How A Grieving Father Created The Model For Anti-Terror Lawsuits

After Steve Flatow's daughter was killed in a terrorist attack, he wanted justice. He embarked on a legal quest to get the right to sue a country: Iran. His case opened the doors to a new technique for deterring funding of terrorists, but it also interfered with the U.S. government's diplomatic efforts.

KELLY MCEVERS, HOST:

Lawsuits filed by families of victims of the September 11 terror attacks will move forward this year. And it's pretty rare for individuals to sue a country for an act of terrorism. Noel King from our Planet Money podcast has the story of one of the first people to try.

NOEL KING, BYLINE: One April morning 22 years ago, Steve Flatow was backing his car out of his driveway in New Jersey. He turned on the radio and heard news of a bus bombing in the Gaza Strip, and he had this crazy, terrible thought that his daughter Alisa was on that bus.

STEVE FLATOW: I just felt it in my bones.

KING: Alisa was a college student spending the semester in Israel. And the day before, she'd called Steve to tell him she was taking a bus trip to Gaza, and he knew.

FLATOW: I didn't hear the explosion. I didn't hear the sound that metal makes when it's ripped from the side of a bus. I did not hear cries of pain. I just knew it.

KING: His intuition was right. Alisa had been on that bus. She'd been killed by shrapnel, and he was left to grieve.

FLATOW: People don't know what to do. First of all, they don't know what to say, so they don't want to be near you. People just don't know how to react to the death of a child.

KING: The group that blew up the bus was called Palestinian Islamic Jihad. The State Department thought they got funding from the government of Iran. And Steve decided that he was going to sue Iran for as much as he could.

FLATOW: I saw it as a way to possibly put the Iranians out of the terrorism business. The goal was to make their lives so miserable that they would say, we're done.

KING: There is a law that says people can't sue countries - the Foreign Sovereign Immunities Act. Steve knew that. But right around this time, Congress changed the law, said terror victims could sue countries - those countries the U.S. designates as state sponsors of terror. Iran was one, but Steve would have to prove Iran was involved. He hired a legal team, and they got in touch with Patrick Clawson, an American economist with a unique skill.

How do you say good morning in Farsi?

(LAUGHTER)

PATRICK CLAWSON: (Speaking Farsi).

KING: He speaks and reads fluent Farsi, reads a lot of Iranian newspapers. And back then, Iran published its national budget in the paper. One day, Clawson was reading it and came across a line item for support to Palestinian Islamic Jihad.

CLAWSON: What idiot is going to put down in their budget, as approved by the parliament, that they're providing financial support for a terrorist group.

KING: They just wrote it in there?

CLAWSON: Yeah, it's in the budget law.

KING: It was proof. In 1998, Steve took Iran to court. Iran didn't send a representative to the trial. And after two days of testimony, the judge found Iran guilty and handed down a verdict of $250 million in damages.

FLATOW: I just slammed my hand on the table. And I looked up at the ceiling, and I said, yes, Alisa.

KING: But getting the money was another story. Steve's lawyers knew there were Iranian assets in the U.S. - a big embassy building in D.C., an ambassador's residence. They tried to seize those properties.

FLATOW: That's when all hell broke loose.

KING: Because the White House didn't want Steve to get Iranian property for two big reasons. First, the U.S. has its own embassies and ambassadors' houses overseas. What if citizens of other countries like Iran decided to sue back? Second, frozen assets are bargaining chips. They're leverage. To get POWs home from Vietnam, the U.S. unfroze Vietnamese assets - to get the Iran hostages back in '81, unfroze Iranian assets.

So Stephen his team would try to seize a property, and the White House would drag them into court to stop it. Then one day in the year 2000, a man called Steve's legal team. He said he was a retired U.S. military officer, and he gave them a tip. Iran used to buy weapons from the U.S. That stopped after the hostage crisis, but Iran had already made a down payment of about $400 million.

FLATOW: The money's been sitting in this account since 1979.

KING: It was true. The money was there. And the Clinton administration changed tack and negotiated with Congress to create the Victims of Trafficking and Violence Prevention Act. The government offered Steve $25 million - not his full judgment. But by now other families had sued Iran. They were owed, too. Steve says the government assured him the money would come from that Iranian account, and he decided enough was enough.

That was 15 years ago. Steve got on with his life. And then in the summer of 2015, Steve heard President Obama announce...

PRESIDENT BARACK OBAMA: A comprehensive long-term deal with Iran that will prevent it from obtaining a nuclear weapon.

KING: A day after Iran implemented the nuclear deal, Iran freed four Americans who'd been held in Iranian prisons, and the U.S. sent $400 million to Iran. It was, the Obama administration said, 400 million from an Iranian weapons account - the account Steve Flatow says he was told his settlement came from. And he realized something.

Whose money did you get?

FLATOW: At the end of the day, American taxpayer money.

KING: Not Iranian money.

FLATOW: Fifteen years later, you wake up. You see the money going back to Iran. You feel like a schnorrer. You feel like a beggar - that you've taken money out of the American taxpayer. We didn't want American taxpayer money. We wanted Iranian money.

KING: But remember Steve's goal to get Iran out of the terror business? His case became a kind of template. In the years since his suit, U.S. citizens have won billions of dollars in judgments against Iran. Some economists and lawyers and even diplomats say that's hit Iran where it hurts.

And now these forthcoming lawsuits against Saudi Arabia - they're different than Steve's case. Saudi Arabia is a U.S. ally with hundreds of billions of dollars of assets here. And the U.S. has hundreds of billions of dollars of assets there. It's likely going to be and to get a lot more complicated. Noel King, NPR News.

POST-BROADCAST CORRECTION:An earlier version of this transcript included a typographical error. Iran did not make a down payment for weapons of about $400 billion. The down payment was about $400 million. The figure is correct in the audio.

Copyright © 2017 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.