Bank Markazi v. Peterson: Implications for Separation of Power

Wednesday’s Supreme Court ruling in Bank Markazi v. Peterson concerns a mammoth sum of cash, and it has significant foreign policy implications. The obvious implications are the immediate ones—most immediately, Iranian displeasure. But there are also deeper legal implications for the division of power, particularly in foreign affairs, between the President and Congress. In the post below, I summarize the Court’s holding and draw out those implications.

The origins of the case date back to 1983, when suicide bombers dispatched by Hezbollah tore through a barracks in Beirut, killing hundreds of American service members. In 2001, the family member of many of these soldiers filed suit against the Iranian government in federal court under the “terrorism exception” to foreign sovereign immunity. (Hezbollah is widely recognized as an Iranian terror proxy.) When Iran failed to respond, the plaintiffs won a massive default judgment for $2,656,944,877.

US-based Iranian assets, however, have been hard to come by since the Iranian Revolution. It was not until 2008 that the plaintiffs discovered a significant body of assets that could be traced back to the Iranian government. The connection, however, was tenuous. The assets weren’t actually Iranian assets themselves; instead, they consisted of $1.75 billion in cash proceeds held by Citibank on behalf of an Italian bank which also held funds on behalf Iran’s Central Bank (Bank Markazi). These funds had been frozen by the U.S. government as part of a sanctions regime that sought to cut Iran off from the international banking system entirely. In 2010, the Beirut bombing plaintiffs went to the Southern District of New York for post-judgment collection under section 201(a) of the Terrorism Risk Insurance Act (TRIA), which allows collection from “the blocked assets of” a terrorist party. But it was not entirely clear whether assets of this sort were covered by TRIA.

As the litigation proceeded, Congress intervened. A provision of the Iran Threat Reduction and Syria Human Rights Act of 2012 clarified, unambiguously, that these assets were subject to seizure. Under the provision, 22 U. S. C. §8772 , assets

held in the United States for a foreign securities intermediary doing business in the United States… equal in value to a financial asset of Iran, including an asset of the central bank or monetary authority of the Government of Iran or any agency or instrumentality of that Government, that such foreign securities intermediary or a related intermediary holds abroad shall be subject to execution or attachment in aid of execution in order to satisfy any judgment to the extent of any compensatory damages awarded against Iran.

In case this wasn’t clear enough, the provision explicitly directed itself toward the Peterson litigation: “The financial assets described in this section are the financial assets that are identified in and the subject of proceedings in the United States District Court for the Southern District of New York in Peterson et al. v. Islamic Republic of Iran et al.” Based both on TRIA and §8772, the District Court granted summary judgment to the plaintiffs. In 2014, the 2nd Circuit affirmed, and Bank Markazi appealed to the Supreme Court.

Bank Markazi’s appeal is based on separation of powers. In particular, the sense that there is something fishy about Congress using legislation to determine the outcome of a single piece of ongoing litigation. If Congress can do that, argued Bank Markazi, then separation of powers ceases to meaningfully constrain—Congress can encroach at will onto the judicial domain.

Doctrinally, Bank Markazi’s argument was based on a 19th Century precedent, United States v. Klein. In Klein, the Court struck down federal legislation directing the courts to ignore a presidential pardon when assessing whether an individual had “given any aid or comfort to the present rebellion.” The legislation was passed while the plaintiff, Klein, was in the midst of litigation trying to recover property confiscated during the war—and the Court didn’t like Congress instructing it on how the President’s pardon power would interact with laws guaranteeing the return of property to those who had remained loyal to the Union.

But the implication of Klein was somewhat unclear. Did the language forbidding Congress from “prescrib[ing] rules of decision” to the judiciary “in cases pending before it” sweep broadly? If so, §8772 was in deep trouble. Alternatively, was its logic limited to constitutional context of the pardon power—simply insisting that the meaning and effect of a presidential pardon is a matter for judicial interpretation, not subject to legislative workarounds?

