markazi performs predominantly commercial functions, and whether it is thus “a separate legal
person, corporate or otherwise” within the meaning of the statute, 28 U.S.C. § 1603(b)(1), is
difficult to discern. Central banks, by their nature, straddle the line between governmental and
commercial activity; they often both set the parameters for financial markets and operate within
those markets. Central banks thus defy the D.C. Circuit’s expectation that the core functions
test’s “categorical approach” would lead to “ease of administration in the district courts.”
Transaero, 30 F.3d at 152. Plaintiffs take a kitchen-sink approach in their effort to show that
Bank Markazi is predominantly commercial, advancing a variety of alternative arguments. The
Court finds some of Plaintiffs’ contentions more persuasive than others. Ultimately, however,
the Court concludes that Plaintiffs have cleared the low bar of making a prima facie showing that
Bank Markazi is properly categorized as an agency or instrumentality of Iran.
To supplement the record that was before the Court at the time of its earlier decision,
Plaintiffs have submitted an updated and expanded declaration from Gary Kleiman, a consultant
who specializes in “global emerging economy and financial market analysis” and who professes
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familiarity “with the Iranian banking system[] and the operations of Defendant[] Bank Markazi.”
Dkt. 99-1 at 1–2 (Kleiman Decl. ¶¶ 1, 4). Kleiman provides additional analysis of Bank
Markazi’s activities and its role within Iran’s economic system. As the declaration explains,
Bank Markazi, as the central bank of Iran, was formed “under enabling acts that date to 1960 and
1972.” Id. at 3 (Kleiman Decl. ¶ 8). Its founding legislation grants the bank “dual responsibility
for ‘monetary and credit policies’ and ‘granting loans to state enterprises and agencies.’” Id.
(quoting Bank Markazi’s website). Since the Iranian Revolution in the late 1970s, the bank’s
dual purposes have been reflected in successive five-year plans that cover both “economic
management and commercial and industrial sector priorities.” Id. Bank Markazi determines
“sector credit allocation” for industries including agriculture, manufacturing, and mining. Id. at
4. But it also administers an “affordable mortgage scheme” for individual borrowers and loans
money to corporations and other banks. Id. The bank’s “latest public balance sheet (March
2017) shows assets from loans to government institutions and corporations and banks at 302,329
Billion Rials and 1,000.65 Billion Rials respectively.” 1 Id.
According to Kleiman, “[u]nlike other political or ministerial arms of the Iranian
government, Bank Markazi is a distinct corporate entity that possesses assets and liabilities,
reports its profits and losses, pays income taxes, and issues small loans and letters of credit to
public and private customers.” Id. at 5 (Kleiman Decl. ¶ 13). And as the Iranian economy has
struggled in the face of economic sanctions, “Bank Markazi has expanded into new industries,”
by rescuing oil ventures and increasing loans to startups. Id. at 5–6 (Kleiman Decl. ¶ 14). Bank
Markazi has a role in setting Iran’s monetary and credit policy, but does so “through the wider
1
One American dollar is worth more than 42,000 Iranian Rials. See Convert from United States
Dollar (USD) to Iranian Rial (IRR), The Money Converter (last visited Feb. 11, 2021),
https://themoneyconverter.com/USD/IRR.
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Money and Credit Council (MCC), with [Bank Markazi’s] governor [sitting] as a member [of the
MCC] along with other government ministers, including from Finance, Industry[,] and
Planning.” Id. at 5 (Kleiman Decl. ¶ 12).
Looking at Bank Markazi’s various responsibilities, it is difficult to disentangle the
commercial and governmental strands. In this context, the FSIA’s focus on the “nature” of the
activity, rather than its “purpose,” is significant. See Smith, 279 F. Supp. 3d at 297 (citing
Weltover, 504 U.S. at 614) (“Although the Defendant’s interests and objectives may align with,
or be directed by, a foreign state, I must look to the ‘nature’ of the act, rather than its
‘purpose.’”). In the Weltover case, the Supreme Court was asked to decide whether the Republic
of Argentina was subject to suit in U.S. courts after it defaulted on bonds issued in an effort to
stabilize its currency. 504 U.S. at 609. Argentina and its central bank, Banco Central, had
“instituted a foreign exchange insurance contract program (FEIC), under which Argentina
effectively agreed to assume the risk of currency depreciation” in certain transactions by
“agreeing to sell to domestic borrowers . . . United States dollars to repay their foreign debts
when they matured.” Id. Ultimately, however, Argentina lacked “sufficient reserves of United
States dollars to cover the FEIC contracts” and thus refinanced “the FEIC-backed debt by issuing
to the creditors government bonds.” Id. When Argentina failed to make payment on the bonds,
certain foreign bond holders brought suit in the United States, relying on the commercial activity
exception to the FSIA to establish jurisdiction. Id. at 610.
The Supreme Court agreed that Argentina was subject to suit because it acted, “not as
regulator of a market, but in the manner of a private player within it.” Id. at 614. In particular,
the Court “perceive[d] no basis for concluding that the issuance of debt should be treated
categorically different from other activities of foreign states” and that there was “nothing about
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the issuance of the[]” bonds “that [was] not analogous to a private commercial transaction.” Id.at 615–16. The same reasoning applies to Bank Markazi’s issuance of loans, which, like the
issuance of bonds, is analogous to private commercial activity.
Of course, this reasoning goes only so far. Notably, the question at issue in Weltover was
whether a specific activity—there, the issuance of the bonds—fell within the commercial activity
exception to the FSIA, while the question currently before the Court is whether Bank Markazi’s
activities, in general, are predominantly commercial in nature. After two rounds of briefing and
two rounds of evidentiary submissions, the exact proportion of the bank’s activities that are
properly considered commercial, as compared to those that are best viewed as governmental,
remains opaque. Although Plaintiffs’ motion thus presents a close question, the Court concludes
that they have produced enough evidence of Bank Markazi’s commercial activity to make a
prima facie showing that the bank’s activities are predominantly commercial. As explained
above, the bank has well over a trillion Rials in loans outstanding, while it principally shares
regulatory duties with other Iranian agencies through the bank governor’s seat on the MCC.
Bank Markazi’s own descriptions of its role within the Iranian system, moreover, further
supports the view that it performs predominantly commercial functions. Although Bank Markazi
chose not to respond to the present lawsuit, it has appeared in other cases and argued (albeit in a
different context) that it is an agency or instrumentality of Iran, rather than the foreign state
itself. In briefing before the U.S. Supreme Court, Bank Markazi argued that it “is an
independent and distinct legal entity, separate from the Iranian government.” Brief for
Petitioner, Bank Markazi v. Peterson, 136 S. Ct. 1310 (2016) (No. 14-770), 2015 WL 7294865,
at *9 (Nov. 16, 2015). “Under Iranian law, it is treated as a joint stock company except as
otherwise provided by Iran’s Monetary and Banking Law.” Id.; see also Peterson v. Islamic
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Republican of Iran, No. 10-cv-4518, 2013 WL 5538652, at *3 (S.D.N.Y. Oct. 8, 2013) (“Bank
Markazi does not dispute that it is an instrumentality of Iran. . . . Indeed, its acknowledgement of
that fact forms the premise of its motion that it is entitled to FSIA immunity.”). 2 Taken together,
these materials are sufficient to carry Plaintiffs’ burden at this stage of the litigation.
The legislative history of the FSIA confirms the Court’s conclusion. The House Report
explained:
As a general matter, entities which meet the definition of an ‘agency or
instrumentality of a foreign state’ could assume a variety of forms, including a
state trading corporation, a mining enterprise, a transport organization such as a
shipping line or airline, a steel company, a central bank, an export association,
a governmental procurement agency or a department or ministry which acts and
is suable in its own name.
H.R. Rep. No. 1487, at 15–16 (1976), reprinted in 1976 U.S.C.C.A.N. 6604, 6614. Congress
thus contemplated that a central bank could qualify as an agency or instrumentality of a foreign
state. In Transaero, the D.C. Circuit was unimpressed with the FSIA’s legislative history, but its
criticism was focused on an alternative legal test that the House Report proposed and did not take
issue with the examples of agencies and instrumentalities that the Report proffered. Transaero,
30 F.3d at 152. The legislative history thus lends some support to the Court’s conclusion that
Bank Markazi is an agency or instrumentality of Iran.
Further, as Plaintiffs note, courts in the Second Circuit have held that state-owned central
banks qualify as agencies or instrumentalities of foreign states under the FSIA. See Weininger v.
Castro, 462 F. Supp. 2d 457, 498 (S.D.N.Y 2006) (holding that “state-owned central banks
indisputably are included in the 1603(b) definition of ‘agency or instrumentality’” in a case
involving the central bank of Cuba) (citations and quotation marks omitted); see also S&S Mach.
2
Earlier in that same case, Bank Markazi filed a motion to dismiss for lack of subject-matter
jurisdiction without challenging its service under § 1608(b). See Peterson v. Islamic Republic of
Iran, No. 10-cv-4518, 2013 WL 1155576, at *19–20 (S.D.N.Y. Mar. 13, 2013).
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Co. v. Masinexportimport, 706 F.2d 411, 414 (2d Cir. 1983) (holding that the Romanian Bank
for Foreign Trade was an agency or instrumentality). These cases, however, did not apply the
core functions test, which limits their persuasive force in this circuit.
Finally, Plaintiffs devote much of their brief to detailing executive branch actions taken
against Bank Markazi, including sanctions imposed against the bank for its ties to terrorist
organizations, as proof of its commercial activities. See Dkt. 99 at 13–19. To the extent the
bank engaged in transactions—including the transfer of assets between financial institutions—in
a manner analogous to typical commercial transactions, some of this activity might further
support the Court’s conclusion. And the fact that the bank might have engaged in these activities
for criminal purposes does not preclude reliance on the transactions to support Plaintiffs’
argument. If required to categorize this criminal activity, at least portions of it—like transferring
money through subsidiaries to Hezbollah or setting up front companies—seem more commercial
than governmental or regulatory in nature. Id. at 13–14.
Pulling these various strands together, the Court is still left with some unanswered
questions. Although Plaintiffs have presented substantial evidence of Bank Markazi’s
commercial activities, they have provided less proof that Bank Markazi’s commercial activities
predominate over its governmental ones. But after two rounds of briefing and a good faith effort
from Plaintiffs to answer the Court’s questions, the evidence tends to support Plaintiffs’ view,
and the remaining gaps in the record are neither Plaintiffs’ fault nor their problem. At this stage
of the litigation, in the absence of an adversarial hearing or opportunity to take discovery,
Plaintiffs have done enough to make a prima facie showing, which requires less than a
preponderance of the evidence, that the bank’s activities are predominantly commercial in
character. Mwani, 417 F.3d at 7. Defendants cannot avoid the Court’s jurisdiction by defaulting
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and thereby depriving Plaintiffs of the opportunity to make a more detailed showing regarding
the precise allocation of governmental and commercial activities in the day-to-day affairs of the
bank.
For all the foregoing reasons, the Court concludes that Bank Markazi is an agency or
instrumentality of Iran and may be served according to the requirements of § 1608(b).
B. Whether Plaintiffs Served NIOC and Bank Markazi in Accordance with § 1608(b)
Having concluded that NIOC and Bank Markazi are amenable to service under § 1608(b),
the Court must consider whether Plaintiffs’ efforts to serve them complied with the requirements
of that provision. Plaintiffs attempted to serve NIOC and Bank Markazi under § 1608(b)(3)(B),
which permits service “by delivery of a copy of the summons and complaint, together with a
translation of each into the official language of the foreign state” through “any form of mail
requiring a signed receipt, to be addressed and dispatched by the clerk of the court to the agency
or instrumentality to be served,” so long as service is “reasonably calculated to give actual
notice.” 28 U.S.C. § 1608(b)(3)(B). In its prior opinion, the Court could not determine whether
service had been successful because, although the recipients had signed for the deliveries, the
packages were subsequently returned to the clerk’s office in uncertain circumstances.
Holladay I, 406 F. Supp. 3d at 63–64. As the Court noted, courts are divided on whether a
signature alone is sufficient to show effective service if a package is rejected immediately upon
delivery. Id. at 63 n.2.
To clear up any confusion, Plaintiffs conducted a deposition of DHL representative
Robert Nielson pursuant to Fed. R. Civ. P. 30(b)(6). See Dkt. 99-17 (Nielson Dep Part I); Dkt.
99-18 (Nielson Dep. Part II). With respect to NIOC, Nielson testified that the packages were
delivered to the company’s address in Tehran on December 2, 2017, at 10:37 a.m. and were
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signed for by someone named “Norafkan.” Dkt. 99-17 at 43 (Nielson Dep. 41:1–21); id. at 46–
48 (Nielson Dep. 44:3–46:9). Importantly, the packages were not rejected upon delivery but,
rather, were transferred to NIOC’s custody. Id. Even more importantly, NIOC retained
possession of the packages for nineteen days before mailing them back to the clerk’s office. Id.
at 50–51 (Nielson Dep. 48:5–49:16). Nielson provided similar testimony with respect to Bank
Markazi. DHL delivered the service packages to Bank Markazi’s address in Tehran on
November 20, 2017, at 11:25 a.m., where someone with initials “D.S.” signed for the delivery.
Id. at 19–20 (Nielson Dep. 17:2–18:18); id. at 23–25 (Nielson Dep. 21:11–23:3). As with NIOC,
the Bank Markazi packages were not rejected upon delivery, id. at 20–22 (Nielson Dep. 18:19–
20:17); id. at 26–27 (Nielson Dep. 24:16–25:11), and Bank Markazi retained possession of the
packages for twenty-three days before returning them, id. at 29–32 (Nielson Dep. 27:4–30:3).
Additionally, as Plaintiffs emphasize, when NIOC and Bank Markazi returned their packages to
the clerk of court, they did so with new waybills, which “would only have been created and used
by DHL if NIOC and Bank Markazi proactively sought to return the packages after actually
possessing the packages.” Dkt. 99 at 24 (emphasis omitted).
In light of this new information, especially the fact that NIOC and Bank Markazi were
each in possession of the service materials for more than two weeks, the Court is satisfied that
service was “reasonably calculated to give actual notice.” 28 U.S.C. § 1608(b)(3). Plaintiffs
have therefore properly served NIOC and Bank Markazi pursuant to 28 U.S.C. § 1608(b)(3)(B).
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CONCLUSION
For the reasons explained above, it is hereby ORDERED that Plaintiffs’ renewed motion
for an order finding effective service of process as to NIOC and Bank Markazi, Dkt. 99, is
GRANTED.
SO ORDERED.
/s/ Randolph D. Moss
RANDOLPH D. MOSS
United States District Judge
Date: February 11, 2021
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