Bank Markazi is a classic separation of powers case, and the Courts seem poised to defer to Congress.
On Wednesday the Iranian Central Bank argued before the United States Supreme Court that Iranian-owned assets in U.S.-based accounts cannot be used to satisfy judgments against Iran.
The narrow legal question in Bank Markazi v. Peterson is whether and to what extent Congress can dictate the outcome of a pending suit by statute, but the practical question is whether victims of Iranian terror can obtain payment for their and their loved ones’ suffering and deaths.
Plaintiff Deborah Peterson sued the government of Iran for the wrongful death of her brother, Lance Corporal James C. Knipple, who was killed along with 240 other Americans in the 1983 bombing of the U.S. Marine Corps barracks in Beirut, Lebanon. Numerous other Plaintiffs sued Iran either for their own or for loved ones’ injuries and deaths in other Iranian terror attacks including the bombing of the Khobar Towers in Saudi Arabia that killed 19 U.S. Airmen.
Iran did not appear in court to defend these suits, and the various courts entered default judgments against it in 19 different cases in an aggregate amount of several billion dollars.
But obtaining a judgment is not the same as getting paid. To obtain payment the families subsequently brought the suits actually at issue before the Supreme Court, this time against Iran’s national bank, among others. The Plaintiffs have asked the Court to issue orders for distributing around $1.75 billion in assets Bank Markazi has in the United States in partial satisfaction of the default judgments.
While this case was pending, President Obama issued Executive Order 13,599, blocking Bank Markazi’s U.S. assets:
[I]n light of the deceptive practices of [Bank Markazi] . . . to conceal transaction of sanctioned parties. . . . [a]ll property and interests in property of the Government of Iran, including [Bank Markazi], that are in the United States . . . or that are or hereafter come within the possession or control of any United States person . . . are blocked.
Exec. Order No. 13,599, 77 Fed. Reg. 6659 (Feb. 5, 2012). Shortly thereafter, Congress passed the Iran Threat Reduction and Syria Human Rights Act of 2012, 22 U.S.C. § 8772 (“§ 8772”).
Normally (and subject to various exceptions), foreign governments and their subsidiaries and assets are not subject to suit in the United States under the Foreign Sovereign Immunities Act (“FSIA”) and several related statutes. § 8772 stripped away that immunity under a very narrow set of circumstances.
Under § 8772, Foreign assets:
shall be subject to execution or attachment in aid of 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 torture, extrajudicial killing, aircraft sabotage, or hostage-taking, or the provision of material support or resources for such an act.
To apply § 8772, the Court need only determine that 1) Iran has an interest in the assets and 2) nobody else does. And if somebody else does have an interest in the assets, those assets are still available “for execution or attachment in aid of execution to the extent of Iran’s equitable title or beneficial interest therein.”
§ 8772’s drafter went a step further – and possibly a step too far for the Constitution to abide. 22 U.S.C. § 8772(b) provides:
(b) Financial assets described
The financial assets described in this section are the financial assets that are identified in and the subject of proceedings in the United States District Court for the Southern District of New York in Peterson et al. v. Islamic Republic of Iran et al., Case No. 10 Civ. 4518 (BSJ) (GWG), that were restrained by restraining notices and levies secured by the plaintiffs in those proceedings, as modified by court order dated June 27, 2008, and extended by court orders dated June 23, 2009, May 10, 2010, and June 11, 2010, so long as such assets remain restrained by court order.
In other words, this statute can only ever apply to the specific assets at issue in Bank Markazi.
This is a classic separation of powers case, as Bank Markazi argues that Congress, by passing 22 U.S.C. § 8772, usurped the courts’ Article III powers to adjudicate controversies.
The District Court granted Plaintiffs’ motion for summary judgment, holding that he Plaintiffs were entitled to the $1.75 billion in assets as a matter of law. The United States Court of Appeals for the Second Circuit affirmed, rejecting Bank Markazi’s three arguments.
First, the Second Court that the 1955 Treaty of Amity between the United States and Iran provided no help to the bank. In the first instance, § 8772 superseded the Treaty:
“The Supreme Court has held explicitly that legislative acts trump treaty-made international law, stating that ‘when a statute which is subsequent in time [to a treaty] is inconsistent with a treaty, the statute to the extent of conflict renders the treaty null.’ “ United States v. Yousef, 327 F.3d 56, 110 (2d Cir.2003) (alteration in original) (quoting Breard v. Greene, 523 U.S. 371, 376, 118 S.Ct. 1352, 140 L.Ed.2d 529 (1998)); see also Whitney v. Robertson, 124 U.S. 190, 194, 8 S.Ct. 456, 31 L.Ed. 386 (1888) ( “By the constitution, a treaty is placed on the same footing, and made of like obligation, with an act of legislation ․ [and] if the two are inconsistent, the one last in date will control the other.”). Indeed, when Iran raised a similar argument against turnover under TRIA section 201(a) in a different case, we concluded that even if this provision conflicted with the Treaty of Amity, “the TRIA would have to be read to abrogate that portion of the Treaty.” Weinstein v. Islamic Republic of Iran, 609 F.3d 43, 53 (2d Cir.2010)
The Second Circuit also held that even if § 8772 did not supersede the Treaty, the language of the two do not conflict. The Court’s reasoning on this point is weak, but it did not come up at oral argument.
The Court held that § 8772 does not conflict with a Treaty provision that Iranian companies would receive treatment no “less favorable than that accorded nationals and companies of any third country.” § 8772 explicitly treats Markazi Bank’s assets differently and less favorably than other nations’ companies’ assets.
