More on the SG’s brief in Ministry of Defense v. Elahi

As we noted on Friday, the SG’s office filed a brief recommending a GVR in No. 07-615, Ministry of Defense v. Elahi. Guest blogger Luisa Caro has more on the background of the case, the cert. papers, and the SG’s brief (available here).

Ministry of Defense v. Elahi, No. 07-615, involves the interplay between the Foreign Sovereign Immunities Act (FSIA), the Victims of Trafficking and Violence Protection Act of 2000 (“VTVPA”), and the Terrorism Risk Insurance Act of 2002 (“TRIA”). Moreover, the case touches upon three separate litigations involving the government of Iran.

The Ministry of Defense and Support for the Armed Forces of the Islamic Republic of Iran (“MOD”) entered into agreements with a California-based contractor for the sale and servicing of equipment for the Iranian Air Force in 1977. For reasons that are disputed, the delivery of the equipment did not take place. The MOD pursued international arbitration and was awarded $2.8 million against the contractor, Cubic Defense Systems. In 1998, the MOD filed a petition in the U.S. District Court for the Southern District of California seeking to confirm the award.

Separately, Iran brought claims against the United States before the Iran-U.S. Claims Tribunal in The Hague for failure to restore certain frozen Iranian assets. The Tribunal was constituted by the Algiers Accords signed January 1981, whereby Iran released the hostages at the U.S. Embassy in Tehran and the U.S. committed “to restore the financial position of Iran, in so far as possible, to that which existed prior to November 14, 1979.”

Third, respondent Dariush Elahi filed a claim in the U.S. District Court for the District of Columbia against Iran stemming from his brother’s assassination by agents of the Iranian government in 1990. Iran did not enter an appearance. After fact-finding hearings, the district court entered a default judgment against Iran and in favor of Elahi for $11.7 million in compensatory damages and $300 million in punitive damages in December 2000. In November 2001, Elahi registered the default judgment in the Southern District of California and sought to garnish the $2.8 million judgment owed by Cubic to Iran. The issue here is not whether Elahi’s claim against Iran for his brother’s assassination has been relinquished, but whether the vehicle for satisfying that judgment – i.e. his attachment of this particular judgment in favor of Iran – may be precluded by the specific statutory provisions that determine when a claim is relinquished.

This case is before the Court for the second time after having been remanded to the Ninth Circuit for that court to determine whether the MOD was either an “agency or instrumentality” of a foreign sovereign, and thereby covered under Section 1610(b) of the FSIA, or instead the foreign sovereign itself, covered under Section 1610(a). On remand, the Ninth Circuit determined that MOD was the foreign sovereign itself, and therefore that the Cubic judgment was immune from attachment. The Ninth Circuit held, however, that the attachment was nonetheless valid under the TRIA and VTVPA because it was not property “at issue” before an international tribunal (as provided by TRIA section 201(c)(4)) but it was a “blocked asset,” as required by TRIA sections 201(a) and 201(d)(2)(A).

The MOD petitioned again for certiorari, arguing that the Ninth Circuit’s decision misinterprets the relevant statutes and conflicts with other circuits. It first contends that Elahi cannot attach the Cubic judgment to satisfy his default judgment because the Cubic judgment is “at issue” in Iran’s claims against the U.S. before the Tribunal in The Hague and thus relinquished under the TRIA.

Under Section 201(c) of the TRIA, claims against Iran are relinquished by individual claimants who receive payment from the U.S. Treasury when the claims are also “at issue” before the Tribunal. MOD argues that the Cubic judgment is “at issue” because it arises from the same transaction or contract that forms the basis for one of Iran’s claims against the U.S. – compensation for military equipment that Iran alleges it did not receive, including the contract with Cubic – and any payment received from Cubic will be deducted from any liability by the U.S. Moreover, MOD contends, because Elahi received $2.3 million from the U.S. Treasury in partial satisfaction of his compensatory damages award, Elahi has, pursuant to Section 201(c)(4) of the TRIA, relinquished his right to any claims “at issue” before an international tribunal. Elahi counters, however, that the Cubic judgment is not “at issue” before the Tribunal because it is already final, and that he thus could not have relinquished his right to attach it.

Second, MOD argues, the judgment is not a “blocked asset” as required by the VTVPA and TRIA because Iran’s interest in it did not arise until in 1998 – that is, after the freeze and seizure of Iranian assets – when Iran sought to confirm the arbitration award in California. Elahi argues that the judgment is a “blocked asset” because the United States blocked all sales of military assets, and that in effect the judgment is a liquidated form of those military assets which according to Elahi, continue to be blocked. The parties also dispute whether the “asset” represented by the judgment arose in 1977 when Iran entered into the contracts (and thus within the time when assets were blocked), or in 1998 when Iran sought to confirm the judgment in California (and thus after the time period when assets were frozen and seized).

On February 19, 2008, the Court invited the Solicitor General to file a brief expressing the views of the United States on the case. In its brief, filed on Friday, the SG states that the Court should grant certiorari, vacate and remand to the Ninth Circuit for two reasons. First, the Ninth Circuit’s holding that the Cubic judgment was a blocked asset because Iran’s interest in the contracts arose in 1977 is erroneous. The SG explains that because Iranian assets were subsequently unblocked by executive orders, even if the Ninth Circuit were correct that Iran’s interest in the asset arose in 1977, that asset would not have been unblocked and therefore would be unavailable for purposes of attachment.

More importantly, however, the SG states that the matter should be remanded to the Ninth Circuit because, since the decision below, the State Department has designated MOD as an “entity of proliferation concern,” and Iran’s assets were once again blocked by Executive Order. On remand, the SG suggests, the case should be remanded for a determination based on the new designation and to allow the parties to brief the matter. The SG further notes that if the Ninth Circuit were to find, based on the new designation, that the Cubic judgment was a “blocked asset” subject to attachment under TRIA, it would both eliminate any conflict with other circuits and avoid a conflict with the United States’s position before the Tribunal that all previously frozen Iranian assets were unblocked.

On the question whether the Cubic judgment is “at issue” in the case against the United States before the Tribunal, the SG agrees with MOD that the Cubic judgment is at issue because the same facts underlie both claims and the U.S. would be entitled to a set-off for any recovery that Iran received from the Cubic judgment. In the SG’s view, however, certiorari is not warranted simply to correct the Ninth Circuit’s error on this question, because even Elahi did in fact relinquish his claim by receiving payment from the U.S. Treasury, other claimants who have not received payment have also placed liens on the judgment, such that the resolution of the issue would not help MOD in any event.