Chase Manhattan Bank v. State of Iran

• Decision Date: 15 February 1980
• Docket Number: No. 79 Civ. 6644.,79 Civ. 6644.
• Citation: 484 F. Supp. 832
• Parties: The CHASE MANHATTAN BANK, N. A. v. The STATE OF IRAN, also known as Islamic Republic of Iran, Bank Markazi Iran, et al.
• Court: U.S. District Court — Southern District of New York

484 F. Supp. 832

The CHASE MANHATTAN BANK, N. A. v. The STATE OF IRAN, also known as Islamic Republic of Iran, Bank Markazi Iran, et al.

No. 79 Civ. 6644.

United States District Court, S. D. New York.

February 15, 1980.

Milbank, Tweed, Hadley & McCloy by Edward J. Reilly, Richard Tufaro, New York City, for plaintiff.

Rabinowitz, Boudin, Standard, Krinsky & Lieberman by Leonard Boudin, Eric M. Lieberman, New York City, for Bank Markazi.

OPINION

GRIESA, District Judge.

Plaintiff Chase Manhattan Bank has moved for a preliminary injunction, which would restrain defendant Bank Markazi from further prosecution of an action brought by Bank Markazi against Chase in England. The motion is denied.

Bank Markazi is the central bank of Iran. For many years it has been a customer of Chase. As of November 1979, the critical time for purposes of the present action, Bank Markazi had three types of dollar accounts with Chase:

(1) A demand deposit account with Chase's head office in New York — sometimes referred to as the "operating account";

(2) A "call account" with Chase's London branch; and

(3) A time deposit account with Chase's London branch.

Bank Markazi also had various time deposit accounts with Chase's London branch in European currencies.

A call account in an English bank is similar to a demand deposit account in a United States bank. However, pursuant to English law, interest was paid to Bank Markazi on the call account at Chase's London branch. No interest was paid to Bank Markazi on the demand deposit account at Chase's head office in New York.

The time deposit accounts at Chase's London branch were governed by English law, pursuant to the express agreement of the parties.

In 1975 it was agreed between Bank Markazi and Chase that the balance in the operating account in New York would be kept generally within the range of $10 million to $15 million. It was agreed that if the balance in the New York account fell below $10 million, Chase would make a transfer from the London call account to make up the difference. Similarly, if the New York balance exceeded $15 million, Chase would transfer the excess to the call account in London. As of November 1979 the bulk of the funds which Bank Markazi had on deposit with Chase were in the London accounts.

On November 14, 1979 President Carter issued Executive Order 12170 entitled "Blocking Iranian Government Property." This order was issued pursuant to the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et seq., and the National Emergencies Act, 50 U.S.C. §§ 1601 et seq. and 3 U.S.C. § 301. The order provided in part:

"I hereby order blocked all property and interests in property of the Government of Iran, its instrumentalities and controlled entities and the Central Bank of Iran which are or become subject to the jurisdiction of the United States or which are in or come within the possession or control of persons subject to the jurisdiction of the United States."

The Secretary of the Treasury was authorized to implement the order.

On November 14, 1979 the Department of the Treasury issued certain regulations under the President's blocking order. 31 C.F.R. § 535.101 et seq. One of these regulations, 31 C.F.R. § 535.902, provided:

"Branches and subsidiaries in foreign countries of persons subject to the jurisdiction of the United States are licensed to set-off their claims against Iran or Iranian entities by debit to blocked accounts held by them for Iran or Iranian entities."

As of November 14, 1979 Bank Markazi had the following dollar deposits with Chase:

                Operating Account in New York    $39,223,621
                Call Account in London          $253,139,888
                Time Deposit Account in London   $62,000,000
                

Thus the total dollar deposits in London were approximately $315 million as against approximately $39 million in New York.

As of November 14, 1979 the National Iranian Oil Company ("NIOC") had funds on deposit with Chase. Apparently the great bulk of these funds were in dollar accounts at the London branch. The total of the dollar deposits of NIOC at the London branch as of November 14, 1979 was $77,437,551.

Chase claims that, as of November 14, 1979 the State of Iran and various instrumentalities of the State of Iran were indebted to Chase in the total amount of $347,932,915. All or most of these debts were unmatured.

On November 15, 1979 Chase transferred the dollar balances of Bank Markazi and NIOC from London to New York and purported to offset them against debts of the Iranian governmental entities to Chase. Apparently Chase also purported to offset the European currency deposits in the London branch against Iranian debts.

Chase considered that its actions of November 15, 1979 with respect to the London accounts of Bank Markazi and NIOC were justified by the President's blocking order and the regulations issued thereunder, as well as Section 151 of the New York Debtor and Creditor Law, providing for the right of set-off against unmatured debts under certain circumstances.

On November 29, 1979 Bank Markazi commenced an action in the High Court of Justice in London, alleging that Chase is indebted to Bank Markazi in the sum of $320.9 million in relation to dollar deposits at the London branch of Chase.

On December 6, 1979 Chase commenced the present action against the State of Iran, Bank Markazi and the other alleged Iranian government entities claimed to be indebted to Chase. The prayer for relief requests that the court enjoin Bank Markazi's prosecution of the London action, declare Chase's offset actions to be valid, or, alternatively, award damages of...