[00:00:00] Speaker 00:
Page number 21-7036 et al.

[00:00:04] Speaker 00:
A state of Jeremy Isidore Levine et al.

[00:00:06] Speaker 00:
at balance versus Wells Fargo Bank NA.

[00:00:09] Speaker 00:
Ms.

[00:00:10] Speaker 00:
Smith for the at balance.

[00:00:11] Speaker 00:
A state of Jeremy Isidore Levine.

[00:00:13] Speaker 00:
Mr. McGill for the at balance.

[00:00:15] Speaker 00:
James Owens.

[00:00:16] Speaker 00:
Mr. Olicathos for the at belly Wells Fargo Bank NA.

[00:00:19] Speaker 00:
Mr. Hudak for the at belly United States.

[00:00:26] Speaker 01:
Good morning.

[00:00:28] Speaker 01:
Good morning, Your Honors.

[00:00:29] Speaker 01:
It's great to be here in person.

[00:00:32] Speaker 01:
Your time is valuable.

[00:00:33] Speaker 01:
My time is short.

[00:00:35] Speaker 01:
So I'd like to make a couple of points from a 20,000 foot perspective that I hope will guide the panel in its resolution of this decision.

[00:00:45] Speaker 01:
In 1984, Jerry Levin escaped from captivity, being held hostage by hospital law for over a year, tortured.

[00:00:53] Speaker 01:
It was a miracle.

[00:00:54] Speaker 01:
He came home, but he was broken.

[00:00:56] Speaker 01:
He was broken because he was tortured, starved, lost his hearing, had many medical problems.

[00:01:02] Speaker 01:
There were medical bills.

[00:01:04] Speaker 01:
The Levens had to sell their home.

[00:01:06] Speaker 01:
And there was no one to really turn to for help in terms of getting compensation for all the wrongs that were done.

[00:01:13] Speaker 01:
You could get a judgment against Iran, but you couldn't collect it, practically speaking.

[00:01:19] Speaker 01:
Then in 2002, another miracle happened.

[00:01:22] Speaker 01:
A TRIA was passed by Congress, and TRIA opened up a whole new area of potential collection for the judgment holders, the victims who had been the victims of terrorism.

[00:01:34] Speaker 01:
And Tria says that you can get the blocked assets of a terrorist state or its agents or instrumentalities.

[00:01:43] Speaker 01:
Blocked assets.

[00:01:43] Speaker 01:
Blocked assets blocked by the government, by OFAC, by Treasury.

[00:01:48] Speaker 01:
Not assets that the victims and their lawyers go out and find and block, but blocked assets.

[00:01:55] Speaker 01:
Originally, it was being interpreted by most judges in the district courts in New York that Tria permitted

[00:02:02] Speaker 01:
EFT blocked assets to also be collected on.

[00:02:05] Speaker 01:
And we did collect some of our judgment on those EFTs and other blocked assets in New York.

[00:02:13] Speaker 01:
Then in about 2008, Calderon came down and the Second Circuit changed the law.

[00:02:21] Speaker 01:
And the Second Circuit said that EFTs, different from any other kinds of blocked assets,

[00:02:29] Speaker 01:
But EFTs cannot be collected on.

[00:02:31] Speaker 01:
And in order to support that decision, the Second Circuit looked at New York State law, the UCC, to create that rule of law.

[00:02:42] Speaker 06:
Before that decision, were that decision of the courts using the agency theory of ownership that you proposed that we use in this case?

[00:02:52] Speaker 01:
I'm sorry, your honor.

[00:02:53] Speaker 01:
I'm having a hard time here.

[00:02:54] Speaker 07:
I'm sorry.

[00:02:54] Speaker 07:
Forgive me.

[00:02:55] Speaker 07:
Before that case, were courts using the agency theory of ownership that you propose in this case?

[00:03:02] Speaker 01:
So they were using a number of different approaches.

[00:03:06] Speaker 01:
Agency theory was one of them.

[00:03:08] Speaker 01:
They were also looking at the purpose of TRIA and the language of the regulations that the president

[00:03:16] Speaker 07:
The Massachusetts rule, is that what courts were using that particular theory?

[00:03:23] Speaker 01:
The Massachusetts rule is part of what the district courts were looking at before Calderon.

[00:03:29] Speaker 01:
Common law, TRIA itself, the regulations, the OFAC regulations, all of that was being- I sense a little bit of hedging in your answer, which I appreciate.

[00:03:38] Speaker 07:
It sounds like you're just trying to be accurate about it, but it sounds like they weren't using the kind of pure

[00:03:45] Speaker 07:
agency, Massachusetts rule that's been proposed in this case, they were using maybe more of a multi-factor standard.

[00:03:53] Speaker 07:
And that was part of the standard.

[00:03:55] Speaker 01:
So I think, Your Honor, that's right.

[00:03:56] Speaker 01:
It was multi-factored.

[00:03:58] Speaker 01:
And just so that it's clear, I think that the Massachusetts rule gets this court to the place that it should get, that the victim should be able to collect.

[00:04:08] Speaker 01:
But I also think that this court, in its Heiser decision,

[00:04:12] Speaker 01:
departed from what Calderon did in the Second Circuit and took a different look at the UCC.

[00:04:18] Speaker 01:
So I think you get there either way.

[00:04:19] Speaker 01:
I think if you look at the UCC as the professors, the amicus briefs, and the professors who teach UCC law understand at a deep level, and by the way, it's notable that no court has really parsed the UCC in depth.

[00:04:37] Speaker 01:
There are a lot of interpretations of it.

[00:04:40] Speaker 01:
There's a lot of paraphrasing.

[00:04:42] Speaker 01:
but there's no court that has taken a deep dive and actually quoted from the UCC itself at length and the comments to the UCC, which under the money back guarantee rule, which Heiser recognized, which the second circuit did not discuss at all and which the district court here did not discuss at all.

[00:05:02] Speaker 01:
The money back guarantee explains that when you have your money and everybody agrees it's money,

[00:05:10] Speaker 01:
terrorist in the beginning, that's where it comes from.

[00:05:13] Speaker 01:
That's the origin of it.

[00:05:14] Speaker 01:
When you take your money and you put your money into the commercial transaction to buy a ship, as it was in this case or something else, and it goes through a bunch of different banks, in the process of the EFT, the person whose money it was originally does not lose all rights to their property

[00:05:33] Speaker 01:
such that some bank along the way becomes the absolute owner of that property.

[00:05:39] Speaker 01:
The originator, the person at where it starts, retains some property rights, as the professors explain in great detail.

[00:05:47] Speaker 01:
And that's what the report said it was.

[00:05:50] Speaker 03:
I'm trying to figure out, your client filed a writ of attachment

[00:05:58] Speaker 03:
Right?

[00:05:59] Speaker 03:
Both in D.C.

[00:06:00] Speaker 03:
and in South Dakota, is that right?

[00:06:03] Speaker 01:
In South Dakota, yes.

[00:06:05] Speaker 03:
And the Owens plaintiffs filed a writ of attachment in D.C.

[00:06:09] Speaker 03:
And the government filed a writ of attachment in D.C.

[00:06:12] Speaker 03:
And the government was first, right?

[00:06:15] Speaker 03:
So it seems to me that if the law is that the government, because it filed first, has priority, then

[00:06:24] Speaker 03:
for us to decide the issue that you present would be giving an advisory opinion, because you're not going to be able to get these funds anyway.

[00:06:34] Speaker 03:
So my question is long-winded.

[00:06:36] Speaker 03:
But my question is, what is the law with respect to priorities when several parties, several debtors file close to each other in time?

[00:06:50] Speaker 01:
So, Your Honor, the laws to priorities, we believe, is that the TRIA, which has the notwithstanding language, gives the priority for TRIA victims and TRIA judgment holders to any law assets.

[00:07:06] Speaker 01:
And that would include when the government is trying to go through forfeiture, which is a whole different process.

[00:07:13] Speaker 03:
OK, so that gets the government out of the picture.

[00:07:16] Speaker 03:
But then between you and the Owens,

[00:07:20] Speaker 01:
Where do we go?

[00:07:22] Speaker 01:
Yes.

[00:07:22] Speaker 01:
So where we would go if we fight it out to the bitter end is that we would have in the district court, we would have a priority contest.

[00:07:31] Speaker 01:
And our position would be that the rules require the writ to be filed where the assets actually are in South Dakota.

[00:07:41] Speaker 01:
and the person who goes there first gets the priority.

[00:07:44] Speaker 01:
The reason we were in DC is because the forfeiture action was here and it made sense to have decisions being made here.

[00:07:53] Speaker 01:
But the issue of priority between Owens and the Levins has not been decided and it would have to be decided below.

[00:08:00] Speaker 01:
And I will tell you just practically, sometimes we work it out before we get to that point and we decide to share rather than fight each other down to the death.

[00:08:08] Speaker 01:
But you could go.

[00:08:11] Speaker 03:
I have several other questions that relate to the UCC itself.

[00:08:16] Speaker 03:
To apply the subrogation rule, you have to know who gave the instruction to the originator's bank.

[00:08:26] Speaker 03:
And the record here doesn't tell us that.

[00:08:30] Speaker 03:
It could have been just the law firm Holman.

[00:08:33] Speaker 03:
And if that's the case, then

[00:08:35] Speaker 03:
There is no violation of the originator's instructions.

[00:08:41] Speaker 03:
And so there would be subrogation.

