876 F.3d 63 (2nd Cir. 2017), 15-0690, Peterson v. Islamic Republic of Iran

Docket Nº:15-0690
Citation:876 F.3d 63
Opinion Judge:Sack, Circuit Judge:
Party Name:Deborah D. PETERSON, et al., Plaintiffs-Appellants, v. ISLAMIC REPUBLIC OF IRAN, Bank Markazi, AKA Central Bank of Iran, Banca UBAE, S.p.A., Clearstream Banking, S.A., JPMorgan Chase Bank, N.A., Defendants-Appellees.
Attorney:LIVIU VOGEL (James P. Bonner, Patrick L. Rocco, and Susan M. Davies, Stone Bonner & Rocco LLP, on the brief), Salon Marrow Dyckman Newman & Broudy LLP, New York, New York, for Plaintiffs-Appellants. DONALD F. LUKE (Bension D. De Funis, on the brief), Jaffe & Asher LLP, New York, New York, for Def...
Judge Panel:Before: Pooler, Sack, and Lohier, Circuit Judges.[**]
Case Date:November 21, 2017
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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876 F.3d 63 (2nd Cir. 2017)

Deborah D. PETERSON, et al., Plaintiffs-Appellants,

v.

ISLAMIC REPUBLIC OF IRAN, Bank Markazi, AKA Central Bank of Iran, Banca UBAE, S.p.A., Clearstream Banking, S.A., JPMorgan Chase Bank, N.A., Defendants-Appellees.

No. 15-0690

United States Court of Appeals, Second Circuit

November 21, 2017[*]

Argued: June 8, 2016.

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The plaintiffs-appellants, judgment creditors of the Islamic Republic of Iran and Iran's Ministry of Intelligence and Security, seek to enforce their underlying judgments by obtaining the turnover of $1.68 billion in bond proceeds allegedly owned by Bank Markazi, Iran's central bank. The bond proceeds are allegedly held by Clearstream Banking, S.A., a Luxembourg bank that maintains accounts on behalf of both Bank Markazi and Banca UBAE, S.p.A., an Italian bank that engaged in financial transactions on behalf of Iran. The bond proceeds were processed in New York through JPMorgan Chase Bank, N.A. The plaintiffs dispute the nature and location of the bond proceeds, arguing that they are held as United States dollars in New York City and are therefore subject to the Court's execution jurisdiction. The plaintiffs also dispute whether several related non-turnover claims, including several fraudulent-conveyance claims, brought by the plaintiffs against these banks were released pursuant to settlement agreements resolving a previous dispute between some of these parties. In a single decision, the United States District Court for the Southern District of New York (Katherine B. Forrest, Judge) granted the banks' motions to dismiss the complaint and for partial summary judgment for the defendants on all claims in dispute. We conclude that the settlement agreements released the plaintiffs' non-turnover claims with respect to some but not all of the banks. We also conclude that the assets at issue are in fact located abroad, but that those assets may nonetheless be subject to turnover under state law pursuant to an exercise of the court's in personam jurisdiction, inasmuch as the district court has the authority under New York State law to direct a non-sovereign in possession of a foreign sovereign's extraterritorial assets to bring those assets to New York State. Those assets will not ultimately be subject to turnover, however, unless the district court concludes on remand that (1) such in personam jurisdiction exists and (2) the assets, were they to be recalled, would not be protected from turnover by execution immunity. Accordingly, the district court's judgment is:

AFFIRMED in part, VACATED in part, and REMANDED for further proceedings.

LIVIU VOGEL (James P. Bonner, Patrick L. Rocco, and Susan M. Davies, Stone Bonner & Rocco LLP, on the brief), Salon Marrow Dyckman Newman & Broudy LLP, New York, New York, for Plaintiffs-Appellants.

DONALD F. LUKE (Bension D. De Funis, on the brief), Jaffe & Asher LLP, New York, New York, for Defendant-Appellee Bank Markazi, AKA Central Bank of Iran.

UGO COLELLA (John J. Zefutie, Jr., on the brief), Thompson Hine LLP, New York, New York, for Defendant-Appellee Banca UBAE, S.p.A.

BENJAMIN S. KAMINETZKY (Gerald M. Moody, Jr., on the brief), Davis Polk & Wardwell LLP, New York, New York, for Defendant-Appellee Clearstream Banking, S.A.

STEVEN B. FEIGENBAUM, Levi Lubarsky Feigenbaum & Weiss LLP, New York, New York, for Defendant-Appellee JPMorgan Chase Bank, N.A.

