More than 1,000 American victims of Iran-sponsored terrorist attacks and their surviving family members -- who have won judgment against Iran -- are seeking to have the funds, currently being held in New York, turned over.
The case comes at a sensitive time in U.S.-Iran relations as both sides work through the implementation of a nuclear deal reached in July which could lead to better relations.
At issue is whether Congress exceeded its authority when passed a law aimed specifically at the case while the case was pending.
The lead plaintiff is Deborah Peterson, whose brother, Lance Cpl. James C. Knipple of Alexandria, Virginia, was killed in the Beirut barracks bombing
in 1983. In 2001, the Peterson plaintiffs, along with family members and the estates of 241 Beirut bombing victims, filed suit in U.S. courts against Iran. Six years later, a federal district court held that the evidence presented by the Peterson plaintiffs established Iran's liability, and the following year, the plaintiffs were informed that the Bank of Markazi had $1.75 billion in assets held in an account in New York.
In court Wednesday, the case produced a lively discussion on the separation of powers as the justices considered whether to reverse the lower court that cited the 2012 law in ruling for the victims and ordering that the funds be turned over.
Chief Justice John Roberts and others probed the parties to draw a line between Congress enacting a law and, on the other hand, going too far to intervene in a pending case.
"You are saying Congress has to be cute about it," he said to the Justice Department lawyer who supports the victims in the case. "Our job is to decide cases, their job is to pass laws," he said.
Other justices wondered whether there were other cases that would be affected by the law. Justice Ruth Bader Ginsburg asked about the fact that at one time there were about 19 separate lawsuits involved, suggesting the law wasn't targeting just one set of plaintiffs and it had a more general application.
The bank argues that the law is impermissible because it effectively dictated the outcome of a single pending case without changing the law in general.
"I take it you are relying on the separation of powers," Justice Anthony Kennedy asked a lawyer defending the bank. Justice Elena Kagan pressed the lawyer about the fact that the case concerns foreign affairs. "The political branches have a great deal of power in this area," she said.
Even if the victims lose in this case, they could still win by relying on a different law passed in 2002, but that law is not directly before the justices.
The case is being carefully watched by those who worked to help pass the 2012 law.
"From a public policy perspective, the Iranian government needs to be punished for its support of past acts of terrorism, " says Mark Dubowitz, the executive director of the Foundation for Defense of Democracies, a group that filed a brief in support of Peterson. "Governments need to know that if they are going to conduct terrorist activities, they will pay for that terrorism through the imposition of billions of dollars in judgments and in penalties," he said.
While the plaintiffs sought access to the funds held by the Bank of Markazi, Congress passed the Iran Threat Reduction and Syria Human Rights Act of 2012 including one section that addressed the assets in the Peterson case. In 2013, a district court subsequently ordered the bank to turn over the assets.
But lawyers for the Bank of Markazi say Congress exceeded its authority when passing the 2012 law and cautioning the court against a ruling that could green-light a broad authority to intervene in pending cases.
"The legislative intrusion into a single pending case -- changing the law so plaintiffs can collect nearly $2 billion from their adversary -- violates the separation of powers," Jeffrey A. Lamken, a lawyer for Bank Markazi, argued in court papers. He said that the law "threatens the independence of the federal judiciary" and that Congress "cannot change the law solely for one case to ensure that its favored litigant prevails."
In court briefs, Peterson lawyers reject the bank's arguments.
"Nothing in the Constitution bars Congress either from modifying the applicable law before the Judicial Department has rendered a final decision, or from modifying the terms on which that judgment may be enforced," they wrote.
Peterson lawyer Theodore B. Olson argued in briefs that the bank, "seeks to evade responsibility for horrific acts of terrorism that federal courts have definitively concluded that Iran committed."
Olson said the 2012 law is "fully consistent" with the separation of powers and that it prescribes standards for governing the more than 1,000 victim's claims in separate actions that have been consolidated.