[00:08:43] Speaker 03:
So who is it that gave the instruction to use the New York Mellon Bank?

[00:08:48] Speaker 01:
So the originator, the terrorist entity, told its lawyer to tell Lloyd's Bank to use Mellon Bank.

[00:09:02] Speaker 01:
And that's the way that chain works.

[00:09:04] Speaker 03:
At the time, Holman was an escrow agent and was representing not only TAFE, but also Crystal.

[00:09:17] Speaker 03:
It was a joint representation.

[00:09:19] Speaker 03:
It couldn't have been that they were simply following the instructions just of TAFE.

[00:09:29] Speaker 03:
Is that correct?

[00:09:31] Speaker 03:
I mean, they were jointly representing that, right?

[00:09:33] Speaker 01:
So the law firm had a dual representation, as it were.

[00:09:37] Speaker 01:
It was an escrow agent, but it was also more than that.

[00:09:40] Speaker 01:
It was the lawyer for the terrorist TAFE.

[00:09:42] Speaker 01:
I'm going to call it TAFE.

[00:09:43] Speaker 01:
I'm not sure I'm saying it right either, but TAFE.

[00:09:46] Speaker 01:
They were the law firm advising TAFE on the transaction and perhaps other things.

[00:09:52] Speaker 01:
Remember, we're at the pleading stage here, so what we know is what we put into our pleadings and what the government put in its pleadings.

[00:10:00] Speaker 01:
But it had a dual purpose.

[00:10:02] Speaker 01:
It was representing Crystal and TAFE as escrow holder, but also TAFE as advisor in the entire transaction.

[00:10:11] Speaker 01:
So it was a law firm to TAFE.

[00:10:13] Speaker 03:
The other question I have is not dependent.

[00:10:16] Speaker 03:
I don't think it's dependent on the UCC, but it occurs to me that one of the objectives of this is not only to satisfy the judgment, but also to put pressure

[00:10:29] Speaker 03:
and control over terrorist activities, right?

[00:10:33] Speaker 03:
But I'm not sure that that would be accomplished either by your lights or even by the governments here, because whether TAFE is out of its $10 million or whatever it was, it would depend upon English law, wouldn't it?

[00:10:52] Speaker 03:
No, it depends upon American law, because the TRIA... Well, let me put it this way.

[00:10:58] Speaker 03:
Why, if they're out of the money, because Lloyds used an American bank, Wells Fargo, then why wouldn't, I don't know what English law is, but it would seem to me that TAFE would have an action against Lloyds of London.

[00:11:17] Speaker 03:
And collect the $10 million from them.

[00:11:19] Speaker 01:
Somebody may or may not have an action against Lloyds of London in England.

[00:11:25] Speaker 01:
But United States law, Your Honor, governs this action and what happens vis-a-vis the victims collecting.

[00:11:32] Speaker 01:
And the reason it serves the public purpose of the terrorist regulations is you take that money out of any possible, any possibility of going upstream back to the terrorists.

[00:11:46] Speaker 01:
And there are circumstances where that might happen.

[00:11:49] Speaker 01:
Many, many years could go by, and it couldn't be that things, circumstances.

[00:11:53] Speaker 03:
It seems to me there might be an action against the law firm, too.

[00:11:56] Speaker 03:
I mean, of all the places to use as an intermediary, it uses the intermediary of an American bank knowing full well that there was blocking going on.

[00:12:05] Speaker 03:
I mean, that seems to be crazy.

[00:12:08] Speaker 03:
Why not use a bank in Malaysia or something?

[00:12:12] Speaker 02:
Well, that's a question.

[00:12:14] Speaker 02:
As a practical matter, are there cases in which judgment predators identify

[00:12:23] Speaker 02:
transactions and alert OFAC to freeze?

[00:12:26] Speaker 02:
I'm thinking about the question that Judge Randolph is asking about, in what sense does your reading of the statute serve the interests of depriving terrorists of resources?

[00:12:41] Speaker 02:
And so I'm just wondering, as a practical matter, whether the plaintiffs being interested in any way, prompts or aids

[00:12:50] Speaker 02:
the government's asset freezing activities.

[00:12:53] Speaker 01:
So it does in this way.

[00:12:54] Speaker 01:
The government, of course, has access to much more information than private lawyers, although we have spent lots of money, millions of dollars over time,

[00:13:05] Speaker 01:
private investigators trying to find assets that belong, that are money laundered, that belong to the terrorists.

[00:13:11] Speaker 01:
And we've had some success.

[00:13:13] Speaker 01:
But the other thing that allowing the private actions to go forward does, even though the government wants its forfeiture action all by itself, there are cases, there's one in New York, NRA 650 Fifth Avenue, where there are three cases and forfeiture action going in parallel, and we're working together with government.

[00:13:33] Speaker 01:
We're taking depositions.

[00:13:34] Speaker 01:
They're taking deposition.

[00:13:35] Speaker 01:
They're getting documents.

[00:13:37] Speaker 01:
We're getting documents.

[00:13:38] Speaker 01:
So we do work side by side when the court says that the victims are.

[00:13:42] Speaker 02:
Specifically, would it ever be in plaintiff's interest to trigger freezing or not?

[00:13:51] Speaker 02:
Would it be better for plaintiffs to say, we just want to attach this and not have the government even be

[00:13:59] Speaker 01:
No, in my opinion, it's always better when the government has blocked the assets because then we have trio with notwithstanding language.

[00:14:08] Speaker 01:
We go after the blocked assets.

[00:14:11] Speaker 01:
When those assets are available, it's a pretty clear path, which is why if the Heiser rule says the originator has an interest and we're allowed to go after these assets, then our course is pretty well charted.

[00:14:25] Speaker 03:
And your argument is that the government comes back and says, look,

[00:14:29] Speaker 03:
You know, we get this fund or these deposits.

[00:14:34] Speaker 03:
We put it into a fund so that all the judgment debtors would have at least a shot at having partial satisfaction.

[00:14:45] Speaker 03:
And your response is the problem with that is the government will skim off 25% off the top.

[00:14:53] Speaker 01:
That's part of it.

[00:14:54] Speaker 03:
Well, let me just take that point.

[00:14:56] Speaker 03:
Yes.

[00:14:57] Speaker 03:
But I'm not asking you to disclose your attorney-client relationship, but it seems to me, common sense, that you're doing this on a contingent fee.

[00:15:09] Speaker 03:
And if your contingent fee is, say, 30%, then there's more in the pot than if the government takes it, because you're going to skim off 30% of the recovery anyway.

[00:15:23] Speaker 01:
Kim, your honor, is kind of a loaded word.

[00:15:26] Speaker 01:
But most of these cases are done on contingent fee.

[00:15:30] Speaker 01:
But for the court to be absolutely clear about this, the 11s are not part of the fund and cannot be.

[00:15:38] Speaker 01:
Some people are, some people aren't.

[00:15:39] Speaker 01:
You have to give up a lot in order to be part of the fund.

[00:15:43] Speaker 01:
And the government does take a big share for all of these, if you wish.

[00:15:48] Speaker 02:
What do you have to give up?

[00:15:50] Speaker 01:
Sorry, what do you have to give up other than the government's 25%?

[00:15:53] Speaker 01:
So you have to give up certain rights to other causes of action that other other assets that you're going after in different locations.

[00:16:02] Speaker 01:
So I mentioned the 655th Avenue case.

[00:16:05] Speaker 01:
That's part of it.

[00:16:06] Speaker 01:
There was a time window to go into the victims fund that that window has closed.

[00:16:12] Speaker 01:
And also, there's an amount, a cap on how much you can recover.

[00:16:15] Speaker 01:
And the 11s have not quite reached that cap, but we're approaching it.

[00:16:21] Speaker 01:
And our $30 million judgment, which the DC court found was a conservative compensatory.

[00:16:28] Speaker 03:
Is that all compensatory?

[00:16:29] Speaker 01:
All compensatory.

[00:16:30] Speaker 01:
We didn't even seek punitive damages because, frankly, we thought, let's just stick with compensatory and try to collect those.

[00:16:39] Speaker 02:
So we have held already that of does require a property determination.

[00:16:45] Speaker 02:
What is exactly the rule that you would require, that you would ask us to adopt to determine whether the blocked assets are property of?

[00:16:56] Speaker 01:
So it's the rule that was articulated in the HICER decision.

[00:17:01] Speaker 01:
That rule says the originator has a property interest in block

[00:17:08] Speaker 01:
assets that come from an EFT.

[00:17:11] Speaker 01:
So if the funds were originated by the terrorist, there is a property interest in the terrorist, notwithstanding the use of an EFT to facilitate the commercial transaction.

[00:17:26] Speaker 03:
It doesn't say property interest.

[00:17:27] Speaker 03:
It says claims.

[00:17:30] Speaker 03:
Correct?

[00:17:30] Speaker 01:
Yes.

[00:17:31] Speaker 01:
You're right.

[00:17:32] Speaker 01:
Claims.

[00:17:33] Speaker 01:
We say and argue, Your Honor, that claims are a property interest, but you're absolutely right.

[00:17:38] Speaker 01:
The word is claims, the claims, the originator still has claims against that property.

[00:17:44] Speaker 01:
That property does not become property of a bank as a district court.

[00:17:49] Speaker 03:
It's an advantage to you, to your clients, that the government block these assets.

[00:17:57] Speaker 03:
Yes.

