McKesson Corporation v. Iran, the Islamic Re ( 2009 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
MCKESSON CORP., et aI., )
)
Plaintiffs, )
)
v. ) Civ. Action No. 82-0220 (RJL)
)
ISLAMIC REPUBLIC OF IRAN, et aI., )
)
Defundanb. )
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MEMORANDUM OPINION
November 20 ,2009
The plaintiff, McKesson Corporation ("McKesson"), a U.S. company, alleges that
the defendant, Islamic Republic of Iran ("Iran"), expropriated McKesson's interest in an
Iranian dairy and illegally withheld dividends. In its 27 -year history, this case has reached
the United States Court of Appeals five times. Most recently, the Court of Appeals
remanded to this Court to consider three specific issues: (1) Does McKesson have a cause
of action under Iranian law?; (2) Does customary international law provide a cause of
action in light of Sosa v. Alvarez-Machain, 542 U.S. 692 (2004)?; and (3) Does the act of
state doctrine apply in this case? Upon review of the parties' submissions and the
extensive record in this case, this Court concludes that McKesson does have a cause of
action under Iranian law, that customary international law continues to provide McKesson
with a cause of action, even in light of Sosa, and that the act of state doctrine does not
apply in this case.
BACKGROUND l
In 1960, McKesson and a group of Iranian investors joined together to create Pak
Dairy ("Pak"). During the Iranian Revolution in 1979, however, McKesson personnel at
Pak fled the country, and the Iranian government took control ofPak's Board of
Directors. See McKesson 2007, 520 F. Supp. 2d at 40. In 1982, McKesson sued Iran in
this Court alleging that Iran had expropriated its 31 % interest in Pak and illegally
withheld dividends. See id.
In 1997, after years of litigation and two appeals to our Circuit Court, Judge
Flannery, who was previously assigned this case, found Iran liable for expropriating
McKesson's equity interest and for withholding the dividends. See id. at 41-42 n.l.
Following a trial from January 18 though February 17,2000, Judge Flannery held that
McKesson was entitled to $20,071,159.14 in total damages, which includes the amount of
the expropriated property and interest, for violating customary international law and the
1955 Treaty of Amity, Economic Relations, and Consular Rights ("Treaty of Amity" or
lFor additional background, see the previous Court of Appeals's decisions,
Foremost-McKesson, Inc. v. Islamic Republic of Iran, 905 F.2d 438 (D.C. Cir. 1990)
("McKesson 1'); McKesson Corp. v. Islamic Republic of Iran, 52 F .3d 346 (D.C. Cir. 1995)
("McKesson II "); McKesson HBOC, Inc. v. Islamic Republic of Iran, 271 F.3d 1101 (D.C. Cir.
2001) ("McKesson III"); McKesson HBOC, Inc. v. Islamic Republic of Iran, 320 F.3d 280 (D.C.
Cir. 2003) ("McKesson IV"); and McKesson Corp. v. Islamic Republic of Iran, 539 F.3d 485
(D.D.C. 2008) ("McKesson V"), as well as previous decisions issued by Judge Flannery and this
Court, McKesson Corp. v. Islamic Republic of Iran, No. 82-220, 1997 WL 361177 (DD.C. June
23,1997) ("McKesson 1997"); McKesson Corp. v. Islamic Republic of Iran, 116 F. Supp. 2d l3
(D.D.C. 2000) ("McKesson 2000"); and McKesson Corp. v. Islamic Republic of Iran, 520 F.
Supp. 2d 38 (D.D.C. 2007) ("McKesson 2007").
2
"the Treaty") between the United States and Iran. McKesson 2000, 116 F. Supp. 2d at
35-36,43 (citing Treaty of Amity, art. XXI(I), Aug. 15, 1955,8 U.S.T. 899). In 2001,
the Court of Appeals affirmed the judgment in part and remanded for another trial on two
particular factual issues. McKesson 111,271 F.3d at 1110. After extensive discovery and
motions practice with regard to these two factual issues, this Court conducted a three
week bench trial on these issues in 2007. Once again, McKesson prevailed at trial under
the Treaty, and this Court reinstated the 2000 judgment against Iran. McKesson 2007,
520 F. Supp. 2d at 40. On appeal, the Court of Appeals declined to revisit this Court's
jurisdiction under the commercial activities exception of the Foreign Sovereign
Immunities Act ("FSIA"),2 but, contrary to its previous decisions, held that the Treaty of
Amity does not provide McKesson with a cause of action. McKesson V, 539 F.3d at 491.
