McKesson Corp. v. Islamic Republic of Iran

• Decision Date: 26 May 2000
• Docket Number: No. CIV. A.82-00220(TAF).,CIV. A.82-00220(TAF).
• Citation: 116 F.Supp.2d 13
• Parties: McKESSON CORPORATION; Foremost Tehran, Inc.; Foremost Shir, Inc.; Foremost Iran Corporation; and Overseas Private Investment Corporation, Plaintiffs, v. THE ISLAMIC REPUBLIC OF IRAN; Financial Organization for the Expansion of Ownership of Productive Units; National Investment Company of Iran; Industries and Mines Bank; Foundation for the Oppressed; and Sherkat Sahami Labaniat Pasteurize Pak, Defendants.
• Court: U.S. District Court — District of Columbia

116 F.Supp.2d 13

McKESSON CORPORATION; Foremost Tehran, Inc.; Foremost Shir, Inc.; Foremost Iran Corporation; and Overseas Private Investment Corporation, Plaintiffs, v. THE ISLAMIC REPUBLIC OF IRAN; Financial Organization for the Expansion of Ownership of Productive Units; National Investment Company of Iran; Industries and Mines Bank; Foundation for the Oppressed; and Sherkat Sahami Labaniat Pasteurize Pak, Defendants.

No. CIV. A.82-00220(TAF).

United States District Court, District of Columbia.

May 26, 2000.

Opinion Denying Reconsideration September 28, 2000.

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Mark Rene Joelson, Washington, DC, Ralph N. Albright, Jr., Joseph P. Griffin, Mark Neil Bravin, Morgan, Lewis & Bockius, L.L.P., Washington, DC, for Plaintiffs.

Bruno Alexander Ristau, Andrews & Kurth, LLP, Washington, DC, Henry M. Lloyd, Boykin & Casano, P.C., Washington, DC, Thomas Gardiner Corcoran, Jr., Mary-Ellen Noone, Berliner, Corcoran & Rowe, L.L.P., Washington, DC, for Defendants.

Michaerl F. Hertz, Joan E. Hartman, U.S. Dept. of Justice, Washington, DC, for U.S.

MEMORANDUM-OPINION

FLANNERY, District Judge.

I. Introduction

On June 23, 1997, this Court granted Plaintiffs' motion for summary judgment on the issue of liability, finding that Defendant Islamic Republic of Iran ("Iran"), acting through its co-defendants, had expropriated Plaintiff McKesson's 31% interest in an Iranian dairy company, the Sherkat Sahami Labaniat Pasteurize Pak ("Pak Dairy"), in April of 1982.¹ See McKesson Corp. v. Islamic Republic of Iran, Civ. A. 82-220, 1997 WL 361177 at *12 (D.D.C. June 23, 1997). This Court further held as a matter of law that Iran had wrongfully withheld from McKesson the payment of dividends declared by Pak Dairy in 1981 and 1982 (hereinafter the "1981 dividend" and "1982 dividend" respectively) and that Iran could be held liable in federal court for the expropriation and failure to pay dividends under the Treaty of Amity and customary international law. Id., Mem. Op. at 24-31, 1997 WL 361177 at *12-*15; see Treaty of Amity, Economic Relations, and Consular Rights Between the United States of America and Iran, 8 U.S.T. 899 (1957). Between January 18 and February 17, 2000, a bench trial was held to determine the appropriate amount of damages. Iran was the only defendant appearing at trial.² In their case-in-chief, Plaintiffs first presented the testimony of Fred A. Loichinger ("Loichinger"), Chief Engineer of Pak Dairy from 1976 to 1978, and Robert C. Carpenter ("Carpenter"), a financial investment analyst and foreign investment manager for McKesson during the relevant period. Both testified regarding the condition of Pak Dairy up to 1978 and certain proposed expansions of its business. Plaintiffs also read into the record certain portions of the deposition of Alireza Dadyar ("Dadyar"), the then-Senior Accountant of Pak Dairy and in 1982 its Deputy Chief Accountant. As their fourth fact witness, Plaintiffs put on Leonard A. Patterson ("Patterson"), McKesson's Associate General Counsel, who testified chiefly regarding the value of McKesson's dividends for the years 1981 and 1982. Finally, Plaintiffs put on an appraisal expert, Robert Reilly ("Reilly"), to offer an expert opinion on the value of McKesson's equity interest in Pak Dairy at the time of the expropriation.

In Iran's case-in-chief, it put on Dadyar as a fact witness to testify to the condition of Pak Dairy in the early 1980s, Dr. Gholam H. Vafai ("Vafai") as an expert on Iranian law to authenticate certain Iranian legal documents and Anatole Richman ("Richman") as an appraisal expert offering a contrary view of the value of McKesson's interest in Pak Dairy in April of 1982.

In Plaintiffs' rebuttal case, Reilly gave further testimony. Plaintiffs also put on Professor Shaul Bakhash ("Bakhash") as an expert on Iranian history to testify to the absence of bombing in Tehran in 1981 and 1982.