On Wednesday, the Court led by Justice Ginsburg came down decisively in favor of the second interpretation. On the Court’s account, the problem with the legislation in Klein was not that Congress sought to affect the outcome of a particular case. Rather, it was that the case it sought to affect was constitutional question. Congress understood that it could not declare its laws exempt from the effect of a presidential pardon. So instead it sought to instruct the Court on how it ought to interpret, and give effect to, that same power. The first would have been an encroachment on the Executive branch. It is Judiciary’s role to prevent precisely that, and so legislative attempts to prevent the courts from playing this constitutional role were themselves an encroachment onto the Judicial power. As Justice Ginsburg wrote:

The Legislature, the Court stated, “cannot change the effect of . . . a pardon any more than the executive can change a law.” Id., at 148. Lacking authority to impair the pardon power of the Executive, Congress could not “direc[t] [a] court to be instrumental to that end.” Ibid. In other words, the statute in Klein infringed the judicial power, not because it left too little for courts to do, but because it attempted to direct the result without altering the legal standards governing the effect of a pardon—standards Congress was powerless to prescribe.

But in Bank Markazi, the underlying “legal standards” are statutory, i.e. something Congress does have the power to prescribe. The holding in Klein is thus radically different than the situation in Bank Markazi. In Bank Markazi, the underlying question is whether a federal law (TRIA) allows for collection from these sorts of assets. §8772 isn’t an attempt to usurp judicial and executive functions by dictating how the Court gives effect to the President’s constitutional power. It simply dictates to the Court how it ought to interpret a law that Congress itself passed.

That the directive effectively leaves room for a single outcome in pending legislation is not itself a problem—as long as the law does not dictate constitutional interpretation or finding of fact. “A statute does not impinge on judicial power when it directs courts to apply a new legal standard to undisputed facts.”

It is on this point that the Chief Justice and Justice Sotomayor dissented. As they see it, the central holding in Klein was the broader one, seeking to prevent Congress from intervening and directing outcomes in any ongoing case. On the dissenters’ account, the central and historical purpose of the separation of powers is to preserve individual liberty. By allowing the legislature to dictate results in specific cases through retroactive changes in legal standard, citizens’ liberty is imperiled.

On the most basic level, the debate between the justices simply concerns the interpretation of a certain central precedent. But the logic underlying those divergent interpretations is of particular interest to Lawfare readers. On the dissenters’ account, the central separation of powers interest in Klein was judicial authority. It is the Judiciary’s role to decide cases, and Klein stands for the principle that Congress cannot usurp that power. Any such usurpation threatens liberty.

In contrast, the majority’s interpretation of Klein places at the fore concern over encroachment onto the executive domain. The underlying issue was Congress’ attempt to usurp presidential authority. It only violated the Judicial role in a derivative sort of way—by seeking to compel certain constitutional results (regarding the presidential pardon power) through statutory restraints on courts. In this sense, the majority’s decision follows directly from its earlier decision in Zivotofsky v. Kerry. In both, the Court again imagines its role as protecting the executive from legislative encroachments. In Zivotofsky, the Court forbade Congress from seizing the President’s power over foreign policy. In Bank Markazi, the Court definitively interprets Klein as forbidding Congress from curbing his power to pardon. Both cases thus play in category three of the canonical Youngstown concurrence. A president may be at his weakest when he acts contrary to legislation. But the Court is prepared to recognize areas where the President at his weakest is still powerful enough.

And there is a second way in which this case is of particular interest to Lawfare readers. The Court closes its opinion by emphasizing the particular supremacy of the “political branches” in foreign policy. On its face, this is somewhat strange. The Court’s logic, based in its reading of the Klein precedent, proceeds independent of the foreign policy subject matter. Logically, the same result should hold even if it were a private actor’s property that was at issue. (Indeed, Justice Thomas does not join the portion of the majority opinion that discusses the foreign affairs angle—without any effect on the bottom line).

The Court’s digression into a discussion of foreign policy suggests that this decision is not simply a product of doctrine and logic. The majority might have been more sympathetic to the dissenters’ invocation of separation of powers as safeguard of liberty had the liberty of an individual actually been at risk. But here, the appellant was an organ of a foreign government, and the political branches have always exercised significant power over “the disposition of foreign-state property in the United States.” So perhaps the majority opinion concedes that individual liberty interests really do underlie the separation of powers between the judiciary and the legislature. But it simply insists that these interests are not really implicated here.

The only separation of powers that matters, then, is that between the Executive and the Legislative. And here they speak with one voice. In the Court’s repeated invocation of “the political branches” and “Congress and the President,” one senses that the unanimity of the other branches was of particular importance. It was, perhaps, decisive that the Solicitor General weighed in on the side of the plaintiffs. Bank Markazi thus stands as an affirmation of Congressional power in foreign policy. But the affirmation comes with a warning: without the President standing alongside Congress, the Court may not be so deferential.