Court Opinion

ID: 4424294
Source: CourtListenerOpinion
Date Created: 2019-08-09 15:00:14.601246+00
Date Added: 2024-06-11T14:23:27.689003
License: Public Domain

17‐3658
United States v. Assa Co. Ltd.

                    UNITED STATES COURT OF APPEALS
                        FOR THE SECOND CIRCUIT
                             ______________

                                 August Term 2018

                (Argued: May 1, 2019 | Decided: August 9, 2019)

                                 Docket No. 17‐3658

    UNITED STATES OF AMERICA, RENAY FRYM, STUART E. HERSH,
 ABRAHAM MENDELSON, DANIEL MILLER, ELENA ROZENMAN, NOAM
   ROZENMAN, TZVI ROZENMAN, DEBORAH RUBIN, JENNY RUBIN,
 DANIEL MILLER, CARLOS ACOSTA, MARIA ACOSTA, TOVA ETTINGER,
     IRVING FRANKLIN, BNORMAN KAHANE, ETHEL J. GRIFFIN,

                                          Plaintiffs‐Appellees,

                          CARLOS ACOSTA, ET AL.,

                                          Claimants‐Appellees,

                                         v.

                   ASSA CO. LTD., ASSA CORPORATION,

                                          Defendants‐Appellants,

   ALL RIGHT, TITLE, AND INTEREST OF ASSA CORPORATION, ET AL.,

                                         Defendants‐in‐rem.
                                  ______________
Before:
                  PARKER, WESLEY, and CHIN, Circuit Judges.

       This civil‐forfeiture appeal asks, among other things, whether the United
States District Court for the Southern District of New York (Forrest, J.) erred by
exercising subject matter jurisdiction over a foreign state’s property or abused its
discretion by rejecting the Defendants‐Appellants’ statute‐of‐limitations defense
sua sponte. We hold that the district court had jurisdiction because the Foreign
Sovereign Immunities Act does not foreclose in rem civil‐forfeiture suits against a
foreign state’s property. However, the court abused its discretion by sua sponte
resolving the statute‐of‐limitations issue without providing the Defendants‐
Appellants notice or an opportunity to defend themselves. An accompanying
summary order considers, and rejects, the Defendants‐Appellants’ additional
challenges. We AFFIRM in part, VACATE in part, and REMAND for further
proceedings consistent with this opinion.
                                 _________________

            PETER I. LIVINGSTON, Anderson Kill P.C., New York, NY (Deborah
                B. Koplovitz, Anderson Kill P.C., New York, NY; Donald F.
                Luke, Marjory T. Herold, Jaffe & Asher LLP, New York, NY, on
                the brief), for Defendants‐Appellants.

            DANIEL M. TRACER, Assistant United States Attorney (Michael D.
                Lockard, Daniel B. Tehrani, Assistant United States Attorneys,
                on the brief), for Geoffrey S. Berman, United States Attorney for
                the Southern District of New York, New York, NY.
                               _________________

WESLEY, Circuit Judge:

      In 2013, the United States District Court for the Southern District of New

York (Forrest, J.) ordered via summary judgment the forfeiture of certain property

interests held by the Alavi Foundation, 650 Fifth Avenue Company, and

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Defendants‐Appellants Assa Co. Ltd. and Assa Corporation (collectively, “Assa”).

Three years later, we vacated the judgment as it pertained to Alavi and 650 Fifth

Ave. Co. because, among other things, the district court had sua sponte rejected

their statute‐of‐limitations defense without providing them notice or an

opportunity to respond. In re 650 Fifth Ave. & Related Props., 830 F.3d 66, 75 (2d Cir.

2016). Although these errors also applied to Assa, the judgment against it was

unaffected because Assa did not appeal at that time. Id. at 86 n.17.

      After further proceedings not involving Assa, the judgment became final

and Assa appealed. In addition to challenging the sua sponte denial of its statute‐

of‐limitations defense, Assa argues that the district court lacked subject matter

jurisdiction because, in its view, a foreign state’s property is immune from in rem

civil‐forfeiture suits under the Foreign Sovereign Immunities Act (“FSIA”). Assa

also argues that the district court abused its discretion by denying its motion to

stay the proceeding and through various discovery orders.

      The district court had subject matter jurisdiction. However, for substantially

the same reasons we stated three years ago as to Alavi and 650 Fifth Ave. Co., the

court abused its discretion by deciding the statute‐of‐limitations issue without

providing Assa notice and an opportunity to respond. An accompanying

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summary order explains why we find no abuse of discretion in the court’s denial

of Assa’s motion to stay or in its various challenged discovery orders.

       We affirm in part, vacate in part, and remand for further proceedings

consistent with this opinion.

                                   BACKGROUND1

       Assa Corporation is a New York corporation formed in 1989. It is wholly

owned by Assa Co. Ltd., a corporation formed in Jersey, Channel Islands. Assa Co.

