Smith v. The Islamic Emirate

Background

Four groups of judgment creditors held default judgments against the Taliban for losses connected to the September 11, 2001 attacks and other terrorist attacks. They sought turnover—an order requiring property to be transferred to satisfy a judgment—of funds in the name of Da Afghanistan Bank (DAB), Afghanistan’s central bank. The funds were held at the Federal Reserve Bank of New York. The creditors relied on Federal Rule of Civil Procedure 69(a), New York enforcement statutes, and Section 201 of the Terrorism Risk Insurance Act of 2002 (TRIA).

A magistrate judge recommended denying the turnover motions. The judgment creditors timely objected, so Judge Daniels independently reviewed the challenged portions of that recommendation. The court adopted the recommendation in the relevant respects but rejected one finding concerning whether DAB could be an agency or instrumentality of the Taliban based on nonconsensual Taliban control.

Foreign Sovereign Immunities Act

The court held that DAB, as Afghanistan’s central bank, is an agency or instrumentality of a foreign state under the Foreign Sovereign Immunities Act (FSIA). The FSIA generally provides two separate protections: immunity from being sued in U.S. courts and immunity from attachment or execution against property. A party seeking to reach foreign central-bank assets must overcome both protections.

The court concluded that the turnover motions failed at the jurisdictional stage. TRIA can operate as an exception to immunity from execution in certain circumstances, but the court treated TRIA as an execution statute, not as a general waiver of jurisdictional immunity. The court therefore held that TRIA did not give it subject-matter jurisdiction—the legal authority to hear the turnover proceedings—over DAB or the DAB funds.

The court also held that the creditors’ judgments against the Taliban were insufficient to reach DAB’s property. The judgments were against the Taliban, not Afghanistan or DAB. In the court’s view, TRIA could support jurisdiction over an instrumentality when there was a qualifying judgment against the underlying foreign sovereign, but the creditors had no such judgment. The court further noted that Afghanistan had not been designated a state sponsor of terrorism, which independently prevented the use of the relevant TRIA and FSIA provisions against Afghanistan.

Constitutional recognition issue

The court gave an additional reason why the turnover requests could not succeed. To treat DAB as the Taliban’s agency or instrumentality, the court would have to find that the Taliban controlled or directed Afghanistan’s central bank. Because central banks perform core government functions, the court reasoned that accepting the Taliban’s appointments and policies as legally authoritative would effectively recognize the Taliban as Afghanistan’s government.

The court held that the Constitution assigns recognition of foreign governments to the political branches, particularly the Executive Branch, not the judiciary. The court said it could acknowledge the Taliban’s de facto control of Afghanistan but could not treat that control as legally establishing the Taliban as Afghanistan’s government.

Disposition

The court denied the judgment creditors’ motions for turnover of DAB funds. It also denied as moot the judgment creditors’ motion for post-judgment attachment, the Ashton plaintiffs’ motion for attachment, the Ashton plaintiffs’ motion for a protective order, Owens Proposed Intervenors’ motion to intervene, and the Federal Insurance Creditors’ motion to vacate. The clerk was directed to close the motions. The court stated that the decision did not affect the Executive Branch’s authority to determine the ultimate disposition of the blocked DAB funds remaining at the Federal Reserve Bank of New York.