Comet Enterprises v. Air-A-Plane Corp

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
COMET ENTERPRISES LTD.; COMET
ENTERPRISE LTD.,
Plaintiffs-Appellants,
v.
No. 96-1606
AIR-A-PLANE CORPORATION,
Defendant-Appellee.
UNITED STATES OF AMERICA,
Amicus Curiae.
Appeal from the United States District Court
for the Eastern District of Virginia, at Norfolk.
Raymond A. Jackson, District Judge.
(CA-95-926)
Argued: September 29, 1997
Decided: November 10, 1997
Before RUSSELL, NIEMEYER, and MOTZ, Circuit Judges.
_________________________________________________________________
Reversed and remanded by published opinion. Judge Motz wrote the
opinion, in which Judge Russell and Judge Niemeyer joined.
_________________________________________________________________
COUNSEL
ARGUED: Philip Norton Davey, DAVEY ASSOCIATES, P.C., Nor-
folk, Virginia, for Appellants. Sushma Soni, Appellate Staff, Civil
Division, UNITED STATES DEPARTMENT OF JUSTICE, Wash-
ington, D.C., for Amicus Curiae. Robert Eugene Brown, HOWELL,
DAUGHERTY & BROWN, Norfolk, Virginia, for Appellee. ON
BRIEF: Ruth E. Hansell, DAVEY ASSOCIATES, P.C., Norfolk,
Virginia, for Appellants. Frank W. Hunger, Assistant Attorney Gen-
eral, Helen F. Fahey, United States Attorney, Douglas N. Letter,
Appellate Staff, Civil Division, UNITED STATES DEPARTMENT
OF JUSTICE, Washington, D.C.; William B. Hoffman, Chief Coun-
sel, Barbara C. Hammerle, Senior Counsel (Litigation), Office of the
Chief Counsel, Office of Foreign Assets Control, DEPARTMENT OF
THE TREASURY, Washington, D.C., for Amicus Curiae.
_________________________________________________________________
OPINION
DIANA GRIBBON MOTZ, Circuit Judge:
Two related companies -- one incorporated in Great Britain, the
other in Iran -- brought this action to obtain commissions on sales a
Virginia corporation had made to an entity controlled by the Govern-
ment of Iran. The district court dismissed the action. The court found
it lacked subject matter jurisdiction over the Iranian plaintiff because
its counsel had failed to procure a license necessary to represent Ira-
nian entities. Alternatively, on the basis of an Executive Order that
prohibits certain transactions between entities organized under the
laws of the United States and those controlled by the Government of
Iran, the court concluded that both plaintiffs had failed to state a claim
upon which relief could be granted. Because we conclude that the
licensing requirement does not divest the district court of jurisdiction
and the Executive Order does not necessarily preclude the claims filed
in the complaint, we reverse and remand for further proceedings.
I.
The factual assertions that follow are based on the allegations in
the complaint. On July 19, 1991, Air-A-Plane Corporation and Comet
Enterprises Ltd. ("Comet UK") entered into a contract, in which Air-
A-Plane made Comet UK its exclusive sales representative for aircraft
equipment (including air conditioners) and spare parts in the Islamic
Republic of Iran. The contract obligated Air-A-Plane to pay sales
commissions to Comet UK on the sale of Air-A-Plane's equipment
ordered by customers within Iran.
2
Pursuant to this contract, Comet UK negotiated, on Air-A-Plane's
behalf, with the airline of the Islamic Republic of Iran ("Iran Air") to
purchase a substantial amount of Air-A-Plane equipment. In Decem-
ber 1992 and January 1993, Iran Air paid Air-A-Plane almost $1.5
million for this equipment. Commissions on these sales of more than
$200,000 became due to Comet UK in February 1993. Air-A-Plane
failed to pay Comet UK any of these commissions. On April 11,
1995, Comet UK and Comet Enterprise Ltd. ("Comet Iran"), an Ira-
nian corporation under common management and control, executed a
deed of compromise under which Comet Iran became the beneficiary
of any future payments from any Comet UK principal, including Air-
A-Plane. (Hereafter, the two related companies are collectively
denominated "Comet.").
