National Petrochemical Co. of Iran v. M/T Stolt Sheaf

• Decision Date: 11 April 1991
• Docket Number: D,No. 1036,1036
• Citation: 930 F.2d 240
• Parties: , 19 Fed.R.Serv.3d 923 NATIONAL PETROCHEMICAL COMPANY OF IRAN, Plaintiff-Appellant, v. The M/T STOLT SHEAF, her engines, boilers, etc., Posiden Navigation, Inc., Parcel Tankers, Inc., Stolt Nielsen, Inc., Stolt Nielsen A/S, Defendants-Appellees. ocket 89-9132.
• Court: U.S. Court of Appeals — Second Circuit

Page 240

930 F.2d 240

1991 A.M.C. 1890, 19 Fed.R.Serv.3d 923

NATIONAL PETROCHEMICAL COMPANY OF IRAN, Plaintiff-Appellant, v. The M/T STOLT SHEAF, her engines, boilers, etc., Posiden Navigation, Inc., Parcel Tankers, Inc., Stolt Nielsen, Inc., Stolt Nielsen A/S Defendants-Appellees.

No. 1036, Docket 89-9132.

United States Court of Appeals Second Circuit.

Argued March 29, 1990.

Decided April 11, 1991.

Richard D. Gaines, New York City, for plaintiff-appellant.

Brian D. Starer, New York City (Charles B. Anderson, Richard A. Menchini, Don P. Murnane, Jr., Haight, Gardner, Poor & Havens, New York City, of counsel), for defendants-appellees.

Before OAKES, WINTER and MAHONEY, Circuit Judges.

MAHONEY, Circuit Judge:

In this action, plaintiff-appellant National Petrochemical Co. of Iran ("NPC") seeks damages from defendants for failure to deliver certain chemicals originally destined for Iran aboard the vessel Stolt Sheaf, but ultimately discharged at Taiwan after the outbreak of war between Iraq and Iran. Defendants are the tanker Stolt Sheaf, on which the chemicals in question were shipped from Houston, Texas, and various parties engaged in the ownership and operation of the Stolt Sheaf.

Upon remand from a decision by this court in National Petrochemical Co. of Iran v. M/T Stolt Sheaf, 860 F.2d 551 (2d Cir.1988), cert. denied, 489 U.S. 1081, 109 S.Ct. 1535, 103 L.Ed.2d 840 (1989) ("NPC I "), that affirmed the right of NPC to maintain this action in American courts, the United States District Court for the Southern District of New York, Richard Owen, Judge, granted summary judgment to defendants. The district court ruled that NPC was barred from recovery because of its knowing efforts to violate United States law imposing an embargo upon the sale or other transfer of items, products, and commodities (other than excepted food, medical supplies and clothing) to Iran. See National Petrochemical Co. of Iran v. M/T Stolt Sheaf, 722 F.Supp. 54 (S.D.N.Y.1989) ("NPC II "). The district court denied a subsequent motion by NPC to vacate the summary judgment and allow NPC to amend its complaint.

We affirm.

Background

On April 7, 1980, in response to the seizure by Iranian militants of the United States embassy in Tehran and the taking of fifty-two American diplomatic personnel as hostages, President Carter severed diplomatic relations with Iran and issued Executive Order 12205, 45 Fed.Reg. 24,099 (1980). The order proscribed, inter alia, "[t]he sale, supply or other transfer, by any person subject to the jurisdiction of the United States, of any items, commodities or products ... from the United States ... either to or destined for Iran," with certain exceptions not presently pertinent. Id.

In June 1980, NPC, the parent company and purchasing agent for a number of Iranian subsidiaries, and a subsidiary that purchased for its own account, Abadan Petrochemical Company, sought to purchase supplies of certain urgently needed chemicals, ethylhexanol ("EH"), orthoxylene ("OX"), and ethylene dichloride ("EDC"), for delivery to Iran. The mutual trade embargoes existing between the United States and Iran ¹, however, rendered NPC's prior sources unavailable. NPC therefore approached various traders and brokers in order to secure new sources of supply.

NPC contracted with a middleman, Monnris Enterprises ("Monnris") of Dubai, United Arab Emirates, to purchase NPC's requirements of EH and OX. Monnris proceeded to secure the needed chemicals from Rotex Chemie Brunst & Co. of Hamburg, West Germany ("Rotex"). Rotex acted in this transaction, however, through a Swiss affiliate, Formula S.A., because West Germany, like the United States, had placed restraints on shipments to Iran.

Although the pertinent documents called for shipment of the EH and OX from "Any West European & UAE Ports," the EH and OX, as well as supplies of EDC for Abadan Petrochemical Company, were in fact purchased from suppliers in the United States and shipped from Houston, Texas aboard the Stolt Sheaf. Although the original charter party called for delivery of the cargo from Texas to Barcelona, Spain, a subsequent addendum to that charter party specified Iran as the ultimate destination of the cargo.

