Iran Handicraft & Carpet Export Center v. Marjan Intern. Corp.

• Citation: 655 F. Supp. 1275
• Decision Date: 17 March 1987
• Docket Number: No. 84 Civ. 1838 (JMC).,84 Civ. 1838 (JMC).
• Parties: IRAN HANDICRAFT AND CARPET EXPORT CENTER, Plaintiff, v. MARJAN INTERNATIONAL CORPORATION, Defendant.
• Court: U.S. District Court — Southern District of New York

655 F. Supp. 1275

IRAN HANDICRAFT AND CARPET EXPORT CENTER, Plaintiff, v. MARJAN INTERNATIONAL CORPORATION, Defendant.

No. 84 Civ. 1838 (JMC).

United States District Court, S.D. New York.

March 17, 1987.

Harvey L. Woll, Wendy E. Reiner, Mannarino, Bader & Bloom, P.C., New York City, for plaintiff.

Ralph A. Matalon, Matalon & Schachter, New York City, for defendant.

CANNELLA, District Judge.

Defendant's motion to dismiss the complaint for lack of subject matter jurisdiction is denied. Fed.R.Civ.P. 12(b)(1).

BACKGROUND

The facts as stated in the complaint are as follows. Plaintiff Iran Handicraft and Carpet Export Center "Iran Handicraft" is in the business of selling for export rugs and carpets from Iran. Iran Handicraft is incorporated under the laws of Teheran, Iran and has a place of business in Beverly Hills, California. Defendant Marjan International Corporation "Marjan", a New York corporation, is an importer and seller of rugs and carpets.

In the late summer of 1979, Iran Handicraft agreed to sell and Marjan agreed to buy a quantity of rugs and carpets. Payment for the merchandise was due eight months after the date of invoice. The first shipment was sent on or about August 8, 1979 and was accompanied by an invoice in the amount of $130,171.00. The second shipment was sent on or about August 25, 1979 and was accompanied by an invoice in the amount of $125,405.00. According to the agreement between Iran Handicraft and Marjan, payment of the total purchase price of $255,576.00 was due on or before April 25, 1980, eight months after the date of the last invoice. Although Marjan acknowledges receipt of the merchandise, payment was never made.

The years 1979 and 1980 were especially turbulent ones in the modern history of Iran. In mid-January 1979, the Shah Mohammed Reza Pahlevi fled the country, leaving behind a successor government in the hands of his prime minister, Shapur Baktiar. By mid-February, this government had collapsed and a revolutionary regime established. The new government, under the tituler leadership of Prime Minister Mehdi Bazargan, was eventually recognized by the United States as the legitimate government of Iran.

The internal political situation inside the country continued to deteriorate, however. Prime Minister Bazargan's government came under increasing pressure from radical elements loyal to the religious leader Ayatollah Ruhollah Khomeini, whose return to Iran from exile in France had been the catalyst for the Shah's downfall. On November 4, militants loyal to Ayatollah Khomeini seized control of the United States Embassy in Teheran and took 52 American diplomatic personnel hostage.

The inability of Iran's government to influence the actions of the militants and the further radicalization of the Iranian revolution led to the collapse of the Bazargan government and its replacement with one even more directly controlled by Ayatollah Khomeini. The United States did not recognize this government. On April 7, 1980, with the embassy and its personnel still in the hands of the militants, the United States severed diplomatic relations with the government of Iran.

Iran Handicraft commenced this breach of contract action on March 15, 1984. An amended complaint was served on July 25. Marjan now moves to dismiss the complaint for lack of subject matter jurisdiction.

DISCUSSION

As the basis for this Court's subject matter jurisdiction, Iran Handicraft alleges diversity of citizenship pursuant to 28 U.S.C. § 1332(a)(2). Section 1332 provides that

(a) the district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $10,000, exclusive of interest and costs, and is between—

. . . . .

(2) citizens of a State and citizens or subjects of a foreign state

. . . . .

28 U.S.C. § 1332(a)(2).

Marjan moves to dismiss on the ground that, because "a foreign state, the government of which has not been recognized by the United States, may not sue as plaintiff in the courts of the United States ... a citizen or subject of such a foreign state may not bring an action here." Defendant's Memorandum in Support of Its Motion to Dismiss at 2, 84 Civ. 1843 (JMC) (S.D.N.Y. Jan. 30, 1986).

The issue presented by Marjan's motion is a narrow one. The parties agree that Iran Handicraft is incorporated under the laws of Iran; therefore, it shall be deemed "a citizen of the entity under the laws of which it is incorporated." Windert Watch Co., Inc. v. Remex Electronics Ltd., 468 F.Supp. 1242, 1244 (S.D.N.Y.1979) (citing National Steamship Co. v. Tugman, 106 U.S. (16 Otto) 118, 120-21, 1 S.Ct. 58, 59, 27 L.Ed. 87 (1882)). The sole issue presented by Marjan's motion is whether Iran is a "foreign state" within the meaning of section 1332(a)(2). Because the Court believes that Iran qualifies as a "foreign state" under section 1332(a)(2), Marjan's motion to dismiss the complaint for lack of subject matter jurisdiction is denied.

