Bell Helicopter Textron, Inc. v. Islamic Republic of Iran

• Decision Date: 01 November 2013
• Docket Number: No. 12–7103.,12–7103.
• Parties: BELL HELICOPTER TEXTRON, INC., A Delaware Corporation and Bell Helicopter Textron Canada, Ltd., a Canadian Corporation, Appellants v. ISLAMIC REPUBLIC OF IRAN, a Foreign Nation, et al., Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

734 F.3d 1175

BELL HELICOPTER TEXTRON, INC., A Delaware Corporation and Bell Helicopter Textron Canada, Ltd., a Canadian Corporation, Appellants

v.ISLAMIC REPUBLIC OF IRAN, a Foreign Nation, et al., Appellees.

No. 12–7103.

United States Court of Appeals,

District of Columbia Circuit.

Argued Sept. 16, 2013.

Decided Nov. 1, 2013.

Appeal from the United States District Court for the District of Columbia (No. 1:06–cv–01694).

Kannon K. Shanmugam argued the cause for appellants. With him on the briefs were John K. Villa, Charles Davant IV, and Matthew H. Blumenstein.

Christopher J. Wright argued the cause for appellees. With him on the brief was Charles T. Kimmett. Thomas G. Corcoran Jr. and Laina Lopez entered appearances.

Before: ROGERS and TATEL, Circuit Judges, and SENTELLE, Senior Circuit Judge.

Opinion for the Court by Circuit Judge ROGERS.

ROGERS, Circuit Judge.

Bell Helicopter Textron Inc. and Bell Helicopter Textron Canada Ltd. (together “Bell”) appeal the vacatur of a default judgment as void in connection with the manufacture and marketing by the Islamic Republic of Iran (“Iran”) of a helicopter that resembles Bell's Jet Ranger 206 in appearance. Bell contends the district court made three errors in granting Iran's motion to vacate, pursuant to Federal Rule of Civil Procedure 60(b)(4), for lack of subject matter jurisdiction because: (1) the motion was subject to a reasonable time limit and thus untimely; (2) a deferential standard should have been applied whereby the default judgment could have been vacated only if there had been no arguable basis for jurisdiction; and (3) the commercial activity exception in the Foreign Sovereign Immunities Act (“FSIA”), 28 U.S.C. § 1605(a)(2), applies. Bell's first two claims of error are contrary to this court's precedent, which we must apply, see LaShawn A. v. Barry, 87 F.3d 1389, 1395 (D.C.Cir.1996), and its third claim of error fails for lack of evidence that Iran's commercial activity caused a “direct effect” in the United States. Accordingly, we affirm.

I.

In the 1970s, Bell operated a helicopter plant in Iran, which it abandoned after the Iranian revolution of 1979. In December 2002, Bell became aware that the Iran Aircraft Manufacturing Industrial Company (“HESA”), a company wholly owned and controlled by the Iranian government, was using the plant to manufacture helicopters that resembled the Jet Ranger 206. Bell designed this particular model to have distinctive but nonfunctional design features, including a protruding nose as opposed to a rounded front, based on an “automotive concept,” which would set it and the Bell brand apart from other helicopters and helicopter manufacturers. The Iranian helicopters went under the name Shahed, and the Shahed 278 resembles the Jet Ranger 206; the Shahed 285 is a militarized version of the same helicopter. Iran has displayed prototypes of the Shahed at its annual air show held at Kish Island, Iran for international helicopter buyers for the purpose of selling them in what Bell's witness described as “Third World” markets where safety certification restrictions imposed by European and North American governments do not apply. Iran would not, however, be able to sell the Shahed in U.S. markets.

Bell sued Iran in 2006, alleging that Iran's manufacture and marketing of the Shahed helicopters infringed and diluted Bell's “trade dress” in violation of the Lanham Act, 15 U.S.C. § 1051 et seq., and infringed its design patent under the Patent Act, 35 U.S.C. § 1 et seq. (The Patent Act claim was later dropped.) Bell served Iran with the complaint, but Iran did not appear. A default was entered against Iran on March 31, 2009, and the district court scheduled a hearing on damages for October 5, 2009. Iran contacted Bell to conduct settlement negotiations, but no agreement was reached prior to the hearing. At the hearing, Bell's witnesses included one of its staff engineers, who testified regarding the distinctive trade dress of the Jet Ranger 206 and Bell's primary customers, which include foreign militaries and “numerous commercial customers.” Ex Parte Hg. Tr. at 28–36 (Oct. 5, 2009) (testimony of Douglas Jordan). An aviation safety consultant testified for Bell about the confusingly similar appearances of the Jet Ranger and the Shahed, Bell's “second to none” reputation for safety, and speculated regarding the possibility that Shahed helicopters could be “passed off” as Bell products in “Third World” markets with the resulting risk of accidents from the use of Shahed parts in Bell helicopters. Id. at 38–48 (testimony of Vernon Albert). A Bell manager testified regarding the potential loss of Bell revenues as a result of the sale of Shahed helicopters. Id. at 49–54 (testimony of Terry Jeffcoat).

