Hausler v. JP Morgan Chase Bank, N.A.

• Decision Date: 13 September 2010
• Docket Number: No. 09 CIV. 10289(VM),09 CIV. 10289(VM)
• Parties: Jeannette HAUSLER, Petitioner, v. JP MORGAN CHASE BANK, N.A., Citibank, N.A., UBS AG, The Royal Bank of Scotland, N.V. and Bank of America, N.A., Respondents.
• Court: U.S. District Court — Southern District of New York

740 F.Supp.2d 525 Jeannette HAUSLER, Petitioner, v. JP MORGAN CHASE BANK, N.A., Citibank, N.A., UBS AG, The Royal Bank of Scotland, N.V. and Bank of America, N.A., Respondents. No. 09 CIV. 10289(VM). United States District Court, S.D. New York. Sept. 13, 2010.

Alfonso J. Perez, Rasco Reininger Perez & Esquenazi, Karen Olivia-Marie Stewart, Roberto Martinez, Colson, Hicks & Eidson, Coral Gables, FL, Daniel Feist Schreck, Law Offices of G. Oliver Koppell & Assoc., James Wilson Perkins, Greenberg Traurig, LLP, New York, NY, David Alan Baron, Greenberg Traurig, LLP, Washington, DC, for Plaintiff.

Ian Craig Richardson, James Loran Kerr, Thomas Matthew Noone, Davis Polk & Wardwell L.L.P., Mark Putnam Gimbel, Pamela Anne Carter, Covington & Burling LLP, New York, NY, for Defendant.

DECISION AND ORDER

VICTOR MARRERO, District Judge.

Petitioner Jeannette Hausler ("Hausler") brings this action as the successor and personal representative of the Estate of Robert Otis Fuller ("Fuller") pursuant to § 201(a) of the Terrorism Risk Insurance Act of 2002, 28 U.S.C. § 1610 note ("TRIA"), to execute a default judgment obtained by Hausler in Florida state court (the "Florida Judgment") against the Republic of Cuba, Fidel and Raul Castro, and the Cuban Revolutionary Armed Services (collectively, "Defendants") in an action alleging the torture and extrajudicial killing of Fuller. To enforce her judgment in this Court, Hausler brings three turnover petitions ("Petition I," "Petition II," and "Petition III," respectively) against JP Morgan Chase Bank, N.A., Citibank, N.A., UBS AG, The Royal Bank of Scotland, N.V. (f/k/a ABN AMRO Bank, N.V.), and Bank of America, N.A. ("Respondents").

Respondents now move to dismiss Petition III insofar as it seeks to execute against blocked electronic funds transfers ("EFTs") in respect of which the Republic of Cuba or its agencies or instrumentalities (collectively, "Cuba") are the originator, originating bank, beneficiary's bank or beneficiary.

Upon review of Respondents' and Petitioners' opposing briefs, as well as the Memorandum of Law for Amicus Curiae the Clearing House Association ¹ in Opposition to the Petition, dated July 29, 2010, the Court finds that the EFT proceeds are subject to execution under TRIA and thus denies Respondents' motion to dismiss.

I. BACKGROUND ²

A. THE UNDERLYING JUDGMENT AGAINST CUBA

Hausler, acting on her own behalf and as representative of her deceased brother Fuller, seeks to enforce the Florida Judgment for compensatory damages in the amount of $99,000,000. The Florida Judgment, recognized by the United States District Court for the Southern District of Florida and given full faith and credit by this Court on September 26, 2008, arose out of the alleged extrajudicial killing and torture of Fuller by Defendants in the aftermath of the Cuban revolution.

B. CUBAN ASSET CONTROL REGULATIONS

President John F. Kennedy embargoed all trade with Cuba in 1962, and the United States Treasury Department's (the "Treasury Department") Office of Foreign Assets Control ("OFAC") issued the Cuban Asset Control Regulations (the "CACRs"), 31 C.F.R. Part 515, on July 8, 1963. Among other purposes, the CACRs seek to block transactions in which Cuba has "any interest of any nature whatsoever, direct or indirect." 31 C.F.R. § 515.201(a).

The statutory authority for the CACRs' blocking and sanctions regime derives from the Trading With the Enemy Act ("TWEA"), 50 U.S.C.App. §§ 1-44, enacted in 1917 to restrict trade with countries hostile to the United States. In 1963, § 5(b)(1) of TWEA (" § 5(b)") provided in pertinent part:

During the time of war or during any other period of national emergency declared by the President, the President may, through any agency that he may designate ...

(A) investigate, regulate, or prohibit, any transactions in foreign exchange, transfers of credit or payment between, by, through, or to any banking institution ... and

(B) investigate, regulate, direct and compel, nullify, void, prevent or prohibit, any acquisition holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, or dealing in, or exercising any right, power, or privilege with respect to, or transactions involving, any property in which any foreign country or a national thereof has any interest....

