April 21, 2009

Supreme Court Decides Ministry of Defense and Support for Armed Forces of Islamic Republic of Iran v. Elahi

On April 21, the Supreme Court decided Ministry of Defense and Support for Armed Forces of Islamic Republic of Iran v. Elahi, No. 07-615.

In 1997, the International Court of Arbitration awarded the Iranian Ministry of Defense $2.8 million in a dispute with a California company called Cubic over a contract for an air-combat-training system. A federal court confirmed that award and entered judgment in favor of Iran (the "Cubic judgment").

Dariush Elahi sued Iran in federal court in 2000, alleging the government participated in his brother's assassination. Iran did not answer the complaint, and the federal court entered a $312 million judgment in Elahi's favor.

Elahi attempted to attach the Cubic judgment in Iran's favor to satisfy part of his judgment against Iran. Iran objected that the judgment was property of the sovereign state of Iran and was thus immune from attachment. The district court held that the property was not immune from attachment, and the Ninth Circuit (after an intervening trip to the Supreme Court, which held that Iran's Ministry of Defense was an inseparable part of Iran, so that its property did not fall within an exception to Iran's sovereign immunity) affirmed that decision.

The Ninth Circuit held that the property was a "blocked asset" under the Terrorism Risk Insurance Act of 2002 and was, therefore, subject to attachment under that statute. The Ninth Circuit also held that Elahi had not waived his right to attach the judgment under the Victims of Trafficking and Violence Protection Act of 2000, which offered compensation to people holding terrorism-related judgments against Iran.

The Supreme Court reversed both of the Ninth Circuit's holdings. First, the Court pointed out that none of the parties supported the Ninth Circuit's conclusion that the asset was "blocked"—and the Court did not support that conclusion either. It held that the Cubic judgment, not the air-combat-training system, was the relevant asset, as Elahi was trying to attach the judgment, not the training system.

And the Cubic judgment became "unblocked" as a result of a 1981 order of the Treasury Department that authorized transactions involving property in which Iran had an interest and the interest in the property arose after January 19, 1981. (31 CFR § 535.579(a).) The Cubic judgment, which was entered in 1997, satisfied those requirements.

The Court then held that even if Elahi retained any right to attach the Cubic judgment, he waived that right under the Victims of Trafficking and Violence Protection Act of 2000. That statute provided compensation to people holding terrorism-related judgments against Iran, but required those who received that compensation to relinquish "all rights to execute against or attach property that is at issue in claims against the United States before an international tribunal. [or] that is the subject of awards rendered by such tribunal." The United States paid Elahi $2.3 million under the act as partial compensation for his judgment against Iran, and Elahi signed a waiver form.

The Court held that the Cubic judgment was "at issue in claims" against the United States before an "international tribunal" because the United States had prevented the transfer of Cubic's air-combat-training system to Iran between 1979 and 1981, and Iran asserted a claim against the United States before the Iran-U.S. Claims Tribunal based on the United States' actions in doing so. The Court held that even though the Cubic judgment itself was not "at issue" before the international tribunal, the United States and Iran disputed before the tribunal whether the Cubic judgment could be offset against any judgment that Iran obtained from the United States.

Justice Breyer delivered the opinion of the Court. Justice Kennedy filed an opinion, in which Justices Souter and Ginsburg joined, concurring in the Court's holding that the Cubic judgment was not a "blocked" asset but dissenting from the Court's holding that Elahi waived his right to attach the judgment.

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