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Peterson v. Islamic Republic of Iran

United States District Court, District of Columbia

February 21, 2019

DEBORAH D. PETERSON, Personal Representative of the Estate of James C. Knipple Dec. et ah Plaintiffs,
ISLAMIC REPUBLIC OF IRAN et a!., Defendants.


          Royce C. Lamberth, United States District Judge.

         This Court has presided over a consolidated action brought by nearly one thousand plaintiffs against the Islamic Republic of Iran (Iran) and the Iranian Ministry of Information and Security (MOIS) under the state sponsor of terrorism exception to the Foreign Sovereign Immunities Act (FSIA) since 2001. On May 30. 2003, this Court entered a default judgment as to liability against the defendants and ordered claims for the amounts of damages be submitted to special masters. The special masters issued almost two hundred reports and recommendations that this Court considered in determining the compensatory and punitive damages. On December 7, 2007, this Court entered a default judgment in favor of plaintiffs for approximately $2.65 billion. The special masters seek payment for their work. The Court now authorizes and approves payment to the special masters in the amounts set forth below as compensation for the services they provided. The Court will award costs in the amount of $651, 184.45 to be taxed against the defendants.

         I. Background

         On October 23. 1983. a suicide bomber from Hezbollah detonated thousands of pounds of explosives underneath the U.S. Marine barracks building in Beirut. Lebanon, murdering 241 American servicemen. Hezbollah and its agents received massive material and technical support from the Iranian government, and Iran was complicit in this attack. See Peterson v. Islamic Republic of Iran, 264 F.Supp.2d 46, 54 (D.D.C. 2003).

         Plaintiffs in the actions against Iran and MOIS consisted of family members of the 241 deceased servicemen, as well as administrators of the estates of the servicemen, the servicemen's legal heirs, and injured survivors of that attack. Plaintiffs brought the suits in October 2001 under the FSIA. Given the nearlv one thousand claimants seeking redress and the commensliratelv large number of claims, this Court appointed numerous special masters. See ECF Nos. 30-39 (appointing John Swanson, John Carney, Veta Carney, Karen J. Kruger, Paul G. Griffin, Susan Meek, Howard P. Rives. Francis B. Fennessey, David L. Broom and Loraine A. Ray); ECF Nos. 42-46 (appointing Kenneth M. Trombly, Jeffrey A. Manlieimer, Christopher A. Byrne. Philip M. Saeta. and Colin M. Dunham). Thirteen special masters performed work in the Peterson action. Their task was to "undertake a very thorough, painstaking review of all the relevant testimony, medical evidence, economic reports, and other evidence in order to make clear, accurate recommendations" to the court relating to the damages suffered by each plaintiff. In re Islamic Republic of Iran Terrorism Litigation, 659 F.Supp.2d 31, 110 (D.D.C. 2009). The special masters "review[ed] hundreds, if not thousands of documents, including economic reports and deposition testimony." Id. This work "demand[ed] great attention to detail and [was] extraordinarily time-consuming." Id.

         In 2013. plaintiffs successfully brought an action in the United States District Court for the Southern District of New York to seize Iranian assets in satisfaction of this Court's judgment. The S.D.N.Y, court ordered turnover of S1.75 billion in assets held, by Citibank N.A. These assets were cash bonds that Bank Markazi-the Central Bank of Iran-held in an account with Citibank through an intermediary. Peterson v. Islamic Republic of Iran, No. 10 CIV. 4518, 2013 WL 1155576 (S.D.N.Y. Mar. 13, 2013). The court subsequently issued an order creating a Qualified Settlement Fund (QSF) and transferred the seized funds to a trustee for the benefit of the plaintiffs. The court's opinion authorizing the seizure of the assets was affirmed by the Second Circuit and the Supreme Court. Bank Markazi v. Peterson, 136 S.Ct. 1310 (2016); Peterson v. Islamic Republic of Iran, 758 F.3d 185 (2d Cir. 2014).

