Flatow v. Islamic Republic of Iran

• Decision Date: 23 October 2002
• Docket Number: No. 00-56446.,00-56446.
• Citation: 308 F.3d 1065
• Parties: Stephen M. FLATOW, Plaintiff-Appellant, Bank Saderat Iran, Claimant-Appellee, v. The ISLAMIC REPUBLIC OF IRAN, Defendant.
• Court: U.S. Court of Appeals — Ninth Circuit

308 F.3d 1065

Stephen M. FLATOW, Plaintiff-Appellant Bank Saderat Iran, Claimant-Appellee, v. The ISLAMIC REPUBLIC OF IRAN, Defendant.

No. 00-56446.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted December 3, 2001.

Filed October 23, 2002.

Thomas Fortune Fay, and Jane Carol Norman, Washington, DC, for the appellant.

Steven W. Kerekes, Beverly Hills, CA, for the appellee.

Robert D. McCallum, Jr., Assistant Attorney General, Patrick K. O'Toole, United States Attorney, and Douglas N. Letter, H. Thomas Byron III, and Anne Murphy, Attorneys, USDJ, Washington, DC, for the amicus, United States Department of Justice.

Ellen Pattin, Olney, MD, for the amicus, Marine Corps Aviation Association.

Appeal from the United States District Court for the Southern District of California; Marilyn L. Huff, Chief Judge, Presiding. D.C. No. MC-99-250-MLH.

Before: BRIGHT^*, B. FLETCHER, and FISHER, Circuit Judges.

BRIGHT, Circuit Judge.

Petitioner Stephen M. Flatow appeals the dismissal of his action to levy against California real estate owned by Bank Saderat Iran ("BSI") pursuant to a default judgment entered against the Islamic Republic of Iran by the United States District Court for the District of Columbia. The District Court for the Southern District of California agreed with BSI that the property in question was not an asset of the judgment debtor and therefore released proceeds from the sale of the property and terminated Flatow's action. We affirm the district court.

I. BACKGROUND

On April 9, 1995, Alisa Flatow, an American college student spending a semester studying in Israel, was killed in an explosion when the bus in which she was traveling collided with a van loaded with explosives. The United States Department of State later concluded that the Shaqiqi faction of the Palestine Islamic Jihad¹ committed the bombing. The State Department also determined that the Islamic Republic of Iran provided material support and resources to the Palestine Islamic Jihad.²

Shortly after the bombing, Congress amended the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. §§ 1602-1611, as part of the Antiterrorism and Effective Death Penalty Act ("AEDPA"), effective April 24, 1996. The Act created an exception to the sovereign immunity of those foreign states officially designated by the Department of State as terrorist states if the foreign state commits a terrorist act, or provides material support and resources to an individual or entity that commits such an act, which results in the death or personal injury of a United States citizen. See 28 U.S.C. § 1605(a)(7). Congress also expressly provided that punitive damages be available in actions brought under the state-sponsored terrorism exception to sovereign immunity. See 28 U.S.C. § 1605 statutory note.³ This provision is commonly referred to as the "Flatow Amendment."

Relying upon these new provisions, Stephen M. Flatow, as Alisa's father and executor of her estate, filed a wrongful death complaint against Iran and its officials on February 26, 1997, in the United States District Court for the District of Columbia. On March 11, 1998, the district court entered a default judgment against Iran in favor of Flatow in the amount of $247,513,220. See Flatow v. Islamic Republic of Iran, 999 F.Supp. 1 (D.D.C.1998).

In the instant matter, Flatow registered his judgment with the District Court for the Southern District of California on April 23, 1999. On September 14, 1999, Flatow obtained a writ of execution for $247,513,220.00 on property in Carlsbad, California, owned by California Land Holding Company, a wholly-owned subsidiary of BSI. As the California Land Holding Company was about to sell the property, Flatow and BSI agreed that the writ of execution should be released from the property so that escrow could close. Pursuant to a consent order entered on October 1, 1999, the proceeds of the sale were held in an interest-bearing account subject to the lien created by the writ of execution.

BSI filed its initial motion for the release of the money on November 1, 1999. After extensive briefing by the parties and the United States government,⁴ as well as oral argument on whether BSI's assets could be used to satisfy a judgment against the Islamic Republic of Iran, the district court issued an order on May 22, 2000, denying without prejudice BSI's motion for release of the funds held pursuant to the consent order. The court found that the evidence Flatow presented was not sufficient to overcome the presumption that BSI is a juridical entity separate and apart from the Islamic Republic of Iran and therefore BSI was not subject to execution of the judgment against Iran. In making this determination, the court relied upon the Supreme Court's First Nat'l City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611, 629, 103 S.Ct. 2591, 77 L.Ed.2d 46 (1983) (hereinafter "Bancec") (holding that unless the entity is found to be "so extensively controlled by [the foreign state] that a relationship of principal and agent is created" or recognizing the entity as separate "would work fraud or injustice," the FSIA does not permit execution upon the entity's assets).⁵ However, the court permitted Flatow to conduct discovery on the limited issue of whether Iran exercised day-to-day control over the operations of BSI.

