Ministry of Defense and Support for the Armed Forces of the Islamic Republic of Iran v. Elahi (07-615)
Oral argument: January 12, 2009
Appealed from: United States Court of Appeals, 9th Circuit (May 30, 2007)
IRAN-UNITED STATES CLAIMS TRIBUNAL, TERRORISM RISK INSURANCE ACT, VICTIMS OF TRAFFICKING AND VIOLENCE PROTECTION ACT
Under the Victims of Trafficking and Violence Protection Act (“VTVPA”), victims of state-sponsored acts of terrorism by Iran may receive compensation from the United States Treasury Department toward the satisfaction of judgments against Iran. Under the Terrorism Risk Insurance Act (“TRIA”), plaintiffs who secure judgments against a terrorist party may seek attachments of certain assets of the terrorist party to satisfy the judgments. VTVPA claimants relinquish rights to attachment against Iranian assets if such property interests are “at issue” in claims against the United States in an international tribunal. Respondent, Dariush Elahi received compensation from the United States for a wrongful death judgment against Iran under the VTVPA. Elahi now seeks attachment of a judgment entered in favor of Iran for a breach of contract. The United States and Petitioner, the Iranian Ministry of Defense, argue that because the breach of contract judgment is “at issue” in the Iran-United States Claims Tribunal, Elahi has waived any right to attachment against the judgment under TRIA.
Is an attachment against foreign sovereign property permissible when that property is “at issue in claims against the United States before an international tribunal,” and that property is not a “blocked asset,” pursuant to the terms of the 2000 Victims of Trafficking and Violence Protection Act and the 2002 Terrorism Risk Insurance Act?
Whether a victim of state-sponsored terrorist acts who has received partial compensation under the Victims of Trafficking and Violence Protection Act as amended by the Terrorism Risk Insurance Act (“TRIA”) may seek attachment against an award of damages to Iran for a civil judgment against a third party where the civil judgment also bears directly on potential liability between the United States and Iran state in an international tribunal.
The Ministry of Defense (“MOD”) of Iran contracted with Cubic Defense Systems, a California defense contractor, in 1977 for the sale of an Air Combat Maneuvering Range (“ACMR”) to use in the Iranian Air Force. See Ministry of Defense and Support for Armed Forces of Islamic Republic of Iran v. Cubic Defense Systems Inc., 495 F.3d 1024, 1028 (9th Cir. 2007). In 1979, in response to the Iranian Revolution and Iran’s holding of American hostages, President Carter froze Iranian assets in the United States under the International Emergency Economic Powers Act (“IEEPA”). See Cubic, 495 F.3d at 1033. Cubic subsequently breached its contract with MOD and sold the ACMR to Canada. See id. at 1028. Iran’s MOD brought a claim known as Case B/66 against Cubic and the United States in the Iran-U.S. Claims Tribunal in the Hague, which was set up to settle certain claims against the United States or Iranian governments arising from the freeze on Iranian assets in the United States during the Iran hostage crisis. See id. at 1028 n.2; See also Brief of the United States as Amicus Curiae in Support of Reversal at 3–4. The Claims Tribunal dismissed Case B/66 for lack of jurisdiction because the United States had no obligation to MOD under the Cubic contracts, and the Tribunal had no jurisdiction over Cubic. See id. at 1028; See also Brief of the United States at 4. Iran later secured an arbitration award for damages of $2.8 million against Cubic in the International Chamber of Commerce (“ICC”). See id. MOD then received a judgment against Cubic to satisfy the arbitration award in the Federal District Court for the Southern District of California. See id. Iran also filed another claim, known as Claim B/61, in the Claims Tribunal against the United States, seeking damages for the failure to export its “contracted-for goods,” including the ACMR, under the Algiers Accords. See id. at 1030. The Algiers Accords provided for the release of American hostages in Iran and the restoration of Iran’s financial position that existed before the freeze of assets. See id. at 1028 n.2. Most of Iran’s U.S. assets were unfrozen following the Algiers Accords, but military property remained frozen or “blocked.” See id. at 1033.