[00:17:57] Speaker 03:
And in the blocking statute,

[00:18:00] Speaker 03:
It doesn't say interest in ownership.

[00:18:04] Speaker 03:
It just says any interest.

[00:18:07] Speaker 03:
And I'm going to ask the government this because it seems to me somewhat inconsistent for the government to argue that Iran doesn't have any interest or has an interest in this.

[00:18:18] Speaker 03:
But Iran doesn't when it comes to your recovery.

[00:18:23] Speaker 03:
Do you have any clue what the interest that the government is talking about when it blocked these assets?

[00:18:28] Speaker 01:
You're talking about the interest of Iran in its funds that were put into the United States commercial system, which is forbidden by law.

[00:18:39] Speaker 01:
And the government recognizes that the whole reason the government can go after this forfeiture is that Iran and TAFE started this unlawful illegal transaction, which came into the United States system.

[00:18:58] Speaker 02:
All right, we'll hear from Ms.

[00:18:59] Speaker 02:
McGill.

[00:19:01] Speaker 02:
Thank you, Ms.

[00:19:02] Speaker 02:
Smith.

[00:19:12] Speaker 08:
Thank you, Judge Pillard.

[00:19:14] Speaker 08:
May it please the court.

[00:19:15] Speaker 09:
It is indeed good to be back in court.

[00:19:19] Speaker 09:
I just want to start by addressing some of the questions you asked, Judge Randolph.

[00:19:24] Speaker 09:
You asked where the instruction to use the intermediary comes from.

[00:19:27] Speaker 09:
I would point the court to Joint Appendix 166.

[00:19:31] Speaker 09:
That's the Holman letter?

[00:19:32] Speaker 09:
That is the Holman letter signed for and by James Wright, attorney for and on behalf of Cave Mining Services.

[00:19:40] Speaker 09:
You asked a question about the scope of the Holman representation, and I would point the court to joint appendix 117 to 121, which is sealed.

[00:19:52] Speaker 09:
So I'm not going to talk further about it, but that establishes that Holman is not acting simply as an escrow agent on behalf of both, but there was a separate representation.

[00:20:01] Speaker 09:
You asked why the government's filing of the forfeiture action doesn't resolve the case.

[00:20:06] Speaker 09:
It's because the mere filing of the forfeiture action doesn't establish a lien on the property.

[00:20:12] Speaker 09:
And this is a subject that I expect we may have further litigation with the government about.

[00:20:17] Speaker 09:
But certainly the district court did not put and resolve the case in the government's favor if that were the case and not.

[00:20:25] Speaker 09:
I'm U.S.

[00:20:26] Speaker 09:
why not use a Malaysian bank you need a U.S.

[00:20:29] Speaker 09:
this transaction under the contract was to be conducted in U.S.

[00:20:32] Speaker 09:
dollars and you need to go through a U.S.

[00:20:35] Speaker 09:
dollar bank.

[00:20:36] Speaker 09:
Where's Crystal located.

[00:20:37] Speaker 09:
Crystal Holdings is a Greek company.

[00:20:39] Speaker 09:
It's a Liberian affiliate of a Greek

[00:20:42] Speaker 09:
You asked about the Victims Fund.

[00:20:46] Speaker 09:
My clients are participants in the Victims Fund.

[00:20:49] Speaker 09:
If the notwithstanding language of TRIA means anything at all, it means that we can recover under TRIA notwithstanding the existence of the Victims Fund remedy.

[00:20:58] Speaker 09:
And it is, I would maintain, the government is quite wrong to suggest that Congress in enacting the Victims Fund meant to limit terrorist victims access to other remedies.

[00:21:10] Speaker 09:
Um, you asked about the interest in property here or the government's, what is the interest in property?

[00:21:17] Speaker 08:
I would just point the court to join appendix one 70, uh, which is the blocking order, which says that the specific one, one 70, one seven zero.

[00:21:33] Speaker 09:
Yeah.

[00:21:34] Speaker 09:
And it says that OFAC believes that the specifically designated global terrorist, which here is TAFE, quote, has an interest in the funds involved in the electronic transfer identified below.

[00:21:48] Speaker 09:
Where is that in the first paragraph?

[00:21:49] Speaker 09:
That's in the first paragraph, three lines from the bottom, Your Honor.

[00:21:54] Speaker 09:
Three full lines.

[00:21:55] Speaker 09:
as an interest in the funds identified below, and then it identifies.

[00:21:58] Speaker 03:
Well, that just tracks the statutory language.

[00:22:01] Speaker 09:
Actually, the statutory language, Your Honor, does refer to property or an interest in property.

[00:22:07] Speaker 09:
So it does require not merely any interest in that.

[00:22:12] Speaker 09:
Oh, wait a minute.

[00:22:20] Speaker 09:
That is 50 USC 1702 B.

[00:22:24] Speaker 03:
One, one B. Which refers to.

[00:22:29] Speaker 03:
In which any foreign country or national thereof has any interest.

[00:22:34] Speaker 03:
With respect to any property.

[00:22:35] Speaker 03:
Yeah.

[00:22:36] Speaker 03:
But subject to the jurisdiction.

[00:22:38] Speaker 03:
So what I asked is whether that means that, whether that covers something other than ownership interest.

[00:22:48] Speaker 09:
The government will provide its own answer to that question.

[00:22:50] Speaker 09:
I would submit that it embraces at least

[00:22:54] Speaker 09:
keeps continuing interest in the use of the fund that it would have if not blocked, which, of course, is a primary incident of ownership.

[00:23:05] Speaker 02:
But there is some potential daylight between that and our reading in Kaiser that of means property interest as opposed to interest in.

[00:23:16] Speaker 09:
I am not arguing that the blocking regulations are co-extensive with ownership.

[00:23:21] Speaker 09:
That is not our argument.

[00:23:24] Speaker 09:
It's different than Heizer.

[00:23:25] Speaker 09:
In Heizer, the interest was a future contingent possessory interest.

[00:23:30] Speaker 09:
This is, TAFE is the undisputed only source of these funds, right?

[00:23:36] Speaker 09:
The Lloyd's capital, Wells capital did not contribute to this transaction.

[00:23:40] Speaker 09:
TAFE is the sole source of the funds.

[00:23:42] Speaker 09:
That is the opposite of the facts in Heizer, right?

[00:23:46] Speaker 09:
In Heizer, somebody else's funds were just gonna pass through the Iranian bank on the way to the end.

[00:23:52] Speaker 09:
My time is running really short, but for three reasons, this court should not determine ownership of a blocked asset solely by reference to Article 4A's subrogation provision.

[00:24:06] Speaker 09:
The first is that ISER certainly did not command

[00:24:09] Speaker 09:
As my colleague said, Heiser instead looked to quote the principles of Article 4A, and from that concluded that, quote, claims on an interrupted fund transfer ultimately belonged to the administrator.

[00:24:26] Speaker 09:
And indeed, in Heiser, if you look at the district court opinion, Judge Lambert's opinion, page 447 at footnote 3,

[00:24:35] Speaker 09:
It says that it talks about the uncontested transactions in Heizer.

[00:24:40] Speaker 09:
And in Heizer, the transactions where the Iranian entity was the originator or the originator's bank, it was conceded that it was attachable.

[00:24:52] Speaker 09:
So it was conceded, at least up till the point of Heizer, that if Iran was the originator, it was attachable.

[00:25:02] Speaker 09:
So, Heizer doesn't command it.

[00:25:04] Speaker 09:
The second point is that the risk allocation rationale of the subrogation provision is completely absent here.

[00:25:12] Speaker 02:
Just on that, was the government a participant in the district court?

[00:25:16] Speaker 02:
In the court of appeals, it was, but not in the district court.

[00:25:19] Speaker 09:
But not in the district court, but also in this court's opinion in footnote three, it refers to the uncontested transaction.

[00:25:26] Speaker 09:
Certainly, if it were the case that Article

[00:25:30] Speaker 09:
Article 4A and the subrogation provision was to be mechanically applied as the only way to determine ownership.

[00:25:38] Speaker 09:
I would have expected the government to have said something at that point in time, but it did not.

[00:25:44] Speaker 09:
The risk allocation rationale.

[00:25:47] Speaker 03:
I'm a little bit confused.

[00:25:49] Speaker 03:
Is it your position that number one,

[00:25:53] Speaker 03:
proper interpretation of Article 4A would result in a reversal of the district court's opinion, and that if not, then we should promulgate another common law decision to take care of this particular situation, which is, or is it both?

[00:26:18] Speaker 09:
It's not both.

[00:26:21] Speaker 09:
If you mechanically apply the subrogation provision here, then because Lloyd's used Wells instead of Bank of New York Mellon, as the instruction reflects that I cited, because they used a different bank than under 402E, Lloyd's has the claim against Wells.

[00:26:47] Speaker 09:
And if the instruction had been followed,

[00:26:50] Speaker 09:
would have a claim against wealth.

[00:26:52] Speaker 09:
So we would acknowledge that under a mechanical application of 402e, as the district court said, are out of luck.

[00:27:04] Speaker 09:
That, we would submit, makes no sense at all as a matter of when you line it up against the purpose of TRIA.

[00:27:14] Speaker 09:
It's impossible for me to believe that the Congress that enacted TRIA would have wanted ownership to turn on such a happenstance.

[00:27:24] Speaker 09:
And the more important point is that the rationale of that loss allocation provision has

[00:27:34] Speaker 09:
no footing here because there is no claim against Lloyd's.

