$2 Billion Iran Victory Took An Act Of Congress -- Several Of Them

Daniel Fisher

Thomas Fay knows what it means to require an act of Congress to get what he wants. It took at least four acts of Congress for this Washington lawyer to get his hands on a share of almost $2 billion held in a Citibank account in New York once controlled by Iran’s central bank.

With its decision Wednesday upholding the constitutionality of a special law awarding the money to more than 1,000 victims and family members of Iran-sponsored terrorist attacks, the U.S. Supreme Court removed the last obstacle standing in front of Fay’s clients.
The case actually involves 16 lawsuits and a number of law firms but it was Fay who pioneered the idea of using U.S. civil litigation to hit foreign terrorists where American lawyers always aim: in the pocketbook. It took more than a decade of hard-fought litigation – often over the objections of the White House and the U.S. State Dept. – and heavy lobbying in Congress to obtain special legislation to overcome institutional hostility toward subjecting sovereign foreign countries to the jurisdiction of U.S. courts.

The 1983 Marine barracks bombing in Beirut: Grist for a billion-dollar lawsuit. (AP Photo/Jim Bourdier, File)

“We went after them and the U.S. government was on the other side every step of the way,” said Fay, 76, a partner with Fay Kaplan Law along with his daughter Caragh Glenn Fay.
Congress is debating the topic again as it mulls a bipartisan bill allowing U.S. victims to sue Saudi Arabia over its alleged complicity in the 9/11 attacks. Most lawsuits against foreign nations are blocked by the Foreign Sovereign Immunities Act, a 1976 statute that protects them from civil liability over anything but purely commercial activities or standard torts (like a foreign official running over an American with his car in New York City). Congress has carved out several exceptions, however, including nations determined to be state sponsors of terrorism.

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Fay knows all about the process of getting exceptions, since he prodded Congress to pass the laws that facilitated his case against Iran and says he helped write at least one of them. The first was a 1996 amendment to the FSIA allowing U.S. victims to sue foreign state sponsors of terrorism. A Washington court soon cabined that law, ruling it didn’t actually create a federal cause of action for individuals to sue, so the lawyers pressed their claims under state law instead.


Then Congress passed the Terrorism Risk Insurance Act of 2002 allowing plaintiffs to attach assets of terrorist states that had been blocked by the government. But Iran fought that in court, winning procedural rulings such as one declaring assets held in an intermediary bank to be the property of neither the sending party nor the receiver.
So in 2008, at the prodding of Fay and other lawyers representing terrorism victims, Congress created a federal cause of action against terrorist states and provided a mechanism for exercising judgments, which were by then piling up by the billions. It also expanded the list of plaintiffs to include military personnel and foreign nationals working for the U.S. military, to cover victims of the 1996 Khobar Toweras bombing in Saudi Arabia and twin al Qaeda embassy bombings in Africa in 1998.
Iran still fought, so in 2012 Congress passed 22 U.S. C. §8772, a law allowing plaintiffs in one consolidated case, identified by number, to tap the Citibank account to satisfy judgments they’d won by default against Iran.
The Supreme Court’s decision upholding that last law came over the vociferous objections of Chief Justice John Roberts, who saw it as impermissible Congressional meddling in the judicial process. But Roberts’ dissent, which was joined by Justice Sonia Sotomayor, mystifies Fay, who notes that Congress has always had the power to determine the jurisdiction of federal courts (except for the Supreme Court). All §8772 did was eliminate procedural roadblocks peculiar to a case involving a foreign sovereign that prevented his clients from collecting on a final judgment.
Assuming the money flows as expected, some 1,500 plaintiffs will get an average of $900,000 or so and lawyers like Fay should get very, very rich on fees. Fay said the details of the arrangements with the plaintiffs are confidential, but the typical contingency fee in a civil case is 30% or more. That would mean $600 million or more in fees flowing to the four-member Kaplan Fay firm and others including Stone Bonner & Rocco and Salon Marrow Dyckman in New York. The plaintiffs were represented at the Supreme Court by Ted Olson of Gibson Dunn & Crutcher.
“Remember, we’ve been litigating this case for 15 years,” said Fay, a Delaware native and Rutgers Law School grad who ditched a boring government job early in his career to become a $15-an-hour criminal defense attorney. “Even if everybody was getting minimum wage, it’s into seven figures.”


Fay got involved in the mid-1990s after attorney Stephen Perles represented the family of Alisa Flatow, an American killed in a 1995 bus bombing in Israel that was financed by Iran. He hired Fay to litigate and push legislation in Congress, resulting in the so-called Flatow Amendment, allowing for punitive damages against state sponsors of terror. The Flatows won $247 million against Iran in 1998, but there was no method for collecting.
Fay then took on the case of soldiers and family members of the victims of the 1983 bombing of a Marine barracks in Beirut, which killed 241 U.S. soldiers. The case grew to more than 1,000 claimants thanks to U.S. tort law, which allows close family members to sue over the psychological effects of a terrorist attack on a loved one.
Along the way Fay and his colleagues got an education in transnational litigation. There’s a detailed procedure under the FSIA for serving notice on a foreign government, and it’s nothing like sending the sheriff out to knock on somebody’s door. Fay had to file a motion with the Secretary of State, who then put the service papers in a diplomatic pouch to Switzerland, which has diplomatic relations with Iran.
“You’d die laughing” at the note the Swiss sent to their counterparts in Iran, Fay said, which was full of formal greeting and salutations before notifying them they’d been sued in a U.S. court. The entire process, he said, might take four months. And then Iran would refuse to show up.
U.S. District Judge Royce Lamberth found Iran liable in 2003 and ordered a $2.7 billion default judgment in September 2007. The money was waiting for them at Citibank, $1.7 billion in bonds nominally belonging to a Luxembourg shell company that the Treasury had blocked as property of the central bank of Iran. (Any transaction clearing in U.S. dollars has to travel through a bank in the U.S. eventually, giving authorities a shot at intercepting Iranian funds.)
Actually getting the money took several more years  of litigation plus the 2012 law, which Iran challenged all the way to the Supreme Court. It lost this week.

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The Iran decision may help efforts to pass a law allowing U.S. victims of the 9/11 attacks to sue Saudi Arabia, said Jimmy Gurulé, a professor at Notre Dame Law School who was undersecretary for enforcement at the Treasury Dept. when the 9/11 attacks occurred and later implemented Treasury’s global strategy to intercept terrorist financing.


‘The surviving family members of the 9/11 attack are going to say `Hey look what happened there. Why can’t we sue,’” said Gurulé, who once worked on Fay’s cases and submitted an amicus brief in the Bank Markazy litigation.
He doesn’t think that’s a bad idea, either.
“If a foreign state is vulnerable to being sued, is that going to have a deterrent effect?” he asked. “Is that going to cause these states to engage in greater due diligence?”
Fay acknowledges ISIS might be one side effect of lawsuits like his. The nominally independent terrorist group could serve a shield to hide the involvement of financiers in Saudi Arabia and elsewhere. But on balance he’s convinced American tort law can help reduce terrorism overseas.
For now, he’s happy to be on the “downhill slide” toward collecting against Iran.
“When we filed it I don’t know how many lawyers came up to me in Washington and said `you’ll never get a dime out of it,’” Fay said, laughing.