Amicus Curiae Brief — F. & H. R. Farman-Farmaian Consulting Engineers Firm v. Harza Engineering Co.

a. JF. &@ H. R. FARMAN-FARMAIAN CONSULTING

Base 3 ENGINEERS FIRM, ET AL., PETITIONERS A

Ae, ¢ -

2 Vv.

HARZA ENGINEERING COMPANY

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT

ioe BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE

KENNETH W. STARR

Solicitor General

STUART M, GERSON

Assistant ANorney General

JOHN G. ROBERTS, Jr.

Deputy Solicitor General

EDWIN S. KNEEDLER

Assistant to the Solicitor General

MICHAEL JAY SINGER

JOHN P. SCHNITKER

Attorneys

Department of Justice

Washingion, D.C. 20530

(202) $14-2217

QUESTIONS PRESENTED

1. Whether the court of appeals correctly held that the act

of state doctrine required dismissal of this suit.

2. Whether the courts below were required, prior to ruling

on the act of state issue in this case, to solicit the views of the

Executive Branch concerning the impact of the decision on the

foreign relations of the United States.

(1)

TABLE OF CONTENTS

Page

se ey och sc taken ene e bs 66m eae eee l

ea ee a el ake c-g ulated ee 6

RS AAS oat A, Oa a ee ae 20

[TABLE OF AUTHORITIES

Cases:

Alfred Dunhill of London, Inc. v. Republic of

ee ee Oe OE OD ow wun ceccieeecn 7

Allied Bank Int’l v. Banco Credito Agricola, 757

F.2d 516 (2d Cir.), cert. dismissed, 473 U.S. 934

SEG Sa a ye 13, 14

Baglin v. Cusenier Co., 221 U.S. S80 (A911) . 2... 4

Banco Nacional de Cuba v. Sabbatino, 376 U.S.

EE en neh eeuwesecuareres Se ea

Bandes v. Harlow & Jones, Inc., 852 b.2d 661 (2d

= SS ere Terres St Me | Ae

Bernstein v. N.V. Nederlandse he- 4mertkaansche,

210 F.2d 375 (2d Cir. 1954) ...... ere re 19

Braka v. Bancomer, S.N.C., 762 F.2d 222 (2d Cir.

eee teh oak es yey 13, 14

Burnham vy. Superior Court, No. 89-44 (May 29.

keh Se a 12

Cailejo v. Bancomer, S.A., 764 F.2d 1101 (Sth Cir.

ee ce ebweces ..8, 12, 13

Citibank, N.A. v. Wells Fargo Asia bed. No.

88-1260 (May 29, 1990) ..................2... 16

Dames & Moore v. Regan, 453 U.S. 654 (1981) . 10

First National City Bank v. Banco Nacional de

Cuba, 406 U.S. 759 (1972) . ete ere ee 7,19

Harris v. Balk, 18 U.S. 215 (1904) . chek s . 12

Harza v. lran, 11 lran—U.S. Claims Trib. Rep. 6

St A a rr 3

Maltina Corp. v. Cawy Bottling Co., 462 F.2d 1021

(Sth Cir.), cert. denied, 409 U.S. 1060 (1972) . 7-8,

9, 12

(111)

IV

Page

Cases — Continued:

Menendez v. Saks & Co., 485 F.2d 1355 (2d Cir.

1973), rev'd sub nom. Alfred Dunhill of London,

Inc. v. Republic of Cuba, 425 U.S. 682 (1976) .. 11, 12,

16

Oetjen v. Central Leather Co., 246 U.S. 297 (1918) 7

Patrick v. Burget, 486 U.S. 94 (1988) ............ 7, 18

Pennsylvania Dep't of Public Welfare v. Daven-

port, No. 89-189 (May 2, 1990) ............... 11

Republic of Iraq v. First National City Bank, 353

F.2d 47 (2d Cir. 1964), cert. denied, 382 U.S.