The district court issued an order and default judgment against Iran on February 11, 2011, ruling that Iran had infringed and diluted Bell's “trade dress” in violation of the Lanham Act, and that Iran was not immune from suit because its actions were commercial and had a “direct effect” in the United States. Bell Helicopter Textron Inc. v. Islamic Republic of Iran, 764 F.Supp.2d 122, 126, 127–28 (D.D.C.2011) (“Bell I”). It awarded Bell $22,035,002.28 in damages (adjusted for pre-judgment interest) and $497,125 in attorneys fees. Id. at 129–30. The State Department filed on October 19, 2011 an affidavit of service of the default judgment on Iran, and counsel for Iran entered an appearance on December 28, 2011. On February 10, 2012, Iran moved, pursuant to Rule 60(b)(4), to vacate the default judgment as void due to lack of subject-matter jurisdiction. Upon reviewing de novo whether it had subject-matter jurisdiction, the district court granted the motion, ruling that Iran was immune from suit under the FSIA because Bell had not presented evidence that Iran's actions had caused a “direct effect” in the United States. Bell Helicopter Textron Inc. v. Islamic Republic of Iran, 892 F.Supp.2d 219, 225, 234 (D.D.C.2012) (“Bell II”).

Bell appeals, and our review of the question of law is de novo, see Smith v. Mallick, 514 F.3d 48, 50 (D.C.Cir.2008); the subsidiary facts are undisputed. Although Rule 60(b) motions are generally committed to the discretion of the district court, and thus subject to review for abuse of discretion, “there is no question of discretion on the part of the court when a motion is under Rule 60(b)(4); if the judgment is void, relief is mandatory.” Combs v. Nick Garin Trucking, 825 F.2d 437, 441 (D.C.Cir.1987) (footnote and internal quotation marks omitted).

II.

Rule 60(b)(4) of the Federal Rules of Civil Procedure provides that a court “may relieve a party ... from a final judgment” if “the judgment is void.” Bell contends that a Rule 60(b)(4) motion is subject to the limitation in Rule 60(c)(1) that a Rule 60(b) motion be “made within a reasonable time,” and Iran's motion, which was filed 364 days after entry of the default judgment, surpassed this limit. For support, Bell points to United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 264, 130 S.Ct. 1367, 176 L.Ed.2d 158 (2010), where the Supreme Court stated:

Rule 60(b)(4) strikes a balance between the need for finality of judgments and the importance of ensuring that litigants have a full and fair opportunity to litigate a dispute. Where, as here, a party is notified of a [bankruptcy] plan's contents and fails to object to confirmation of the plan before the time for appeal expires, that party has been afforded a full and fair opportunity to litigate, and the party's failure to avail itself of that opportunity will not justify Rule 60(b)(4) relief.

Id. at 276, 130 S.Ct. 1367.

Bell ignores this circuit's precedent as well as the fact that in Espinosa, the Supreme Court stated that it was “not persuaded that a failure to find undue hardship in accordance with [the Bankruptcy Code] is on par with the jurisdictional and notice failing that define void judgments that qualify for relief under Rule 60(b)(4).” Id. at 273, 130 S.Ct. 1367. Here, the district court was faced with a subject-matter jurisdiction challenge, not a claim of procedural deficiency. In Espinosa, the creditor participated in the Bankruptcy Court proceedings by filing a proof of claim, did not object to the non-jurisdictional legal error, and then years later asked for a second bite at the apple. See id. at 264–66, 130 S.Ct. 1367. Here, Iran never participated in the district court proceedings that led to the default judgment and moved to vacate based on the district court's lack of subject-matter jurisdiction. Ensuring finality by imposing time limits on Rule 60 motions makes sense in situations similar to Espinosa where a party submits to the court's jurisdiction, never objects to a non-jurisdictional error, and subsequently in a collateral challenge raises that error as a basis to vacate the final judgment. But absent any indication that the Supreme Court would apply the same standard in the materially different circumstances of the instant case, this court's precedent controls, and the district court did not err in rejecting Bell's argument that Iran's Rule 60(b)(4) motion was untimely.

In Austin v. Smith, 312 F.2d 337, 343 (D.C.Cir.1962), this court held that Rule 60(b)(4) motions are not governed by a reasonable time restriction. In that case the Rule 60(b)(4) movant had not appeared in the proceeding that resulted in a default judgment but challenged the judgment more than four years later on the grounds that he had never received notice that a suit had been filed. Id. at 339–40. This court held:

Under [Rule 60(b)(4) ] ..., the only question for the court is whether the judgment is void; if it is, relief from it should be granted.... Moreover, the Rule places no time limit on an attack upon a void judgment, nor can such a judgment acquire validity because of laches on the part of him who applies for relief from it.

Id. at 343. Similarly, in Practical Concepts, Inc. v. Republic of...