770 F.3d 993 (2nd Cir. 2014), 12-0075, Calderon-Cardona v. Bank of New York Mellon

• Citation: 770 F.3d 993
• Opinion Judge: Hall, Circuit Judge :
• Party Name: RUTH CALDERON-CARDONA; RUTH CALDERON-CARDONA, in her capacity as personal representative of THE ESTATE OF ELADIA CARDONA-ROSARIO; Luz CALDERON-CARDONA; LOUIS CALDERONCARDONA; GLORIA CALDERON-CARDONA; JOSE RAUL CALDERON-CARDONA; ANA DELIA CALDERON-CARDONA; HILDA CALDERON-CARDONA; SALVADOR CALDERON-MARTINEZ; ANGEL CALDERONGUZMAN in his capacity as pe
• Attorney: FOR APPELLANTS: ROBERT J. TOLCHIN and MEIR KATZ, The Berkman Law Office, LLC, Brooklyn, New York, for Petitioners-Appellants. FOR APPELLEES: HOWARD B. LEVI and J. KELLY NEVLING, JR., Levi Lubarsky & Feigenbaum LLP, New York, New York, for JPMorgan Chase Bank, N.A. and Bank of New York Mellon Trus...
• Judge Panel: Before: HALL, LYNCH, AND CARNEY, Circuit Judges.
• Case Date: October 23, 2014
• Court: United States Courts of Appeals, U.S. Court of Appeals — Second Circuit

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770 F.3d 993 (2nd Cir. 2014)

RUTH CALDERON-CARDONA; RUTH CALDERON-CARDONA, in her capacity as personal representative of THE ESTATE OF ELADIA CARDONA-ROSARIO; Luz CALDERON-CARDONA; LOUIS CALDERONCARDONA; GLORIA CALDERON-CARDONA; JOSE RAUL CALDERON-CARDONA; ANA DELIA CALDERON-CARDONA; HILDA CALDERON-CARDONA; SALVADOR CALDERON-MARTINEZ; ANGEL CALDERONGUZMAN in his capacity as personal representative of THE ESTATE OF MIGUEL CALDERON-CARDONA; MIGUEL CALDERONGUZMAN in his capacity as personal representative of THE ESTATE OF MIGUEL CALDERON-CARDONA; ANGEL LUIS RAMIREZ-COLON in his capacity as personal representative of THE ESTATE OF PABLO TIRADO-AYALA; and ANTONIA RAMIREZFIERO, Petitioners-Appellants,

v.

THE BANK OF NEW YORK MELLON, HSBC, STANDARD CHARTERED, DEUTSCHE BANK TRUST COMPANY OF THE AMERICAS, UBS AG, CITIBANK, N.A., BANK OF CHINA, Consolidated-Defendants-Appellees, JPMORGAN CHASE BANK, N.A., INTESA SAOPAOLO, Respondents-Appellees. ^[*]

No. 12-0075

United States Court of Appeals, Second Circuit

October 23, 2014

Argued: February 11, 2013.

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This case presents the question whether recovery under § 201 of the Terrorism Risk Insurance Act of 2002 or § § 1610(f)(1) and 1610(g) of the Foreign Sovereign Immunities Act is possible where the property to be attached consists of blocked electronic funds transfers and the nation whose assets are being sought was not a designated state sponsor of terrorism at the time the judgment to be enforced was issued. Because attachment is not proper under § 201 of the Terrorism Risk Insurance Act of 2002 or § 1610(f)(1) of the Foreign Sovereign Immunities Act but additional discovery is required to determine whether the electronic funds transfers are the property of North Korea under § 1610(g) , the judgment of the United States District Court for the Southern District of New York (Cote, J.) is hereby AFFIRMED IN PART, VACATED IN PART, and REMANDED.

FOR APPELLANTS: ROBERT J. TOLCHIN and MEIR KATZ, The Berkman Law Office, LLC, Brooklyn, New York, for Petitioners-Appellants.

FOR APPELLEES: HOWARD B. LEVI and J. KELLY NEVLING, JR., Levi Lubarsky & Feigenbaum LLP, New York, New York, for JPMorgan Chase Bank, N.A. and Bank of New York Mellon Trust Co., N.A. JENNIFER G. NEWSTEAD, Davis Polk & Wardwell LLP, New York, New York, for Intesa Saopaolo. PAUL KENNETH STECKER, Phillips Lyle LLP, Buffalo, New York, for HSBC. BARRY J. GLICKMAN, Zeichner Ellman & Krause LLP, New York, New York, for Standard Chartered Bank. SHARON L. SCHNEIER, Davis Wright Tremaine LLP, New York, New York, for UBS AG and Citibank, N.A. LANIER SAPERSTEIN, Dorsey & Whitney LLP, New York, New York, for Bank of China. MARK PUTNAM GIMBEL, Covington & Burling, LLP, New York, NewYork for Deutsche Bank Trust Company Americas.

FOR AMICI CURIAE: DAVID S. JONES, United States Attorney's Office for the Southern District of New York, New York, New York, for the United States of America. NEAL M. SHER, Esq. , New York, New York, for The Heiser Judgment Creditors. LIVIU VOGEL, Salon Marrow Dyckman Newman Broudy LLP, New York, New York, for The Peterson Judgment Creditors. KEITH MARTIN FLEISCHMAN, The Fleischman Law Firm, New York, New York, for The Valore Judgment Creditors. SUZELLE M. SMITH, Howarth & Smith, Los Angeles, California, for Jeremy Levin and Lucille Levin.

Before: HALL, LYNCH, AND CARNEY, Circuit Judges.