PGE CO .. cca Vecuaan whee iarceteees kt 8, 11, 16

Ricaud v. American Metal Co., 246 U.S. 304

SN 2 caw tkcneek ca cenncekior ceecbrons 6

Shaffer v. Heitner, 433 U.S. 186 (1977) .......... 12

Tubacalera Severiano Jorge, S.A. v. Standard

Cigar Co., 392 F.2d 706 (Sth Cir.), cert. denied,

Se a EE a a cerns: 0k neon ash kekees 4,9, 12

Tchacosh Co. v. Rockwell Int'l Corp., 766 F.2d

bose fo A. RR rey 4, 6, 7, 16

Underhill v. Hernandez, 168 U.S. 250 (1897) ..... 7

United Bank Ltd. v. Cosmic Int'l, Inc., 542 F.2d

aes be Goes cececeue ue a

United States v. Belmont, 301 U.S. 324 (1937) .... 8

United States v. First Nat'l City Bank, 379 U.S.

I aorta er ee SOREL Ee cin ws'd)s 16

United States v. Pink, 315 U.S. 203 (1942) ....... 8

Lishipco Line v. Chase Manhattan Bank, 660 F.2d

854 (2d Cir. 1981), cert. denied, 459 U.S. 976

SRE Cie Rae shee cus bens 66 ns can Ra eens 16

Vladikavkazsky Ry. v. New York Trust Co., 263

N.Y. 369, 189 N.E. 456 (1934) .... 2.0.00. ..00.. 8

WS. Kirkpatrick & Co. v. Environmental Tec-

tonics Corp., 110 S. Ct. 701 (1990) .. 2.2.2... 6,7

Youakim v. Miller, 425 U.S. 231 (1976) .......... 18

Constitution and statutes:

U.S. Const. Amend. V_ (Just Compensation

eer ee Pee ee oe

Miscellaneous:

R. Letlar, L. McDougal & R. Felix, American

C mupreices Caw CEG x x6 wn dx eck tx eee

Note, The Act of State Doctrine: Resolving Debt

Situs Confusion, 86 Colum. L. Rev. 594 (1986) .

Restatement of Foreign Relations Law (Proposed

COUCONEN EPwTe FUSD. 6 vi vnc nenaduaeeeee

Restatement (Second) of Foreign Relations Law

CERO sv cccsnceiakases uvactnateee

Restatement (Third) of Foreign Relations Law

i Re re re Te re es:

Page

13, 14

8, 14

12

In the Supreme Court of the United States

OCTOBER TERM, 1989

No. 89-867

EF. & H. R. FARMAN-FARMAIAN CONSULTING

ENGINEERS FIRM, ET AL., PETITIONERS

Vv.

HARZA ENGINEERING COMPANY

ON PETITION FOR A WRIT OF CERTIORARE TO THE UNITED

STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE

This brief is filed in response to the Court's invitation to the

Solicitor General to express the views of the United States.

STATEMENT

1. In the 1960s, respondent Harza Engineering Company

contracted with the Government of Iran to provide engineering

services for water and power projects in Iran. Under the con-

tract, respondent was required to associate with an Lranian engi.

neering firm, Accordingly, on October 1, 1964, respondent en-

tered into a collaboration agreement with petitioner Farman-

Farmaian Consulting Engineers Firm (Consulting Firm), which

was to represent respondent in negotiations with the Iranian

Government, provide local staff and facilities at regional of-

tices, and perfor@: emergency services in the Teheran office.

Under the agreement, all services by the Consulting Firm were

to be pertormed in iran, all invoices for those services were to be

sent to respondent's office in Teheran with copies to Harza’s

aaa Natit i i ii

2

Chicago office, and payments were to be made in Iranian rials

through Iranian banks. The Consulting Firm was not, however,

entitled to receive payment for its services until Harza first re-

ceived payment from the Iranian Government. Petitioner Far-

ough Farman-Farmaian, the managing director of the Consult-

ing Firm, subsequently pressed to have a small portion of the

payments made in dollars and attributed to “work outside Iran,”

presumably to avoid Iranian taxes. In addition, he occasionally

visited respondent’s Chicago offices to discuss the projects while

he was visiting his children in the United States. Most payments,

however, were made to Farough Farman-Farmaian in rials

through Iranian banks in which Harza maintained accounts,

and all financial records relating to payments in rials were main-

tained in Harza’s office in Iran. Pet. App. 2a-3a, 16a-17a,

2Sa-27a.

