McDonnell Douglas Corp. v. Islamic Republic of Iran

• Decision Date: 03 April 1985
• Docket Number: No. 84-1943,84-1943
• Parties: 17 Fed. R. Evid. Serv. 1254 McDONNELL DOUGLAS CORPORATION, Appellee, v. ISLAMIC REPUBLIC OF IRAN, The Ministry of Defense of the Islamic Republic of Iran and the Islamic Republic of Iran Air Force, Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 341

758 F.2d 341

17 Fed. R. Evid. Serv. 1254

McDONNELL DOUGLAS CORPORATION, Appellee, v. ISLAMIC REPUBLIC OF IRAN, The Ministry of Defense of the Islamic Republic of Iran and the Islamic Republic of Iran Air Force, Appellants.

No. 84-1943.

United States Court of Appeals Eighth Circuit.

Submitted March 14, 1985.

Decided April 3, 1985.

Joseph McGlynn, Jr., Belleville, Ill., for appellants.

Thomas C. Walsh of St. Louis, Mo., for appellee.

Before HEANEY and ARNOLD, Circuit Judges, and HANSON ^*, District Judge.

HEANEY, Circuit Judge.

The Islamic Republic of Iran, Ministry of Defense of the Islamic Republic of Iran, and Islamic Republic of Iran Air Force (collectively, Iran) appeal from an order of the United States District Court ¹ granting McDonnell Douglas Corporation's motion for summary judgment in its declaratory judgment action against Iran. 591 F.Supp. 293. For reversal, Iran argues that the district court erred in (1) failing to hold that it lacked jurisdiction because of a forum selection clause in the contract between Iran and McDonnell Douglas which provides that contract disputes "should" be resolved through the Iranian courts; (2) denying Iran's motion to strike the affidavit of Lewis M. Johnson, Esq., McDonnell Douglas's expert on current legal conditions in Iran, on the ground the affidavit was not based on personal knowledge and did not set forth such facts as would be admissible in evidence; and (3) granting McDonnell Douglas summary judgment because there allegedly are material facts in dispute. In a supplemental brief, Iran claims that sovereign immunity bars McDonnell Douglas's suit. For the reasons set forth below, we affirm.

I. BACKGROUND.

In November, 1975, plaintiff-appellee McDonnell Douglas entered into a "Basic Ordering Agreement" (BOA) with the Imperial Iranian Air Force (IIAF) for the sale of certain parts for damaged F-4 aircraft. ² The agreement extended for one year, and was subsequently renewed for three additional one-year periods in 1976, 1977 and 1978. It expired by its own terms in November 1979. Article XV of the BOA, entitled "Negotiation," states that: "Any difference or disputes from the execution of the contract that may not be settled amicably should be settled through Iranian courts." Article XVIII, however, specifies that the agreement is subject to United States laws, particularly those governing the export of arms. Article XIII, entitled "Force Majeure," provides that McDonnell Douglas is excused from any failure to perform or delay in performance arising from causes beyond its control, including acts of the United States Government and embargoes. Article X specifies that the IIAF shall bear the risk of loss of any ordered parts. Article XII stipulates that McDonnell Douglas's liability is limited to repair or replacement of defective parts and that "in no event will McDonnell Douglas Corporation be liable for consequential damages."

Article VII provides that payments under the BOA shall be guaranteed by an irrevocable letter of credit established by the IIAF in the sum of at least $250,000, payable at First National Bank in St. Louis, Missouri. On November 22, 1978, the letter of credit expired and was never renewed. Thereafter, the First National Bank in St. Louis refused to make payments on McDonnell Douglas's invoices presented under the provisions of the BOA. ³

In early 1979, the Imperial Government of Iran was overthrown by the Islamic Republic of Iran. Shortly thereafter, the United States Air Force ordered that no military parts be sent to Iran under the Foreign Military Sales Agreement. It also notified McDonnell Douglas that the designated shipper under McDonnell Douglas's Basic Ordering Agreement with Iran refused to ship military parts to Iran and directed McDonnell Douglas not to ship any Iranian Foreign Military Sales items to this shipper. McDonnell Douglas then suspended work on the only five orders pending under the BOA, and ordered the emergency evacuation of all McDonnell Douglas personnel from Iran by February 8, 1979. No additional orders were placed under the BOA after that date, and the IIAF officers who had administered the BOA were either arrested and killed or fled the country.

