Lawsuits Against State Supporters of Terrorism: An Overview

Lawsuits Against State Supporters of Terrorism: An Overview

Lawsuits Against State Supporters of Terrorism: An Overview

August 7, 2008 (RS22094)

Contents

Enforcement of Judgments Against Terrorist States

The National Defense Authorization Act for FY2008

Effect of the Waiver of § 1083 on Cases Pending Against Iraq

Administration Proposal to Waive § 1083 for Libya

Summary

A 1996 amendment to the Foreign Sovereign Immunities Act (FSIA) enables American victims of international terrorist acts supported by certain States designated by the State Department as sponsors of terrorism—Cuba, Iran, North Korea, Sudan, Syria, and previously Iraq and Libya—to bring suit in U.S. courts for damages. Despite congressional efforts to make blocked (or "frozen") assets of such States available for attachment by judgment creditors in such cases, plaintiffs encountered difficulties in enforcing the awards. Congress passed, as part of the National Defense Authorization Act for FY2008 (NDAA) (H.R. 1585), an amendment to the FSIA to provide a federal cause of action against terrorist States and to facilitate enforcement of judgments. After the President vetoed the NDAA based on the possible impact the measure would have on Iraqi assets, Congress passed a new version, P.L. 110-181 (H.R. 4986), which includes authority for the President to waive the FSIA provision with respect to Iraq. Congress later passed a measure to exempt Libya if it agrees to compensate victims (S. 3370). This report, which will be updated, provides an overview of these issues and relevant legislation (H.R. 5167). For more details, see CRS Report RL31258, Suits Against Terrorist States by Victims of Terrorism, by [author name scrubbed].

Lawsuits Against State Supporters of Terrorism: An Overview

In 1996, Congress amended the FSIA to allow civil suits by U.S. victims of terrorism against designated State sponsors of terrorism (DSST)¹ responsible for, or complicit in, such terrorist acts as torture, extrajudicial killing, aircraft sabotage, and hostage taking. 28 U.S.C. § 1605(a)(7). Congress also abrogated the immunity of foreign State assets under the FSIA to satisfy judgments awarded under the terrorism exception. 28 U.S.C. § 1610. After a court found that the abrogation of sovereign immunity did not itself create a cause of action, Congress passed the "Flatow Amendment," 28 U.S.C. § 1605 note, to create a cause of action for such cases. Courts initially interpreted the statute as creating a cause of action against foreign States and their agencies and instrumentalities, although its plain language referred only to officials, employees, and agents of such States. Numerous court judgments, generally rendered after the defendants' default, ensued, resulting in substantial awards to plaintiffs.

The nature of lawsuits against DSSTs changed significantly after the D.C. Circuit Court of Appeals held that neither the terrorism exception to the FSIA nor the Flatow Amendment created a private right of action against the foreign government itself, including its agencies and instrumentalities. Consequently, most plaintiffs asserted causes of action under domestic state laws, which resulted in some disparity in the relief available to victims injured due to similar or even the same acts of terrorism. Courts nevertheless continued to award sizable judgments against DSSTs and their officials, which now amount to more than $18 billion in damages, most of which has been assessed against Iran. See CRS Report RL31258, Suits Against Terrorist States by Victims of Terrorism, by [author name scrubbed].

Enforcement of Judgments Against Terrorist States

While winning judgments against terrorist States never posed insurmountable obstacles, enforcing those judgments has proven more arduous, primarily due to the scarcity of assets within U.S. jurisdiction that belong to States subject to economic sanctions and the immunity from attachment that assets frozen by sanctions regulations enjoy. Successive Administrations opposed allowing the use of frozen assets of foreign States to satisfy judgments out of concerns for treaty obligations to protect foreign diplomatic and consular properties, the desire to maintain the blocked assets for diplomatic leverage, and the concern that permitting the attachment of such assets would expose U.S. assets abroad to reciprocal action. Notwithstanding these objections, Congress has repeatedly stepped in to make more foreign assets available for judgment creditors, and appropriated some $400 million to pay portions of certain judgments against Iran with the understanding that the President would seek to recover that amount from Iran. Consequently, some plaintiffs were able to collect portions of their judgments, while others were stymied. Some of the assets associated with DSSTs remained off-limits because they were not "blocked" within the meaning of the relevant statute; because plaintiffs had waived their right to attach the assets in question when they accepted payment from U.S. funds; because the assets were not subject to the exception to immunity or were exempted by presidential waiver; or because the United States validly possesses the property and successfully asserted U.S. sovereign immunity.