The Court of Appeals, however, remanded the case to this Court for consideration of the
previously noted three legal issues.
2Although McKesson argues Iran violated the law of takings, jurisdiction in this case is
predicated on the commercial activities exception, 28 U.S.C. § 1605(a)(2), not the takings
exception ofFSIA, 28 U.S.C. § 1605(a)(3). See McKesson III, 271 F.3d at 1103.
3
ANALYSIS
I. McKesson has a cause of action under Iranian law.
McKesson brings several causes of action under Iranian law. 3 Iran, however, not
only fails to address the merits of McKesson's Iranian law claims, but concedes that
McKesson has, at least, a cause of action under the Commercial Code of Iran (although
not one for a taking). (Iran's Mem. of Points and Authorities [Dkt. #901] ("Iran") at 22f
This Court thus concludes that McKesson has a cause of action under Iranian law. 5
3Specifically, McKesson alleges Iran has violated the Civil Responsibility Act of Iran,
which is based on the laws of Switzerland, (Katirai Appendix A [Dkt #898-2] at 6), and allows
an injured party to recover damages caused by the negligent or intentional act of another; the
Commercial Code of Iran, Article 90, which requires that shareholders receive annual dividends
equal to 10% of net profits; and the Civil Code of Iran, which provides a remedy for property
"alienated from the possession of its owner except in accordance with a legal order." (See
McKesson's Mem. of Points and Authorities [Dkt. #898] ("McKesson") at 12-30.)
4Iran argues that the Commercial Code of Iran precludes other Iranian law causes of
action. (Iran at 22.) However, Iran does not point to anything in the Commercial Code, another
Iranian law, or case establishing this. Additionally, as McKesson's expert explains, Iranian laws
generally do not preempt other laws unless they do so explicitly or are clearly in conflict with the
other laws. In fact, the Supreme Court of Iran, sitting en banc, has held that a plaintiff was
entitled to seek compensation under both the Islamic Criminal Law and the Civil Responsibility
Act. (McKesson's Reply to Iran's Mem. of Points and Authorities [Dkt. #905] ("McKesson
Reply"), Ex. A, Supp. Legal Opinion of Mahmoud Katirai ("Katirai Supp.") at 2 n.2 (citing
Deliberation and Decisions of the Supreme Court, En Banc, Year 1375 (March 21,1996- March
20, 1997), p. 168).) Thus, Iran has failed to establish that the Commercial Code precludes other
causes of action.
Iran further argues that the Iranian government cannot be sued under the Commercial
Code oflran. (Iran at 26.) This argument also fails, as, again, Iran has not cited to any law
establishing or even suggesting this. Furthermore, under FSIA, a "foreign state shall be liable in
the same manner and to the same extent as a private individual under like circumstances." 28
u.s.c. § 1606.
5McKesson argues this Court should determine Iran's liability and damages under Iranian
causes of action. However, as this discussion is outside the scope of the Court of Appeals's
narrow remand, and Iran has not addressed the merits of McKesson's Iranian law claims, the
Court does not address Iran's liability and damages at this time.
4
Rather than contending that McKesson does not have a cause of action under
Iranian law, Iran argues that the Treaty of Amity requires McKesson to bring its suit in
an Iranian court. (Id. at 15.) The Treaty, however, does not require this. In fact, the
relevant Treaty provision states, in part:
Nationals and companies of either High Contracting Party shall have freedom
of access to the courts of justice and administrative agencies within the
territories of the other High Contracting Party, in all degrees or jurisdiction,
both in defense and pursuit of their rights, to the end that prompt and impartial
justice shall be done.