On August 31, 1979, McDonnell Douglas informed Iran by letter that it was unable to complete the five pending orders for F-4 parts because the designated shipper refused to make shipments to Iran and the First National Bank of St. Louis refused to make payments on the projects because Iran had not renewed its letter of credit as required by the BOA. McDonnell Douglas requested that Iran reinstate its letter of credit, and questioned whether Iran still desired the five orders. Iran did not respond.

Following the seizure of the American Embassy in Tehran in November, 1979, the Treasury Department blocked the transfer of any Iranian property to that country. The State Department refused to issue any export licenses to McDonnell Douglas for sale of F-4 parts to Iran, and on December 5, 1979, suspended all existing licenses for export to Iran of F-4 spare parts.

In September 1982, McDonnell Douglas received a copy of a summons and complaint filed by the Islamic Republic of Iran in the Court of First Instance in Tehran, Iran. The complaint alleges that McDonnell Douglas breached the BOA by refusing to fulfill "approximately 40 orders" for parts submitted to McDonnell Douglas under the BOA in 1977. In addition, it alleges that "some parts" were sent to McDonnell Douglas for repair and/or exchange in accordance with Article XII of the BOA and that McDonnell Douglas failed to perform as required under the contract.

Iran's complaint alleges that McDonnell Douglas's breach of contract caused a shortage of F-4 parts and that Iran was therefore unable to fly aircraft in the Iran-Iraq war. The complaint seeks $6 million in damages, with the "real amount of damages" to be determined by an expert or group of experts in Iran. It also demands specific performance of the BOA, return of the parts, plus costs, attorney's fees, and fees for the damage experts.

On December 17, 1982, McDonnell Douglas filed this action in the Eastern District of Missouri seeking a declaratory judgment that it had not breached the BOA and that the Iranian proceedings were a nullity. The Iranian defendants filed a motion to dismiss, alleging lack of jurisdiction and sovereign immunity. The district court denied this motion. McDonnell Douglas thereafter filed a motion for summary judgment, together with extensive supporting affidavits, BOA records and copies of documents originally submitted by the United States to the Iran-United States Claims Tribunal at the Hague. Five months later, Iran submitted its motion in opposition, supported solely by one affidavit on current legal conditions in Iran and a telex from Iran's then-Minister of Defense, claiming that McDonnell Douglas should be required to prove its claim of performance and "the name of persons who have taken delivery of the said parts."

The district court determined that "[d]efendants have failed to establish a genuine issue of material fact to rebut plaintiff's evidence" and entered summary judgment for McDonnell Douglas. The court's lengthy and thorough opinion first held that under Article XVII of the BOA, and controlling principles of law, the BOA must be interpreted under the laws of the United States, and particularly, the law of the State of Missouri. It then held that jurisdiction in Missouri for McDonnell Douglas's suit was proper, notwithstanding the BOA's "negotiation" clause providing that contract suits "should" be resolved in the courts of Iran, because that clause is "clearly not a mandatory forum selection clause but instead states merely a forum preference. Second * * * even if the clause were considered mandatory, it would not be enforceable because of the changed circumstances in the forum state." The court then held that it was clear from the evidence that McDonnell Douglas had fully performed all of its contractual obligations under the BOA, and that even if it had not, any nonperformance was excused under Article XIII of the BOA because several events, including Iran's breach of contract in terminating the letter of credit necessary for paying McDonnell Douglas, made delivery to Iran of spare F-4 parts after November 1978 unnecessary, and subsequently, both impossible and illegal. The court also determined that Iran's claim for consequential damages was specifically prohibited by Article XII of the BOA, and that, in any event, consequential damages resulting from the loss of use of military aircraft in a war would be too speculative to be cognizable.

II. DISCUSSION.

Iran's initial contention is that the district court erred in holding that it was not divested of jurisdiction by Article XV of the BOA which provides that contract disputes "that may not be settled amicably should be settled through Iranian Courts." Iran relies on The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972), and Scherk v. Alberto Culver Co., 417 U.S. 506, 94 S.Ct. 2449, 41 L.Ed.2d 270 (1974), which hold that "absent some compelling and countervailing reason," The Bremen, 407 U.S. at 12, 92 S.Ct. at 1914, a forum selection clause between parties of equal bargaining power contained in a privately negotiated contract should be enforced by the courts. ⁴

In our view, these cases do not compel a finding that the district court was ousted of jurisdiction by the BOA's forum selection clause. First, even if we assume for purposes of argument that the BOA's forum selection clause is mandatory, there is a "compelling and countervailing reason" why the forum clause should not be enforced. In The Bremen, the Court held that even a mandatory forum clause does not oust a non-forum court of jurisdiction if the party can "show that trial in the contractual forum will be so gravely difficult and inconvenient that he...