Asset Protection

USA Throws Open the Door for Frivolous Terror Lawsuits

Could you be sued for civil claims relating to terrorism?

Take the Nestmann three-step test to find out.  Then take a deep breath.

1.  Do you (or any company in which you are an officer or director) have or had business dealings with Cuba, Iraq (prior to the 2003 invasion), Iran, Libya, North Korea, Sudan, or Syria?  These are countries that U.S. government now or in the past designated "state sponsors of terrorism."

2.  Do you (or any company in which you are an officer or director) have any assets in the United States, or administer U.S. assets owned by one or more of these countries' governments or government-sponsored entities?

3.  Are you a U.S. citizen or resident, or travel in or through the United States?

If you answered yes to either question one or two, and also to question three, you just might find yourself facing a big lawsuit.  And for that, you can thank Congress and President George W. Bush.

On Jan. 28, 2008, Bush signed a bill amending an obscure law called the "Foreign Sovereign Immunities Act."  The bill makes it easier for victims of terrorism to recover civil damages—including punitive damages—from countries state sponsors of terrorism.  But I wouldn't be surprised to also see lawsuits brought against individuals and companies very far removed from any terrorist activity.

Take Libya, for instance.  In 2006, the U.S. State Department removed Libya from its list of state sponsors of terrorism.  That opened the door to hundreds of millions of dollars of U.S. investment in the country.  However, those investments now expose the investors to multimillion-dollar terrorism judgments.

Lawyers representing victims of terrorists attacks allegedly sponsored by Libya prior to 2006 have notified at least a dozen corporations of pending lawsuits.  Since Libya was sued prior to 2006 in connection with these attacks, the lawyers believe they should be able to recover against companies that invested in Libya after its removal from the State Department blacklist.  If a federal court in Washington, D.C. agrees, it will be open season on any of these companies.

The same logic would presumably apply to investments in any other country that's removed from the blacklist in the future, unless it negotiates an exemption from prior claims.  (The new Iraqi government succeeded in doing so before Bush signed the amendments into law, but not Libya.)

What that means is that the same lawyers who troll the Internet looking for deep pockets and unprotected assets will be coming after anyone with even the most remote connection to a "state sponsor of terrorism."  If you fit the criteria I mentioned a moment ago, even a brief visit to the United States could ensnare you.  Should a plaintiff's attorney catch wind of your visit, you could be "served" with notice of a lawsuit.

Once that occurs, you must defend yourself under the rules of the U.S. federal court system.  That means that even if the claims are completely frivolous, you must pay your own defense costs.  Unlike most other countries, there is no "loser pays" rule in the United States.  And if you lose the case, you could face punitive damages—whatever the jury decides to award a sympathetic terrorist victim against a "deep pocket" defendant.

Campaigning for reelection to the Presidency in 2004, President Bush promised to protect Americans from what he called "the explosion in frivolous lawsuits."  At the least, it's highly ironic that as he leaves office, plaintiff's attorneys are gearing up for an orgy of such lawsuits ostensibly brought against state sponsors of terrorism.


Copyright © 2008 by Mark Nestmann

(An earlier version of this post was published by The Sovereign Society.)

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