Ministry of Defense of Islamic Republic of Iran v. Gould Inc.

• Decision Date: 23 October 1989
• Docket Number: Nos. 88-5879,88-5881,s. 88-5879
• Citation: 887 F.2d 1357
• Parties: MINISTRY OF DEFENSE OF the ISLAMIC REPUBLIC OF IRAN, Plaintiff-Appellee/Cross-Appellant, v. GOULD INC., Gould Marketing, Inc., Hoffman Export Corporation, and Gould International, Inc., Defendants-Appellants/Cross-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1357

887 F.2d 1357

MINISTRY OF DEFENSE OF the ISLAMIC REPUBLIC OF IRAN Plaintiff-Appellee/Cross-Appellant, v. GOULD INC., Gould Marketing, Inc., Hoffman Export Corporation, and Gould International, Inc. Defendants-Appellants/Cross-Appellees.

Nos. 88-5879, 88-5881.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Feb. 9, 1989.

Decided Oct. 23, 1989.

Marc S. Palay, Jones, Day, Reavis & Pogue, Washington, D.C., for defendants-appellants/cross-appellees.

Richard E.M. Brakefield, Long Beach, Cal., Anthony Van Patten of Arndt & Van Patten, Los Angeles, Cal., for plaintiff-appellee/cross-appellant.

Michael F. Hertz, Joan E. Hartman, Attys., U.S. Dept. of Justice, filed a brief for the U.S. as amicus curiae, Abraham D. Sofaer, Legal Adviser to the U.S. Dept. of State, Ronald J. Bettauer, Asst. Legal Adviser, Sean D. Murphy, Atty. Adviser, U.S. Dept. of State, of counsel.

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

Before CANBY, WIGGINS and O'SCANNLAIN, Circuit Judges.

O'SCANNLAIN, Circuit Judge:

We are asked to determine whether an award against an American corporation entered by the Iran-United States Claims Tribunal can be enforced in federal court. The district court ruled that subject matter jurisdiction to enforce such award vests under the New York Convention and the Federal Arbitration Act. We agree.

I

A clear understanding of this dispute requires some examination of recent Iranian and American history. The former Shah of Iran, Mohammed Reza Pahlavi, ruled the Imperial Republic of Iran from 1953, when he assumed control of the government, until shortly before his death in 1979. Unrest developed and intensified in Iran during the Shah's rule. Led by conservative Moslem protests, the unrest eventually began to erupt in the late 1970s. In response, the Shah in 1978 declared martial law in twelve cities and set up a military government to deal with striking oil workers. Thereafter, he appointed Prime Minister Shahpur Bakhtiar to head a regency council and left the country, never to return, on January 16, 1979.

Meanwhile, exiled religious leader Ayatollah Ruhollah Khomeini named a provisional government council; he returned to Iran shortly after the Shah's departure. On February 11, less than two weeks after his return, Khomeini's supporters routed the imperial Guard, bringing about the collapse of Bakhtiar's government. Khomeini emerged victorious in the struggle to fill in the resultant power vacuum, as the Moslem clergy oversaw the drafting of an Islamic Constitution that vested final authority to rule in the Ayatollah and established the Islamic Republic of Iran.

Rampant unrest in Iran continued, and on November 4, 1979, Iranian militants seized the United States Embassy in Tehran and took as hostages members of the United States diplomatic corps stationed there. The hostage takers vowed to retain control of the fifty-two United States nationals and the embassy until the deposed Shah was returned to Iran. The United States retaliated with a series of actions. First, on November 14, President Carter issued an Executive Order declaring a national emergency and calling for the freezing of some $12 billion worth of Iranian assets in the United States and abroad. Exec. Order No. 12,170, 3 C.F.R. 457 (1980), note following 50 U.S.C. Sec. 1701, 44 Fed.Reg. 65.729 (1979). In April 1980, the United States failed in an attempted military rescue operation and broke off diplomatic relations with Iran. The impasse dragged on even as the Shah died in Egypt in July. Finally, on January 19, 1981, more than one year after the storming of the American embassy in Tehran, representatives of the United States and Iran, through the intermediary Government of Algeria, reached an agreement that provided for the release of the American hostages. The agreement, known as the Algiers Accords ("the Accords"), comprised principally two documents: The Declaration of the Democratic and Popular Republic of Algeria (Jan. 19, 1981), reprinted in Dept. of State Bull. No. 2047, Feb. 1981, at 1 ("General Declaration") and the Declaration of the Government of the Democratic and Popular Republic of Algeria Concerning the Settlement of Claims by the Government of the United States of America and the Government of Islamic Republic of Iran (Jan. 19, 1981), reprinted in Dept. of State Bull. No. 2047, Feb. 1981 at 3 ("Claims Settlement Declaration").

