McKesson HBOC v. Islamic Republic of Iran

• Decision Date: 11 January 2002
• Docket Number: C,No. 00-7157,00-7157
• Citation: 271 F.3d 1101
• Parties: (D.C. Cir. 2001) McKesson HBOC, Inc., et al., Appellees/Cross-Appellants v. Islamic Republic of Iran, Appellant/Cross-Appellee onsolidated with 00-7263
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1101

271 F.3d 1101 (D.C. Cir. 2001)

McKesson HBOC, Inc., et al., Appellees/Cross-Appellants v. Islamic Republic of Iran, Appellant/Cross-Appellee

No. 00-7157, Consolidated with 00-7263

United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 1, 2001

Decided November 16, 2001

Corrected January 11, 2002

[Copyrighted Material Omitted] Appeals from the United States District Court for the District of Columbia (No. 82cv00220)

Thomas G. Corcoran, Jr. argued the cause for appellant/cross-appellee. With him on the briefs was Mary-Ellen Noone.

Mark N. Bravin argued the cause for appellees/crossappellants. With him on the briefs were Ralph N. Albright, Jr., Peter Buscemi and Mark R. Joelson.

Before Edwards, Rogers and Tatel, Circuit Judges.

Opinion for the Court filed by Circuit Judge Tatel.

Tatel, Circuit Judge:

McKesson HBOC, Inc., an American corporation, owns a minority interest in an Iranian dairy. Following Iran's 1979 Islamic Revolution, the dairy cut off the flow of capital and other material to McKesson, froze out McKesson's board members, and stopped paying McKesson's dividends. After years of litigation, including two appeals to this court, the district court granted summary judgment for McKesson, holding the Islamic Republic of Iran liable for expropriating McKesson's equity in the dairy. Following a bench trial on the value of McKesson's holdings, the district court ordered Iran to pay over $20 million in compensation for, among other things, expropriated equity and withheld dividends. In this appeal, Iran argues that federal courts lack jurisdiction over it, that material issues exist as to its liability for expropriation, and that the district court erred in valuing McKesson's assets. McKesson cross-appeals, challenging the district court's assessment of simple rather than compound interest. We affirm in most respects. Jurisdiction exists pursuant to the Foreign Sovereign Immunities Act's exception for commercial acts of a foreign sovereign that cause direct effects in the United States. The district court's careful consideration of the valuation evidence easily survives clear-error review. And although the district court may have erred in finding that international law precludes awards of compound interest, it acted well within its broad discretion to grant simple interest. But because we find that genuine issues of material fact exist as to whether Iranian corporate law excused the dairy's withholding of dividends, we reverse the district court's grant of summary judgment on the issue of Iran's liability for expropriating McKesson's equity and remand that portion of the case for trial.

I.

For many years prior to Iran's 1979 Islamic Revolution, McKesson HBOC, Inc., appellee and cross-appellant, contributed capital and personnel to Sherkat Sahami Labaniat Pasteurize Pak, an Iranian dairy ("Pak Dairy"). McKesson's representatives made up a majority of Pak Dairy's board of directors.

Following the Revolution, McKesson's ties with Pak Dairy began to weaken. It no longer received its standard yearly dividends, and soon lost control of the dairy's board, withdrawing its last two directors in October, 1981. Since then, McKesson has neither participated in Pak Dairy's business nor received shareholder communications or compensation for its investment, even though it still owns a thirty-one percent interest in the dairy.

In 1982, McKesson, along with its insurer, the Overseas Private Investment Corporation (OPIC), filed suit in the United States District Court for the District of Columbia alleging that the Islamic Republic of Iran, appellant and cross-appellee, illegally expropriated McKesson's interest in Pak Dairy. Pursuant to Executive Order No. 12,294, 46 Fed. Reg. 14,111 (Feb. 24, 1981), McKesson's claim was transferred to the newly created Iran-United States Claims Tribunal which, by virtue of the Algiers Accords (which settled the Iran hostage crisis), had exclusive jurisdiction over suits involving American claims to frozen Iranian assets. See generally Declaration of the Government of the Democratic and Popular Republic of Algeria, Jan. 19, 1981, Iran-U.S., 20 I.L.M. 224. Although the Claims Tribunal decided that Iran's interference with McKesson's rights had not amounted to an expropriation by January 19, 1981, the Tribunal's jurisdictional cut-off date, it did find that Pak Dairy had illegally withheld McKesson's 1979 and 1980 dividends. Foremost Tehran, Inc. v. Iran, 10 Iran-U.S. Cl. Trib. Rep. 228, 250 (1986). The Tribunal awarded McKesson in excess of $900,000 as compensation for withheld dividends, plus approximately $500,000 for related breach-of-contract claims. Id. at 252-53, 254-55, 257-58.

