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In re 650 Fifth Avenue and Related Properties

United States District Court, S.D. New York

February 16, 2017

IN RE: 650 FIFTH AVENUE AND RELATED PROPERTIES

          OPINION & ORDER

          KATHERINE B. FORREST United States District Judge

         This action, tracing back to 2008, seeks forfeiture of certain assets (including, most notably, the building located at 650 Fifth Avenue New York, New York) owned by the 650 Fifth Avenue Company (the “650 Fifth Ave Partnership” or the “Partnership”) and its two partners, the Alavi Foundation (“Alavi”) and Assa Corporation (together, with its parent Assa Company Ltd., “Assa”).

         This Court previously determined a number of issues on summary judgment, including that the Government of Iran continued to control Assa after March 1995, when President Clinton issued a series of Executive Orders pursuant to the International Emergency Economic Powers Act (“IEEPA”) formally declaring the Government of Iran a threat to national security and imposing broad financial sanctions against it. In re 650 Fifth Avenue and Related Properties, No. 08-cv-10934, 2013 WL 5178677, at *22-24 (S.D.N.Y. Sept. 16, 2013). The Second Circuit agreed with this determination. In re 650 Fifth Avenue and Related Properties, 830 F.3d 66, 89-93 (2d Cir. 2016). However, the Second Circuit disagreed with this Court's determination that Alavi's knowledge of the post-1995 ownership and control of Assa by Iran could be determined on summary judgment. Id. at 93-95.[1]

         A trial on this question - whether post-1995, Alavi knew that Assa was controlled by the Government of Iran - is scheduled to commence on May 30, 2016. Currently before the Court are cross-motions for partial summary judgment on a related issue: Whether Assa's own knowledge as to its true ownership may be imputed to Alavi. The Government moves for summary judgment on the basis that “[u]nder clear principles of New York Partnership law, Assa Corp.'s own knowledge that it was ultimately owned and controlled by Bank Melli Iran through two straw shareholders is imputed to both the Partnership and to Assa Corp.'s partner, Alavi.” (Memorandum of Law in Support of the Government's Motion for Partial Summary Judgment (“Gov.'s Mem.”), ECF No. 1412, at 1.)[2] Alavi and the 650 Fifth Ave Company (together, “Claimants”) move for summary judgment on the basis “that the knowledge of Assa Corporation . . . of its ownership or control cannot be attributed to the Claimants.” (Alavi Foundation's and 650 Fifth Avenue Company's Memorandum of Law in Support of Their Cross Motion for Partial Summary Judgment and Opposition to the Government's Motion for Partial Summary Judgment (“Claimants' Mem.”), ECF No. 10934, at 1.)[3]

         For the reasons set forth below, the Court concludes that genuine issues of material fact exist and both motions for summary judgment are therefore DENIED.

         I. IMPUTATION OF KNOWLEDGE TO PARTNERS

         New York Partnership Law § 23 provides:

Notice to any partner of any matter relating to partnership affairs, and the knowledge of the partner acting in the particular matter, acquired while a partner or then present to his mind, and the knowledge of any other partner who reasonably could or should have communicated it to the acting partner, operate as notice to or knowledge of the partnership, except in the case of fraud on the partnership committed by or with the consent of that partner.

N.Y. Partnership Law § 23 (McKinney 2017). “Partnership liability . . . is rooted in agency principals.” Nw. Nat. Bank of Minneapolis v. Fox & Co., 102 F.R.D. 507, 512 (S.D.N.Y. 1984); see N.Y. Partnership Law § 20 (McKinney 2017) (“Every partner is an agent of the partnership for the purpose of its business . . . .”); see also Medcalf v. Thompson Hine LLP, 84 F.Supp.3d 313, 322 (S.D.N.Y. 2015) (“Indeed, a general principle of partnership liability is that a partner is an agent for the partnership, and a partnership is liable for the wrongful acts of its partners committed in the ordinary course of the business of the partnership.”).[4]

         As the plain text of New York Partnership Law § 23 makes clear, that provision covers only “matter relating to partnership affairs.” That is, before the knowledge of one partner can be imputed to a partnership (and thus other partners), the Court must first determine whether the knowledge at issue concerns matter that falls within “partnership affairs.” In addition, even if a partner possesses knowledge of a matter relating to partnership affairs, such knowledge is not imputed to the partnership in in the case of fraud on the partnership.

         II. DISCUSSION[5]

         Several facts important to the pending motions are uncontested: Alavi existed as a charitable organization, owned and controlled by Iran, for a number of years before the Assa entities were formed. Among Alavi's assets were (and are) several commercial properties, including a building located at 650 Fifth Avenue New York, New York. Alavi had acquired that building with a loan provided by Bank Melli, the Central Bank of Iran. Because income from the building was unrelated to fulfillment of its charitable purposes (although it funded them), Alavi paid taxes on such income. Iran sought to reduce this tax obligation by creating a partnership - the 650 Fifth Avenue Company (the “650 Fifth Ave Partnership” or the “Partnership”) - in which Bank Melli (the mortgagor) would hold an interest equivalent to the debt that it was owed, and Alavi would hold the remainder. This structure was implemented with Bank Melli's interest being held by an entity created for that purpose, Assa Corporation, which was wholly owned by Assa Company Limited (together, “Assa”).

         Following its formation, the business of the 650 Fifth Ave Partnership appears to have been managing and operating real estate interests, including the building located at 650 Fifth Avenue in Manhattan, i.e., leasing the building, paying its obligations, and receiving and distributing profits derived therefrom. There is no uncontested evidence before the Court on this motion that the business of the 650 Fifth Avenue Partnership was to engage in actions to shield the Government of Iran's true ownership and/or control. On the other hand, it does appear that the purpose of Assa was to cloak the interest of Bank Melli/Iran; and over time, this appears to have become the designated business of Assa.

         In its motion for partial summary judgment, the Government argues that this Court should impute Assa's knowledge that it was owned and controlled by Iran to the Partnership and thus to ...


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