In 2000, Dariush Elahi brought a wrongful death action in the United States District Court for the District of Columbia against Iran and its Ministry of Information and Security (“MOIS,” formerly “MOD”) for the assassination of his brother Cyrus Elahi. See Cubic, 495 F.3d at 1027. Dr. Cyrus Elahi, a United States citizen, was shot and killed on October 23, 1990 outside of his apartment in Paris, France. See id. at 1027. Cyrus Elahi was part of a political association that opposed the Islamic regime in Iran. Neither MOIS nor Iran appeared to defend the action, and the district court entered default judgment against them. See id. at 1028. The court determined that the evidence that Dariush Elahi produced was sufficient to hold MOIS and Iran liable for the death of Cyrus and awarded damages of over 300 million dollars. See id. In order to satisfy this judgment, Elahi secured an attachment on the Cubic judgment in the Federal District Court for the Southern District of California. See id. Attachment is a remedial process by which a court seizes the assets of a party in order to satisfy a judgment against that party. MOD appealed this judgment in the United States Court of Appeals for the Ninth Circuit, which affirmed the judgment. MOD appealed to the Supreme Court of the United States on the issue of whether the MOD should be treated as a foreign state or as an “agency or instrumentality” or a foreign state under the Foreign Sovereign Immunities Act, which generally recognizes foreign states to have greater immunity from attachment than their “agencies or instrumentalities.” See id. The Court held that the Ninth Circuit had not made this determination and remanded the case to the Ninth Circuit for consideration of the issue. See id. On remand, in addition to this classification, the Ninth Circuit faced two new issues: (1) whether the Cubic judgment was immune from attachment under TRIA and (2) whether the Cubic judgment is a “blocked asset” under TRIA. See id.
Elahi received partial payment of his wrongful death judgment against MOIS from the United States Treasury Department under the Victims of Trafficking and Violence Protection Act (“VTVPA”) as amended by the Terrorism Risk Insurance Act (“TRIA”) of 2002. See Cubic, 495 F.3d at 1030. The VTVPA is designed in part to give compensation to terrorism victims and allows victims of state-sponsored terrorism to collect on judgments against Iran. See id. As a condition to receiving the partial compensation, Elahi waived rights to “property that is at issue in claims against the United States before an international tribunal.” See id. Such a waiver pertains to claims before the Iran-U.S. Claims Tribunal. See id. The Ninth Circuit held that Elahi did not waive his right to attachment against the Cubic judgment because the Cubic judgment is distinct from Iran’s claim against the United States and therefore not “at issue” in the Tribunal. See id. at 1031. The court reasoned that the Cubic claim was fully adjudicated in the ICC, and relates to the contract disputes that are between Iran and a private company, and therefore outside the jurisdiction of the Claims Tribunal. See id. In addition, the Ninth Circuit held that Elahi had the right to attachment against the Cubic judgment because TRIA allows for victims holding a judgment against terrorist parties to seek attachment of “blocked assets.” See id. at 1031–32. “Blocked assets” include any assets that are frozen under the IEEPA. See id. at 1032. Iran argued that under Executive Order 12,282, which unblocked particular Iranian assets, the Cubic judgment cannot be considered “blocked” under TRIA. See id. at 1034. The Ninth Circuit held that the judgment in favor of Iran for the ACMR is one such blocked asset that is subject to attachment. See id. at 1032–33. Iran now appeals these findings of the Ninth Circuit. The Supreme Court granted certiorari to determine whether the Cubic judgment consists of property at issue in Claim B/61 in the Iran-U.S. Claims Tribunal, and whether the judgment is a blocked asset subject to attachment under TRIA. See .
The most important aspect of this case is whether an interest in a private judgment that is directly related to a pending claim in the Iran-United States Claims Tribunal must be considered a claim “at issue” under the Terrorism Risk Insurance Act (“TRIA”) and therefore immune to attachment from parties who have received compensation from the United States Treasury Department for judgments against a foreign state. See Brief of the United States as amicus curiae in Support of Reversal at 11–12. The second issue, of whether the Cubic judgment is a “blocked asset” under TRIA is of lesser importance because the United States Department of State has recently designated Iran as “an entity of [nuclear] proliferation concern” whose “property and interests in property” in the United States are now blocked. See id. at 30.