         The special masters have not yet been paid for their services and expenses. The special masters have sought payment several times since 2008, but this Court denied these past motions. The Court briefly reviews the previous filings regarding compensation for these special masters.

         A. Motions for Compensation from the Victims of Crime Fund

         Plaintiffs' counsel filed multiple motions in 2008 for orders authorizing payment on behalf of three special masters. The motions predicated their prayer for relief on 28 U.S.C. § 1605A, which allows certain court appointed special masters to be paid through the Victims of Crime Fund, which is administered by the Department of Justice. ECF No. 242; ECF No. 243; see 28 U.S.C. § 1605A(e). However, the Peterson action was filed under 28 U.S.C. § 1605(a)(7), not § 1605A. Plaintiffs had assumed that § 1605A, which was enacted as part of the National Defense Authorization Act for Fiscal Year 2008 (after the Peterson action was filed), applied with automatic and retroactive force to actions filed under § 1605(a)(7). Pub. L. No. 110-81, § 1083, 122 Stat. 338 (2008) (codified at 28 U.S.C. § 1605A). However, this Court disagreed.

         The Court denied plaintiffs' motions, reasoning that § 1605A(e) could not be retroactively-applied given: (1) the plain language of § 1605A(e)(2). which limits payment to special masters to cases brought or maintained under § 1605A. and (2) the D.C. Circuit's ruling that "[a] plaintiff in a case pending under § 1605(a)(7) may not maintain that action based upon the jurisdiction conferred by § 1605 A; in order to claim the benefits of § 1605 A, the plaintiff must file a new action under that new provision." Mem. Op. and Order 2. ECF No. 430 (quoting Simon v. Republic of Iraq, 529 F.3d 1187. 1192 (D.C. Cir. 2008}).

         B. First Motion for Compensation from a Private Foundation

         In April 2009, plaintiffs' counsel made another attempt to obtain payment for nine special masters. This time, counsel argued that the Court had authority under Federal Rule of Civil Procedure 53(g)(2). Rule 53(g)(2) states that special masters' "compensation must be paid either: (A) by a party or parties; or (b) from a fund or subject matter of the action within the court's control." Fed.R.Civ.P. 53(g)(2). Plaintiffs' counsel asked the Court to enter an order "approving payments by the Peace Through Law Foundation. Inc. directly to the Special Masters . . . in amounts acceptable to the Court." Mot. for Order Authorizing Payment to Special Masters 4, ECF No. 435. However, counsel did not provide any information about the Foundation's membership, its organizational structure, or the source of the funding. The Court determined that the most prudent course of action was not to consider plaintiffs' proposed approach to use the private foundation to pay the special masters but for counsel to determine whether, consistent with the guidance offered in In re Islamic Republic of Iran Terrorism litigation, 659 F.Supp.2d 31 (D.D.C. 2009). the action could qualify for retroactive treatment under § 1605A. This led the Court to deny plaintiffs' counsel's request without prejudice. Id. at 111-13.

         C. Second Motion for Compensation from a Private Foundation

         Plaintiffs' counsel did not attempt to qualify the case for retroactive treatment under § 1605A. Instead, in July 2012, counsel made another attempt to secure payment from the Peace Through Law Foundation. Mot. for Order Authorizing Deposit of Funds into Registry of the Ct. for Compensation of Special Masters of this Ct., ECF No. 474. Specifically, plaintiffs' counsel requested that the Court authorize the Foundation to deposit money into the Court's registry from which the Court could direct payment to the special masters. Id. Plaintiffs' counsel also requested that the Court impose the costs on defendants. Id.

