Smith v. Federal Reserve Bank of New York

• Decision Date: 11 September 2003
• Docket Number: No. 03 CIV. 5658(HB).,03 CIV. 5658(HB).
• Citation: 280 F.Supp.2d 314
• Parties: Raymond Anthony SMITH, as Administrator of the Estate of George Eric Smith, deceased; and Katherine Soulas, in her own right, on behalf of her minor children, and as Executrix of the Estate of Timothy Soulas, deceased Plaintiffs, v. FEDERAL RESERVE BANK OF NEW YORK and Honorable John W. Snow, Secretary of the Treasury, Defendants.
• Court: U.S. District Court — Southern District of New York

280 F.Supp.2d 314

Raymond Anthony SMITH, as Administrator of the Estate of George Eric Smith, deceased; and Katherine Soulas, in her own right, on behalf of her minor children, and as Executrix of the Estate of Timothy Soulas, deceased Plaintiffs, v. FEDERAL RESERVE BANK OF NEW YORK and Honorable John W. Snow, Secretary of the Treasury, Defendants.

No. 03 CIV. 5658(HB).

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

September 11, 2003.

OPINION & ORDER

BAER, District Judge.

Plaintiffs move to enjoin the disbursement of funds in an account administered by the Secretary of the Treasury from which plaintiffs seek to satisfy a judgment they obtained. Defendants cross-move for summary judgment. The law gives the Court little choice in how it must decide this matter, and the timing of the decision, dictated by the exigencies of the litigation, is even more unfortunate. For the following reasons, plaintiffs' motion is DENIED and defendants' cross-motion is GRANTED.

I. INTRODUCTION

A. Background

Plaintiff Raymond Anthony Smith is the half-brother and the administrator of the estate of George Eric Smith, who was killed in the World Trade Center on September 11, 2001. Plaintiff Katherine Soulas is the wife and the executrix of the estate of Timothy Soulas, who was also killed in that tragedy. Raymond Anthony Smith and Katherine Soulas (collectively "plaintiffs") brought suit against several parties, including the Republic of Iraq pursuant to Section § 1605 of the Foreign Sovereign Immunities Act ("FSIA"). See Smith ex rel. Smith v. Islamic Emirate of Afghanistan, 262 F.Supp.2d 217, 226 (S.D.N.Y.2003). On May 7, 2003, this Court concluded that Iraq was liable to the plaintiffs for damages of $63,504,063.19. See id. at 240-41. Judgment was entered on May 23, 2003.

On July 30, 2003, plaintiffs instituted the instant lawsuit in which they seek a declaratory judgment that they are entitled to and may attach certain assets of the former Republic of Iraq that were frozen by the United States at the start of the first Gulf War in 1990 and that are currently held in a "Special Purposes Account" by the Federal Reserve Bank of New York ("FRBNY"). On the basis that the U.S. Government contends that it intended imminently to transfer those funds to Iraq for reconstruction purposes, plaintiffs moved by order to show cause on July 30, 2003 for a temporary restraining order and a preliminary injunction to prevent the FRBNY from transferring funds out of this account.¹ A hearing on the preliminary injunction came on before Judge Daniels on August 5, 2003. Judge Daniels denied the preliminary injunction without prejudice and permitted plaintiffs to further develop the record and to renew their motion before me,² which plaintiffs did. The parties submitted new briefs and this Court heard oral argument on September 3, 2003.

B. Standard for a preliminary injunction

Plaintiffs are entitled to a preliminary injunction if they show 1) a likelihood that they will suffer irreparable harm if an injunction does not issue, and 2) either a) likelihood of success on the merits or b) sufficient serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly in their favor. See, e.g., Federal Exp. Corp. v. Federal Espresso, Inc., 201 F.3d 168, 173 (2d Cir.2000). In their briefs and at the hearing, the parties largely presumed the likelihood-of-irreparable-harm prong. Although preliminary injunctions are generally denied when only monetary damages are at stake, this case presents an exceptional situation where plaintiffs face a likelihood of irreparable harm if an injunction does not issue. If the funds from this Special Purpose Account are disbursed to Iraq, plaintiffs may be deprived of their sole available source for satisfying their judgment. Instead, the parties primarily dispute the merits of the matter. At the oral argument on September 3, 2003, the parties agreed that this matter was ripe for a final resolution on the merits, as the dispute solely concerns statutory and constitutional interpretation. See Fed.R.Civ.P. 65(a)(2) ("Before or after the commencement of the hearing of an application for a preliminary injunction, the court may order the trial of the action on the merits to be advanced and consolidated with the hearing of the application.").