In 1995, Comet obtained additional orders from Iran Air for Air-A-
Plane air conditioning units and separate parts. By June 1995, Iran Air
had paid to Air-A-Plane more than $500,000 for this equipment;
Comet's commissions of more than $82,500 became due in July 1995.
Air-A-Plane again failed to pay Comet any of the commissions due
on these subsequent sales.
On May 6, 1995, pursuant to the International Emergency Eco-
nomic Powers Act, 50 U.S.C. § 1701 et seq . (1977), President Clinton
issued Executive Order No. 12959 prohibiting certain transactions
with the Government of Iran. The Executive Order states in pertinent
part:
Section 1. The following are prohibited, except to the
extent provided in regulations, orders, directives, or licenses
that may be issued pursuant to this order, and notwithstand-
ing any contract entered into or any license or permit
granted prior to the effective date of this order:
....
(d) . . . any transaction, including the purchase, sale, trans-
portation, swap, financing, or brokering transactions, by a
United States person, relating to goods or services of Iranian
origin or owned or controlled by the Government of Iran . . .
3
....
Section 8(a).This order is effective at 12:01 a.m., eastern
daylight time, on May 7, 1995, except that . . . (ii) letters of
credit and other financing agreements with respect to exist-
ing trade contracts may be performed pursuant to their terms
with respect to underlying trade transactions occurring prior
to 12:01 a.m., eastern daylight time, on June 6, 1995.
Exec. Order No. 12959 (1995). The Office of Foreign Assets Control
("OFAC") promulgated implementing regulations that define Govern-
ment of Iran to include any "entity controlled by" it. 31 C.F.R.
§ 560.304(a) and (b) (1996). The regulations also require legal coun-
sel to procure a license in order to represent "a person in Iran," includ-
ing Iranian corporations, in certain transactions. Id. § 560.525(b) and
§ 560.305.
Seeking to collect the commissions, Comet UK and Comet Iran
filed this action in federal court against Air-A-Plane on September 14,
1995. Air-A-Plane moved to dismiss the action pursuant to Rules
12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure. Air-A-
Plane contended that the court did not have jurisdiction over Comet
Iran because Comet Iran's counsel had not obtained a license to pro-
vide legal services to an Iranian entity as required by 31 C.F.R.
§ 560.525(b). Additionally, Air-A-Plane asserted that Executive
Order 12959 barred performance of its contract with Comet and so
the complaint failed to state a claim.
The district court granted both motions. Initially, the court held that
because the regulations promulgated pursuant to the Executive Order
required counsel to obtain a license in order to provide certain legal
services to an Iranian corporation, and because counsel for Comet
Iran, an Iranian corporation, lacked such a license, the court did not
have jurisdiction over Comet Iran's claim. The court then determined
that even if it had jurisdiction over Comet Iran, it would "dismiss the
action in its entirety" because "obtaining orders from Iran Air consti-
tutes . . . a transaction relating to goods owned or controlled by the
Government of Iran" and payment for such transactions "is barred by
the [Executive] Order."
4
We review de novo dismissals for lack of subject matter jurisdic-
tion or for failure to state a claim upon which relief can be granted.
See Cavallo v. Star Enter., 100 F.3d 1150, 1153 (4th Cir. 1996);
Tillman v. Resolution Trust Corp., 37 F.3d 1032, 1034 (4th Cir.
1994).
II.
Comet challenges the district court's finding that it lacked subject
matter jurisdiction on several grounds.
Noting that the relevant regulations were amended in August 1997,
Comet asserts that the 1997 amendments to 31 C.F.R.§ 560.525,
which relax the licensing requirement for the provision of legal ser-
vices to a "person in Iran," apply here. Thus, Comet, and the United
States as amicus curiae, argue that under the current regulations, as
amended August 4, 1997, the provision of legal services to Comet
Iran in connection with this litigation would be permitted.
Comet is correct that, after the district court's ruling, OFAC
amended 31 C.F.R. § 560.525(a)(3) and § 560.525(a)(5)(I) to autho-
rize the provision of legal services "to the Government of Iran or to
a person in Iran" for the "[i]nitiation and conduct of domestic United
States legal, arbitration, or administrative proceedings on behalf of
the Government of Iran or a person in Iran . . .[t]o resolve disputes
between the Government of Iran or an Iranian national and the United
States or a United States national." 62 Fed. Reg. 41851, 41852 (Aug.
