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MINISTRY OF DEFENSE v. CUBIC DEFENSE SYS. INC.

November 26, 2002

THE MINISTRY OF DEFENSE AND SUPPORT FOR THE ARMED FORCES OF THE ISLAMIC REPUBLIC OF IRAN, PETITIONER
V.
CUBIC DEFENSE SYSTEMS, INC., RESPONDENT.



The opinion of the court was delivered by: Rudi M. Brewster, United States District Judge

 
ORDER GRANTING PETITIONER'S MOTION FOR JUDICIAL DETERMINATION THAT ITS JUDGMENT AGAINST CUBIC DEFENSE SYSTEMS IS IMMUNE FROM ATTACHMENT OR EXECUTION BY STEPHEN M. FLATOW [No. 81] AND DENYING PETITIONER'S MOTION FOR JUDICIAL DETERMINATION THAT ITS JUDGMENT AGAINST CUBIC DEFENSE SYSTEMS IS IMMUNE FROM ATTACHMENT OR EXECUTION BY DARIUSH ELAHI [No. 83].

I. ISSUE

The MOD's motions raise the issue whether the judgment against Cubic is immune from attachment or execution by liens or garnishment. The burden of proof on this issue rests on the MOD. See, e.g., International Insurance Co. v. Caja Nacional de Ahorro Y Seguro, 293 F.3d 392, 397 (7th Cir. 2002) (stating that "[t]he ultimate burden of proving immunity rests with the foreign state.").

II. BRIEF PROCEDURAL HISTORY

The matter now before the Court arises out of a petition to confirm an ICC arbitration award in favor of the Ministry of Defense and Support for the Armed Forces of the Islamic Republic of Iran ("the MOD") against Cubic Defense Systems, Inc. ("Cubic"). This Court entered judgment in favor of the MOD confirming the award on December 7, 1998. See Ministry of Defense & Support for the Armed Forces of the Islamic Republic of Iran v. Cubic Defense Systems, Inc., 29 F. Supp.2d 1168 (S.D. Cal. 1998). Subsequently, Cubic filed a supersedeas bond in the amount of $5,400,000 and appealed the decision to the Ninth Circuit, where it is now pending. After this Court confirmed the ICC award, Stephen Flatow and Dariush Elahi — judgment creditors of Iran — filed notices of lien against the MOD's judgment against Cubic ("the MOD's judgment"). The instant motions, filed on September 13, 2002, seek a judicial determination that the Mod's judgment is immune from attachment or execution by Flatow and Elahi.

III. FACTUAL BACKGROUND

(A) Stephen Flatow

Stephen Flatow's daughter was killed in an Iranian-sponsored terrorist attack in the Gaza Strip near Israel. Flatow filed suit against Iran in the U.S. District Court for the District of Columbia, pursuant to the Antiterrorism and Effective Death Penalty Act of 1996 ("Antiterrorism Act"). In March 1998, he obtained a default judgment against Iran for compensatory damages and punitive damages totaling $247,513,220. See Flatow v. Islamic Republic of Iran, 999 F. Supp. 1 (D.D.C. 1998). Pursuant to 28 U.S.C. § 1963, Mr. Flatow registered his judgment in the Eastern District of Virginia in September 1998.

On December 8, 1998, this Court issued a judgment confirming a $2,808,519 International Chamber of Commerce ("ICC") arbitration award in favor of the Ministry of Defense & Support for the Armed Forces of the Islamic Republic of Iran ("MOD") against Cubic Defense Systems, Inc. ("Cubic"), arising out of Cubic's breach of a military sales contract in 1978. Thirteen days later, Flatow obtained a Summons in Garnishment from the Eastern District of Virginia, directing Cubic to relinquish to him any and all Iranian assets in its possession. He then petitioned this Court to intervene post-judgment in the confirmation action between the MOD and Cubic. This Court's denial of Flatow's motion to intervene, issued on April 6, 1999, is currently on appeal to the Ninth Circuit. On April 29, 1999, Flatow filed a notice of lien in this Court, seeking to garnish the debt owed to the MOD by Cubic.

In October 2000, President Clinton signed the Trafficking Victims Protection Act of 2000 ("Victims Protection Act"), a law intended to allow victims of state-sponsored terrorism to recover damages owed to them by foreign nations. Under the law, the United States uses the rental proceeds of blocked foreign assets to pay compensatory damages to certain holders of judgments*fn1 issued pursuant to the Antiterrorism Act. The law affords those holders who qualify two options:

(A) Receive an amount equal to 110% of one's compensatory damages in exchange for relinquishing the right to recover both compensatory and punitive damages under the judgment; or
(B) Receive an amount equal to 100% of the compensatory damages component of the judgment, but retain the right to recover punitive damages.

See Victims Protection Act at §§ 2002(a)(1)(A), 2002(a)(1)(B). Mr. Flatow chose Option (B) and received a lump sum payment of over $26,000,000 from the United States in January 2001. In June 2001, the MOD petitioned the Ninth Circuit to dismiss Flatow's appeal of the denial of his Motion to Intervene on the ground that, by exercising Option (B), Flatow relinquished his right to attach the MOD's judgment against Cubic. In December 2001, the Ninth Circuit stayed Flatow's appeal until this Court resolves the issue whether the MOD's judgment is immune from attachment. The MOD filed the instant "Motion for a Judicial Determination that Its Judgment Against Cubic Defense Systems is Immune from Attachment or Execution by Stephen M. Flatow" on September 13, 2002.

(B) Dariush Elahi

Dariush Elahi's brother was assassinated by Iranian agents in Paris in 1990. Elahi filed suit in the District of Columbia and, on December 20, 2000, obtained a default judgment for $11,740,035 in compensatory damages and $300,000,000 in punitive damages. See Elahi v. Islamic Republic of Iran, 124 F. Supp. 97, 115 (2000). Elahi registered the judgment in the Southern District of California and filed a notice of lien on November 1, 2001, seeking to garnish the judgment debt owed to MOD by Cubic. The MOD filed a "Motion for a Judicial Determination that Its Judgment Against Cubic Defense Systems is Immune from Attachment or Execution by Dariush Elahi" on September 13, 2002.

IV. ANALYSIS

The MOD offers five arguments in support of its Motions against Flatow and Elahi. They are as follows: (A) Neither Iran nor MOD may be held liable for punitive damages under Section 1606 of the Foreign Sovereign Immunities Act (28 U.S.C. § 1602 et seq.) ("FSIA"); (B) Flatow has relinquished his right to attach the judgment by exercising Option (a)(1)(B) of Section 2002 of the Victims Protection Act of 2000; (C) the judgment is immune from attachment because it is property of military character pursuant to Section 1611(b)(2) of the FSIA;(D) the judgment is immune because it is the property of a central bank under Section 1611(b)(1) of the FSIA; and (E) the judgment is immune from attachment because the President has waived the attachment provisions of Section 1610(f)(1)(a) of the ESIA. The Court addresses each argument in turn, in Subheadings A-E.

(A) Whether the MOD is Liable for Punitive Damages


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