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Estate of Michael Heiser, et al v. Islamic Republic of Iran

August 31, 2012

ESTATE OF MICHAEL HEISER, ET AL., PLAINTIFFS,
v.
ISLAMIC REPUBLIC OF IRAN, ET AL., DEFENDANTS. ESTATE OF MILLARD D. CAMPBELL, ET AL., PLAINTIFFS,
v.
ISLAMIC REPUBLIC OF IRAN, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Chief Judge Royce C. Lamberth

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").*fn1 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 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).*fn2 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.

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.*fn3

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 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.").

Amount Iranian Entity(ies) Type of Blocked Account $34,453.88 Iran Marine and Industrial Deposit Account

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:

$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 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

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:

$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 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 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 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 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 ...


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