Fran HEISER, Individually and as Co-Administrator of the Estate of Michael Heiser, et al., Appellants v. ISLAMIC REPUBLIC OF IRAN, et al., Appellees.
No. 12-7101.
United States Court of Appeals, District of Columbia Circuit.
Argued Sept. 24, 2013. Decided Nov. 19, 2013.
735 F.3d 934
James L. Kerr argued the cause for appellees Wells Fargo Bank, N.A., et al. With him on the brief was Karen E. Wagner.
Benjamin M. Shultz, Attorney, U.S. Department of Justice, argued the cause for amicus curiae United States of America. With him on the brief were Stuart F. Delery, Principal Deputy Assistant Attorney General, Ronald C. Machen, U.S. Attorney, and Mark B. Stern and Sharon Swingle, Attorneys.
Before: BROWN, Circuit Judge, and EDWARDS and RANDOLPH, Senior Circuit Judges.
Opinion for the court filed by Senior Circuit Judge RANDOLPH.
RANDOLPH, Senior Circuit Judge:
In 1996, an explosion tore apart the Khobar Towers apartment complex in Dhahran, Saudi Arabia. Nineteen American military personnel died and hundreds of others were wounded. Investigations revealed that the terrorist organization Hezbollah had attacked the Towers with Iran‘s assistance. The opinion in Estate of Heiser v. Islamic Republic of Iran (Heiser I), 466 F.Supp.2d 229, 252-54, 260-65 (D.D.C.2006), describes Iran‘s intimate in
The estate of Michael Heiser, one of the victims, and other victims’ families and estates, sued Iran and several of its agencies and instrumentalities alleging their liability for the attacks. Plaintiffs obtained a default judgment, id. at 356, later modified under the 2008 National Defense Authorization Act, Estate of Heiser v. Islamic Republic of Iran (Heiser II), 659 F.Supp.2d 20, 22-23, 30-31 (D.D.C.2009). The judgment now totals approximately $591 million in punitive and compensatory damages. Estate of Heiser v. Islamic Republic of Iran (Heiser III), 885 F.Supp.2d 429, 450 (D.D.C.2012). The propriety of that judgment is not before us.
Plaintiffs, attempting to collect on this judgment, had writs of attachment issued to Bank of America, N.A., and Wells Fargo, N.A., seeking any assets held by the banks in which Iran had an interest. The banks responded with lists of accounts having some connection to Iran, after which plaintiffs moved for the banks to turn over the funds in these accounts. In response, the banks conceded that some accounts were potentially subject to attachment. Id. at 447, n. 6. These “uncontested accounts” are the subject of an interpleader action in the district court. Id. at 434, 449.
The remaining “contested accounts” are the subject of this appeal. Id. at 432. The accounts contain the proceeds of electronic funds transfers that were blocked under various sanctions programs the Treasury Department‘s Office of Foreign Assets Control implemented. Id. at 432-33, 446. These concepts need to be explained.
An electronic funds transfer is a series of transactions by which one party, called the “originator,” transfers money through the banking system to another party, called the “beneficiary.” See
In this case, electronic funds transfers were never completed because of blocking regulations.2 The intermediary banks—affiliated with either Wells Fargo or Bank of America—electronically screened each funds transfer they received. The screening found references to one of several designated Iranian banks. Because of those references, the banks froze the transfers and deposited the proceeds in separate accounts. The money never reached the beneficiaries or their banks, but instead became the subject of litigation.
The blocking regulations cast a wide net. The regulations froze and prohibited the “transfer[]” of “property and interests in property” of designated entities. See
The breadth of the blocking regulations is evident here. Iranian entities were not the originators of the funds transfers.3 Nor were they the ultimate beneficiaries. The transfers were blocked because the beneficiaries’ banks were Iranian. They were blocked, in other words, because Ira
These are the funds that plaintiffs seek in satisfaction of their judgment against Iran. Plaintiffs argue that the Iranian banks’ contingent possessory interests are sufficient for them to attach the contested accounts under two statutes. The first,
The United States submitted a statement of interest to the district court, and has filed a brief amicus curiae in this appeal. The government took “no position” on the question whether Iran owns the contested accounts. United States Amicus Br. at 1. It addressed only the proper construction of § 201 and § 1610(g). The government argued that the statutes “do not . . . permit a plaintiff to satisfy a judgment against a terrorist party by attaching property that the terrorist party does not own.” United States Amicus Br. at 2. The government‘s interpretation of § 201 and § 1610(g) is the same as the banks‘.