Before: Pooler, Sack, and Lohier, Circuit Judges.[**]

Opinion

Sack, Circuit Judge:

In this litigation, judgment creditors of the Islamic Republic of Iran (" Iran" ) attempt to execute on $1.68 billion in bond proceeds allegedly owned by Iran's central bank. The Supreme Court has instructed that in an execution proceeding concerning a foreign sovereign's assets, any defense predicated on foreign sovereign immunity must rise or fall on the text of the Foreign Sovereign Immunities Act (" FSIA" ), 28 U.S.C. § § 1330, 1602 et seq. See Republic of Argentina v. NML Capital, Ltd., __ U.S. __, 134 S.Ct. 2250, 2256, 189 L.Ed.2d 234 (2014). In the same decision, the Court explicitly abrogated decades of pre-existing sovereign immunity common law in light of its background understanding that most courts lack jurisdiction to reach extraterritorial assets in any event. See id. at 2257. But that is not so in New York.

The plaintiffs-appellants, judgment creditors of Iran and Iran's Ministry of Intelligence and Security (" MOIS" ), obtained federal-court judgments against Iran and MOIS awarding the plaintiffs billions of dollars in compensatory damages. They now seek to enforce their judgments in part by executing on $1.68 billion in bond proceeds allegedly owned by Bank Markazi (" Markazi" ), Iran's central bank. The plaintiffs allege that those bond proceeds were processed by and through a global chain of banks, specifically by Clearstream Banking, S.A. (" Clearstream" ) through JPMorgan Chase Bank, N.A. (" JPMorgan" ), in the name of Banca UBAE, S.p.A. (" UBAE" ), on behalf of Markazi (collectively, " the defendants" or " the defendant banks" ). The plaintiffs further allege that the bond proceeds are denominated as United States dollars (" USD" ) and held in cash in Clearstream's account at JPMorgan in New York City, rendering the assets subject to this Court's jurisdiction and a turnover order.1 The plaintiffs also asserted several related non-turnover claims against the defendant banks, alleging primarily

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that the defendants effected the foregoing transactions by means of fraudulent conveyances in violation of state law.

The defendant banks respond that there is no cash to turn over: The bond proceeds are in fact recorded as book entries made in Clearstream's Luxembourg offices and reflected as a positive account balance showing a right to payment owed by Clearstream to Markazi through UBAE. The defendants argue that this fact is fatal to the plaintiffs' turnover claims because federal courts lack jurisdiction to order the turnover of a foreign sovereign's extraterritorial assets. Lastly, the defendants posit that the plaintiffs released their non-turnover claims in separate settlement agreements reached between several of the plaintiffs, on the one hand, and Clearstream or UBAE, on the other.

In a single order, the district court (Katherine B. Forrest, Judge ) granted the defendants' motions to dismiss and for partial summary judgment in favor of the defendants on all claims in dispute. We affirm that decision in part, vacate it in part, and remand for further proceedings.

BACKGROUND

The plaintiffs-appellants are, or represent persons who have been adjudicated in a federal court to be, victims of Iranian-sponsored terrorism. They obtained judgments from the United States District Court for the District of Columbia against Iran and MOIS pursuant to § § 1605(a)(7) and 1605A of the FSIA, and were awarded a total of approximately $3.8 billion in compensatory damages. Confidential Appendix (" C.A." 2 ) at 679-81. The plaintiffs have since registered their judgments with the United States District Court for the Southern District of New York, which enables them to seek partial enforcement of their judgments by obtaining an order compelling the turnover of approximately $1.68 billion in bond proceeds allegedly owned by Iran's central bank and held as cash in New York City. The plaintiffs' claims target four banks that were allegedly involved in processing those bond proceeds: JPMorgan, a financial institution organized under the laws of New York, id. at 679; Markazi, Iran's central bank, id. at 677; UBAE, an Italian bank that engaged in transactions on behalf of Iran, id. at 678; and Clearstream, a Luxembourg bank with which Markazi and UBAE opened customer accounts, id.

The plaintiffs contend that through a series of fraudulent transactions, these banks managed to process billions of dollars in bond proceeds ultimately owed to Markazi. According to the plaintiffs, the fruit of those transactions is a pool of cash traceable to the Markazi-owned bond proceeds and held by Clearstream at JPMorgan in New York City. Because much of this dispute turns on the nature and location of the bond proceeds, we review the processing of those assets, and previous attempts to obtain turnover of similar assets, in some detail.

1. Processing Markazi's Bonds

Like many large financial institutions, Markazi invests in foreign sovereign bonds. Id. at 701. Many of the bonds purchased by Markazi were issued pursuant to prospectuses that require the purchaser

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to receive interest and redemption payments in New York State. Id. at 555. Markazi has long...

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