The opinion
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
DEBORAH D. PETERSON, et al.,
Plaintiffs,
13-CV-09195 (LAP)
-against-
ISLAMIC REPUBLIC OF IRAN, et OPINION AND ORDER
al.,
Defendants.
LORETTA A. PRESKA, Senior United States District Judge:
On October 23, 1983, a truck laden with 12,000 pounds of
explosives detonated at the United States Marine Barracks at Beirut
International Airport. Minutes later, a second truck bomb struck
a nearby garrison of French Chasseurs Parachutistes. The bombings
claimed the lives of 241 U.S. servicemembers, six Lebanese
civilians, and 58 paratroopers of America’s oldest ally. And the
aftershocks continue to be felt by the injured troops who survived
and the families of those who did not.
A federal court later found that the Beirut attacks had been
sponsored and approved by the highest levels of government of the
Islamic Republic of Iran. Armed with those findings, countless
victims and family members went on to win judgments against Iran
for billions of dollars in compensatory damages. Yet collecting
these judgments proved far more difficult. Iran refused to appear,
refused to pay, and shielded its assets behind layers of foreign
intermediaries that it believed to be beyond the reach of American
courts.
In 2012, Congress intervened. Through the Iran Threat
Reduction and Syria Human Rights Act, 22 U.S.C. § 8772, Congress
singled out assets identified in this action and held by Iran’s
central bank, Bank Markazi (“Markazi”), as available for
attachment and execution to satisfy the victims’ judgments. Seven
years later, Congress strengthened the statute, authorizing courts
to compel certain financial institutions to bring Markazi’s frozen
assets into the United States and facilitate execution. Through
this litigation, the victims now seek to satisfy their judgments
with Markazi’s frozen assets.
Once again, the case returns to this Court on remand from the
Court of Appeals. Peterson v. Bank Markazi, 121 F.4th 983
(2d Cir. 2024) (“Peterson 2024”). The Court of Appeals directed
this Court to resolve two discrete issues: whether the litigation
can proceed in the absence of Markazi and whether Markazi is in
fact the beneficial owner of the bond proceeds held by Clearstream
Banking, S.A. (“Clearstream”), a Luxembourg-based securities
intermediary. Clearstream and Markazi have since moved to dismiss
the action for failure to join Markazi. Plaintiffs refiled for
summary judgment on their turnover claims, and Clearstream cross-
moved for summary judgment in its favor.
For the reasons that follow, Clearstream and Markazi’s
motions to dismiss are DENIED. Plaintiffs’ motion for summary
judgment is GRANTED, and Clearstream’s cross-motion for summary
judgment is DENIED.1
I. Background
The history of this litigation spans twelve years, three trips
to the Court of Appeals, and one decision from the Supreme Court.
All of these decisions set out the procedural history and facts of
this case at length. Accordingly, the Court recounts only those
relevant to resolving these motions.
A. Plaintiffs’ Judgments
Plaintiffs are representatives of the 241 American
servicemembers killed in the Beirut bombing. In 2003, a federal
court in the District of Columbia found that the bombing was
committed by agents of Iran, including the Iranian foreign
1 The following submissions were filed in connection with the pending motions.
In support of Plaintiffs’ motion for summary judgment: Plaintiffs’ Amended
Memorandum of Law in Support (Dkt. 371) (“Pls.’ Mem.”); Plaintiffs’ Rule 56.1
Statement (Dkt. 367) (“Pls.’ 56.1”); the Declaration of Liviu Vogel (Dkt. 370)
(“Vogel Decl.”); the Supplemental Declaration of Liviu Vogel (Dkt. 389); and
the Declaration of Dr. Laurent Heisten (Dkt. 390) (“Heisten Supp. Decl.”). In
support of Markazi’s motion to dismiss: Markazi’s Memorandum of Law in Support
(Dkt. 378) (“Markazi Mem.”); the Declaration of Robert K. Kry in Support (Dkt.
379) (“Kry Decl.”); and Markazi’s Counter-Statement to Plaintiffs’ Rule 56.1
Statement (Dkt. 381) (“Markazi Counter 56.1”). In support of Clearstream’s
cross-motion for summary judgment and motion to dismiss: Clearstream’s
Memorandum of Law in Support (Dkt. 384) (“Clearstream Mem.”); the Declaration
of Benjamin S. Kaminetzky in Support (Dkt. 385) (“Kaminetzky Decl.”);
Clearstream’s Rule 56.1 Statement (Dkt. 386) (“Clearstream 56.1”);
Clearstream’s Memorandum of Law in Opposition to Plaintiffs’ Motion (Dkt. 380);
Clearstream’s Reply Memorandum (Dkt. 399) (“Clearstream Reply”); and the
Supplemental Declaration of Benjamin S. Kaminetzky (Dkt. 400).
intelligence agency and its Hezbollah proxies. See Peterson v.
Islamic Republic of Iran, 264 F. Supp. 2d 46, 54–61 (D.D.C. 2003).
Among other evidence, the court credited an intelligence intercept
of a message from Tehran to Iran’s ambassador to Syria in September
of 1983. The message instructed Iranian proxies to instigate
attacks on the joint American, British, French, and Italian
peacekeeping coalition stationed in Lebanon and specifically to
“take a spectacular action against the United States Marines.”
Id. The court further found that the attack could not have
proceeded absent the express approval of the highest levels of
Iran’s government, including the Ayatollah himself.
Since the 2003 finding, the victims and their families have
obtained compensatory judgments totaling approximately $3.845
billion across various litigations. (Clearstream 56.1 ¶¶ 14–16.)
The validity of these judgments is not disputed. To date, Iran
has neither appeared nor voluntarily paid any portion of the
judgments.
B. The Clearstream Assets
The asset at the heart of this litigation is a $1.68 billion
right to payment held by Clearstream in sundry blocked account
13675 in Luxembourg (the “Blocked Account”), representing
principal and interest on Eurodollar bonds (the “Bond Proceeds”)
that Markazi purchased through Clearstream. (Clearstream 56.1 ¶¶
63, 67.)
Clearstream is a Luxembourg-based securities intermediary.
As a securities intermediary, Clearstream holds securities on
behalf of and for the benefit of its clients. (Clearstream 56.1
¶ 29.) At all relevant times, Clearstream maintained its sole
U.S. dollar cash correspondent account at JPMorgan Chase Bank,
N.A. in New York (the “New York Account”), through which
approximately $7–9 billion flowed every business day.
(Clearstream 56.1 ¶¶ 34-39.) All U.S. dollar payments on the bonds
at issue in this case passed through the New York Account before
being credited to Clearstream’s Luxembourg accounts. (Clearstream
56.1 ¶ 57.)
From 1994 until 2008, Markazi held the bonds in its own
account at Clearstream. A Markazi officer, Ali Asghar Massoumi,
testified in a sworn affidavit that Markazi had previously
conducted these transactions directly with Clearstream via so-
called “U-Turn” transactions, in which banks subject to U.S.
regulation could indirectly process transactions involving Iran if
they began and ended with a non-Iranian bank. (Massoumi Aff.
¶ 20.)2 U-Turn transactions were not explicitly prohibited by the
U.S. Office of Foreign Assets (“OFAC”) until November 2008.