Treaty of Amity, art. III, cl. 2. Iran asserts this provision is an "unambiguous provision
show[ing] that the parties agreed that their home country courts [in this instance, Iranian
courts] would hear disputes brought privately by the investors of the other country." (Iran
at 3.) I disagree. Indeed, it is difficult, if not impossible, to comprehend how a provision
stating that companies in the United States and Iran must have access to the courts of the
other country "both in defense and pursuit of their rights" requires McKesson to file its
suit in Iran, much less how it requires it "unambiguous[ly]."
Previous decisions in this case also support the conclusion that this Treaty
provision is not one that establishes exclusive jurisdiction. As our Court of Appeals itself
stated in 2001, although this provision "suggests that one party will receive protections
within the territory of the other party, it doesn't say that those protections can only be
enforced in the territory of the other party," McKesson 111,271 F.3d at 1108 (citing
McKesson 1997, 1997 WL 361177 at 13-14) (emphasis added). In sum, the Treaty does
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not contain an exclusive-jurisdiction provision, and it does not preclude McKesson from
bringing its Iranian-based cause of action in this Court.
Furthermore, contrary to Iran's argument, the Treaty does not preempt other causes
of action merely because it provides McKesson with remedies, such as diplomacy and a
suit before the International Court of Justice. See Treaty Art. XXI. As a matter of U.S.
law, a treaty does not preempt other causes of action absent "clear and convincing
evidence" in a treaty's "language, negotiation[,] ... drafting history," that the treaty
precludes judicial review of claims not stemming from it. Cardenas v. Smith, 733 F .2d
909,918-19 (D.C. Cir. 1984). Iranian law regarding treaty preemption is less clear. Iran
offers the Court little guidance regarding treaty preemption law, yet McKesson's expert
notes that treaties generally do not preempt other causes of action unless they are
explicitly exclusive, or clearly inconsistent with each other. (McKesson Reply, Ex. A.,
Katirai Supp. at 3-4.)
Not surprisingly, Iran has failed to provide this Court with any authority to support
its argument that the Treaty of Amity preempts other remedies. And its failure to do so is
especially problematic, in light of U.S. law that Iran "bears a heavy burden" to establish
by "clear and convincing evidence" an "intent to restrict access to the courts." Cardenas,
733 F.2d at 919. Simply put, the Treaty does not provide that McKesson must bring its
action in an Iranian court and does not preempt Iranian law, thus this Court can hear
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McKesson's Iranian causes of action. 6 Indeed, hearing McKesson's Iranian causes of
action is especially appropriate in light of the post-revolutionary Iranian judicial system's
incapability of affording an adequate remedy7 and this Court's previous finding that "it is
hard to imagine ... that less evidence has ever delayed the awarding of so much, to one
so deserving, for so long!" McKesson 2007,520 F. Supp. 2d. at 42.
II. McKesson also has a cause of action under customary international law.
In Sosa, the plaintiff alleged that the U.S. Drug Enforcement Administration
instigated his abduction from Mexico for a criminal trial in the United States, and he
sought a remedy, in part, under the Alien Tort Statute ("ATS"). 542 U.S. at 697. The
Supreme Court found that although the ATS was "in its terms only jurisdictional," it
nevertheless "enabled federal courts to hear claims in a very limited category defined by
the law of nations and recognized at common law." Id. at 712.
6See Randall v. Arabian Am. Oil Co., 778 F.2d 1146, 1150 (5th Cir. 1985) (finding
jurisdiction to hear a case brought under Saudi Arabian labor law); Basch v. Westinghouse Elec.
Corp., 777 F.2d 165,169-72 (4th Cir. 1985) (affirming a judgment was based on Iranian causes
of action); Matter ofOi! Spill by Amoco Cadiz Off the Coast of France on March 15, 1978,954
F.2d 1279, 1313-23 (7th Cir. 1992) (applying French law); Nikbin v. Islamic Republic of Iran,
517 F. Supp. 2d 416, 426 (D.D.C. 2007) (concluding "that under Iranian law, although certainly
not under United States law, lashing represents a lawful sanction"); see also Fed. R. Civ. P. 44.1.
(providing that in "determining foreign law," courts "may consider any relevant material or
source, including testimony, whether or not submitted by a party or admissible under the Federal
Rules of Evidence").
