905 F.2d 438 (D.C. Cir. 1990), 89-7126, Foremost-McKesson, Inc. v. Islamic Republic of Iran

Docket Nº:89-7126.
Citation:905 F.2d 438
Party Name:FOREMOST-McKESSON, INC., et al., Appellees, v. The ISLAMIC REPUBLIC OF IRAN, Appellant.
Case Date:June 15, 1990
Court:United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit
 
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Page 438

905 F.2d 438 (D.C. Cir. 1990)

FOREMOST-McKESSON, INC., et al., Appellees,

v.

The ISLAMIC REPUBLIC OF IRAN, Appellant.

No. 89-7126.

United States Court of Appeals, District of Columbia Circuit.

June 15, 1990

Argued Jan. 22, 1990.

Page 439

Appeal from the United States District Court for the District of Columbia (Civil Action No. 82-0220).

Thomas G. Corcoran, Jr., with whom Henry M. Lloyd, Washington, D.C., was on the brief, for appellant.

Mark R. Joelson, with whom Mark N. Bravin, Washington, D.C., was on the brief, for appellees.

Before EDWARDS, Circuit Judge, ROBINSON, Senior Circuit Judge, and REVERCOMB, [*] District Judge.

Opinion for the Court filed by Circuit Judge HARRY T. EDWARDS.

HARRY T. EDWARDS, Circuit Judge:

This interlocutory appeal involves a claim by a United States business that the appellant, Islamic Republic of Iran ("Iran"), acting through various codefendants who controlled the shares and the board of directors of a dairy company in Iran, used its majority position to lock the appellee out of the management of the dairy and to deny the appellee its share of the company's earnings. Iran claims that it is immune from suit under the Foreign Sovereign Immunities Act of 1976 ("FSIA"), 28 U.S.C. Secs. 1330, 1602-1611 (1988). Iran also contends

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that, because it lacks the constitutionally mandated minimum contacts with the forum, the District Court could not exercise in personam jurisdiction. Accordingly, Iran seeks reversal of the District Court's denial of its motion to dismiss.

The plaintiff-appellee companies are Foremost-McKesson, Inc., and its wholly owned subsidiaries Foremost Tehran, Inc., Foremost Shir, Inc., Foremost Iran Corporation, Foremost Foods, Inc. (individually and collectively "Foremost"), and the Overseas Private Investment Corporation ("OPIC"). In addition to responding to the issues raised by Iran, the plaintiff-appellees challenge the judgment of the District Court allowing Iran to amend its complaint to include the defenses of sovereign immunity and lack of personal jurisdiction under FSIA. Foremost also argues that, under the Treaty of Amity, 1 Iran waived its foreign sovereign immunity as to suits arising out of any commercial activity.

With respect to the claims concerning sovereign immunity, we are constrained to remand for further development of the record. Under FSIA, agencies and instrumentalities of a foreign nation are presumed to be separate from each other and from the foreign state. See First Nat'l City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611, 625-28, 103 S.Ct. 2591, 2599-2601, 77 L.Ed.2d 46 (1983). It is not enough to show that various government entities or officials represent a majority of the shareholders or constitute a majority of the board of directors of the applicable agency or instrumentality; in other words, mere involvement by the state in the affairs of an agency or instrumentality does not answer the question whether the agency or instrumentality is controlled by the state for purposes of FSIA. The presumption of separateness (and whether it has been rebutted) affects the jurisdiction of the court, as well as the liability of the state, under FSIA: in order for the case to proceed under FSIA, the District Court must consider whether Iran so dominated the operations of the dairy "that a relationship of principal and agent is created." Id. at 629, 103 S.Ct. at 2601.

Although we affirm most of the holdings of the District Court, 2 we reject the legal test that it employed to determine Iran's claim to sovereign immunity. On remand, the District Court will be required to make more extensive preliminary findings regarding the nature and degree of control exerted by Iran over the dairy and its shareholders. 3 With regard to Iran's constitutional in personam ("minimum contacts") jurisdiction claim, we conclude that, because this issue was never raised below, the claim has been waived.

  1. BACKGROUND

    The procedural history of this case is unusually complicated. Foremost alleges that in 1959, at the request of a group of Iranian nationals, Foremost-McKesson, Inc., a Maryland corporation with its principal place of business in California, assisted in establishing a dairy, the Sherkat Sahami Labaniat Pasteurize Pak ("Pak Dairy"), in the Republic of Iran. From 1959 to 1979, Foremost provided the top management for

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    the dairy and controlled its Board of Directors. During the period relevant in the instant case, Foremost held thirty-one percent of the equity interest in the dairy.