The National Defense Authorization Act for FY2008

In order to assist plaintiffs, Congress passed § 1083 of the National Defense Authorization Act for FY2008 (NDAA) (P.L. 110-181), to create § 1605A in title 28, U.S. Code. Section 1083 incorporates the terrorist State exception to the FSIA previously codified at 28 U.S.C. § 1605(a)(7), and a new cause of action against DSSTs to replace the Flatow Amendment. It allows U.S. nationals (and non-U.S. nationals working for the U.S. government overseas) who are harmed by terrorism to seek compensatory as well as punitive damages (which are not otherwise available against foreign States). The provision also seeks to make more assets associated with State sponsors of terrorism available for attachment in aid of execution of terrorism judgments, and to permit some plaintiffs to refile claims.

President Bush vetoed the original version of the NDAA, H.R. 1585, on the stated basis that the FSIA amendments would threaten Iraq's economic security. Congress responded with the new version, H.R. 4986, which authorizes the President to waive any provision of § 1083 with respect to Iraq. The President signed the bill and exercised the waiver authority. Section 1083 also encourages the President to negotiate a settlement of outstanding terrorism claims against Iraq. Pending cases have been permitted to go forward under the previous law, but it is unclear whether any Iraqi assets will remain available for attachment by judgment holders under other provisions of law.

New 28 U.S.C. § 1605A(g) provides for the establishment of a lien of lis pendens with respect to all real or tangible personal property within the judicial district that is subject to attachment in aid of execution and is titled in the name of a defendant State or any entities listed by the plaintiff as "controlled by" that State. Ordinarily, lis pendens in civil litigation is used to put third parties on notice that the property is the subject of litigation, which effectively prevents the alienation of such property, although the notice is not technically a lien. Under the new provision, the clerk of the district court is required to file the notice of action indexed by listing the defendant and its controlled entities. This may relieve plaintiffs of the burden of identifying specific property in the notices, but it is unclear what further measures might be required to ensure adequate notice is afforded to prospective purchasers under the procedure or how it is to be determined without further process that the property is in fact subject to attachment. In the case of State sponsors of terror, whose property for the most part is already subject to substantial limitations on transactions, the primary utility may be the establishment of a line of priority among lien-holders. However, in the case of States that are no longer subject to terrorism sanctions, such as Libya, the provision could have some impact on lawful transactions.

New 28 U.S.C. § 1610(g) provides that the property of a foreign State against which a judgment has been entered under §1605A (or predecessor provision), or of an agency or instrumentality of such a foreign State, "including property that is a separate juridical entity or is an interest held directly or indirectly in a separate juridical entity," is subject to attachment in aid of execution and execution upon that judgment, regardless of how much economic control over that property the foreign government exercises and whether the government derives profits or benefits from it. The President has no waiver authority (except with respect to Iraq). The provision may enable a plaintiff to "pierce the corporate veil" of a corporation owned, in whole or in part, by a judgment debtor State without having to demonstrate to the court that the presumption of independent status should be overridden. It could also be read as an effort to make any entity in which the defendant State (including its separate agencies and instrumentalities) has any interest liable for the terrorism-related judgments awarded against that State. On the other hand, § 1610(g) states that nothing in it is to be construed as superceding the court's authority to protect the interests of a person "who is not liable in the action giving rise to a judgment."

Section 1610(g) also makes a property that is regulated by reason of U.S. sanctions available to satisfy terrorism judgments. It does not explicitly waive U.S. sovereign immunity, but appears designed to defeat provisions in the sanctions regulations that make blocked property effectively immune from court action. In this respect, it echoes language in § 1610(f)(1) (which is not in effect because it was waived by President Clinton), except that § 1610(g) applies only to regulated property rather than property that is blocked or regulated pursuant to sanctions regimes,² and it would not be subject to the presidential waiver in § 1620(f)(3). Unlike § 201 of TRIA (28 U.S.C. § 1610 note), the new language applies to regulated rather than blocked assets and it allows assets to be attached in aid of enforcing punitive damages.