Work on the various construction projects continued

throughout the 1970s. In 1978, just prior to the Iranian revolu-

tion, petitioner Farough Farman-Farmaian left Iran. He now

resides in London. In 1979, the new Government of Iran en-

acted a Temporary Directors Act, which provided for appoint-

ment of temporary directors for Iranian companies if the direc-

tors had abandoned their company or could not be reached or if

the company had suspended its work. Under the Act, the Iran-

ian Government, beginning on August 6, 1979, appointed a se-

ries of temporary directors for the Consulting Firm, Those di-

rectors were vested with full authority to manage the Firm’s

affairs, to the exclusion of petitioner Farough Farman-

Farmaian. Pet. App. 17a, 19a & n.1. In 1980, the Government

of lran adopted an “Act Concerning the Management and Own-

ership of Shares of Contracting and Consulting Firms,” which

authorized a cabinet-level commission to determine which such

iranian firms should be continued or dissolved. The commission

decided that the Consulting Firm should be dissolved, and it ap-

- pointed a Board of Liquidators for that purpose in January

1982. During the period of liquidation, which apparently has

not been completed (id. at 18a, 22a), the Board of Liquidators

enjoys full and exclusive authority over the Consulting Firm, in-

cluding all rights to bring lawsuits on its behalf. /d. at 17a.

Respondent ceased its operations in Iran in 1980 because the

iranian Government failed to pay for services rendered on the

water and power projects. In 1986, respondent received an

award of $8,416,805.86 for this work from the Iran-United

Staies Claims Tribunal. Pet. App. 18a; see Harza v. Iran, 11

lran—U.S. Claims Trib. Rep. 76, 137 (1986).

2. In 1987, petitioners commenced this suit against respond-

ent in the United States District Court for the Northern District

of Illinois, seeking approximately $2 million for services ren-

dered by the Consulting Firm in connection with the work that

tormed the basis of the Tribunal’s award to respondent. Peti-

tioner Farough Farman-Farmaian sued on his own behalf and

on behalf of the other owners of the Consulting Firm, who gave

him power of attorney to prosecute this suit. Invoking the

court’s alien diversity jurisdiction, 28 U.S.C. 1332(a)(2), peti-

tioners stated claims for breach of contract and unjust enrich-

ment. Pet. App. 2a, 1Sa-16a.

a. The district court granted respondent’s motion to dismiss

the complaint. Pet. App. 16a-28a. It first held that petitioner

Farough Farman-Farmaian had been divested of his capacity

under Iranian law to sue on behalf of the Consulting Firm, re-

jecting his contention that the actions of the Iranian Govern-

ment did not comply with the Iranian Constitution and laws. /d.

at 18a-23a.'

The court further held that the actions of the Iranian Govern-

ment must be given effect under the act of state doctrine. Pet.

App. 23a-28a. The court recognized that the doctrine requires a

United States court to give effect only to the acts of a foreign

sovereign “within its own territory,” Banco Nacional de Cuba v.

Sabbatino, 376 U.S. 398, 428 (1964), and that a United States

court should not give effect in the United States to a foreign

contiscatory decree because to do so would be inconsistent with

the public policy of this Nation against uncompensated takings

ot private property. Pet. App. 23a-24a. But the court concluded

that these principles would not be violated if the actions of the

Petitioners no longer challenge the actions of the lranian Government un-

der Iranian law. See Pet. 12-13

4

Iranian Government under its 1979 and 1980 laws were given ef-

fect as the rule of decision in this case, because “all of the func-

tional elements of the relationship [between the parties] were

centered in Iran,” and therefore “Iran was in a position to ‘per-

form a fait accompli’ over the payment or receipt of any money

owed the [Consulting Firm] by [respondent].” /d. at 26a (citing

Tchacosh Co. v. Rockwell Int’! Corp., 766 F.2d 1333, 1338 (9th

Cir. 1985), and Tabacalera Severiano Jorge, S.A. v. Standard

Cigar Co., 392 F.2d 706, 715 (Sth Cir.), cert. denied, 393 U.S.

