New York Court Rules in Favor of KH Client

New York Law Journal
November 8, 2005 Tuesday

Justice Dissolves Order Freezing Palestinian Funds

A MANHATTAN Supreme Court justice has dissolved an order freezing $30 million at the Bank of New York in a setback to an effort to collect a $116 million judgment against the Palestinian National Authority for the 1996 terrorist slaying of a U.S. citizen.

Acting Justice Shirley Werner Kornreich dissolved a restraining order served on the Bank of New York by a Rhode Island lawyer representing the estate and family members of Yaron Ungar, who was killed when members of Hamas riddled his car with bullets while he was in Israel.

Justice Kornreich in Palestine Monetary Authority v. Strachman, 107777/05, lifted the order finding that, at this stage of the proceeding, the Rhode Island lawyer, David Strachman, had not made a sufficient showing that the funds frozen at the Bank of New York belonged to the Palestinian National Authority or the Palestine Liberation Organization.

Justice Kornreich also issued a preliminary injunction barring Mr. Strachman from taking further action to attach funds flowing through the account until a final ruling in the case is issued.

She did note, however, that the four-day hearing she had conducted in August had proceeded on an emergency basis with Mr. Strachman only being permitted discovery of Bank of New York records.

Because evidence developed after a full hearing might compel a different legal conclusion, Justice Kornreich ordered the Palestine Monetary Authority, the entity that claimed responsibility for the Bank of New York funds, to post a $30 million bond until the case is resolved.

Without discovery, Mr. Strachman said, "We had both hands tied behind our back. When we have an opportunity to fully and fairly litigate the case, we are optimistic we will prevail."

Mr. Ungar was a Brooklyn-born rabbinical student in Israel where he lived with his wife and two young children. His wife, Erfat, also was killed in the attack, but, because she was an Israeli citizen, her estate could not sue for damages under the Anti-Terrorism Act, 18 U.S.C. § § 2331-2338. Only U.S. citizens may avail themselves of the 1991 law, which for the first time authorized victims of terrorist acts anywhere in the world to bring damage actions in federal court.

The problem confronting Justice Kornreich was determining ownership of the $30 million frozen at the Bank of New York.

Mr. Strachman contended that the Palestine Monetary Authority is an "alter ego" of the Palestinian National Authority and the Palestine Liberation Organization.

Justice Kornreich rejected the argument, finding that the Palestine Monetary Authority "deals at arm's length with the [national authority] and is treated as a separate profit center."

Both the Palestinian National Authority and the Palestine Monetary Authority were established by the 1994 Oslo Accords. The monetary authority was not named as a defendant in the underlying damage action in federal court nor did U.S. Judge Ronald R. Lagueux, who assessed the $116 million damage award, name the monetary authority in his order listing entities whose assets could be frozen to satisfy the judgment. Judge Lagueux sits in Providence, R.I., where Mr. Strachman lives.

According to Justice Kornreich's opinion, evidence at the hearing showed that the monetary authority performed many of the functions of a national central bank, such as the Federal Reserve in the United States, though not precisely the same functions, because the Palestinian National Authority is not a state. Those functions included insuring the soundness of the banking system, maintaining monetary stability and encouraging economic growth.

At the hearing, George T. Abed, the monetary authority's governor, testified that the freezing of the funds passing through the Bank of New York could cripple Palestine's nascent banking system.

Mr. Abed was appointed by the chairman of the Palestinian National Authority and confirmed by the Palestine legislature. Mr. Abed testified that the monetary authority holds no funds belonging to the national authority, though the monetary authority has loaned and borrowed money from the national authority. The monetary authority, however, maintains a capital reserve and pays its employees with interest earned on its deposits, though a portion of any profits is paid to the national authority.

As for the funds that flow through the Bank of New York account, Mr. Abed testified, they involve any transactions in which dollars need to be moved in or out of the 21 commercial banks operating within the Palestine territory.

The Palestine National Authority does not have its own currency. Instead, four currencies are used in the territories: the U.S. dollar, the Euro, the Jordanian dinar and the Israeli shekel. All dollar transfers, are conducted on the monetary authority's behalf through the account at the Bank of New York, which is in the name of yet another entity, the Palestine International Bank

In lifting the restraining order, Justice Kornreich found that "the Bank of New York holds no property of the Palestine Monetary Authority" which would be subject to attachment. In a separate finding, she concluded that the monetary authority "has been shown to have the characteristics of a typical central bank and has not been demonstrated to be the agent or alter ego of the [national authority]."

She also found that the imposition of the restraining order could cause irreparable injury by putting "the entire banking system of the territories at risk" as well as undermining "the economic development of the Territories and the Palestine Monetary Authority's status in the international community."

The Palestine Monetary Authority was represented by Haig Kalbian of Kalbian Hagerty in Washington, D.C. Mr. Strachman was represented by Robert J. Tolchin of Jaroslawicz & Jaros.