However, before OFAC closed the U-Turn loophole, Massoumi
testified that Clearstream warned Markazi “that [Clearstream] was
2 The Massoumi Affidavit is appended as Exhibit 45 to the Vogel Declaration.
(See Dkt. 370-41).
being pressured not to do business of any kind with Markazi.”
(Massoumi Aff. ¶ 22.) Accordingly, in Massoumi’s words, “Bank
Markazi had a very short period of time . . . to shift the
Restricted Securities away from Clearstream and to another
custodial agent.” (Id.)
With OFAC zeroing in on Clearstream, Markazi sought the
services of Unione delle Banche Arabe ed Europe, s.p.a. (“UBAE”),
a small Italian bank focused on transactions between Europe, North
Africa, and the Middle East. The record indicates that, as of
2008, UBAE was at least partially owned by the national bank of
Libya, (Clearstream 56.1 ¶ 47), which at the time was controlled
by the regime of Muammar Qaddafi. Plaintiffs therefore argue that
UBAE was, at the time, “controlled by Libya’s corrupt Qaddafi
regime” and, along with other Libyan banks, “collected lucrative
fees by helping Iran launder huge sums of money . . . in violation
of international sanctions on Tehran.” (Vogel Decl. ¶ 46 & Ex.
80.) Although Defendants dispute the extent of Libya’s ownership
and control over UBAE, the record indicates that Libya was, as of
2008, far and away UBAE’s largest shareholder. (Vogel Decl.
Ex. 80.)
Using UBAE, Markazi engineered a structure that would allow
it to use Clearstream’s services indirectly. Markazi opened an
account at UBAE, and UBAE opened an additional account with
Clearstream. Massoumi testified that in February 2008 Markazi
transferred its Eurodollar bonds from Markazi’s account at
Clearstream (Account 80726) to UBAE’s newly opened account at
Clearstream (Account 13061). (Massoumi Aff. J 26.) Although
nominally held in the name of UBAE, both Clearstream and UBAE
structured Account 13061 as a “customer account” that, in the words
of one of Clearstream executive, was “designed to hold [sic]
interest of third parties, that is to say, of the customers of our
customer who are using our bank . . . as their custodian.” (June
27, 2008 Testimony of Mark Gem (“Gem Test.”) at 33:9-13.)3
After UBAE opened Account 13061, Markazi requested that
Clearstream internally transfer all of the bonds in Markazi’s
account to the newly-opened Account 13061. The bond transfers
were made “free of payment,” meaning that there was no
corresponding incoming payment instruction or indication of
consideration. (See, e.g. Vogel Decl. Ex. 47 at 1):
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The Gem Testimony is attached as Exhibit 46 to the Vogel Declaration. (See
Dkt. 370-42.)
The total face value of the bonds nominally transferred from
Markazi to UBAE’s new Clearstream customer account exceeded $4.6
billion. (Vogel Decl. ¶ 53 & Exs. 47–48.) Following the internal
transfer at Clearstream to Account 13061, UBAE credited Markazi’s
own Rome-based UBAE account with the transferred bonds. (Massoumi
Aff. ¶¶ 25–26.) As a result of these transfers, according to OFAC,
“the record of ownership on Clearstream’s books changed, but the
beneficial ownership did not, resulting in [Markazi’s] interest
being buried one layer deeper in the custodian chain.” (Vogel
Decl. Ex. 61 ¶ 8.)
Thus, following February 2008, the formal chain of custody
ran from Markazi’s account at UBAE, through UBAE’s account at
Clearstream (Account 13061), up to the ultimate depositaries or
paying agents of the bond issuers. (Vogel Decl. ¶¶ 53–54.) But,
according to Plaintiffs, nothing about the economic substance
changed: Markazi remained, in its own words, the “sole beneficial
owner” of the bonds and their proceeds. (Massoumi Aff. ¶¶ 7, 30.)
UBAE confirmed as much in an October 26, 2009 letter to
Clearstream, stating that the securities “were administered by
Clearstream for the same beneficial owner”—i.e., Markazi—both
before and after the transfers. (Vogel Decl. ¶ 57 & Ex. 52.) And
the OFAC settlement later confirmed that “Clearstream employees
. . . including at least one supervisor and one senior executive—
knew or should have known that the beneficial ownership of the
securities entitlements would not change with their [free-of-
payment] transfer” from one Clearstream account to another. (Vogel
Decl. ¶ 67 & Ex. 61 at ¶¶ 7–8.)
The bonds that Clearstream internally transferred from
Account 80726 to Account 13061 included two distinct pools of
assets. The first consisted of bonds that were sub-custodied by
Clearstream at Citibank in New York, meaning the underlying
securities entitlements were physically held within the
territorial United States. (Pls.’ 56.1 ¶¶ 55–56; Vogel Decl.
¶¶ 47, 63 & Ex. 44 at ¶ 2.)4 The second pool of bonds was held
abroad and not sub-custodied in the United States (the “Remaining
Bonds”). Like all the bonds in the portfolio, the Remaining Bonds
were denominated in U.S. dollars, and investors received interest
and redemption payments through the New York Account. (Vogel Decl.
¶ 72.)5
The Remaining Bonds and their proceeds precipitated this
action. On June 11, 2008, in response to a subpoena served by
4 These bonds generated the approximately $1.75 billion in assets that became
the subject of the separate Peterson I litigation. See Peterson v. Islamic
Republic of Iran, No. 10 Civ. 4518, 2013 WL 1155576, at *4 (S.D.N.Y. Mar. 13,
2013), aff’d, 758 F.3d 185 (2d Cir. 2014), aff’d sub nom. Bank Markazi v.
Peterson, 578 U.S. 212 (2016). Because those assets were physically located in
the United States, the Peterson I court was able to order Citibank to turn them
over directly. The Supreme Court affirmed, and the Peterson I Assets were
distributed to the plaintiffs. (Vogel Decl. ¶¶ 64–66.)
5 A Clearstream executive confirmed that all U.S. dollar payments would have
necessarily flowed through the New York account. See Vogel Decl. Ex. 29
(Papenfuß Declaration) ¶ 2 (“Clearstream uses its cash correspondent account at
JP Morgan as a deposit account type for . . . the deposit of U.S. dollar payments
on the security entitlements at issue in this litigation which were held by
Clearstream outside the United States.”)
certain Plaintiffs, OFAC disclosed that Clearstream had “an
Iranian governmental client” with “a beneficial ownership
interest” in assets held at Clearstream. (Vogel Decl. ¶ 48 & Ex.
44 at ¶¶ 1, 3, 5.) On June 16 and June 23, 2008, Plaintiffs served
restraining notices on Clearstream in New York, barring
Clearstream from making any transfer of property in which Markazi
held an interest. (Vogel Decl. ¶ 58.) Following Plaintiffs’
notice to Clearstream, Clearstream blocked Account 13061 in July
of 2008 “in order to ensure compliance with possible applicable
sanctions laws, because the security entitlements reflected in the
account were alleged to be held by UBAE for Bank Markazi.”
(Papenfuß Declaration at ¶¶ 12–13.)
