650 Fifth Avenue
650 Fifth Avenue (Americasroof/wikipedia)

Claimants to an interest in a forfeited Fifth Avenue office building whose partial owners are accused of violating the Iranian trade embargo are now waiting to see how more than $500 million will be distributed, following a judge’s ruling Friday.

Judge Katherine Forrest (See Profile) had ruled in September that the majority interest held by Assa Corp and its partner, the Alavi Foundation, under the name 650 Fifth Ave. Co. was a front for Iran’s Bank Melli and thus a front for the Iranian government—and their interest could be forfeited to the U.S. government (NYLJ, Sept. 17, 2013). That order is being appealed.

In Friday’s 74-page ruling, Forest granted summary judgment for several creditors against Alavi and 650 Fifth Ave. Co.’s interests in the building as well as seven Alavi-only properties in five states and three bank accounts.

“The undisputed facts show that defendants Assa, Alavi, and 650 Fifth Avenue ‘are’ the Government of Iran within the meaning” of the Terrorism Risk Insurance Act of 2002 and the Foreign Sovereign Immunity Act,” Forrest said in In Re 650 Fifth Avenue and Related Properties, 08 Civ. 10934.

Curtis Mechling, a partner at Stroock & Stroock & Lavan who represents some of the judgment creditors, 19 individual plaintiffs from four different families who prevailed in the judge’s ruling Friday, said his clients are “individuals who hold judgments against Iran or instrumentalities of Iran for damages arising out of Iran-sponsored terror attacks in various parts of the world.”

Forrest’s order affects more than 1,000 individual plaintiffs who have obtained judgments against Iran in various district courts in the United States. Those plaintiffs joined in Stroock’s motion.

Forrest also ruled for the U.S. government on the forfeiture of those same seven properties by Alavi, including an investment in a Queens building worth $5.9 million, because they represent proceeds from both illegal money laundering and violations of the International Emergency Economic Powers Act (IEEPA).

The judge rejected several defenses, including Assa’s claim that it was not an instrumentality of Iran and that its due process rights were being violated, and a defense by Alavi based on its claim that its interests in the properties were primarily used to promote and support Islamic culture and the study of Persian language, literature and civilization in the United States.

“Analogizing the seven real properties to ‘donations’ to charity mischaracterizes their use,” Forrest said. “Here, while Alavi accrued no monetary rent from its leases, it contracted with tenant organizations for leasing real property and received financial benefits from those leases,” she said.

Forrest also found that “each of the seven properties is forfeitable to the extent that Alavi spent forfeitable proceeds from the Building on the property, whether in the form of repairs, improvements, or payments of real estate taxes.”

Next up for the judge is a claim of priority on the proceeds from the sale of the building by the family of the late Charles Hegna, who was tortured and murdered in Teheran in 1984 following a hijacking of a Kuwaiti Airlines plane by Hezbollah.

Hegna’s family won a $375 million judgment against the Republic of Iran in 1994 in the U.S. District Court for the District of Columbia and it asserts a lien in that amount against the defendant’s interest.

Attorney Steven Kessler, of the Law Offices of Steven Kessler who represents the Hegnas, said on Wednesday that Forrest’s decision excluded Alavi and other defendants from claiming any interest in the Fifth Avenue property and “what’s ahead now is a determination on the respective interests of the creditors.”

The U.S. government has said it intends to use whatever proceeds it obtains from the forfeiture to compensate victims of terrorism. Kessler said that, following the September forfeiture order, “what the other parties have been doing is to negotiate an agreement with the government” to get a percentage of the forfeiture.

Should Forrest grant the Hegnas’ motion, he said, his clients would have priority, but “if the Hegnas lose the motion they are put in the same pot as everybody else.”

Kessler also explained that the judgment in the District of Columbia involved $42 million plus interest (in excess of $10 million) in compensatory damages and the rest is in punitive damages “and we have offered to reduce” or not pursue the punitive damages “so that other creditors will get money as well, as long as our claim for the compensatory damages is recognized.”

Several plaintiffs oppose the Hegna’s motion and some offer defenses, contending that the Hegnas do not have priority, and others say the Hegnas’ claim is subordinate.

Mechling said Wednesday “we respectively disagree with the Hegnas,” and noted that the U.S. government has also opposed the motion.

Daniel Ruzumna of Patterson, Belknap, Webb & Tyler represented Alavi on the motions and Peter Livingston, Rose & Livingston represented Assa.