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NEW ENGLAND MERCHANTS NATL. BANK v. IRAN POWER GEN

September 26, 1980

NEW ENGLAND MERCHANTS NATIONAL BANK, Plaintiff,
v.
IRAN POWER GENERATION AND TRANSMISSION COMPANY et al., Defendants



The opinion of the court was delivered by: DUFFY

These 96, ostensibly unrelated, civil actions were commenced by plaintiffs against the defendants, the Government of Iran, its agencies, instrumentalities and numerous other Iranian organizations "owned or controlled" by the Government of Iran (Plaintiffs' Joint Memorandum of Law at 1) to recover damages allegedly sustained as a result of defendants' breach or repudiation of various commercial contracts and/or tortious conduct with respect thereto. *fn1"

I need not recount the longstanding political and commercial relationship which has existed between the United States and Iran. It is sufficient to say that over the years since World War II, the political ties between this country and Iran grew stronger. And, just as the political relationship strengthened, the commercial contacts between the countries also increased and flourished.

However, in the final days of 1978, the political situation in Iran became volatile. The Iranian Government, which had enjoyed a close relationship with the United States, was now under siege from within. Part and parcel of the attack upon the Iranian Government was an attack upon the United States' political and commercial interests in Iran.

 The situation in Iran quickly deteriorated. The Government fell and a new regime assumed control. Once in power, the insurgents were quick to demonstrate their intention to put an end to the longstanding political and commercial contacts which had existed between the United States and Iran. In November, 1979, this situation reached the breaking point when a group of Iranians, with the apparent approval of the new regime, seized the American Embassy in Teheran, taking a number of American diplomatic and military personnel hostage. In addition, numerous commercial enterprises in which Americans held financial interests were apparently nationalized by the new regime.

 In response to these political and diplomatic developments, the President issued the following executive order:

 
Pursuant to the authority vested in me as President by the Constitution and laws of the United States including the International Emergency Economic Powers Act, 50 U.S.C.A. § 1701 et seq., the National Emergencies Act, 50 U.S.C. § 1601 et seq., and 3 U.S.C. § 301,
 
I, Jimmy Carter, President of the United States, find that the situation in Iran constitutes an unusual and extraordinary threat to the national security, foreign policy and economy of the United States and hereby declare a national emergency to deal with that threat.
 
I hereby order blocked all property and interest in property of the Government of Iran, its instrumentalities and controlled entities and the Central Bank of Iran which are or become subject to the jurisdiction of the United States or which are in or come within the possession or control of persons subject to the jurisdiction of the United States.
 
The Secretary of the Treasury is authorized to employ all powers granted to me by the International Emergency Economic Powers Act to carry out the provisions of this order. This order is effective immediately and shall be transmitted to the Congress and published in the Federal Register.

 Exec. Order No. 12170, 44 Fed.Reg. 65,729 (1979).

 The Iranian situation did not improve. Finally, in April, 1980, the American Embassy and numerous citizens still in the hands of the Iranians with the continued support of those in control, the President severed all diplomatic ties with Iran and ordered all Iranian diplomats out of this country. To date, the situation remains basically unchanged. The President's executive order blocking all Iranian assets in this country is still in effect and the diplomatic ties with Iran remain severed. Additionally, the American Embassy, as well as its personnel, remains captive in Iran.

 In an effort to prevent the removal of Iranian assets from this jurisdiction, and to secure any subsequent judgments, plaintiffs have applied for, and were granted, orders of attachments pursuant to Article 62 of New York's Civil Practice Law and Rules, N.Y.Civ.Prac.Law §§ 6201 et seq. (McKinney 1980), made applicable to the instant actions via Fed.R.Civ.P. 64. *fn2" Plaintiffs now move to confirm these orders of attachments while defendants have cross-moved for the vacation thereof. *fn3"

 Defendants oppose the confirmation of the instant attachments, and seek their vacation, on the ground that by virtue of the Foreign Sovereign Immunities Act of 1976, 28 U.S.C. §§ 1602 et seq. (hereinafter referred to as the "FSIA" or the "Immunities Act"), their assets are immune from pre-judgment attachment. *fn4" Moreover, defendants urge that insofar as the Treaty of Amity, a trade agreement between the United States and Iran pre-dating the FSIA, is found to be controlling, it does not affect the immunity of Iran from pre-judgment attachment.

 There is no question that the instant actions, bar none, are commercial in nature. Indeed, plaintiffs seek monetary damages for alleged civil wrongs ranging from the nationalization and/or conversion of personal property in Iran to the repudiation and breach of various and sundry executory contracts. However, the political situation in Iran, as well as the strained political and diplomatic relations between the United States and Iran, has in large part triggered the commencement of these actions. Thus, while these actions are purely commercial in nature, the political and economic implications of the Iranian situation cannot be totally divorced therefrom.

 This is a court of law before which all parties stand equal. I preside over these actions not as a patriot, but rather as a judicial officer, sworn to faithfully and impartially discharge all the duties incumbent upon me as a United States District Judge. However, my oath of office does not require that I decide legal issues in a vacuum nor in an ivory tower removed from the clamor of reality. Such is the task of legal scholars. Instead, I must resolve issues in the context of the real world. Mindful of these basic principles, I turn to consider the legal questions at hand.

 The question before the Court at this juncture is relatively simple: whether the State of Iran, its agencies and instrumentalities, are entitled to immunity from pre-judgment attachment. However, its resolution is somewhat more complex.

 Traditionally, the grant of immunity to a foreign sovereign was a question for the executive or the legislature or some arm of government sensitive to political considerations. In this country, however, steeped in expectations of even-handed, apolitical justice from its "Third Branch", Congress by the passage of the Foreign Sovereign Immunities Act has vested in the judiciary the authority to determine the method, extent, and beneficiaries of such immunity. This grant of power to the judiciary was properly circumscribed by the statutes passed by Congress and signed and approved by the President.