[00:27:41] Speaker 09:
As Wells says at pages 17 and 18 of its brief, he can have no claim against Wells, certainly not under Article 4A, which doesn't apply in the United Kingdom at all.

[00:27:53] Speaker 09:
But as Wells says, under the terms and conditions of

[00:27:58] Speaker 09:
Voids is, you know, banking agreement.

[00:28:02] Speaker 09:
It's highly likely that he has no claim.

[00:28:05] Speaker 09:
And why?

[00:28:05] Speaker 09:
Because the transaction was illegal from the get go.

[00:28:10] Speaker 09:
There is nothing that there is no this is not something that that article for a was designed

[00:28:18] Speaker 09:
to deal with.

[00:28:20] Speaker 03:
And that is our kind of... Are you wondering whether it was designed to deal with blocked assets at all?

[00:28:24] Speaker 09:
That's correct.

[00:28:25] Speaker 09:
It wasn't.

[00:28:27] Speaker 09:
But it certainly wasn't meant to deal with illegal transactions.

[00:28:31] Speaker 09:
It was meant to allocate loss, talking about the subrogation provision specifically, it's intended to allocate loss against the risk of an intermediary bank failure.

[00:28:43] Speaker 09:
And it allocates that loss

[00:28:46] Speaker 09:
the person who chooses the intermediary bank.

[00:28:49] Speaker 09:
That's a sensible rule.

[00:28:50] Speaker 09:
If you choose the intermediary bank, you are stuck with the loss.

[00:28:54] Speaker 09:
You are stuck collecting against that basically empty pocket.

[00:29:01] Speaker 02:
And Mr. McGill, when you say an intermediary bank failure, what are the common kinds of

[00:29:07] Speaker 02:
failures you're talking about.

[00:29:09] Speaker 09:
While a wire transfer is proceeding, you know, the FDIC closes the bank because it... So the bank actually goes under.

[00:29:16] Speaker 02:
There must be a bunch of other kinds of errors or mishaps that this... Sure.

[00:29:21] Speaker 09:
When a transaction miscarries, but that's not... So then the risk of loss is effectively minimal, right?

[00:29:29] Speaker 09:
The risk of loss is zero.

[00:29:30] Speaker 09:
If the transaction miscarries for some reason or another, then

[00:29:36] Speaker 09:
then Lloyds would, in this case, Lloyds would go to Wells and say, you've got to pay me because I have to pay Kate.

[00:29:45] Speaker 09:
And that's a sensible rule.

[00:29:47] Speaker 09:
And it's what essentially Heizer says at the end of its opinion, that we unravel these transactions backwards.

[00:29:54] Speaker 02:
And you say miscarriages.

[00:29:56] Speaker 02:
You mean it doesn't happen, or the money gets sent off to the wrong place, or just in common sense terms?

[00:30:02] Speaker 09:
I wish I could.

[00:30:06] Speaker 09:
Say in common sense, I'm just parroting what the language of Article 4A in the comments.

[00:30:11] Speaker 09:
So what they meant by it, I think just is that they tried to embrace all the possible rationale or ways in which a transaction could go bad.

[00:30:24] Speaker 09:
But the primary one they talk about in the comments is if the bank, quote, suspends payments, which means if it failed.

[00:30:33] Speaker 09:
And so that's what 402e is all about.

[00:30:37] Speaker 09:
It's about allocating the risk of loss.

[00:30:39] Speaker 09:
But here as Wells says, the risk of loss lies with TAFE.

[00:30:45] Speaker 09:
Why?

[00:30:46] Speaker 09:
Because the transaction was illegal from the beginning.

[00:30:48] Speaker 03:
Wasn't illegal from the beginning.

[00:30:50] Speaker 03:
I'm not sure about that because of it became illegal only because it was using an American bank.

[00:30:56] Speaker 03:
If they had used all foreign banks, there's no illegality that I see.

[00:31:00] Speaker 09:
I'll take that point, Judge Randolph, but what I meant with the transaction from the beginning was in U.S.

[00:31:08] Speaker 09:
dollars and contemplated use of the U.S.

[00:31:11] Speaker 09:
banking system.

[00:31:12] Speaker 02:
So does TAFE not have a claim against Lloyds, because Lloyds was the one who chose Wells Fargo?

[00:31:17] Speaker 09:
Not according to Wells, and TAFE is, they're terrorists and pirates.

[00:31:24] Speaker 09:
I mean, they're not going to come to court in

[00:31:27] Speaker 09:
in London and say, you know, we want our $10 million back from Lloyds.

[00:31:33] Speaker 09:
But I would take, I would put two things on the table.

[00:31:38] Speaker 09:
One, or three.

[00:31:39] Speaker 09:
One is page 17 and 18 of Wells's brief where they say that it's very likely that Lloyds doesn't have any claim against it from TAFE.

[00:31:49] Speaker 09:
Two, Lloyds has never shown up in two years.

[00:31:52] Speaker 09:
They don't, they apparently are not very interested in this case and that makes sense because none of their capital is at risk.

[00:31:58] Speaker 09:
And three, there's this, there is Article 4A statute of repose, which generally, which is section 505, which generally provides for a one-year claim limitation.

[00:32:11] Speaker 09:
However, again, Article 4A doesn't apply in the UK, so it's not,

[00:32:19] Speaker 09:
This is just yet another reason why Article 4A is not a perfect fit for blocked terrorist transactions, which are almost definitionally international.

[00:32:29] Speaker 07:
One of the virtues of federal common law is that no matter where you go in the country, you'll be dealing with the same law.

[00:32:38] Speaker 07:
If we split with the Second Circuit, the government says that's going to encourage form shopping in cases like this.

[00:32:46] Speaker 07:
What's your response to that?

[00:32:48] Speaker 09:
I would expect the government would seek review in the Supreme Court if that's a serious concern and resolve it that way.

[00:32:58] Speaker 09:
But I think I'm not going to dismiss the reality that if you adopt my rule, then people can win here and not win in the Second Circuit.

[00:33:09] Speaker 09:
But the Second Circuit doesn't apply federal common law.

[00:33:12] Speaker 09:
The Second Circuit applies New York state law, which they have said must, you know, they must mechanically apply the UCC.

[00:33:21] Speaker 09:
And my meta point to the panel is that that makes no sense in this situation.

[00:33:27] Speaker 09:
Article 4A doesn't deal with locked transactions at all.

[00:33:31] Speaker 09:
It's not intended to deal with terrorists.

[00:33:34] Speaker 09:
And the subrogation provision has nothing to do whatsoever with purposes of TRIA.

[00:33:41] Speaker 02:
Great.

[00:33:41] Speaker 02:
So Trianoff was asking you, are you arguing for a less mechanistic application of Article 4A, or that we should fashion a different federal common law rule?

[00:33:54] Speaker 02:
And I think the bulk of your response was in opposition to the mechanistic application of

[00:34:02] Speaker 02:
And so, affirmatively, the rule you're asking us to apply is?

[00:34:07] Speaker 09:
I think what the court said in Heizer is sufficient.

[00:34:13] Speaker 02:
But Heiser was not determining the property, affirmatively, the property interest of the originator.

[00:34:19] Speaker 02:
It had a much easier task.

[00:34:22] Speaker 02:
We had a much easier task there, which was to simply say that North Korea, as the ultimate intended beneficiary, had under no reading a property interest.

[00:34:35] Speaker 02:
And so the sort of throwaway line, which

[00:34:39] Speaker 02:
It may indeed be valid.

[00:34:42] Speaker 02:
And I think you put some meat on those bones that it's unraveled toward the originator.

[00:34:48] Speaker 02:
But is there nothing more rigorous that you would offer for how we look at that?

[00:34:56] Speaker 09:
I definitely would not call it a throwaway line.

[00:34:59] Speaker 09:
But what the court did in Heizer on our view was

[00:35:06] Speaker 09:
as it says, applied the principles of Article 4A, and that those principles be what informed the federal common law.

[00:35:15] Speaker 09:
We have provided in our brief other

[00:35:19] Speaker 09:
common law principles that have deep roots that support that rule in Heiser.

[00:35:26] Speaker 02:
We've kept you a long time, but let me just follow up.

[00:35:28] Speaker 02:
You say the principles of Article 4A, but Article 4A and its distinctiveness from preceding common law is precisely to say, look, if you're a creditor and you want to go against

[00:35:42] Speaker 02:
either the original or the beneficiary, you have to do it before the EFT gets going or after it finishes.

[00:35:48] Speaker 02:
Like to the extent that the UCC or Article 4A is distinctive, that's what it's about.

[00:35:53] Speaker 02:
And I get your point that that seems to be in profound tension with TRIA, to the extent that TRIA is saying where assets are frozen, go against them.

[00:36:03] Speaker 02:
And assets are almost inevitably frozen in the middle of a transaction and often an EFT.

[00:36:10] Speaker 02:
So I'm just curious in what respect you're still looking to the principles of anything to do with Article 4A or whether you're looking more generally to agency or pre Article 4A common law.

[00:36:23] Speaker 09:
It's the principle, the overarching principle of Section 402, right?

[00:36:28] Speaker 09:
So I would just respond Judge Piller to your point about Section 502 and 503.

[00:36:34] Speaker 09:
I would say take it a step further.

[00:36:37] Speaker 09:
It's not just intention.

[00:36:38] Speaker 09:
I would say

[00:36:40] Speaker 09:
preempts those provisions to the extent that they would limit the attachment of a block EFT.