Second, the Circuit held that § 8772 does not amount to an unlawful taking because Iran failed to appear in the underlying litigation and § 8772 “simply helps plaintiffs reach Iranian assets in partial satisfaction of these judgments.”
Third, and the important issue before the Supreme Court, Bank Markazi argues that in passing § 8772 Congress usurped the Court’s power by dictating the outcome of the case. As the Second Circuit framed it, Bank Markazi:
challenge[d] § 8772 as violating the separation of powers between the legislative branch and the judiciary under Article III by compelling the courts to reach a predetermined result in this case.
Relying on two Supreme Court precedents (United States v. Klein, 80 U.S. 128 (1872) and Robertson v. Seattle Audubon Society, 503 U.S. 429 (1992)) and a Second Circuit precedent, the Court rejected Bank Markazi’s argument because:
§ 8772 does not compel judicial findings under old law; rather, it changes the law applicable to this case. And . . . leaves the determination of certain facts to the courts . . .
Bank Markazi argues that while § 8772(a)(2) may formally give discretion to the courts, it effectively compels only one possible outcome, as Iran’s beneficial interest in the assets had been established by the time Congress enacted § 8772. But this argument is foreclosed by the Supreme Court’s decision in Robertson, as the statute there was specifically enacted to resolve two pending cases, and the Supreme Court found no constitutional violation. Indeed, it would be unusual for there to be more than one likely outcome when Congress changes the law for a pending case with a developed factual record.
In essence, the Second Circuit upheld § 8772 because it changed the applicable law and thereby assured a given outcome, rather than instructing courts to make a particular determination:
there may be little functional difference between § 8772 and a hypothetical statute directing the courts to find that the assets at issue in this case are subject to attachment under existing law, which might raise more concerns. But we think it is clear that under the Supreme Court’s guidance in Robertson, § 8772 does not cross the constitutional line.
Issue Before The Supreme Court
The two Supreme Court precedents cited by the Second Circuit provide little guidance. In Klein, the Supreme Court invalidated a post-Civil War statute that required an appellate court to “treat pardons of Confederate sympathizers as conclusive evidence of disloyalty,” after both the trial court and a previous appellate court decision had held that pardons had the opposite effect. The Supreme Court reasoned:
[according to the legislation] the court is forbidden to give the effect to evidence which, in its own judgment, such evidence should have, and is directed to give it an effect precisely contrary.
We must think that Congress has inadvertently passed the limit which separates the legislative from the judicial power.
80 U.S. at 147.
In Robertson, environmentalists argued the Department of the Interior’s management of logging in the Pacific Northwest provided too little protection for the Northern Spotted Owl in thirteen areas of Oregon and Washington. During the litigation, Congress enacted the Northwest Timber Compromise which instructed how logging should be managed in those same thirteen areas and that:
management of areas according [with the new rules] . . is adequate consideration for the purpose of meeting the statutory requirements that are the basis for the consolidated cases [in Robertson]
503 U.S. at 434-35. The Supreme Court upheld the new statute, reasoning:
Before [the new legislation] was enacted, the original claims would fail only if the challenged harvesting violated none of five old provisions. Under [the new legislation], by contrast, those same claims would fail if the harvesting violated neither of two new provisions. Its operation, we think, modified the old provisions. Moreover, we find nothing in [the new legislation] that purported to direct any particular findings of fact or applications of law, old or new, to fact.
503 U.S. at 439.
There is a wide gap between Klein and Robertson. Klein was ham-handed and egregious, as Congress instructed the Court to find a given fact (a pardon) had a particular legal effect (non-loyalty), after the Court had already found the opposite as a matter of law. Robertson, on the other hand, changed the applicable legal standard but left both fact-finding and application of law to fact to the judiciary.
The Elephant In The Room
The case is further complicated by the latent foreign policy issues. Courts are reluctant to interfere with foreign relations for a variety of generally good reasons. One way the courts express this is to ask or allow the United States government to intercede in cases with foreign policy implications. In Bank Markazi, the Court invited the Solicitor General to submit a brief on whether or not to grant the Bank’s petition for a writ of certiorari.
The Solicitor General, Donald B. Verrilli, Jr., asked that the writ be denied, but it was granted anyway.
Before the Supreme Court, a wide range of NGOs and political figures filed briefs on behalf of the plaintiffs as amicus curiae. Amicus curiae means “friend of the court” and an amicus brief is filed by an individual or organization without a stake in the case but with some expertise or interest that might assist the Court or that the Court ought to know about before deciding the case.
In Bank Markazi, the Solicitor General again filed an amicus brief supporting the Respondents, as the Plaintiffs are now known in the Supreme Court proceedings. The United States Senate also filed an amicus brief for the Respondents, and Senators Whitehouse, Graham, Cruz and Coons together filed another. The Foundation for Defense of Democracies also filed for the Respondents.
This is some real political heft, but the very issue before the Court is whether Congress has taken too much of an interest in this specific case. More Congressional pressure to decide the case the way it asks may not have the intended effect.
The oral argument transcript is here. The Court was decidedly skeptical of Bank Markazi’s position and appears poised to hold in favor of the Plaintiff/Respondents. Justice Scalia asked what basis Bank Markazi had for limiting Congress’s power. Justice Kagan called Bank Markazi’s proposed distinctions “nonsensical.”
Various Justices noted that Congress and the President agreed that the underlying assets should be available to satisfy terrorism-related judgements and that the courts are properly reluctant to intercede in matters touching on foreign policy.
Look for a lopsided victory for the Plaintiffs.