International Law

Terror Money, Mid-game Rule Changes, and Presidential Power

By Yishai Schwartz
Thursday, April 9, 2015, 4:00 PM

As the details of a nuclear deal are hammered out, a case that directly implicates the American-Iranian relationship is clamoring for cert. On Monday, the Supreme Court asked for the view of the Solicitor General in Bank Markazi v. Peterson, an appeal based on a 2013 mega-judgment allowing plaintiffs to collect billions of Iranian Central Bank for its role in the 1983 bombing of the American embassy in Beirut. According to the appellants, the law authorizing a seizure of assets represents a “blatant intrusion on judicial power.”

The origins of the case go back to 2001 when hundreds of plaintiffs---mostly members of the armed services and their families---filed a wrongful death suit against the Iranian government in the District Court of the DC Circuit. Iran, they argued, had provided significant logistical and financial support to Hezbollah in connection with the 1983 barracks bombing. When Iran failed to respond, the plaintiffs won a default judgment of $2,656,944,877.

For years, the judgment proved impossible to collect. But in 2008, plaintiffs discovered $1.75 billion in cash proceeds of government bonds held by Citibank that (through a chain of intermediaries) belong to an Italian bank whose customers include Iran’s Central Bank (Bank Markazi). Two years later, the plaintiffs sought to seize these assets in the Southern District of New York under section 201(a) of the Terrorism Risk Insurance Act (TRIA), which allows collection from “the blocked assets of” a terrorist party against whom a judgment had been won.

But even as they were seeking these assets, in 2012 their job became much easier. In 2012, Congress passed a provision (§8772) clarifying that these complexly held assets would be subject to seizure. Now, a financial asset “held in the United States for a foreign securities intermediary doing business in the United States” that is “equal in value to a financial asset of Iran, including an asset of the central bank or monetary authority of the Government of Iran or any agency or instrumentality of that Government, that such foreign securities intermediary or a related intermediary holds abroad” would be “subject to execution or attachment in aid of execution in order to satisfy any judgment” if certain criteria were met. These criteria were specifically crafted to help these particular plaintiffs collect---and in case this wasn’t clear enough already, the provision says so explicitly: “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.”

In March 2013, the District Court granted summary judgment to the plaintiffs, based both (and independently) on the general authority in TRIA and the specific §8772 authority from 2012. In 2014, the 2nd Circuit upheld the judgment, rejecting Bank Markazi’s constitutional and treaty-based arguments. Bank Markazi is now buckling down on one of those claims---its separation of powers argument---in its petition for a writ of certiorari and seeking to overturn §8772.

At issue is the scope of a Civil War-era, Supreme Court separation of powers ruling. In United States v. Klein, the Court ruled that Congress could not “prescribe rules of decision” to the judiciary “in cases pending before it,” or forbid the Court from giving “the effect to evidence which, in its [the Court’s] own judgment, such evidence should have.” But although Klein is a landmark separation of powers case, its precise contours are still not clear. In Robertson v Seattle Audobon Society, for instance, the Court upheld legislation that was clearly intended to affect ongoing litigation (because the legislation merely “compelled changes in law, not findings or results under old law”), but deliberately left  unanswered the question of whether: “even a change in law, prospectively applied, would be unconstitutional if the change swept no more broadly, or little more broadly, than the range of applications at issue in the pending cases.” Although appellate circuits have unanimously upheld such laws, in Bank Markazi, the petitioners are now trying to put that question squarely before the Court as it relates to §8772.

As a theoretical matter, the idea that Congress might dictate the outcome of judicial proceedings through tailored legislative action is troubling. We would likely look askance at Congress sweeping in and legislating a new burden of proof for say, a particular harassment lawsuit. But Bank Markazi is a particularly bad vehicle for making this case. After all, in this case the rules that are changing are not the rules of evidence or procedure, but a redefinition of the sorts of funds that can be seized to satisfy a judgment. This sort of determination seems an inherently a legislative function--in a way that determining the effects of a pardon (as was the issue in Klein) is not.

In this case, however, the Solicitor General is likely being asked for his views because of an additional argument raised petitioners’ briefs (indeed, the CVSG was explicitly suggested by petitioner’s reply brief). In a clever (probably too clever) twist, Bank Markazi argues that §8772 “interferes with the President’s ability to conduct foreign affairs” because it allows collection from assets blocked by the President for national security and negotiating purposes. The briefs point out that such collection automatically weakens the President’s hand in negotiations and have thus often been frequently prevented by the President (through the use of specific waiver authority). Of course, presidential asset blocking authority is statutory, not constitutional, (and §8772 was signed by this very president anyway), so the argument from presidential prerogative seems an exceedingly tough sell.

Nevertheless, the argument adds to a growing cloud of potential legal conflict between the president and Congress on foreign relations. And in the context of the current congressional brawl over Iran deal oversight, and the Court’s much anticipated decision in Zivotofsky (the Jerusalem passport case), these separation of powers arguments ought to be watched closely.