Dowlatshahi v. Motorola, Inc.

• Decision Date: 22 July 1992
• Docket Number: No. 90-3841,90-3841
• Citation: 970 F.2d 289
• Parties: Gholam Reza Pasban DOWLATSHAHI, Plaintiff-Appellant, v. MOTOROLA, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 289

970 F.2d 289

Gholam Reza Pasban DOWLATSHAHI, Plaintiff-Appellant, v. MOTOROLA, INC., Defendant-Appellee.

No. 90-3841.

United States Court of Appeals Seventh Circuit.

Argued Jan. 21, 1992.

Decided July 22, 1992.

David F. Schmidt, Robert Saxon Milnikel (argued), Daniel V. O'Leary, Peter J. Strand, Peterson & Ross, Chicago, Ill., for plaintiff-appellant.

Chaim T. Kiffel (argued), Kirkland & Ellis, Chicago, Ill., for defendant-appellee.

Before BAUER, Chief Judge, CUDAHY, Circuit Judge, and WOOD, Jr., Senior Circuit Judge.

BAUER, Chief Judge.

Plaintiff-appellant Gholam Reza Pasban Dowlatshahi is a citizen of Iran residing in Tehran. Defendant-appellee Motorola, Inc. is an international corporation, incorporated in Delaware with its principal place of business in Schaumburg, Illinois. Dowlatshahi appeals the district court's order dismissing his amended complaint against Motorola that sought indemnification and damages for breach of contract. Because we find that Dowlatshahi's allegations state a claim upon which relief may be granted, we reverse and remand.

I.

At the outset, we note that we review the district court's decision to grant Motorola's motion to dismiss de novo, assuming the truth of all well-pleaded factual allegations and making all possible inferences for Dowlatshahi. Wroblewski v. City of Washburn, 967 F.2d 452, 453 (7th Cir.1992). See also Prince v. Rescorp Realty, 940 F.2d 1104, 1106 (7th Cir.1991). Thus, the "facts" of this case consist of the allegations contained in Dowlatshahi's amended complaint. See R.Doc. 51, Amended Complaint at 1-7, pp 1-9.

This case essentially arises from the Iranian Revolution in 1979 which overthrew the Shah's Imperial Government. An imprisoned victim of this violent revolt, Dowlatshahi alleges that Motorola failed to honor its obligations to him under his employment contract. Before the revolution, Motorola conducted business in Iran through Milcom Communications & Electronics, Ltd. ("Milcom"). Milcom was a wholly-owned subsidiary of Motorola Israel, Ltd. ("Motorola Israel"), which in turn is wholly-owned by Motorola. Milcom was a shell corporation that depended on Motorola and Motorola Israel for its operating capital and financial support. Milcom is registered as an alien company in Iran and has no Iranian shareholders or board of directors.

In 1972, Motorola hired Dowlatshahi to work in Iran for Milcom. He was employed in various capacities, eventually becoming the general manager. Dowlatshahi's most recent employment agreement was executed on December 12, 1977. The agreement contained a termination clause requiring a ninety-day prior written notice. Under Milcom's Articles of Association, Dowlatshahi, as general manager, is entitled to be indemnified by Motorola for losses, costs, or expenses sustained by him on account of his position with Milcom.

Because Milcom had no capitalization or retained earnings, Motorola funded immediate expenses. To provide Milcom with operating capital, Motorola arranged a line of credit in Iranian rials up to the equivalent of $300,000 from the Iran-Japan Bank (now Bank Tejaret) (the "Bank"). Because Milcom had no assets to secure that line of credit, the Bank required that Motorola provide guarantees for repayment. At Motorola's direction, the Israeli Discount Bank and Bank Leumi issued bank-to-bank guarantees to the Bank to secure Milcom's line of credit.

Motorola directed Dowlatshahi, as general manager of Milcom, to act as its agent in securing the line of credit. Motorola also directed him to sign for the line of credit as its managing agent, for which he was held personally liable. Whenever the line of credit was drawn to near its limits, Motorola would forward sufficient funds to restore the credit. The line of credit was obtained and used solely for Milcom's business.

In 1978 and 1979, internal unrest in Iran led Motorola to evacuate many of its agents and employees. Dowlatshahi, however, was not so fortunate. Motorola expected its general manager to stay in Iran and remain in charge of Milcom, protecting Motorola's property, facilities, and operations. When the Iranian civil authority was overthrown completely, the Revolutionary Guard seized Milcom and imprisoned Dowlatshahi. He was confined and tortured as a suspected foreign spy because of his managerial position with an alien corporation. After several months, Dowlatshahi was released from prison on August 28, 1979, but still was restricted to house arrest pending trial. During his imprisonment and period of house arrest, he was forbidden to have any contact with Motorola.

