Bank Markazi v. Peterson et al.

Issues 

Did Congress violate the constitutional principle of separation of powers by enabling plaintiffs in a single pending case to attach Iranian assets to satisfy their unpaid judgments?

Oral argument: 
January 13, 2016

In dozens of consolidated cases, Deborah D. Peterson and other plaintiffs (collectively, “Peterson”) representing terror victims collected billions of dollars in judgments against Iran for financing terrorist attacks.  In 2010, Peterson sued Bank Markazi, the government-owned Central Bank of Iran, under the Terrorism Risk Insurance Act (“TRIA”). TRIA allows plaintiffs to attach or garnish the blocked assets of terrorists or their agents. While the action was pending, President Obama issued an executive order blocking the transfer of Bank Markazi’s assets from New York-based accounts, and Congress passed the Iran Threat Reduction and Syria Human Rights Act. The Act’s relevant portion, section 8772, authorized the Peterson plaintiffs to execute against Bank Markazi’s assets to satisfy their unpaid judgments. The law was explicitly limited to Peterson’s action, pending in the District Court for the Southern District of New York. Based on section 8772, the district court granted Peterson Summary judgment, and the Second Circuit affirmed. The Supreme Court will decide whether Congress violated the constitutional principle of separation of powers by enacting laws that compelled a certain outcome in Peterson’s case.  . Bank Markazi argues that section 8772 impermissibly determines the outcome of a single pending case, which marks a Congressional expansion of power that is not supported by the Constitution or the Court’s precedent. Peterson contends that Bank Markazi’s attack on the statute is unwarranted, because Congress has the constitutional authority to modify the governing law for pending civil litigation in in outcome-determinative ways.  . The outcome of this case will affect the balance of power between Congress and the courts, and clarify Congress’ power to affect pending litigation. ,    

Questions as Framed for the Court by the Parties 

Does § 8772—a statute that effectively directs a particular result in a single pending case—violate the separation of powers?Does § 8772—a statute that effectively directs a particular result in a single pending case—violate the separation of powers?

Facts 

Deborah D. Peterson and several individuals (collectively, “Peterson”) represent people killed in terrorist attacks sponsored by Iran.  Peterson has obtained billions of dollars in unpaid judgments against Iran, and sought payment of $1.75 billion in “cash proceeds of government bonds” held by Bank Markazi, the government-owned Central Bank of Iran.  Citibank, N.A. held the proceeds in a New York account on behalf of Clearstream Banking, S.A.. A financial intermediary, Clearstream maintained an account for the Italian bank Banca UBAE S.p.A, whose customer is Bank Markazi. Bank Markazi contended that “this chain of parties” gave it an interest in the assets. 

In 2008, Peterson filed a restraining order against any transfer of the assets.  In 2010, Peterson brought suit against Clearstream, UBAE, Citibank, and Bank Markazi to recover the assets under the Terrorism Risk Insurance Act (“TRIA”). The TRIA provides that, in judgments obtained against terrorists, blocked assets belonging to the terrorist group or its agents are subject to garnishment or attachment 

While the action was pending in the Southern District of New York, President Obama issued an Executive Order blocking the transfer of any assets from Bank Markazi to the United States, citing the Bank’s dishonest practices.  Subsequently, Congress passed the Iran Threat Reduction and Syria Human Rights Act of 2012.  Under the relevant section, 22 U.S.C. § 8772, compensatory damages awarded in Peterson’s case “shall be subject to execution . . . in order to satisfy any judgment to the extent of any compensatory damages awarded against Iran for damages for personal injury or death caused by an act of [terrorism].” 

In light of TRIA and section 8772, the district court granted summary judgment in favor of Peterson and ordered the banks to turn over blocked assets for the payment of damages.   Clearstream, UBAE and Citibank settled with Peterson, but Bank Markazi appealed. 

On appeal to the U.S. Court of Appeals for the Second Circuit, Bank Markazi argued that section 8772 conflicted with the Treaty of Amity of 1955, which provides guidance on the treatment of Iranian companies and their companies’ access to U.S. courts.    The Second Circuit determined that there was no conflict between the treaty and the district court’s decision, and that in any case, section 8772 rendered the treaty null by virtue of its passage later in time.  Bank Markazi next contended that section 8772 violated the constitutional principle of separation of powers. Bank Markazi explained that Congress had usurped the district court’s role by compelling a certain decision in the case—that is, the transfer of assets from the Bank to Peterson. The Court of Appeals rejected this argument, holding that Congress can change the law applicable to a pending case. Bank Markazi also argued that application of section 8772 amounted to a violation of the Takings Clause, and that the district court lacked jurisdiction over its assets outside the United States. The Court of Appeals rejected both of these arguments. 

Bank Markazi appealed to the Supreme Court, and the Court granted certiorari on October 1, 2015. 

