Gregorian v. Izvestia

Decision Date12 April 1989
Docket Number88-5562,Nos. 87-5903,s. 87-5903
Citation871 F.2d 1515
PartiesRaphael GREGORIAN; California International Trade Corporation, Plaintiffs-Appellees, v. IZVESTIA; Ministry of Foreign Trade of the Union of Soviet Socialist Republics; V/O Licensintorg, Defendants, and V/O Medexport, Defendant-Appellant. Raphael GREGORIAN and California International Trade Corporation, Plaintiffs-Appellants, v. IZVESTIA; Ministry of Foreign Trade of the Union of Soviet Socialist Republics; V/O Medexport, Defendants-Appellees, and Union of Soviet Socialist Republics; V/O Licensintorg, Defendants.
CourtU.S. Court of Appeals — Ninth Circuit

John Mage, Wolf, Popper, Ross & Wolf & Jones, New York City, for defendant-appellant/cross-appellee.

Gerald L. Kroll, Kroll & Firestone, Los Angeles, Cal., for the plaintiffs-appellees/cross-appellants.

Douglas Letter, Dept. of Justice, Washington, D.C., for the amicus U.S.

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

Before PREGERSON, REINHARDT and NOONAN, Circuit Judges.

PREGERSON, Circuit Judge:

The two appeals in this case stem from a suit brought by plaintiffs Raphael Gregorian and his firm, California International Trade Corporation (CIT), against defendants U.S.S.R., the Soviet newspaper Izvestia, two Soviet foreign trading organizations, V/O Medexport and V/O Licensintorg, and the Ministry of Foreign Trade of the U.S.S.R. 1 In their complaint plaintiffs alleged that defendants had damaged plaintiffs' reputations and harmed them financially by causing CIT's "accreditation" by the Ministry of Foreign Trade to be revoked and by causing to be published an article in Izvestia that libeled plaintiffs. Plaintiffs alleged that defendants engaged in this conduct to avoid contractual obligations to plaintiffs resulting from alleged promises to pay for medical equipment transported to the Soviet Union by plaintiffs. Plaintiffs also alleged that defendants had breached these contractual obligations by failing to pay for this equipment. When, following instructions from their government, defendants did not appear, default judgments on both the libel and contract claims were entered against them. After plaintiffs attempted to execute on their judgment by levying on defendants' property, V/O Medexport and V/O Licensintorg appeared and requested that the default judgments be set aside. The district court set aside the default judgment on the libel claim, but denied the motion to set aside the default judgment on the contract claims. Gregorian v. Izvestia, 658 F.Supp. 1224 (C.D.Cal.1987).

Plaintiffs have appealed the court's order setting aside the libel default judgment; defendant V/O Medexport has appealed the denial of its motion to set aside the contract default judgment.

These two appeals present the following questions. First, was the district court's Rule 54(b) certification of its order dismissing plaintiffs' libel claim proper? Second, did the district court correctly conclude that the Foreign Sovereign Immunities Act, 28 U.S.C. sections 1602 et seq. (1976), did not confer jurisdiction over plaintiffs' libel claim? Third, did the district court err in denying defendants' motions to vacate the default judgment on plaintiffs' contract claims?

BACKGROUND

Beginning in 1970, Raphael Gregorian, a United States citizen, and his firm, California International Trade Corporation (CIT), engaged in the business of exporting medical and laboratory goods to the U.S.S.R. In 1982, the Soviet Ministry of Foreign Trade awarded "accreditation" to CIT. This enabled CIT to employ Soviet personnel and to maintain an office in Moscow with telephone and telex equipment. The accreditation evidently provided CIT significant business advantages, including increased credibility with United States manufacturers of medical and laboratory equipment.

Plaintiffs allege that they arranged to sell three sets of equipment to the Soviets: the "Technicon" equipment, in 1982; the "Mennen" equipment, in 1984; and the "Sarns" equipment, in 1984. Plaintiffs allege that CIT shipped all the items to the Soviet Union at or about the time of their alleged purchase by the Soviets, and that the equipment was in use in Soviet hospitals in 1984. According to plaintiffs, defendants Ministry of Foreign Trade, the U.S.S.R., and V/O Medexport and V/O Licensintorg (Soviet foreign trading organizations) were CIT's "customers," i.e., they had entered into oral contracts with CIT regarding the above-mentioned equipment. Plaintiffs allege that defendants have never paid for any of this equipment, in violation of their contractual commitments. Defendants disclaim any such contractual arrangements.