TWEA § 5(b). In 1977, Congress passed the International Emergency Economic Powers Act (the "IEEPA"), which amended § 5(b) so as to remove its application to national emergency situations in peacetime. See IEEPA of December 28, 1977, Pub. L. No. 95-223, 91 Stat. 1625 (codified at 50 U.S.C. § 1701). The IEEPA, which now governs the President's power to issue sanctions and blocking measures in peacetime, does however permit measures issued pursuant to § 5(b) prior to 1977 remain in effect. On this basis the CACRs have been extended each year since 1977.

CACR § 515.201 sets forth the transactions authorized to be blocked, including: "All transfers of credit and all payments between, by, through, or to any banking institution or banking institutions wheresoever located, with respect to any property subject to the jurisdiction of the United States or by any person (including a banking institution) subject to the jurisdiction of the United States," 31 C.F.R. § 515.201(a)(1); and "[a]ll dealings in, including, without limitation, transfers, withdrawals, or exportations of, any property or evidences of indebtedness or evidences of ownership of property by any person subject to the jurisdiction of the United States." Id. § 515.201(b)(1).

Section 515.205 of the CACRs requires that certain types of blocked property, including funds resulting from transactions blocked pursuant to CACR § 515.201, be held in interest-bearing domestic bank accounts.

The EFTs at issue here were blocked by Respondents pursuant to the CACRs.

C. TRIA

TRIA mandates that persons who have obtained a judgment based upon an act of terrorism perpetrated by a foreign government designated as a terrorist party can invoke the jurisdiction of state and federal courts to enforce the judgment. The parties to the instant action do not dispute that Cuba has been properly designated as a terrorist party within the meaning of § 201 of TRIA ("TRIA § 201").

The instant dispute arises primarily from conflicting interpretations of TRIA § 201. Section 201(a) of TRIA provides in relevant part:

Notwithstanding any other provision of law, in every case in which a person has obtained a judgment against a terrorist party on a claim based upon an act of terrorism, ... the blocked assets of that terrorist party (including the blocked assets of any agency or instrumentality of that terrorist party) shall be subject to execution or attachment in aid of execution in order to satisfy such judgment to the extent of any compensatory damages for which such terrorist party has been adjudged liable.

TRIA § 201(a) (emphasis added). The issue in dispute derives largely from the phrase highlighted above.

Section 201(d)(2) of TRIA defines "blocked asset" as, with exceptions not pertinent here, "any asset seized or frozen by the United States under [§ 5(b) ] of the [TWEA] or under sections 202 and 203 of the [IEEPA]." Id. § 201(d)(2).

D. TURNOVER PETITIONS

In an effort to enforce the Florida Judgment, Hausler has filed and served turnover Petitions I, II, and III against Respondents pursuant to TRIA. ³ At issue here is Petition III, under which Hausler seeks to execute against the proceeds of thirty international EFTs ⁴ that Respondents blocked pursuant to the CACRs and placed in domestic bank accounts. Those EFTs were blocked between 1992 and 2009,⁵ and were all allegedly remitted by Cuba or transmitted by their originators as intended for the benefit of Cuba. ⁶

With their present motion. Respondents seek dismissal of Petition III on the ground that the proceeds of the blocked EFTs do not constitute the "assets" of Cuba and are thus not subject to execution under TRIA.

E. RECENT SECOND CIRCUIT CASES REGARDING EFTS

Two recent Second Circuit cases— Jaldhi, 585 F.3d 58, andExport-Import Bank of the United States v. Asia Pulp & Paper Co., Ltd., 609 F.3d 111 (2d Cir.2010)—animate Respondents' motion. In both cases, the Court of Appeals found that EFTs temporarily passing through intermediary banks ("Midstream EFTs") are not attachable property under the applicable federal statutes.

In Jaldhi, the Circuit Court overruled its decision in Winter Storm Shipping, Ltd. v. TPI, 310 F.3d 263 (2d Cir.2002), where it had found that Midstream EFTs were attachable property of a defendant-beneficiary pursuant to Rule B of the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions of the Federal Rules of Civil Procedure ("Rule B"). ⁷ Rule B permits attachment of "the defendant's tangible or intangible personal property." Fed. R. Civ. P. Supp. R. B(1)(a). After careful reconsideration of Rule B and the underpinnings of Winter Storm, the Jaldhi Court found that "the beneficiary [of an EFT] has no property interest in the funds transfer which the beneficiary's creditor can reach." 585 F.3d at 71 (emphasis omitted) ( quoting N.Y. U.C.C. § 4-A-502 cmt. 4). The Circuit Court found no guidance in federal maritime law to determine the applicable property rights, and thus relied on New York State law, specifically the New York Uniform Commercial Code, Article 4-A ("Article 4-A"), to determine that Midstream EFTs are "neither the property of the originator nor the beneficiary while briefly in the possession of an intermediary bank." Id.

Similarly, in Asia Pulp, the Second Circuit considered "whether an EFT temporarily in the possession of an intermediary bank in New York— i.e., a midstream EFT—may be garnished under the [Federal Debt Collection Procedures Act (the "FDCPA") ] to satisfy judgment debts owed by either the originator or the intended beneficiary of the EFT." 609 F.3d at 114-15. " 'In contrast to Rule B, which requires that funds be the '...