California Bankers Association seeks to file a Friend of the Court brief to protect California branches of internationally active banks from satisfying a money judgment against Iranian assets
By Haggai Carmon
On September 7, 2007, the U.S. District Court for the District of Columbia entered a default judgment in Deborah D. Peterson, et al v. Islamic Republic of Iran, et al in favor of the plaintiffs and against Iran and the Iranian Ministry of Information and Security.
The federal judge ordered the defendants to pay $2.65 billion in damages to families of 241 U.S. Marines killed in the 1983 suicide bombing of the U.S. Marines’ barracks in Beirut, Lebanon. The Marines were in Lebanon at the time as part of a UN multinational peacekeeping mission. The group Islamic Jihad (another name for the internationally recognized, Iranian-backed terrorist group Hezbollah) claimed responsibility for the attack.
The plaintiffs/judgment creditors took the default judgment to a California court and got a writ of execution, which allowed them to locate and lay claim to the Iranian funds due them according to the judgment.
Following standard procedures to find the funds, the judgment creditors came up short because all the California branches of the banks they approached responded that the judgment debtors (Iran and the Iranian Ministry of Information and Security) had no deposits in their branches.
The judgment creditors have now filed a Motion in California that, if granted, will allow them to inquire about and gain access to Iranian funds held in accounts around the world by more than 30 internationally active U.S. banks. The judgment creditors are effectively asking that California State order internationally-active U.S. banks with branches in California to find Iranian money in branches outside of the U.S. and give it to the judgment creditors.
The California Bankers Association and several other banking associations have filed a collective Motion to file a Friend of the Court brief, in which they will make a case for denial of the judgment creditors’ Motion.
Although they have not yet been permitted to file their brief, they make their case as follows:
A California court does not have the authorization to permit the judgment creditors to collect from accounts not based in the United States. The reach of California law is limited in this way in part to avoid conflict with foreign laws and foreign courts.
Because overseas accounts are not subject to execution by levy (as those in the U.S. are), the lawful approach would be to get the judgment recognized and enforced in the local relevant jurisdictions. Once a U.S. judgment is obtained, the judgment creditor has to rely on the understandings between the U.S. and foreign states in order to execute on foreign property.
If the California court grants the judgment creditors’ Motion, the banks – which are not parties to the original lawsuit that generated the judgment – would have to decide between conflicting legal obligations: their obligation to abide by the ruling of a California court and their obligation to follow the legal regulations placed upon them by the countries in which their international accounts are based.
Not only does this place the banks in a Catch-22 situation – they are acting illegally no matter which law they choose to adhere to – it also places them at a great financial risk for which they cannot adequately prepare, as they have no way of predicting and minimizing the loss caused by the seizure of funds, both domestically and abroad, by judgment creditors seeking reparations.
If subject to this burden in which they are held responsible for the civil claims brought against their global clients, banks will be discouraged from operating in California in the future, and in general, the cost of banking will have to increase as a result of the additional liability placed on the banks.
Because Iran is a U.S.-designated State Sponsor of Terror, it is exempt from the sovereign immunity that most countries have from civil claims brought against them in U.S. courts. However, a California court must now decide how far outside the U.S. judgment creditors can go when executing a judgment against a state sponsor of terror.
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