Plaintiff May Attach Iranian Default Judgment

The Ninth Circuit Court of Appeals recently ruled in The Ministry of Defense and Support v. Cubic Defense Systems, 2007 U.S. App. LEXIS 12434 (9th May 30, 2007), that the brother of an Iranian-born U.S. citizen can attach a judgment owed by an American company to Iran as partial payment for a $311 million default judgment that the plaintiff obtained against Iran for the alleged wrongful death of his brother.

Cyrus Elahi was shot and killed as he left his apartment in Paris, France, on October 23, 1990. His brother, Dariush Elahi, brought a wrongful death action against the state of Iran and the Iranian Ministry of Information and Security, "MOIS", in the United States District Court for the District of Columbia, claiming that Iranian agents assassinated his brother. Although Iran and MOIS did not appear before the court, the district court judge determined that Iran and MOIS were liable for Cyrus Elahi's death, and entered a default judgment for $11.7 million in compensatory damages and $300 million for punitive damages. Ministry of Def., 2007 App. LEXIS 12434, at *3.

In a 2 to 1 split decision issued on May 30, 2007, a Ninth Circuit panel ruled in favor of Dariush Elahi, allowing him to move forward in collecting part of the default judgment he holds against Iran by filing a lien against a $2.8 million judgment the Iranian Ministry of Defense, "MOD", had previously obtained against a California-based company. In 1977, the Iranian Ministry of Defense entered into a contract with American defense contractor, Cubic Defense Systems, "Cubic", for the sale and service of Air Combat Maneuvering Range, "ACMR". ACMR was intended to be used by the Iranian Air Force. Although Iran made partial payments on the AMCR, Cubic failed to deliver, and following the Iranian Revolution of 1979, Cubic breached the contract with MOD, and sold the ACMR to another party. Iran subsequently requested arbitration before the International Chamber of Commerce, "ICC", and the ICC ordered Cubic to pay $2.8 million in damages to Iran for breach of contract. Iran then reduced the award to a judgment in the U.S. District Court for the Southern District of California.

On November 1, 2001, Dariush Elahi sought to attach the Cubic judgment in the Southern District of California. MOD immediately filed a motion with the district court seeking a judicial determination that the Cubic judgment was immune from attachment by Elahi. However, U.S. District Judge Rudi M. Brewster denied MOD's motion, and ruled that Iran had waived its immunity from attachment. MOD appealed, and the Ninth Circuit affirmed the district court's decision in October 2004. MOD thereafter appealed to the United States Supreme Court.

The Supreme Court granted certiorari on the limited question of whether MOD constituted a foreign state, or whether it is an agency or instrumentality of a foreign state. This distinction is important because the Foreign Sovereign Immunities Act, "FSIA", offers broader immunity from attachment to a foreign state than to a foreign state's agencies and instrumentalities. Because the Supreme Court determined that the Ninth Circuit had not properly determined that MOD was an agency or instrumentality of Iran rather than the foreign state itself, the Supreme Court remanded for reconsideration.

On remand, the Ninth Circuit held that Elahi failed to overcome the strong presumption that MOD constitutes part of the state of Iran and hence is not an agency or instrumentality. Further, the panel held that Iran had not used the Cubic judgment for a commercial activity in the United States and therefore the judgment was not subject to attachment under FSIA §1610(a). Ministry of Def., 2007 U.S. App. LEXIS 12434, *31-32. The panel also determined, however, that Elahi could attach the judgment under the Terrorism Risk Insurance Act, "TRIA", of 2002, Pub. L. No. 107-297.

In 2000, the Victims Protection Act, "VPA", Pub. L. No. 106-386, was enacted, creating a $400 million fund to compensate victims of Iran and Cuba-sponsored terrorism. Although Elahi was not originally eligible for payment under the VPA, because he did not receive a final judgment against Iran until three weeks after the July 2000 cutoff date established by the statute, Elahi became eligible two years later when the VPA was amended by the TRIA. Under §201(c)(4) of the TRIA, Elahi and others who had filed suit before October 28, 2000, became eligible under the VPA to receive pro rata payments of compensatory damages from the fund. However, receipt of such payments was conditioned upon the victims relinquishing certain rights, including the right to execute or attach property that is at issue in claims against the United States before an international tribunal. VPA §2002(a)(2)(D) (as amended by TRIA §201(c)(4)).

In 2003, Elahi applied for and received $2.3 million as his pro rata share of the compensation fund from the United States Treasury in partial satisfaction of his $11.7 million compensatory damages award against Iran. In receiving his payment, Elahi signed a declaration in which he relinquished his right to collect punitive damages and his right to execute against or attach property that is at issue in claims against the United States before international tribunals. After receiving compensation from the fund, Elahi also attempted to attach the $2.8 million judgment held by Iran against Cubic to cover the outstanding amount of compensatory damages still owed.

However, both the Iranian government and the United States argued in supplemental briefing to the Ninth Circuit that Elahi had waived his right to attach the Cubic judgment under the VPA because it related to property that is at issue before an international tribunal, and thus the Cubic judgment was not subject to attachment. Iran had previously brought a claim against the United States in the Iran-U.S. Claims Tribunal, Claim B/61, for damages based on the non-export of contracted-for goods, including the ACMR that was the subject of the Cubic Contract. Iran argued before the Iran-U.S. Claims Tribunal that the $2.8 million ICC award did not fully compensate it for Cubic's non-delivery of goods, and sought to recoup the difference from the United States. Therefore, because the claim is still before the Claims Tribunal, both the United States and Iran argued to the Ninth Circuit that the Cubic judgment is property that is at issue in claims against the United States before an international tribunal, and is thus not subject to attachment.

The Ninth Circuit panel disagreed with the two governments and found that the question of whether Elahi could attach the Cubic judgment was a separate matter from Iran's claim against the United States, and thus was not at issue before the Claims Tribunal. Therefore, the Ninth Circuit held that Elahi did not waive his right to attach the Cubic judgment by accepting a pro rata payment, and that the Cubic judgment was subject to attachment under the TRIA.

Thus, according to the Ninth Circuit, the Cubic judgment is immune under the FSIA, but is subject to attachment under the TRIA.

David Bederman, an attorney representing Iran in the case, indicated that Iran will seek an en banc hearing to challenge the decision. -- Jason A. McClurg, Associate Attorney, Berliner, Corcoran & Rowe, LLP, Washington, DC.

Tue, 18:41:20 12 Jun 2007 / Embassy Law Link