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National Foreign Trade Council, Inc. v. Giannoulias

February 23, 2007

NATIONAL FOREIGN TRADE COUNCIL, INC., ET AL. PLAINTIFFS,
v.
ALEXI GIANNOULIAS*FN1 , ET AL. DEFENDANTS.



The opinion of the court was delivered by: Matthew F. Kennelly, District Judge

MEMORANDUM OPINION AND ORDER

It is well documented that for several years, the government of Sudan and the Jinjaweid militia it supports have been committing horrible atrocities against African civilians living in that country's Darfur region. This case arises out of an attempt by the State of Illinois to put pressure on the government of Sudan to end the human rights violations in Darfur. In 2005, Illinois adopted the Illinois Act to End Atrocities and Terrorism in the Sudan, 15 ILCS 520/22.5, 15 ILCS 520/22.6, and 40 ILCS 5/1-110.5 (Illinois Sudan Act), which imposes various restrictions on the deposit of state funds in financial institutions whose customers have certain types of connections with Sudan and on the investment of public pension funds in Sudan-connected entities.

The National Foreign Trade Council (NFTC), eight Illinois municipal pension funds, and eight beneficiaries of public pension funds have brought this action pursuant to 42 U.S.C. § 1983 against the Treasurer and Attorney General of Illinois, as well as the Secretary of the Illinois Department of Financial and Professional Regulation, seeking to enjoin enforcement of the Illinois Sudan Act. The Illinois legislature acted with laudable motives, but the Act violates federal constitutional provisions that preclude the states from taking actions that interfere with the federal government's authority over foreign affairs and commerce with foreign countries. For the following reasons, the Court permanently enjoins the defendants from enforcing the Act.

Background

1. The Illinois Sudan Act

On June 25, 2005, Governor Rod Blageovich signed the Illinois Sudan Act. The Act amends the Deposit of State Moneys Act (15 ILCS 220/22.5-22.6) and the Illinois Pension Code (40 ILCS 5/1-110.5) to prohibit certain investments in the government of Sudan and companies doing business in or with Sudan. The Act seeks to accomplish this goal in two key ways. The Act amends the Deposit of State Moneys Act to prohibit the Illinois Treasurer from depositing state funds into any financial institution that has not certified that it "has implemented policies and practices that require loan applicants to certify that they are not 'forbidden entities,'" as defined by the statute. 15 ILCS 520/22.6(a). A forbidden entity includes the Sudan government, its subdivisions and instrumentalities, any company established under the laws of Sudan or who has its principal place of business there, any company that has been cited by the federal government for violating restrictions concerning Sudan, and, most importantly for this case, [a]ny company who has failed to certify under oath that it does not own or control any property or asset located in, have employees or facilities located in, provide goods or services to, obtain goods or services from, have distribution agreements with, issue credits or loans to, purchase bonds or commercial paper issued by, or invest in (i) the Republic of Sudan; or (ii) any company domiciled in the Republic of the Sudan.

15 ILCS 520/22.6(b)(1-5). Companies and agencies engaged in humanitarian efforts are not considered forbidden entities. Id.; 40 ILCS 5/1-110.5(b).

Before the Act took effect, the state deposited its money in approximately eighty financial institutions. Under the Act, any bank that wants to continue to receive state deposits must establish procedures requiring each of its loan applicants to certify that it is not a forbidden entity as defined in the statute. Since the Act took effect on January 27, 2006, the state has withdrawn $275 million from banks that have been unable or unwilling to comply with the Act.

The Act also amends the Illinois Pension Code to prohibit the fiduciary of any pension fund established under the Code from investing in any entity unless the company managing the fund's assets certifies that:

(1) the fund managing company has not loaned to, invested in, or otherwise transferred any of the retirement system or pension fund's assets to a forbidden entity any time after the effective date of this Act [January 27, 2006];

(2) at least 60% of the retirement system or pension fund's assets are not invested in forbidden entities at any time more than twelve months after the effective date of this Act [January 27, 2007]; [and]

(3) at least 100% of the retirement system or pension fund's assets are not invested in forbidden entities at any time more than eighteen months after the effective date of this act [July 27, 2007].

