McKesson Corp. v. Islamic Republic of Iran

• Decision Date: 25 July 1995
• Docket Number: Nos. 93-7167,s. 93-7167
• Parties: McKESSON CORPORATION; Foremost Tehran, Inc.; Foremost Shir, Inc.; Foremost Iran Corporation; Overseas Private Investment Corporation, Appellees/Cross-Appellants, v. ISLAMIC REPUBLIC OF IRAN, Appellant/Cross-Appellee. & 93-7168.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 346

52 F.3d 346

311 U.S.App.D.C. 197

McKESSON CORPORATION; Foremost Tehran, Inc.; Foremost Shir, Inc.; Foremost Iran Corporation; Overseas Private Investment Corporation Appellees/Cross-Appellants, v. ISLAMIC REPUBLIC OF IRAN, Appellant/Cross-Appellee.

Nos. 93-7167 & 93-7168.

United States Court of Appeals District of Columbia Circuit.

Argued Jan. 27, 1995.

Decided April 14, 1995.

Rehearing Denied July 25, 1995.

Appeal from the United States District Court for the District of Columbia Circuit (82cv00220).

Thomas G. Corcoran, Jr. argued the cause for appellant/cross-appellee. With him on the briefs was Henry M. Lloyd.

Mark R. Joelson and Mark N. Bravin argued the cause and filed the briefs for appellees/cross-appellants. Joseph P. Griffin entered an appearance.

Before: HENDERSON, RANDOLPH, and ROGERS, Circuit Judges.

Opinion for the court filed by Circuit Judge RANDOLPH.

RANDOLPH, Circuit Judge:

These are interlocutory cross-appeals from the judgments of the district court rendered on remand from our decision in Foremost-McKesson, Inc. v. Islamic Republic of Iran, 905 F.2d 438 (D.C.Cir.1990). Iran's appeal presents two issues regarding its immunity under the Foreign Sovereign Immunities Act of 1976 (FSIA), Pub.L. No. 94-583, 90 Stat. 2891 (1976) (codified in part at 28 U.S.C. Secs. 1330, 1391(f), 1602-1611). The first is whether, as the district court ruled on remand and as we determined in Iran's 1990 interlocutory appeal, the complaint alleges a sufficient "direct effect in the United States" to deprive Iran of immunity under FSIA Sec. 1605(a)(2). We hold that the law of the case applies and therefore refuse to reconsider our earlier decision. Iran's second issue is whether, as the district court found, the evidence establishes a principal-agent relationship between Iran and its codefendants with respect to the alleged interference with and taking of McKesson's shareholder rights in a dairy company in Iran. On this subject, we sustain the district court's finding. McKesson and the Overseas Private Investment Corporation (OPIC) appeal from the district court's judgment refusing to impose certain sanctions on Iran for its failure to comply with discovery requests. Because the court's judgment is not a final order, it is not subject to interlocutory review. We therefore dismiss McKesson's and OPIC's appeal for lack of appellate jurisdiction.

I

A

McKesson Corporation is a Maryland corporation with its principal place of business in California. In 1959, at the request of a group of Iranian citizens, McKesson agreed to assist in establishing a dairy, the Sherkat Sahami Labaniat Pasteurize Pak ("Pak Dairy") in Iran. McKesson's amended complaint alleges that it agreed to furnish "one-half of the required capital, and all the necessary management skills and personnel, engineering data, sources of material, procurement services, ingredients, and packaging. Through separate agreements, McKesson agreed to provide technical assistance as needed, and licensed its trademarks in exchange for receipt of royalties." Between 1959 and 1979, McKesson provided the top management for the dairy, and controlled its board of directors. In 1979, McKesson--or Foremost-McKesson, Inc., as the company was then called--held 31 percent of the equity interest in Pak Dairy.

The following text and footnotes 1-6 describing what then transpired are taken from our earlier opinion. "On January 22, 1982, [McKesson] and the Overseas Private Investment Corporation ¹ filed a complaint in the District Court against Iran and several agencies and instrumentalities of Iran through which [McKesson] 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, [Bank of Industry and Mine], the Foundation for the Oppressed and Pak Dairy. The complaint alleged that Iran, acting through the codefendant agencies and instrumentalities, illegally divested [McKesson] of its investment in Pak Dairy. [McKesson] and OPIC sought compensation for the entire value of their jointly held 19.84% insured equity interest in Pak Dairy, ² 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 [McKesson]'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, ³ 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. ⁴ Pursuant to the terms of the Executive Order, the District Court took no action in this case while [McKesson] 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 [McKesson]'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. ⁵ However, the Claims Tribunal concluded that Pak Dairy had unlawfully withheld from [McKesson] cash dividends declared in 1979 and 1980, and it therefore awarded [McKesson] approximately $900,000, plus interest, against Iran. The Claims Tribunal also concluded that Pak Dairy unlawfully failed to deliver to [McKesson] 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 [McKesson]. The Claims Tribunal awarded [McKesson] in excess of $500,000 in damages against Pak 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, 1989 WL 44086 (D.D.C. Apr. 18, 1989) ('Foremost III '), reprinted in App. 4. ⁶

* * * * * *

"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, 1989 WL 44086 (D.D.C. Apr. 18, 1989), reprinted in App. 3. Iran then filed this interlocutory appeal." Foremost McKesson, Inc. v. Islamic Republic of Iran, 905 F.2d at 441-42.

B

A foreign state is "immune from the jurisdiction of the courts of the United States and of the States" unless the foreign state's conduct falls within one of FSIA's exceptions. 28 U.S.C. Secs. 1604, 1605-07; Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 434, 109 S.Ct. 683, 688, 102 L.Ed.2d 818 (1989). In our earlier ruling, we affirmed the district court's judgment that "the facts alleged by [McKesson] exhibit sufficiently direct effects to confer subject matter jurisdiction under the third clause of section 1605(a)(2)." 905 F.2d at 450. ⁷ McKesson had invoked the "commercial activity" exception contained in the third clause of Sec. 1605(a)(2), which reads:

(a) A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case--

* * * * * *

(2) in which the action is based ... upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.

After we remanded the case, the Supreme Court issued Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 112 S.Ct. 2160, 119 L.Ed.2d 394 (1992), interpreting Sec. 1605(a)(2)'s commercial activity exception. Claiming that Weltover had undermined our ruling, Iran once again moved to dismiss the suit. The district court responded thus: "As McKesson suggests and the Court of Appeals has affirmed, the [district] Court's finding of a direct effect in the United States is fully supported by the evidence, regardless of any changes engendered by Weltover."

In our earlier decision, we also determined that the district court, in making its initial jurisdictional determination, had to make factual findings regarding the "degree of control exerted by Iran over Pak Dairy and over the shareholder entities that [McKesson] alleges are government controlled." 905 F.2d at 453. Unless "the relationship between Pak Dairy and Iran is one of principal to an agent," the actions of the codefendant entities could not be attributed to Iran, and Sec. 1605(a)(2) would not deprive Iran of immunity from suit.

On remand from our earlier decision, the district court denied McKesson's motion to sanction Iran for failing to provide discovery. Although Iran's responses to the interrogatories and document requests "skirted close to the edge," Iran had not violated the court's discovery order or the Federal Rules of Civil Procedure. The district court...