Introductory Note to U.S. v. Assa Co.

The American Society of International Law was kind enough to ask me to write an introductory note about United States v. Assa Co., a case I covered here in August and that Bill Dodge and Ingrid Wuerth criticized in a paper that I covered later that month and that I cite in the note. I’m reprinting the introductory note, which has been accepted for publication in ASIL’s International Legal Materials for 2020. One technical note: because ASIL owns the copyright, this post is “all rights reserved,” and my ordinary Creative Commons license does not apply.

Introduction

On August 9, 2019, the U.S. Court of Appeals for the Second Circuit decided United States v. Assa Co.[efn_note]934 F.3d 185 (2d Cir. 2019).[/efn_note] The decision is significant for its holding that a civil forfeiture action in rem concerning property of a foreign state or its instrumentality is not an action against the foreign state or instrumentality for purposes of the jurisdictional and immunity provisions of the Foreign Sovereign Immunities Act (FSIA).[efn_note]28 U.S.C. §§ 1601 et seq.[/efn_note]

Background

In 2008, the government brought a civil forfeiture action asserting that Assa Co. Ltd. and Assa Corp. were controlled by Bank Melli, an Iranian state-owned bank, and that Assa owned a skyscraper in midtown Manhattan that was “traceable to violations of the International Emergency Economic Powers Act” and to “money-laundering transactions” that violated U.S. criminal law.[efn_note]Assa, supra note 1 at 187.[/efn_note] The underlying factual allegation was that Assa had “provided services to Iran in violation of the Iranian Transactions Regulations.”[efn_note]Id.[/efn_note] Assets that are traceable to such violations are subject to forfeiture under U.S. law.[efn_note]See 18 U.S.C. § 981(a)(1)(A), (C).[/efn_note] The district court granted summary judgment to the government, and Assa appealed.[efn_note]In re 650 Fifth Ave., 2013 WL 5178677 (S.D.N.Y. Sept. 16, 2013). The district court held that certain property owned by the Alavi Foundation was not subject to forfeiture. This note does not address that complexity.[/efn_note] The main question was whether the district court had subject-matter jurisdiction. The government argued that the court had jurisdiction because the United States was the plaintiff,[efn_note]See 28 U.S.C. § 1345.[/efn_note] and because the action was a civil forfeiture proceeding that arose under federal law.[efn_note]See 28 U.S.C. § 1355.[/efn_note] Assa argued that the FSIA trumped these general jurisdictional statutes and that under the FSIA, Assa enjoyed immunity from in rem civil forfeiture suits.

The Decision

The Second Circuit approached the case as an exercise in straightforward application of the statutory text. It noted that the FSIA’s jurisdictional and immunity provisions apply only to “foreign state[s].”[efn_note]Assa, supra note 1 at 188-89 (citing 28 U.S.C. §§ 1330(a) and 1604).[/efn_note] It acknowledged that if the defendant is a foreign state, then “the lawsuit must go through the FSIA gateway.”[efn_note]Id. at 189 (emphasis in original).[/efn_note] In other words, “the FSIA [is] the sole basis for obtaining jurisdiction over a foreign state” in an American court.[efn_note]Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 434. [/efn_note] If the defendant is not a foreign state, then “the gateway closes;” the FSIA neither grants jurisdiction nor grants immunity in such cases.[efn_note]Assa, supra note 1 at 189.[/efn_note] In Assa, the court reasoned that the district court was not exercising jurisdiction over Iran or Assa in personam, but rather was exercising jurisdiction over their property in rem.[efn_note]Id.[/efn_note] It followed, according to the court, that the FSIA simply did not apply.

This reasoning is, on the surface, at odds with provisions of the FSIA on immunity from attachment and execution. Section 1609 of the statute provides that “the property in the United States of a foreign state shall be immune from attachment arrest and execution,” subject to exceptions.[efn_note]28 U.S.C. § 1609.[/efn_note] But the court construed the statutory language on immunity from attachment as execution in § 1609 to apply only to cases based on quasi in rem jurisdiction, that is, cases in which the presence of the defendant’s property in the territorial jurisdiction of the court is the basis for the exercise of jurisdiction over the defendant.[efn_note]Assa, supra note 1 at 189.[/efn_note] The legislative history does support the view that at least part of Congress’s intent was that the statutory immunity from attachment and execution to address what it perceived as the “serious friction” that quasi in rem lawsuits could create for the United States’ foreign relations,[efn_note]Id. (citing H.R. Rep. No. 94-1487, at 27 (1976), as reprinted in 1976 U.S.C.C.A.N. 6604, 6626).[/efn_note] though the FSIA addresses the problem of quasi in rem jurisdiction in another way, by providing that a U.S. court has personal jurisdiction over a foreign state in any case in which it has subject-matter jurisdiction, i.e., in any case in which an exception to the ordinary rule of immunity from suit applies.[efn_note]See 28 U.S.C. § 1330(b).[/efn_note] But Congress also addressed the problem of quasi in rem jurisdiction in the section of the FSIA on exceptions to the rule of immunity, § 1610, by allowing prejudgment attachment only when “the purpose of the attachment is to secure satisfaction of a judgment that has been or may ultimately be entered against the foreign state, and not to obtain jurisdiction.”[efn_note]28 U.S.C. § 1610(d)(2); see also William S. Dodge & Ingrid Wuerth, Second Circuit Gets Civil Forfeiture Under The Foreign Sovereign Immunities Act Wrong, Just Security (Aug. 23, 2019).[/efn_note] If the court’s reading of § 1609 is correct, then the limitation on the exception to immunity from attachment in § 1610 is surplusage.

The decision is notable for its lack of emphasis on customary international law. Statutes should be construed to be consistent with international law if such a construction is possible.[efn_note]See Murray v. The Schooner Charming Betsy, 6 U.S. (2 Cranch) 64, 118 (1804).[/efn_note] But the Second Circuit’s decision does not discuss the substance of international law limitations on the exercise of jurisdiction over a foreign sovereign’s property, nor does it give a view on whether the court’s construction of the FSIA is consistent with customary international law.[efn_note]See generally Assa, supra note 1.[/efn_note] These questions are worthy of further discussion and development. Customary international law does limit a state’s jurisdiction to enforce its judgments against the property of a foreign state,[efn_note]See Jurisdictional Immunities of the State (Ger. v. It.), Judgment, 2012 I.C.J. Rep. 99, ¶ 113 (Feb. 3).[/efn_note] although the boundaries of the immunity from jurisdiction to enforce are not settled.[efn_note]See RESTATEMENT (FOURTH) OF THE FOREIGN RELATIONS LAW OF THE UNITED STATES § 464 rptr’s n. 16 (2018).[/efn_note] Iran has also asserted, in another case,[efn_note]See Certain Iranian Assets (Iran v. U.S.), Judgment (Feb. 13, 2019) (decision on preliminary objections, giving background to the dispute).[/efn_note] that the United States’ enforcement of U.S. judgments against Iranian state-owned bank assets violates the a treaty between the two countries,[efn_note]See Treaty of Amity, Economic Relations, and Consular Rights, Iran-U.S., Aug. 15, 1955, 8 U.S.T. 899.[/efn_note] though the International Court of Justice has not yet decided the case.

Although the Second Circuit held that the district court had jurisdiction, it vacated the judgment in favor of the government in light of what the government conceded was a “procedural error” below: the district court had rejected Assa’s statute of limitations defense without providing Assa with notice and an opportunity to respond.[efn_note]Assa, supra note 1 at 190.[/efn_note] Thus, the case has been remanded for further proceedings.

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