On March 16, 2000, the parties made their closing arguments. Now, upon reviewing the testimony and exhibits in evidence, as well as the relevant law, the Court enters the following findings of fact and conclusions of law in accordance with Fed.R.Civ.P. 52(a). In making its findings and conclusions, the Court bears in mind that the burden of proving the amount of damages is upon the Plaintiffs. See Samaritan Inns, Inc. v. District of Columbia, 114 F.3d 1227, 1235 (D.C.Cir.1997); Gould v. U.S., 160 F.3d 1194, 1197 (8th Cir.1998); Aeronca, Inc. v. Style-Crafters, Inc., 546 F.2d 1094, 1096 (4th Cir.1976).

II. Findings of Fact

A. The Plaintiffs

The Plaintiffs include four United States corporations which hold formal title to the expropriated shares in Pak Dairy: McKesson HBOC, Inc. and three wholly owned subsidiaries, Foremost Tehran, Inc., Foremost Shir, Inc. and Foremost Iran Corp. When this litigation commenced, McKesson HBOC, Inc. was named Foremost McKesson, Inc. It changed its name to McKesson Corporation on July 27, 1983 following the sale of all of its dairy interests around the world. In January of 1999, it adopted its current name. McKesson's total equity interest in Pak Dairy is 31%, with 10% held by each of the three subsidiaries and 1% held by McKesson HBOC, Inc.

The remaining co-plaintiff is the Overseas Private Investment Corporation ("OPIC"), an agency of the United States which insures private overseas investments of United States nationals. See 22 U.S.C. § 2191. OPIC had insured McKesson's interests in Pak Dairy and seeks to recover monies paid in settlement of McKesson's insurance claim.

B. Iran

Throughout the 1960s and for most of the 1970s, Iran was governed by Mohammad Reza Pahlavi ("the Shah"). However, political turmoil began in the last half of 1978 with labor strikes and general unrest and culminated later that year in the Iranian Revolution ("Revolution"). In December of 1978, the Shah left the country and in February of 1979, a new government was formed based on the rule of Islamic law and following a far more socialist approach to regulating the economy than the previous regime had taken. Most dramatically, the new government nationalized a number of industries such as oil, gas, railways, fisheries, metal, shipping, aircraft and automobiles. While it did not nationalize the dairy industry, it maintained strict price controls over dairy products and also controlled the distribution of raw dairy materials including milk and butter. For example, all foreign imports of raw butter were obtained directly by the government, which then redistributed allotments of butter to the various dairy companies. In addition, Iran set up new labor laws, which inter alia established Worker's Islamic Councils. A Council for a particular company was elected by the company's employees and had an ambiguous role to play in influencing corporate policies and decisions regarding working conditions and pay. All of these new laws and policies were in place by the middle of 1979, and continued to apply through April of 1982.

In November of 1979, Americans at the United States Embassy in Tehran were taken hostage and shortly thereafter, Iran was subjected to an international trading embargo. However, after the release of the hostages in January of 1981, most nations lifted the economic embargo, the notable exception being the United States. All the economic data in 1981-82 indicates a relatively quick return to normalization of international trade. In particular, Japan, West Germany and Holland engaged in substantial trade with Iran. However, Iran's international trade overall was still lower in 1982 than it had been prior to the Revolution.

On September 22, 1980, Iraq commenced a war against Iran (the "Iran-Iraq war") by a surprise attack on Iran's southwestern border. Initially, Iraq was successful, seizing Iranian territory along the border that included several important oil fields. During 1981, the war was largely or solely fought in Iranian territory. However, around the start of 1982, the tide turned and Iraqi ground forces were driven from much of the territory they had occupied, including the oil fields. Iraqi retreat from Iran was substantially complete by April of 1982.

On the first day of the war, Iraq bombed several military bases and airfields in Iran, including the Tehran Marahab Airport which was situated on property adjacent to Pak Dairy. In October, Iraq bombed several oil refineries. The bombing campaign proved, however, to be a failure overall. Several bombs did not go off; others missed their targets. The Tehran Airport specifically suffered slight damage to its runway, which was repaired quickly.

After these early attacks, bombing in Iran was minimal. There was no bombing of Tehran at all in 1981 or 1982. However, sorties and bombing runs were made on cities a few hundred miles to the southwest (i.e. near the border between Iran and Iraq where the ground fighting was taking place). Further, Iraqi jets were occasionally seen making flights over Tehran.³

Inflation was a serious problem for Iran both before and after the Revolution, running about 20% between 1977 and 1982. In the dairy industry specifically, inflation rates were 14% in 1978, 15% in 1979, 18% in 1980 and 24% in 1981.⁴ High inflation prior to the Revolution was a result primarily of excessive growth in certain sectors of the economy and an imbalance between supply and demand. After the Revolution, it continued in part due to the embargo and the Iran-Iraq war.

C. Pak Dairy

In 1959, a group of private Iranian citizens asked McKesson, a Maryland corporation (then operating under the name Foremost-McKesson, Inc.), to join them in establishing a dairy business in Tehran, Iran. McKesson agreed to provide half of the required capital, all management and personnel, procurement services, ingredients and packaging. A joint venture agreement was executed and, through a separate agreement, McKesson agreed to provide technical...