Because the account was now blocked, Clearstream could no
longer credit incoming bond payments to Account 13061. Clearstream
therefore opened the Blocked Account in Luxembourg (Account 13675)
to collect and hold any further payments that would ordinarily
have flowed to Account 13061. (Clearstream 56.1 ¶ 63.) At
present, neither UBAE nor Markazi may access the Bond Proceeds in
the Blocked Account. Peterson 2024, 121 F.4th at 991.6
6 Between July 8, 2008 and October 15, 2012, Clearstream received 62 interest
and principal payments into the New York account at JP Morgan, totaling $1.68
billion. (Clearstream 56.1 Counter ¶ 67.) Each time Clearstream
received such a payment in New York, it credited the Blocked Account in
Luxembourg with a right to payment for the same dollar amount. Peterson 2024,
121 F.4th at 991–92. As of May 31, 2013, the Blocked Account reflected a
balance of $1,683,184,679. (Pls.’ 56.1 ¶ 71; Vogel Decl. ¶ 61 & Ex. 56.) UBAE,
in turn, recorded equivalent credits to Markazi’s account on its own books and
reported the payments to Markazi by Telex. (Pls.’ 56.1 ¶ 68; Vogel Decl. ¶ 61
& Exs. 57–58.)
On February 6, 2012, President Obama issued Executive Order
13599, which blocked all property and interests in property of
Markazi “that are in the United States, that hereafter come within
the United States, or that are or hereafter come within the
possession or control of any United States person, including any
foreign branch.” (Clearstream 56.1 ¶ 69.) After the issuance of
EO-13599, Clearstream collected an additional $104.25 million of
Bond Proceeds through the New York Account. (Pls.’ 56.1 ¶ 70;
Vogel Decl. ¶¶ 78, 87 & Exs. 66, 75.)7
On February 27, 2012, Plaintiffs obtained a writ of execution
as to the Bond Proceeds, which was levied by the U.S. Marshal at
Clearstream’s office at 55 Broad Street, New York. (Pls.’
56.1 ¶ 21.)
C. Procedural History
After obtaining their writ of execution, Plaintiffs commenced
this action on December 30, 2013. In 2015, this Court dismissed
the action, holding that the assets were located abroad and that
it lacked subject-matter jurisdiction over Markazi because the
FSIA does not permit attachment of property outside the United
7 In January 2014, the U.S. Department of Treasury assessed a $152 million fine
against Clearstream for its participation in concealing Markazi’s beneficial
ownership of the assets in the UBAE/Markazi Account in violation of U.S.
sanctions. (Vogel Decl. ¶¶ 67–68 & Exs. 61, 103.) The settlement agreement
recited OFAC’s findings that, “[a]s a result of the transfers, the record
ownership on Clearstream’s books changed, but the beneficial ownership did not,
resulting in [Markazi’s] interest being buried one layer deeper in the custodian
chain.” (Vogel Decl. ¶ 67 & Ex. 61 at ¶ 7.)
States. Peterson v. Islamic Republic of Iran, No. 13-CV-9195,
2015 WL 731221 at *10 (S.D.N.Y. Feb. 20, 2015). The Court of
Appeals affirmed in part but vacated this Court’s jurisdictional
holding, finding that the Foreign Sovereign Immunities Act
(“FSIA”) “does not by its terms provide execution immunity to a
foreign sovereign’s extraterritorial assets.” Peterson v. Islamic
Republic of Iran, 876 F.3d 63, 90–91 (2d Cir. 2017).
Before Clearstream and Markazi’s certiorari petitions could
be resolved, Congress amended 22 U.S.C. § 8772 through the National
Defense Authorization Act of 2020, broadening the statute to
authorize courts to order qualifying assets held abroad by a
foreign securities intermediary doing business in the United
States to be “brought to the State in which the court is located.”
22 U.S.C. § 8772(a)(1). On remand, the Court subsequently granted
Plaintiffs’ motion for summary judgment and denied the motions to
dismiss by Clearstream and Markazi, ordering turnover of the $1.68
billion in Bond Proceeds. Peterson v. Islamic Republic of Iran,
No. 13 Civ. 9195, 2023 WL 2601265 (S.D.N.Y. Mar. 22, 2023).
On its most recent review, the Court of Appeals (1) held that
this Court lacks jurisdiction over Markazi; (2) affirmed personal
jurisdiction over Clearstream; (3) rejected Clearstream’s equal
protection challenge; and (4) vacated summary judgment on the basis
that state law governs ownership interests over the Bond Proceeds
under Section 8772. The Court of Appeals remanded for the Rule 19
analysis and the ownership determination. Peterson 2024, 121 F.4th
at 1011.
D. The Luxembourg Proceedings
Markazi has filed a restitution action against Clearstream in
Luxembourg seeking approximately $4.9 billion. (Kry Decl. Ex. 5
¶ 11.) UBAE has filed a separate indemnification action.
(Kaminetzky Decl. Ex. B ¶¶ 31–33.) A Luxembourg district court
has prohibited Clearstream from complying with any U.S. turnover
order without first obtaining recognition in Luxembourg. (Pls.’
56.1 ¶ 9.) At the same time, multiple other groups of terrorism
judgment creditors have sought to attach the same assets in
Luxembourg, without success. (Kry Decl. Ex. 5 ¶¶ 2–6.)
II. Rule 12(b)(7) Motions
A. Legal Standard
Under Rule 12(b)(7), a party may move to dismiss an action
for failure to join a required party under Rule 19. Fed. R. Civ.
Pro. 12(b)(7). “Federal courts are extremely reluctant to grant
motions to dismiss based on nonjoinder and, in general, dismissal
will be ordered only when the defect cannot be cured and serious
prejudice or inefficiency will result.” Am. Trucking Ass'n, Inc.
v. New York State Thruway Auth., 795 F.3d 351, 357 (2d Cir. 2015).
Defendants, as the moving party, bear the burden of showing that
joinder is necessary, and the Court is permitted to consider
materials beyond the pleadings in evaluating the motion.
Kasselakis v. Tiptree, Inc., No. 1:23-CV-2756-GHW, 2024 WL
3252632, at *13 (S.D.N.Y. July 1, 2024); see also Joseph S. v.
Hogan, 561 F. Supp. 2d 280, 311 (E.D.N.Y. 2008) (collecting cases).
Rule 19, in turn, establishes a two-step framework. Under
Rule 19(a), the Court determines first whether the absent party is
“required.” Fed. R. Civ. P. 19(a). If a required party cannot be
joined, Rule 19(b) directs the court to determine “whether, in
equity and good conscience, the action should proceed among the
existing parties or should be dismissed.” Fed. R. Civ. P. 19(b).
The relevant factors include: (1) prejudice to the absent party or
existing parties; (2) whether protective provisions could lessen
that prejudice; (3) whether a judgment in the party’s absence would
be adequate; and (4) whether the plaintiff would have an adequate
remedy if the action were dismissed. (Id.)
At bottom, the Rule 19(b) inquiry “will turn upon factors
that are case specific,” reflecting the fact that Rule 19(b) is “a
rule based on equitable considerations.” Republic of the
Philippines v. Pimentel, 553 U.S. 851, 862–63 (2008).
B. Discussion
Markazi unequivocally claims an interest in the Bond Proceeds
as their sole beneficial owner—a characterization Plaintiffs,
unsurprisingly, are happy to endorse. (Pls.’ Mem. at 2.)