Renewing its claim in district court, McKesson argued that Iran had expropriated its equity in Pak Dairy after the Tribunal's jurisdictional cut-off date. Iran moved to dismiss, arguing primarily that the Foreign Sovereign Immunities Act of 1976 (FSIA), 28 U.S.C. §§ 1602-1611, rendered it immune from suit in federal court. The district court denied this motion, and we affirmed in part and remanded in part. See Foremost-McKesson, Inc. v. Islamic Republic of Iran, 905 F.2d 438, 449-51 (D.C. Cir. 1990) ("McKesson I"). In doing so, we held that McKesson had provided adequate evidence of federal jurisdiction pursuant to the FSIA exception for suits based on "commercial activity ... that ... causes a direct effect in the United States." 28 U.S.C. § 1605(a)(1); see McKesson I, 905 F.2d at 449-50. Subsequently, Iran again challenged federal jurisdiction, arguing among other things that an intervening Supreme Court decision, Republic of Argentina v. Weltover, Inc., 504 U.S. 607 (1992), undermined McKesson I. McKesson Corp. v. Islamic Republic of Iran, 52 F.3d 346, 349 (D.C. Cir. 1995) ("McKesson II"). Distinguishing Weltover and deferring to McKesson I, we affirmed the district court's denial of Iran's renewed motion to dismiss. Id. at 350-51.

With the jurisdictional issue seemingly--though as we shall soon see, not finally--resolved, both parties moved for summary judgment on liability. Granting summary judgment for McKesson, McKesson Corp. v. Islamic Republic of Iran, No. 82-220, mem. op. at 31 (D.D.C. June 23, 1997), the district court scheduled a bench trial to determine damages. Just before trial, Iran once again moved to dismiss for lack of jurisdiction, arguing that the International Guaranty Agreement (IGA), which governs the resolution of claims against Iran to which the United States government and its instrumentalities are subrogated, requires arbitration rather than litigation. The district court denied the motion, heard several weeks of testimony on valuation, and then issued findings valuing McKesson's assets--including equity in Pak Dairy, dividends, and simple interest--at just over $20 million. McKesson Corp. v. Islamic Republic of Iran, No. 82-220, mem. op. at 53 (D.D.C. May 26, 2000).

The district court denied McKesson's subsequent motion for reconsideration of the court's assessment of simple rather than compound interest. McKesson Corp. v. Islamic Republic of Iran, No. 82-220, mem. op. at 13 (D.D.C. Sept. 28, 2000).

Iran now appeals the grant of summary judgment on liability as well as the district court's valuation of McKesson's holdings in Pak Dairy. Iran also appeals the district court's rejection of its FSIA and IGA jurisdictional arguments. McKesson cross-appeals the denial of its motion for reconsideration of the decision to award only simple interest.

II.

We begin with Iran's jurisdictional arguments. A foreign nation's entitlement to sovereign immunity raises questions of law reviewable de novo. Princz v. Fed. Republic of Germany, 26 F.3d 1166, 1169 (D.C. Cir. 1994).

The FSIA immunizes foreign sovereigns, as well as their agents and instrumentalities, from federal court jurisdiction, see 28 U.S.C. §§ 1603(a), 1605, unless the case falls within one of several exceptions specified in the act, see id. § 1605; see also Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 443 (1989) ("[T]he FSIA provides the sole basis for obtaining jurisdiction over a foreign state in the courts of this country...."). McKesson argues, and the district court held, that jurisdiction over Iran exists pursuant to the FSIA's exception for "any case ... in which the action is based upon a commercial activity ... of the foreign state ... that ... causes a direct effect in the United States." 28 U.S.C. § 1605(a)-(b).

This court has twice considered whether the commercialactivity exception applies to McKesson's claim, holding both times that the alleged effects of Iran's expropriation--including the cut-off of the "constant flow of capital, management personnel, engineering data, machinery, equipment, materials and packaging" between the two companies, McKesson I, 905 F.2d at 451, as well as the abrupt end of "McKesson's role as an active investor," McKesson II, 52 F.3d at 350--were sufficiently direct to create federal jurisdiction. It is true, as Iran stresses, that our two earlier decisions found McKesson's jurisdictional showing sufficient only to survive a motion to dismiss, id. at 351, whereas this time we review a district court order granting summary judgment. Though we do not here assume the validity of McKesson's factual assertions, see United States v. Gaubert, 499 U.S. 315, 327 (1991), this distinction makes no difference, for Iran does not dispute the particular facts on which our two earlier decisions relied. Indeed, the district court, reviewing the record without obligation to assume the veracity of either party's assertions, cited the same facts that McKesson I and McKesson II found sufficient for "direct effects" jurisdiction. See McKesson Corp. v. Islamic Republic of Iran, No. 82-220, mem. op. at 10 n.10 (D.D.C. June 23, 1997). Because we are presented with jurisdictional facts identical to the ones relied on by our two earlier...