Iran wins first appeal in terrorist victims’ attempt to collect $71.5 million judgment

By Joe Forward, Legal Writer, State Bar of Wisconsin

April 6, 2011 – American victims of a 1997 terrorist attack in Israel recently lost an early appeals battle to satisfy a $71.5 million judgment obtained against the Islamic Republic of Iran.

Specifically, the U.S. Court of Appeals for the Seventh Circuit ruled that Iran did not waive protections afforded to foreign nations with property in the U.S. by failing to appear, and plaintiffs seeking collection of a $71.5 million judgment against Iran must narrow their discovery request to identifiable property, not all Iranian-owned assets in the U.S.

In September of 1997, five people died and nearly 200 were injured in a triple suicide bombing executed in a crowded pedestrian mall in Jerusalem. Hamas claimed responsibility.

American victims injured in the attack later filed suit against Iran in U.S. federal court, alleging Iran provided training and support to Hamas and was thus responsible for the bombing. Iran was properly served but defaulted, and the U.S. District Court for the District of Columbia entered a default judgment of $71.5 million in favor of the American plaintiffs.

Now seeking payment, the plaintiffs searched for attachable Iranian assets and found some in Chicago-based museums. Specifically, Chicago’s Oriental Institute and its Field Museum of Natural History hold collections of Persian artifacts on academic loan from Iran.

Plaintiffs registered the federal court judgment with the U.S. District Court of Illinois and served the museums to seize the artifacts. But the museums intervened, arguing that such collections are immune from attachment under the Foreign Sovereign Immunities Act of 1976 (FSIA).

The FSIA provides that a foreign state’s property in the U.S. is immune from attachment unless a statutory exception applies. Ultimately, the U.S. district court ruled that immunity is an affirmative defense and Iran waived it by failing to appear to plead the defense.

In response, plaintiffs served Iran with a discovery request to uncover all Iranian-owned assets anywhere in the U.S., which the district court granted. Iran appeared and appealed orders.

In Rubin et al., v. Iran, No. 08-2805 (March 29, 2011), a panel for the Seventh Circuit Court of Appeals reversed the district court. The panel – in an opinion written by Judge Diane Sykes – concluded that Iran was entitled to a presumption of immunity under the FSIA regardless of whether it appeared or not, and the district court could not issue a general-asset discovery order.

“The statute cloaks the foreign sovereign’s property with a presumption of immunity from attachment and execution unless an exception applies,” Judge Sykes wrote, “and immunity does not depend on the foreign state’s appearance in the case.”

With respect to the general-asset discovery order, the panel ruled that plaintiffs cannot overcome the presumption of immunity without identifying “the particular foreign-state property he seeks to attach and then establish that it falls within a statutory exception.”

In other words, courts cannot give plaintiffs a “blank check” entitlement to discovery, Judge Sykes explained. The discovery request must be targeted to specific property under the FSIA.

On remand, the plaintiffs will have to prove an exception applies to pierce Iran’s presumption of immunity over Iranian assets in the U.S. In addition, a new discovery order will place the onus on plaintiffs to search for Iranian-owned assets.

“Nothing in the statutory scheme prevents judgment creditors from using private means to identify potentially attachable assets of foreign states located in the United States,” wrote Judge Sykes, who also noted FSIA provisions allow judgment creditors to enlist the Secretary of the Treasury and the Secretary of State in identifying assets of a foreign nation.