Bassidji v. Goe

• Decision Date: 15 June 2005
• Docket Number: No. 02-16019.,02-16019.
• Citation: 413 F.3d 928
• Parties: Massoud BASSIDJI, Plaintiff-Appellee, v. Simon Soul Sun GOE, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

413 F.3d 928

Massoud BASSIDJI, Plaintiff-Appellee, v. Simon Soul Sun GOE, Defendant-Appellant.

No. 02-16019.

United States Court of Appeals, Ninth Circuit.

Argued March 13, 2003.

Submitted February 23, 2004.

Filed June 15, 2005.

COPYRIGHT MATERIAL OMITTED

Lori A. Lutzker and W. George Wailes, Carr, McClellan, Ingersoll, Thompson & Horn, Burlingame, CA, for the defendant-appellant.

Douglas A. Applegate and Mark W. Epstein, Seiler Epstein Ziegler & Applegate LLP, San Francisco, CA, for the plaintiff-appellee.

Appeal from the United States District Court for the Northern District of California; Martin J. Jenkins, District Judge, Presiding. D.C. No. CV-01-04149-MJJ.

Before: KOZINSKI, GRABER, and BERZON, Circuit Judges.

BERZON, Circuit Judge:

Executive Order 13,059 (the "Executive Order" or "Order"), 62 Fed.Reg.44,531 (Aug. 21, 1997), prohibits United States citizens from investing in and trading with Iran.¹ The question we face is whether an American citizen's guarantees of payments that furthered a trade agreement with an Iranian company are covered by the Executive Order and, if so, whether the guarantees are unenforceable as a result. We conclude that the guarantees were illegal under the Executive Order and, under the circumstances of this case, unenforceable.

BACKGROUND

The First Amended Complaint

This appeal arises from the district court's denial of the defendant's motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). We therefore assume true the following facts, alleged in the First Amended Complaint.² See Libas Ltd. v. Carillo, 329 F.3d 1128, 1130 (9th Cir.2003).

"In or around" November 1999, an Iranian company, Seyd Sayyad Ltd. ("SSL"), and a Hong Kong company, Kingdom Enterprises Ltd. ("KEL"), entered into a business arrangement for the purpose of harvesting Artemia cysts (brine shrimp eggs) from a lake in Iran.³ The Iranian government required sizeable payments for licenses and other fees to authorize the shrimp egg harvesting project, and SSL undertook related "financial commitments." Karim Arshian, an Iranian citizen affiliated with SSL, "was required to execute several guarantee checks related to the proposed operations."

Simon Goe, a U.S. citizen affiliated with KEL, guaranteed repayment of Arshian's costs by executing two personal guarantees, one on November 12, 1999, and another on January 20, 2000. Each time, Goe promised to reimburse Arshian for any expenditures made in securing the "harvest license, customs clearance, office and living arrangement," up to $1,875,603.⁴ "Without the promised guarantees, [Arshian] would have been unwilling to execute the referenced guarantee checks."

Arshian subsequently paid more than $1,875,603 toward these expenses and requested repayment from Goe. Goe refused to honor the guarantees. He paid Arshian nothing. Because Goe did not reimburse Arshian as promised, Arshian could not make the required payments. Arshian was unable to pursue legal action on his own because he was imprisoned, and sold his rights under the guarantees to Massoud Bassidji, who is identified in the complaint as "an individual residing in Toronto, Canada."⁵ The record does not show the terms of the assignment, including whether Arshian will receive any of the proceeds if the guarantees are enforced.

Proceedings in District Court

Bassidji filed a breach of contract claim in district court in California. Goe asked the court to dismiss the complaint, on the ground that the guarantees were illegal under Executive Order 12,959 (now superseded by Executive Order 13,059) and therefore unenforceable.⁶

Executive Order 13,059, like its predecessor, Executive Order 12,959, bans certain economic transactions by "United States person[s]"⁷ with Iran. The Order was promulgated under the authority of the International Emergency Economic Powers Act ("IEEPA"), 50 U.S.C. §§ 1701-1706. Its purpose is "`to deal with [Iran's] unusual and extraordinary threat to the national security, foreign policy, and economy of the United States,'" see Order pmbl., by "`isolat[ing] Iran from trade with the United States.'" Kalantari v. NITV, Inc., 352 F.3d 1202, 1206 (9th Cir.2003) (quoting United States v. Ehsan, 163 F.3d 855, 859 (4th Cir.1998) (quoting Executive Order 12,959)) (internal quotation marks omitted); 6 U.S. Dep't of State Dispatch No. 19 (May 8, 1995) (quoting Secretary of State Warren Christopher as stating that Executive Order 12,959 "will ban all U.S. trade and investment with Iran").

