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United States v. All Funds on Deposit with R.J. O'Brien & Associates

United States Court of Appeals, Seventh Circuit

April 2, 2015

UNITED STATES OF AMERICA, Plaintiff-Appellant,

Argued: September 11, 2014.

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Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. Nos. 1:11-cv-04175 & 1:12-cv-01346 -- Matthew F. Kennelly, Judge.

For United States of America, Plaintiff - Appellant (13-3732): Joel M. Hammerman, Attorney, Office of The United States Attorney, Chicago, IL.

For One Beacon Insurance Group, AMERICAN ALTERNATIVE INSURANCE COMPANY, The Princeton Excess & Surplus Lines Insurance Company, and Great Lakes UK Insurance Company, VIGILANT INSURANCE COMPANY, Chubb Custom Insurance Company, Chubb Indemnity Insurance Company, Federal Insurance Company, Chubb Insurance Company New Jersey, Chuff Insurance Company of Canada, Pacific, Appellees (13-3732): Sean Patrick Carter, Attorney, Cozen O'Connor, Philadelphia, PA.

For Art Insurance Company, Global Risks (Uk) Ltd., Csa UK Branch, Axa Insurance Company, Axa Reinsurance Company, Plaintiffs - Appellees (13-3738): Daniel R. Johnson, Attorney, Cozen O'Connor, Chicago, IL.

For United States of America, Appellant (13-3738): Joel M. Hammerman, Attorney, Office of The United States Attorney, Chicago, IL; Jennifer Ambuehl, Department of Justice Criminal Division, Asset Forfeiture & Money Laundering Section, Washington, DC.

Before BAUER, MANION, and KANNE Circuit Judges.


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Kanne, Circuit Judge.

Heinous acts of terror breached the shores of the Nation on September 11, 2001. Approximately 3,000 innocents lost their lives, affecting countless other persons, communities, and businesses. In the aftermath of that tragic day, Congress sought to provide victims with a workable means to recover their losses. So it passed the Terrorism Risk Insurance Act (" TRIA" ) of 2002, a sweeping statute that authorizes execution on blocked assets that

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are seized or frozen by the United States, in satisfaction of judgments against terrorists.

That statute is the focus of this dispute. Were this Court bound by TRIA's noble purpose alone, our judgment, no doubt, would be favorable to Appellees. They are victims of terror, after all, and they hold a judgment against al Qaeda for their $2.5 billion subrogation claims. But a statute's purpose, no matter how noble or just, cannot defy the unambiguous and plain meaning of its text.

TRIA's text, on at least two key points, is quite plain: (1) the only assets subject to execution are blocked assets; and (2) assets that are subject to a United States Government (" USG" ) license for final payment, transfer, or disposition, among other requirements, do not qualify as blocked assets. Because the defendant funds here are subject to such a license and have been arrested for civil forfeiture, they do not qualify as blocked assets under TRIA. Appellees' claims under TRIA therefore must fail. Although we find Appellees possess both constitutional and statutory standing, we nevertheless vacate the district court's grant of summary judgment in favor of Appellees. Appellees cannot prevail on the merits under TRIA.

I. Background

Muhammad Abdallah Abdan Al Ghamdi, also known as Abu al Tayyeb (" al Tayyeb" ), provided financial and military support for al Qaeda. Specifically, he raised money for al Qaeda's operations and managed its supply chain in Kandahar, Afghanistan. His criminal network included, among others, Osama Bin Laden, Khalid Sheik Mohammed, and three individuals who participated in the September 11 attacks.

Beginning in 2003 and continuing through 2005, al Tayyeb invested a large sum of cash with R.J. O'Brien & Associates (" RJO" ), a financial firm in Chicago. Under the name " Bridge Investments," and with the assistance of Mohammad Qasim al Ghamdi (who served as general manager of the account), al Tayyeb invested over $26,000,000 in futures trading accounts with RJO. Notably, al Qaeda had a beneficial interest in these accounts.

In less than a year, though, the accounts lost nearly eighty-percent of their value. They dwindled to just over $6,000,000.

For al Tayyeb, matters only got worse. Saudi Arabian authorities arrested him in June 2006, thwarting his plans to attack Saudi Arabia and the United States. Then, on June 18, 2006, the U.S. Department of the Treasury (" DOT" ), Office of Foreign Assets Control (" OFAC" ), blocked his RJO investments--then totaling $6,226,355--pending investigation. In procuring the block, OFAC exercised its authority under Executive Order 13224 of September 23, 2001, the International Emergency Economic Powers Act, Title 50, United States Code, Section 1701 et seq., and the Global Terrorism Sanctions Regulations, 31 Code of Federal Regulations, Part 594.

On June 19, 2011, while the funds were still blocked, the United States filed a verified complaint in the Northern District of Illinois seeking forfeiture of the funds under 18 U.S.C. § 981(a)(1)(G)(i), (iv).[1] That complaint was the catalyst for this dispute.

