New England Merchants National Bank v Iran Power

CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
Date28 September 1980
United States, District Court, Southern District, New York.

(Duffy, District Judge)

New England Merchants National Bank and Others
and
Iran Power Generation and Transmission Company and Others

Sovereign immunity Foreign States and State-owned agencies Procedure Method of serving process upon foreign State and State-owned agencies Normal methods of service rendered impossible by termination of diplomatic relations Whether courts entitled to fashion substitute methods of service The law of the United States

Summary: The facts:A large number of actions brought by United States corporations against the State of Iran, Iranian State-owned agencies and some private Iranian defendants were referred to the District Court for the purpose of conducting a confirmation hearing with respect to orders of attachment obtained by the plaintiffs over defendants' property in the United States. At the hearing, counsel for the defendants argued that confirmation should be refused because the plaintiffs had failed to comply with requirements for the service of process.

Held:The Court ordered the plaintiffs to adopt a substitute method for the service of process since the political situation in Iran made service by normal methods impossible.

(1) Notions of due process required the plaintiffs to perfect service of process within a reasonable time in order to give the defendants adequate notice of the proceedings. The rigid time limits prescribed by New York law were not, however, applicable in Federal proceedings.

(2) Although the Foreign Sovereign Immunities Act 19761 was silent about the service of process upon a foreign State and its agencies in a case where diplomatic relations between that State and the United States had been terminated, this silence did not mean that service of process was impossible. It was open to the Court to fashion a substitute method for serving process, provided that that ensured that adequate notice was given to the defendants. The Court therefore directed that service should be made by telex and by letter, with copies of the pleadings being served on all counsel who had so far appeared for the defendants.

(3) The requirement of the Foreign Sovereign Immunities Act that service be in accordance with the law of the country in which it was to take place did not require that service be by a method actually in use in that country but merely that it be by a method not actually prohibited by that country's laws.

The following is the text of the judgment of the Court:2

The Iranian crisis! Demonstrations! Hostages! Diplomatic Ties Broken! The Aborted Rescue Attempt! These have been the headlines for most of the past year. Paralleling these events, however, are other less dramatic problems which must be solved in a dispassionate manner, one based in law and logic. This court must, thus, reject entirely the blatant jingoist appeals to emotionalism offensively put forth by at least one attorney involved in these proceedings. It is with a sense of deep sadness that I must remind even one person that this is a court of law and of justice.

The volatile political situation in Iran together with the break in the long-standing economic and industrial contacts between American businesses and the Iranian government, its agencies, instrumentalities, as well as private Iranian corporate entities, have caused a flood of lawsuits to be filed in this and other circuits. These suits, commercial in nature, seek monetary damages for alleged civil wrongs ranging from the nationalization of private property to the repudiation of executory contracts.

In the vast majority of the suits in federal courts in this state, [hereinafter collectively referred to as the Iranian cases], the plaintiffs have sought, and obtained, orders of attachment pursuant to New York's attachment statute, N.Y.Civ. Prac.Law 6201 et seq. (McKinney 1979), with respect to the monies of the several defendants found within this state. Since many of these attachments were obtained ex parte, the plaintiffs are compelled to seek judicial confirmation thereof. Id. at 6211.

In light of the threshold questions of fact and law which are common in these actions, judicial economy dictated that at least insofar as these common questions were concerned, a joint confirmation hearing be held. Thus, these actions have, for the most part, been referred to me for purposes of conducting the joint confirmation hearing.

Numerous administrative and procedural problems have attended this joint confirmation hearing which was held on April 29, 1980. I turn now to consider yet another

simple procedural problem which, by virtue of the nature of the Iranian cases, has been rendered terribly complexservice of process.

The question of service of process presents two quite distinct problems in the context of these cases. The first problem involves the time within which process must be served. The second, and concededly the more difficult problem, is the manner in which process is to be effected.

