For more than 30 years, an American company, McKesson Corp. (formerly Foremost McKesson, Inc.), and several affiliated entities, have been attempting to recover millions of dollars from the Islamic Republic of Iran, alleging that, in the wake of the Iranian Revolution of 1979, the government expropriated plaintiffs’ equity interest in an Iranian dairy and denied plaintiffs earned dividends. Over the many years of litigation, courts in the D.C. Circuit have turned to the Restatements of the Law on a dozen separate occasions, seeking guidance on a variety of legal issues and finding support for arguments on both sides of this complex case.
After initial stages of litigation before the Iran–United States Claims Tribunal in The Hague, the McKesson case eventually made its way to U.S. federal courts. There, at an early stage of the case, Foremost-McKesson, Inc. v. Islamic Republic of Iran, 905 F.2d 438 (June 15, 1990), the U.S. Court of Appeals for the District of Columbia Circuit was presented with the question of whether Iran could be held responsible for the actions of the entities that took over the dairy, such that Iran might be deprived of the protections of sovereign immunity under the “commercial activity exception” to the Foreign Sovereign Immunities Act of 1976 (FSIA). Remanding the case for further factual determinations as to Iran’s relationship with those entities, the court looked to Restatement Third of Foreign Relations § 452 for direction on that issue. Shortly thereafter, in McKesson Corp. v. Islamic Republic of Iran, 138 F.R.D. 1 (July 5, 1991), plaintiffs moved to compel discovery to gather evidence to support their “commercial activity exception” argument, and the D.C. district court, granting that motion, relied extensively on the factors found in Restatement Third of Foreign Relations § 442.
Four years later, in McKesson Corp. v. Islamic Republic of Iran, 52 F.3d 346 (April 14, 1995), the court of appeals relied on Restatement Second of Agency § 26 in upholding the district court’s finding that a principal/agent relationship had indeed existed between Iran and the entities that took over the dairy such that the “commercial activity exception” did in fact apply.
In 1997, Iran presented a new argument, contending that the original proceedings before the Claims Tribunal in The Hague should have been given preclusive effect beyond 1981 (the cutoff date of the Tribunal’s jurisdiction). In rejecting that argument, the district court cited Restatement Second of Judgments § 84. 1997 WL 361177 (June 23, 1997). Also in that opinion, the district court looked to Restatement Third of Foreign Relations § 111 in holding that the 1955 Treaty of Amity between the U.S. and Iran provided plaintiffs with a private right of action, and that Iran had violated that treaty. The district court then looked to Restatement Third of Foreign Relations § 712 to determine that Iran was responsible under customary international law for an injury caused by a taking of property, and noted that the Treaty of Amity itself “incorporate[d] the Restatement standard.” Applying that standard, the court granted summary judgment for plaintiffs on the issue of liability.
Three years later, the district court again turned to Restatement Third of Foreign Relations § 712, this time to determine the appropriate amount of damages owed to plaintiffs. 116 F.Supp.2d 13 (May 26, 2000). Specifically, the court applied provisions of § 712 to indicate how customary international law would deal with tax considerations, exchange rates, entitlement to prejudgment interest, and applicable rates of interest. The court ultimately awarded judgment for plaintiffs based on these considerations.
The following year, after Iran attempted again to challenge federal court jurisdiction to hear the case, this time on the basis of the Arbitration Clause in the International Guaranty Agreement, the court of appeals affirmed in part the district court’s rejection of this new jurisdictional argument, citing Restatement Second of Trusts § 280 to support its argument. 271 F.3d 1101 (Nov. 16, 2001).
In 2007, on reconsideration of the question of whether the Treaty of Amity afforded plaintiffs a private right of action to seek unpaid dividends, the district court relied on Restatement Third of Foreign Relations § 907 in holding that the Treaty afforded plaintiffs such a right despite the U.S. Solicitor General’s contrary interpretation. 520 F.Supp.2d 38 (July 18, 2007). On appeal, 539 F.3d 485 (Aug. 26, 2008), the court of appeals reversed this portion of the ruling, also citing § 907, concluding that international agreements generally did not create private rights of action, and that there was no evidence in the Treaty of an intent to create such a right.
In 2009, the district court was presented with the question of whether plaintiffs had a cause of action under Iranian law and under customary international law. 2009 WL 4250767 (Nov. 23, 2009). Finding that plaintiffs had causes of action under both sources of law, the court noted that “a cause of action for expropriation under customary international law is incorporated in [Restatement Third of Foreign Relations § 712].” Subsequently, in 2010, the district court found that, because Iran was liable under Iranian law and international law, it was required to pay damages and prejudgment interest as provided for under customary international law as stated in § 712. 752 F.Supp.2d 12 (Nov. 19, 2010). On appeal, 672 F.3d 1066 (Feb. 28, 2012), the court of appeals concluded that Iran was liable under the Treaty of Amity as construed under Iranian law, but that plaintiffs did not have a cause of action under customary international law (citing but disagreeing with the district court’s § 712 analysis).
After decades of litigation and numerous recalculations by the courts, the district court ultimately awarded plaintiffs $29.3 million in damages. Iran petitioned the U.S. Supreme Court for certiorari, but the Court declined. Over the course of the litigation, plaintiffs were also awarded attorney’s fees totaling $13.4 million, but, in 2014, Iran challenged that award. In McKesson Corp. v. Islamic Republic of Iran, 2014 WL 2457622 (June 3, 2014), the court of appeals, reviewing that award, relied on Restatement Second of Conflicts § 136 to find in Iran’s favor. The court held that, “as the party seeking attorney’s fees under foreign law, McKesson [bore] the burden of establishing the substance of foreign law,” and because plaintiffs failed to dispute Iran’s evidence that an Iranian “official tariff” governed the amount of available attorney’s fees under Iranian law, that tariff applied here. Consequently, the court ordered that the attorney’s fee award be reduced from $13.4 million to $29,516, bringing a close to the 32-year lawsuit.