U.S. judge rules for Beirut bombing victims in Iranian funds case

* Lawyers say ruling puts victims' families one step closer

to funds

* U.S. victims of overseas attacks rarely get relief in

courts

* "Iran should ... be made to pay for its crimes" - victims

group spokeswoman

NEW YORK, March 1 (Reuters) - A U.S. judge issued a ruling

favoring victims of the 1983 Beirut Marine barracks bombing who

are seeking to collect $1.8 billion in Iranian funds held at

Citibank.

While the full ruling by U.S. District Judge Katherine

Forrest in Manhattan remains under seal, an order entered by

Forrest Thursday indicated that she ruled for the plaintiffs on

a motion seeking to have the funds turned over.

Lawyers for the victims' families said the order puts them

one step closer to collecting the money, while at least one

defendant said it was considering an appeal.

If the funds were released to the victims, it would mark a

rare instance of victims of overseas attacks successfully

obtaining monetary relief through the U.S. courts. Enforcement

of judgments obtained against foreign nations in these cases can

take years, often with little to no success.

The lawsuit in Manhattan federal court stems from attempts

by family members and survivors of 241 U.S. servicemen who died

during the bombing to enforce a $2.65 billion default judgment

they won in 2007 against Iran. The lawsuit alleged that Iran

provided material support to Hezbollah, which carried out the

attack.

In 2008, the U.S. Treasury Department uncovered the money at

the New York branch of Citibank, part of Citigroup Inc. The

plaintiffs subsequently sued in 2010 in an effort to have the

$1.8 billion go toward satisfying their judgment.

The defendants in the lawsuit include Citi; Bank Markazi,

Iran's central bank; and Luxembourg-based bank Clearstream S.A.,

which deposited the funds at Citi and held Iranian funds in

accounts in Luxembourg.

Clearstream and Rome-based Banca UBAE, which is also named

as a defendant, moved to dismiss the lawsuit, as did Iran's

central bank, which argued the plaintiffs couldn't sue it under

the Foreign Sovereign Immunities Act of 1976. Clearstream also

sought to vacate restraints placed on the account starting in

2008.

RELIEF, REASONING UNCLEAR

The plaintiffs meanwhile moved for summary judgment, seeking

a court order forcing the defendants to turn over the funds in

the Citi account.

Judge Forrest on Thursday granted the plaintiffs' motion for

summary judgment and denied the banks' motions to dismiss the

lawsuit.

It's unclear what relief, if any, Forrest ordered. The

decision's exact reasoning also isn't known, as Forrest filed

her written opinion under seal.

Forrest directed the parties to confer and to submit a

proposed schedule by March 15 "to resolve the remainder of the

case." The parties were also ordered to advise her on what parts

of her opinion, if any, they believe should remain under seal.

It was unclear from the decision what information the

parties might want redacted. The case is subject to a protective

order in order to shield confidential information.

Lynn Smith Derbyshire, a spokeswoman for the Beirut bombing

victims, hailed Judge Forrest's ruling in a statement and said

her side was "almost there."

"That bombing was vile," she said. "Iran should by every

measurement be made to pay for its crimes, and Judge Forrest has

shown wisdom in her ruling."

Nicolas Nonnenmacher, a spokesman for Clearstream, said in

an email that the bank was constrained from commenting since the

case is subject to a protective order. But Clearstream "must

protect assets of its customers," he said.

"In line with those obligations and its rights as owner of

its account at Citibank, Clearstream may appeal this court order

because of its fiduciary duty to protect assets in its custody

and to protect its legal rights," he said.

Citigroup spokeswoman Molly Meiners said the bank "will

continue to follow all applicable laws and orders and

instructions from the court."

Andreas Frischknecht, a U.S. lawyer for Bank Markazi at law

firm Chaffetz Lindsey, said in an email that he couldn't

comment, noting the opinion's reasoning for now is under seal.

The case is Peterson v. Islamic Republic of Iran, U.S.

District Court, Southern District of New York, 10-04518.

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