40 ILCS 5/1-110.5(b). The Pension Code definition of "forbidden entity" includes the definition from the amendment to the Deposit of State Moneys Act, as well as the following:

(5) Any publicly traded company who has been identified by an independent researching firm that specializes in global security risk as being a company that owns or controls property or assets located in, has employees or facilities located in, provides goods or services to, obtain goods or services from, has distribution agreements with, issue credits or loans to, purchase bonds or commercial paper issued by, or invest in (i) the Republic of the Sudan; or (ii) any company domiciled in the Republic of the Sudan; and

(6) Any non-publicly traded company that fails to submit to the fund managing company an affidavit sworn under oath in which an expressly authorized officer of the company avers that the company (i) does not own or control any property or asset located in the Republic of the Sudan; and (ii) did not transact business in the Republic of the Sudan.

Id. Pension funds established under the Code include municipal pension funds, such as the plaintiff funds, as well as funds whose beneficiaries are state and county employees. These include, for example, the General Assembly Retirement System, State Employees' Retirement System of Illinois, and the County Employees' and Officers' Annuity and Benefit Fund. 40 ILCS 5/2-101 et seq., 5/9-101 et seq., 5/14-101 et seq.

The purpose of the Act is clear from its title and its text: it is intended to help stop the atrocities in Sudan. To the extent the purpose of the bill is unclear, the legislative history and comments by the governor also show that the bill is designed to influence events in Sudan. One supporter of the bill stated, "I pray that one day we do not have to watch a film with our children and grandchildren that depicts the horrors of Darfur and once again be asked why the world failed to act. I ask each of you to vote for this important piece of legislation and let our voices be heard." 94th General Assembly, House of Representatives, May 17, 2005 at 53 (statement of Rep. Franks). Another said that the bill used the legislature's "power of the purse strings . . . to influence . . . erratic or violent or even catastrophic types of activities in other parts of the world." Id. at 56 (statement of Rep. Boland). When he signed the bill, Governor Blagojevich said, "This bill sends a clear message to the Sudanese government -- the people of Illinois will not condone human rights abuses and genocide, we will take our money elsewhere. I urge all other states with similar legislation pending to move quickly, to show Sudan that we take human rights abuses seriously." Press Release, Office of the Governor, Governor ends state investment in Sudan (June 25, 2005). Finally, the bill's sponsor stated, "[W]hat this legislation does is basically to put economic pressure by pulling out all our public moneys, hoping that this will be a model across the nation." Pl. Mem. Ex 1 (interview with Sen. Collins).

2. Federal law regarding Sudan

The federal government's current policy regarding Sudan has its roots in Executive Order No. 13067, signed by President Clinton on November 3, 1997. 62 Fed. Reg. 59989. Executive Order 13067 freezes Sudanese government property located in the United States or within the control of the United States and prohibits many, though not all, transactions between the United States and Sudan. Id. § 2. Specifically, the order prohibits seven types of transactions between the United States and Sudan: (1) importation into the United States of any goods or services of Sudanese origin, other than information or informational materials; (2) export to Sudan of goods, technology, or services from the United States or by a United States person (except for humanitarian assistance); (3) facilitation by a United States person of the exportation of goods, technology, or services from or to Sudan; (4) performance of any contract by a United States person in support of an industrial, commercial, public utility, or governmental project in Sudan;

(5) granting of credit or loans by any United States person to the Government of Sudan; (6) any transaction by a United States person relating to transportation of cargo to or from Sudan; and (7) any transaction by a United States person or within the United States that is intended to evade the prohibitions in the Order. Id. The term "United States person" means a United States citizen, permanent resident alien, entity organized under the laws of the United States, or any person in the United States. Id. § 3(c). The Order authorizes the Secretary of the Treasury to implement rules and regulations necessary to carry out the Order's purposes. Id. § 5.

In 2000, Congress passed the Trade Sanctions Reform and Export Enhancement Act (TSRA). Pub. L. 106-387, 114 Stat. 1549. The TSRA removes agricultural products, medicine, and medical devices from the list of items that cannot be exported to Sudan. See 22 U.S.C. 7202(b). The law prohibits the United States government from providing assistance for commercial exports to Sudan, id. § 7207(a)(1), but allows the president to waive the restriction if he deems it necessary for national security or humanitarian reasons. Id. § 7207(a)(3).