[00:36:47] Speaker 08:
Thanks.

[00:36:51] Speaker 08:
Great.

[00:36:52] Speaker 08:
Thank you.

[00:37:01] Speaker 02:
Now we'll hear from Wells Fargo.

[00:37:03] Speaker 02:
Good morning.

[00:37:04] Speaker 03:
Good morning.

[00:37:05] Speaker 04:
Let's see if I can untangle my mask from my glasses.

[00:37:09] Speaker 03:
I hope you can untangle this case, too.

[00:37:13] Speaker 04:
I was going to try, Your Honor, to stay very neutral, but I may not be able to help myself from taking a stab at doing a smidgen of untangling.

[00:37:21] Speaker 04:
May it please the Court, Alex Lukalos for Wells Fargo.

[00:37:23] Speaker 04:
As everyone here, I think, totally appreciates Wells Fargo as a neutral third-party garnered fee, and I would just take the opportunity to say

[00:37:31] Speaker 04:
The bank is extremely sympathetic to the plaintiffs who have been victims of atrocities and their desire to get these funds.

[00:37:38] Speaker 04:
We're also extremely sympathetic to the victims who would get money through the government fund.

[00:37:45] Speaker 04:
Where we come at this, and I will get to doing just a smidgen of trying to untangle as I go along, is that this court noted in Hiser that any interpretation of Toria

[00:37:57] Speaker 04:
should really avoid the risk of punishing innocent third parties.

[00:38:01] Speaker 04:
And in particular, this court called out avoiding punishing a garnishie by exposing the garnishie's own assets to a risk of loss.

[00:38:11] Speaker 04:
And unfortunately, this is the type of case that poses a meaningful risk of exposing neutral garnishies like Wells Fargo to multiple lawsuits, to inconsistent rulings, and potentially, if everything goes through a series of cascading failures,

[00:38:26] Speaker 04:
that I've worked many decades to help Wells Fargo avoid in many of these cases, a risk of duplicative liability.

[00:38:33] Speaker 04:
If you look at this case alone, for example, Your Honor, we've been sued by the Levens, we've been sued by the Owens plaintiffs, we've been implicated in forfeiture proceedings.

[00:38:44] Speaker 04:
This is in DC, this is in New York, this is in South Dakota.

[00:38:48] Speaker 03:
Why are these funds being held in South Dakota?

[00:38:50] Speaker 04:
That's a great question, Your Honor.

[00:38:52] Speaker 04:
So two answers.

[00:38:55] Speaker 03:
The OVAC regulations- Is it in Chicago and South Dakota?

[00:38:59] Speaker 04:
We have presence there and I guess for book reasons, for tax reasons- No, I mean the town.

[00:39:04] Speaker 03:
I'm sorry?

[00:39:05] Speaker 03:
The town.

[00:39:06] Speaker 04:
Oh, I don't know.

[00:39:07] Speaker 04:
I think so, yes.

[00:39:09] Speaker 03:
Is that why the bank bears that name?

[00:39:12] Speaker 04:
So what the OVAC regulations say is that once we've blocked it, we have to put it in a separate segregated account.

[00:39:18] Speaker 04:
So that's a matter of regulation.

[00:39:19] Speaker 04:
So then it's just a question of where is that account?

[00:39:22] Speaker 04:
And for whatever regulatory or historical or tax reasons, and I genuinely don't know, this decision was made decades ago, that that account for all the block assets all over the country would just be segregated in South Dakota.

[00:39:37] Speaker 04:
But why, it's a book entry, right?

[00:39:38] Speaker 04:
It's an electronic thing that the bank does.

[00:39:42] Speaker 03:
Is it earning interest?

[00:39:44] Speaker 04:
Yes, statutorily, I believe there has to be a certain amount of reasonable interest.

[00:39:48] Speaker 04:
It's very minimal.

[00:39:50] Speaker 04:
From a bank perspective, and we're not complaining this is a cost of doing business, it's just a slight burden.

[00:39:55] Speaker 04:
It's something we have to do and maintain.

[00:39:57] Speaker 04:
And it's a bit of administrative headache.

[00:40:00] Speaker 04:
It becomes much bigger headache, of course, when everyone comes to fight over the assets.

[00:40:05] Speaker 04:
So look, our primary interest is ensuring a rule of law that doesn't expose Wells Fargo.

[00:40:12] Speaker 04:
And this is where I'll take a shot at doing some untangling.

[00:40:15] Speaker 04:
It seems to me that there are two choices.

[00:40:18] Speaker 04:
If this court were to affirm, it seems to me that the way that would be done is just a very straightforward.

[00:40:24] Speaker 04:
We believe Article 4A of the UCC applies.

[00:40:29] Speaker 04:
We're going to stick with it.

[00:40:30] Speaker 04:
The district court got it right.

[00:40:31] Speaker 04:
The plaintiffs acknowledge that if you follow every jot and tittle of it in their words, that they lose, that they're out of luck.

[00:40:39] Speaker 04:
And so that's one way of doing it.

[00:40:41] Speaker 04:
And we sort of urge that there's some logic to doing it that way, right?

[00:40:44] Speaker 04:
You don't split with the Second Circuit.

[00:40:46] Speaker 04:
Conversely, if this court is going to reverse, and there are some really good reasons to do that, to be honest, because it really does seem to us to make a certain amount of sense that if Tree is trying to help out these victims and all these assets are being blocked midstream, that they get a shot at doing that.

[00:41:07] Speaker 04:
The way that that, I think,

[00:41:09] Speaker 04:
into actually, honestly, has to be done cannot be done by squinting at particle 4A until somehow it allows it by some sort of machinations with the money back judgment rule by putting a tremendous amount of weight on one sentence in hyzer.

[00:41:26] Speaker 04:
And if your honors look at that particular sentence, which the sentence says you wind back to the originator, what that sentence says in full is we think the district court got it right.

[00:41:35] Speaker 04:
You wind back to the originator, cite to the district court.

[00:41:38] Speaker 04:
And then when you look at what the district court said, it says the originator or the originating bank have the claim.

[00:41:44] Speaker 04:
So I think that that one sentence doesn't establish

[00:41:49] Speaker 04:
that is necessarily the originator that has the claim and the interest there just doesn't do that work.

[00:41:55] Speaker 04:
And so if this court is going to reverse, I think the way it gets there is through the Massachusetts rule.

[00:42:01] Speaker 04:
And that's an intellectually honest and legitimate way to get there.

[00:42:04] Speaker 04:
And what we would say from Wells Fargo's perspective, if I may, is that should the court go in that direction, we would simply ask

[00:42:12] Speaker 04:
that the court, as part of crafting federal common law, made perfectly clear that what that does is it displaces the UCC so that we don't have a situation where this court says, hey, federal common law, the Massachusetts rule carries the day.

[00:42:26] Speaker 04:
Wells Fargo, please pay out these monies to these victims.

[00:42:31] Speaker 04:
And we do so.

[00:42:32] Speaker 04:
And then Lloyd shows up and Lloyd says,

[00:42:35] Speaker 04:
Well gee, the UCC is still in effect.

[00:42:37] Speaker 04:
We want you to pay us now.

[00:42:39] Speaker 04:
So to just make clear, and this is what... Yeah, I know.

[00:42:42] Speaker 04:
Yeah, right?

[00:42:42] Speaker 03:
This is what Judge... That's Judge Simms' point.

[00:42:46] Speaker 04:
Exactly.

[00:42:46] Speaker 04:
Exactly, Judge Randolph.

[00:42:48] Speaker 04:
And the plaintiffs who advocate for this rule hold up Judge Simm as being

[00:42:54] Speaker 04:
you know, the guy who gets it right, the judge who gets it right in terms of how this ought to be done.

[00:42:58] Speaker 04:
And we would just say, you know, please, if you go in that direction, also do what this court has advised, which is to protect us as a neutral third party and simply suggest to you, I'm going to read something and see if you agree with it.

[00:43:10] Speaker 03:
That, um, with respect to the application of federal common law, it should be done

[00:43:16] Speaker 03:
as to a single issue at a time and requires federal courts to consider whether the issue's outcome is consistent with the federal program.

[00:43:26] Speaker 03:
So in other words, you take a look at it, you take it issue by issue by issue, and rather than a global approach, which would be somewhat equal to what the Second Circuit is doing.

[00:43:41] Speaker 03:
Do you agree with that statement?

[00:43:44] Speaker 03:
You take it issue by issue.

[00:43:46] Speaker 03:
whether you're going to adopt a particular state law program.

[00:43:51] Speaker 04:
Your Honor, I believe I do agree with that, but I'm trying to see the next move down the chessboard and make sure I agree with what the implications are.

[00:43:59] Speaker 04:
I think if the question then becomes, and taking issue by issue, is it fair to get to the protection of Wells Fargo that we're asking for, I think the answer is definitively yes, it is.

[00:44:09] Speaker 04:
Because part of what Judge Chin says is, look,

[00:44:13] Speaker 04:
in applying this common law and figuring out does the terrorist have the exclusive interest, because you can only, as sort of common law 101, you can only attach as much as the terrorist owns, and in making sure that the terrorist has the exclusive interest

[00:44:34] Speaker 04:
we need to make sure that the upstream banks have stepped aside.

[00:44:38] Speaker 04:
And so I think it is part and parcel of addressing this one narrow issue to also say, we need to make sure the upstream banks have stepped aside.