Markazi’s claimed interest is clearly non-frivolous. In the
interests of brevity, the Court assumes without deciding that
Markazi is a required party under Rule 19(a) and focuses its
analysis on the heart of the single issue presented for remand:
“whether Bank Markazi is an indispensable party under Federal Rule
of Civil Procedure 19 such that the litigation cannot proceed in
its absence.” Peterson 2024, 121 F.4th at 1011 (emphasis added).
In this regard, the Court finds Judge Lohier’s thoughtful
concurrence persuasive. The Court generally adopts Judge Lohier’s
framework under Rule 19(b) but makes several additional factual
findings based on the record before it.8
i. Prejudice to the Absent Party and Existing Parties
The first factor asks the Court to assess the extent to which
a judgment rendered in Markazi’s absence might prejudice Markazi
8 Clearstream also moved to dismiss under Rule 19 on the ground that UBAE is
also a required party whose absence warrants dismissal. (Clearstream Mem. at
11–22.) The mandate did not invite Clearstream, which did not raise Rule 19 on
appeal, to assert UBAE’s indispensability as a separate basis for dismissal.
Parmalat Cap. Fin. Ltd. v. Bank of Am. Corp., 671 F.3d 261, 271 (2d Cir. 2012)
(“It is not reasonable to construe the mandate as allowing alternative,
dispositive bases . . . to be raised for the first time on remand, particularly
when the cases have been pending for years and had already been the subject of
an appeal.”)
or the existing parties. As Judge Lohier correctly noted, the
“prejudice inquiry . . . pivots entirely on Bank Markazi’s
sovereign immunity.” Peterson 2024, 121 F.4th at 1012 (Lohier,
J., concurring).
Markazi urges that the prejudice inquiry—and indeed, the
entire Rule 19(b) analysis at large—is controlled by Pimentel,
which was decided prior to Section 8772’s enactment. In Pimentel,
the Supreme Court observed that “where sovereign immunity is
asserted, and the claims of the sovereign are not frivolous,
dismissal of the action must be ordered where there is a potential
for injury to the interests of the absent sovereign.” Pimentel,
553 U.S. at 867. But the Court also acknowledged that “the balance
of equities may change in due course.” Id. at 873. For several
reasons, the Court finds that Pimentel does not control and that
the balance of equities favor retention of the case.
First, Section 8772 sequesters this turnover case from the
contrary holding in Pimentel. Congress has plainly authorized
that the assets at issue “shall be subject to execution or
attachment . . . without regard to concerns relating to
international comity.” 22 U.S.C. § 8772(a)(1) (emphasis added).
And comity was the foundation on which Pimentel stands. Compare
§ 8772(a)(1), with 553 U.S. at 866 (“Giving full effect to
sovereign immunity promotes the comity interests that have
contributed to the development of the immunity doctrine.”); id. at
866 (“Comity and dignity interests take concrete form in this case
. . . [because] [t]here is a comity interest in allowing a foreign
state to use its own courts for a dispute if it has a right to do
so.”); id. at 869 (noting “the important comity concerns implicated
. . . in asserting foreign sovereign immunity” and that the courts
below “did not accord proper weight to the compelling claim of
sovereign immunity”). If the Supreme Court had disregarded comity
concerns entirely, as the political branches have now specifically
asked this Court to, it is hardly likely that Pimentel would have
produced the same holding.
Even setting comity aside, Pimentel is readily
distinguishable. Pimentel involved competing ownership claims
among private parties and a sovereign. See 553 U.S. at 858–59.
Here, no party disputes that the assets sought by Plaintiffs
ultimately belong to Iran. The dispute is merely over the formal
intermediary structure through which Iran holds the assets. And
Pimentel highlighted a sovereign’s dignitary interest in
litigating in its own courts, id. at 866, but that concern has
little application here: the “choice” Markazi faces “is between
litigating in the United States or Luxembourg, not Iran.” Peterson
2024, 121 F.4th at 1013 (Lohier, J., concurring).
Finally, the Court of Appeals has already held that turnover
can proceed “by exercising jurisdiction only over a garnishee
custodian.” Peterson 2024, 121 F.4th at 996 (citing Koehler v.
Bank of Bermuda Ltd., 12 N.Y.3d 533, 540 (2009)). If the Court
can order turnover by exercising jurisdiction against Clearstream
“only,” id., it would surely be strange to dismiss the case on the
basis that Markazi is indispensable. The garnishee framework
itself mitigates the prejudice to the absent sovereign, because
the Court need only determine whether the garnishee holds assets
that belong to the judgment debtor—a question that can be resolved
without Markazi at the table. Accordingly, this factor counsels
against dismissal.
ii. Protective Provisions
The second factor asks the Court to consider the extent to
which any prejudice could be lessened or avoided by protective
provisions in the judgment, by shaping the relief, or by other
measures.
Here, the Court finds several mitigating features. A
statutory discharge9 under CPLR § 5209 and Article 48 of
Clearstream’s General Terms and Conditions (“GTC”)10 provide
potential protection to Clearstream against the Luxembourg claims.
9 CPLR § 5209 provides, in relevant part, that a garnishee who “pays or delivers
to the judgment creditor or a sheriff or receiver, money or other personal
property in which a judgment debtor has or will have an interest, or so pays a
debt he owes the judgment debtor, is discharged from his obligation to the
judgment debtor to the extent of the payment or delivery.” NY CPLR § 5209.
10 Article 48 provides that Clearstream “shall not be liable for any action
taken . . . caused by events beyond [Clearstream’s] control,” including any
“reversal order, law, judicial process, decree, regulation, or other action of
any government, authority, court, self-regulatory organisation, government
agency, or instrumentality of government.” (Vogel. Decl. Ex. 108 at 14.)
Although the practical effect of these provisions is disputed, the
mere risk that they will prove ineffective does not compel
dismissal under Rule 19(b). Moreover, Defendants have already
used the Luxembourg courts to erect protective provisions of their
own; indeed, a Luxembourg court has prohibited Clearstream from
complying with any turnover order from this Court until the order
is first recognized in Luxembourg. The Court could, in theory,
stay its turnover order or take other measures to avoid conflicting
judgments while Plaintiffs seek recognition. In any event, all
litigants have a panoply of measures that can be deployed in both
fora to mitigate any prejudice.
iii. Whether a Judgment Rendered in the Person’s Absence
Would Be Adequate
The third factor asks whether a judgment rendered in Markazi’s
absence would be adequate. The Court acknowledges that a judgment
will not bind Markazi in its own right. But the core dispute is
between Plaintiffs and the garnishee, Clearstream, and the Court
of Appeals has endorsed proceeding through a garnishee action
directed at Clearstream without requiring jurisdiction over
Markazi. Peterson 2024, 121 F.4th at 996, 1013 (Lohier, J.,
concurring); see also Koehler, 12 N.Y.3d at 541 (“[A] New York
court with personal jurisdiction over a defendant may order him to
turn over out-of-state property regardless of whether the
defendant is a judgment debtor or a garnishee.”).
A judgment in this case will resolve the turnover claim
against Clearstream that is actually before the Court. The fact
that Markazi may separately contest in Luxembourg whether
Clearstream may comply with such an order reflects the reality of
parallel litigation in multiple jurisdictions, which is hardly
unusual in cross-border asset recovery. On balance, this factor
weighs against dismissal.
iv. Whether the Plaintiff Would Have an Adequate Remedy if
the Action Were Dismissed
The fourth factor cuts decisively against dismissal. Five
groups of terrorism judgment creditors (Havlish, Hoglan, Flatow,
Duker, and Eisenfeld) have pursued attachment of the same assets
in Luxembourg over nearly ten years, without success. (Kry Decl.