4, 1997). Accordingly, the amended regulations would permit the
legal representation of Comet Iran in this suit, without the issuance
of any license.
The recent amendments, however, do not apply to this case. The
regulations expressly specify that amendments do not apply to a "suit
or proceeding commenced or pending prior to such amendment." 31
C.F.R. § 560.402 (1996). Thus, we must determine whether the
licensing requirement contained in the regulations, applicable at the
time Comet Iran filed this suit, deprives this court of jurisdiction.
The district court concluded that the licensing requirement for the
provision of legal services was jurisdictional. For this reason, the
5
court held that the failure of Comet Iran's counsel to obtain a license
to provide legal services deprived the court of subject matter jurisdic-
tion over Comet Iran. On appeal, Comet, and the United States as
amicus curiae, challenge the district court's determination that the
licensing requirement is jurisdictional. Alternatively, Comet asserts
that if the requirement is jurisdictional it is unconstitutional.
Neither the district court nor Air-A-Plane cite any administrative or
judicial precedent to support the conclusion that the licensing require-
ment is jurisdictional. In fact, although the specific licensing require-
ment at issue here has never before been interpreted, federal courts
have been reluctant to find similar requirements jurisdictional.
For example, when Cuban nationals brought an in personam action
against United States nationals for fraud, the Eleventh Circuit held
that the relevant OFAC regulation, which imposed a licensing
requirement for any person engaged in a "transaction" with Cuba, was
not jurisdictional. Dean Witter Reynolds, Inc. v. Fernandez, 741 F.2d
355 (11th Cir. 1984). The court reasoned that the decision by Con-
gress to "empower[ ] the Executive to forbid" certain activities "does
not imply that the jurisdiction of the federal courts is dependent upon
the issuance of a license by the Treasury Department." Id. at 360 n.16.
See also American Airways Charters, Inc. v. Regan , 746 F.2d 865,
868-74 (D.C. Cir. 1984) (failure to obtain license as required by
Cuban Assets Control Regulations held not jurisdictional); National
Oil Corp. v. Libyan Sun Oil Corp., 733 F.Supp. 800 (D. Del. 1990)
(agency regulations requiring a license to enter judgment held not
jurisdictional); National Airmotive v. Government and State of Iran,
499 F.Supp. 401, 405 (D. D.C. 1980) (agency prohibition on the entry
of judgments held not jurisdictional).
Moreover, a license requirement, promulgated by an executive
agency, that limits federal court jurisdiction would raise serious con-
stitutional concerns. A court is always well advised to construe regu-
lations in a manner that avoids such "serious constitutional
questions." NLRB v. Catholic Bishop of Chicago, 440 U.S. 490, 500-
01 (1979); see also American Airways Charters , 746 F.2d at 874(construing licensing requirement "in a manner that not only upholds
their constitutionality but also steers clear of uncertainty on that
score").
6
Finally, the Government's interpretation of its own regulations also
supports our conclusion that the licensing requirement at issue here
is not jurisdictional. OFAC, the agency charged with enforcing the
regulation containing the licensing requirement, does not assert that
the requirement deprives the federal courts of jurisdiction over Comet
Iran's claim. Indeed, the United States, in its amicus brief, has specifi-
cally informed us that OFAC has "never interpreted its regulation to
strip federal courts to hear civil suits brought by private foreign cor-
porations." The Supreme Court has frequently reiterated that an agen-
cy's interpretation of its own regulations is entitled to substantial
deference. See e.g., Thomas Jefferson University v. Shalala, 512 U.S.
504, 512 (1994); Stinson v. United States, 508 U.S. 36, 45 (1993).
For all of these reasons, we decline to construe the licensing
requirement, which has now been repealed, as jurisdictional and hold
that the district court erred in doing so. Because we have concluded
that the requirement is not jurisdictional, we need not reach the ques-
tion of its constitutionality.
III.
Alternatively, the district court held that even if it had jurisdiction
over Comet Iran it would dismiss the action "in its entirety" for failure
to state a claim upon which relief can be granted. The court based this
holding on its interpretation of Executive Order No. 12959, and the
Order's implementing regulations, 31 C.F.R. § 560. The proper inter-
pretation of these provisions presents an issue of first impression in
the federal courts.