Analysis 

Section 8772 provides that judgments obtained by Peterson against Iran can be attached if Iran has a beneficial interest in the assets and no other person possesses a constitutionally protected interest in those assets. The Court will decide whether Congress unconstitutionally encroached on the judiciary’s power by passing section 8772.   Bank Markazi argues that section 8772 ursurps the judiciary’s authority to determine the outcome of individual cases.   But Peterson asserts that Congress has the constitutional authority to modify governing law applicable to pending civil litigation in ways that may compel a certain outcome. 

DOES SECTION 8772 VIOLATE THE PRINCIPLE OF SEPARATION OF POWERS?

Bank Markazi claims that Article III of the Constitution clearly vests the judiciary with the power to decide individual cases.   The Framers feared the old English tradition “‘of a system of intermingled legislative and judicial powers,’ . . . fraught with abuses,’” Bank Markazi argues, so they distinguished between the power to enact laws, which rests with Congress, and the power to decide individual cases, which rests with the courts.  The Constitution provides that the judicial power extends “to particular categories of ‘cases’ or ‘controversies.’” This language, Bank Markazi argues, establishes the separation of powers.   Yet, Bank Markazi asserts, Congress acted as a court by using section 8772 to decide this case’s outcome.  . Bank Markazi asserts that section 8772’s language expressly limits its application only to this case and expressly disavows section 8772’s potential impact on other cases. Bank Markazi explains that section 8772’s legislative history shows that Senate and House sponsors agreed that the law’s purpose was “to be sure that . . . Iran . . . should not be able to avoid having its assets attached.” 

Peterson argues that section 8772 does not violate separation of powers.  . Peterson cites three settled principles that establish Congress’ power to modify the law for pending cases in outcome-determinative ways.    First, Peterson contends that Congress can “unquestionably amend the law applicable to pending civil cases,” which the courts must apply. Second, Peterson asserts that Congress can modify laws applicable to specific claims, people, or property.    Third, Peterson argues that Congress pass “laws that are outcome-determinative in the cases to which they apply.”  Peterson explains that nearly all Congressional legislation is outcome-determinative for federal claims, because the claims are defined by federal law. Peterson concludes that these principles establish that Congress has the authority to modify law for a finite number of pending cases in outcome-determinative ways.  

DOES SECTION 8772 DETERMINE THE OUTCOME OF A SINGLE PENDING CASE?

Bank Markazi argues that section 8772 effectively determines this case’s outcome, because it abolished every state and federal law defense the bank raised .   For example, Bank Markazi explains that state law prohibited Peterson from seizing Clearstream’s assets to satisfy her judgment, but section 8772 overruled that law.  Bank Markazi asserts that federal law prevented the plaintiffs from seizing Bank Markazi’s assets to satisfy a judgment against Iran, because Bank Markazi is a separate juridical entity.  But Bank Markazi contends that section 8772 eliminated that distinction.   Bank Markazi argues that the Foreign Sovereign Immunities Act prohibited the plaintiffs from reaching Bank Markazi’s assets, but section 8772 altered sovereign immunity law. Bank Markazi contends that the Treaty of Amity prohibits discriminatory and unreasonable treatment of Iranian companies, but section 8772 targets Bank Markazi for “uniquely oppressive treatment precisely because it is Iranian.” Without defenses, Bank Markazi concludes that Congress effectively decided the case’s outcome.   Bank Markazi concedes that section 8772 required the court to decide whether Iran had a “beneficial interest in the assets” and whether any other person had “a constitutionally-protected interest in the assets.”  But Bank Markazi argues that these findings were “foregone conclusions.” Bank Markazi asserts that it already acknowledged its beneficial interest in the assets, and section 8772 excluded the only other entitles that could possess an interest in the assets. 

Peterson acknowledges that section 8772 modified the law to allow execution against Iran’s assets, abrogated foreign sovereign immunity, and preempted state law preventing execution. But Peterson argues section 8772 is constitutional because it did not simply determine case outcomes without modifying the law. Rather, Peterson characterizes section 8772 as altering legal standards governing this case and “cases that are (or become) consolidated with this action.”  In other words, Peterson asserts that section 8772 changed the governing law for a thousand claims that were consolidated into a single action.  

DOES THE SUPREME COURT’S PRECEDENT SUPPORT THE CONSTITUTIONALITY OF SECTION 8772?

Bank Markazi asserts that there is no precedent to support section 8772’s constitutionality.   Bank Markazi explains that arguably related precedent is uninstructive; the cases involve public rights (i.e., claims for relief against the United States) and generally-applicable legislation with “meaningful prospective effects.”   Bank Markazi contends that there is no precedent allowing Congress to pass legislation solely aimed at deciding a pending case’s outcome.   Bank Markazi contends that the Court in United States v. Klein held that Congress lacks the power to decide a pending case’s outcome. In Klein, Bank Markazi explains, the Treasury Secretary had been directed to sell property confiscated during the Civil War, and original owners could sue to recover the proceeds of the sales, so long as they could “prove [] loyalty to the United States.” Later, Congress enacted a law that essentially prohibited pardoned Confederate sympathizers from demonstrating their loyalty even though they were pardoned. The Court struck down the law.   Bank Markazi argues that section 8772 is more constitutionally egregious than the contested statute in Klein, because section 8772 determines the outcome of a single case while Klein enacted a governing rule for a class of cases. 