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It revealed the existence of al Tayyeb's blocked funds, which, until that time, had been designated as classified by the United States. The press soon caught wind; one newspaper ran a story on the defendant funds within three days. See Annie Sweeney, Al-Qaida figure invested with Chicago firm, Chicago Tribune, June 22, 2011, at 1:5. Claimants-Appellees (" Appellees" ) took notice.

Appellees are comprised of groups of insurance companies that paid more than $2.5 billion in property-damage and business-interruption claims following the September 11 attacks. After learning of al Qaeda's ties to the defendant funds, Appellees filed their own verified claims to the funds. They cited as their interest a " default judgment as to liability" award issued in their favor (and against al Qaeda) by the Southern District of New York.

Some further background is necessary. Appellees, along with several thousand personal-injury plaintiffs who form a party to the In re Terrorist Attacks Upon the United States multi-district litigation, initially filed tort claims against al Qaeda for the September 11 attacks in the Southern District of New York. That litigation lingered for some time as, unsurprisingly, al Qaeda did not enter an appearance or try to contest the claims. Eventually, on April 7, 2006, the Southern District of New York entered a default judgment as to liability against al Qaeda, holding it liable for the September 11 attacks. It was this order that Appellees cited as giving them an interest in the defendant funds.

In any event, after Appellees filed their verified claims contesting forfeiture in the Northern District of Illinois, the personal injury plaintiffs got involved. They moved to intervene in the forfeiture action under Rule 24 of the Federal Rules of Civil Procedure.

With the filing of all these claims, two related cases were born: the original forfeiture action in which the United States sought forfeiture of al Tayyeb's assets (i.e., the defendant funds) and the later enforcement action in which Appellees sought to execute their judgment against those same funds. Both cases are before us on appeal. We return to the topic of Appellees' verified claims.

Appellees' initial claimed interest in the defendant funds rested on tenuous ground. For although the Southern District of New York held al Qaeda liable for Appellees' damages, its April 7, 2006, order did not say for how much. In short, the New York judgment was incomplete. That fact did not change until January 25, 2012, when the Clerk of Court for the Southern District of New York entered final judgment in the amount of $9,351,247,959.99. We note that the death of the original MDL judge played a significant role in the delay of entering final judgment, a fact that is relevant to our later discussion concerning Appellees' motion for leave to amend.

After Appellees filed their verified claims in the Northern District of Illinois but before they registered their final judgment against al Qaeda in the Southern District of New York, the United States moved to strike their claims and answers in the Northern District of Illinois. In its view, Appellees lacked the requisite ownership and legal interest in the defendant funds to participate in the forfeiture proceedings because their judgment against al Qaeda was not final and because they secured no lien against the defendant funds.

The Northern District of Illinois initially agreed. It held that Appellees failed to satisfy their pleading obligations under both Rule G(5)(a)(i)(B) of the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions and

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the related civil forfeiture statute, 18 U.S.C. § 983(a)(2)(C)(ii). Labeling Appellees " general unsecured creditor[s]," the district court found that they could not establish their interest in the property to be forfeited. United States v. All Funds on Deposit with R.J. O'Brien & Assocs., No. 11 C 4175, at *17 (N.D.Ill. Mar. 27, 2012) (" R.J. O'Brien I " ). As a result, Appellees lacked statutory and prudential standing.[2]

After making those key findings, the Northern District of Illinois (1) granted the motion to strike and (2) denied the personal injury claimants' motion to intervene. It also denied Appellees' motion for leave to amend their complaint, reasoning that because Appellees had not yet secured a lien against the defendant funds, any amendment could not cure the statutory standing defect. In a significant footnote, however, the district court offered a life raft to Appellees:

The [c]ourt need not consider whether they legally can serve a citation at this time or, if so, whether it would be appropriate then to allow the insurance claimants to amend their claims. Similarly, the [c]ourt need not consider the effects of [the] Terrorism Risk Insurance Act of 2002 ... on the claimants' ability to execute their judgments against the property at issue.
R.J. O'Brien I

Accepting the life raft, Appellees quickly served on the U.S. Marshals Service a citation to discover assets. The United States moved to quash. The district court denied the motion to quash and issued a writ of execution. Recognizing Appellees' changed circumstances (namely, their lien), the court found Appellees possessed statutory and prudential standing. It also found that any procedural hurdles to standing--imposed by the civil forfeiture statute, see 18 U.S.C. § 983--were superseded by TRIA's " [n]otwithstanding any other provision of law" (" notwithstanding" ) clause. United States v. All Funds on Deposit with R.J. O'Brien & Assocs., 892 F.Supp.2d 1038, 1050-53 (N.D.Ill. 2012) (" R.J. O'Brien II " ). The district court then permitted Appellees to amend their claims to reflect their perfected lien on the defendant funds.[3] Id. at 1053. And the litigation marched forward.