The district court denied Goe's motion to dismiss. The court reasoned that the Executive Order and its implementing regulations ban only "specified conduct, for example, the importing of goods or services of Iranian origin or owned or controlled by the Government of Iran into the United States, and whatever transactions were implemented to further such conduct" (emphasis added). Because the underlying conduct, the exchange of goods between Hong Kong and Iran, is legal, the district court reasoned, agreements by a United States citizen in furtherance of such a transaction are not prohibited. The district court did not rule, at that time, on Bassidji's alternative argument supporting enforcement of the guarantees: that Bassidji was not in pari delicto (equally at fault) with Goe, so the contracts should be enforced despite their illegality to avoid providing Goe a windfall from his illegal actions.

The district court subsequently certified its order for interlocutory appeal pursuant to 28 U.S.C. § 1292(b), finding, as § 1292(b) requires, that the order involves a controlling question of law. In so concluding, the district court addressed and rejected Bassidji's in pari delicto theory, recognizing that if the agreement were enforceable even if illegal, the illegality question would not control the result. The general rule that illegal contracts are not enforceable, the court stated, is qualified if, "after looking at the kind of illegality and the particular facts involved, enforcement would in fact best achieve the aims of the policy or law the contract violates." Taking the alleged facts as true, the district court concluded that Goe was at greater moral fault, and that conduct similar to Goe's—making guarantee promises and then not honoring them—"would be encouraged by invalidating the guarantees or assignment." The court found, however, that counterbalancing factors of national security, economics, and foreign policy outweighed the moral fault and deterrence considerations.

We granted Bassidji's request for an interlocutory appeal. After oral argument, the parties attempted for some time to mediate their dispute with the aid of the court's mediators. After mediation failed, the case was submitted for decision.

DISCUSSION

I. Choice of Law

To determine whether the Executive Order barred Goe from issuing the guarantees, we must decide whether the Order applies to them. Bassidji maintains that it does not, as Hong Kong law applies. We disagree.

Federal subject-matter jurisdiction in this case is based on the parties' diversity of citizenship. We therefore apply the choice-of-law principles of the forum state, here California. See Stud v. Trans Int'l Airlines, 727 F.2d 880, 881 (9th Cir.1984). "To determine the law governing a contract, California courts look to the relevant statute and, for further guidance, to the choice-of-law principles outlined in the Restatement." Shannon-Vail Five Inc. v. Bunch, 270 F.3d 1207, 1210 (9th Cir.2001).

California's codified choice-of-law rules provide that "[a] contract is to be interpreted according to the law and usage of the place where it is to be performed; or, if it does not indicate a place of performance, according to the law and usage of the place where it is made." Cal. Civ.Code § 1646. If Bassidji's assertions are correct and the second guarantee was executed in Hong Kong, the California rule suggests that Hong Kong law applies, at least as to that guarantee, as no place of performance is indicated.

There is an exception to the California rule, however, when courts are called upon to enforce a contract that implicates strong public policy concerns. "California's narrow, public policy exception to the resolution of conflicts through a neutral comparison of government interests . . . applies only when foreign law is `so offensive to [California] public policy as to be "`prejudicial to . . . recognized standards of morality and to the general interest of the citizens. . . .'" '" McGhee v. Arabian Am. Oil Co., 871 F.2d 1412, 1423 n. 8 (9th Cir.1989) (quoting Wong v. Tenneco, Inc., 39 Cal.3d 126, 216 Cal.Rptr. 412, 702 P.2d 570, 576 (1985)) (quoting Knodel v. Knodel, 14 Cal.3d 752, 122 Cal. Rptr. 521, 537 P.2d 353, 361 n. 15 (1975)) (quoting Biewend v. Biewend, 17 Cal.2d 108, 109 P.2d 701, 705 (1941)) (alteration and second omission in original). Illegal trade with Iran, a country whose government poses an "unusual and extraordinary threat to the national security, foreign policy, and economy of the United States," see Order pmbl., represents just this sort of policy concern. California law, which incorporates Executive Order 13,059 through the Supremacy Clause, therefore applies to both the California guarantee and the similar Hong Kong guarantee.⁸ See Kashani v. Tsann Kuen China Enter. Co., 118 Cal.App.4th 531, 13 Cal.Rptr.3d 174, 181 (2004) (recognizing that "California law includes federal law" for purposes of choice-of-law analysis, so that "a violation of federal law is a violation of law for purposes of determining whether or not a contract is unenforceable as contrary to the public policy of California").

II. The Executive Order

Executive Order 13,059 prohibits, among other things:

any transaction or dealing by a United States person, wherever located, including purchasing, selling, transporting, swapping, brokering, approving, financing, facilitating, or guaranteeing, in or related to: (i) goods or services of Iranian origin or...