Law School Case Brief
Flatow v. Islamic Republic of Iran - 308 F.3d 1065 (9th Cir. 2002)
Even though an entity or instrumentality is wholly owned by a foreign state, that entity is accorded the presumption of independent and separate legal status. A typical government instrumentality, if one can be said to exist, is created by an enabling statute that prescribes the powers and duties of the instrumentality, and specifies that it is to be managed by a board selected by the government in a manner consistent with the enabling law. The instrumentality is typically established as a separate juridical entity, with the powers to hold and sell property and to sue and be sued. Except for appropriations to provide capital or to cover losses, the instrumentality is primarily responsible for its own finances. The instrumentality is run as a distinct economic enterprise; often it is not subject to the same budgetary and personnel requirements with which government agencies must comply. The presumption of separate juridical status may be overcome in two ways. First, where it can be shown that the corporate entity is so extensively controlled by its owner that a relationship of principal and agent is created, one may be held liable for the actions of the other. Second, an instrumentality should not be deemed a separate juridical entity where doing so would work fraud or injustice.
An American college student spending a semester studying in Israel, was killed in an explosion when the bus in which she was traveling collided with a van loaded with explosives. The United States Department of State subsequently concluded that the Shaqiqi faction of the Palestine Islamic Jihad committed the bombing. The parents of the student filed sued defendant Iranian government involved in the attack, received a default judgment, and sought to levy property owned by an Iranian bank. The District Court, however, agreed with the bank that the property was not an asset of the judgment debtor, granted its motion for release of the money and terminated the case. The District Court found the parent did not show the bank operated as an arm of the Iranian government or that its mission was to further state policies. The parents appealed.
Should the district court's dismissal of the case and release of the bank's funds be affirmed?
The district court's decision and protective order were affirmed. The Court of Appeals for the Ninth Circuit held that while a foreign bank was an arm of the state, the Iranian bank was not attempting to use a United States court to recover on a claim while trying to avoid being the subject of an adversary proceeding. The bank was a nonparty to the underlying case. Even though Iran owned capital in the bank, it was still accorded the presumption that it is a separate juridical entity. The Court further ruled that the arguments the Iranian Constitution and nationalization were sufficient to overcome the Bancec presumption also failed. Iran's limited supervision, through the role of its General Assembly of Banks and the High Council, was not day-to-day control sufficient to overcome the separate juridical entity presumption. Also, since the parents had not shown that former officials were competent to testify as to whether Iran exerted enough control over the bank for assets to be attached in satisfaction of their judgment against Iran, the district court had properly issued a protective order under Fed. R. Civ. P. 26(c) against deposing them.
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