The new provisions apply to any claim arising under them as well as to any action brought under former 28 U.S.C. § 1605(a)(7) or the Flatow Amendment that "relied on either of these provisions as creating a cause of action" and that "has been adversely affected on the grounds that either or both of these provisions fail to create a cause of action against the state," and that is still before the courts "in any form," including appeal or motion for post-judgment relief. In cases brought under the older provisions, the federal court in which the claim originated is required, on motion by the plaintiffs within 60 days after enactment, to treat the case as if it had been brought under the new provisions, apparently to include reinstating a vacated judgment. The measure waives a defendant's "defenses of res judicata, collateral estoppel and limitation period" in any reinstated action. The provision also permits the filing of new cases involving incidents that are already the subject of a timely-filed terrorism action under the FSIA, notwithstanding the limitation time for filing, so long as the related action is filed within 60 days after enactment (January 28, 2008) or entry of judgment in the original action. Several actions have been filed under this provision, including some lawsuits by plaintiffs who have already won significant judgments under the previous law.

While § 1083(c) refers to "pending cases," it appears to cover finally adjudicated cases in which litigants have filed a motion for relief from final judgment after appeals are exhausted. To the extent the provision is read to require courts to reopen final judgments or reinstate vacated judgments, it may be vulnerable to invalidation as an improper exercise of judicial powers by Congress.³ A similar objection may be raised regarding the waiver of legal defenses: while it seems well-established that Congress can waive defenses in actions against the United States, an effort to abrogate legal defenses of other parties could raise constitutional due process and separation of powers issues. It may be that no cases qualify for reopening under this provision because the plaintiffs would have had to have filed a motion prior to the enactment of P.L. 110-181. However, if previous lawsuits can be filed again as "related actions" under § 1083(c)(3), then plaintiffs who file prior to the deadline can bring new actions regardless of the reason their original case was unsuccessful or perhaps even if their case yielded an award. It is unclear whether such lawsuits would count as "refiled actions" for the purpose of abrogating the defendant's legal defenses under § 1803(c)(2)(B).

The new federal cause of action may make judgments against DSSTs heftier and easier to obtain, but whether such judgments will be easier to enforce seems less certain. The result may be an increase in debts owed by those States without a sufficient increase in assets available to cover them, which could amplify competition among plaintiffs and lead to calls for further congressional action. Transactions with debtor States are likely to increase only with respect to States that are no longer subject to anti-terrorism sanctions, in which case the use of their assets to satisfy judgments may act as a barrier to trade despite the lifting of sanctions. The presidential waiver for Iraq permits the President to protect Iraqi assets from attachment to satisfy any outstanding judgments. H.R. 5167 has been introduced in the House to repeal the presidential waiver provision.

Effect of the Waiver of § 1083 on Cases Pending Against Iraq

Section 1083(d) authorizes the President to waive any provision of §1083 with respect to Iraq if he determines that a waiver serves U.S. national security interests and promotes U.S.-Iraq relations, the waiver will promote reconstruction and political development in Iraq, and Iraq continues to be a reliable ally and partner in combating terrorism. The waiver applies retroactively regardless of its effect on pending cases.

On the day the President signed the FY2008 NDAA into law, the White House signed a waiver,⁴ apparently foreclosing any refiling of the lawsuit by former prisoners of war against Iraq and Saddam Hussein for their mistreatment during the first Gulf War.⁵ However, pending claims against Iraq under the FSIA terrorism exception (as previously in force) have been permitted to go forward.⁶ Final judgments against Iraq are not affected, but will remain difficult to enforce. Iraqi government assets used for commercial purposes in the United States that are not subject to the protection of E.O. 13303, which covers the Development Fund for Iraq and all interests associated with Iraqi petroleum and petroleum products, may be subject to attachment and execution on terrorism judgments against Iraq under 28 U.S.C. § 1610. The President could, however, issue another executive order to protect all Iraqi assets from attachment to satisfy judgments.

Administration Proposal to Waive § 1083 for Libya

U.S. businesses seeking to establish a commercial relationship with Libya expressed concern that § 1083 will harm U.S.-Libya trade.⁷ The Bush Administration, which has touted renewed U.S. investment in Libya and growth in bilateral trade as beneficial to the U.S. economy and as important tools for reestablishing relations with a reformed state sponsor of terrorism, appears to share their view.

To relieve Libya from the possible effects of § 1083 in the event Libya agrees to compensate victims of terrorism, Congress enacted S. 3370, the "Libyan Claims Resolution Act." S. 3370 exempts Libya from the terrorism exception to the FSIA if Libya signs a claims agreement with the United States to settle terrorism-related claims and provides funds to compensate claimants. S. 3370 authorizes the Secretary of State to designate one or more "entities" to assist in the provision of compensation. Entities would be immune from lawsuits related to this function. It appears that the government is to receive funds from Libya, which it would then turn over to the designated entity for dispersal to claimants, although there is no express requirement to this effect in the statute.