    On January 22, 1982, Foremost and the Overseas Private Investment Corporation 4 filed a complaint in the District Court against Iran and several agencies and instrumentalities of Iran through which Foremost claims Iran acted. These agencies and instrumentalities included the Financial Organization for the Expansion of Ownership of Productive Units, the National Investment Company of Iran, Industrial and Mining Development Bank of Iran, the Foundation for the Oppressed and Pak Dairy. The complaint alleged that Iran, acting through the codefendant agencies and instrumentalities, illegally divested Foremost of its investment in Pak Dairy. Foremost and OPIC sought compensation for the entire value of their jointly held 19.84% insured equity interest in Pak Dairy, 5 allegedly valued at not less than $7,040,000, plus interest; compensation for their share in any dividends declared and not received before the alleged divestment of their equity interest; and various other damages, including attorneys' fees. See Complaint pp 38-39, reprinted in Appendix ("App.") 36.

    On June 29, 1982, Iran responded to the complaint in what it titled an "Answer to Complaint." See Answer to Complaint [hereinafter 1982 Answer], reprinted in App. 46. In this response, Iran did not state the defenses raised in its motion to dismiss and did not admit or deny Foremost's averments, cf. Fed.R.Civ.P. 8(b); rather, Iran contended that prosecution of the suit was barred by the so-called Algiers Accords of January 19, 1981, 6 and that, pursuant to Executive Order No. 12,294, 46 Fed.Reg. 14,111 (1981) ("Executive Order"), the "complaint ha[d] no legal effect other than to toll the applicable statute of limitations." 1982 Answer at 1, reprinted in App. 46. 7 Pursuant to the terms of the Executive Order, the District Court took no action in this case while Foremost and OPIC presented their claims against Iran to the Iran-United States Claims Tribunal ("Claims Tribunal") in The Hague.

    On April 10, 1986, the Claims Tribunal concluded that interference with Foremost's rights had not, by January 19, 1981, amounted to an expropriation. See Foremost Tehran, Inc. v. Islamic Republic of Iran, 10 Iran-United States Claims Trib. Rep. 228, 250, reprinted in App. 78. 8 However, the Claims Tribunal concluded that Pak Dairy had unlawfully withheld from Foremost cash dividends declared in 1979 and 1980, and it therefore awarded Foremost approximately $900,000, plus interest, against Iran. The Claims Tribunal also concluded that Pak Dairy unlawfully failed to deliver to Foremost stock certificates representing stock dividends declared in 1980 and that Pak Dairy had breached contractual obligations in failing to pay rental payments due and to return upon demand certain machines to Foremost. The Claims Tribunal awarded Foremost in excess of $500,000 in damages against Pak

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    Dairy for the contract breaches. See id. at 257-58, reprinted in App. 88. Iran paid the amounts awarded out of the security account established at The Hague pursuant to the provisions of the Algiers Accords.

    On April 1, 1988, the plaintiffs--still seeking damages for claimed losses--revived this lawsuit by filing a motion for partial summary judgment against Iran on the issue of liability. The plaintiffs alleged facts that arguably support a conclusion that the dairy was expropriated after the 1981 limit to the Claims Tribunal's jurisdiction. See Foremost-McKesson, Inc. v. Islamic Republic of Iran, Civ. Action No. 82-0220, slip op. at 2 (D.D.C. Apr. 18, 1989) ("Foremost III "), reprinted in App. 4. 9

    In response to Foremost's reactivation of the suit, Iran moved to strike its 1982 Answer from the record and separately moved to stay the proceedings. The District Court denied both motions, but it denied the motion to strike without prejudice to a motion by Iran to file an amended answer. See Foremost-McKesson, Inc. v. Islamic Republic of Iran, Civ. Action No. 82-0220, slip op. at 1 (D.D.C. Aug. 18, 1988) ("Foremost I "), reprinted in App. 91. Iran then moved to amend its 1982 Answer and the District Court granted its motion. See Foremost-McKesson, Inc. v. Islamic Republic of Iran, Civ. Action No. 82-0220, slip op. at 5 (D.D.C. Nov. 8, 1988) ("Foremost II "), reprinted in App. 105. The District Court rejected Foremost's and OPIC's contentions that the court did not have authority to or, alternatively, could not, without abusing its discretion, permit Iran to assert certain jurisdictional defenses not included in the 1982 Answer. Id.

    Concurrently, Iran filed a motion to dismiss the underlying complaint, pursuant to Rule 12(b)(1) and (2) of the Federal Rules of Civil Procedure, for lack of jurisdiction under FSIA. The District Court denied Iran's motion to dismiss. See Foremost III, Civ. Action No. 82-0220 (D.D.C. Apr. 18, 1989), reprinted in App. 3. Iran then filed this interlocutory appeal.

  2. ANALYSIS

    1. Introduction

      The Foreign Sovereign Immunities Act connects the issue of subject matter jurisdiction to the issue of sovereign immunity. See 28 U.S.C. Sec. 1330(a). District courts in a civil action against a foreign state, or the agency or instrumentality of a foreign state, lack subject matter jurisdiction unless one of the...

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