Second Circuit Gets Civil Forfeiture under the Foreign Sovereign Immunities Act Wrong

Are foreign states and their property immune from civil forfeiture suits brought by the U.S. government? The Second Circuit recently held that the Foreign Sovereign Immunities Act (FSIA) does not bar in rem civil forfeiture suits, but the Court’s reasoning was flawed in several respects.

The case, United States v. Assa, involves a 36-story skyscraper, 650 Fifth Avenue, in midtown Manhattan, as well as other real property and bank accounts. The case began in 2008, when the U.S. government brought a civil forfeiture action alleging that Assa Co. Ltd and Assa Corporation (together “Assa”) were owned and controlled by the government of Iran and had provided services to Iran in violation of U.S. sanctions. Based on uncontroverted evidence, the district court found that Assa served as “a front for Bank Melli [the central bank of Iran], and thus a front for the Government of Iran.” The district court granted summary judgment and ordered much of the property forfeited. After appeals by other defendants and a subsequent trial, the district court entered judgment against Assa in 2017. The property at issue in the forfeiture action has been the subject of much litigation, as summarized by the Second Circuit in In re 650 Fifth Ave. and Related Properties.

On appeal, Assa argued that if it is so controlled by Iran that it is Iran’s alter ego – as the Second Circuit held in a related case – then it is a foreign state entitled to the protections of the FSIA. If so, the district court lacked subject matter jurisdiction, a defense that may be raised at any time. The FSIA confers immunity on foreign states in two relevant provisions: 28 U.S.C. §§ 1604 and 1609. Section 1604 deals with the immunity of foreign states from suit, whereas Section 1609 deals with the immunity of a foreign state’s property from legal measures constraining that property known as attachment and execution. The Second Circuit held that neither of these sections applies to civil forfeiture suits. Because it held that Assa was not entitled to immunity at all, the court did not need to address whether any exceptions to immunity apply.

Section 1604 provides that “a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States except as provided in sections 1605 to 1607” of the FSIA. The Second Circuit reasoned that Section 1604 does not bar in rem civil forfeiture suits because such suits are actions against the propertyof a foreign state, not against the foreign state itself. That reasoning ignores the FSIA’s treatment of other in rem proceedings. Specifically, Sections 1605(b)-(d) permit suits against foreign states to enforce maritime liens and preferred ship mortgages, subject to certain notice requirements, when a suit in rem could have been brought if the vessel had been privately owned. Under these provisions, the suit against the foreign state is technically in personam, but it follows the law and practices for in rem suits. The fundamental premise of these FSIA provisions is that maritime actions should be brought in personam, not in rem, because of the international friction that results from thein rem actions against foreign state property. The Second Circuit’s reasoning would render these provisions ineffective. If actions in rem never entitle foreign states to immunity, then plaintiffs may still use the in rem proceedings that the FSIA sought to eliminate.

The FSIA’s goal of eliminating in rem actions against foreign state vessels and cargos is underscored by the operation of the original language in Section 1605(b). As described in the legislative history, it ensured that “if the vessel or its cargo is arrested or attached, the plaintiff will lose his in personam remedy and the foreign state will be entitled to immunity—except in the case where the plaintiff was unaware that the vessel or cargo of a foreign state was involved.” Under the Second Circuit’s reasoning, by contrast, the foreign state would notbe entitled to immunity because neither Section 1604 nor Section 1609 (discussed below) would confer immunity at all in an in rem action. The language of 1605(b) has since been amended, but not in ways that change the operation of Sections 1604 and 1609.

Section 1609 provides that the “property in the United States of a foreign state shall be immune from attachment arrest and execution” subject to certain exceptions. The Court reasoned that this language“refers to quasi in rem suits meant to enforce in personam judgments against a foreign state” but not to in rem proceedings. But the text of Section 1609 draws no such distinction. Instead, it broadly confers immunity “from attachment arrest and execution,” subject only to the enumerated exceptions found in Sections 1610 and 1611. Those provisions contain no exception for civil forfeiture. Moreover, in the admiralty context, courts have held that Section 1609 confers immunity in in rem cases. See, e.g., Coastal Cargo Co. v. M/V GUSTAV SULE, 942 F. Supp. 1082, 1085 (E.D. La. 1996) (noting that “the arrest of the vessel” violated Section 1609).

It is true, as the Second Circuit noted, that one goal of the FSIA was to eliminate the attachment of property for the purpose of establishing jurisdiction. But that goal is accomplished by Section 1610(d)(2), which permits 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.” Section 1609 sweeps more broadly.

Finally, interpreting Section 1609 to apply to civil forfeiture actions is probably necessary to avoid violations of customary international law. As the International Court of Justice has noted, the customary international law rules governing immunity from execution are distinct from, and generally broader than, the customary international law rules governing immunity from suit. See Jurisdictional Immunities of the State (Germ. v. It.), 2012 I.C.J. 99, para. 113 (Feb. 3). Customary international law provides immunity to state-owned corporations only in limited circumstances, but the Second Circuit held (in the related case of Kirschenbaum v. Assa Corporation) that Assa should be treated as the foreign state itself under U.S. law because Iran extensively controlled Assa’s operations. International law may not require that Assa receive the immunity to which Iran is entitled, an issue upon which we do not offer an opinion. But in any event, the Second Circuit’s reasoning covers situations in which the property subject to civil forfeiture is owned directly by a foreign government, which would almost certainly violate customary international law in at least some circumstances.

The Second Circuit erred in this case. It should seriously consider withdrawing and amending its opinion. To hold that foreign states enjoy no immunity at all from suit or execution in civil forfeiture suits is contrary to both Section 1604 and Section 1609 of the FSIA, and it may put the United States in violation of customary international law.

 

IMAGE: NEW YORK – NOVEMBER 13: People walk by The Piaget Building at 650 5th Avenue, which has been named as being owned by the Iranian government, on November 13, 2009 in New York City. (Photo by Spencer Platt/Getty Images)

 

About the Author(s)

William S. Dodge

William S. Dodge is Martin Luther King, Jr. Professor of Law and John D. Ayer Chair in Business Law at the University of California, Davis, School of Law. He served as Counselor on International Law to the Legal Adviser at the U.S. Department of State from 2011 to 2012 and as Co-Reporter for the American Law Institute’s Restatement (Fourth) of Foreign Relations Law from 2012 to 2018.

Ingrid Wuerth

Ingrid Wuerth (@WuerthIngrid) holds the Helen Strong Curry Chair in International Law at Vanderbilt Law School where she directs the Branstetter Litigation and Dispute Resolution Program. From 2012-2018 she served as Co-Reporter for the American Law Institute’s Restatement (Fourth) of Foreign Relations Law. She is a contributing editor at Lawfare. You can follow on Twitter @@WuerthIngrid.