924 (1968)).

The court found it especially significant that respondent had

not been paid by Iran at the time of the expropriation and did

not receive payment until 1986 (through the Iran-United States

Claim Tribunal). Because the Consulting Firm was not entitled

tO compensation under its contract with respondent until re-

spondent first received payment from Iran, the Consulting

Firm’s entitlement to compensation for its services “did not ma-

ture until affer the expropriation and after the [Consulting

Firm] was controlled by the government.” Pet. App. 27a. The

court could “find little difference between this and those cases

wherein the claim for which payment is sought was created by

the shipment of goods after the expropriation occurred. In

those cases, the claim is deemed to belong to the expropriated

company that shipped the goods.” /bid.

Against this background, the court summarized its reasons

for concluding that “[t]he principles underlying the Act of State

doctrine require that it be invoked under the circumstances of

this case”: “(t]he United States has no connection to the rela-

tionship between the parties except that Harza has an office

here”: “{t}he contract claim on which Farough sues matured en-

tirely in Iran after the expropriation of the (Consulting Firm)”;

respondent “had no property or assets of the (Consulting Firm]

within the United States, and * * * the government of Iran ac-

quired all rights to claim or sue for property or assets owed by

respondent] to the {Consulting Firm] arising from the subcon-

tract for services in Iran.” Pet. App. 27a-28a.

b. The court of appeals affirmed, Pet. App. la-lla, agree-

ing with the district court that the act of state doctrine barred

petitioners’ claims. /d. at 8a-11a.? The court rejected petitioners’

contention that the extraterritoriality exception to that doctrine

permitted adjudication of their claims. It reasoned that “the

confiscation was complete within the foreign state in the sense

that all of the [Consulting Firm’s] assets and operations were

there” —including “the firm’s claim against Harza for payment

for the services that the firm had rendered Harza in Iran.” Jbid.

The court relied upon the Ninth Circuit’s decision in Tchacosh,

which “rejected the extraterritoriality exception to the act of

state doctrine on facts almost identical to those of the present

case.” Jd. at 9a. The court also distinguished two Second Circuit

decisions cited by petitioners, Bandes v. Harlow & Jones, Inc.,

852 F.2d 661 (1988), and United Bank Lid. v. Cosmic Interna-

tional, Inc., 542 F.2d 868 (1976), on the ground that “in each a

shipment of goods to or from the U.S. was contemplated,”

while in the instant case, “all the services under the contract

were to be performed in the foreign country.” Pet. App. 8a-9a.

The court acknowledged that its description of the Consulting

Firm’s claim for payment of respondent’s debt as an asset lo-

cated in Iran “may be thought to beg the question.” But it re-

garded the converse proposition—that the “debt was ‘in’ Chi-

cago” —as “untenable,” since it would be “strange to describe

the Consulting Firm as having an ‘American’ asset by virtue

merely of having a claim against an American company for

services performed on that company’s behalf in Iran.” Pet.

App. 9a. The court also thought that the latter proposition

“would if accepted greatly reduce the accepted scope of the act

of state doctrine,” since a “dispute between an Iranian corpora-

tion doing business entirely in Iran, and the government of Iran,

could pop up in an American court merely because the corpora-

tion was owed some money by an American firm.” Jd. at

Ya-10a. The court instead believed it was necessary to look to

? In disposing of a threshold question of diversity jurisdiction, Pet. App.

