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Media Alerts - Ministry of Defense & Support for the Armed Forces of the Islamic Republic ex rel. Iran v. Frym - Ninth Circuit
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July 7, 2016
  Ministry of Defense & Support for the Armed Forces of the Islamic Republic ex rel. Iran v. Frym - Ninth Circuit
Headline: Ninth Circuit rejects Iran's claim of foreign-state immunity from attachment of an Iranian judgment pursuant to exceptions under the Algiers Accords and confirmed the District court's ruling that the judgment qualifies as a "blocked asset" within the meaning of the Terrorism Risk Insurance Act.

Area of Law: National Security Law; Judgments and Liens

Significance: American citizens may collect on valid judgments they hold against the Islamic Republic of Iran ("Iran") for their injuries arising out of terrorism sponsored by Iran.

Issue Presented: Whether, under the Algiers Accords or President Obama's 2012 Executive Order No. 13359, a judgment granted in favor of Iran by a U.S. district court in 1999 qualifies as a "blocked asset" within the meaning of the Terrorism Risk Insurance Act and is therefore attachable for the purpose of enforcing default judgments obtained against Iran on terrorist-related claims.

Brief Summary: Under the Terrorism Risk Insurance Act ("TRIA"), an exception to a foreign state's immunity from attachment of a judgment pursuant to the Foreign Sovereign Immunities Act ("FSIA"), Lien Claimants moved to attach a judgment awarded to the Republic of Iran ("Iran") in 1999 by the U.S. District Court for the Southern District of California. Iran opposed the motion, arguing that a resolution to the Iranian Hostage Crisis (the Algiers Accords) protects the judgment from attachment and that the judgment did not fall within the meaning of a "blocked asset" as defined under TRIA.

The district court granted the attachment, concluding that the Algiers Accords served only to restore Iran's position prior to November of 1979, and as of 1979, Iran lacked an interest in the judgment at issue. The district court also ruled that the judgment constituted a blocked asset for purposes of TRIA pursuant to "President Obama's 2012 Executive Order No. 13359" and "President Bush's 2005 Executive Order No. 13382." The district court alternatively found that a sub-group of the Lien Claimants (the Rubin Claimants) could have attached the judgment pursuant to a terrorism-related judgment exception under 28 U.S.C. § 1610(g).

The Ninth Circuit panel affirmed although the panel declined to address the district court's decision regarding "President Bush's 2005 Executive Order No. 13382" and the terrorism-related judgment exception under 28 U.S.C. § 1610(g). According to the panel, Iran misidentified the asset at issue by arguing that the FISA exceptions applied to Iran's property interest in certain equipment that gave rise to the claim on which Iran procured its judgment. The panel held that the relevant asset at issue was not Iran's property interest in the equipment, but rather Iran's property interest in the judgment, which was not granted until twenty years after the date before which the Algiers Accords may have rendered the judgment immune from attachment. Because both of Iran's arguments premised on its property interest in the equipment rather than its property interest in the judgment, Iran failed to show that the judgment does not constitute a blocked asset within the meaning of TRIA and therefore is immune from attachment.

Extended Summary: The Foreign Sovereign Immunities Act ("FSIA") prohibits a suit against a foreign state and an attachment of its assets to satisfy a judgment. Under 28 U.S.C. § 1605, if state-sponsored-terrorism gives rise to a claim, there is an exception to FISA, which abrogates a foreign state's immunity from judgment. Although § 1605 nullified a foreign state's immunity from judgment, the FISA provision prohibiting the attachment of a foreign state's assets remained intact until 2002 when Congress enacted the Terrorism Risk Insurance Act ("TRIA"). The TRIA provides that when a judgment has been obtained under the FISA exception, "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 . . . to satisfy such judgment to the extent any compensatory damages for which such terrorist party has been adjudged liable." "Blocked" assets comprise of assets the United States has "seized or frozen" pursuant to the International Emergency Powers Act ("IEEPA").

In 1977, the Republic of Iran ("Iran") entered into a contract to purchase an air combat maneuvering range system ("ACMR") from an American company, Cubic Defense Systems, Inc. ("Cubic"). In a separate contract, Cubic promised to provide maintenance for the ACMR. By October of 1978, Iran had expended more than $12 million on the $17 million purchase price in addition to payments pursuant to the service contract. By February of 1979, Cubic was prepared to export the equipment to Iran. However, complete performance under both contracts became frustrated after the Iranian revolution distressed the relationship between Iran and the United States. Pursuant to a modified agreement, Iran authorized Cubic to resell the ACMR, the result of which would have either gave Iran the right to partial reimbursement or Cubic entitlement to additional payment. However, when Cubic sold the ACMR to Canada in 1982, Cubic disregarded Iran's demand for an accounting. Consequently, pursuant to arbitration provisions in the contracts, Iran commenced arbitration proceedings with the International Chamber of Commerce (ICC). The ICC awarded Iran $2.8 million in damages, including interest and costs.

