Kirschenbaum v. 650 Fifth Avenue & Related Properties
2016 U.S. App. LEXIS 13226
2d Cir.2016Background
- Plaintiffs hold money judgments against Iran under the FSIA terrorism exception and seek turnover of property owned by Alavi Foundation (a New York nonprofit) and 650 Fifth Avenue Co. (a NY partnership) to satisfy those judgments.
- Alavi was created in 1973 (originally the Pahlavi Foundation); Bank Melli (Iranian state bank) financed construction of 650 Fifth Avenue and, via a series of transactions, Assa (a Bank Melli front) acquired a 35–40% interest in the partnership; Alavi owns the remainder and served as managing partner until 2008.
- OFAC sanctions/IEEPA/Executive Orders (notably Exec. Order 13599) define “Government of Iran” to include persons owned/controlled by or acting on behalf of Iran and authorize blocking of U.S. assets of such persons; Assa and Bank Melli were on OFAC lists, Alavi and 650 Fifth Ave. were not.
- District Court granted Plaintiffs summary judgment, concluding Defendants were Iran (or its agencies/instrumentalities) under FSIA and TRIA and that their U.S. assets were blocked; Defendants appealed.
- Second Circuit: (1) rejects using Executive-branch sanctions definitions to treat Alavi/650 Fifth Ave. as the foreign state of Iran under the FSIA; (2) holds they cannot be FSIA agencies/instrumentalities because §1603(b)(3) excludes U.S. citizens and Bancec cannot override that statutory exclusion; (3) finds no alter-ego as a matter of law because record lacks day-to-day control by Iran; (4) remands on TRIA issues because TRIA uses its own, broader concept of “agency or instrumentality” and factual disputes remain about TRIA agency status and whether assets are “blocked.”
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Defendants are the “foreign state” of Iran under FSIA | Alavi/650 Fifth Ave. fall within Exec. Order/ITR definitions of "Government of Iran," so they are Iran for FSIA purposes | Defendants are U.S. entities lacking attributes of statehood; sanctions definitions cannot redefine "foreign state" under FSIA | Reversed: Defendants are not the foreign state of Iran; FSIA foreign-state status requires traditional attributes of statehood (e.g., territory, diplomatic capacity) |
| Whether Defendants are FSIA “agency or instrumentality” of Iran (§1603(b)) | Plaintiffs relied on control/ownership evidence and Bancec alter-ego to satisfy §1603(b) | Defendants argue they are U.S. citizens (NY entities) and §1603(b)(3) therefore bars agency status; Bancec cannot override the statutory citizenship exclusion | Reversed: §1603(b)(3) bars U.S. entities; Bancec cannot be used to disregard §1603(b)(3); Defendants fail FSIA agency/instrumentality test as a matter of law |
| Whether Defendants are Iran’s alter egos under Bancec (for FSIA jurisdiction) | Plaintiffs point to historical control, board supervision, and Bank Melli/Assa links to show extensive control | Defendants emphasize independent governance and lack of day-to-day state control | Reversed: No alter-ego as matter of law — record lacks evidence Iran exercised the requisite day-to-day, extensive control |
| Whether Defendants’ assets are subject to TRIA (agency/instrumentality or blocked assets) | Plaintiffs: TRIA permits turnover of blocked assets of a terrorist party or its agencies/instrumentalities; EO 13599 blocks assets of entities acting for Iran | Defendants: FSIA analysis forecloses agency status; assets not on SDN list and court monitor’s control is not a U.S. seizure/freeze under TRIA | Mixed remand: Defendants are not Iran itself for TRIA, but FSIA §1603(b) does not constrain TRIA; TRIA’s undefined "agency/instrumentality" is broader, and questions of fact remain whether Defendants are TRIA agencies/instrumentalities and whether their assets are "blocked" under EO 13599/IEEPA — remanded for factual development |
Key Cases Cited
- Morgan Guaranty Tr. Co. v. Republic of Palau, 924 F.2d 1237 (2d Cir.) (attributes of statehood used to define "foreign state" under FSIA)
- Samantar v. Yousuf, 560 U.S. 305 (Sup. Ct.) (FSIA’s term "foreign state" contemplates a body politic that governs territory)
- Bancec v. First Nat’l City Bank, 462 U.S. 611 (Sup. Ct.) (alter-ego doctrine may pierce instrumentality separateness in limited circumstances)
- U.S. Fid. & Guar. Co. v. Braspetro Oil Servs. Co., 199 F.3d 94 (2d Cir.) (applying Bancec alter-ego principles to FSIA jurisdiction)
- Dole Food Co. v. Patrickson, 538 U.S. 468 (Sup. Ct.) (FSIA agency/instrumentality ownership requirement and timing rule)
- EM Ltd. v. Banco Central de la Republica Argentina, 800 F.3d 78 (2d Cir.) (extent-of-control test for alter-ego under Bancec)
- Weinstein v. Islamic Republic of Iran, 609 F.3d 43 (2d Cir.) (TRIA's relation to FSIA jurisdiction and execution of judgments)
- Bank Markazi v. Peterson, 136 S. Ct. 1310 (Sup. Ct.) (Executive Order blocking assets under IEEPA can render assets available under TRIA)
- Stansell v. Revolutionary Armed Forces of Colombia, 771 F.3d 713 (11th Cir.) (TRIA's terms "agency" and "instrumentality" have broader plain meaning than FSIA §1603(b) and must accommodate non-state actors)