The United States moved to certify the district court's decision for interlocutory appeal. It lost. See United States v. All Funds on Deposit with R.J. O'Brien & Assocs., Nos. 11 C 4175 & 12 C 1346, at *11 (N.D. Ill.Dec. 12, 2012) (" R.J. O'Brien III " ). The parties then filed cross motions for summary judgment. In its motion, the United States renewed its standing arguments.[4]

Appellees, for their part, relied on TRIA. In their view, that statute prioritizes their interest in the defendant funds, even in the face of a government forfeiture action. Additionally, Appellees argued that the " notwithstanding" clause supersedes the procedural oddities of civil forfeiture

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law. Invoking the purpose and intent of TRIA, Appellees finally argued that the defendant funds should be subject to execution to satisfy their judgment against al Qaeda. The district court agreed with Appellees' interpretation of TRIA. It granted summary judgment in their favor.

Importantly, the district court did so based on the critical assumption that the defendant funds remained blocked at the time the parties moved for summary judgment. " [I]t is undisputed," the district court noted, " that the assets in question are 'blocked,' a status that is essential for a TRIA claim to go forward; the government labeled the assets as such in its complaint." United States v. All Funds on Deposit with R.J. O'Brien & Assocs., 982 F.Supp.2d 830, 844 (N.D.Ill. 2013) (" R.J. O'Brien IV " ) (emphasis added).

But six months before the Southern District of New York had entered final judgment in Appellees' favor, and more than two years before the Northern District of Illinois issued its decision in favor of Appellees, OFAC granted a license to the Department of Justice (" DOJ" ) on July 8, 2011. That license permitted the DOJ to " take all necessary actions in furtherance of the ... pursuit of [the] civil forfeiture of the [defendant funds]." Gov't App'x L.A. 272, ¶ 20. Four days after OFAC granted the license, the Northern District of Illinois granted the United States' application for warrants of arrest in rem for the defendant funds. The United States executed the warrants on July 12, 2011, and took possession of the funds that same day.

Herein lies the rub. TRIA provides in pertinent part:

Blocked asset.--The term 'blocked asset' means--
(A) any asset seized or frozen by the United States under section 5(b) of the Trading With the Enemy Act ... or under sections 202 and 203 of the International Emergency Economic Powers Act ... and
(B) does not include property that--
(i) is subject to a license issued by the United States Government for final payment, transfer, or disposition by or to a person subject to the jurisdiction of the United States in connection with a transaction for which the issuance of such license has been specifically required by statute other than the International Economic Powers Act ... or the United Nations Participation Act of 1945 ... .

Pub. L. No. 107-297, § 201(d)(2) 116 Stat. 2322, 2339-40 (codified as a note to 28 U.S.C. § 1610) (emphasis added).

The Northern District of Illinois recognized the existence of the license in its decision (it was stipulated by all parties to be an undisputed fact), but it nonetheless treated the funds as if they remained blocked. See R.J. O'Brien IV, 982 F.Supp.2d at 839-40. As we noted before, whether the funds are blocked is the decisive issue. That is because, per TRIA's text, victims of terror may only execute on " blocked" funds. We address this issue in detail below.

Before doing so, however, we address the standing arguments again raised by the United States. These are threshold issues. Cf. United States v. $304,980.00 in United States Currency, 732 F.3d 812, 818 (7th Cir. 2013) (" [W]ithout a case or controversy under Article III, we have no authority to proceed to the merits." ).

II. Analysis

A. Standing

Whether constitutional, statutory, or prudential in form, standing is a question of law that we review de novo.

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Winkler v. Gates, 481 F.3d 977, 982 (7th Cir. 2007). We begin our analysis with a discussion of constitutional standing.

1. Constitutional Standing

Standing under Article III " is a threshold question in every federal case ... ." Warth v. Seldin, 422 U.S. 490, 498, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975). " A federal court's jurisdiction can be invoked only ... when the plaintiff ... has suffered 'some threatened or actual injury resulting from the putatively illegal action[.]'" Id. at 499 (quoting Linda R. S. v. Richard D., 410 U.S. 614, 617, 93 S.Ct. 1146, 35 L.Ed.2d 536 (1943)). Although we have described standing as " undemanding," Family & Children's Ctr., Inc. v. School City of Mishawaka, 13 F.3d 1052, 1058 (7th Cir. 1994), neither intellectual curiosity nor purely psychological harm suffices to establish it. United States v. 5 S 351 Tuthill Rd, Naperville, Ill., 233 F.3d 1017, 1022 (7th Cir. 2000) (" Similarly, simple indignation, or an impact on one's opinions, aspirations or ideology do not suffice to establish standing." ) (citations and internal quotations omitted).

Claimants establish constitutional standing in a forfeiture proceeding just as they would in any other proceeding. They must allege (1) an immediate threat of injury that is (2) fairly traceable to the government's conduct, and (3) which a favorable federal court decision likely would redress or remedy. Id. (citing Lujan v. ...

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