In 1991, Claimant France M. Rafi ("Rafi") brought an action against Iran under the state-sponsored-terrorism exception of the FSIA after Rafi's father, former Iran Prime Minister Dr. Shapoir Bakhtiar, was murdered because he opposed the Islamic government. Iran failed to appear, and the district court entered a default judgment against Iran for $5 million. Similarly, in 1997, the Rubin Claimants, a group of individuals who were either injured or whose relatives were injured by a suicide bombing in Jerusalem, brought an action against Iran under the state-sponsored-terrorism exception of the FSIA. Again, Iran failed to appear, and the district court entered a default judgment against Iran and ordered payment of damages that ranged from $2.5 million to $15 million.

In 1999, the U.S. District Court for the Southern District of California confirmed Iran's arbitration award and entered a judgment accordingly. When Cubic deposited the funds with the district court, Rafi and the Rubin Claimants ("Lien Claimants") moved for attachment of the judgment. In opposition to the attachment, Iran argued "(1) that the Algiers Accords, by which the United States and Iran resolved the Iranian Hostage Crisis, required the United States to protect the Cubic Judgment from attachment; and (2) that the Cubic Judgment was in any event not attachable under the TRIA or any other statute."

The district court granted the attachment, concluding that the Algiers Accords served only to restore Iran's position prior to November of 1979, and as of 1979, Iran lacked an interest in the confirmed arbitration award. The district court also ruled that the "Cubic Judgment" constituted a blocked asset under the TRIA because "the Cubic Judgment was blocked pursuant to 'President Obama's 2012 Executive Order No. 13359' and 'President Bush's 2005 Executive Order No. 13382.'" The district court therefore found that attachment of the Cubic Judgment was proper under the TRIA. The district court alternatively found that, pursuant to 28 U.S.C. § 1610(g), "the special attachment provision of the FSIA for creditors holding a Section 1605A terrorism-related judgment against a foreign state," the Rubin Claimants could have attached the Cubic Judgment.

On appeal to the Ninth Circuit, Iran argued that based on a variety of factors, including Iran's payments totaling more than $12 million on a $17 million contract entered in 1978, Iran acquired a property interest in the ACMR prior to November 14, 1979. Iran also argued that President Obama's 2012 Executive Order exempted the ACMR from constituting as a "blocked asset" under TRIA.

To address Iran's property-interest argument, the Ninth Circuit panel referenced the holding in Ministry of Defense & Support for the Armed Forces of the Islamic Republic of Iran v. Elahi, where the Supreme Court distinguished a property interest in an ACMR from a property interest a similarly situated lien claimant had in a judgment enforcing an arbitration award. 556 U.S. 366, 376 (2009). Under Elahi, The panel concluded that Iran's interest in the Cubic Judgment, which arose after the district court confirmed Iran's arbitration award in 1998, was the relevant asset at issue. The panel further concluded that Iran's property interest relevant to the Cubic Judgment was not in the ACMR but rather Iran's demand for an accounting, which did not and could not arise until after Cubic resold the ACMR to Canada in 1982. The panel also rejected Iran's claim that the ACMR was not a blocked asset under TRIA because that argument relies on a faulty premise: that the ACMR, not the Cubic Judgment, was the relevant asset at issue. Accordingly, the panel concluded that the Cubic Judgment constituted a blocked asset under TRIA pursuant to President Obama's 2012 Executive Order.

The panel declined to address the district court's ruling that the Cubic Judgment is not a blocked asset under President Bush's 2005 Executive Order No. 13382. Nor did the panel address the district court's alternative holding that the Rubin Claimants may attach the Cubic judgment under 28 U.S.C § 1610(g). Addressing those issues were unnecessary because neither would have resolved Iran's burden of proving that the Cubic Judgment was not subject to attachment pursuant to TRIA and President Obama's 2012 Executive Order. Therefore, review de novo, the panel affirmed.

To read full opinion, please visit:

https://cdn.ca9.uscourts.gov/datastore/opinions/2016/02/26/13-57182.pdf

Panel: Before: Dorothy W. Nelson, Consuelo M. Callahan, and N. Randy Smith, Circuit Judges.

Argument Date: February 2, 2016

Date of Issued Opinion: February 26, 2016

Docket Number: 13-57182

Decided: Affirmed

Counsel: Steven W. Keredes (argued), Pasadena, California, for Petitioner-Appellant.

Jonathan R. Mook (argued), DimuroGinsberg, P.C., Alexandria, Virginia; Philip J. Hirschkop, Hirschkop & Associates, Lorton, Virginia, for Claimant-Appellee France M. Rafi.

David J. Strachman (argued), McIntyre Tate LLP, Providence, Rhode Island, for Claimants-Appellees Jenny Rubin, Deborah Rubin, Daniel Miller, Abraham Mendelson, Stuart E. Hersh, Renay Frym, Noam Rozenman, Elena Rozenman, and Tzvi Rozenman.

Stuart F Delery, Assistant Attorney General; Laura E. Duffy, United States Attorney; Sharon Swingle and Benjamin M. Schultz (argued), Attorneys, Appellate Staff Civil Division, United States Department of Justice; Lisa J. Grosh, Assistant Legal Advisor, Department of State; Bradley T. Smith, Chief Counsel, Office of Foreign Assets Control, Department of the Treasury, Washington D.C., for Amicus Curiae United States.

Author of Opinion: Judge D.W. Nelson

Case Alert Author: Andre Clark

Case Alert Supervisor: Professor Ryan T. Williams

    Posted By: Ryan Williams @ 07/07/2016 07:51 PM     9th Circuit  

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