7See McKesson 2007,520 F. Supp. 2d at 54 (finding that Iran "affords our citizens (and
companies) no realistic legal process through which to vindicate [their] rights"); Rockwell Int'l
Sys., Inc. v. CWbank, N.A., 719 F.2d 583,587-88 (2d Cir. 1983); McDonnell Douglas Corp. v.
Islamic Republic of Iran, 758 F.2d 341, 345 (8th Cir. 1985) (refusing to enforce a forum
selection clause because litigation in Iran would "be so gravely difficult and inconvenient that
[the plaintiff] will for all practicable purposes be deprived of his day in court" (internal quotation
omitted)).
7
This Court finds that, like the ATS, the commercial activities exception to the
Foreign Sovereign Immunities Act is more than ajurisdictional statute. This Court finds
Congress enacted the commercial activities exception on an understanding that courts
would apply causes of action based on customary international law. See Aquamar, S.A. v.
Del Monte Fresh Produce, 179 F 3d 1279, 1294-95 (11 th Cir. 1999) (noting that
Congress intended for courts to look to international law when interpreting FSIA's
terms). As Judge Flannery himself noted in 1997, "[c]ustomary international law is a part
of the law of the United States, and must be ascertained and enforced by federal courts."
McKesson 1997, 1997 WL 36117 at *15. The Supreme Court in Sosa emphasized that
"[f]or two centuries [the Supreme Court] ha[s] affirmed that the domestic law of the
United States recognizes the law of nations," 542 U.S. at 729. FSIA was enacted against
this backdrop, and Congress intended for courts to use FSIA to apply customary
international law. As the Supreme Court has held, "[t]he language and history of the
FSIA clearly establish that the Act was not intended to affect the substantive law
determining the liability of a foreign state or instrumentality, or the attribution of liability
among instrumentalities of a foreign state." First Nat 'I City Bank v. Banco Para El
Comercio Exterior de Cuba, 462 U.S. 611, 620 (1983). Even in Sosa, the Supreme Court
acknowledged the validity of customary international law absent congressional
authorization, stating that while it "would welcome any congressional guidance in
exercising jurisdiction with such obvious potential to affect foreign relations, nothing
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Congress has done is a reason/or us to shut the door to the law o/nations entirely." 542
U.S. at 731 (emphasis added). Thus, this Court finds that, in enacting the commercial
activities exception, Congress, in essence, demonstrated its intention that courts hear
causes of action involving customary international law violations.
More specifically, this Court finds that Congress intended for courts to hear causes
of action for expropriation. Unlike the cause of action the plaintiff sought in Sosa, see
542 U.S. at 725, the international norm against expropriation in this case is, as Iran
concedes, widely accepted by the civilized world, (Iran at 31 (acknowledging "there is
some consensus on the general proposition that uncompensated expropriation of alien
property is wrongful under at least some circumstances ... "». Additionally, the norm
against expropriation is also defined with specificity. As Judge Flannery noted in 1997, a
cause of action for expropriation under customary international law is incorporated in the
Restatement (Third) of the Foreign Relations Law of the United States, which provides
that "a state is responsible under international law for injury resulting from a taking by the
state of property that (1) is not for a public purpose, or (2) is discriminatory, or (3) is not
accompanied by provision for just compensation." McKesson 2007, 1997 WL 36117 at
*15 (citing Restatement § 712). Additionally, international treaties routinely incorporate
international norms against uncompensated expropriation and require compensation for
the full value of the taken property. (See McKesson at 53 (citing numerous Treaties of
Friendship, Commerce, and Navigation); id. at 55-57 (citing bilateral investment
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treaties).)
Indeed, at least with respect to the takings exception to the foreign sovereign
immunities act, 28 U.S.C. § 1605(a)(3), (but not the commercial activities exception at
issue here), courts have determined, in post-Sosa cases, that plaintiffs can bring a cause of
action for takings in violation of international law. See Agudas Chasidei Chabad v.