Ex. 5 ¶¶ 2–6.)11 Markazi argues these courts gave “full and fair
consideration” to those claims. (Markazi Reply at 11.) But five
failures strongly indicate that Luxembourg provides no adequate
forum for victims of terrorism seeking to execute on these assets.
And it is beyond dispute that Plaintiffs will have no adequate
remedy from Iran itself.
11 Clearstream argues that Plaintiffs have an adequate alternative forum in
Italy. Plaintiffs’ Italian law expert has observed, however, that enforcement
in Italy is not possible because the attacks occurred outside the United States.
(Vogel Decl. Ex. 139 at 7-8.) In any event, there is no indication that Italian
courts have the power to compel Clearstream—a Luxembourg entity—to turn over
assets held in Luxembourg, and the Italian proceedings cited by Clearstream
concern only the recognition of judgments, not execution against specific assets
held by third-party custodians outside of Italy.
At bottom, the balancing of equities commanded by Rule 19(b)
does not occur in a vacuum. It must account for the political
branches’ clear and expressed intent in enacting Section 8772,
which reflects a considered judgment that these particular assets
should be made available, subject to certain conditions, to satisfy
Iran’s liability for terrorism judgments—notwithstanding the risks
to international comity that cross-border enforcement could pose.
It is the political branches that are responsible for making these
cost-benefit analyses in the foreign policy arena, not this Court.
“And when the Executive and Congress have spoken with one voice in
that sphere, their coordinate action is ‘supported by the strongest
of presumptions and the widest latitude of judicial
interpretation, and the burden of persuasion would rest heavily
upon any who might attack it.’” Fuld v. Palestine Liberation Org.,
606 U.S. 1, 19 (2025) (quoting Youngstown Sheet & Tube Co. v.
Sawyer, 343 U.S. 579, 637 (1952) (Jackson, J., concurring)).
Dismissal at this stage would end Plaintiffs’ “painstaking
and decades-long efforts to enforce their judgment as Congress
appears to have wanted.” Peterson 2024, 121 F.4th at 1013 (Lohier,
J., concurring). That is not the equity that Rule 19(b) seeks.
Accordingly, the motions to dismiss are DENIED. It is
therefore unnecessary to reach Plaintiffs’ alternative theory of
jurisdiction under the TRIA.12
III. Summary Judgment
Summary judgment is appropriate where there is “no genuine
dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(a). The Court
must “resolve all ambiguities, and credit all factual inferences
that could rationally be drawn, in favor of the party opposing
summary judgment.” Green v. Town of East Haven, 952 F.3d 394, 406
(2d Cir. 2020).
On remand, the issues before the Court are narrow. The Court
previously determined, as confirmed by the Court of Appeals, that
Plaintiffs satisfy six of the eight requirements to recall the
Bond Proceeds to New York.13 Only two elements remain: whether
Markazi “holds equitable title to, or the beneficial interest in”
the Bond Proceeds, and whether “no other person possesses a
constitutionally protected interest” in the Bond Proceeds “under
the Fifth Amendment.” 22 U.S.C. § 8772(a)(2). In both cases, the
Court of Appeals instructed this Court to undertake two tasks:
12 Plaintiffs offer the Terrorism Risk Insurance Act (“TRIA”) as an alternative
basis for jurisdiction over Bank Markazi. (Pls.’ Mem. at 30–40.) It is not
necessary to reach the TRIA issue in light of the Court’s findings that Rule
19(b) does not compel dismissal.
13 Peterson 2024, 121 F.4th at 1009 n.12 (noting that “Clearstream contends that
a triable issue of fact remains on two of these [eight] elements”).
first, “apply state law to determine the extent of the parties’
interests in the Asset[s],” and second, “apply Section 8772 to
determine whether turnover is permitted in light of those
interests.” Peterson 2024, 121 F.4th at 1011.
The parties have raised a panoply of arguments that range
well beyond these issues and are therefore barred by the mandate
rule. The Court cannot and will not address each one. Instead,
the Court’s analysis is limited to the contested issues of
ownership and any remaining constitutionally protected interests
cognizable under the Fifth Amendment.
A. Markazi’s Beneficial Ownership of the Bond Proceeds
In determining whether Markazi is a beneficial owner or holds
equitable title to the Bond Proceeds nominally held by Clearstream,
the Court of Appeals directed this Court to undertake the
traditional Asia Pulp two-step analysis for determining ownership
under § 8772. At step one, the Court looks to “state law to
determine what rights [a party] has in the property.” Export-
Import Bank of U.S. v. Asia Pulp & Paper Co., 609 F.3d 111, 117
(2d Cir. 2010) (quoting United States v. Craft, 535 U.S. 274, 278
(2002)). At step two, the Court applies “federal law to determine
whether the [party’s] state-delineated rights . . . trigger
application of” the consequences set forth in Section 8772. Id
(internal citation omitted). The Court addresses each step in
turn.
i. Asia Pulp Step One: State-Delineated Rights under
Luxembourg Law
The Court of Appeals declined to take a position on the state
law that governs Asia Pulp step one. Clearstream contends that
Luxembourg law governs. Plaintiffs argue for New York law. The
Court concludes that the choice-of-law issue is ultimately moot
because, even accepting Clearstream’s position that Luxembourg law
entirely governs step one, there is no genuine dispute that
Markazi’s ownership interests are sufficient under Luxembourg law
to permit turnover under Section 8772.14
a) Applicable Luxembourg Law
Under Federal Rule of Civil Procedure 44.1, issues of foreign
law are treated as questions of law. Fed. R. Civ. Pro. 44.1. The
Court may consult any resource in determining foreign law. To
that end, the parties have submitted expert declarations opining
on the extent to which Luxembourg law recognizes third-party
ownership interests comparable to the familiar notions of
beneficial ownership and equitable title. The Court is mindful
that Luxembourg’s civil law traditions will not necessarily map on
14 The Court would reach the same result under New York law and its familiar
tests for beneficial ownership and equitable title. The Court also notes for
the record that, to the extent that a conflict between New York and Luxembourg
law were ever identified, New York law would arguably prevail under the
“interest analysis” test that the New York Court of Appeals has applied to
turnover claims. Istim Inc. v. Chem. Bank, 78 N.Y.2d 342, 347–48 (1991).
Ultimately, the Court need not engage in a conflicts analysis because, even
under the Luxembourg law that Defendants urge the Court to apply, summary
judgment remains warranted.
to the Anglo-American common-law understanding of beneficial
ownership and equitable title. Nonetheless, after carefully
considering the parties’ submissions and conducting its own review
of Luxembourg law,15 the Court concludes that Luxembourg law
recognizes sufficiently analogous forms of third-party ownership
rights.16
As a starting point, the Court agrees with Plaintiffs that
Luxembourg law recognizes that ownership rights of assets held by
a Luxembourg financial institution are not necessarily limited to
those who nominally hold an account at the institution. Luxembourg
property law recognizes a concept of démembrement, which divides
property into so-called “bare ownership” and “usufruct ownership.”