The district court held that the contested accounts were not attachable under either statute. It first held that the word “of” in § 201 and § 1610(g) denotes ownership and that Iran must therefore own any accounts plaintiffs may seek to attach. Heiser III, 885 F.Supp.2d at 437-43. It then determined that ownership of the contested accounts should be governed by a federal rule of decision because the Foreign Sovereign Immunities Act, which includes both § 201 and § 1610(g), preempts state law. Id. at 443-45. The court adopted Uniform Commercial Code Article 4A as a federal rule of decision. Id. at 445-47. Applying Article 4A principles, the district court found that Iran did not own the contested accounts. The court therefore denied plaintiffs’ motion for a turnover of the funds. Id. at 447-49.5
The parties agree that most of the requirements of § 201 and § 1610(g) are satisfied. Iran is obviously a “foreign state.” Section 201 defines a “terrorist party” as “a foreign state designated as a state sponsor of terrorism,”
Whether plaintiffs can attach the contested accounts thus depends on whether those accounts are the “property” or “blocked assets” of Iran. Plaintiffs ask us to treat the word “of” as encompassing any Iranian relationship with the contested accounts. Although the word “of” may signify ownership, plaintiffs claim that an ownership definition is inappropriate here. Instead, they say the word “of” should draw its meaning from the surrounding language. In § 201 Congress used “of” to modify “blocked assets,” and assets may be blocked on the basis of Iranian interests far less significant than ownership. This language choice, according to plaintiffs, conveys Congress‘s intent to compensate victims of terrorism with blocked assets. Thus, plaintiffs conclude, the contested accounts may be attached for the same reason they were blocked: because an Iranian bank would have served as a bank to the ultimate beneficiary.
The banks and the United States both reject this interpretation, citing Supreme Court cases defining “of” in various statutes as requiring ownership. See Bd. of Trs. of the Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., 563 U.S. 776, 131 S.Ct. 2188, 2195-96, 180 L.Ed.2d 1 (2011); Poe v. Seaborn, 282 U.S. 101, 109, 51 S.Ct. 58, 75 L.Ed. 239 (1930). The district court relied, in part, on these and other Supreme Court decisions. Heiser III, 885 F.Supp.2d at 438. While the decisions establish that “of” denotes ownership in some statutes, the word may carry a different meaning in others. See, e.g., Prot. & Advocacy for Persons with Disabilities v. Mental Health & Addiction Servs., 448 F.3d 119, 125-26 (2d Cir.2006). None of the Supreme Court decisions the parties or the district court cited purport to define “of” conclusively and for all purposes. Its meaning depends on context.
With respect to § 201 and § 1610(g), plaintiffs’ interpretation conflicts with the established principle that “a judgment creditor cannot acquire more property rights in a property than those already held by the judgment debtor.” 50 C.J.S. Judgments § 787 (2013); see United States v. Winnett, 165 F.2d 149, 151 (9th Cir.1947); Zink v. Black Star Line, Inc., 18 F.2d 156, 157 (D.C.Cir.1927); Lewis v. Smith, 15 F.Cas. 498, 498-99 (C.C.D.C.1825) (No. 8,332). If a debtor merely holds property as an intermediary for a third party, but does not own the property, then a creditor cannot attach it. See Carpenter v. Nat‘l City Bank of Chi., 48 App. D.C. 133, 134-35, 136 (D.C.Cir.1918). These principles carry significant weight because “statutes should be interpreted consistently with the common law.” Manoharan v. Rajapaksa, 711 F.3d 178, 179 (D.C.Cir.2013) (per curiam) (quoting Samantar v. Yousuf, 560 U.S. 305, 130 S.Ct. 2278, 2289, 176 L.Ed.2d 1047 (2010)). Congress can “abrogate” the traditional common-law principles governing execution of judgments, but to do so it must “speak directly to the question addressed by the common law.” Id. at 179-80 (quoting United States v. Texas, 507 U.S. 529, 534, 113 S.Ct. 1631, 123 L.Ed.2d 245 (1993) (internal quotation marks omitted)).