[00:44:46] Speaker 04:
Either we're going to deem them wiped out, or we're going to require as a precursor that they agree to waive their claims or step aside as happened in place.

[00:44:53] Speaker 03:
Couldn't all this be accomplished in your submission simply by holding that the exception to the subrogation

[00:45:04] Speaker 03:
rule in the foray, it makes no sense when you're dealing with block assets.

[00:45:12] Speaker 03:
Because you're not going to have subrogation anyway.

[00:45:16] Speaker 04:
Yes, Your Honor.

[00:45:18] Speaker 04:
I think the foray was, as plaintiffs argue, I think rather convincingly, foray was not designed for this situation.

[00:45:27] Speaker 04:
And once the assets are blocked,

[00:45:30] Speaker 03:
You're in a whole different world where the considerations that animated for I can apply as in situations in which there is no disconnect because of the failure of the originator bank to follow the instructions of the originator in that situation for as

[00:45:53] Speaker 03:
shows you who has the interest.

[00:45:55] Speaker 03:
And if you're following 4A, it enables the government, number one, to block the assets, and it also enables the debtors to collect.

[00:46:04] Speaker 04:
So the trouble that comes up, Ray, is that that rule of 4A, which makes really good sense when you're trying to allocate who has the risk of a bank failing, starts to look a little arbitrary when you're saying who gets to go after the blocked assets of terrorists.

[00:46:22] Speaker 04:
And that's where it gets to be a little bit uncomfortable possibly to follow or add.

[00:46:28] Speaker 04:
Now in terms of- Great, just on that.

[00:46:31] Speaker 02:
So it's not just the subrogation which rule applies.

[00:46:36] Speaker 02:
It's also the nature as the district court quite methodically showed that the property interest is divested from the originator and moves along through the EFT.

[00:46:47] Speaker 02:
Isn't that the other major obstacle

[00:46:50] Speaker 02:
to using 4A as the source of the property definition under TRIA, because then it's not going to be terrorist property where it's found.

[00:47:04] Speaker 02:
And that is not wrapped up, is it?

[00:47:06] Speaker 02:
Maybe I'm missing something with the subrogation.

[00:47:10] Speaker 04:
Yeah, no, I mean, and this is part of what makes a very literal and strict interpretation for a complicated for everyone, right?

[00:47:18] Speaker 04:
Because the government also, you know, OFAC takes the position, and I think the government takes the position that these assets are attachable with the government, these assets are blockable.

[00:47:28] Speaker 04:
Maybe OFAC is a bad example because it has a much broader

[00:47:32] Speaker 04:
remit and what it considers attachable.

[00:47:34] Speaker 04:
But yeah, if you take it literally that there's no interest whatsoever by anyone other than the immediate upstream bank, and that's the only interest you recognize, then I think it puts the government in an awkward position as well.

[00:47:48] Speaker 04:
And then we are in a world where, again, it's a little tricky to make for a

[00:47:56] Speaker 04:
really worked perfectly here, because it just wasn't designed with this in mind.

[00:48:01] Speaker 02:
Quite to the contrary.

[00:48:03] Speaker 02:
Its whole point, I thought, was to shield the intermediary, the beads along the chain of an EFT from creditor action.

[00:48:16] Speaker 02:
Shield them.

[00:48:17] Speaker 02:
And so to say, we're going to borrow anything from Article 4A,

[00:48:22] Speaker 02:
for the purposes of TRIA, it seems to me that you're mixing oil and water.

[00:48:26] Speaker 02:
And obviously, my understanding of this is very rudimentary compared to yours.

[00:48:31] Speaker 02:
But am I missing something in thinking that the whole benefit to the financial world and to banks of 4A seems inimical to what TRIA is about?

[00:48:47] Speaker 04:
I don't think you're wrong, Your Honor.

[00:48:49] Speaker 04:
I really think that 4A is really about not letting courts jump in the middle, not letting creditors jump in the middle, and protecting transactions moving very quickly so that you either, under 4A, you stop them before they go, or you stop them when they arrive, depending on who owes you the debt, but that you don't stop them in the middle.

[00:49:10] Speaker 04:
And therefore, commerce and banks like Wells Fargo move hundreds of billions of dollars a day.

[00:49:15] Speaker 04:
And this is good for all of us who

[00:49:17] Speaker 04:
Want to be able to pay our mortgage because our money arrives on time.

[00:49:21] Speaker 04:
Not to have that, but once the money is blocked, we're it.

[00:49:24] Speaker 02:
It's a different world and you were saying I interrupted you when you were saying that OPEC says these are blockable.

[00:49:30] Speaker 02:
The United States you were going on and I and I apologize for that.

[00:49:34] Speaker 04:
So I guess what I was just saying is in full agreement with you.

[00:49:37] Speaker 04:
Your honor is is that.

[00:49:39] Speaker 04:
You know, the US government is going to say that, you know, they can forfeit these assets in the middle of the transaction that are blocked.

[00:49:47] Speaker 04:
And that seems to presume some sort of a property interest, which read very literally for a doesn't seem to contemplate exists.

[00:49:57] Speaker 02:
Although I was, as was pointed out, you know, I think there is a difference in the, in the wording of the forfeiture statute is more broadly, uh, looks at interests and we haven't so far read, read Tria quite that broadly, but point taken, there's a tension there.

[00:50:13] Speaker 02:
Sure.

[00:50:13] Speaker 02:
All right.

[00:50:15] Speaker 02:
Anything more?

[00:50:17] Speaker 04:
Yeah.

[00:50:17] Speaker 04:
All right.

[00:50:18] Speaker 04:
Thank you, your honors.

[00:50:18] Speaker 04:
Very much appreciate it.

[00:50:19] Speaker 02:
Thank you.

[00:50:29] Speaker 02:
Now we'll hear from the United States.

[00:50:39] Speaker 05:
Good morning, Your Honors.

[00:50:40] Speaker 05:
May it please the Court, Brian Hudak from the U.S.

[00:50:42] Speaker 05:
Attorney's Office on behalf of the United States.

[00:50:44] Speaker 05:
I want to pick up where my friend from Wells Fargo left off about what interests are at play.

[00:50:49] Speaker 05:
Why can the government block these funds, forfeit them while TRIA creditors cannot attach them?

[00:50:57] Speaker 05:
And the reason is because the interests that are blockable under OFAC regulations do far exceed mere ownership interest.

[00:51:05] Speaker 05:
As this court recognized in Heizer, a OFAC block interest or funds, even though Iran had no traditional legal interest in them.

[00:51:17] Speaker 05:
I would also direct the court to JP Morgan Chase from the Second Circuit, where there's a lengthy footnote

[00:51:22] Speaker 05:
from the Second Circuit explaining the difference between ownership interest necessary for attachment by creditors, what can be blocked.

[00:51:30] Speaker 02:
That makes a lot of sense.

[00:51:31] Speaker 02:
I see the delta between the definitions of the interests under the two sessions, but what?

[00:51:40] Speaker 02:
I guess I have two questions.

[00:51:41] Speaker 02:
What is left of TRIA under the United States' reading?

[00:51:45] Speaker 02:
And how long has the United States taken the position that it's taken in this case?

[00:51:49] Speaker 02:
Has the United States taken the position it's taken in this case in prior cases?

[00:51:54] Speaker 05:
I believe the United States has consistently taken this position in the Second Circuit and here.

[00:51:59] Speaker 05:
I don't believe it went on fully on the record in Heizer with regards to this position.

[00:52:04] Speaker 05:
I think the question in Heizer that the United States weighed in on in a statement of interest that was between private parties was whether TRIA required an ownership interest in funds for them to be attachable under TRIA.

[00:52:16] Speaker 05:
And the United States answered in the affirmative, which this court adopted in its opinion in Heizer.

[00:52:24] Speaker 05:
Your honor, just to get back to the delta as well, why we can forfeit.

[00:52:27] Speaker 02:
My other question was what is left of Tria?

[00:52:29] Speaker 05:
Sure.

[00:52:30] Speaker 05:
My apologies, your honor.

[00:52:31] Speaker 05:
What's left of Tria is the ability to go and recover against accounts that are blocked under OFAC regulation.

[00:52:39] Speaker 05:
So if Iran or an Iranian front company or an instrumentality of Iran has a bank account at a U.S.

[00:52:45] Speaker 05:
financial institution that OFAC blocks, that becomes

[00:52:49] Speaker 05:
Obviously, it's property of the instrumentality or agency, it's blocked, and thus TRIA applied.

[00:52:56] Speaker 05:
The main issue that TRIA was designed to prevent, as I understand it, was that exact circumstance where the United States would go and block a bank account of Iran and say, it's 05 o'clock, no one can touch it.

[00:53:09] Speaker 05:
What Congress did with TRIA before it enacted the compensation of one statute was to say, no, no, no,

[00:53:16] Speaker 05:
creditors, terrorist victim creditors under TRIA can go and elect against that account that the United States blocked, notwithstanding the OPEC blocking or IEPA or the executive order.

[00:53:28] Speaker 02:
So you acknowledge that more or less the situation of intermediary accounts or correspondent accounts, which are used sometimes by terrorists to transfer money, that that is basically taken out of the realm

[00:53:45] Speaker 02:
But by your interpretation, that's kind of taken out of the realm of recoverable, sources of recoverable assets under the TRIA.

[00:53:52] Speaker 02:
So it's more if there's just actual property or an account in the US.

