Itek Corp. v. First Nat. Bank of Boston

• Decision Date: 02 May 1983
• Docket Number: Nos. 82-1631,s. 82-1631
• Citation: 704 F.2d 1
• Parties: ITEK CORPORATION, Plaintiff, Appellee, v. The FIRST NATIONAL BANK OF BOSTON, Defendant, Appellee. Bank Melli Iran, Defendant, Appellant. ITEK CORPORATION, Plaintiff, Appellee, v. The FIRST NATIONAL BANK OF BOSTON, Defendant, Appellant. to 82-1633.
• Court: U.S. Court of Appeals — First Circuit

Page 1

704 F.2d 1

ITEK CORPORATION, Plaintiff, Appellee, v. The FIRST NATIONAL BANK OF BOSTON, Defendant, Appellee.

Bank Melli Iran, Defendant, Appellant.

ITEK CORPORATION, Plaintiff, Appellee, v. The FIRST NATIONAL BANK OF BOSTON, Defendant, Appellant.

Nos. 82-1631 to 82-1633.

United States Court of Appeals First Circuit.

Argued Dec. 9, 1982.

Decided March 29, 1983.

Petition for Rehearing Denied May 2, 1983.

Michael F. Hertz, Appellate Litigation Counsel, Civil Div., Dept. of Justice, Washington, D.C., with whom J. Paul McGrath, Asst. Atty. Gen., Washington, D.C., and William F. Weld, U.S. Atty., Boston, Mass., were on brief, for the United States.

Greg A. Danilow, New York City, with whom Daniel P. Levitt, Alan R. Friedman, Kramer, Levin, Nessen, Kamin & Soll, New York City, William A. Zucker, and Gadsby & Hannah, Boston, Mass., were on brief, for Bank Melli Iran.

E. Susan Garsh, Boston, Mass., with whom Thomas H. Walsh, Jr., Rory FitzPatrick, and Bingham, Dana & Gould, Boston, Mass., were on brief, for The First National Bank of Boston.

Thomas D. Edwards, Boston, Mass., with whom Andrew M. Higgins, and Chaplin, Casner & Edwards, Boston, Mass., were on brief, for Itek Corp.

Before COFFIN, Chief Judge, CAMPBELL and BOWNES, Circuit Judges.

COFFIN, Chief Judge.

This is an appeal by defendants First National Bank of Boston and Bank Melli Iran from a judgment and orders of the United States District Court for the District of Massachusetts. Although the proceedings below are extended and complex, the issues that we deem dispositive are relatively narrow. They involve the validity and applicability to this case of a regulation promulgated after the district court's judgment that withdraws the court's authority to render that judgment.

Background and Proceedings Below

The dispute between the parties concerns the validity of demands made on three standby letters of credit issued for Itek Corporation (Itek) by First National Bank of Boston ( FNBB ) in favor of Bank Melli as beneficiary. The facts are set out in detail in the opinion of the district court granting Itek a preliminary injunction against payment of the letters of credit. See Itek Corp. v. First National Bank of Boston, 511 F.Supp. 1341 (D.Mass.1981). In brief, the facts are as follows.

In April of 1977, Itek entered into a contract with the Imperial Government of Iran for the manufacture of certain high technology optical equipment at an agreed price of $22,500,000. Under the contract, Itek was required to furnish the Imperial Government with four bank guarantees, each in the amount of $1,125,000 issued by an Iranian bank, naming the Imperial Ministry of War as beneficiary. The guarantees were intended to secure, in the event of premature termination of the contract, Itek's repayment of a $4,500,000 advance by the Imperial Government. The contract also required Itek to furnish another bank guarantee in the amount of $2,250,000 also issued by an Iranian bank and naming the Ministry of War as beneficiary, securing Itek's good performance of its contractual obligations.

Itek procured the required guarantees from defendant Bank Melli, a wholly-owned instrumentality of the Imperial Government. As a condition to issuing the guarantees, Bank Melli required Itek to furnish letters of credit in its favor, issued by an American bank, with amounts and terms similar to those of its guarantees. Itek secured the five "standby" letters of credit from FNBB. Of the five, three remained outstanding as of the date Itek's complaint was filed. Their total outstanding value was $3,445,753.

In early 1979, the Iranian revolution occurred, followed, in November of 1979, by the seizing of 52 American hostages in the American Embassy in Teheran. Itek was unable to complete its performance under the contract because on April 30, 1979, the United States government cancelled its export license. Itek asserts that after the cancellation of the export license, it attempted to meet with Iranian authorities to negotiate their respective obligations under the contract. That failing, it followed the procedures specified in the contract for cancellation in the event of force majeure, which, it asserts, should have resulted in the release of all guarantees and standby letters of credit.

