Academic journal article Harvard Law Review

Foreign Relations Law - Foreign Sovereign Immunities Act Terrorism Exceptions - Second Circuit Holds That the Terrorism Risk Insurance Act, but Not the FSIA, Allows Recovery against U.S. Companies Owned by State Sponsors of Terrorism

Academic journal article Harvard Law Review

Foreign Relations Law - Foreign Sovereign Immunities Act Terrorism Exceptions - Second Circuit Holds That the Terrorism Risk Insurance Act, but Not the FSIA, Allows Recovery against U.S. Companies Owned by State Sponsors of Terrorism

Article excerpt

FOREIGN RELATIONS LAW--FOREIGN SOVEREIGN IMMUNITIES ACT TERROR ISM EXCEPT IONS--SECOND CIRCUIT HOLDS THAT THE TERRORISM RISK INSURANCE ACT, BUT NOT THE FSIA, ALLO WS RECOVERY AGAINST U.S. COMPANIES OWNED BY STATE SPONSORS OF TERRORISM.--Kirschenbaum v. 650 Fifth Avenue & Related Properties, 830 F.3d 107 (2d Cir. 2016).

In 1996, Congress enacted a law that allowed victims of terrorist attacks to sue state sponsors of terrorism. (1) This law created an exception to the immunity from suit and execution normally conferred upon foreign states and their instrumentalities by the Foreign Sovereign Immunities Act (2) (FSIA). Victims sued vigorously under the new terrorism exception and won immense default judgments, (3) but struggled to find assets to satisfy the judgments. Another roadblock was courts' refusal to attach assets formally owned by state-sponsored corporations unless the foreign state's control was sufficient to pierce the corporate veil (4) under analogous liability law. Congress modified the terrorism exception to overcome this hurdle to execution, but did so incompletely, leaving courts to construe a patchwork of FSIA amendments. Recently, in Kirschenbaum v. 650 Fifth Avenue & Related Properties, (5) the Second Circuit overturned a summary judgment in favor of plaintiffs who sued to attach properties owned by an Iran-backed nonprofit and several holding companies. The Second Circuit's holding allows intermediate companies that largely obscure a state sponsor of terrorism's ultimate ownership to avoid liability. However, the court's remand gave plaintiffs an alternative avenue to recovery through the Terrorism Risk Insurance Act (6) (TRIA), which the Second Circuit construed more flexibly. This construction ensured that the courts can further the purpose for which Congress created the terrorism exception while remaining within the boundaries of the text that Congress enacted.

The plaintiffs in this case had previously won judgments against Iran under the FSIA's cause of action for victims of terrorism. (7) The FSIA and TRIA enable execution for such judgments upon property of state sponsors of terrorism or their agencies or instrumentalities. (8) The plaintiffs sought execution against 650 Fifth Avenue, which is owned by an eponymous partnership held in turn by Assa Corporation (40%) and the Alavi Foundation (60%). (9) Iran created the Foundation under the Shah, and Bank Melli (a bank owned and operated by Iran) owned and arranged the incorporation of Assa Corporation. (10) In addition to the ownership and historical ties, documents showed that Iran chose Alavi's board members in the 1990s and that Iran's Ambassador to the United Nations met with the board as late as 2007. (11) The plaintiffs argued that the property's connection to Iran was sufficient under the FSIA and TRIA to allow them to liquidate it to satisfy their judgments. (12)

Judge Forrest of the Southern District of New York granted summary judgment for the plaintiffs. (13) For the purposes of the FSIA, she held that the defendants "are" Iran, and thus that the court had subject matter jurisdiction. (14) The court looked to an executive order and Department of Treasury regulations that defined Iran as "any person ... act[ing], directly or indirectly, for or on behalf of [Iran or its instrumentalities]." (15) Second, the defendants "are" Iran under an "alter ego" theory because each was "extensively controlled." (16) Third, each defendant was an "'agency or instrumentality' of Iran." (17) The court next held that the suit fit within three FSIA exceptions to execution immunity, for analogous reasons. (18) The district court also found for the plaintiffs under TRIA, explaining that the judgment was predicated on an act of terrorism, (19) the terrorist party owned the assets (partially because they "are" Iran), and the assets were blocked by executive order (which partly determines if TRIA can apply). (20)

The Second Circuit reversed. …

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