In September 1980, war broke out between Iran and Iraq. Defendants notified NPC of their invocation of the war risk clause of the charter party and their concommitant request that the charterer, Rotex, name an alternate destination for the cargo aboard the Stolt Sheaf, which by then was in the vicinity of Iran. Thereafter, by a second addendum to the charter party, Rotex ordered defendants to redirect the Stolt Sheaf to Taiwan, where Rotex successfully resold the cargo.

The sale in Taiwan was purportedly for the account of NPC, but NPC was unable to obtain the proceeds from Rotex and Formula. In resulting legal proceedings in Germany, Kuhn Mohamed, the proprietor of Monnris at the time of this transaction, stated in an affidavit that Monnris' relationship with NPC in this transaction resulted from the following situation:

1980 was ... the time of the Iranian revolution and potential Iranian purchasers, as well as would-be suppliers to Iran, were looking for middle-men through whom contracts could be raised, so as to circumvent the effect of the trade sanctions applying to Iran. For my firm, and in general for all trading firms in Dubai, this was a very promising commercial opportunity....

Mohamed also acknowledged that he knew by August 21, 1980, approximately a month before their intended delivery to Iran, that the Stolt Sheaf was bringing the chemicals from the United States, "but that the vessel would be calling at Barcelona where new bills of lading would be issued either for that vessel or for another one."

Ashgar Bakhtiari, head of NPC's procurement department in 1980, also submitted a statement in the German proceedings which included the following with respect to the transaction at issue:

Another term of sale was that third party bills were to be acceptable. I understood this to mean that Monnris Enterprises, although the sellers of the cargo to us, would not be shown as the shippers in the Bills of Lading. I also understood that the Bills would not necessarily reflect the true destination for the cargo, since they would originally show that the cargo was to be discharged for the account of Monnris and our identify [sic] as the final receiver and Bandar Khomeni as the Port of Discharge would not necessarily be mentioned. Obviously, this might be necessary in order to avoid any regulations giving effect to the economic sanctions.

Emphasis added. Bakhtiari also asserted that "during the time of the economic sanctions applying to trade with Iran after the revolution, it was impossible in most cases to contact [manufacturers of raw materials] direct and we had to work through agents and middle men."

On September 30, 1986, NPC commenced this action, claiming that defendants negligently and conspiratorily allowed Rotex to divert and resell the chemicals. Paragraph 18 of NPC's complaint alleged that "NPC or its agents, including Monriss [sic]" had contracted with Rotex for the delivery of the chemicals. The district court initially dismissed the complaint on the ground that NPC's status as a wholly-owned entity of the unrecognized Iranian government prevented its suing in a United States court, but this court, at the urging of the United States as amicus curiae, reversed that determination in NPC I.

Upon remand, defendants moved to dismiss the complaint on the grounds that NPC sought to recover on an illegal contract and that its claim was time-barred. The district court granted summary judgment for defendants on the former ground, finding that "[t]he agreement at issue in this case was illegal under the laws of the United States and Iran." NPC II, 722 F.Supp. at 55. The court concluded that NPC was barred from recovery because its "knowledge of the transaction's illegal purpose and the illegal arrangements necessarily made to have it succeed ... [was] undisputed." Id. at 56. The court's opinion granting summary judgment included a statement that Monnris "was admittedly NPC's agent." Id. at 55. The district court subsequently denied a motion by NPC to vacate the summary judgment and allow NPC to amend its complaint to delete the reference to Monnris as NPC's agent.

This appeal followed.

Discussion

On appeal, NPC presents three grounds for reversal: 1) the contracts that NPC seeks to enforce were not illegal; 2) there was a material factual issue as to whether NPC was in pari delicto with regard to any illegality; and 3) the district court abused its discretion when it denied NPC's motion to vacate the judgment and to allow amendment of the complaint. We consider each of these contentions in turn.

A. Illegality of Contracts.

NPC claims that the contracts at issue in this suit were legal because the individual agreements, viewed separately, were not subject to the embargoes against shipments from the United States to Iran. Executive Order 12205, by its terms, applies to "any person subject to the jurisdiction of the United States." Thus, NPC contends that because Formula and Monnris were not subject to United States jurisdiction, their contracts to supply goods to Iran were outside the scope of the embargo. Similarly, it claims, the defendants, as foreign entities, could properly contract to make the shipments.

It is very doubtful, to begin with, that foreign entities which undertake to deliver goods from a United States port in violation of American law are not, in doing so, "subject to the jurisdiction of the United States." In any event, this reasoning ignores the undisputed fact that each contract was a component, in the words of NPC's complaint, of a "scheme to transport the cargoes for payment of monies between the U.S. and Iran, without detection in contravention of the then existing laws and trade embargoes between the two countries."

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