The district court concluded that Executive Order No. 12959 pro-
hibited the payment of sales commissions from Air-A-Plane to Comet
because that payment would constitute a transaction proscribed by the
Order. The Order prohibits "any transaction, including purchase, sale,
transportation, swap, financing, or brokering transactions, by a United
States person relating to goods or services of Iranian origin or owned
or controlled by the Government of Iran." Exec. Order No. 12959
§ 1(d). The implementing regulations define"Government of Iran" to
include "[a]ny entity owned or controlled directly or indirectly" by the
Government of Iran or "any political subdivision, agency, or instru-
mentality thereof." 31 C.F.R. §§ 560.304(a) and (b). Thus, the district
7
court reasoned that because the contract between Air-A-Plane and
Comet relates to goods bought by Iran Air, an entity substantially
owned or controlled by the Government of Iran, it falls within the
Order's prohibition.
From the face of the complaint, however, it is far from clear that
the Executive Order prohibits suit on the claims at issue here. The
Order provides an express exception to its general ban "to the extent
provided in regulations, orders, directives, or licenses that may be
issued pursuant to this order . . ." Id.§ 1. The appellate briefs indicate
that Air-A-Plane, itself, sought and obtained a license authorizing the
export of parts to Iran Air "and all transactions in connection with
performance of the trade contract" after the effective date of the Exec-
utive Order. This license may well authorize Comet's suit on the com-
missions earned on these transactions.*
Air-A-Plane contends that Comet's failure to allege in its com-
plaint, or in its response to Air-A-Plane's motion to dismiss, that its
claims are authorized by license precludes Comet from now so assert-
ing. The contention is meritless. The federal rules simply require that
a complaint include "`a short and plain statement of the claim' that
will give the defendant fair notice of what the plaintiff's claim is and
the grounds upon which it rests." Conley v. Gibson, 355 U.S. 41, 47
(1957). Even after a defendant files a motion to dismiss pursuant to
Rule 12(b)(6) of the Federal Rules of Civil Procedure, a plaintiff need
_________________________________________________________________
*Even if no license permits Comet's suit, OFAC suggests that the
Executive Order may not bar Comet's suit as to the commissions due to
Comet in February 1993 on underlying sales completed prior to that date
because such sales took place "prior to the effective date of the Executive
Order," and the commissions contract constitutes a "financing agree-
ment." The Executive Order prohibits certain transactions with the Iran-
ian government "notwithstanding any contract entered into prior to" the
1995 effective date of the Order. Exec. Order No. 12959 § 1 (emphasis
added). However, the Order specifically states that"letters of credit and
other financing agreements with respect to existing trade contracts may
be performed pursuant to their terms with respect to underlying trade
transactions occurring prior to 12:01 a.m., eastern daylight time, on June
6, 1995." Id. § 8(a)(ii). If necessary, on remand, the district court can
consider the relationship of these two portions of the Order and their pos-
sible applicability to the facts of this case.
8
not come forward with all of the facts supporting its claim for relief.
See Fayetteville Investors v. Commercial Builders, Inc., 936 F.2d
1462, 1471 (4th Cir. 1991). Rather, "unless it appears beyond a rea-
sonable doubt that the plaintiff can prove no set of facts in support of
his claim which would entitle him to relief" a court should not dismiss
a complaint for failure to state a claim. Conley , 355 U.S. at 46.
We cannot conclude "beyond a reasonable doubt" that Comet "can
prove no state of facts" in support of its claims that would entitle it
to relief. Conley, 355 U.S. at 46. Accordingly, we hold that the district
court also erred, as a matter of law, in dismissing Comet's complaint
for failure to state a claim upon which relief can be granted. We
reverse and remand this case to the district court for further proceed-
ings consistent with this opinion. We note that the district judge did
not have the benefit of OFAC's position in originally ruling on this
matter. On remand, the court may wish to request the United States
to provide a full explanation of OFAC's views as to the difficult
issues presented by Executive Order 12959 and the accompanying
regulations.
REVERSED AND REMANDED
9