Thursday, October 24, 2002
Ninth Circuit Rejects Attempt to Collect on Terror Award Against Iran
By ROBERT GREENE, Staff Writer
A New Jersey lawyer whose daughter died in a 1995 Gaza suicide bus bombing lost another round yesterday in his continuing attempt to collect on a $247 million wrongful death judgment against the Islamic Republic of Iran.
The Ninth U.S. Circuit Court of Appeals rejected Stephen M. Flatow’s bid to execute his judgment on property in Carlsbad owned by Bank Saderat Iran, ruling that Flatow failed to show that the bank is simply an agent or front for the Iranian state.
It was Flatow’s contention that since BSI, like all banks, was nationalized in the wake of the 1979 Iranian revolution, it was an instrumentality of the state and not a separate juridical entity.
Eighth Circuit Judge Myron H. Bright, sitting by designation, wrote that the court regretted that its holding would prevent the family of college student Alisa Flatow from recovering against Iran, a nation found by the U.S. District Court for the District of Columbia to have offered material assistance to Palestine Islamic Jihad in the attack.
But Bright said the bank’s California property could not be the source of any recovery.
“The government of Iran should pay its debt to the Flatow family, but BSI cannot be held liable for this debt,” Bright said. “We follow the clear path set out by the applicable case law.”
Flatow’s lawyer, Thomas Fortune Fay, blamed this and other appellate court defeats on opposition from the U.S. government, which he said repeatedly blocks plaintiffs’ efforts to collect against the handful of officially designated “terrorist states.”
“We filed over 30 attachment actions in the Flatow case,” Fay said. “The State Department has come out consistently in support of Iran. It tells Iran and other countries that we’re not very serious in this war on terrorism.”
It is only unpaid punitive damages that Flatow is seeking to recover from Iran. The U.S. government paid him $26 million in compensatory damages under the Victims of Trafficking and Violence Protection Act of 2000. Although it is not reflected in the Ninth Circuit opinion, Fay said the source of the money was Iranian funds held by the U.S.
Courts generally lack jurisdiction to hear suits or award damages against a foreign nation under the Foreign Sovereign Immunities Act.
But based in part on the bus bombing that killed Alisa Flatow, and on her father’s lobbying efforts, Congress in 1996 passed the Antiterrorism and Effective Death Penalty Act creating an exception for nations designated terrorist states by the State Department. The list consists of Cuba, Libya, North Korea, Sudan, Syria, Iraq and Iran.
To bring a suit against one of those states, a plaintiff must show that the state committed a terrorist act that injured or killed a U.S. citizen, or provides material support to the person or entity that did.
Flatow sued, and the District Court in Washington, D.C., entered a default judgment against Iran in February 1997.
He filed a number of execution actions around the nation on what he asserted were Iranian assets. On Sept. 14, 1999, he obtained a writ of execution in the U.S. District Court for the Southern District of California on Carlsbad property owned by the California Land Holding Company, a wholly-owned subsidiary of BSI.
The property was about to be sold, and the parties agreed to allow the sale to go forward and to place the assets in an interest-bearing account subject to Flatow’s lien.
In discovery, Flatow tried to depose Abolhassan Bani Sadr, the president of Iran in the early years of the revolution who was deposed and now lives in France, and Ahmad Behbahani, who asserts that he is the former director of Iran’s terrorist operations.
The depositions were not permitted. The court ruled that it would cost too much to depose two men who were not shown to have first-hand knowledge of the degree of control Iran exerts over the bank and one, Behbahani, who as a Turkish resident was not in a country shown to be a signatory to the Hague Convention.
At issue in the case was whether BSI was a juridical entity separate from the Islamic Republic of Iran or instead an entity so directly controlled by Iran that a principal-agent relationship existed.
The authority on the question is the 1983 Supreme Court ruling in First National City Bank v. Banco Para El Comercio Exterior de Cuba, generally known as the Bancec case.
In Bancec, the court ruled that a bank could be held liable for the value of property expropriated by the government of Cuba since the bank was the government’s exclusive agent in foreign trade, the government owned all the bank’s stock, all profits were deposited in Cuba’s general treasury, and the board consisted of representatives from government ministries.
Flatow argued that Iran had substantially the same relationship with BSI, since the bank was nationalized after the revolution. He introduced as evidence the constitution of Iran, which gives the state authority over banking.
But the District Court ruled that Flatow had failed to show that BSI operates as an arm of the Iranian government, and Bright agreed.
BSI was founded in 1952 and operated privately until the revolution, Bright noted. It has its own charter, and although it is regulated by two government entities, its directors are elected and are not stand-ins for government officials.
The fact that Iran may own all the bank’s assets is not determinative of the issue, Bright said.
Fay said Flatow’s compensatory damage award came after he and other plaintiffs reached a compromise with the U.S. government under which a $400 million special fund was created and damages were paid from it—but only in cases enumerated in the 2000 act and a few other judgments added to an appropriations bill rider.
Fay said much of that money was paid by the prior Iran government for ships that were never delivered, since Iranian assets here were frozen after the taking of hostages at the U.S. embassy in Iran.
Counsel for BSI, Steven W. Kerekes of Beverly Hills, could not be reached for comment.
The case is Flatow v. Islamic Republic of Iran, 00-56446.
Copyright 2002, Metropolitan News Company