MEMORANDUM OPINION
I. Legal Standard ............................................................................................................................. 2
II. Factual Background .................................................................................................................... 3 A. The Initial Effort to Rebuild Iraqi Armed Forces Following the U.S.-led Invasion in 2003 3
B. Iraq Contemplates Stopping Some Scrap Exports ............................................................... 6
C. Wye Oak and MoD Execute the BSA .................................................................................. 7
D. Wye Oak Begins Performance ........................................................................................... 11
E. Wye Oak and Zayna Sign a Limited Power of Attorney ................................................... 13
F. Wye Oak Presents Three Invoices to MoD ........................................................................ 15
G. October 19, 2004 Meeting ................................................................................................. 16
1. MoD Approved Wye Oak's Three Invoices ....................................................................... 16
2. Wye Oak and MoD Effectuated the First Amendment to the BSA ..................................... 17
H. MoD and GIG Sign the Contract of Financial Agreement ................................................ 21
I. MoD Paid Zayna Instead of Wye Oak ............................................................................... 24
J. Wye Oak Continued to Perform until Nonpayment Became a Serious Impediment ............ 25
1. Wye Oak Performed Work in Iraq ..................................................................................... 25
2. Wye Oak Performed Work in the United States ................................................................ 27
3. Nonpayment Eventually Became a Significant Impediment to Wye Oak's Work .............. 28
K. December 5, 2004 Meeting ................................................................................................ 29
L. Wye Oak Goes Back to Work, But Dale Stoffel is Murdered ........................................... 31
M. Wye Oak Produced Armored Vehicles in Time for the January 2005 Elections, But Eventually Ceased to Perform Work in Iraq Because It was Never Paid ................................. 33
N. Iraq Prohibits Scrap Sales .................................................................................................. 35
III. Legal Discussion ..................................................................................................................... 35 A. MoD is Not Separate from the Republic of Iraq ................................................................ 35
B. The Court has Subject Matter Jurisdiction and Personal Jurisdiction Over Defendants ... 39
1. The BSA was a "Commercial Activity" Under the FSIA .................................................. 40
2. This Action is Based Upon an Act Performed in the U.S. in Connection with a Commercial Activity of Iraq Elsewhere ................................................................................. 41 3. The Court has Personal Jurisdiction over Iraq and MoD ................................................. 44
C. Defendants Breached the BSA ........................................................................................... 45
1. Wye Oak's Three Invoices Were Submitted Under the BSA .............................................. 45
2. Wye Oak was never paid for its three invoices .................................................................. 50
3. Wye Oak Performed Under the BSA .................................................................................. 51
4. MoD Materially Breached the Contract with Wye Oak .................................................... 52
D. The Court Rejects Defendants' Affirmative Defenses ......................................................... 52
1. The Court Rejects the Defense Wye Oak was Not Properly Licensed ............................... 53
2. The Court Rejects the Defense Wye Oak was Not Owed Any Compensation Under the BSA Because Wye Oak Did Not Conclude Any Sales Contracts ........................................... 55
3. The Court Rejects the Defense Wye Oak Waived any Breach ........................................... 55
IV. Damages ................................................................................................................................. 56
A. Dr. Gale's Expert Damages Report ...................................................................................... 59
1. The Court Finds Defendants Breached the BSA on October 28, 2004 ............................. 60
2. Gale Did Not Err in Not Taking Into Account Subsequent Events .................................... 61
a. Dale Stoffel's Murder .................................................................................................... 62
b. Wye Oak's Withdrawal of American Personnel ............................................................ 63
c. The Scrap Ban ................................................................................................................ 63
B. Damages for the Three Invoices ........................................................................................... 67
C. Lost Profits ........................................................................................................................... 70
1. Defendants' Overall Objections to Plaintiffs' Lost Profits Calculations .......................... 70
2. Lost Profits from Construction .......................................................................................... 75
3. Lost Profits from Refurbishing Military Equipment .......................................................... 78
4. Lost Profits from Scrap Sales ............................................................................................ 88
5. Lost Profits From the Sale of Surplus Military Equipment ............................................... 93
D. Terminal Value ..................................................................................................................... 94
E. Discounted Future Income .................................................................................................... 95
1. Risk-Free Rate ................................................................................................................... 97
2. Equity Risk Premium ......................................................................................................... 97
3. Firm Size Premium ............................................................................................................ 98
4. Industry Risk Premium ...................................................................................................... 99
5. Defendants' Objections that Gale Did Not Include a Company-Specific Risk Premium and Did Not Apply a Higher Discount Rate to Damages in Option Years ................................ 100
6. Discount rate ................................................................................................................... 100
F. Prejudgment Interest ........................................................................................................... 101
G. Enhanced Damages ............................................................................................................ 102
H. Costs, Including Reasonable Attorney's Fees and Expenses ............................................. 104
V. Conclusion ............................................................................................................................. 105 Fifteen years ago, Wye Oak Technology, an American company, entered into the Broker Services Agreement (BSA) with the Iraqi Ministry of Defense (MoD) to play a key role in re-equipping the Iraqi military. Iraq urgently needed to rebuild its armed forces as the Coalition Provisional Authority (CPA) transferred sovereignty back to the Iraqi people and the interim Iraqi government prepared to hold its first parliamentary elections since the fall of Saddam Hussein. The BSA was set to be the central component of the Iraqi Military Equipment Recovery Project (IMERP).
Under the BSA, Wye Oak was responsible for developing an inventory and assessing what military equipment was salvageable and what was scrap, providing military refurbishment services, arranging for scrap sales, and arranging for the sale of military equipment. Wye Oak began performing as soon as the BSA was effectuated. By October 2004, Wye Oak submitted three pro forma invoices to MoD for work in relation to the IMERP.
But MoD never paid these invoices to Wye Oak. Instead, MoD paid a third-party, Raymond Zayna, the money owed to Wye Oak under the BSA. Nonetheless, Wye Oak continued to perform under the contract while desperately trying to extract the funds it was owed. And briefly, Wye Oak thought it succeeded. After months of performing vital activities as part of the IMERP despite not being paid, all issues seemed to be solved after a December 5, 2004 meeting. However, this was not the case.
A few days later, Wye Oak's president Dale Stoffel and his colleague Joe Wemple were brutally murdered on their way to arrange for funding to finally be released. Nonetheless, Wye Oak still did not immediately abandon the IMERP even after Dale Stoffel's tragic death. Instead, Wye Oak exceeded the goal of producing a mechanized brigade of operational armored vehiclesfor Iraq's January 2005 parliamentary election. Yet Wye Oak was never paid for the vital work it performed under the BSA.
Now, more than fifteen years after Wye Oak entered into the BSA, and more than a decade after Wye Oak first filed suit, ...