Usufruct ownership confers on a third-party the right to enjoy and
profit from property nominally owned by another. (Heisten Supp.
Decl. ¶¶ 51–52, citing Civil Code Art. 578.)17
15 Plaintiffs submitted declarations from multiple Luxembourg law experts: Alex
Schmitt, a senior partner specializing in Luxembourg securities law and a
lecturer at the University of Luxembourg (Vogel Decl. Exs. 89 (“Schmitt Decl.”),
90 (“Schmitt Supp. Decl.”)); Marie Paule Gillen of DSM Avocats (Vogel Decl. Ex.
92 (“Gillen Decl.”)); the Vilret-Avocats firm (Vogel Decl. Ex. 91 (“Vilret-
Avocats Op.”)); and Dr. Laurent Heisten (Vogel Decl. Ex. 127 (“Heisten Decl.”)).
Dr. Heisten provided an additional declaration in response to Clearstream’s
Motion. (Dkt. 390(“Heisten Supp. Decl.”).)
16 Clearstream’s Luxembourg law experts argue that Luxembourg law does not
recognize the concepts of “equitable title” or “beneficial interest” and that
those terms have no private law impact in a civil-law jurisdiction. (See, e.g.
Kaminetzsky Decl. Ex. D (Prüm Decl.) ¶ 35.) Whether Luxembourg law formally
recognizes these common-law concepts is irrelevant. “In looking to state law,
we must be careful to consider the substance of the rights state law provides,
not merely the labels the State gives these rights or the conclusions it draws
from them.” Craft, 535 U.S. at 279 (emphasis added).
17 The Court recognizes that civil-law usufruct ownership is not a perfect
analogue for common-law equitable ownership. Historically, most civil-law
jurisdictions did not recognize the traditional common-law division (cont’d)
Luxembourg’s Civil Code’s deposit provisions (Articles 1915–
1948) also provide that where property is transferred as part of
a deposit, the depository relationship does not transfer ownership
rights. Separately, the Law of August 1, 2001 on the Circulation
of Securities (the “2001 Law”) creates a specialized regime for
book-entry securities, granting the “account holder” an intangible
right in rem while preserving the depositor’s underlying rights.
Under the Luxembourg Civil Code’s deposit provisions, a
deposit “may only be duly made by the owner of the thing deposited,
or with his express or tacit consent,” and the depository is
obligated to safeguard and return the deposited property in kind.
(Heisten Decl. ¶¶ 30–34, citing Arts. 1915–1948, 1922.) As Dr.
Heisten persuasively explains, “[b]y its very nature, a deposit
agreement does not entail a transfer of ownership” and “[t]he
depositor retains title to the deposited property.” (Heisten Supp.
Decl. ¶ 34.) The 2001 Law specifically extends this principle to
securities, stating that “[t]he depositor has the same rights as
if the securities and other financial instruments had remained
(cont’d) between legal and equitable ownership necessary to hold assets in
trust. However, as Plaintiffs point out, Luxembourg has now ratified the
applicable Hague convention recognizing the existence of trusts. See Convention
of 1 July 1985 on the Law Applicable to Trusts and Recognition,
https://www.hcch.net/en/instruments/conventions/full-text/ (“The term ‘trust’
refers to the legal relationships created - inter vivos or on death - by a
person, the settlor, when assets have been placed under the control of a trustee
for the benefit of a beneficiary or for a specified purpose.”) Following these
more recent developments, there appears to be growing consensus that civil-law
jurisdictions recognize that financial intermediaries do not necessarily have
beneficial ownership over the assets they nominally hold. See Steven L.
Schwarcz, Intermediary Risk in A Global Economy, 50 DUKE L.J. 1541, 1569 (2001).
with it” and confers on the depositor “a right in rem of intangible
nature” over the deposited securities. (Vilret-Avocats Op. § 4.1,
quoting 2001 Law art. 6.)
Luxembourg courts have also held that neither deposited
securities nor the cash proceeds received on those securities
become part of the depository’s own estate in the event of
bankruptcy. Instead, these assets constitute a patrimoine
d’affectation (a “segregated asset mass”) to which only the
depositor is entitled. (Schmitt Decl. ¶¶ 15, 18, citing Trib.
arr. Luxembourg, Oct. 29, 2008, Nos. 1314/08 & 1315/08; Gillen
Decl. ¶ 29.) Although the Bond Proceeds at issue here are
technically cash proceeds arising from the original bonds, the
2001 Law “repeats the rule of segregation regarding interest
payments and repayments of principal,” insulating such cash
proceeds from the depository’s creditors. (Schmitt Decl. ¶ 13;
Gillen Decl. ¶ 29.)
Moreover, the 2001 Law applicable to securities also
contemplates that “account holders” may in turn hold assets on
behalf of third parties. Article 2 defines an “account holder” as
a person acting “for its own account or for others,” and Article
7(1) requires the account keeper to follow instructions not only
of the account holder but also of “third parties that have an
interest in the securities.” (Heisten Decl. ¶¶ 28–29 (quoting
2001 Law art. 2 & 7).) Article 3 of the 2001 Law also expressly
provides that “[s]ecurities recorded in an account may be subject
to division of ownership (démembrement) in the same way as property
rights.”) (Heisten Supp. Decl. ¶ 50 (quoting 2001 Law art. 3).)
As Dr. Heisten notes, this provision recognizes the possibility
that a third party may hold usufruct rights in the securities and
that, correspondingly, “the account holder may not hold
proprietary rights over the securities credited to a settlement
account.” (Heisten Supp. Decl. ¶ 51.)
Clearstream’s own GTCs, which are governed by Luxembourg law,
likewise confirm that Clearstream may custody assets held by
customers who in turn hold those assets on behalf of third parties.
Notably, the GTCs require Clearstream customers like UBAE to
“segregate proprietary assets from non-proprietary assets.” (Vogel
Decl. Ex. 108 at 13) (emphasis added). The GTCs also prohibit
Clearstream from exercising any right of set-off against assets
held on behalf of third parties (GTC Art. 46). And the GTCs
contain numerous references to “beneficial owners” for the
purposes of anti-money laundering compliance.
In sum, the fact that Markazi is not formally identified as
an account holder at Clearstream clearly does not foreclose Markazi
from having an ownership interest in the Bond Proceeds under
Luxembourg law.
b) Undisputed Evidence of Markazi’s Ownership Interest
Under Luxembourg Law
Applying Luxembourg law, the evidence of Markazi’s ownership
rights in the Bond Proceeds is overwhelming.18
It is undisputed that Markazi alone funded the bond purchases
that underlie the proceeds in Clearstream’s possession. It is
also undisputed that Markazi alone was entitled to every dollar of
interest and principal paid on the bonds.19 And it is undisputed
that, even after UBAE entered the picture, the assets that
Clearstream held were clearly segregated by UBAE for Markazi’s
benefit. Most notably, when UBAE opened the account to receive
Markazi’s bonds (Account 13061) at Clearstream, UBAE asked
Clearstream to designate the account as a “customer account” used
for the benefit of third parties, as opposed to a proprietary
account for UBAE’s own benefit. As Clearstream’s own executive
previously conceded, this distinction is critical:
18 The Court of Appeals has instructed that its earlier decision in Peterson I
“addressed a different set of assets located in an account at a different bank
in a different country than the assets at issue in this case” and that its
“discussion of ownership therefore has no relevance to the ownership of the
assets at issue here.” Peterson 2024, 121 F.4th at 1010 n.14. The Court’s
determination is made independently on the evidentiary record before it in this
case.
