Ministry of Defense and Support for the Armed Forces of the Islamic Republic of Iran v. Elahi

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Authorship: Jaime Huling Delaye


Contents

[edit] Briefs and Documents

Docket: 07-615

Issue: Whether a disputed judgment against a military contractor at issue between Iran and the United States before the Claims Tribunal in The Hague is subject to attachment under the Victims of Trafficking and Violence Protection Act.

Merit briefs

Amicus briefs

Oral Argument

Transcript

Decision:REVERSED in an opinion by Justice Breyer

[edit] Pre-Argument Articles

[edit] Grant write-up

Guest blogger, Luisa Caro, wrote the following for SCOTUSblog, following the SG's GVR recommendation in the case.

Ministry of Defense v. Elahi, No. 07-615, involves the interplay between the Foreign Sovereign Immunities Act (FSIA), the Victims of Trafficking and Violence Protection Act of 2000 (”VTVPA”), and the Terrorism Risk Insurance Act of 2002 (”TRIA”). Moreover, the case touches upon three separate litigations involving the government of Iran.

The Ministry of Defense and Support for the Armed Forces of the Islamic Republic of Iran (”MOD”) entered into agreements with a California-based contractor for the sale and servicing of equipment for the Iranian Air Force in 1977. For reasons that are disputed, the delivery of the equipment did not take place. The MOD pursued international arbitration and was awarded $2.8 million against the contractor, Cubic Defense Systems. In 1998, the MOD filed a petition in the U.S. District Court for the Southern District of California seeking to confirm the award.

Separately, Iran brought claims against the United States before the Iran-U.S. Claims Tribunal in The Hague for failure to restore certain frozen Iranian assets. The Tribunal was constituted by the Algiers Accords signed January 1981, whereby Iran released the hostages at the U.S. Embassy in Tehran and the U.S. committed “to restore the financial position of Iran, in so far as possible, to that which existed prior to November 14, 1979.”

Third, respondent Dariush Elahi filed a claim in the U.S. District Court for the District of Columbia against Iran stemming from his brother’s assassination by agents of the Iranian government in 1990. Iran did not enter an appearance. After fact-finding hearings, the district court entered a default judgment against Iran and in favor of Elahi for $11.7 million in compensatory damages and $300 million in punitive damages in December 2000. In November 2001, Elahi registered the default judgment in the Southern District of California and sought to garnish the $2.8 million judgment owed by Cubic to Iran. The issue here is not whether Elahi’s claim against Iran for his brother’s assassination has been relinquished, but whether the vehicle for satisfying that judgment - i.e. his attachment of this particular judgment in favor of Iran - may be precluded by the specific statutory provisions that determine when a claim is relinquished.

This case is before the Court for the second time after having been remanded to the Ninth Circuit for that court to determine whether the MOD was either an “agency or instrumentality” of a foreign sovereign, and thereby covered under Section 1610(b) of the FSIA, or instead the foreign sovereign itself, covered under Section 1610(a). On remand, the Ninth Circuit determined that MOD was the foreign sovereign itself, and therefore that the Cubic judgment was immune from attachment. The Ninth Circuit held, however, that the attachment was nonetheless valid under the TRIA and VTVPA because it was not property “at issue” before an international tribunal (as provided by TRIA section 201(c)(4)) but it was a “blocked asset,” as required by TRIA sections 201(a) and 201(d)(2)(A).

The MOD petitioned again for certiorari, arguing that the Ninth Circuit’s decision misinterprets the relevant statutes and conflicts with other circuits. It first contends that Elahi cannot attach the Cubic judgment to satisfy his default judgment because the Cubic judgment is “at issue” in Iran’s claims against the U.S. before the Tribunal in The Hague and thus relinquished under the TRIA.

Under Section 201(c) of the TRIA, claims against Iran are relinquished by individual claimants who receive payment from the U.S. Treasury when the claims are also “at issue” before the Tribunal. MOD argues that the Cubic judgment is “at issue” because it arises from the same transaction or contract that forms the basis for one of Iran’s claims against the U.S. - compensation for military equipment that Iran alleges it did not receive, including the contract with Cubic - and any payment received from Cubic will be deducted from any liability by the U.S. Moreover, MOD contends, because Elahi received $2.3 million from the U.S. Treasury in partial satisfaction of his compensatory damages award, Elahi has, pursuant to Section 201(c)(4) of the TRIA, relinquished his right to any claims “at issue” before an international tribunal. Elahi counters, however, that the Cubic judgment is not “at issue” before the Tribunal because it is already final, and that he thus could not have relinquished his right to attach it.

