Bank of Markazi v. Peterson

United States Court of Appeals for the Second Circuit · 2024 · Federal Courts

Federal CourtsFSIAforeign sovereign immunityexecution immunityjurisdictional immunitySection 8772turnover proceedingCPLR 5225(b)

Facts

Plaintiffs hold more than $8 billion in terrorism-related judgments against Iran arising from the 1983 Marine barracks bombing in Beirut. Bank Markazi, Iran’s central bank, held U.S.-dollar bonds through Clearstream, a Luxembourg securities intermediary that received bond payments through its New York JPMorgan account; after Clearstream froze an account associated with Bank Markazi, it credited a blocked Luxembourg account with a corresponding right to payment each time bond proceeds were received in New York. The blocked Luxembourg account ultimately reflected a $1.68 billion right to payment. Plaintiffs sought turnover of those assets, and the district court ordered turnover relying in part on 22 U.S.C. § 8772.

Issue

Whether the district court had subject matter jurisdiction over the turnover claim against Bank Markazi, whether it could exercise personal jurisdiction over Clearstream, whether Section 8772 is unconstitutional as applied to Clearstream, and whether summary judgment was proper on the ownership-interest questions under Section 8772. The case also raised whether Section 8772 itself supplied the cause of action or displaced applicable state-law ownership analysis.

Rule

Section 8772 makes specified assets available for execution or turnover, but absent clearer text it does not abrogate a foreign sovereign’s FSIA jurisdictional immunity or itself create an independent cause of action. Ancillary jurisdiction extends to post-judgment collection proceedings against custodians of a judgment debtor’s assets, but not to proceedings that seek to impose liability on a new party. A New York turnover claim under CPLR 5225(b) arises from a garnishee’s New York business transactions when there is an articulable nexus or substantial relationship between those transactions and the claimed property interest. Section 8772 does not preempt nonconflicting state law definitions of ownership interests, so state law must first determine what interests the parties hold before federal law attaches consequences under the statute.

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Judgment creditors holding a federal terrorism judgment against the Republic of Oran file a turnover proceeding in federal court in Manhattan against Oran Reserve Bank, the republic’s central bank, and Alpine Euroclear S.A., a securities intermediary in Brussels. They rely on a federal statute providing that certain identified assets "notwithstanding any other provision of law, including any provision of law relating to sovereign immunity," shall be subject to execution or an order directing the assets be brought to New York for execution.

Assuming the statute clearly makes the identified assets executable, what is the best argument regarding subject matter jurisdiction over the claim against Oran Reserve Bank?

Explanation. The majority treated jurisdictional immunity and execution immunity as distinct and independent under the FSIA. A statute making assets available for execution, even with a notwithstanding clause referring to sovereign immunity, does not clearly abrogate the foreign sovereign instrumentality’s separate jurisdictional immunity absent stronger text. The statute can operate against a garnishee without requiring jurisdiction over the asset owner. (Derived from Bank of Markazi v. Peterson (n.d.).)