[00:53:56] Speaker 05:
It depends if there is a terrorist organization that is the financial institution who is serving as the originating bank.

[00:54:04] Speaker 05:
So if I'm sort of seeing a bank that's serving and trying to process a US dollar transaction through a US correspondent account, that would still be attachable under TRIA.

[00:54:12] Speaker 05:
Because the originator bank,

[00:54:15] Speaker 05:
is the one that has an ownership interest in the funds that is being blocked at the intermediary bank.

[00:54:22] Speaker 02:
The bank or the bank's clients?

[00:54:24] Speaker 05:
The bank.

[00:54:25] Speaker 02:
So if the bank, the bank then has to be the terror defendant?

[00:54:29] Speaker 05:
Correct.

[00:54:29] Speaker 05:
So an instrumentality, a front company, a financial institution that is truly an instrumentality or agent of a terrorist state or a terrorist organization, that bank, that financial entity, if they have an ownership, if they are truly a terrorist entity,

[00:54:44] Speaker 05:
They have an ownership interest in flood and funds blocked midstream.

[00:54:47] Speaker 05:
They are the only one in blocked funds under Article 4A that have an ownership interest as the second, as plain reading of Article 4A and as the second circuit has helped.

[00:55:00] Speaker 05:
Judge Randolph, to address a few of your questions, the actual wire instructions are in the record.

[00:55:05] Speaker 05:
If you look at Joint Appendix 273,

[00:55:08] Speaker 05:
That is the swift transaction record from Lloyd's Bank indicating its election to use Wells Fargo as the intermediary bank for the transaction.

[00:55:16] Speaker 03:
What is the government's position or how does the government explain its authority to block these funds?

[00:55:31] Speaker 03:
What is the Iranian interest that enabled the government to block these funds?

[00:55:38] Speaker 05:
definition of property and property interest is quite broad under the opac blocking regulations and we would say it is a. You sure can well as far as forfeiture goes it's traceable to a violation that's all we need it doesn't need to be the property of it has to be derived from or traceable from a violation for it to be forfeited under the forfeiture statute under opac blocking regulation it I mean it's a paragraph.

[00:56:04] Speaker 05:
Long it, but it includes things

[00:56:06] Speaker 03:
What's the citation to that?

[00:56:08] Speaker 03:
I haven't looked at it.

[00:56:09] Speaker 05:
31 CFR 594.309.

[00:56:14] Speaker 05:
And it is in the Owens Appellant.

[00:56:17] Speaker 05:
594.

[00:56:18] Speaker 05:
What?

[00:56:18] Speaker 05:
I'm sorry.

[00:56:19] Speaker 05:
494.309.

[00:56:19] Speaker 05:
OK.

[00:56:20] Speaker 05:
OK, go ahead.

[00:56:26] Speaker 05:
And also, Your Honor, I would direct the court to the JPMorgan Chase decision from the Second Circuit, where it describes that it's 899 F3

[00:56:36] Speaker 05:
152 at note 4, where they describe the difference in scope between the blocking powers of OFAC and the attachment remedies of TRIA addressing that particular issue.

[00:56:50] Speaker 02:
I'm sorry, that was footnote 4 of?

[00:56:51] Speaker 05:
Footnote 4 of JP Morgan Chase from the Second Circuit.

[00:56:54] Speaker 05:
Thank you.

[00:57:00] Speaker 05:
Your Honor, in talking about what Holman Fenwick's role was in the transaction,

[00:57:05] Speaker 05:
We do understand that they had a separate retainer agreement to provide certain legal advice to tape during the transaction, but the role is the holder of the account.

[00:57:16] Speaker 05:
They expressly disclaim to being a fiduciary of either crystal holding or crystal holdings or tape mining.

[00:57:23] Speaker 05:
So in that wall where they're holding the bonds and are an escrow agent, they aren't acting as

[00:57:30] Speaker 05:
an agent for purposes of ownership or TAFE mining that would, again, TAFE mining is ultimately the one that ended up with ship, albeit through illicit means.

[00:57:39] Speaker 05:
So it's a question about how does TAFE mining continue to have interest in these funds when it's received the benefit of its illicit bargain?

[00:57:47] Speaker 05:
That is, that it has the oil tanker, it's in Iran after it was hijacked off the coast.

[00:57:52] Speaker 03:
So under your view, under the UCC, Pullman is not an originaire?

[00:57:59] Speaker 05:
only would be the originator here as we understand it on the bandwidth if you look at the swift transactions of women is the which it is the original not paid mining the whole and then with an international law firm is the originator even if you go from a factual standpoint and don't want to address the legal issue here if mining the only Iranian agent or instrumentality is not pounding any of the transaction records for which this wire was transacted though it the court didn't resolve that below

[00:58:27] Speaker 05:
Instead, it relied on the Article 4 resolution.

[00:58:31] Speaker 05:
But if the court wants to resolve it on that factual ground, it certainly can do so.

[00:58:36] Speaker 05:
The United States also offered, and I know my time is out, but the United States also offered other reasons why these rich should be quashed at the district court, including because they are no longer blocked assets of a terrorist organization.

[00:58:47] Speaker 05:
Once the United States obtained its OFAC license and seized them in forfeiture, they ceased being blocked under IEPA, and instead they are seized under forfeiture.

[00:58:57] Speaker 02:
And that is not complete.

[00:59:01] Speaker 05:
It is not complete, your honor.

[00:59:03] Speaker 05:
Just so procedurally, how we got here, we got lots of attachments on these funds after the United States executed his arrest warrant on the funds, filed his forfeiture complaint.

[00:59:16] Speaker 05:
Wall Street Journal learned that these were at Wells Fargo.

[00:59:18] Speaker 05:
We did not advertise where they were, in all honesty.

[00:59:22] Speaker 05:
And then creditors came in to try to attach these.

[00:59:24] Speaker 02:
So you arrested them before they sought to attach them.

[00:59:27] Speaker 05:
Correct.

[00:59:27] Speaker 02:
So even if we were to disagree with your property analysis, there's a first in time battle to be had.

[00:59:37] Speaker 05:
Correct.

[00:59:37] Speaker 05:
And that time would come in the forfeiture action, presumably, if the creditors have an identifiable property interest in the race of the forfeiture action.

[00:59:48] Speaker 05:
They would have standing to file claims in that action.

[00:59:51] Speaker 05:
And at that point in time, we resolve the first.

[00:59:53] Speaker 03:
The United States will always have the first

[00:59:57] Speaker 03:
in an attachment to block funds.

[01:00:00] Speaker 03:
Isn't that correct?

[01:00:01] Speaker 05:
That would not be correct, Your Honor.

[01:00:02] Speaker 05:
So there are situations where OFAC blocks accounts and blocks transfers where the United States does not seek to seize, arrest, and then forfeit them.

[01:00:12] Speaker 05:
There are certain circumstances like that.

[01:00:14] Speaker 05:
In fact, I think those are circumstances that led to various recoveries and

[01:00:19] Speaker 05:
other victims that are pursuing recoveries in the Second Circuit, where there was blocking, but the United States did not seek immediately to work.

[01:00:26] Speaker 03:
Is it your position that once the United States gets priority by a rid of the first root of attachment that therefore the other debtors can't can't come in?

[01:00:42] Speaker 05:
United States position is once they're seized or arrested in forfeiture, no one can come in and supersede the United States interest at that point.

[01:00:48] Speaker 05:
That's not before you because that would be a priority interest that we'd be battled out of the forfeiture action.

[01:00:53] Speaker 05:
Who would these brits be sustained?

[01:00:55] Speaker 05:
Where does that?

[01:00:56] Speaker 05:
Where does that rule come from?

[01:00:58] Speaker 05:
It comes from your I think just property interest first in time, first in right into the common law.

[01:01:04] Speaker 05:
It also comes from the forfeiture statute saying that sees after

[01:01:08] Speaker 05:
An asset is fees and arrested in forfeiture.

[01:01:11] Speaker 05:
No other court can issue orders regarding it.

[01:01:14] Speaker 03:
What do you do with the TRIA provision that says that notwithstanding any other law, which is why I asked you where it comes from, and you said the common law.

[01:01:25] Speaker 03:
What do you do with the TRIA provision that says notwithstanding the debtors, the people having a judgment against Iran and recover?

[01:01:36] Speaker 05:
And your honor, I have an answer, but this is why we would ask the court to exercise restraint on that point because it has not been fully brief.

[01:01:42] Speaker 05:
Notwithstanding any provision of law, this court has tackled with that phrase in numerous cases over numerous years.

[01:01:51] Speaker 05:
It has said that that phrase, in certain circumstances when it comes to statutory jurisdictional requirements,

[01:01:57] Speaker 05:
does not create an exception to those statutory jurisdictional arguments.

[01:02:01] Speaker 05:
But this issue has not been fully briefed before this court ended.

[01:02:04] Speaker 03:
Well, I understand that, but it seems to me that has some implication with respect to what rule of law we're going to use in determining this case.

[01:02:15] Speaker 05:
Yes, your honor.

[01:02:15] Speaker 05:
And if the court rules that these writs could remain and reverses on that basis and remands for

[01:02:24] Speaker 05:
proceedings, not inconsistent with its order.

[01:02:26] Speaker 05:
There may be other issues that bubble back up to this court, including the again, not blocked, but seized and arrested a forfeiture.

[01:02:35] Speaker 05:
And that's not an argument that we make out of whole cloth.