Second, MOD argues, the judgment is not a “blocked asset” as required by the VTVPA and TRIA because Iran’s interest in it did not arise until in 1998 - that is, after the freeze and seizure of Iranian assets - when Iran sought to confirm the arbitration award in California. Elahi argues that the judgment is a “blocked asset” because the United States blocked all sales of military assets, and that in effect the judgment is a liquidated form of those military assets which according to Elahi, continue to be blocked. The parties also dispute whether the “asset” represented by the judgment arose in 1977 when Iran entered into the contracts (and thus within the time when assets were blocked), or in 1998 when Iran sought to confirm the judgment in California (and thus after the time period when assets were frozen and seized).

On February 19, 2008, the Court invited the Solicitor General to file a brief expressing the views of the United States on the case. In its brief, filed on Friday, the SG states that the Court should grant certiorari, vacate and remand to the Ninth Circuit for two reasons. First, the Ninth Circuit’s holding that the Cubic judgment was a blocked asset because Iran’s interest in the contracts arose in 1977 is erroneous. The SG explains that because Iranian assets were subsequently unblocked by executive orders, even if the Ninth Circuit were correct that Iran’s interest in the asset arose in 1977, that asset would not have been unblocked and therefore would be unavailable for purposes of attachment.

More importantly, however, the SG states that the matter should be remanded to the Ninth Circuit because, since the decision below, the State Department has designated MOD as an “entity of proliferation concern,” and Iran’s assets were once again blocked by Executive Order. On remand, the SG suggests, the case should be remanded for a determination based on the new designation and to allow the parties to brief the matter. The SG further notes that if the Ninth Circuit were to find, based on the new designation, that the Cubic judgment was a “blocked asset” subject to attachment under TRIA, it would both eliminate any conflict with other circuits and avoid a conflict with the United States’s position before the Tribunal that all previously frozen Iranian assets were unblocked.

On the question whether the Cubic judgment is “at issue” in the case against the United States before the Tribunal, the SG agrees with MOD that the Cubic judgment is at issue because the same facts underlie both claims and the U.S. would be entitled to a set-off for any recovery that Iran received from the Cubic judgment. In the SG’s view, however, certiorari is not warranted simply to correct the Ninth Circuit’s error on this question, because even Elahi did in fact relinquish his claim by receiving payment from the U.S. Treasury, other claimants who have not received payment have also placed liens on the judgment, such that the resolution of the issue would not help MOD in any event.

[edit] Argument Preview

On Monday, January 12, the Court will hear oral argument in No. 07-615, Ministry of Defense and Support for the Armed Forces of the Islamic Republic of Iran v. Dariush Elahi. The Court will consider the proper interpretation of statutory language from the Victims of Trafficking and Violence Protection Act of 2000 (VTVPA) and the Terrorism Risk Insurance Act of 2002 (TRIA), determining how the statutes interact in relation to three separate litigations to which the Government of Iran is a party.

This argument preview builds on and incorporates some of guest blogger Luisa Caro’s earlier discussion of the case’s background and certiorari filings (available below).

[edit] Background

In 1990, agents of the Iranian government assassinated Dr. Cyrus Elahi, a U.S. citizen. His brother, respondent Dariush Elahi, filed a claim in federal district court against Iran under the Antiterrorism and Effective Death Penalty Act of 1996 (AEDPA), which modified the Foreign Sovereign Immunities Act (FSIA) to authorize claims against state sponsors of terrorism. Elahi prevailed in his suit against Iran and was awarded $11.7 million in compensatory damages and $300 million in punitive damages. The suit currently before the Court arises out of Elahi’s attempts to collect his compensatory damages award by attaching a $2.8 million judgment owed to Iran in a separate litigation.

The TRIA expanded the ability of terrorism victims who secure judgments against state sponsors of terrorism to attach those states’ “blocked assets.” The TRIA amended the VTVPA specifically in relation to a class of compensatory awards against Iran to allow the newly eligible persons to receive pro rata payments in exchange for relinquishing certain rights. In 2003, Elahi applied for and received $2.3 million in payments toward his compensatory damages award in exchange for relinquishing his rights to attach or execute upon property that is “at issue in claims against the United States before an international tribunal or . . . is the subject of awards by such tribunal.”