Purposes of VTVPA and TRIA
Section 2002 of the Victims of Trafficking and Violence Protection Act (“VTVPA”) was enacted to address the problem of enforcing ten specific judgments against Iran and one judgment against Cuba. See Jennifer K. Elsea, Suits Against Terrorist States by Victims of Terrorism, CRS Report for Congress (2008) at 12. The VTVPA was designed to give the plaintiffs in these eleven actions a way to receive payment on their judgments. See Debra M. Strauss, Enlisting U.S. Courts in a New Front, 38 Vand. J. Transnat’l L. 679, 731 (2005). The VTVPA provides for compensation from the United States Treasury on condition that plaintiffs relinquish rights to assets at issue in the Iran-United States Claims Tribunal. See id. at 732. Under the VTVPA, the President of the United States had blanket waiver authority that allowed him to prevent attachment to foreign assets if doing so was in the interest of national security. See id. at 733.
Section 201 of TRIA addresses some of the shortcomings of the VTVPA and enables victims of terrorist acts to seek attachment to terrorist assets. See Strauss at 734. Section 201 applies to judgments against any terrorist parties and is “designed to provide a new powerful disincentive for any foreign government to continue sponsoring terrorist attacks on U.S. citizens.” See id. at 734. Section 201 of TRIA allows plaintiff to secure attachment against the blocked assets of the terrorist party. See id. TRIA expanded the number of cases against Iran that qualify for compensation under VTVPA. See Elsea at 22–23. Elahi’s action is one such case. See id. at 44. TRIA also limits the power of the President to grant waivers to attachments of blocked assets by requiring that the President consider blocked assets individually to determine if a waiver is necessary to national security. See Strauss at 735.
Some have criticized the VTVPA’s system of compensation through the U.S. Treasury as counterintuitive to deterring state-sponsored terrorism. See Elizabeth L. Bahr, Is the Gavel Mightier Than the Sword? 15 Geo. Mason L. Rev. 1115, 1146 (2008). Under the VTVPA, the United States compensates victims directly and then attempts to recoup the money from Iran. See id. Thus, U.S. taxpayers pay for the compensation up front. In addition, in 2004, Iran’s blocked assets in the United States were not sufficient to cover the amount of the judgments against it. See id. at 1146 n.196. The worry is that one justification for granting U.S. courts jurisdiction to hear civil actions against terror-sponsoring states—deterring terrorism by making states pay damages for terrorist acts—is diminished if the United States pays victims directly with only the prospect of reimbursement. See id. at 1146; See also Posting of Dave Stratton to Insurance Defense Blog (Aug. 27 2003). This concern does not seem to apply to a plaintiff’s ability to attach to terrorist state assets under TRIA, but the deterrent effect of attachment seems to be limited to the amount of blocked assets located in the United States. However, the fact that TRIA has made it easier for terrorism victims to attach to foreign assets may contribute to “deterring terrorists from choosing U.S. targets.” See Strauss at 739. In addition, TRIA may be used to “deplete [terrorist] assets before they can be exploited by the terrorists” See id. at 741.
The Application of the VTVPA and TRIA to Elahi’s Case
The Solicitor General argues that the Cubic judgment is at issue in the Claims Tribunal because it has an impact on the potential amount Iran may recover from the United States if it succeeds in Claim B/61. See Brief of the United States at 16–18. Iran’s ability to collect on its action against Cubic would reduce the potential amount of damages that Iran could secure from the United States. See id. The Solicitor General argues that allowing Elahi to attach to the Cubic judgment would undermine the purpose of the waiver provision in the TRIA to limit the liability of the United States government. See id. at 19. To allow victims who receive compensation from the Treasury under TRIA to seek attachment against property that has a direct impact on damages in the Claims Tribunal may force the United States to pay double damages, “once directly, under TRIA, and once indirectly, by compensating Iran for the attached property.” See id. at 19. Thus, Elahi’s attachment “could increase the United States’ liability to Iran in claims before the Tribunal or frustrate the United States’ ability to recoup its payments through appropriate offsets.” Id.
In contrast, Elahi argues that the interpretation of the United States and the Ministry of Defense as to the meaning of property interests “at issue” is inequitable in that it would create doubt as to what rights a VTVPA claimant gives up in exchange for partial compensation. See Brief for Respondent Dariush Elahi at 45–46. This result, Elahi contends, would be antithetical to the VTVPA and TRIA’s goal of fairly compensating victims. See id. at 45. TRIA was designed to allow recipients of VTVPA compensation who receive less than 100% of their judgments to seek out further relief in the form of attachments against assets. See Elsea at 23.