Peterson contends that Bank Markazi invented the single-pending case exception, and thus the Court’s precedents do not support Bank Markazi’s attack on section 8772’s constitutionality.  Peterson cites precedent permitting Congress to modify law applicable to specific property and to modify law affecting the outcome of a finite group of cases.  Peterson notes that the Court previously held that “Congress may legislate ‘a legitimate class of one.’”  Peterson contends this precedent indicates that section 8772 is a valid exercise of congressional power.  Peterson also disagrees with Bank Markazi’s characterization of Klein.   Peterson asserts that the Court held that Congress must modify generally applicable rules to have an outcome-determinative effect. Peterson contends that Congress modified the applicable governing rules in this case—namely, the laws governing federal court procedures and foreign sovereign immunity. Peterson contrasts section 8772 with the contested statute in Klein, which essentially directed courts to find any pardoned sympathizer disloyal.  

Discussion 

The Supreme Court’s decision will further define the powers of the legislative and judicial branches, and clarify Congress’ ability to affect the result of pending cases.  Bank Markazi argues that section 8772 impermissibly infringes on judicial independence by predetermining the outcome of a pending case.  But Peterson argues that Congress acted within its constitutional powers.  

PRESERVING JUDICIAL INDEPENDENCE AND INTEGRITY

In support of Bank Markazi, Federal Courts Scholars (the “Scholars”) argue that section 8772 interferes with the constitutional system of checks and balances, and has the potential to erode the traditional functions of the legislative and judicial branches.  Since Marbury v. Madsion, the Scholars explain, the courts’ role has been “to say what the law is,” and to do so independently. The Scholars claim the drafters of the Constitution sought to protect citizens from a government concentrated in the hands of a few individuals, and a system that allows the legislative branch to direct case outcomes arguably puts too much power in Congress’ hands. The Scholars maintain that changing generally applicable law does not interfere with the judiciary’s role, because courts can still independently interpret the law. However, the Scholars argue that changing the law to direct certain decisions “compromises” the courts’ independence.  If Congress is allowed to craft judicial outcomes from the House floor, the Scholars argue that these outcomes will necessarily be driven by partisan politics. The Scholars maintains that litigants should not be subject to decisions based on the political whims of Congress.  Moreover, the Scholars claim that directing decisions allows Congress to avoid responsibility to its constituents by masking laws as judicial decrees.  

Peterson counters that the Constitution explicitly constrains Congressional power as part of the system of checks and balances, including limitations on when Congress may retroactively legislate.  Because these restraints on Congressional power are explicit, the Court should not create more restraints than the Constitution calls for.  Peterson argues that Congress has the power to define rights and to foreclose possible claims if it wants to.   And if anything, Peterson argues, section 8772 benefits Bank Markazi, because it provides notice to the implicated parties of the conduct it covers.  The United States adds that the political branches of government—the executive and legislative—“historically have exercised extensive authority over claims against foreign sovereigns.”  The United States explains that the courts have almost universally deferred to the decisions of the political branches in this arena, because the people have entrusted these branches with foreign affairs. The United States argues that the Court has again and again ratified Congress’ and the president’s acting to define the rights of claimants against foreign governments. 

LEGISLATING THE OUTCOME OF A SINGLE CASE

Scholars argue that even if the Court found that the statute modified the underlying law on assets subject to attachment, the statute is impermissible because Congress is not permitted to use its legislative power to determine the outcome of a single case.   Scholars claim that the courts are in the best position to hear the facts of a case and to rule on its outcome. If Congress can single out a specific case, the Scholars assert, then it could conceivably provide different outcomes for different litigants and thereby “pick and choose when litigation . . . will succeed and when it will fail.” 

Peterson contends that congress has the power to change applicable law in pending cases and enact statutes that impact a specific person or piece of property.  In Peterson’s view, Bank Markazi’s attempt to prohibit Congress from enacting legislation to affect pending litigation would enable litigants to interfere with Congressional authority to act simply by “preemptively filing suits.” The United States contends that the political branches “must have the ability to address the various concerns raised by such litigation,” because it affects the United States’ relationship with foreign governments.The United States explains that targeted legislative measures enable the political branches to respond to complex “international situations, while preserving flexibility to change course as events unfold.” 

Conclusion 

The Court will decide whether section 8772 violates the separation of powers by directing the outcome of a single pending case.  Bank Markazi argues that section 8772 violates the separation of powers by usurping the judiciary’s power to decide cases.  Peterson counters that Congress has the authority to modify law for a finite number of pending cases in outcome-determinative ways. The Court’s decision will impact the balance of power between Congress and the courts, and Congress’ ability to enact targeted legislation.

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