The General Declaration set forth two principles that encompass the basic thrust of the agreement and which provide, in relevant part, as follows:

A.... [T]he United States will restore the financial position of Iran, in so far as possible, to that which existed prior to November 14, 1979....

[T]he United States commits itself to ensure the mobility and free transfer of all Iranian assets within its jurisdiction....

B. It is the purpose of both parties ... to terminate all litigation as between the Government of each party and the nationals of the other, and to bring about the settlement and termination of all such claims through binding arbitration.... [T]he United States agrees to terminate all legal proceedings in United States courts involving claims of United States persons and institutions against Iran and its state enterprises, to nullify all attachments and judgments obtained therein, to prohibit all further litigation based on such claims, and to bring about the termination of such claims through binding arbitration.

Dept. of State Bull. at 2.

The General Declaration also laid out procedural details concerning the return of Iranian assets and United States nationals. Basically, it provided that once the Algerian Central Bank certified to an escrow bank in which the Iranian assets would be held that all 52 U.S. nationals had departed Iran safely, the escrow bank would transfer most of those assets back to Iran. The escrow bank would then hold the balance of the assets in a "Security Account" for the purpose of allowing U.S. nationals who prevailed on claims against Iran to satisfy their awards. ¹

The Claims Settlement Declaration set up the mechanism by which nationals of either country could present their claims against the government of the other. It established the Iran-United States Claims Tribunal, in which it vested jurisdiction over such claims and any counterclaims arising out of the same transaction. It also provided the details concerning the operation of the Tribunal.

The same day that Warren Christopher, Deputy Secretary of State, initialed the Accords to signal United States assent to their terms, President Carter issued a series of Executive Orders providing for their implementation. Exec. Orders No. 12,276-85, 46 Fed.Reg. 7913-32 (Jan. 19, 1981). ² The next day, President Reagan was inaugurated, and shortly thereafter, on February 24, 1981, he issued an Executive Order ratifying the implementing Orders President Carter had issued. Exec. Order 12,294, Fed.Reg. 14,111 (Feb. 24, 1981). President Reagan's Order also "suspended" all claims within the jurisdiction of the Tribunal, provided that such claims were of no legal effect in a United States court, and mandated that the Tribunal's determination on the merits of any claim validly before it "shall operate as a final resolution and discharge of the claim for all purposes." Id. The Supreme Court upheld the authority of the President to issue these Executive Orders. Dames & Moore v. Regan, 453 U.S. 654, 674, 686, 101 S.Ct. 2972, 2983, 2990, 69 L.Ed.2d 918 (1981).

In the early 1970s, when somewhat more tranquil relations prevailed between the United States and Iran, the Ministry of War of the Imperial Government of Iran and Hoffman Electric Corporation entered into two contracts whereby Hoffman agreed to provide and install certain military equipment. The Iranian revolution disrupted progress payments and performance called for under the agreements. In early 1980, Hoffman filed an action against Iran for breach of contract in the United States District Court for the Central District of California, eventually obtaining a writ of attachment on Iranian assets held in the United States to satisfy its claim. See Security Pacific Nat'l Bank v. Government & State of Iran, 513 F.Supp. 864, 866 (C.D.Cal.1981). After President Reagan issued the Executive Order suspending all claims in U.S. courts, however, the district court vacated the attachment and dismissed without prejudice Hoffman's action "subject to the right of any party to move to reopen the action at any time prior to the entry and satisfaction of a judgment of the Arbitral Tribunal ... on the grounds that the settlement has failed of its essential purpose." Id. at 884.

Hoffman in turn filed Claims 49 and 50 with the Tribunal at the Hague, seeking damages from Iran for breach of contract. In response, in a series of actions over the next year, Iran filed Statements of Defense to both of Hoffman's claims, and pursuant to Art. II, sec. 1 of the Claims Settlement Declaration, filed counterclaims for breach of contract in which it sought in excess of $80 million against Hoffman. ³ By way of counterclaim, Iran also sought to obtain certain military radio equipment in Hoffman's possession. ⁴ During the pendency of the proceedings before the Tribunal, Hoffman was merged into Gould Marketing, Inc. ("Gould"), a wholly-owned subsidiary of Gould International, Inc. ("GII"). ⁵

The Tribunal eventually issued a consolidated final award in Claims 49 and 50 in which it ruled that Gould was to pay $3.6 million and return the military radio equipment to Iran. ⁶ The monetary award in favor of Iran constituted a net accounting of the amounts the Tribunal found that Iran owed Gould under Claim No. 49 and that Gould owed Iran under the counterclaim to Claim No. 49.

Unlike the provision creating the Security Account at the escrow bank, the funds of which are to be used for the sole purpose of securing the payment of...