Russian Federation, 528 F.3d 934,943 (D.C. Cir. 2008); see also Cassirer v. Spain, 580
F.3d 1048, 1060 (9th Cir. 2009) (noting that claims under the Foreign Sovereign
Immunities Act, like under the A TS, "depend on the law of nations to define the
substantive rights embodied in any cause of action").
Furthermore, congressional intent that courts hear implied causes of action for
expropriation under customary international law is evinced by the Second Hickenlooper
Amendment, addressed further below, which Congress passed to ensure that courts would
hear causes of action for expropriation against foreign states. See 22 U.S.C. § 2370(e)(2).
Based on the foregoing, this Court will not, as a result of Sosa, disturb its previous
decision to imply in the commercial activities exception a cause of action under
customary international law.
III. The act of state doctrine does not apply in this case.
Finally, our Court of Appeals has asked this Court to address whether the act of
state doctrine applies to this case, noting that "[t]he doctrine must be addressed before
this litigation is completed because ifit applies Iran cannot be held liable." McKesson V,
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539 F.3d at 491. In applying the act of state doctrine, "the judiciary's interest in hearing a
case involving commercial activity is balanced with the desire to avoid matters of foreign
affairs controlled by the executive or legislative branches." Malewicz v. Amsterdam, 517
F. Supp. 2d 322,337 (D.D.C. 2007) (internal quotation omitted). Courts "should be
mindful that the decision to deny judicial relief to a party should not be made lightly." Id.
(internal quotation omitted).
Iran, as the party asserting the act of state defense, has the burden of proving the
act of state doctrine applies to bar McKesson from seeking relief in this Court. Agudas
Chasidei Chabad of United States v. Russian Federation, 528 F.3d 934,951 (D.C. Cir.
2008). Iran has failed to meet its burden. To the extent that Iran is liable under Iranian
law, it is in its non-sovereign capacity and the act of state doctrine does not apply.
Furthermore, to the extent Iran is liable for expropriation, the Second Hickenlooper
Amendment prevents the act of state doctrine from applying. How so?
The act of state doctrine does not apply unless and until the Court declares invalid
a sovereign public act. See Ws. Kirkpatrick & Co., Inc. v. Envtl. Tectonics Corp., Int'l,
493 U.S. 400, 405 (1990); Malewicz, 517 F. SUpp. 2d at 337-38. Contrary to
McKesson's argument, an act may be a sovereign act of state "even if a court has
jurisdiction over the foreign sovereign pursuant to the commercial activity exception to
the FSIA." Virtual Defense and Development Int'l Inc. v. Moldova, 133 F. SUpp. 2d 1, 7
(D.D.C. 1999).
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As has been found previously in this case, Iran's denial of dividends was an act
"commercial in nature," as "Iran never issued a formal declaration nationalizing Pak
Dairy" and "McKesson's claims are akin to a corporate dispute between majority and
minority shareholders," McKesson 1997, No. 82-220,1997 WL 361177 at *10 n.l7.
Unfortunately for the defendant, the act of state doctrine does not apply to preclude this
Court from inquiring into the validity of such commercial acts.8 Furthermore, to the
extent Iran's acts were not commercial in nature, McKesson's claim is one for
expropriation, and Congress has provided, in essence, that the act of state doctrine cannot
be used to preclude a court from hearing a case involving a taking by a foreign
government in violation of international law. See 22 U.S.C. § 2370(e)(2) (the "Second
Hickenlooper Amendment"). As a result, the act of state doctrine does not apply in this
case.
8See Malewicz, 517 F. Supp. 2d at 339 (finding a government's acquisition of paintings to
be a commercial act and noting that while the act was "official" in the sense that it was taken by a
government employee acting in his official capacity, "it was not an action taken by right of
sovereignty," because "any private person or entity could have purchased the paintings for
display in a public or private museum" (internal quotation omitted»; Virtual Defense, 133 F.
Supp. 2d at 8 (finding a government's selling of military aircraft is not a sovereign act of state).
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CONCLUSION
For all of the above reasons, McKesson has causes of action under Iranian law and
an implied cause of action under customary international law for expropriation.
Additionally, the act of state doctrine does not prevent this Court from hearing
McKesson's claims.
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United States District Judge
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