In 2001, Elahi attempted to enforce the remainder of his compensatory judgment by attaching an Iranian asset in the United States: a federal court judgment that Iran obtained in 1998 against Cubic Defense Systems, Inc., an American defense contractor, for its breach of a 1977 contract to sell and service military equipment for the Iranian Air Force.

Separately, Iran brought claims against the United States before the Iran-U.S. Claims Tribunal in The Hague for failure to restore certain frozen Iranian assets. The Tribunal was constituted by the Algiers Accords signed in January 1981, pursuant to which Iran released the hostages at the U.S. Embassy in Tehran and the U.S. committed “to restore the financial position of Iran, in so far as possible, to that which existed prior to November 14, 1979.” If Iran succeeds in these claims, the United States would be able to use the Cubic judgment to offset any damages assessed against the United States.

This case is before the Court for the second time after having been remanded to the Ninth Circuit for that court to determine whether the Iranian Ministry of Defense was either an “agency or instrumentality” of a foreign sovereign, and thereby covered under Section 1610(b) of the FSIA, or instead the foreign sovereign itself, covered under Section 1610(a). On remand, the Ninth Circuit determined that the Ministry of Defense was the foreign sovereign itself; therefore, Elahi could not attach the Cubic judgment. The Ninth Circuit held, however, that the attachment of the Cubic judgment was nonetheless valid under the TRIA and VTVPA because it was not property “at issue” before an international tribunal, and it was a “blocked asset,” as required by the TRIA.

The Ministry of Defense filed a petition for certiorari seeking review of the Ninth Circuit’s decision on remand. The Court invited the Solicitor General to offer the federal government’s views on whether it should grant certiorari; following the United States’s recommendation, certiorari was granted on June 23, 2008.

On Monday, the Court will consider (1) whether the Cubic judgment is “at issue” in the ongoing litigation between the United States and Iran in the Iran-U.S. Claims Tribunal in The Hague within the meaning of the VTVPA, such that Elahi relinquished his right to attach the Cubic judgment when he accepted partial payment of his compensatory damage award under the VTVPA; and (2) whether the 1998 Cubic judgment arising out of a 1977 contract is a “blocked asset” subject to attachment by Elahi under the TRIA.

[edit] Petitions for Certiorari

The Ministry of Defense (MOD) argued that certiorari was warranted for three reasons. First, the case implicates an important issue affecting foreign relations – the protections afforded foreign states from execution or attachment in U.S. courts – and therefore merits consideration from the Court.

Second, the Ninth Circuit’s holding that the Cubic judgment is not “at issue” in the proceedings between Iran and the United States before the Iran-U.S. Claims Tribunal in The Hague within the meaning of TRIA Section 201(c)(4) conflicts with the decisions of four other courts of appeals. Under Section 201(c) of TRIA, claims against Iran are relinquished by individual claimants who receive payment from the U.S. Treasury when the claims are also “at issue” before the Tribunal. MOD argues that the Cubic judgment is “at issue” because it arises from the same transaction or contract that forms the basis for one of Iran’s claims against the U.S. – compensation for military equipment that Iran alleges it did not receive, including the contract with Cubic – and any payment received from Cubic will be deducted from any liability by the U.S. Moreover, because Elahi received $2.3 million from the U.S. Treasury in partial satisfaction of his compensatory damages award, Elahi has, pursuant to Section 201(c)(4) of the TRIA, relinquished his right to any claims “at issue” before an international tribunal.

Third, the Ninth Circuit’s holding that the Cubic judgment is a “blocked asset” within the meaning of TRIA Section 201(a) misconstrues Executive Order 12170 – which froze Iranian assets in response to the 1979 Iranian hostage crisis – and conflicts with the rulings of two other circuits. MOD argues that the judgment is not a “blocked asset” as required by the VTVPA and TRIA because Iran’s interest in it did not arise until in 1998 - that is, after the freeze and seizure of Iranian assets by Executive Order 12170 - when Iran sought to confirm the arbitration award in California.

Opposing certiorari, respondent Elahi advances three arguments. First, Elahi counters that the case does not raise implicate important controversies related to the application of foreign sovereign immunity, but instead merely addresses a unique set of facts without broader implications for foreign relations.