[01:02:37] Speaker 05:
That's an argument that the fifth and seventh circuits have adopted in similar circumstances with regard to assets.

[01:02:43] Speaker 05:
once the government has a no fact license to affect the forfeiture as arrested or sees the property that it is no longer locked under IEPA, but it is seized or arrested in forfeiture.

[01:02:54] Speaker 05:
And that's trio wouldn't apply.

[01:02:56] Speaker 05:
The trio only applies to assets that are blocked under IEPA.

[01:02:58] Speaker 05:
So there's alternative grants to block the risk that we would ask the court.

[01:03:02] Speaker 05:
if it is going to reverse on the article for ownership interest issue that it reverses and remains for the district court to consider those other arguments.

[01:03:11] Speaker 02:
I'm sorry, Mr. Hudak, you were saying something about that for that did not withstanding any provision of law and how that

[01:03:19] Speaker 02:
you know, how the courts have struggled with that and the meaning that they have given.

[01:03:23] Speaker 02:
And you said something about jurisdictional provisions, but- So it's not arising in this context or there's at least- No, I understand that.

[01:03:29] Speaker 02:
But just thinking about the coherence of the neighborhood in which we find ourselves, your point about why the notwithstanding language doesn't get in the way as Judge Randolph was probing is,

[01:03:46] Speaker 05:
Well, the United States believed that notwithstanding provisional law only applies to statutes of regulation.

[01:03:52] Speaker 05:
So it doesn't preempt common law.

[01:03:54] Speaker 05:
It doesn't preempt, for instance, the sovereign immunity of the United States.

[01:03:58] Speaker 05:
It doesn't preempt the prior exclusive jurisdiction doctrine, which tells that once one court exercises in rent jurisdiction over a piece of property, other court... The Supreme Court has rejected that position though, hasn't it?

[01:04:10] Speaker 03:
That when it talks about law,

[01:04:13] Speaker 03:
notwithstanding law that it doesn't apply to common law.

[01:04:16] Speaker 03:
The Supreme Court rejected that, didn't it?

[01:04:18] Speaker 03:
In your railroad versus Tompkins.

[01:04:22] Speaker 05:
Your honor, I don't, I don't believe that case.

[01:04:24] Speaker 05:
I understand, but this court has struggled with notwithstanding any other provisional law and

[01:04:28] Speaker 05:
And at least there's another case coming to you in this similar realm of asset forfeiture that the notice of appeal was just filed for.

[01:04:35] Speaker 05:
This issue is squarely teed up in the context of the United States' sovereign immunity.

[01:04:40] Speaker 05:
So again, this is another reason why I would urge the court to exercise restraint on that issue, given that that will come up if it does come up in this circumstance when we turn to the forfeiture action if the court does refer.

[01:04:55] Speaker 05:
Thank you, Your Honor.

[01:04:56] Speaker 02:
Thank you very much, Mr. Hudak.

[01:04:58] Speaker 02:
So I gather, although we've taken you way over your time, that Ms.

[01:05:03] Speaker 02:
Smith and Mr. McGill had hoped to make brief rebuttal, and we'll give you each two minutes.

[01:05:08] Speaker 02:
And this time, we actually need two minutes, although my colleagues are free to extend it.

[01:05:14] Speaker 01:
Yes, Mike, when they talk, that doesn't count against my time, does it, Your Honor?

[01:05:20] Speaker 01:
So to answer one of the questions that Your Honor asked,

[01:05:23] Speaker 01:
about are there any assets left if you take away EFTs for the victims to go after?

[01:05:28] Speaker 01:
There are none.

[01:05:29] Speaker 01:
As Judge Randolph quite rightly said in one of his comments, the terrorists are not stupid.

[01:05:36] Speaker 01:
Iran is not opening bank accounts in the United States, and neither are its agents or instrumentalities.

[01:05:42] Speaker 01:
However, EFTs, interestingly enough, are put into blocked accounts.

[01:05:46] Speaker 01:
What we're talking about now is a blocked account

[01:05:49] Speaker 01:
held by Wells Fargo.

[01:05:50] Speaker 01:
TRIO talks about blocked assets.

[01:05:53] Speaker 01:
It does not mention property, but this Corian Heiser said, we're interpreting TRIO to mean property of the terrorist or its agent or instrumentality.

[01:06:04] Speaker 01:
So one thing I will leave you with, I forgingly slightly disagree with my colleague from Gibson Dun & Crutcher who represents the Owens.

[01:06:14] Speaker 01:
I believe as the professors, the amicus briefs,

[01:06:18] Speaker 01:
Please, you will read those who try to walk you through Article 4, 4A, 402.

[01:06:26] Speaker 01:
There is a subrogation section which is in E, but leave that aside for a minute.

[01:06:30] Speaker 01:
Forget about the subrogation section.

[01:06:33] Speaker 01:
Sections C and D of 402 talk about the money back guarantee which Heiser mentioned and which the professors try to explain is what creates

[01:06:47] Speaker 01:
a property interest that remains in the originator all the way down the line, no matter how many banks it goes through.

[01:06:57] Speaker 01:
And they refer the court, and everybody reading their briefs, to the comments to Section 4A402, which talk about the money back guarantee.

[01:07:08] Speaker 01:
And one thing that the comments say is this money back guarantee

[01:07:13] Speaker 01:
assures the originator it will not lose its money if something goes wrong in the transfer.

[01:07:21] Speaker 01:
Now, that's just the comments for once talking in sort of lay terms and trying to lay out something common sensically.

[01:07:28] Speaker 01:
But C and D create a property interest.

[01:07:31] Speaker 01:
This court did not hold that it had to be 100% property interest under TRIGA, but a property interest.

[01:07:40] Speaker 01:
So the originator has a property interest.

[01:07:43] Speaker 01:
It is not lost in the process of these transfers, and it is not lost even when the subrogation rules come into effect unless the originator has chosen the transferee bank that the money is placed in, and that's where it gets lost.

[01:08:01] Speaker 01:
If it's lost there, then the originator is subrogated to its bank, and it bears the risk.

[01:08:07] Speaker 01:
So I know it's a mouthful and a lot to look at, but I hope you will consider the amicus briefs in particular, because I think they do give a good roadmap to the UCC and its intricacies.

[01:08:19] Speaker 01:
But I agree with my colleague, you can get there another one.

[01:08:22] Speaker 01:
Thank you.

[01:08:22] Speaker 01:
Thank you.

[01:08:23] Speaker 09:
Thank you, Your Honors.

[01:08:31] Speaker 09:
A few quick points.

[01:08:33] Speaker 09:
First, I want to underscore that there is no innocent third party

[01:08:37] Speaker 09:
here at risk from the rule that we urge.

[01:08:41] Speaker 09:
Lloyds has never asserted a claim in two years.

[01:08:44] Speaker 09:
And I think the court here fairly could, in this particular case, deem Lloyds to have disclaimed any interest in the funds, or in particular, any claim against Wells.

[01:08:58] Speaker 09:
The second point, Judge Randolph, you asked, what is the interest that permits the blocking here?

[01:09:03] Speaker 09:
And I actually never heard an answer from the government.

[01:09:07] Speaker 09:
The government says, and I agree, that it doesn't have to be ownership, that the blocking regulations are broader, but it does have to be identifiable.

[01:09:16] Speaker 09:
And it has to map onto the facts of the case.

[01:09:19] Speaker 09:
And the government has been very coy and has not actually asserted what it is.

[01:09:24] Speaker 09:
The most I heard was something about a future interest.

[01:09:28] Speaker 09:
I don't know what future interest Kate could have in these funds under their view of Article 4A.

[01:09:36] Speaker 09:
What is the left of Tria, US Judge Pillard?

[01:09:39] Speaker 09:
The government said, well, you could have situations where there are Iranian originator banks using US correspondent accounts.

[01:09:50] Speaker 09:
That cannot happen.

[01:09:51] Speaker 09:
US banks cannot accept transactions from Bank Mellie or Bank Saderat or Bank Markazi because they are sanctioned to entities.

[01:10:01] Speaker 09:
So it would only be by mistake that that would happen.

[01:10:05] Speaker 09:
The government says Holman is the originator.

[01:10:07] Speaker 09:
Talk about a loophole.

[01:10:09] Speaker 09:
This is like worse than Vladimir Putin owning houses in the name of his violinist.

[01:10:13] Speaker 09:
This is an agent of the originator.

[01:10:20] Speaker 09:
It is their attorney.

[01:10:22] Speaker 09:
And again, I would point the court to the power of attorney document at JA 117.

[01:10:28] Speaker 09:
Finally, on the point about priority, I just point the court to our reply brief at page 14 and the footnote there.

[01:10:37] Speaker 09:
The forfeiture warrant strangely has never been returned in this case, which perhaps raises jurisdictional issues for the government.

[01:10:46] Speaker 09:
My very last point is that the government's

[01:10:50] Speaker 09:
The government's position here leads to this very strange and arbitrary and incongruous outcome where CAFE is the, if only CAFE's instructions had been followed, CAFE would be the owner, but alas, they weren't, so they're not the owner.

[01:11:07] Speaker 09:
And I would say when this court is developing federal common law, it can and should do so in a way that accords with the statutory purpose at issue and does not lead to such arbitrary and incongruous outcome.

[01:11:20] Speaker 02:
Thank you.

[01:11:23] Speaker 02:
Thank you, council.

[01:11:24] Speaker 02:
The case is taken under advisement.