19 The Court agrees with Dr. Heisten’s conclusion that, as a matter of Luxembourg
law, Markazi controlled the disposition of the bonds and was entitled to all
principal and interest prior to the asset freeze. The Court also agrees with
Dr. Heisten that if the Bond Proceeds were unblocked by Clearstream, Markazi
would ultimately be entitled to the proceeds of the Blocked Account. (Heisten
Decl. ¶¶ 11, 15, 18, 19, 21.)
A proprietary account by definition should include
holdings which are beneficially owned by the customer
itself . . . a custody account or what we would call a
customer account, 13061 [which] was opened in January
[by UBAE] is different in the sense that it is designed
to hold interest of third parties, that is to say, of
the customers of our customer who are using our bank
- . . as their custodian.
(Gem Test. 32:24-33:13) (emphasis added). This testimony is
corroborated by contemporaneous records showing that UBAE
requested in January of 2008 that Clearstream immediately open an
“additional account” for “UBAE SPA-CUSTOMERS,” belying any notion
that UBAE held the bonds for its own benefit. (Vogel Decl. Ex.
51):
ican 429: DIR FIN P rome ong, Que toot
RELATED REFERENCE 21 : APERT NEW ACCT URAE ARAB (TRAY banc sPA
KINDLY OPEN AN ADDITIONAL ACCOUNT WITH YOU IN OUR
NAME I.E. "'UBAE SPA-CUSTOMERS'' WITH THE SAME
Following UBAE’s request, Clearstream responded that it had
opened Account 13061 with the name “UBAE SPA-CUSTOMERS,” which
would be subject to Clearstream’s own GTCs. (Id. ) The current
GTCs, in turn, likewise differentiate between “proprietary” and
“non-proprietary” assets, requiring that such assets be segregated
accordingly. (Vogel Decl. Ex. 108 at 13 (“The Customer must
segregate proprietary assets from non-proprietary assets and
notify CBL if Securities [or] cash . . . are deposited in an
account in CBL in which the Customer holds on behalf of its clients
. . . . ") . )
30
After UBAE opened this segregated customer account at
Clearstream, Markazi transferred all of the assets at issue to the
segregated account in a gratuitous free-of-payment transfer, which
Clearstream’s own executive admitted “may mean . . . that the
delivery has been made without the change of beneficial ownership
of the customer.” (Gem Test. 15:13-15.)20 From that point on,
UBAE held the segregated assets for Markazi, whether as a
depository, fiduciary, or other trust-like device recognized by
Luxembourg law. The Bond Proceeds thus “represent a segregated
asset mass” that belong to Markazi, not UBAE, under Luxembourg
law. (Schmitt Decl. ¶ 8.)
Indeed, the contemporaneous correspondence between
Clearstream and UBAE exposes the facade of Clearstream’s current
litigation position. In an October 26, 2009 letter, UBAE responded
to Clearstream’s decision to block the Markazi assets due to OFAC’s
investigation. UBAE observed that, despite Clearstream’s
professed surprise at discovering the true owner of the funds,
Clearstream “has always known the identity of the beneficial owner
[Markazi] of the assets.” (Vogel Decl. Ex. 52 at 2) (emphasis
added). In its response, Clearstream acknowledged “that the
current beneficial owner [of the new UBAE account] is the same as
20 At the time of Gem’s June 27, 2008 testimony, Clearstream’s position was that
it was not entirely clear whether the beneficial ownership had changed. (Vogel
Decl. Ex. 52 at 2 (“Clearstream [sic] position is that that we have no written
evidence that there is an Iranian beneficial ownership on the above mentioned
assets in relation to your account 13061.”).
the holder of [old] account [number] 80726 [Markazi].” (Vogel
Decl. Ex. 51 at 2):
Third, a5 to the beneficial owner of the securities held in your customer
account with us and which you state are subject to OFAC “serutiny,” we only
learned through your letter of October 26, 2009 that the current beneficial
owner is the same as the holder of account n* 80726 in our books. Indeed, we
asked you for this information as early as our e-mail communication of June
16, 2008, to which you never responded, Clearstream is not required under the
Luxembourg laws implementing the EU Directives on the combat against
money laundering and terrorism financing to know the beneficial ownership of
non-proprietary account assets deposited by a credit institution authorised in
a EU Member State with Clearsiream.
At no point in these contemporaneous communications with UBAE
did Clearstream ever challenge the notion that the assets in
question ultimately belonged to Markazi. Instead, Clearstream
continued to treat UBAE as a mere intermediary for its now-
sanctioned former client. OFAC reached the same conclusion when
it assessed a $152 million fine against Clearstream for concealing
Markazi’s beneficial ownership, finding that “the record of
ownership on Clearstream’s books changed, but the beneficial
ownership did not, resulting in [Markazi’s] interest being buried
one layer deeper in the custodian chain.” (Vogel Decl.
Ex. 61 Q 8.)
Finally, although UBAE’s own admissions are not, per the Court
of Appeals’ instruction, dispositive in and of themselves, it is
not lost on the Court that UBAE has itself repeatedly admitted
that the Bond Proceeds are “beneficially owned by Bank Markazi”
and that UBAE “does not have possession, custody, or control of—
32
or any right, title, or interest in” the assets. (Vogel Decl.
Exs. 105 at 3, 106 ¶ 4.) And Markazi, too, has repeatedly stated
that it is the sole beneficial owner of the Bond Proceeds. Indeed,
Markazi itself has sued in Luxembourg to claim an interest in these
very assets, obtaining an injunction prohibiting Clearstream from
transferring them without prior recognition proceedings.
(Clearstream 56.1 ¶ 9.) In that same litigation, the Luxembourg
district court opined that Markazi’s ultimate ownership of the
assets under Luxembourg law is “neither contested nor
contestable.” (Heisten Supp. Decl. ¶ 83 (quoting BQUE.1 v. BQUE.2,
et al., TAL-2020-02660, TAL-2020-04402, Judgement, 27-34 (Lux.
Dist. Ct, 2d Chamber, Apr. 30, 2021) (emphasis added).) In a
separate ruling, another Luxembourg district court observed that
“[i]t is not disputed that the funds seized from Clearstream on
account no. UBAE 13061 belong to the seized debtor Bank Markazi
and not to Banca UBAE.” (Heisten Supp. Decl. ¶ 96 (quoting Persons
1-201 v. Central Bank, et al., TAL-2022-02223, Judgement (Lux.
Dist. Ct. 1st Chamber, June 18, 2024) (emphasis added).)
The Court agrees with its continental counterparts.
Notwithstanding Clearstream’s self-serving denial of Markazi’s
ownership, there is no genuine dispute of fact that Markazi is the
true owner of the assets held by Clearstream.21 Plaintiffs’ experts
21 Luxembourg law also offers an independent basis for looking past the Markazi-
UBAE sham intermediary structure. According to Plaintiffs’ experts, (cont’d)
are therefore correct that the “creation of a screen between Bank
Markazi’s creditors and Bank Markazi . . . cannot tarnish the right
of such creditors to claim their property” under Luxembourg law.