Congress has not done so here. The statutory text is silent on this issue. Nothing in the legislative histories of § 201 or § 1610(g) suggests that Congress intended judgment creditors of foreign states to be able to attach property those states do not own. Indeed, a House Report addressing § 1610(g) states that the section was intended to let debtors attach assets in which foreign states have “beneficial ownership.” H.R.REP. NO. 110-477, at 1001 (2007) (Conf.Rep.). The House Re
Plaintiffs cite the floor debate over § 201 to argue that Congress wanted to compensate terrorism victims with blocked assets. But plaintiffs misinterpret the debate. Congress had a narrower concern. Even before the Terrorism Risk Insurance Act was passed,
Adopting plaintiffs’ interpretation of § 201 and § 1610(g) risks punishing innocent third parties. Plaintiffs’ position is that these sections allow a creditor to satisfy a judgment with property the debtor does not own. But if the debtor does not own that property, then someone else must. And that someone could, and very well might, be an innocent person who then unjustly bears the costs of the debtor‘s wrong. This court has construed “strictly against the garnisher” a statute “in derogation of the common law,” because it risked penalizing “a garnishee who owed the principal defendant nothing.” Austin v. Smith, 312 F.2d 337, 340-43 (D.C.Cir.1962); see also Rieffer v. Home Indem. Co., 61 A.2d 26, 27 (D.C.1948) (“The weight of authority clearly favors a strict construction of attachment statutes.“), modified on other grounds, 62 A.2d 371 (D.C.1948). And the need to protect innocent parties is particularly acute with
The record does not disclose whether the originators or beneficiaries in this case are entirely innocent. But they may be. And that prospect would be contrary to Congress‘s intent. If potentially innocent parties pay plaintiffs’ judgment, then the punitive purpose of these provisions is not served. Quite the opposite. To the extent innocent parties pay some part of a terrorist state‘s judgment debt, the terrorist state‘s liability is ultimately reduced. Congress could not have intended such a result.
Plaintiffs claim that even if Iranian ownership is required, they should still prevail because Iran actually owns the contested accounts. They argue that ownership interests include any interest in the property bundle, including the Iranian banks’ contingent future possessory interests in the accounts, an interpretation that harmonizes with the broad definitions of “property” and “interests in property” contained in the blocking regulations. Plaintiffs urge us not to adopt U.C.C. Article 4A as a rule of decision, reasoning that federal law preempts this Uniform Commercial Code provision.
We agree with plaintiffs that Article 4A does not apply of its own force. But it is not correct to treat this as an issue of preemption. Federal law, specifically § 201 and § 1610(g), is controlling. The question is the content of this federal law.
Congress has not provided a rule for determining ownership under § 201 or § 1610(g). Nor has Congress directed the federal courts to adopt state ownership rules under this statutory scheme. See RICHARD H. FALLON, JR. ET AL., HART & WECHSLER‘S THE FEDERAL COURTS AND THE FEDERAL SYSTEM 632-33 (6th ed.2009); Paul J. Mishkin, The Variousness of “Federal Law“: Competence and Discretion in the Choice of National and State Rules for Decision, 105 U. PA. L.REV. 797, 797 n. 1, 811 (1957). Our task is thus the “normal judicial filling of statutory interstices.” Henry J. Friendly, In Praise of Erie—and of the New Federal Common Law, 39 N.Y.U. L.REV. 383, 421 (1964). We must fashion a “rule of decision” for applying § 201‘s and § 1610(g)‘s ownership requirement, and that rule, though federal, may sometimes “follow state law.” Id. at 410; see Clearfield Trust Co. v. United States, 318 U.S. 363, 366-68, 63 S.Ct. 573, 87 L.Ed. 838 (1943).
Article 4A provides an appropriate rule of decision. Article 4A is a particularly convenient and appropriate measure of ownership because it has been adopted by all fifty states and the District of Columbia, and addresses ownership of electronic funds transfers, the issue presented in this case. See Heiser III, 885 F.Supp.2d at 447. The Uniform Commercial Code is often used as the basis of federal common-law rules. See Caleb Nelson, The Persistence of General Law, 106 COLUM. L.REV. 503, 510-11 & n. 33 (2006). To be clear, we do not hold that the District‘s or any state‘s version of Article 4A applies of its own force. Rather, we hold that Article 4A is a proper federal rule of decision for
Applying the principles of Article 4A, we agree with the district court that Iran does not own the contested accounts. Heiser III, 885 F.Supp.2d at 447-49. Iran was not the beneficiary or originator, but the owner of the beneficiary‘s bank for each funds transfer, and “[l]egal title does not pass to the beneficiary‘s bank until it accepts the payment order from the intermediary bank.” Id. at 448; see Shipping Corp. of India Ltd. v. Jaldhi Overseas Pte Ltd., 585 F.3d 58, 71 (2d Cir.2009); Regions Bank v. Provident Bank, Inc., 345 F.3d 1267, 1277 (11th Cir.2003). The Iranian beneficiary banks never received a payment order because the funds transfers were blocked at the intermediary banks, and they never held legal title to the money in the contested accounts. Heiser III, 885 F.Supp.2d at 448. Article 4A‘s subrogation provisions further support this view. If the intermediary bank is prohibited from completing a transfer, then the originator is subrogated to its bank‘s right to a refund.
Because plaintiffs could not attach the contested accounts under either § 201 or § 1610(g) without an Iranian ownership interest in the accounts, and because Iran lacked an ownership interest in the accounts, the order of the district court is
Affirmed.