         In August 2012, this Court ordered plaintiffs to file (1) a memorandum disclosing the membership structure of the Foundation as well as its source of funds and (2) a memorandum addressing the legal basis for the Court's authority to distribute these funds to the special masters and whether these payments may be levied against the defendants pursuant to the FSIA. Order, ECF No. 475. After plaintiffs filed this information, the Court denied plaintiffs' motion to allow Foundation funds to be channeled through the Court's registry to pay the special masters because the Foundation was "a corporation that is controlled and entirely funded by plaintiffs' counsel, Mr. Thomas Fortune Fay and his firm Fay Kaplan Law, PA." Order, ECF No. 489. The Court determined that "having the special masters compensated indirectly by plaintiffs' counsel via this Foundation might cast doubt on the fairness of the procedures in this case," id. at 1-2, and that 'if the Court were to allow plaintiffs' counsel to now pay the special masters in this case, the appearance of impropriety would be too great." Id.,

         D. Motion for Compensation from the Qualified Settlement Fund

         In May 2016, plaintiffs' counsel made their fourth attempt to obtain payment for the special masters. Counsel sought to have the Court exercise its authority under Rule 53(g) to authorize payment for the special masters from the QSF and enter judgment for costs pursuant to Rules 53(a) and 54(b) in that amount against Iran and MOIS in favor of the Peterson action plaintiffs.

         Judge Forrest's order directing turnover of blocked assets noted that the QSF was "created for the benefit'* of the Peterson plaintiffs, and required a court order authorizing distribution "in accordance with the terms of the Plaintiffs' agreement concerning the distribution of those funds." Peterson v. Islamic Republic of Iran, No. 10-cv-4518, 2013 U.S. Dist. LEXIS 188219, at *55, 59 (S.D.N.Y. July 9, 2013). The order establishing the QSF stated that the trustee was to administer the QSF "in accordance with: (i) the terms of the Fund Agreement, (ii) the terms of this Order and any subsequent Orders issued by this Court . . . ." Order Approving Qualified Settlement Fund, Peterson v. Islamic Republic of Iran, ECF No. 460 (S.D.N.Y.July 9, 2013) (No. 10-cv-4518) [hereinafter S.D.N.Y. ECF No. 460]. The Fund Agreement declared the fund was created for the benefit of the Peterson plaintiffs, "and such other persons, entity or entities ... to whom the Court directs that distributions shall be made." Agreement for the Peterson § 468B Fund Pursuant to 26 U.S.C. § 468B at ¶ 2.1, Peterson v. Islamic Republic of Iran, ECF No. 461 (S.D.N.Y. July 9, 2013) (No. l0-cv-4518) [hereinafter Fund Agreement, S.D.N.Y. ECF No. 461]. The Fund Agreement makes no specific mention of funds to be allocated to compensate special masters. Further, at the time plaintiffs' counsel made this attempt to obtain payment for the special masters from the QSF, the district court in the S.D.N.Y. had not issued any order authorizing the distribution of funds to the special masters. Therefore, this Court declined to supersede the terms of the S.D.N.Y. order approving the QSF, and the Fund Agreement itself, to impose non-negotiated terms and conditions on plaintiffs and plaintiffs' counsel. Peterson v. Islamic Republic of Iran, 224 F.Supp.3d 17, 26 (D.D.C. 2016).

         In addition, two special masters sought to require plaintiffs' counsel to pay for the special masters' fees and expenses as a tax or sanction. These special masters argued that sanctions against plaintiffs' counsel were proper because counsel had not taken steps to qualify the Peterson action for retroactive treatment under § 1605A or to move for reconsideration of this Court's prior rulings. Peterson v. Islamic Republic of Iran, 224 F.Supp.3d 17, 24 (D.D.C. 2016). This Court rejected this argument because it found that plaintiffs' counsel had not acted in bad faith, vexatiously, wantonly, or for oppressive reasons at any time. Id. at 27. This Court also declined to tax costs on plaintiffs" counsel because the Court "considered] defendant Iran responsible, and re fuse [d] to set new [compensation] terms which impose the costs of the special masters upon plaintiffs' counsel.'" Mat 28.

         II. ...

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