Second, Elahi argues that the Ninth Circuit’s holding that the Cubic judgment is not “at issue” before the Tribunal is correct, because the Cubic judgment was final as of 1998 and he therefore could not have relinquished his right to attach it in accepting VTVPA money. In any event, Elahi argues that the Ninth Circuit’s holding is not in conflict with and is distinguishable from those of the four allegedly conflicting circuits because those holdings dealt with diplomatic and consular properties, which are different from the Cubic judgment.

Third, Elahi argues that the Cubic judgment is a “blocked asset” because the asset represented by the judgment arose in 1977, when Iran entered into the contracts from which the judgment arose. As such, the United States blocked it under Executive Order 12170, and it continues to be blocked. Furthermore, Elahi asserts that there is no tension between the holdings of the Second and Ninth Circuits on the issue of which assets are “blocked” within the meaning of TRIA Section 201(a).

In its brief, the Solicitor General argues that the Court should grant certiorari, vacate the decision below, and remand the case to the Ninth Circuit for two reasons. First, the Ninth Circuit’s holding that the Cubic judgment was a blocked asset because Iran’s interest in the contracts arose in 1977 is erroneous: even if the Ninth Circuit were correct that Iran’s interest in the asset arose in 1977 and it was therefore initially a blocked asset, it was later unblocked by subsequent executive order. The SG acknowledges that the Cubic judgment remains regulated by the Arms Export Control Act, but argues that such regulation does not amount to blocking, and it therefore remains an unblocked asset unavailable for purposes of attachment.

More importantly, however, the SG contends that the case should be remanded to the Ninth Circuit because, since the decision below, the State Department has designated MOD as an “entity of proliferation concern,” and Iran’s assets were once again blocked by Executive Order. The SG suggests that the case should be remanded for a determination based on the new designation and to allow the parties to brief the matter. The SG further notes that if the Ninth Circuit were to find, based on the new designation, that the Cubic judgment was a “blocked asset” subject to attachment under TRIA, it would both eliminate any conflict with other circuits and avoid a conflict with the U.S.’s position before the Tribunal that all previously frozen Iranian assets were unblocked.

On the question of whether the Cubic judgment is “at issue” in the case against the United States before the Tribunal, the SG agrees with MOD that the Cubic judgment is at issue because the same facts underlie both claims and the U.S. would be entitled to a set-off for any recovery that Iran received from the Cubic judgment. In the SG’s view, however, certiorari is not warranted simply to correct the Ninth Circuit’s error on this question, because even if Elahi did in fact relinquish his claim by receiving payment from the U.S. Treasury, other claimants who have not received payment have also placed liens on the judgment, such that the resolution of the issue would not help MOD in any event.

[edit] Merits Briefing

In its brief on the merits, MOD argues that the Cubic judgment is “at issue in claims against the United States before an International Tribunal” under TRIA Section 201(c) for three main reasons. First, the text and structure of the TRIA reflect Congress’s intent that the phrase “as issue” be construed broadly. Second, as a practical matter, the Cubic judgment is currently “at issue” before the Iran-U.S. Claims Tribunal because both parties in that unrelated litigation have affirmed that the Cubic judgment would be used as a set-off from any award that Iran might receive from the United States. Third, finding that the Cubic judgment is not “at issue” in the litigation before the U.S.-Iran Claims tribunal would put the U.S. at risk of violating the Algiers Accords, and the Court should interpret the TRIA in accordance with that treaty to avoid potential foreign relations embarrassments for the United States.

MOD argues that the Court need only reach the question whether the Cubic judgment is a “blocked asset” under the TRIA if it rules in the respondent’s favor on the first question. First, MOD disputes Elahi’s claim that Iran’s interest in the Cubic judgment arose in 1977 when the Cubic contracts were initially entered into. Instead, MOD contends, Iran’s interest in the Cubic judgment did not exist until that judgment was entered by a federal court, and the judgment is therefore not blocked by executive order. Second, MOD argues that any ambiguity as to whether the Cubic judgment constitutes a blocked asset should be resolved so as to be consistent with the Algiers Accords. Finally, in response to the arguments raised by the SG in its amicus brief at the certiorari stage, MOD argues that the Court should not consider the possible effect that an Executive Order issued after the Ninth Circuit’s opinion below would have on the Cubic judgment’s status as a “blocked asset,” because this issue was not raised in the lower court. MOD believes the Court need only vacate and remand for consideration of the effect of the intervening Executive Order if the Court believes that issue would be dispositive.