 The 1976 codification of the doctrine of foreign sovereign immunity in this country is found in the Immunities Act. 28 U.S.C. §§ 1602 et seq. In doing so, Congress intended to work a significant change in how the claim of sovereign immunity was handled. Prior to the FSIA, the traditional practice was that, when faced with a claim of sovereign immunity, a court would defer consideration of the claim until the State Department had stated its position. This was done because it was believed that the question of whether a sovereign was entitled to immunity was essentially a political, rather than a judicial determination. Consequently, as it developed, the State Department's "position" was viewed as quite persuasive by the courts and would often carry the day.

 An argument may well be made that the adoption of the Foreign Sovereign Immunities Act was prompted by economic considerations. I do not doubt that Congress was aware that our national economy had become interdependent with the world economy and that of specific foreign nations which are or may become our trading partners. But economic considerations did not bring about the specific format of the Act. Other things subtly and not so subtly influenced the making of the Act. I need not dwell on the reasons behind this action since it is clear that courts are now directed to reach their own independent determination of the claim of immunity "in conformity with the principles set forth in the (Immunities Act)." 28 U.S.C. § 1602. Thus, not only does the responsibility of determining a claim of sovereign immunity reside exclusively with the judiciary, but now there is a uniform standard against which the claim of immunity is to be tested. This, of course, adds a dimension of predictability to the doctrine of sovereign immunity which had been absent when the determination was made, at least preliminarily, by the State Department.

 The FSIA speaks to four separate immunities enjoyed by a foreign state, its agencies and instrumentalities: jurisdictional immunity; immunity from pre-judgment attachment; immunity from post-judgment attachment; and immunity from execution upon a judgment.

 Although each of these immunities will necessarily have to be addressed in the disposition of these actions, at this juncture I need only resolve the limited question of whether the foreign state of Iran has waived, or is otherwise not entitled to, immunity from pre-judgment attachment. To be sure, each of the other immunities involves questions of fact and law which are not common to each of the defendants and must be left to a case by case analysis. *fn5" However, a quick review of these immunities will prove helpful on the issue of pre-judgment attachment.

 The FSIA generally continues the jurisdictional immunity granted to foreign states, subject only to a few well-defined and carefully delineated exceptions. The most pertinent exception of jurisdictional immunity with respect to the instant suits obtains when an action is based upon commercial activity conducted by the foreign state. 28 U.S.C. § 1605. And, while I need not decide the issue at this juncture, there can be little doubt that the vast majority of the claims asserted by plaintiffs emanate from the commercial activity of the Iranian defendants rather than from any political conduct or so called "acts of state."

 With respect to pre-judgment attachment, the Immunities Act provides that the assets of a foreign state, its agencies and, instrumentalities, are immune from such attachment unless it has explicitly waived its immunity and the purpose of the attachment is to secure a judgment which may be entered. 28 U.S.C. § 1610(d).

 Similarly, immunity from post-judgment attachment and execution of judgment exists except where the foreign state has waived such immunity. Here, however, unlike prejudgment attachment, the Immunities Act provides that the waiver may be made either explicitly or implicitly by the foreign state. 28 U.S.C. § 1610(a), (b).

 As I noted above, the Immunities Act is a relatively new piece of legislation. It was not, however, enacted in a vacuum. On the contrary, Congress was aware that numerous trade and friendship agreements had been executed by the United States and various foreign states prior to the passage of the Immunities Act. Moreover, Congress was acutely aware that these treaties often addressed the issue of sovereign immunity and included limited waivers thereof. Consequently, the Immunities Act expressly provided that all existing international agreements to which the United States is a party would survive the FSIA. That is to say, insofar as a foreign state had previously waived its sovereign immunity from jurisdiction, attachment or execution of judgment, by agreement with the United States, these waivers still control on the question of immunity. There is just such a treaty which exists between the United States and Iran.

 In 1955, the Treaty of Amity was executed by the United States and the Government of Iran. *fn6" The Treaty, insofar as it waives sovereign immunity, provides that:

 
No enterprise of either (the United States or Iran), including corporations, associations, and government agencies and instrumentalities, which is publicly owned or controlled shall, if it engages in commercial, industrial, shipping or other business activities within the territories of the other High Contracting Party, claim or enjoy, either for itself or for its property, immunity therein from taxation, suit, execution of judgment or other liability to which privately owned and controlled enterprises are subject therein.

 Treaty of Amity, Aug. 15, 1955, United States-Iran, Art. XI P 4, 8 U.S.T. 901, 909, T.I.A.S. No. 3853.

 It is quite apparent from all that has been stated, the threshold question is whether the State of Iran has waived its immunity from pre-judgment attachment under either the provisions of the Immunities Act or the Treaty of Amity. This, of course, is an issue which has recently been addressed by this and other courts. See, e.g., American International Group, Inc. v. Islamic Republic of Iran, 493 F. Supp. 522 (D.D.C.1980); E-Systems, Inc. v. Islamic Republic of Iran, 491 F. Supp. 1294 (N.D.Tex.1980); Reading & Bates Corp. v. National Iranian Oil Co., 478 F. Supp. 724 (S.D.N.Y.1979); Behring International v. Imperial Iranian Air Force, 475 F. Supp. 383 (D.N.J.1979).

 Additionally, there is the question of what effect, if any, do the President's actions in dealing with the Iranian situation have upon that foreign state's entitlement to immunity from pre-judgment attachment.

 I turn initially to the Immunities Act and the waiver of pre-judgment attachment provision contained therein. As previously noted, the Immunities Act provides that a foreign state is entitled to immunity from pre-judgment ...


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