Bank Markazi v. Peterson, 578 U.S. 212 (2016), was a United States Supreme Court case that found that a law which only applied to a specific case, identified by docket number, and eliminated all of the defenses one party had raised does not violate the separation of powers in the United States Constitution between the legislative (Congress) and judicial branches of government. The plaintiffs, in the case had initially obtained judgments against Iran for its role in supporting state-sponsored terrorism, particularly the 1983 Beirut barracks bombings and 1996 Khobar Towers bombing, and sought execution against a bank account in New York held, through European intermediaries, on behalf of Bank Markazi, the Central Bank of the Islamic Republic of Iran. The plaintiffs obtained court orders preventing the transfer of funds from the account in 2008 and initiated their lawsuit in 2010. Bank Markazi raised several defenses, including that the account was not an asset of the bank, but rather an asset of its European intermediary, under both New York state property law and §201(a) of the Terrorism Risk Insurance Act. In response to concerns that existing laws were insufficient for the account to be used to settle the judgments, Congress added an amendment to a 2012 bill, codified after enactment as 22 U.S.C. § 8772, that identified the pending lawsuit by docket number, applied only to the assets in the identified case, and effectively abrogated every legal basis available to Bank Markazi to prevent the plaintiffs from executing their claims against the account. Bank Markazi then argued that § 8772 was an unconstitutional breach of the separation of power between the legislative and judicial branches of government, because it effectively directed a particular result in a single case without changing the generally applicable law. The United States District Court for the Southern District of New York and, on appeal, the United States Court of Appeals for the Second Circuit both upheld the constitutionality of § 8772 and cleared the way for the plaintiffs to execute their judgments against the account, which held about $1.75 billion in cash.
The United States Supreme Court granted certiorari and heard oral arguments in the case in January 2016, releasing their opinion in April 2016. A 6–2 majority found that § 8772 was not unconstitutional, because it "changed the law by establishing new substantive standards"—essentially, that if Iran owns the assets, they would be available for execution against judgments against Iran—for the district court to apply to the case. Justice Ruth Bader Ginsburg, writing for the majority, explained that the federal judiciary has long upheld laws that affect one or a very small number of subjects as a valid exercise of Congress' legislative power and that the Supreme Court had previously upheld a statute that applied to cases identified by docket number in Robertson v. Seattle Audubon Society (1992). The majority also upheld § 8772 as a valid exercise of Congress' authority over foreign affairs. Prior to the enactment of the Foreign Sovereign Immunities Act (FSIA) in 1976, Congress and the Executive branch had authority to determine the immunity of foreign states from lawsuits. Despite transferring the authority to determine immunity to the courts through the FSIA, the majority contended that "it remains Congress' prerogative to alter a foreign state's immunity."
Chief Justice John Roberts, joined by Justice Sonia Sotomayor, dissented and harshly criticized the majority's holding. After providing historical context for the separation of powers between the legislature and judiciary found in Article III of the United States Constitution, the Roberts argued that § 8772 was an unconstitutional breach of the separation of powers between Congress and the judiciary "whereby Congress assumes the role of judge and decides a particular case in the first instance." In his view, § 8772 is not different from a hypothetical law applying to a case Smith v. Jones in which the legislature says simply "Smith wins". Roberts contended that Congress and the Executive branch have sufficient authority that they do not need to "seize" the judiciary's power to "make a political decision look like a judicial one." Quoting James Madison in Federalist No. 48, he lamented that this case "will indeed become a blueprint for extensive expansion of the legislative power at the judiciary's expense, feeding Congress's tendency to 'extend[] the sphere of its activity and draw[] all power into its impetuous vortex.'"
The decision came as Iran was seeking access to the world financial market just three months after many sanctions were lifted as a result of Iran's compliance with an agreement for curtailing development of its nuclear enrichment program. Various Iranian officials denounced the decision as "theft", "a ridicule of law and justice", and "open hostility by the United States against the Iranian people."
On 14 June 2016, Iran filed a case against the United States with the International Court of Justice (ICJ). The judgment in the case, named Certain Iranian Assets, was pronounced on 30 March 2023, with the ICJ finding largely in Iran's favour.
Background
State immunity Foreign states generally enjoy immunity from lawsuits in the United States under the Foreign Sovereign Immunities Act (FSIA). The FSIA is the exclusive basis for U.S. courts to exercise jurisdiction over a foreign government. Prior to enactment of the FSIA in 1976, the executive branch was responsible for determining the immunity of foreign states on a case-by-case basis. By enacting the FSIA, Congress codified the guidelines for the immunity of foreign states and transferred responsibility for determining a foreign state's immunity from the executive branch to the judiciary.