6a-8a, the court accepted the “principle * * * that corporations expropriated

abroad continue to exist with capacity to sue in the United States, provided

** * they can show that the court can disregard the expropriation without vio-

lating the act of state doctrine.” /d. at 7a. Respondent does not question that

principle.

6

“the interest which underlies the extraterritorial exception to the

act of state doctrine” —namely, the “independent concern [of

the United States] with protecting property and transactions

* * * within its borders.” Jd. at lla. “That interest,” the court

concluded, “is not present here.” /bid. Nor did the court believe

that a contrary result was required because of the possibility

that respondent might realize a windfall. The court first noted

that any such windfall was speculative, because respondent did

not concede that it was indebted to anyone and the liquidators

in Iran might still make a claim against respondent. But the

court stressed that it was not in any event authorized “to disre-

gard an act of the Iranian state against an Iranian firm the con-

templated and actual operations of which were confined to Iran,

which [firm] had no assets outside of Iran, and which was seized

in lran pursuant to locally valid Iranian law.” /bid.

DISCUSSION

The courts below reasonably concluded that petitioners’ suit,

based on the Consulting Firm’s contract claim arising in Iran tor

services performed there, is barred by the act of state doctrine.

The decision below does not conflict with any decision of this

Court or any other court of appeals. To the contrary, it is fully

consistent with and relies upon Tchacosh Co. v. Rockwell Intl

Corp., 766 F.2d 1333 (9th Cir. 1985), the only other decision of

a court of appeals to have addressed the “extraterritorial excep-

tion” to the act of state doctrine in similar circumstances. The

lower courts are generally resolving questions concerning the

territorial reach of the act of state doctrine in a consistent man-

ner that comports with the underlying purposes of the doctrine.

Those questions therefore do not warrant review at this ume.

1. a. Theact of state doctrine requires courts in the United

States to “deem[ ] valid” and apply as the “ ‘rule of decision’ ” in

cases before them the “acts of foreign sovereigns taken within

their own jurisdictions.” W.S. Kirkpatrick & Co. v. Environ-

mental Tectonics Corp., 110 S. Ct. 701, 705, 707 (1990) (quot-

ing Ricaud v. American Metal Co., 246 U.S. 304, 310 (1918)).

Put another way, the doctrine “precludes the courts of this

country from inquiring into the validity of the public acts [of] a

ee

-

U

recognized foreign sovereign power committed within its own

territory.” Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398,

401 (1964). See also Alfred Dunhill of London, Inc. v. Republic

of Cuba, 425 U.S. 682, 706 (1976) (plurality opinion); Underhill

Vv. Hernandez, 168 U.S. 250, 252 (1897). The act of state doc-

trine has been variously described as “resting upon ‘the highest

considerations of international comity and expediency,’ ” as

well as the “domestic separation of powers, reflecting the ‘strong

sense Of the Judicial Branch that its engagement in the task of

passing on the validity of foreign acts of state may hinder’ the

conduct of foreign affairs.” Kirkpatrick, 110 S. Ct. at 704

(quoting Oetjen v. Central Leather Co., 246 U.S. 297, 303-304

(1918), and Sabbatino, 376 U.S. at 423). In short, the doctrine

“effectuate[s] general notions of comity among nations and

among the respective branches of the Federal Government.”

First National City Bank v. Banco Nacional de Cuba, 406 U.S.

759, 762 (1972) (plurality opinion).

The Court’s formulations of the act of state doctrine have

consistently included a limiting principle of territoriality. That

is, in order to be recognized as binding upon the judiciary, the

act of a foreign sovereign must be complete within its own terri-

tory. Kirkpatrick, 110 S. Ct. at 704; Sabbatino, 376 U.S. at 401;