In 2002, Congress passed the Sudan Peace Act, which gave the president additional authority regarding the United States' relationship with Sudan. Pub. L. 107-245, 116 Stat. 1504 50 (codified at 50 U.S.C. § 1701 note). The Act states, among its goals, that the United States "should use all means of pressure available to facilitate a comprehensive solution to the war in Sudan, including . . . the multilateralization of economic and diplomatic tools to compel the Government of Sudan to enter into a good faith peace process." Id. § 2(16)(A). Under the Act, the president must report regularly to Congress on the status of efforts to resolve the conflict in Sudan. The president is directed to take additional action if he certifies that the government of Sudan is not engaging in good faith negotiations to end the conflict or is in violation of any permanent peace agreement. This includes requiring United States directors of international financial institutions to oppose the extension of credit or loans to the government of Sudan, considering suspension of diplomatic relations, taking all "necessary steps, including through multilateral efforts" to deny the government of Sudan oil revenue, and seeking a United Nations Security Council resolution imposing an arms embargo on the government of Sudan. Id. § 6(b)(2).

In 2004, Congress passed the Comprehensive Peace in Sudan Act, which supplemented and amended the Sudan Peace Act in response to events in Darfur. Pub. L. No. 108-497, 118 Stat. 4012 (codified at 50 U.S.C. § 1701 note). The Act instructs the president to pursue several multilateral strategies, including seeking resolutions and sanctions in the United Nations. Among other things, the Act directs the president to seek the imposition of UN economic sanctions if the government of Sudan fails to comply with certain agreements and prior Security Council resolutions. The president is also directed to encourage UN members to impose their own restrictions on the importation of Sudanese oil. The Comprehensive Peace in Sudan Act also directs the president to impose targeted unilateral sanctions on Sudan. These sanctions include refusing to normalize relations with Sudan unless it meets certain conditions and requiring the president to impose the sanctions previously set forth in the Sudan Peace Act. The Act permits the president to waive these sanctions if he deems it to be in the national interest to do so.

In 2006, Congress passed the Darfur Peace and Accountability Act. Pub. L. No. 109-344, 120 Stat. 1869 (codified at 50 U.S.C. § 1701 note). The Act, among other things, amends the Comprehensive Peace in Sudan Act by restricting the travel and freezing the assets of particular Sudanese government officials involved in the Darfur crisis. The Act denies the Sudanese government oil revenues by prohibiting ships or oil tankers engaged in the Sudanese oil sector from entering United States ports. The Act also continues the previously enacted sanctions and reaffirms the president's ability to waive the sanctions under certain conditions.

3. The parties and the alleged effects of the Illinois Sudan Act

The NFTC is a trade organization authorized to represent its members' interests in matters relating to international trade before Congress, the executive branch, regulatory agencies, and the courts. It contends that its members would be permanently harmed by the enforcement of the Illinois Sudan Act. Among NFTC's members are public corporations that have business connections to Sudan and, therefore, qualify as forbidden entities under the Act in which Illinois public pension funds may no longer invest. NFTC also represents at least one national bank that currently receives state deposits. This bank, and others like it, must cease accepting loan applications from forbidden entities or forego the continued deposit of state funds. In addition, NFTC member companies with ties to Sudan are no longer able to apply for loans from banks that have decided to continue to accept state deposits. The other plaintiffs are Illinois municipal pension funds that claim they have been harmed because they have had their investment choices restricted because of the Illinois Sudan Act, and eight individual beneficiaries of public pension funds. The defendants are the state officials responsible for enforcing the Illinois Sudan Act. They are sued only in their official capacities.

Discussion

Plaintiffs seek to enjoin enforcement of the Illinois Sudan Act on four grounds. They argue that the Act is preempted by federal law governing relations with Sudan, interferes with the federal government's ability to conduct foreign affairs, violates the Constitution's Foreign Commerce Clause, ...


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