OPINION

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Hall, Circuit Judge :

Before us on appeal is a matter of first impression regarding the interpretation of § 201 of the Terrorism Risk Insurance Act of 2002 (codified at 28 U.S.C. § 1610 note) (" TRIA" ) and § § 1610(f)(1) and 1610(g) of the Foreign Sovereign Immunities Act (" FSIA" ) (codified at 28 U.S.C.). The petitioners are family members of victims of state sponsored terrorism. They seek to enforce their 2010 judgment (" the underlying judgment" ) obtained against the Democratic People's Republic of Korea (" North Korea" ) by attaching the blocked assets of that state pursuant to TRIA § 201 and FSIA § § 1610(f)(1) and 1610(g). In particular, the petitioners seek to satisfy their judgments from electronic fund transfers (" EFTs" ) blocked in United States banks pursuant to the sanctions regimes imposed

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upon North Korea by the United States government.¹ The banks at which the EFTs are blocked oppose turning over the value of the EFTs to petitioners. The questions raised on appeal are whether petitioners are precluded from recovering because North Korea's designation as a state sponsor of terrorism was revoked in 2008, prior to the entry of the underlying judgment, and whether the EFTs sought to be attached are the property of North Korea, or of its agencies or instrumentalities, and therefore properly subject to execution to satisfy a judgment against North Korea.

BACKGROUND

A. Underlying Judgment

The petitioners are family members and estate representatives of two American citizens, Carmelo Calderon-Molina and Pablo Tirado-Ayala, who were victims of a terrorist attack in Israel on May 30, 1972. The attack was carried out by terrorists affiliated with the Japanese Red Army and the Popular Front for the Liberation of Palestine.

On March 28, 2008, the victims' families and estate representatives commenced suit against North Korea and the North Korean Cabinet General Intelligence Bureau in the United States District Court for the District of Puerto Rico under FSIA § 1605A, alleging that North Korea and the North Korean Cabinet General Intelligence Bureau " provided material support to the terrorists by supplying them with the armaments used to carry out the attack." Calderon-Cardona v. JPMorgan Chase Bank, N.A., 867 F.Supp.2d 389, 392 (S.D.N.Y. 2011). When the suit was filed, North Korea was designated by the United

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States Department of State (" State Department" ) as a state sponsor of terrorism under § 6(j) of the Export Administration Act of 1979. North Korea and the North Korean Cabinet General Intelligence Bureau defaulted, and on August 5, 2010, the district court entered judgment for the petitioners awarding compensatory damages in the amount of $78 million and punitive damages in the amount of $300 million. See Calderon-Cardona v. Democratic People's Republic of Korea, 723 F.Supp.2d 441, 460-85 (D.P.R. 2010). The petitioners' judgment remains unsatisfied.

By order dated October 11, 2008, while petitioners' § 1605A action was pending, the State Department rescinded North Korea's status as a state sponsor of terrorism. Rescission of Determination Regarding North Korea, 73 Fed. Reg. 63,540 (Oct. 24, 2008). Then-Secretary of State Condoleezza Rice did so in accordance with a Presidential Report issued on June 26, 2008, which was the end-result of negotiations with North Korea regarding its development of nuclear technologies.

B. Judgment Collection and Proceedings Before the District Court

In an attempt to collect on the judgment, petitioners registered it in the Southern District of New York pursuant to 28 U.S.C. § 1963 on October 8, 2010. Seeking to locate North Korean assets, the petitioners then served a subpoena on the Office of Foreign Assets Control (" OFAC" ) of the Department of the Treasury requesting the identities of financial institutions holding assets that are blocked as a result of sanctions against North Korea and information regarding other property of North Korea. OFAC, in response, produced a list of " the financial institutions that have reported to OFAC that they are holding assets blocked pursuant to sanctions against North Korea." Having identified a number of these institutions and subpoenaed them for information about such accounts and their value, the petitioners subsequently requested orders for turnover pursuant to Federal Rule of Civil Procedure 69 and New York Civil Practice Law Rules 5225(b) and 5227 seeking to enforce their judgment by attaching the blocked funds pursuant to TRIA § 201, FSIA § 1610(f)(1), and FSIA § 1610(g). Respondent financial institutions opposed the petitions.

The district court denied the petitions for turnover, concluding that petitioners failed to demonstrate entitlement to relief under TRIA § 201 and FSIA § 1610(g). The court held first that North Korea did not qualify as a " terrorist party" as required by TRIA § 201. It then concluded that even if North Korea qualified as a " terrorist party," the blocked assets held by the respondents are not " owned by" North Korea for purposes of TRIA or FSIA § 1610(g). Finally, it concluded that petitioners could not rely on FSIA § 1610(f)(1) to support their turnover petitions because that section had been waived by the President of the United States.

DISCUSSION

A. Applicable Law

The Foreign Sovereign Immunities Act is the sole basis for obtaining jurisdiction over a foreign state in federal court. FSIA provides that " a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States except as provided in sections 1605 to 1607 of this chapter." 28 U.S.C. § 1604 (1988). Thus, if a defendant is a foreign state within the meaning of FSIA, that defendant is not subject to the jurisdiction of the United States Courts unless one of the exceptions in the Act applies.

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In 1996, Congress amended FSIA to include a terrorism exception, codified at 28 U.S.C. § 1605(a)(7), in order to " give American Citizens an important economic and financial weapon against . . . outlaw states" that sponsor terrorism by providing " safe havens, funding, training, supplying weaponry, medical assistance, false travel documentation, and the like." H.R. Rep. No. 104-383, at 62 (1995). This section was subsequently repealed, and Congress enacted § 1605A in its place. See Pub. L. 110-181, Div. A, § 1083, Jan. 28, 2008, 122 Stat. 341 (repealing 28 U.S.C. § 1605(a)(7) and creating 28 U.S.C. § 1605A); 28 U.S.C. § 1605A(a)(2)(A)(i)(I) (" The court shall hear a claim under this...