The FSIA contains an exception to the immunity of foreign states for victims of state-sponsored terrorism. Prior to 2002, if a judgment was awarded against a foreign government, only assets of the foreign government that were located in the U.S. and "used for commercial activity" could have been seized to satisfy the judgment. To make judgments easier to enforce, Congress enacted the Terrorism Risk Insurance Act of 2002 (TRIA) which allows judgments to be executed against "the blocked assets of [a] terrorist party." Blocked assets include assets that may be seized by the President pursuant to his authority granted by Congress.
Litigation before § 8772 was enacted The suit involved more than 1,300 individuals who had won several separate judgments against Iran for its supportive role in the 1983 Beirut barracks bombings, the 1996 Khobar Towers bombing, several other bombings, an assassination, and a kidnapping. After winning judgments by default, based on a clear evidentiary basis for Iran's liability, they sought writs of execution against a Citibank account in New York connected with Iran's central bank. The suits for execution against the Citibank account were consolidated into one case through various procedural mechanisms.
The named plaintiff in the case, Deborah Peterson, is the sister of a victim of the Beirut barracks bombings; joined by victims and other relatives of victims, she had won a default judgment in 2003 against Iran for its role in the bombings. Because of the large number of plaintiffs in the case—almost 1,000—the judge appointed special masters to determine each plaintiff's right to collect damages and appropriate amount of damages; in 2007, the judge entered a default judgment against Iran for $2,656,944,877 in damages.
In 2008, the plaintiffs first learned of the interests of the Central Bank of Iran (Bank Markazi) in a Citibank bank account in New York and obtained orders restraining the transfer of funds from the account. The account consisted of bonds and belonged to a Luxembourg-based bank, Clearstream Banking, S.A., which held the account on behalf of Bank Markazi and deposited interest from the bonds into Bank Markazi's Clearstream account. At some point in 2008, an account for Bank Markazi was opened with Italian bank Banca UBAE to place the interest payments from the Clearstream account, placing a second intermediary between Bank Markazi and the Citibank account. By the time of the Supreme Court hearing, the Citibank account held about $1.75 billion in cash, as the last of the bonds had matured in April 2012. In 2010, the plaintiffs initiated their lawsuit against Bank Markazi, Clearstream, Banca UBAE, and Citibank, jointly, seeking to execute against the Citibank account their judgments for damages against Iran, based on §201(a) of the TRIA, which provides that when "a person has obtained a judgment against a terrorist party ... the blocked assets of that terrorist party (including the blocked assets of any agency or instrumentality of that terrorist party) shall be subject to execution or attachment."
In February 2012, President Obama froze all assets of the Iranian government in the U.S., which included the Citibank account alleged to be controlled by Bank Markazi. However, there were concerns that existing laws were insufficient for the account to be used to settle the judgments. Bank Markazi claimed that the account was not an asset of Bank Markazi, but its intermediary, Clearstream, in relation to both TRIA and New York state property law.
Section 8772 Due to the issues raised in the case, Congress included a section within the Iran Threat Reduction and Syria Human Rights Act, codified as 22 U.S.C. § 8772, that preempted any state law and provided that:
In response to concerns the banking industry had to early drafts of the legislation, § 8772 specified the assets that the section pertains to as:
Section 8772 also specified that the courts needed to identify "whether Iran holds equitable title to, or the beneficial interest in, the assets ...and that no other person possesses a constitutionally protected interest in the assets ...under the Fifth Amendment to the Constitution of the United States." If another person held a constitutionally protected interest in the assets, their interest in the assets would not be infringed by the law.
After § 8772 was enacted Section 8772 eliminated all of Bank Markazi's defenses to the seizure of the account's assets, valued at approximately $1.75 billion. Bank Markazi conceded that they held "equitable title to, or beneficial interest in, the assets", per §8772(a)(2)(A), but then claimed that § 8772 violated the separation of powers in the United States Constitution between the legislative (Congress) and judicial branches of government. The United States District Court for the Southern District of New York and, on appeal, the United States Court of Appeals for the Second Circuit both upheld the constitutionality of § 8772 and awarded the assets to the plaintiffs.
Appeal to the Supreme Court of the United States On December 29, 2014, Bank Markazi filed a petition for certiorari with the Supreme Court of the United States, requesting the Court to consider the question: Does § 8772 violate the separation of powers by purporting to change the law for, and directing a particular result in, a single pending case? The certiorari petition was circulated to the Justices for their conference on April 3, 2015, after a brief by the respondents (Peterson) opposing certiorari and a reply brief from the petitioner (Bank Markazi) were filed in March. Following the April 3rd conference, the Court called for the Solicitor General to file a brief expressing the views of the federal government, which was filed on August 19. In May and June, the Supreme Court meets only to issue orders and opinions and does not hear oral arguments until the next term begins. The Court granted certiorari following its conference on September 28.