The VTVPA and TRIA have the goals of deterring terrorism and fairly compensating victims. This case demonstrates how the goals of United States foreign policy with regard to Iranian assets can conflict with the full compensation of victims. The decision will therefore have implications for the victims of terrorism who have won judgments against foreign states and have received TRIA compensation because it will help to determine when victims have waived attachment rights.
Whether the Cubic Judgment Was Property “At Issue”
The main contention between MOD and Elahi is whether the Cubic Judgment was property “at issue” before the Iran-United States Claims Tribunal under TRIA, and thus not available for attachment. MOD argues that Congress intended for TRIA’s “at issue” provision to be broadly construed to prohibit a private litigant from attaching either property at issue in a claim before the Tribunal or property as the subject of an award issued by the Tribunal (for example a money judgment). See Brief for Petitioner at 27. MOD argues that by placing the “at issue” provision in this disjunctive form, Congress intended for the statute to extend to different parts of the proceedings, rather than being limited solely to the claim itself. See id. Ultimately, MOD concludes that this broad construction is necessary to prevent a private litigant, through his or her attempts to enforce a judgment against a foreign sovereign, from undermining the U.S.’s foreign policy objectives. See id. at 25.
Elahi, on the other hand, argues that MOD’s statutory construction is inequitable and possibly unconstitutional because it fails to give victims fair notice of the property rights they give up for accepting compensation from the United States instead of the foreign sovereign. See Brief for Respondent at 45. Elahi points out that because the proceedings of the Claims Tribunal are largely secretive, to hold that any property interests that are mentioned in Tribunal proceedings are “at issue” would create open-ended waivers that would prevent victims of terrorism from determining beforehand what rights they would lose in receiving partial compensation for their damages from the U.S. Treasury. See id. at 46–47. Thus, Elahi challenges that a broad interpretation of property interests “at issue” creates an unfair standard because rights of attachment become contingent on whether parties to a Tribunal claim “address the property in arguments regarding the calculation of damages . . . in a separate claim . . . .” See id. at 46.
MOD counters that Elahi was put on public notice as to the Cubic judgment being “at issue” because the Claims Tribunal issued a public opinion in 1987 known as Claim B/66, which involved a similar but distinct claim from B/61 against the United States. See Reply Brief for Petitioner Ministry of Defense and Support for the Armed Forces of the Islamic Republic of Iran at 24–25. Thus, the Ministry argues, the publicly available B/66 Tribunal decision put Elahi on notice that the Cubic judgment was at issue in the related B/61 case. See id. at 24–25. The Ministry also claims that a broad reading of “at issue” does not undermine the purpose of TRIA because the statute is designed to award compensation in exchange for a voluntary waiver of rights and does not unfairly force victims to relinquishment any rights. See id. at 26.
MOD and Elahi’s “at issue” argument goes beyond the narrowness or broadness of the phrase’s scope. MOD contends that because both the United States and Iran agreed to set-off funds from the Cubic ICC judgment against any award in the B/61 case, the Cubic judgment is “at issue” in an international claims tribunal. See Brief for Petitioner at 32. Assuming that “at issue” means “under dispute,” MOD points to international law’s definition of a dispute, which includes not only claims themselves, but also counterclaims, set-offs, and recoupments. See id. at 30, 38. It then indicates that the Supreme Court has a history of ruling that foreign sovereigns initiating claims in the United States are subject to the U.S. asserting set-offs or recoupments arising from the same transaction as the claims, which reduce the amount of damages due. See id. at 39. MOD concludes that as a “matter of symmetry,” these foreign sovereigns are themselves allowed to subject the U.S. to recoupments or set-offs for amounts due. See id. at 40. MOD points out that the existence of set-offs and recoupments presumes that an underlying claim or dispute exists for such use. See id. at 41. As a result, the fact that any payment Iran will receive under the Cubic judgment will be set off against any judgment Iran obtains against the U.S. in the B/61 case illustrates that the Cubic judgment is “at issue.” See id. at 40-41. In essence, the Cubic judgment arises from the same transaction as the B/61 case, which is still pending before the Tribunal, hence “at issue” itself.