Ltd. was originally owned by Harter Holdings Ltd., which Bank Melli acquired in

1993. In 1995, Bank Melli transferred Harter to Davood Shakeri and Fatemeh

Aghamiri. The parties dispute whether Bank Melli, which is owned and controlled

by the Government of Iran, continued to control Assa after 1995, the year the

relevant economic sanctions against Iran took effect.2

       This action began in 2008, when the Government filed a complaint in the

United States District Court for the Southern District of New York (Holwell, J.)

1The full set of facts giving rise to this lawsuit appears in a companion opinion. See In re
650 Fifth Ave. & Related Props., No. 17‐3258(L) (2d Cir. 2019). We assume general
familiarity with that background and focus here on the facts pertaining to this appeal.
2While Assa disputes this post‐1995 control finding on appeal, Alavi and 650 Fifth Ave.
Co. concede this fact. We address the merits of Assa’s challenge in a companion opinion.

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seeking the forfeiture of property belonging to Assa and Bank Melli under 18

U.S.C. § 981(a)(1). The centerpiece of this property is 650 Fifth Avenue, a 36‐story

skyscraper in Midtown Manhattan featuring retail and office space. The

Government alleged that the property was traceable to violations of the

International Emergency Economic Powers Act (“IEEPA”), 50 U.S.C. § 1701 et seq.,

and to money‐laundering transactions in violation of 18 U.S.C. §§ 1956 and 1957.

The premise of these allegations was that Assa and Bank Melli are owned and

controlled by the Government of Iran and provided services to Iran in violation of

the Iranian Transactions Regulations. See, e.g., 31 C.F.R. § 560.204. In November

2009, the Government amended its forfeiture complaint to add certain property

interests of Alavi and 650 Fifth Ave. Co.

      The parties cross‐moved for summary judgment at the close of discovery.

The district court (Forrest, J.)3 granted summary judgment to the Government,

ordering that Assa, Alavi, and 650 Fifth Ave. Co. forfeit most of the property

interests cited in the amended complaint. In re 650 Fifth Ave. & Related Props., No.

08 Civ. 10934 (KBF), 2013 WL 5178677, at *3 & n.14 (S.D.N.Y. Sept. 16, 2013); see

3In February 2012, the Southern District reassigned the case from Judge Holwell to Judge
Forrest.

                                            5
also In re 650 Fifth Ave. & Related Props., No. 08 Civ. 10934 (KBF), 2014 WL 1516328,

at *1 (S.D.N.Y. Apr. 18, 2014) (ordering forfeiture of additional Alavi property

interests). Although no party had briefed the issue of whether the Government’s

action was timely filed within the relevant statute‐of‐limitations period, see 19

U.S.C. § 1621, the district court considered and rejected that defense sua sponte. Id.

at *36.

          After additional proceedings, Alavi and 650 Fifth Ave. Co.—but not Assa—

moved for final judgment under Federal Rule of Civil Procedure 54(b) as to their

property interests. See In re 650 Fifth Ave., 830 F.3d at 86. The district court granted

this motion, enabling those parties to appeal. Id. We vacated the summary

judgment with respect to Alavi and 650 Fifth Ave. Co. Among other things, we

held that the court violated Rule 56(f) by sua sponte disposing of their statute‐of‐

limitations defense. Id. at 75. As Assa was not a party to the appeal, we left the

judgment—which was not yet final—undisturbed as it applied to Assa. Id. at 86

n.17.

          In 2017, after Alavi and 650 Fifth Ave. Co. took their cases to trial, the district

court entered final judgment resolving all claims for all parties. As was its right,

Assa appealed at that time.

                                               6
                                    DISCUSSION

      Assa raises four challenges to the district court’s orders. This opinion

addresses two of them: subject matter jurisdiction, and the district court’s sua

sponte denial of Assa’s statute‐of‐limitations defense.

      I.     The District Court Had Subject Matter Jurisdiction, and the FSIA’s
             Immunity Regime Does Not Foreclose In Rem Civil‐Forfeiture Suits
             Against Property Belonging to a Foreign State.

      Federal district courts have limited subject matter jurisdiction. See, e.g.,

Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 552 (2005). They may not

adjudicate a case or controversy unless authorized by both Article III of the United

States Constitution and a federal jurisdictional statute. Id. A party may challenge

subject matter jurisdiction at any time. See, e.g., Capron v. Van Noorden, 6 U.S. 126,

126–27 (1804).

      The district court had jurisdiction under Article III, both because the United

States is a party and the action arises under federal law. See U.S. Const. art. III, § 2,

cl. 1. The issue is whether it had statutory jurisdiction.

      The Government cited two jurisdictional statutes in its complaint that

appear to authorize jurisdiction. Under 28 U.S.C. § 1345, district courts have

jurisdiction over any suit commenced by the United States. And under 28 U.S.C.

