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Case of the Day: Republic of Argentina v. NML Capital

The Death of General Warren at the Battle of Bunker Hill by John Trumbull
Letters Blogatory wishes you a happy Bunker Hill Day!
Credit: Wikipedia
Yesterday the Supreme Court handed down its decision in Republic of Argentina v. NML Capital. Just to avoid confusion, this is not the case about whether Judge Griesa got it wrong when he issued an injunction forbidding Argentina to favor holders of new debt over the holdout owners of defaulted debt. The Court denied Argentina’s petition for a writ of certiorari yesterday. 1 This is the case that deals with the interaction between the Foreign Sovereign Immunities Act and Rule 69 of the Federal Rules of Civil Procedure, which gives a judgment creditor the right to take discovery about a judgment debtor’s assets in aid of the judgment. Can the holdout bondholders obtain information about Argentina’s assets around the world? Short answer: yes.
Continue reading Case of the Day: Republic of Argentina v. NML Capital

Notes:

  1. I have stopped covering the dispute about the merits of the injunction and the correct construction of the pari passu clause, because there are lots of people covering it very well.

Case of the Day: Rubin v. Islamic Republic of Iran

The case of the day is Rubin v. Islamic Republic of Iran (1st Cir. 2013). I have written about a related and quite interesting case in the Seventh Circuit. The underlying facts are sad:

On September 4, 1997, Hamas carried out a triple suicide bombing in the crowded Ben Yehuda Street pedestrian mall in Jerusalem. Five bystanders were killed and nearly 200 were injured. Hamas claimed responsibility for the bombing, and Israeli police arrested two Hamas operatives who participated in the attack. They and other members of their Hamas cell gave Israeli authorities information about the planning, financing, and execution of this act of terrorism. The two were later convicted of multiple counts of murder and attempted murder.

Rubin, who was a victim of the attack, obtained a default judgment against Iran in the District of Columbia in 2003. She then came to Massachusetts and sought to attach, by trustee process, 1 antiquities in the possession of the Museum of Fine Arts and Harvard University that she claimed were the property of the Iranian state. In the District Court, the judge held that the objects—stone reliefs, sculptures, and archaeological specimens—were immune from attachment. The First Circuit has now affirmed.

Here are the relevant statutes. Under the FSIA (28 USC § 1609):

Subject to existing international agreements to which the United States is a party at the time of enactment of this Act the 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.

There are potentially relevant exceptions to this immunity within the FSIA itself, but for purposes of this case, the relevant exception was Section 201(a) of the Terrorism Risk Insurance Act of 2002, which provides:

Notwithstanding any other provision of law, and except as provided in subsection (b), in every case in which a person has obtained a judgment against a terrorist party on a claim based upon an act of terrorism, or for which a terrorist party is not immune under section 1605(a)(7) of title 28, United States Code, the blocked assets of that 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.

A “blocked asset” is “any asset seized or frozen by the United States … under sections 202 and 203 of the International Emergency Economic Powers Act”.

Thus the case ultimately turned on whether the antiquities were “blocked assets.” If so, then they were potentially liable to attachment and execution. If not, then not.

Following the Iranian hostage crisis of 1979, the President issued an executive order under the IEEPA, later implemented by regulation, that blocked all property subject to US jurisdiction in which Iran had “any interest of any nature whatsoever”, unless the Office of Foreign Asset Control authorized the transaction. The blocking order remains in effect today, but under the Algiers Accords between the United States and Iran, the US agreed to “revoke all trade sanctions” directed against Iran since November 1979 and to arrange for the transfer to Iran of all Iranian property located in the United States and unaddressed elsewhere in the Accords.

Following the Accords, an executive order and additional OFAC regulations required US persons “to transfer such properties held on January 19, 1981 as directed after that day by the Government of Iran.” The term “properties” was defined to mean “all uncontested and non-contingent … property interests.” A property interest is not “contested” unless “the holder thereof reasonably believes that Iran does not have title or has only partial title to the asset.” After 2001, by regulation, such a belief “may be considered reasonably only if it is based upon a bona fide opinion, in writing, of an attorney licensed to practice within the United States stating that Iran does not have title or has only partial title to the asset.”

The net effect of all this complication is this: if the antiquities were not “contested,” then they are unblocked and thus not attachable under the TRIA. If the antiquities were “contested,” then they remain blocked and could be attached.

In an amicus brief, OFAC interpreted its regulations to mean that an asset cannot be “contested” unless the Government of Iran has directed its transfer . In the absence of any claim by Iran, the property remains “uncontested.” The court, on ordinary principles of administrative law, deferred to OFAC’s reasonable interpretation of its own regulations, and thus Rubin, the victim of the terrorist attack, was unable to attach the antiquities.

Because two of the judges who decided the case (Judges Stahl and Lipez) are senior judges, a petition for rehearing en banc is not a waste of time, for the reasons I discussed in a prior Belfast Project post. So I think we should expect a petition for rehearing. I will keep an eye on this case.