In response, Elahi argues that there is no merit to MOD’s contention that there is a set-off claimed by the U.S. which makes the Cubic judgment “at issue.” See Brief for Respondent at 32. Looking at TRIA’s text, Elahi maintains that Congress had defined certain claims against the U.S. that private claimants could not attach in order to enforce judgments against Iran. See id. MOD’s assertion turns on the assumption that the set-off claim was made by the U.S., which Elahi concludes, falls outside the scope of TRIA, and also is not “at issue” before the Tribunal. See id. Moreover, Elahi contends, the U.S. never stated that it asserted any set-off against the Cubic judgment. See id. at 33. While MOD had referred to statements made by both Iran and U.S. agents in Case B/61 to prove the existence of such an assertion, Elahi points to the Tribunal’s rules, which require that a claim for set-off be timely and formally presented through pleadings. See Brief for Petitioner at 32; See also Brief for Respondent at 33. Because of the absence of such a filing, Elahi argues, MOD’s contention is precluded. See Brief for Respondent at 34.
In response, MOD points out that both the US and Iran have acknowledged the recoupment agreement before the Tribunal, and that it was aware of the status of the Cubic judgment. See Reply Brief for Petitioner at 12. It argues that the Tribunal’s case law indicates that such secondary matters are taken into account in calculating damages. See id. at 13. Moreover, MOD states that Elahi fails to mention that in a later, amended claim in the B/61 case (pursuant to a procedural rule), MOD added its intent use the Cubic judgment as recoupment from any judgment against the U.S., thus meeting the formality requirement. See id. at 14.
Whether the Cubic Judgment Was a “Blocked Asset”
Should the Supreme Court find that the Cubic judgment is not “at issue,” and that Elahi has not waived his right to attach, MOD contends that Elahi still may not attach the judgment because it was not a “blocked asset” under TRIA. See Brief for Petitioner at 45. TRIA defines attachable property as any asset blocked (“seized or frozen”) by the U.S. under the International Emergency Economic Powers Act. See TRIA § 201(d)(2)(A). MOD argues that the Cubic judgment is neither seized nor frozen by the U.S. under TRIA, but rather, is regulated by the Iranian Assets Control Regulation (“IACR”). See Brief for Petitioner at 47. This regulation encompasses Iranian property where Iran’s interest in it arose after January 19, 1981. See 31 C.F.R. § 535.579(a). Because the attached property here is the Cubic judgment, Iran’s interest did not arise until 1998, when the ICC award was confirmed in the District Court of Southern California. See id. at 48. Hence, by being governed by the IACR, the Cubic judgment is outside the scope of TRIA, and consequently, outside the definition of a “blocked asset.” See id. at 49.
Elahi, in response, argues that the Cubic judgment is a “blocked asset” under TRIA in light of Executive Order 13382, where President Bush declared that MOD’s property and its interests in property were blocked. See Brief for Respondent at 49. Furthermore, Elahi points out, the U.S. State Department specifically designated the Cubic judgment, among others, as a blocked asset, making it subject to attachment. See id. Because this designation occurred after the Ninth Circuit rendered its decision, the Supreme Court would have to consider in the first instance whether the Cubic judgment is a “blocked asset” in light of the new development.
MOD asks the Court to decline such a consideration. See Reply Brief for Petitioner at 27. It urges the Court to reject it because it would essentially be unfair to allow Elahi to change his position on appeal by relying on facts that are not in the record. See id. at 28. MOD points out that Elahi had argued before the Ninth Circuit that the Cubic Judgment was essentially the liquidated form of the original property at issue: the ACMR for which Iran had contracted with Cubic. See id. at 3. By equating the judgment to the military asset, Elahi could then argue that the Cubic Judgment was still subject to U.S.’s blocking orders, and thus constituted a “blocked asset” under TRIA. See id. By now arguing that the 1998 Cubic judgment is not the same property as the ACMR, MOD contends that Elahi has changed his position before the Supreme Court to the opposite of what he was arguing before the Ninth Circuit. See id. at 8; See also Brief for Respondent at 24–25. In essence, MOD asserts that Elahi should be precluded from this argument because it places Elahi at an unfair advantage. See Reply Brief for Petitioner at 8.
The issues presented in this case bring up the question of when a private claimant can attach the property of a foreign sovereign. Under VTVPA and TRIA, victims of state-sponsored acts of terrorism by Iran may receive compensation from the United States Treasury Department toward the satisfaction of judgments against Iran, but must relinquish rights to attachment against certain property interests of Iran. The Supreme Court’s decision here will clarify when victims of terrorism who have won judgments against Iran and have received Treasury compensation have lost their rights to attachment against Iran’s property interest.
Edited by: Carrie Evans