                                           7
§ 1355, district courts have jurisdiction over civil‐forfeiture proceedings arising

under federal law.

      Assa does not dispute that these statutes appear to apply. Instead, it argues

that the FSIA displaces them and that we must look to its separate jurisdictional

requirements. Under the FSIA, Assa contends that it is immune from in rem civil‐

forfeiture suits.

      The gateway into the FSIA’s immunity regime is the phrase “foreign state.”

The FSIA’s jurisdictional provision, 28 U.S.C. § 1330(a), states that district courts

“shall have original jurisdiction without regard to amount in controversy of any

nonjury civil action against a foreign state as defined in section 1603(a) of this title

as to any claim for relief in personam with respect to which the foreign state is not

entitled to immunity.” Id. (emphasis added). The FSIA’s immunity provision, 28

U.S.C. § 1604, adds that subject to certain exceptions, “a foreign state shall be

immune from [federal and state] jurisdiction.” Id. (emphasis added). Section

1603(a) explains that a “foreign state . . . includes a political subdivision of a

foreign state or an agency or instrumentality of a foreign state,” with the latter

category roughly referring to certain legal persons controlled by foreign

governments. 28 U.S.C. § 1603(a)–(b).

                                           8
      If the defendant is a foreign state, the lawsuit must go through the FSIA

gateway. In Argentine Republic v. Amerada Hess Shipping Corporation, the Supreme

Court held that “the FSIA [is] the sole basis for obtaining jurisdiction over a foreign

state in our courts.” 488 U.S. 428, 434 (1989).4 However, if the defendant is not a

foreign state, the gateway closes: § 1330(a) does not authorize jurisdiction, and

§ 1604 does not confer immunity. Courts must look to other statutory bases for

jurisdiction.

      Assa’s argument is as follows. The premise of the Government’s civil‐

forfeiture allegation is that Assa is a foreign state under the FSIA because Iran

owns or controls it through Bank Melli. See In re 650 Fifth Ave., No. 08 Civ. 10934

(KBF), 2013 WL 5178677, at *22. Granting this premise for the sake of argument,

Assa counters that the assumption opens the FSIA gateway, as a suit against a

foreign state’s property is a suit against a foreign state. Because Assa contends that

4 This language appears on its face to be about personal jurisdiction, as it refers to
jurisdiction “over a foreign state” rather than jurisdiction over a controversy involving a
foreign state. But the Court referred to both personal and subject matter jurisdiction. The
premise of Amerada Hess was that plaintiffs seeking relief from Argentina sought to avoid
the FSIA’s immunity regime by asserting subject matter jurisdiction under the Alien Tort
Statute, 28 U.S.C. § 1350, which lacks an immunity provision. See id. at 432–33. The “sole
basis” holding came in the context of rejecting that argument and describing § 1330(a)’s
grant of subject matter jurisdiction. See id. at 434.

                                            9
none of the FSIA’s immunity exceptions allow federal courts to hear in rem suits

against a foreign state’s property, it concludes that its property is immune from

jurisdiction under the FSIA.

      We disagree. Section 1603(a)’s definition of foreign state includes actual

foreign states, their “political subdivision[s],” and their “agenc[ies] or

instrumentalit[ies].” Property belonging to a foreign state does not fit any of these

categories. As this is therefore not a suit against a foreign state, the FSIA gateway

is closed. No jurisdiction flows from § 1330(a), and no immunity flows from § 1604.

      Amerada Hess is not to the contrary. The Supreme Court held only that “the

FSIA [is] the sole basis for obtaining jurisdiction over a foreign state in our courts.”

Amerada Hess, 488 U.S. at 434 (emphasis added). We understand “foreign state” in

Amerada Hess to mean the same thing it does in the FSIA. The Court was not asked

to decide, and did not decide, whether the FSIA is the sole basis—or any basis at

all—for obtaining jurisdiction over a foreign state’s property.

      We recognize that foreign states have compelling interests in defending

their property from civil forfeiture. But nothing that Assa brings to our attention

suggests that Congress meant for the FSIA to address this concern. The statute’s

primary purpose was freeing the executive branch from a then‐existing case‐by‐

                                          10
case approach to foreign sovereign immunity, whereby courts would look to

“suggestions of immunity” from the State Department. See Verlinden B.V. v. Cent.

Bank of Nigeria, 461 U.S. 480, 487–88 (1983). Congress also sought to set uniform

standards for controversies against foreign states. Id. at 488. These goals have little

apparent nexus to foreclosing in rem civil‐forfeiture suits.