II. DISCUSSION

Plaintiffs contend that they are entitled to satisfy their judgment from the funds in this Special Purpose Account pursuant to the Terrorism Risk Insurance Act ("TRIA"), which Congress enacted in November 2002 and which permits persons holding compensatory awards against a "terrorist party" to satisfy their claims from the "blocked assets" of the terrorist party. Defendants contend that each of two independent actions taken by President Bush placed the assets of the Special Purpose Account beyond the reach of the TRIA and too beyond the reach of these plaintiffs.³ Thus, the resolution of this matter requires an analysis of the TRIA as well as the executive actions taken by President Bush and the statutes upon which those actions were taken.

A. The Terrorism Risk Insurance Act

Section 201(a) of the TRIA provides:

Notwithstanding any other provision of law, and except as provided in subsection (b), in every case in which a person has obtained a judgment against a terrorist party on a claim based upon an act of terrorism, or for which a terrorist party is not immune under section 1605(a)(7) of title 28, United States Code, 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.

Pub.L. No. 107-297, § 201(a), 116 Stat. 2322, 2337 (Nov. 26, 2002). There is no dispute that Iraq is a "terrorist party" or that its assets in the accounts frozen by the United States in 1990 are "blocked assets" within the meaning of the TRIA. The TRIA defines the term "terrorist party" to include "a foreign state designated as a state sponsor of terrorism under section 6(j) of the Export Administration Act of 1979 (50 U.S.C.App. 2405(j)) or section 620A of the Foreign Assistance Act of 1961 (22 U.S.C. 2371)." Id. § 201(d)(4), 116 Stat. at 2340. Because Iraq has been designated by the United States as a state sponsor of terrorism since 1990, it falls within the TRIA's definition of "terrorist party." The TRIA defines "blocked asset" to include "any asset seized or frozen by the United States under section 5(b) of the Trading With the Enemy Act (50 U.S.C.App. 5(b)) or under sections 202 and 203 of the International Emergency Economic Powers Act (50 U.S.C. 1701; 1702)." Id. § 201(d)(2), 116 Stat. at 2340. Following Iraq's invasion of Kuwait in 1990, the United States blocked certain Iraqi accounts located in the United States pursuant to, inter alia, the International Emergency Economic Powers Act, see Exec. Order No. 12722, 55 Fed.Reg. 31803 (Aug. 2, 1990).⁴

B. Executive Order 13290 and the International Emergency Economic Powers Act

The defendants contend that those blocked assets that might otherwise have gone to compensate the plaintiffs have been placed beyond the TRIA by Executive Order 13290, which President Bush issued on March 20, 2003, the eve of the launch of Operation Iraqi Freedom. This Executive Order confiscated and vested in the United States the blocked assets of the Republic of Iraq. It provided:

I, GEORGE W. BUSH, President of the United States of America, hereby determine that the United States and Iraq are engaged in armed hostilities, that it is in the interest of the United States to confiscate certain property of the Government of Iraq and its agencies, instrumentalities, or controlled entities, and that all right, title, and interest in any property so confiscated should vest in the Department of the Treasury. I intend that such vested property should be used to assist the Iraqi people and to assist in the reconstruction of Iraq, and determine that such use would be in the interest of and for the benefit of the United States.

I hereby order:

Section 1. All blocked funds held in the United States in accounts in the name of the Government of Iraq, the Central Bank of Iraq, Rafidain Bank, Rasheed Bank, or the State Organization for Marketing Oil are hereby confiscated and vested in the Department of the Treasury, except for the following:

(a) any such funds that are subject to the Vienna Convention on Diplomatic Relations or the Vienna Convention on Consular Relations, or that enjoy equivalent privileges and immunities under the laws of the United States, and are or have been used for diplomatic or consular purposes, and

(b) any such amounts that as of the date of this order are subject to post-judgment writs of execution or attachment in aid of execution of judgments pursuant to section 201 of the Terrorism Risk Insurance Act of 2002 (Public Law 107 297), provided that, upon satisfaction of the judgments on which such writs are based, any remainder of such excepted amounts shall, by virtue of this order and without further action, be confiscated and vested.

Exec. Order No. 13290 (Mar. 20, 2003) (emphasis added). This measure was taken pursuant to the powers, inter alia, of the International Emergency Economic Powers Act ("IEEPA"). Significantly, Section 106 of the USA Patriot Act amended the IEEPA to empower the president to confiscate and vest in the United States the assets of foreign countries. See Pub.L. 107-56, 115 Stat. 271, 278 (Oct. 26, 2001) (codified at 50 U.S.C. § 1702(a)(1)(C)). This provision states:

[The president may] when the United States is engaged in armed hostilities or has been attacked by a foreign country or foreign nationals, confiscate any property, subject to the jurisdiction of the United States, of any foreign...