Tchacosh Co., Ltd. v. Rockwell Intern. Corp.

• Decision Date: 23 July 1985
• Docket Number: No. 84-5628,84-5628
• Parties: TCHACOSH COMPANY, LIMITED, Plaintiff-Appellant, v. ROCKWELL INTERNATIONAL CORPORATION, and Rockwell International Systems, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1333

766 F.2d 1333

TCHACOSH COMPANY, LIMITED, Plaintiff-Appellant, v. ROCKWELL INTERNATIONAL CORPORATION, and Rockwell

International Systems, Inc., Defendants-Appellees.

No. 84-5628.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Oct. 4, 1984.

Decided July 23, 1985.

Stephen D. Miller, Thomas J. Nolan, George W. Buehler, Miller & Nolan, Inc., Beverly Hills, Cal., for plaintiff-appellant.

Munger, Tolles & Rickershauser, Jeffrey I. Weinberger, Ralph F. Hirschmann, Los Angeles, Cal., for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Before TANG, SCHROEDER and BEEZER, Circuit Judges.

TANG, Circuit Judge:

Tchacosh Company, Ltd. (Tchacosh) appeals the district court's judgment in favor of defendants-appellees Rockwell International Corporation and Rockwell International Systems, Inc. (Rockwell). It found that Tchacosh lacked capacity to sue, and granted summary judgment for Rockwell. We affirm.

FACTS

In November, 1978, Tchacosh entered into a subcontract with Rockwell for the construction of certain defense facilities at the Mehrabab Airport in Teheran, Iran. This subcontract was part of a prime contract Rockwell had entered into with the Government of Iran. Tchacosh's action arises from its subcontract with Rockwell.

Throughout all relevant time periods Tchacosh has been a corporation organized and operating under the laws of Iran. When Rockwell subcontracted with Tchacosh only three authorities were authorized under Iranian law to manage a company such as Tchacosh: the general meetings of shareholders, the board of directors and the managing director. Prior to mid-1979, Hassan M. Hashemi was the managing director and chairman of the board of Tchacosh.

On June 14, 1979, the Government of Iran enacted the Temporary Director Act. ¹ This Act provides that the former directors of a company cease to have power to manage the company upon appointment of a temporary director. ² A subsequent amendment vests the temporary director with all the functions of the director, managing director and general meetings of the shareholders. Pursuant to this Act, the Government of Iran appointed Ali Mahmoudi as temporary director of Tchacosh on August 18, 1979.

Article 212 of the Companies Law of Iran provides that upon appointment of a liquidator and upon institution of liquidation proceedings, the powers of the director of the company involved are "extinguished." The liquidators are considered to be representatives of the company and they "possess all necessary powers to facilitate the liquidation of the company, including instituting lawsuits and referring claims for arbitration." In 1981, the Government of Iran dissolved Tchacosh under the authority of the Management and Acquisition Act: it appointed Mohammad Ali Shabestari as liquidator for Tchacosh and instituted liquidation proceedings.

Hashemi departed Iran in June, 1979, before the appointment either of a temporary director or liquidator to Tchacosh.

In December, 1979, Hashemi filed this suit on behalf of Tchacosh against Rockwell, claiming that Tchacosh had substantially performed on its subcontract with Rockwell and is therefore entitled to some form of recovery. In its third amended complaint, Tchacosh alleged causes of action for breach of contract, money had and received, quantum meruit, and unjust enrichment against Rockwell.

Rockwell moved for and the district court granted summary judgment, finding that Tchacosh had not been properly authorized to bring suit. See Fed.R.Civ.P. 17(b). The court found that Hashemi had directed the action against Rockwell and ruled that Hashemi was not qualified to maintain an action on behalf of Tchacosh under Iranian law as of August 19, 1979. The court found that the actions of the Government of Iran divesting Hashemi of his authority were executed within Iranian territory; and that the act of state doctrine barred judicial examination of acts committed by a government within its own territory. ³

DISCUSSION

Upon review of summary judgment, this court views the evidence in the light most favorable to the nonmoving party, and determines whether the trial court correctly found that there was no genuine issue of material fact and that the moving party was entitled to a judgment as a matter of law. Veit v. Heckler, 746 F.2d 508, 510 (9th Cir.1984).

Appellant Tchacosh raises two legal issues on appeal. First, appellant contends that the district court incorrectly interpreted Iranian law, arguing that the Iranian government did not intend for the decrees divesting Hashemi of control to apply to his authority to maintain suit on behalf of Tchacosh for work performed while he still managed the affairs of the company.