Notes:

  1. Trustee process is a Massachusetts procedure for attaching a defendant’s property in the hands of another. It is most frequently used to attach amounts on deposit with a bank, but it has other uses, as this case shows.

Case of the Day: Rubin v. Islamic Republic of Iran

The Case of the Day is Rubin v. Islamic Republic of Iran (7th Cir. 2011). A hat tip to Louis M. Solomon for posting about the case. The facts of the case involve two spheres I would have thought were impossible to link: Hamas terrorism and some of the great Persian art collections in the United States:

On September 4, 1997, Hamas carried out a triple suicide bombing in the crowded Ben Yehuda Street pedestrian mall in Jerusalem. Five bystanders were killed and nearly 200 were injured. Hamas claimed responsibility for the bombing, and Israeli police arrested two Hamas operatives who participated in the attack. They and other members of their Hamas cell gave Israeli authorities information about the planning, financing, and execution of this act of terrorism. The two were later convicted of multiple counts of murder and attempted murder.

Rubin and other American victims of the attack sued Iran in the District of Columbia. (Had the claim been brought today, it would have been brought under 28 U.S.C. § 1605A(c). It was instead brought under the Flatow Amendment, Pub. L. 104-208, § 589, but in Cicippio-Puleo v. Islamic Republic of Iran, 353 F.3d 1024 (D.C. Cir. 2004), the court held that that statute did not create a private right of action. This history is irrelevant to the case of the day). Iran was properly served with process under the FSIA and defaulted, leading to a $71 million default judgment.

Rubin was then faced with the problem of collection. She focused on three Chicago art collections: “the Persepolis and Chogha Mish Collections at the Oriental Institute [of the University of Chicago], and the Herzfeld Collection at the Field Museum”:

The first two are collections of Persian antiquities recovered in excavations in the Iranian city of Persepolis in the 1930s and on the Chogha Mish plains in southwestern Iran in the 1960s. Archaeologists from the University of Chicago led these excavations, and Iran loaned the artifacts to the Oriental Institute for long-term study and to decipher the Elamite writing the appears on some of the tablets included among the discoveries.

* * *

The third group of artifacts is known as the Herzfeld Collection, after the German archaeologist Ernst Herzfeld who worked on excavations in Persia for 30 years in the early twentieth century. The Field Museum purchased a set of prehistoric pottery, metalworks, and ornaments from Herzfeld in 1945. The plaintiffs contest the Field Museum’s title; they claim that Iran owns the collection because Herzfeld stole the artifacts and smuggled them out of the country in the 1920s and 1930s. Iran, however, does not claim ownership of the Herzfeld Collection.

Rubin sought to take the three collections by execution. But under 28 U.S.C. § 1609, in general, “the 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 …” Rubin moved for summary judgment as to the immunity question, arguing that Iran had waived its immunity by defaulting. The magistrate judge agreed, recommending to the court that it rule that § 1609 immunity is waived unless pleaded as an affirmative defense. The museums and the United States objected, but the district judge agreed with the magistrate.

Then, surprisingly, Iran appeared in the action and asserted its § 1609 immunity. Rubin pounced, serving broad discovery requests seeking discovery of all Iranian assets in the United States in aid of its execution. Iran sought a protective order regarding the discovery and moved for summary judgment on the § 1609 issue. The district court ordered Iran to respond to the discovery requests, and Iran appealed both the discovery order and the court’s earlier order holding that Iran had waived its § 1609 immunity.

The court held that under § 1609, a foreign state’s property is presumptively immune from attachment and execution, and the plaintiff had to identify particular property as exempt from the general statutory immunity to attachment and execution. Allowing the plaintiff to take general asset discovery “turns this presumptive immunity on its head.” The court noted cases in other jurisdictions that had held that broad discovery was impermissible when aimed at establishing jurisdiction over the foreign state. Because the exceptions to immunity from attachment and execution in § 1609 are narrower than the exceptions to immunity from the court’s subject-matter under § 1604, the court saw no reason why the rule should not be the same in cases under § 1609.

The court also rejected the argument that the § 1609 defense was waived if not pleaded. The statute says that the foreign state’s property shall be immune from attachment and execution except as otherwise provided in the statute. The court’s reasoning on this point, without more does not seem overwhelmingly strong on this point, as § 1610 expressly provides that the foreign state may waive its immunity under § 1609 “either explicitly or by implication.” Why can a failure to raise the defense not be an implicit waiver? That is the rule in other non-jurisdictional immunity contexts, e.g., qualified immunity in civil rights cases. Harlow v. Fitzgerald, 457 U.S. 800 (1983).

But the court also pointed out that under § 1610(c), an attachment or execution cannot issue until the court has determined “that a reasonable period of time has elapsed following the entry of judgment and the giving of any notice required under section 1608(e) …” Section 1608(e), in turn, requires service of the default judgment on the foreign state. This bolster’s the court’s conclusion, because it suggests that Congress intended to allow the foreign state to raise immunity from attachment and execution even after a default. All in all, I think the court got this right.

The court denied a petition for rehearing on June 6.