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Acknowledging the “unfortunate” timing of the decision on the second anniversary of the Sept. 11 terror attacks, a federal judge in New York declared Thursday that the families of those killed cannot recover damages from the nearly $2 billion in Iraqi assets frozen by the U.S. government because those funds will be used to rebuild Iraq. U.S. District Judge Harold Baer denied a motion by the administrators of the estates of two World Trade Center victims — George Eric Smith, 38, and Timothy Soulas, 35 — to block the transfer of $63.9 million from the Federal Reserve Bank of New York to Iraq. Baer noted in Smith v. Federal Reserve Bank of New York, 03 Civ. 5658, that all but $63.9 million of some $1.9 billion in assets originally frozen had already been sent to Iraq. The families sought the funds to satisfy part of a $104 million judgment awarded by Baer in May against the Republic of Iraq, its former leader Saddam Hussein, Osama bin Laden and his al-Qaida terrorist group, the Islamic Emirate of Afghanistan and the Taliban. The plaintiffs sued for damages under the Foreign Sovereign Immunities Act, alleging Iraq and the other defendants supported bin Laden in the execution of the Sept. 11, 2001, attacks on the World Trade Center and the Pentagon. Baer rejected the plaintiffs’ argument that they were entitled by the Terrorism Risk Insurance Act of 2002 (TRIA) to collect Iraq’s share of the judgment from the funds frozen by the United States at the start of the first Gulf War in 1990. President Bush issued an executive order on March 20, 2003, the eve of the launch of Operation Iraqi Freedom, confiscating Iraq’s “blocked” assets and converting them into assets of the United States, Baer said. “Thus, as of that date, they ceased to be subject to exception or attachment pursuant to the TRIA and, as property of the United States, became shielded by sovereign immunity,” he wrote. Furthermore, on May 7, approximately one week after Bush declared the end of major combat in Iraq and two weeks before final judgment was entered in the plaintiffs’ damage suit, Baer noted, the president issued a determination pursuant to the Emergency Wartime Supplemental Appropriations Act, which Congress enacted in April. The president’s determination suspended the application of the TRIA to Iraq, even though it was not specifically named. The plaintiffs argued that if the emergency appropriations act authorized Bush to make the TRIA inapplicable to Iraq, it was an impermissible line-item veto, and it improperly delegated legislative functions to the president in violation of the U.S. Constitution’s separation of powers among the three branches of government. Baer distinguished this case from the U.S. Supreme Court precedent set in 1998 in Clinton v. New York, 524 U.S. 417, in which the Court struck down the Line Item Veto Act. “Unlike in Clinton, Bush is carrying out, not rejecting, a policy made by Congress based on the drastically changed circumstances in Iraq,” the judge said. CONGRESS MAY DELEGATE Additionally, the U.S. Supreme Court has “widely permitted” Congress to delegate its legislative authority to other branches, he said. “Thus, to the extent that the [appropriations act] involves the delegation of legislative authority to the president — a questionable proposition given that this act related to foreign affairs — this delegation finds ample support under the Supreme Court’s jurisprudence.” The judge observed that like the plaintiffs who lost family members in the World Trade Center collapse, prisoners of war tortured by the former Iraqi regime during the first Gulf War had also been denied recovery from the frozen Iraqi assets by a federal judge in Washington, D.C., in July. “The government contends that these funds, which might otherwise be used for compensation, are needed to rebuild Iraq. That need is clear, nonetheless one wonders whether American families who lost loved ones as a result of terrorism here and abroad ought not be compensated first. That said, compensation sought by plaintiffs, at least from this source, must be denied,” he concluded. The plaintiffs were represented by James E. Beasley of Beasley, Casey & Erbstein in Philadelphia. The Federal Reserve Bank was represented by Shari D. Leventhal. Assistant U.S. Attorneys Beth Goldman and Benjamin Torrance of the U.S. Attorney’s Office for the Southern District of New York, and Shannen W. Coffin of the U.S. Department of Justice in Washington, D.C., appeared for co-defendant John W. Snow, secretary of the Treasury.

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