In response, Elahi first argues that the plain meaning of the phrase “at issue” excludes the Cubic judgment from coverage by the TRIA. Second, he argues that this conclusion is supported by Congress’s direction that the TRIA should be construed so as to ensure the “widest latitude for execution of judgments” by victims of terrorism against its sponsors. Third, he argues that the statutory construction urged by MOD would be unworkable because it does not give terror victims adequate notice of what rights they are relinquishing when they accept VTVPA monies, as terror victims cannot anticipate the litigation stances that will be taken by other parties in the future regarding various assets. As to the question of whether the Cubic asset is “blocked,” Elahi adopts the argument introduced by the SG at the certiorari stage – i.e., that regardless when Iran obtained an interest in the judgment, it became blocked by executive order since the Ninth Circuit issued its decision. Elahi argues that the Court may consider this recent Executive Order because it should apply the law that is in effect at the time it renders its decision.

In its brief, the SG reiterates that the Cubic judgment is “at issue” before the Iran-U.S. Claims Tribunal because it may be used by the U.S. to potentially off-set any payments it may owe Iran. The SG further argues that the TRIA’s purpose demands that anyone who accepts VTPA payments be prevented from pursuing attachments that would undermine the U.S.’s position before the Tribunal, and that the result of allowing such attachments would be that the United States would ultimately have millions of dollars in additional liability to Iran.

The SG recommends that if the Court determines that the Cubic judgment is “at issue” and therefore may not be attached by respondent, it reverse without reaching the second question presented. But if the Court does reach the second issue, it should, in the SG’s view, vacate and remand the case to the Ninth Circuit with instructions to affirm on the alternative ground that the recent Executive Order blocked all of petitioner’s interests in the Cubic judgment. The SG argues that if the Court were to affirm the grounds upon which the Ninth Circuit initially ruled, it would contradict the longstanding position of the United States before the Tribunal regarding which assets are blocked.

[edit] Oral Argument Recap

[edit] Opinion Analysis

the Court held that the respondent, who sued the Iranian government for the assassination of his brother, could not attach an arbitration award made to Iran to satisfy his judgment because he had waived his right to do so by accepting $2.3 million from the federal government under the Victims of Trafficking and Violence Protection Act of 2000 (VPA).

The case stems from a 1997 award by the International Court of Arbitration to Iran in its contract dispute with Cubic Defense Systems, a California company. After Iran sought to enforce the award in a federal court, Elahi — who had obtained a default judgment for $312 million against Iran — sought to attach the award, known as the “Cubic Judgment.”

The Court today rejected Elahi’s efforts to collect the money. First, it held unanimously that at the time of the Ninth Circuit’s decision, the Cubic Judgment was not a “blocked asset” under the Terrorism Risk Insurance Act of 2002 (TRIA) — a finding that would be necessary to allow Elahi to attach the judgment, as Iran would otherwise enjoy immunity as a foreign sovereign. The Court acknowledged that subsequent actions by the executive branch may have “blocked” the Cubic Judgment, but it declined to reach that question because it determined that Elahi had in any event waived his right to attach the Judgment pursuant to the VPA — which, as relevant here, provides that victims of terrorism receiving compensation agree not to attach “property that is at issue in claims against the United States before an international tribunal.” In his opinion for the majority, Justice Breyer concluded that the Cubic Judgment is precisely such a property.

Justice Kennedy — joined by Justices Souter and Ginsburg — filed an opinion concurring in part and dissenting in part. They agreed with the rest of the Court that the Cubic judgment was not a “blocked asset,” but would have held that Elahi did not waive his right to attach that judgment. In their view, the majority misinterprets the relinquishment provision. The text and intent of the VTVPA and TRIA demonstrate, they reasoned, that Congress intended to broaden the rights of victims of terrorism to “execute on the assets of a state found to have sponsored or assisted in a terrorist act” and to “ensure that other laws do not bar victims’ efforts to enforce judgments against terrorist states.”

[edit] Links and further information

More on the SG's Brief in Ministry of Defense v. Elahi

Supreme Court Decides Iranian Asset Case

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