The starting point for an examination of statutory language is, of course, the language of the statute itself. Landreth Timber Co. v. Landreth, 471 U.S. 681, 105 S.Ct. 2297, 2301, 85 L.Ed.2d 692 (1985); Watt v. Alaska, 451 U.S. 259, 265, 101 S.Ct. 1673, 1677, 68 L.Ed.2d 80 (1981). "Absent a clearly expressed legislative intention to the contrary, that language must ordinarily be regarded as conclusive." Consumer Product Safety Commission v. GTE Sylvania, Inc., 447 U.S. 102, 108, 100 S.Ct. 2051, 2056, 64 L.Ed.2d 766 (1980).

Section 1332(a)(2) provides for suits between "citizens of a State and citizens or subjects of a foreign state." This language is itself derived from Article III, Section 2 of the United States Constitution, which provides that:

The judicial Power shall extend to all Cases ... between a State or the Citizens thereof, and foreign States, Citizens or Subjects.

This judicial power has often been referred to as alienage jurisdiction. Sadat v. Mertes, 615 F.2d 1176, 1182 (7th Cir.1980). One of the "dominant considerations which prompted the provision for such jurisdiction appears to have been ... apprehension of entanglements with other sovereigns that might ensue from failure to treat the legal controversies of aliens on a national level." Chang v. Northwestern Memorial Hospital, 506 F.Supp. 975, 977 n. 1 (N.D.Ill. 1980) (citing Blair Holdings Corp. v. Rubinstein, 133 F.Supp. 496, 500 (S.D.N.Y. 1955)).

The language of Article III, section 2 and section 1332(a)(2) does not define what constitutes a "foreign state." However, "it generally has been held that a foreign state is one formally recognized by the executive branch of the United States government." C. Wright & A. Miller, Federal Practice and Procedure: Jurisdiction 2d § 3604, at 391 (1984) "Wright & Miller". Furthermore, the term "citizens or subjects of a foreign state" was "designed to include any aliens regardless of the form of government in his country." Id. at 394.

Because the Constitution empowers only the President to "receive Ambassadors and other public Ministers," U.S. Const. Art. II, Sec. 3, the courts have deferred to the executive branch when determining what entities shall be considered foreign states. The recognition of foreign states and of foreign governments, therefore, is wholly a prerogative of the executive branch. National City Bank v. Republic of China, 348 U.S. 356, 358, 75 S.Ct. 423, 425, 99 L.Ed. 389 (1955). Thus, it is outside the competence of the judiciary to pass judgment upon executive branch decisions regarding recognition.

In order for a foreign state to sue in our courts, both it and the government which represents it must be recognized by the United States. See Land Oberoesterreich v. Gude, 109 F.2d 635, 637 (2d Cir.) ("The state must first achieve recognition by our government, ... but once recognized, the foreign sovereign, its subjects and its citizens, including its corporations, may be suitors in our courts."), cert. denied, 311 U.S. 670, 61 S.Ct. 30, 85 L.Ed. 431 (1940). Marjan argues that, for purposes of section 1332(a)(2), "non-recognition of a government is equivalent to non-recognition of the foreign state or nation it represents, and neither that foreign state or nation nor its citizens or subjects may bring an action as plaintiff in our courts." Affidavit of Ralph A. Matalon, Attorney for Marjan at 4, 84 Civ. 1843 (JMC) (S.D.N.Y. Jan. 30, 1986) (emphasis added). The Court disagrees.

There exists a fundamental distinction between recognition of a state as an international juridical entity and recognition of a particular government. A state is "an entity that has a defined territory and population under the control of a government and that engages in foreign relations." Restatement (Second) of the Foreign Relations Law of the United States § 4, at 14 (1965) "Restatement"; see also Windert Watch Co., 468 F.Supp. at 1244 (for diversity purposes "foreign state" means "a political entity that is recognized by the United States as a free and independent sovereign"). Accordingly,

Recognition of a new State must not be confused with recognition of a new Head or Government of an old State. Recognition of a change in the headship of a State, or in the form of its Government, or of a change in the title of an old State, are matters of importance. But the granting or refusing of these recognitions has nothing to do with recognition of the State itself. If a foreign State refuses to recognise a new Head or a change in the form of the Government of an old State, the latter does not thereby lose its recognition as an International Person, although no official intercourse is henceforth possible between the two States as long as recognition is not given either expressly or tacitly.

1 Oppenheim's International Law § 73, at 129-30 (Lauterpacht 8th ed. 1955) "Oppenheim" (emphasis added).

While 28 U.S.C. § 1332(a)(4) provides for suits between "a foreign state, ... as plaintiff and citizens of a State or of...