Upon review, the district court's determination of foreign law is treated as a question of law. Fed.R.Civ.Proc. 44.1; Matter of McLinn, 739 F.2d 1395, 1398 (9th Cir.1984) (en banc). Rockwell's expert on Iranian law established that the decrees, by their own terms, divested Hashemi of all control over the on-going affairs of Tchacosh. The Temporary Director Act disqualifies former directors from managing the company's affairs and vests all authority and responsibilities of the director, managing director and general meetings of shareholders in the temporary director. Article 212 of the Companies Law of Iran provides further that upon appointment of a liquidator to a company the powers of the directors, including temporary directors, are extinguished and the liquidator possesses "all necessary powers to facilitate the referring claims for arbitration or compromise." Tchacosh does not dispute that on August 18, 1979, the Government of Iran appointed a temporary director to Tchacosh, or that in 1981, a liquidator was appointed. Appellant has presented no evidence which indicates that the Iranian government intended under the decrees to salvage any portion of his power over the affairs of Tchacosh. ⁴ The district court's determination that Iranian law divested Hashemi, as of August 19, 1979, of his authority to bring suit is therefore affirmed.

Second, Tchacosh contends that even if Iranian law deprives Hashemi of authority to maintain the present action on its behalf the law should not be given effect by United States courts because it conflicts with our stated public policy against confiscations without compensation. Appellant recognizes that under the act of state doctrine, courts will not examine the validity of acts of foreign states--even if in conflict with our notions of justice--if those acts are executed within the foreign state's territory, Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 428, 84 S.Ct. 923, 940, 11 L.Ed.2d 804 (1964) (hereinafter Sabbatino ); Underhill v. Hernandez, 168 U.S. 250, 252, 18 S.Ct. 83, 84, 42 L.Ed. 456 (1897). Appellant relies, however, upon a well-established corrollary to the act of state doctrine, the so-called "extraterritorial exception," which holds that, when inconsistent with the policy and law of the United States, "our courts will not give 'extraterritorial effect' to a confiscatory decree of a foreign state, even where directed against its own nationals." Maltina Corp. v. Cawy Bottling Co., 462 F.2d 1021, 1025 (5th Cir.), cert. denied, 409 U.S. 1060, 93 S.Ct. 555, 34 L.Ed.2d 512 (1972), quoting F. Palicio y Compania, S.A. v. Brush, 256 F.Supp. 481, 488 (S.D.N.Y.1966), aff'd mem. 375 F.2d 1011 (2d Cir.), cert. denied, 389 U.S. 830, 88 S.Ct. 95, 19 L.Ed.2d 88 (1967); Tran Oui Than v. Blumenthal, 469 F.Supp. 1202, 1209-10 (N.D.Cal.1979), aff'd in part and remanded sub. nom., Tran Oui Than v. Regan, 658 F.2d 1296, 1303-04 (9th Cir.1981), cert. denied, 459 U.S. 1069, 103 S.Ct. 487, 74 L.Ed.2d 630 (1982). Appellant argues that (1) although the Iranian decrees purport only to divest Hashemi of legal control over Tchacosh, the decrees have effectively deprived him of his ownership of Tchacosh as well, (2) Tchacosh's contract claims constitute debt, a form of property, albeit intangible, (3) that debt has its situs with the debtor, Rockwell, in the United States. Relying on cases which have found that, for purposes of the act of state doctrine, the location of a "debt" is with the debtor, e.g., Menendez v. Saks and Co., 485 F.2d 1355, 1364-65 (2d Cir.1973), reversed on other grounds, sub. nom. Alfred Dunhill of London, Inc. v. Republic of Cuba, 425 U.S. 682, 96 S.Ct. 1854, 48 L.Ed.2d 301 (1976); Tabacalera Severiano Jorge, S.A. v. Standard Cigar Co., 392 F.2d 706, 716 (5th Cir.), cert. denied, 393 U.S. 924, 89 S.Ct. 255, 21 L.Ed.2d 260 (1968), appellant contends that this case demands application of the extraterritorial exception. He urges that this court not give effect to the Iranian decrees, at least as they purport to affect the debt which accrued before divestment of Hashemi's authority.

The classic statement of the act of state doctrine derives from Underhill v. Hernandez, supra:

Every sovereign State is bound to respect the independence of every other sovereign State, and the courts of one country will not sit in judgment of the acts of the government of another done within its own territory. Redress of grievances by reason of such acts must be obtained through the means open to be availed of by sovereign powers as between themselves.

Underhill, 168 U.S. at 252, 18 S.Ct. at 84. The doctrine "arises out of the basic relationships between branches of government in a system of separation of powers," Sabbatino, 376 U.S. at 423, 84 S.Ct. at 938, and recognizes the primacy of the executive in the area of foreign affairs. In Banco Nacional de Cuba v. Sabbatino, the Supreme Court reaffirmed the doctrine's application to foreign confiscations:

[T]he Judicial Branch will not examine the validity of a taking of property within its own territory by a foreign sovereign government, extant and recognized by this country at the time of suit....

376 U.S. at 428, 84 S.Ct. at 940.

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