There is no federal attachment statute, per se, which obtains in the normal commercial litigation. Instead, Rule 64 of the Federal Rules of Civil Procedure provides:

At the commencement of and during the course of an action, all remedies providing for seizure of person or property for the purpose of securing satisfaction of the judgment ultimately to be entered in the action are available under the circumstances and in the manner provided by the law of the state in which the district court is held, existing at the time the remedy is sought.

Thus, under Rule 64, the provisions of New York's attachment statute control, [hereinafter the attachment statute]. These recently amended provisions, codified in Article 62 of the New York Civil Practice Law and Rules, set forth the exclusive method for obtaining an attachment in New York. However, the question remains whether each and every provision of the attachment statute, particularly those of a purely procedural nature, must be applied in a federal action. I think not.

There are two explicit exceptions to the otherwise slavish application of a forum state's provisional remedies. The one exception which is germane to the instant actions provides that although the provisional remedies are available under the circumstances and in the manner provided under state law, the action in which the remedy is used is to be commenced and prosecuted pursuant to the Federal Rules of Civil Procedure. Fed.R.Civ.P. 64(2).

Section 6213 of the attachment statute provides, in pertinent part:

An order of attachment granted before an action is commenced is valid only if, within sixty days after the order is granted, a summons is served upon the defendant or first publication of the summons against the defendant is made pursuant to an order and publication is subsequently completed.

There have been numerous factors which have impeded service upon the defendants within the time provided in 6213. These include: the political climate in Iran, including what appears to be a breakdown in the postal service of Iran; the severance of diplomatic relations between Iran and the United States and its concomitant tension and almost total lack of cooperation; and, the Foreign Sovereign Immunities Act, 28 U.S.C. 1602 et seq., which the defendants claim provides the exclusive method by which the government of Iran, its agencies and instrumentalities, are to be served with process in a commercial litigation.

These factors have combined to render compliance with the 60 day service of process requirement virtually impossible.

It would appear, at first blush, that federal Rule 64 might require that service of process be perfected within 60 days after the order of attachment is signed or, failing that, the attachment will fall. A closer reading of Rule 64, however, compels a different conclusion.

Section 6213 contemplates the issuance of an order of attachment prior to the commencement of the action which, under New York law, is commenced by service of a summons upon the defendant. N.Y.Civ.Prac.Law 304 (McKinney 1979). However, Rule 64 permits an attachment to issue in a federal action, whether it be based upon diversity or federal question jurisdiction, only upon commencement of the suit. And, under the federal rules, a civil action is commenced by filing a complaint with the court. Fed.R.Civ.P. 3. Thus, it is legally and factually impossible to obtain a pre-commencement order of attachment in federal court. Cf. Miller v. GilletteUNK, 267 F.2d 783 (2d Cir. 1959) (per curiam), cert. denied, 362 U.S. 922, 80 S.Ct. 676, 4 L.Ed.2d 742 (1960); Lloyd v. Lawrence, 60 F.R.D. 116, 120 (S.D.Tex. 1973). See also Moore's Federal Practice 64.05 at 64216422 (2d ed. 1979).

Moreover, in order to dispel any doubt about when a federal attachment action is commenced, Rule 64 expressly provides that the Federal Rules of Civil Procedure shall govern the commencement of the action. Thus, since Rule 64 effectively preempts New York's attachment statute, at least insofar as it carves out the availability of a pre-commencement attachment, it is evident that the time requirements of 6213 are of no force and effect in a federal attachment action.

Accordingly, if plaintiffs perfect service upon defendants more than 60 days after the orders of attachments were signed, the attachment will not automatically fall. This is not to say, however, that the time within which defendants are to be served is open ended. Indeed, the dictates of due process require that since the assets of the defendants are attached, they must have actual notice of the attachment within a reasonable time. Cf. Fuentes v. ShevinUNKUNK, 407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.2d 556 (1972).

Admittedly the concept of timely notice is somewhat less compelling in the cases at bar since all the Iranian assets which are the subject of the several suits before me have been frozen via Presidential order. See Exec.Order No. 12170, 44 Fed.Reg. 65,729 (1979). As a practical matter, the...

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