The court allowed Flatow to pursue discovery until July 31, 2000. BSI then filed its renewed motion for release of the Carlsbad land sale money. Flatow argued in opposition that BSI is "extensively controlled" by Iran because all Iranian banks including BSI were nationalized following the 1979 revolution. Flatow submitted a copy of the Iranian Constitution, which states that banking, as well as insurance, power generation, post, telegraph and telephone services, and other large-scale industries "will be publicly owned and administered by the State." The district court concluded that this evidence did not show that Iran exerts day-to-day control over BSI as required by Bancec, 462 U.S. at 629-31, 103 S.Ct. 2591. The district court also rejected Flatow's alternative argument under Bancec's fraud or injustice exception, id., to the presumption of BSI's status as a separate juridical entity.

During the course of discovery, Flatow requested the assistance of the court under the Hague Convention, 28 U.S.C. § 1781, to take depositions of former Iranian President Bani Sadr, who had been exiled to Paris, France, and former Iranian intelligence operative Ahmad Behbahani, who had been exiled to Turkey. The district court denied this request and entered a protective order under Federal Rule of Civil Procedure 26(c) so that the depositions of Bani Sadr and Behbahani could not proceed.

The district court granted BSI's motion for the release of the money and terminated the case. Flatow timely appeals.⁶

II. STANDARD OF REVIEW

We review the district court's findings of fact for clear error. See Freeman v. Allstate Life Ins. Co., 253 F.3d 533, 536 (9th Cir.2001); Troutt v. Colorado Western Ins. Co., 246 F.3d 1150, 1156 (9th Cir.2001). The district court's conclusions of law are reviewed de novo. See In re Cybernetic Servs., Inc., 252 F.3d 1039, 1045 (9th Cir.2001); Troutt, 246 F.3d at 1156. And we review the grant or denial of a protective order for an abuse of discretion. See Anderson v. Calderon, 232 F.3d 1053, 1099 (9th Cir.2000); Portland Gen. Elec. Co. v. U.S. Bank Trust Nat'l Ass'n, 218 F.3d 1085, 1089 (9th Cir.2000).

III. DISCUSSION

A. Separate Juridical Entity Analysis

In Bancec, the Supreme Court clearly stated that the FSIA does not govern substantive liability for foreign states or their instrumentalities. See 462 U.S. at 620, 103 S.Ct. 2591 ("The language and history of the FSIA clearly establish that the Act was not intended to affect the substantive law determining the liability of a foreign state or instrumentality, or the attribution of liability among instrumentalities of a foreign state."). The enumerated exceptions to the FSIA provide the exclusive source of subject matter jurisdiction over civil actions brought against foreign states, see Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 434-35, 109 S.Ct. 683, 102 L.Ed.2d 818 (1989), but the FSIA does not resolve questions of liability. Questions of liability are addressed by Bancec, which examines the circumstances under which a foreign entity can be held substantively liable for the foreign government's judgment debt. This distinction between liability and jurisdiction is crucial to our resolution of this case.

In Bancec, the government of Cuba expropriated property from First National City Bank (subsequently known as "Citibank"). Citibank asserted a set-off against the plaintiff Bancec based upon the Cuban government's seizure of Citibank's Cuban assets. 462 U.S. at 616, 103 S.Ct. 2591. The Court addressed the issue of whether the acts and liabilities of the foreign sovereign government of Cuba could be attributed to the state-owned banking entity, Bancec.

The Court held that Bancec was not an entity independent from the Cuban government. Id. at 633, 103 S.Ct. 2591. In making this determination, the Court noted that Bancec had been dissolved and its capital split between a Cuban national bank and the foreign trade enterprises of the Cuban Ministry of Foreign Trade. Id. at 632, 103 S.Ct. 2591. Furthermore, Bancec was empowered to act as the Cuban government's exclusive agent in foreign trade, the government supplied all of Bancec's capital and owned all of its stock, and all of Bancec's profits were deposited in the General Treasury. Bancec's Governing Board consisted of delegates from Cuban government ministries and the president of Bancec was the Minister of State. See Bancec, 462 U.S. at 614, 103 S.Ct. 2591. The Court explained, "To hold otherwise would permit governments to avoid the requirements of international law simply by creating juridical entities whenever the...