          To be sure, the FSIA is not completely silent on immunity in actions

involving a foreign state’s property. Section 1609 states that “the property in the

United States of a foreign state shall be immune from attachment arrest and

execution [subject to certain exceptions].” 28 U.S.C. § 1609. However, this

language is of no help to Assa, as it refers to quasi in rem suits meant to enforce in

personam judgments against a foreign state. A civil‐forfeiture suit is an in rem

proceeding brought directly against the property. Although in rem and quasi in rem

proceedings both involve a rem (a “thing”), the relevant similarity ends there. Civil

forfeiture does not involve the “attachment arrest and execution” forbidden by

§ 1609.

      The background of § 1609 makes this point clear. Congress sought to clamp

down on quasi in rem suits because they “caused significant irritation to many

foreign governments” and could potentially “give rise to serious friction in United

                                          11
States’ foreign relations.” H.R. Rep. No. 94–1487, at 27 (1976), as reprinted in 1976

U.S.C.C.A.N. 6604, 6626. One could say the same of civil‐forfeiture actions. But the

only plaintiff that can claim civil forfeiture under § 981 is the United States. When

the executive branch seeks the forfeiture of a foreign state’s property, the judiciary

is in no position to second‐guess whether the lawsuit will harm our nation’s

foreign‐policy goals.

       The FSIA does not create jurisdiction over, and does not immunize a foreign

state’s property from, in rem civil‐forfeiture actions.5 Accordingly, this case does

not implicate the rule that “the FSIA [is] the sole basis for obtaining jurisdiction

over a foreign state in our courts.” Amerada Hess, 488 U.S. at 434 (emphasis added).

We may therefore look to other federal jurisdictional statutes. The district court

had jurisdiction under 28 U.S.C. §§ 1345 and 1355.

5 The Fifth Circuit reached the same conclusion, albeit in a different context. See In re B‐
727 Aircraft Serial No. 21010, 272 F.3d 264, 270 (5th Cir. 2001) (“[T]he . . . grant of
jurisdiction found in 28 U.S.C. § 1330 . . . confers jurisdiction only over ‘any claim for
relief in personam’ that is against a foreign state, not over in rem actions.”).

                                            12
      II.    The District Court Violated Rule 56(f) with Respect to Assa by Sua
             Sponte Granting Summary Judgment to the Government on the
             Statute‐of‐Limitations Issue.

      In 2016, we held that the district court violated Rule 56(f) with respect to

Alavi and 650 Fifth Ave. Co. by rejecting their statute‐of‐limitations defense

without providing them notice and a reasonable time to respond. See In re 650 Fifth

Ave., 830 F.3d at 96–97 (citing Fed. R. Civ. P. 56(f)). The district court’s erroneous

holding also applied to Assa, but we did not vacate that aspect of the summary

judgment because Assa was not a party to the appeal. See id. at 86 n.17.

      Now that Assa’s case is before us, the district court’s error requires us to

vacate the judgment against Assa. In one fell swoop, the court violated Rule 56(f)

with respect to Assa, Alavi, and 650 Fifth Ave. Co. by rejecting their potentially

dispositive affirmative defense without providing them notice and a reasonable

time to respond. This decision was erroneous as to Assa for the same reasons we

held it erroneous as to Alavi and 650 Fifth Ave. Co. See generally id. at 96–97.

      The Government concedes that the district court committed a “procedural

error.” Appellee Br. 241. However, it argues that we should excuse the error on

harmlessness grounds. In the Government’s view, “Assa has not identified any

evidence raising a material issue of fact supporting the defense.” Id.

                                         13
      We disagree. We already held, on the same record before us now, that “[t]his

is not a case where the record was so fully developed that [Alavi and 650 Fifth

Ave. Co.] plainly suffered no prejudice from the procedural error.” In re 650 Fifth

Ave., 830 F.3d at 97. This holding applies equally to Assa. The lack of an

evidentiary record underscores, rather than undermines, Assa’s need for a

reasonable opportunity to present its evidence and arguments.

      In effect, the Government’s position is that we should decide an issue the

parties did not brief below, even where we held that the district court abused its

discretion by doing the same thing as to Alavi and 650 Fifth Ave. Co. This is not

our ordinary practice, and it would be particularly inappropriate here. Everyone

involved should have known that the error we identified in 2016 also affected

Assa. On remand, nothing prevented the district court from correcting this error

by requiring Assa to brief the issue—an issue the Government, Alavi, and 650 Fifth

Ave. Co. were already briefing—and then revisiting the summary judgment

decision. This simple fix would have saved Assa’s case from sitting in limbo for

years while awaiting inevitable vacatur.

                                        14
      We vacate the judgment. We express no opinion on whether Assa should be

allowed to take discovery on its statute‐of‐limitations defense on remand, as this

issue is not before us at this time.6

                                   CONCLUSION

      We AFFIRM in part, VACATE in part, and REMAND for further

proceedings consistent with this opinion.

6We decline to address Assa’s remaining challenges to the summary judgment, except as
discussed in the accompanying summary order.

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