If the Secretary of State certifies to Congress that sufficient funds have been received under the claims agreement to cover settlements Libya has agreed to pay to victims of the Pan Am 103 airliner bombing and the La Belle Disco bombing, as well as to provide "fair compensation" to some other U.S. nationals who have pending cases against Libya, the statute will provide immunity to Libya, including its agencies and instrumentalities, as well as its officials, employees, and agents, for all claims pending under the terrorism exception to the FSIA, and for all property sought to be attached to satisfy existing terrorism judgments. It appears that the amount of fair compensation is left to the discretion of the Secretary of State. The provision may not include all pending cases against Libya under § 1605A. It appears to cover claims for wrongful death or physical injury arising under 28 U.S.C. § 1605A (including previous actions that have been given effect as if they had been filed under § 1605A), but not cases for non-physical injuries⁸ or for cases filed under the previous version of the FSIA exception that have not been given effect as if they had been filed under § 1605A.⁹ It appears that finally adjudicated cases are not covered, in which case unsatisfied judgments against Libya and its officials will likely be unenforceable.¹⁰ Claimants do not appear to have any recourse in court to dispute the amount or a denial of compensation, although a claim against the United States for an uncompensated "taking" in violation of the Fifth Amendment would not be foreclosed.

Footnotes

1.

The list, established by the State Department, currently includes Cuba, Iran, North Korea, Sudan, and Syria. Iraq was removed from the list in 2004; Libya was removed in 2006. North Korea is eligible to be removed from the list in August 2008 depending on progress in dismantling its nuclear program.

2.

TRIA § 201(d)(2) defines "blocked asset" to mean property seized or frozen pursuant to certain sanctions, but not property that may be transferred pursuant to a license that is required by statute other than the International Emergency Economic Powers Act (IEEPA) or the United Nations Participation Act of 1945. It also excludes diplomatic or consular property being used solely for diplomatic or consular purposes from the definition of "blocked asset." TRIA does not refer to regulated assets, so it is unclear whether "blocked" and "regulated" are mutually exclusive terms, or whether "blocked" assets would be considered to be "regulated" as well. Assets regulated pursuant to IEEPA presumably mean those that are licensed for transfer.

3.

See Plaut v. Spendthrift Farms, 514 U.S. 211 (1995).

4.

Presidential Determination No. 2008-9 of January 28, 2008, Waiver of Section 1083 of the National Defense Authorization Act for Fiscal Year 2008, 73 Fed. Reg. 6,571 (2008) (waiving all provisions of § 1083 with respect to Iraq).

5.

Acree v. Republic of Iraq, 370 F.3d 41 (D.C. Cir. 2004), cert. denied, 544 U.S. 1010 (2005). The district court rejected recently the plaintiffs' motion to reopen the case. Acree v. Iraq, 2008 WL 2764858 (D.D.C. 2008).

6.

Simon v. Iraq, 529 F.3d 1187 (D.C. Cir. 2008).

7.

Correspondence from the U.S.-Libya Business Association, the National Foreign Trade Council, the National Association of Manufacturers, and the United States Chamber of Commerce to U.S. Secretary of State Condoleezza Rice, February 28, 2008 (urging the Administration to seek waiver authority with respect to Libya). For more information about U.S.-Libya relations, see CRS Report RL33142, Libya: Background and U.S. Relations, by [author name scrubbed].

8.

28 U.S.C. § 1605A provides a cause of action for "personal injury or death," which appears to cover a broader scope of injuries than "wrongful death or physical injury." Claims for wrongful death under the FSIA amendment have been limited to the decedent's estate, while close relatives of a victim have recovered in their own right based on claims of solatium, intentional infliction of emotional distress, and pain and suffering, depending on the applicable state law. See, e.g., Pugh v. Libya, 530 F. Supp. 2d 216 (D.D.C. 2008).

9.

NDAA § 1083(c) provides that pending cases originally brought under previous 28 U.S.C. § 1605(a)(7) are to be given effect as if they had been filed under § 1605A if the action was "adversely affected on the grounds that [the previous] provisions fail to create a cause of action against the state" and the plaintiff makes a motion to the court asking for such treatment.

10.

Price v. Libya, 384 F. Supp. 2d 120 (D.D.C. 2005)(approximately $18 million judgment against Libya for injuries suffered during plaintiffs' imprisonment pending trial for allegedly taking unlawful photographs); Pugh v. Libya, 530 F. Supp. 2d 216 (D.D.C. 2008)(nearly $7 billion judgment against Libya and six named officials for bombing of a French airliner over Africa in 1989).