On January 9, 1980, Itek filed a complaint requesting that the court enjoin FNBB from honoring any demand on the letters of credit issued in favor of Bank Melli without giving Itek at least five days notice of its intent to do so. The basis for its request was its assertion that its performance on the contract had already exceeded by $9,000,000 the value of the payments it had received from Iran and its fear that unauthorized persons in Iran would make fraudulent demands for payment on the letters of credit. The court granted the request.

In February and March of 1980, Bank Melli sent FNBB telexes requesting extensions on two of the outstanding letters of credit or, in the alternative, immediate payment on the letters. Itek refused the requested extensions. On March 11, 1980, in response to an amended complaint by Itek, the court entered a Temporary Restraining Order (TRO) barring FNBB from honoring any demand on the letters of credit. On March 16, 1980, Bank Melli formally demanded payment of the letters and on March 19, 1980, Itek amended its complaint to add Bank Melli as a defendant. Itek sought a declaration that the letters of credit were null and void and a preliminary injunction barring FNBB from making payments on them. On April 14, 1980, in response to requests by Bank Melli and the United States government, the court agreed to stay the proceedings and with the consent of both defendants, ruled that the TRO would continue until further order of the court.

On January 19, 1981, the United States and the Government of Iran reached an agreement for the release of the 52 American hostages (Hostage Agreement). ¹ The United States agreed to return to Iran all Iranian financial assets under its control and to submit to arbitration by an International Arbitral Tribunal (Tribunal) claims of nationals of the United States or Iran against the other government. The United States agreed to terminate litigation in United States courts involving claims subject to arbitration under the Agreement.

Through a series of Executive Orders, Presidents Carter and Reagan implemented the Agreement. Shortly after the seizure of the hostages, in November of 1979, President Carter had issued Executive Order No. 12170, pursuant to his powers under the International Emergency Economic Powers Act (IEEPA), 50 U.S.C. Secs. 1701 et seq., blocking all property and interest in property of the Government of Iran and authorizing the Secretary of the Treasury (Secretary) to exercise all powers granted the President under IEEPA to carry out the blocking order. The Secretary of the Treasury had responded by issuing the Iranian Asset Control Regulations (Regulations), 31 C.F.R. Sec. 535.201 et seq., prohibiting the unauthorized transfer of property in which Iran had an interest. The Regulations specifically barred the entry of any final judgment which affected blocked assets, but authorized other judicial proceedings, including prejudgment attachment of Iranian assets. The Secretary made clear, however, that any license or authorization to conduct preliminary judicial proceedings could be "amended, modified or revoked at any time." 31 C.F.R. Sec. 535.805 (1980).

On February 24, 1981, in order to implement the Hostage Agreement, President Reagan issued Executive Order No. 12294, suspending in the American courts "all claims which may be presented to the Iran-United States Claims Tribunal". He specifically excluded from the suspension order "any claim concerning the validity or payment of a standby letter of credit".

The Secretary of the Treasury amended the Regulations to implement Executive Order No. 12294. 31 C.F.R. Sec. 535.222 was amended to provide for the suspension of all claims eligible for submission to the Tribunal, but specifically excluded claims concerning the validity or payment of a standby letter of credit. 31 C.F.R. Sec. 535.504, which had barred the entry of any final judgment affecting blocked assets, was amended to remove the prohibition against final judgments in proceedings not suspended by Sec. 535.222.

In January of 1981, Itek renewed its efforts to have the standby letters of credit declared null and void. Bank Melli requested a continuance, arguing that under the Hostage Agreement, all litigation between the United States and Iran should be suspended. The district court rejected that argument, noting that, whatever the merits of the dispute as to the jurisdiction of the Tribunal over claims regarding standby letters of credit, the Hostage Agreement was not self-executing and the court was therefore bound only by the President's interpretation of the Hostage Agreement and the Treasury Department's implementing regulations. The court determined that under existing Executive Orders and Treasury Regulations, there was no obstacle to its ruling on Itek's motion for a preliminary injunction, and on April 10, 1981, issued an order granting Itek's motion for a preliminary injunction.

On January 13, 1982, Itek requested a default judgment, or in the alternative, summary judgment, against Bank Melli and summary judgment against FNBB. On January 26, 1982, a Notice of Default was issued to Bank Melli for its failure to plead or otherwise defend as provided for by Fed.R.Civ.P. 55(a). On May 25, 1982, noting that Bank Melli had still failed to file an answer to Itek's complaint, and rejecting Bank Melli's numerous defenses, including improper service, lack of personal and subject matter jurisdiction, and improper venue, the court entered summary judgment against FNBB and Bank Melli and permanently enjoined FNBB from honoring any demands for payment on the letters of credit. The court found both that the...