On November 10, 1984, the Ministry of Foreign Trade stripped CIT of its accreditation to maintain a business office in the U.S.S.R. On November 18, 1984, the Soviet newspaper Izvestia printed an article 2 entitled "Duplicitous Negotiator: A Story About a U.S. Firm and an Abuse of Trust." The article accused Gregorian of engaging in smuggling, bribery, and unethical business practices; it also intimated that he had been spying for the United States. 658 F.Supp. at 1226. According to plaintiffs, this article demolished the business reputation of CIT, causing it to lose valuable business contacts and reducing it to "a narrow, windowless basement office in Mr. Gregorian's home." Opening Brief on Behalf of Appellants, at 5.

Plaintiffs brought suit against the Soviet defendants in United States District Court in January of 1985, alleging, inter alia, breach of contract, libel, and civil conspiracy. Plaintiffs basically alleged that the Soviet defendants had stripped CIT of its accreditation and published the article in Izvestia to avoid their contractual obligations to pay for the equipment which CIT had shipped to the U.S.S.R.

Service of process was made on the Soviet defendants through the United States Department of State pursuant to 28 U.S.C. section 1608(a). On May 31, 1985, the United States Embassy in Moscow transmitted the summons and complaint and enclosed copies of each to the Soviet defendants with a note advising them of the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. Secs. 1602 et seq. The note also informed defendants that under United States law a defendant must file an answer to the complaint within sixty days or risk default.

At the direction of their government, the defendants rejected service and the district court entered their default on July 31, 1985. The court then ordered entry of default judgment on four of the contract claims and the one libel claim, eventually awarding damages of $163,165 on the contract claims and $250,000 on the libel claim.

After plaintiffs obtained an order giving them the right to attach and execute against defendants' property in the United States, they seized a Cyrillic typewriter belonging to a U.S. correspondent for Izvestia. Soon afterwards they obtained another order permitting them to execute against funds held under the name of the Bank for Foreign Trade, U.S.S.R., "for the benefit of V/O Medexport." One day later, on November 21, 1986, American counsel filed a notice of entry of appearance on behalf of V/O Medexport and V/O Licensintorg. V/O Medexport and V/O Licensintorg filed motions to set aside the default judgments, stay execution, and dismiss the case.

The appearance of the two Soviet defendants followed lengthy negotiations with the U.S. State Department, which urged the Soviets to appear. The United States as amicus curiae then supported defendants' motion to set aside the default judgments so that the Soviets' defenses could be considered on the merits.

On April 5, 1987 the district court granted defendants' motion to set aside the default judgment on the libel claim on the ground that it had lacked subject matter jurisdiction under the FSIA, 28 U.S.C. Sec. 1605, to enter the judgment. 658 F.Supp. at 1234. The court however denied defendant V/O Medexport's motion to set aside the default judgment on the contract claims, holding that defendants had not demonstrated that they were entitled to relief from judgment under Fed.R.Civ.P. 60(b)(4) and (6). Id. at 1236, 1239.

DISCUSSION
I. LIBEL CLAIM

Plaintiffs contend that the Soviet trading organizations V/O Medexport and V/O Licensintorg attempted to avoid their alleged contractual commitments to CIT by "causing to be published" libelous statements in Izvestia, the newspaper published by the Soviet government. Answering and Reply Brief on Behalf of Appellants, at 25. Plaintiffs believe that the district court erred in setting aside the default judgment on the libel claim on the basis of lack of subject matter jurisdiction. Defendants argue that the issue is not properly before this court because of an improper Rule 54(b) certification; that the FSIA does not provide jurisdiction over such a claim but rather confers immunity from the claim on defendants; and that the act of state doctrine bars adjudication of the libel claim. Because we conclude that the issue was properly certified under Rule 54(b) of the Federal Rules of Civil Procedure, and that the FSIA does not provide subject matter jurisdiction over the libel claim, there is no need for us to rule on the applicability of the act of state doctrine.

A. Rule 54(b) Certification

On December 18, 1987 the district court granted plaintiffs' request for a Rule 54(b) certification of the order dismissing the libel claim. C.R. 180. 3 This permitted plaintiffs to appeal the dismissal of their libel claim. Defendants argue that the Rule 54(b) certification represented an abuse of discretion by the district court, and that the appeal is therefore improperly before this court. Defendants' position lacks merit.

Rule 54(b) provides that:

When more than one claim for relief is presented in an action ... the court may direct the entry of a final judgment as to one or more but...

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