First Circuit ruling prevents Persian antiquities from being attached under Terrorism Risk Insurance Act.

AuthorAudet, Mark

Rubin v. Islamic Rep. Of Iran, 709 F.3d 49 (1st Cir. 2013).

The 2002 Terrorism Risk Insurance Act (TRIA) provides an exception to the Foreign Sovereign Immunities Act (FSIA) rule that property of a foreign state is immune from attachment and execution in U. S. courts. (1) TRIA permits attachment and execution of foreign property that has been blocked by the United States and is owned by a designated state sponsor of terrorism. (2) In Rubin v. Islamic Republic of Iran, (3) the United States Court of Appeals for the First Circuit ruled against a group of judgment creditors attempting to utilize TRIA's exception to the FSIA, and in turn prevented a default judgment against Iran from being satisfied through attachment of Persian antiquities held in U.S. museums. (4) The First Circuit's decision to dissolve the creditors' attachment relied on the 1981 Algiers Accords which unblocked nearly all Iranian property in the United States; more notably, the court relied on the amicus brief filed by the U.S. Department of Treasury's Office of Foreign Asset Control (OFAC). (5)

On September 4, 1997, Hamas carried out a terrorist attack at the Ben Yehuda marketplace in Jerusalem, Israel. (6) Jenny Rubin and other American citizens seriously injured in the attack initiated a civil suit against Iran, alleging Iran was liable for the terrorist attacks based on its material support to Hamas. (7) In 2003, a default judgment was entered against Iran and the plaintiffs' were awarded USD71,500,000 in compensatory damages and USD37,500,000 in punitive damages. (8) This award prompted the plaintiffs to pursue Iranian property within the United States to satisfy the default judgment. (9)

After identifying Persian antiquities housed at the Museum of Fine Arts in Boston and Harvard University (collectively, museums), the plaintiffs registered the default judgment in the U.S. District Court of Massachusetts and petitioned to attach the antiquities. (10) The museums moved to quash the attachment asserting Iran did not own the antiquities, and claiming even if the antiquities were property of Iran, the items were immune from attachment under FSIA. (11) The plaintiffs then sought partial summary judgment asserting, inter alia, that the antiquities were "blocked assets" and were exposed to attachment under section 201 (a) of TRIA. (12)

The district court concentrated its review on Executive Order 12,170 (1979 Order) and the subsequent Executive Order 12,281 (1981 Order) issued in resolution of the Iranian hostage crisis and as part of the Algiers Accords. (13) The court found that the 1981 Order, which unblocked "uncontested" property interests of Iran, created a situation where TRIA's attachment power was triggered only where ownership of Iranian property was contested. (14) The district court held the museums had claimed ownership of the antiquities, thereby nullifying the unblocking effect of the 1981 Order, and bringing the property within the reach of TRIA. (15) Despite this favorable ruling for the plaintiffs, the district court dissolved the attachment, holding the plaintiffs had failed to show that Iran had an attachable interest in the antiquities in question. (16) On appeal, the First Circuit upheld the order to dissolve the plaintiffs' attachments. (17) The First Circuit, however, ruled ownership of the antiquities was not contested, and the antiquities remained unblocked per the 1981 Order and not attachable under TRIA. (18)

In 2002, Congress enacted TRIA and added an exception to the FSIA allowing attachment of blocked assets of state sponsors of terrorist groups. (19) The goal of TRIA is not only to deter state sponsored terrorism through expanded authority to attach the property in the face of the FSIA, but also provide victims of terrorist attacks a means to satisfy judgments against the terrorist nations liable for their injuries. (20) Blocked assets under TRIA are those assets "seized or frozen by the United States ... under sections 202 and 203 of the International Emergency Economic Powers Act." (21) In 1979, in reaction to the ongoing hostage crisis at the American embassy in Tehran, President Carter issued an executive (1979 Order) blocking all transactions involving the property of Iran. (22) This sanction froze all property of Iran within the United States, and property of Iran in the possession of persons within the United States 23

Upon the resolution of the hostage crisis, the United States unblocked most Iranian property through the 1981 Algiers Accords and a 1981 Order issued by President Carter. (24) The 1981 Order--along with the adoption of 31 C.F.R. [section] 535.215 ([section] 535.215)--instructed Iranian property to be unblocked and transferred "as directed ... by the Government of Iran." (25) OFAC regulation 31 C.F.R. [section] 535.333 ([section] 535.333) was also enacted in connection with the 1981 Order and defined the Iranian property unblocked by the 1979 Order as "uncontested and non-contingent liabilities and property interest." (26)

In Islamic Rep. of Iran v. United States (Iran-US), (27) an international claims tribunal regarded the usage of "uncontested" and "non-contingent" in [section] 535.333 as indicators that Iran's interest in property was to be free of defects and third party claims before it was transferred to Iran and out of the United States. (28) The tribunal held that Iran's interest in property must be unencumbered before it was unblocked. (29)

Ultimately, OF AC regulations [section] 353.215 and [section] 535.333 declare property is unblocked where Iran: (1) makes an affirmative declaration of ownership over the property; and, (2) where Iran has an "uncontested" or "non-contingent" interest in that property. (30) Since TRIA's inception, courts have had to piece together and analyze the effects of applicable blocking sanctions, OFAC federal regulations, and TRIA in order to determine whether property of state sponsors of terrorism is attachable. (31) Determining if property of Iran is blocked and attachable pursuant to TRIA requires this type of juggling act. (32)

In Rubin, the First Circuit focused its review on whether the antiquities were "contested" within the meaning of OFAC regulation [section] 535.333, and therefore blocked under the 1979 Order. (33) Utilizing arguments presented by OFAC in its amicus brief, the First Circuit ruled a contest over the antiquities' ownership could not be created where Iran did not first affirmatively make a claim of ownership. (34) The court declared that because Iran had not directed the antiquities to be turned over a contest was impossible and the antiquities remained "uncontested," and therefore unblocked under the 1981 Order. (35) The creation of this rule hinged on the language of [section] 535.215, which required that property be turned over "as directed ... by the Government of Iran." (36) The use of "as directed" was ruled to create a condition precedent to what was contemplated in [section] 535.333 and what the regulation classified as unblocked property. (37)

As a result of implementing this condition precedent, the First Circuit created a definition of "uncontested property of Iran" that is unblocked based on the fact Iran has not asserted its ownership over that property. (38) The court gave deference to OFAC's interpretation of [section][section] 535.215, 535.333 and the use of this condition, as OFAC is the agency responsible for enacting these regulations. (39) The court determined OFAC's interpretation could only be disregarded where it was shown to be "plainly erroneous or inconsistent with the regulation." (40) The court further emphasized that the ability to attach blocked assets of Iran was not foreclosed by its ruling in Rubin. (41) It pointed to the fact...

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