(Gillen Decl. ¶ 18.) Under Luxembourg law, Markazi holds
substantive ownership rights over the Bond Proceeds.
ii. Asia Pulp Step Two: Application of Federal Law to the
Parties’ State-Delineated Rights
Having identified Markazi’s ownership rights under state law,
the Court turns to the second step of the Asia Pulp analysis:
whether Markazi’s state-delineated rights constitute “equitable
title” or a “beneficial interest” within the meaning of § 8772.
The common-law concepts of equitable title and beneficial
ownership are well-understood. A “beneficial owner” is “[o]ne
recognized in equity as the owner of something because use and
title belong to that person, even though legal title may belong to
someone else,” including “one for whom property is held in trust.”
Owner, BLACK’S LAW DICTIONARY (12th ed. 2024). Equitable title,
(cont’d) Luxembourg courts have held that a beneficial owner “could perfectly
well be considered a seized debtor”—i.e., treated as one with the formal account
holder—in cases of “simulation, confusion, and generally a faulty attitude
engaging his responsibility towards the prosecutor.” (Gillen Decl. ¶ 18 (citing
L. v. B.N.P., 02 December 1999, Bull. Droit et Banque, No. 30, p. 65.)); see
also Strongin v. Int'l Acceptance Bank, 70 F.2d 248, 251 (2d Cir. 1934) (“[T]here
is a doctrine of the civil law known as ‘relative simulation,’ which . . . gives
rise to a situation analogous in practical effect to that of
beneficial ownership in persons who are not vested with the legal title.”) The
simulation doctrine is arguably applicable here, where Markazi engineered the
UBAE structure for the express purpose of evading OFAC sanctions. (Massoumi
Aff. ¶¶ 22–26); (Vogel Decl. ¶ 67 & Ex. 61 at ¶¶ 7–8.) Although the Court does
not base its holding on the simulation doctrine, it would independently support
disregarding the formal Clearstream-UBAE intermediary structure and treating
Markazi as the owner of the assets.
likewise, includes “[a] title that indicates a beneficial interest
in property and that gives the holder the right to acquire formal
legal title.” Title, BLACK’S LAW DICTIONARY (12th ed. 2024).
Markazi’s ownership rights under Luxembourg law satisfy such
criteria. Notwithstanding UBAE’s role as a middleman, Markazi
holds every substantive economic right under Luxembourg law.
Markazi funded every purchase, directed every transaction,
received every payment, and retains the right to demand restitution
of the assets. Clearstream holds Markazi’s assets in trust in a
segregated customer account that was only nominally held in the
name of UBAE. Indeed, Section 8772 specifically provides that a
“custodial interest of a foreign securities intermediary or a
related intermediary that holds the assets abroad for the benefit
of Iran” does not qualify as an equitable or beneficial interest
under the statute. 22 U.S.C. § 8772(a)(2)(A).
Accordingly, the Court concludes there is no genuine dispute
of material fact that Markazi’s state-delineated rights over the
assets at issue, as identified at step one, constitute both
“equitable title” and a “beneficial interest” in the Bond Proceeds
within the meaning of § 8772(a)(2) and render the assets subject
to execution.
B. Whether Any Other Person Possesses a Constitutionally
Protected Interest In The Bond Proceeds
Section 8772(a)(2) also requires the Court to determine that
“no other person possesses a constitutionally protected interest
in the assets . . . under the Fifth Amendment.” 22 U.S.C.
§ 8772(a)(2). Clearstream advances various arguments as to why
turnover is constitutionally barred. While many of Clearstream’s
arguments are arguably barred by the mandate rule, they are also
without merit.
First, Clearstream contends that UBAE is the “owner” of the
right to payment under Luxembourg law and therefore possesses a
property interest protected by the Takings Clause. (Clearstream
Mem. at 36–37.) This argument is foreclosed by the Court’s
previous findings. UBAE has no economic stake in the Bond
Proceeds. Prior to the funds’ restriction in the Blocked Account,
UBAE’s role was limited to holding the assets in a segregated
customer account for Markazi’s benefit. UBAE’s custodial interest
does not give rise to a violation of the Takings Clause.
Second, Clearstream claims that turnover would expose it to
competing claims in Luxembourg and potential double liability. As
an initial matter, Clearstream’s own public disclosures belie this
contention. Clearstream’s parent company, Deutsche Börse AG, has
told its shareholders and regulators that its “executive board
does not think that claims for damages raised against Clearstream
Banking S.A. in Luxembourg or in the U.S. will be successful.”
(Vogel Decl. Ex. 115 at 22.) Moreover, to the extent Clearstream
faces any residual risk from the Luxembourg proceedings, the
statutory discharge mechanisms available under CPLR § 5209 and GTC
Article 48 provide potential avenues of protection. In any event,
the Court of Appeals has already held that by “regularly engag[ing]
in bond transactions in the United States,” Clearstream assumed
the risk of double liability “under well-established principles of
New York law.” Peterson 2024, 121 F.4th at 1006–07. The mere
specter of double-liability, even if accepted, does not give rise
to a constitutional violation.
Finally, Clearstream’s substantive due process argument is
unavailing. Where, as here, an explicit constitutional provision
governs a claimed interest, it displaces more generalized
substantive due process protections. Graham v. Connor, 490 U.S.
386, 395 (1989). Because any constitutionally protected interest
in the Bond Proceeds under the Fifth Amendment would arise, if at
all, under the Takings Clause, Clearstream cannot repackage the
same argument as a substantive due process claim. And in any
event, Section 8772 easily survives rational-basis review, as
Congress had a rational basis for subjecting the assets of a state
sponsor of terrorism to attachment and execution. See Cmty. Hous.
Improvement Program v. City of New York, 59 F.4th 540, 556–57 (2d
Cir. 2023).
Ultimately, Clearstream’s various constitutional arguments
would arguably make it impossible for judgment creditors to seize
judgment debtors’ assets that are held in trust by a third party.
Such arguments, if accepted, would pervert the Fifth Amendment
into a tool for money laundering and judgment evasion.22 That is
not the result that the Framers intended, and it is not one the
Court will accept here.
Accordingly, the Court finds that no other person possesses
a constitutionally protected interest in the Bond Proceeds under
the Fifth Amendment, rendering them subject to execution under
§ 8772(a)(2).
Conclusion
For the foregoing reasons, the Court ORDERS as follows:
• Plaintiffs’ motion for summary judgment (Dkt. 365) is
GRANTED.
• Markazi’s motion to dismiss (Dkt. 377) is DENIED.
• Clearstream’s motion to dismiss is DENIED and its cross-
motion for summary judgment (Dkt. 383) is DENIED.
• The Clerk of Court shall close Dkts. 365, 377, and 383.
22 This is not to suggest that Clearstream or its counsel have any such ulterior
motives in opposing turnover. The Court recognizes that any financial
institution has the right (and in some cases, a duty) to oppose turnover of
third-party assets in its possession where non-frivolous arguments can be made.
e The parties shall confer and provide a joint status update by
letter to the Court no later than April 15, 2026 regarding
any subsequent proceedings or steps necessary to effectuate
the turnover order.
SO ORDERED.
Dated: New York, New York
March 31, 2026 ZA ZY
LORETTA A. PRESKA ————
Senior United States District Judge
39