Dowlatshahi eventually was cleared of the charge of spying, but remains "personally hostage," see Amended Complaint, p. 9, p 15, for the payment of the line of credit because of his signature guarantee. Apparently Motorola has not made payments on its line of credit and it has blocked payment of the bank-to-bank guarantees, thus exposing Dowlatshahi to civil liability. The Bank has obtained a judgment against Dowlatshahi for the amount owing on the line of credit and has secured a court order prohibiting Dowlatshahi from leaving Iran until the debt is paid. For ten years, he was unable to see his family. In 1989, by mortgaging real estate owned by family and friends, Dowlatshahi was permitted to leave Iran briefly in order to contact Motorola in person.

In his two-count action, Dowlatshahi alleges that Motorola agreed to indemnify him for his obligation to the Bank and that Motorola breached its employment contract by failing to pay his salary from 1980 to the present. Dowlatshahi has requested that Motorola either repay the line of credit or make other arrangements that will exonerate him from liability for what he asserts is Motorola's debt. He also seeks backpay and interest for Motorola's breach of his employment contract.

In orders dated August 29, 1990, 1990 WL 129652, and October 31, 1990, 1990 WL 171623 the district court dismissed both counts of Dowlatshahi's complaint for failure to state a claim upon which relief might have been granted. On the issue of Dowlatshahi's backpay, the district court reasoned that there was no basis on which Dowlatshahi could recover. The court stated:

Dowlatshahi stopped performing as Milcom's general manager in 1979. At that time, the Iranian government seized Milcom and imprisoned Dowlatshahi. Dowlatshahi could not continue to work for Milcom after Iran seized Milcom's assets and arrested him. Even if Dowlatshahi was a Motorola employee under his veil-piercing theory, he could not continue to work for Motorola while he was in custody. After his arrest, Dowlatshahi no longer functioned as Milcom's general manager, and his employment contract automatically ended. The employment contract does not require Motorola to pay Dowlatshahi for the ten-year period since his imprisonment.

Appellant's Appendix, District Court Order, August 29, 1990 at 12. Finding no factual allegations to support the inference that Motorola renewed the employment relationship after Milcom was seized and Dowlatshahi imprisoned, the district court dismissed Dowlatshahi's backpay claim.

The district court similarly rejected Dowlatshahi's second claim in which the plaintiff seeks "exoneration" from his obligation to pay the Bank the outstanding balance on a line of credit. See Amended Complaint, p. 12. The court held that the United States Treasury Regulation, 31 C.F.R. § 535.201 (1989) ("s 535.201") prohibits Motorola from transferring funds, either directly to the Bank, or to Dowlatshahi in the form of indemnification payments. Finding that his claim did not fall within any exception to the § 535.201, the district court barred Dowlatshahi's claim for exoneration and dismissed his complaint with prejudice. Dowlatshahi appealed.

II.

On appeal, Dowlatshahi argues that the district court erred in dismissing his complaint. He first offers several reasons why the treasury regulations, specifically § 535.201, do not bar his claim for exoneration. Although we agree that § 535.201 does not preclude the claim, we do not necessarily endorse all the reasons Dowlatshahi discusses in his brief.

The task of interpreting the treasury regulations that arose in response to the Iran/United States tensions of the late 1970s and early 1980s is not without direction. In United States v. Sperry, 493 U.S. 52, 110 S.Ct. 387, 107 L.Ed.2d 290 (1989), the Supreme Court reviewed the history and meaning of the Iran-related regulations. As we all surely remember, on November 4, 1979, the United States Embassy in Tehran was seized by revolutionary forces. Ten days later, President Carter issued Executive Order No. 12170, blocking the removal or transfer of all property of the Government of Iran subject to American jurisdiction. See id. at 55, 110 S.Ct. at 391 (citing 3 CFR 457 (1980)). The following day, the Secretary of the Treasury promulgated regulations to enforce the prohibitions of the President's order. The primary prohibitionary section issued is § 201, which outlaws the transfer of any property in which Iran has an interest. Id. § 535.201, the regulation critical to this case, reads:

No property subject to the jurisdiction of the United States or which is in the possession of or control of persons subject to the jurisdiction of the United States in which on or after the effective date Iran has any interest of any nature whatsoever may be transferred, paid, exported, withdrawn or otherwise dealt in except as authorized.

31 CFR § 535.201 (1980). This regulation is in effect today. See 31 CFR § 535.201 (1991).

On January 19, 1981, the United States and Iran reached an agreement for the release of the hostages and for the disposition of claims arising out of the revolution. This agreement, commonly referred to as the Algiers Accords, provided for the establishment in The Hague of an international arbitral tribunal, known as the Iran-United States Claims Tribunal (the "Tribunal"),...