Underhill, 168 U.S. at 252. This limitation is consistent with the

doctrine’s underlying purposes and rationale. Principles of in-

ternational comity supporting application of foreign law in

other settings weigh far less heavily when the foreign sovereign

act purports to affect property situated in the United States and

presumptively subject to its laws and public policies, including

those prohibiting uncompensated takings. Similarly, “ ‘[t}he ob-

vious inability of a foreign state to complete an expropria-

tion of property beyond its borders reduces the foreign state’s

expectations of dominion over that property,’ ” and “[c]Jonse-

quently, the potential for offense to a foreign state is reduced,

as well as the need for judicial deference to other branches of

government.” Tchacosh, 766 F.2d at 1337 (quoting Maltina

Corp. v. Cawy Bottling Co., 462 F.2d 1021, 1028 (5th Cir.),

cert. denied, 409 U.S. 1060 (1972)); see Note, The Act of State

Doctrine: Resolving Debt Situs Confusion, 86 Colum. L. Rev.

594, 605-610 (1986).

By virtue of this limitation on the act of state doctrine, when

the act of a foreign sovereign purports to affect legal relation-

ships or property in the United States, a United States court will

give effect to that act as a rule of decision only if the act is “con-

sistent with the policy and law of the United States.” Republic

of Iraq v. First National City Bank, 353 F.2d 47, 51 (2d Cir.

1965), cert. denied, 382 U.S. 1027 (1966) (quoting Restatement

of Foreign Relations Law § 46 (Proposed Official Draft 1962)).

See also Bandes v. Harlow & Jones, Inc., 852 F.2d 661, 666-667

(2d Cir. 1988); Callejo v. Bancomer, S.A., 764 F.2d 1101, 1121

& n.29 (Sth Cir. 1985). Accordingly, if a foreign sovereign pur-

ports to expropriate property in the United States without pay-

ment of compensation, the act of state doctrine is inapplicable

and the expropriation ordinarily will not be given effect by a

United States court (because it is inconsistent with the public

policy embodied in the Just Compensation Clause of the Fifth

Amendment). Bandes, 852 F.2d at 667; Republic of Iraq, 353

F.2d at 51; Vladikavkazsky Ry. v. New York Trust Co., 263

N.Y. 369, 378, 189 N.E. 456, 460 (1934).

Petitioners contend (Pet. 6-16) that the court of appeals in

this case violated the territorial limitation on the act of state

doctrine by giving effect to Iran’s expropriation of the Con-

sulting Firm insofar as the expropriation applied to the Firm’s

’ This is not an absolute rule. In United States v. Belmont, 301 U.S. 324

(1937), and United States v. Pink, 315 U.S. 203 (1942), the Court gave etfect

to the Litvinov Agreement, under which the United States, as an incident to

the recognition of the Soviet Union, procured an assignment of the Soviet

Union's claim to assets in the United States belonging to nationalized Russian

companies; those assets were to be used to pay the claims of United States na-

tionals whose property in the Soviet Union had been confiscated. In Republic

of Iraq, the Second Circuit explained the result in Belmont and Pink on the

ground that the President’s actions, pursuant to his constituuional authority to

conduct the foreign relations of tne United States, made the Soviet expropria-

tion decrees consistent with the law and policy of the United States trom that

lume torward. 353 F.2d at 52

Yy

claim against respondent.* Their argument proceeds as follows:

the property at issue here is the “debt” respondent allegedly

owes the Consulting Firm for services the latter performed in

Iran; the situs of that debt is Chicago because that is where re-

spondent’s offices are; and the Iranian decree expropriating the

Consulting Firm could not reach that property because it is not

in the territory of Iran. In petitioners’ view (Pet. 6-11), the Sev-

enth Circuit’s failure to adopt this reasoning places it is “irrecon-

cilable conflict” with decisions of the Second and Fifth Circuits.

We disagree. The decision below represents, in our view, a rea-

sonable application of the territorial component of the act of

State doctrine and presents no “irreconcilable conflict” with

other cases.

b. In many—perhaps most—situations, the situs of prop-

erty for purposes of the act of state doctrine will be clear. Cer-

tainly that is so in the case of real property, and usually of tangi-

ble personal property as well. Some intangible personal prop-

erty may present more difficult problems because “[t}he situs of

intangible property is about as intangible a concept as is known

to the law.” