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AMERICAN INTL. GROUP v. ISLAMIC REPUBLIC OF IRAN

July 10, 1980

AMERICAN INTERNATIONAL GROUP, INC., THE CONTINENTAL CORPORATION, INA CORPORATION, AMERICAN INTERNATIONAL REINSURANCE CO., LTD., AMERICAN INTERNATIONAL UNDERWRITERS OVERSEAS, LTD., AMERICAN LIFE INSURANCE COMPANY, THE UNDERWRITERS BANK INCORPORATED, Plaintiffs,
v.
ISLAMIC REPUBLIC OF IRAN and CENTRAL INSURANCE OF IRAN (BIMEH MARKAZI IRAN), Defendants.



The opinion of the court was delivered by: HART

ORDER

This cause has come on for hearing before this Court upon plaintiffs' Motion for Partial Summary Judgment on the issue of liability. Plaintiffs comprise three groups of insurance companies, who, collectively represented all of the American insurance operations in Iran during 1979. American International Group, Inc. (hereinafter, "AIG") owned 35% of the equity of Iran America International Insurance Company (Nottingham affidavit, P 3); INA Corporation (hereinafter, "INA") owned 20% of the equity interest in Bimeh Shargh, an Iranian corporation engaged in the insurance business (Cox affidavit, PP 2, 9); Continental Corporation (hereinafter, "Continental") owned 10% of the equity interest in Hafez Insurance Company, Ltd., an Iranian corporation which, prior to mid-1979, was engaged in the business of issuing and selling general property and casualty insurance in Iran (Lindell affidavit, PP 3, 8). Defendant Islamic Republic of Iran ("Iran") is a sovereign state and is a party to the bilateral Treaty of Amity, Economic Relations, and Consular Rights Between the United States of America and Iran, which entered into force June 16, 1957 (hereinafter, "the Treaty"). 8 U.S.T. 899, T.I.A.S. 3853, 284 U.N.T.S. 93. Defendant Central Insurance of Iran (Bimeh Markazi Iran) (hereinafter, "CII") is a governmental agency or instrumentality of Iran within the definition of 28 U.S.C. § 1603(b), which was created in 1971 for the purposes of (a) carrying on the commercial enterprise and business of issuing reinsurance, underwriting large and specialized risks and the like, and (b) overseeing and superintending the insurance industry in Iran. CII engages in commercial and business activities within Iran and within the United States, and its commercial activities have direct effects in the United States.

 Article XI, paragraph 4 of the Treaty of Amity expressly provides:

 
No enterprise of either High Contracting Party, including corporations, associations, and governmental agencies and instrumentalities, which is publicly owned or controlled shall, if it engages in commercial, industrial, shipping or other business activities within the territories of the other High Contracting Party, claim or enjoy, either for itself or its property, immunity therein from taxation, suit, execution of judgment or other liability to which privately owned and controlled enterprises are subject therein.

 Article IV, paragraph 2 of the Treaty provides:

 
Property of nationals and companies of either High Contracting Party, including interests in property, shall receive the most constant protection and security within the territories of the other High Contracting Party, in no case less than that required by international law. Such property shall not be taken except for a public purpose, nor shall it be taken without the prompt payment of just compensation. Such compensation shall be in an effectively realizable form and shall represent the full equivalent of the property taken; and adequate provision shall have been made at or prior to the time of taking for the determination and payment thereof.

 On June 25, 1979 the insurance industry in Iran was nationalized. The nationalization was effected by "The Law of Nationalization of Insurance Companies" which provides in part:

 
Paragraph 1. To protect the rights of insurers, to expand the insurance industry over the entire State, and to instruct it in the service of people, from the date of ratification of this law, all insurance companies of the State are proclaimed nationalized with acceptance of the conditioned legitimate principle of possession.

 Nationalization came without warning. Immediately prior to the time of nationalization, CII officials assured officials of the Iranian insurance companies as well as officers of plaintiffs that no nationalization was intended (Lindell affidavit, P 18; Cox affidavit, P 6; Nottingham affidavit, P 19). Immediately following nationalization defendant CII assumed control of plaintiffs' business and assets in Iran. The nationalization has had the effect of terminating all reinsurance and other business relations between the plaintiffs and defendants and the Iranian insurance companies in which plaintiffs had invested (Nottingham affidavit, P 21; Cox affidavit, P 7; Lindell affidavit, P 20). Subsequent to the nationalization, relations between Iran and the United States have deteriorated to the point that the President determined on November 14, 1979 that a threat to the national security, foreign policy, and economy of the United States required a "freeze" on property located in the United States belonging to Iran. 44 Fed.Reg. 65956-65959 (Nov. 15, 1979). Simultaneously, Iran repudiated its debt obligations to United States banks. Iran has consistently and notoriously failed to honor its duties, responsibilities, and obligations. The plaintiffs have not received compensation for their losses due to the nationalization, nor does the law of Iran, including "The Law of Nationalization of Insurance Companies," provide a mechanism for determining and paying compensation.

 This Court has considered the legal memoranda and arguments of counsel and the affidavits and statements of material facts submitted therewith. It appears to this Court that no genuine issue exists as to any material fact. It also appears to this Court as follows:

 (1) Defendants' nationalization without a mechanism for adequate compensation violates the Treaty of Amity and, independently, international law. The weight of authority manifestly states that international law, as reflected in the Treaty, requires prompt, adequate, and effective compensation. Banco Nacional de Cuba v. Sabbatino, 193 F. Supp. 375 (S.D.N.Y.1961), aff'd, 307 F.2d 845 (2d Cir. 1962), rev'd on other grounds, 376 U.S. 398, 84 S. Ct. 923, 11 L. Ed. 2d 804 (1964); Banco Nacional de Cuba v. Chase Manhattan Bank, 505 F. Supp. 412 (S.D.N.Y. 1980). *fn1" The "Law of Nationalization" does not provide a mechanism for determination and payment of prompt compensation relevant to this case (Aghayan affidavit, PP 8, 10). There has been no compensation either paid or offered. Though the exact scope and precise requirements of the Treaty and international law may be subject to interpretation, the defendants in this case have failed by any interpretation to meet even the minimum standards set by the Treaty and international law.

  (2) Venue and jurisdiction is proper in this Court regardless of the fact that plaintiffs have not exhausted their remedies by seeking judicial or administrative redress in Iran. Resort to such legal means is unnecessary when such remedy is impracticable or futile. Eisen v. Eastman, 421 F.2d 560 (2d Cir. 1969), cert. denied, 400 U.S. 841, 91 S. Ct. 82, 27 L. Ed. 2d 75 (1970). At the time of nationalization Iran was in such a state of turmoil that recourse to the Iranian courts was impossible. Stromberg-Carlson Corp. v. Bank Melli Iran, 467 F. Supp. 530, 532 n. 3 (S.D.N.Y.1979). Plaintiffs' employees were in physical danger, forced out of Iran, and generally unable to perform most of their ordinary duties during the period following the nationalization decree (2d Supp. Nottingham affidavit, PP 3-11). Further, the United States severed all diplomatic relations with Iran on April 7, 1980, and imposed a ban on travel to and from Iran on April 17, 1980. Executive Order No. 12211, Fed.Reg. 26685 (1980). It is absolutely clear that the Republic of Iran has shown a complete and utter disregard for international law by its seizure and holding of diplomatic hostages for a period exceeding eight months and its disdain of all diplomatic and international efforts to obtain their release. It is well settled in international law that where local remedies would be ineffective or meaningless or would not meet the international standard of minimum justice, the alien need not subject himself, in the first instance, to the local courts or administrative tribunals. Interhandel Case (Switzerland v. United States), (1959) I.C.J. 6. Restatement (Second) of the Foreign Relations Law of the United States (1965) § 208.

 (3) Plaintiffs can assert their rights to recover damages in this Court for violations of the Treaty and international law. First, the right of individuals and companies to enforce a private right of action in a United States court under the property protection provisions of a treaty of friendship, commerce, and navigation has consistently been upheld. Asakura v. Seattle, 265 U.S. 332, 44 S. Ct. 515, 68 L. Ed. 1041 (1924); Kolovrat v. Oregon, 366 U.S. 187, 81 S. Ct. 922, 6 L. Ed. 2d 218 (1961); Head Money Cases, 112 U.S. 580, 5 S. Ct. 247, 28 L. Ed. 798 (1884); Hauenstein v. Lynham, 100 U.S. 483, 25 L. Ed. 628 (1879). Second, since Article IV, paragraph 2 of the Treaty is self-executing, plaintiffs have a right of action before this Court. The Treaty clearly meets the criteria considered significant in determining whether a Treaty is self-executing and, therefore, capable of enforcement in a United States court. People of Saipan v. United States Department of Interior, 502 F.2d 90, 97 (9th Cir. 1974), cert. denied, 420 U.S. 1003, 95 S. Ct. 1445, 43 L. Ed. 2d 761 (1975).

 (4) The Act of State Doctrine does not preclude this Court from awarding summary judgment in this case. First, the theory underlying the Act of State Doctrine is inapplicable in this litigation. The Court is not asked to judge the validity of defendants' expropriation of plaintiffs' interests in Iran, but rather defendants' failure, in violation of the Treaty and international law, to make adequate provision for the determination and payment of prompt, adequate, and effective compensation. Second, the Act of State Doctrine does not preclude judicial review where, as here, there is a relevant, unambiguous treaty setting forth agreed principles of international law applicable to the situation at hand. Banco Nacional de Cuba v. Sabbatino, supra. Third, the Act of State Doctrine does not apply since defendants' ...


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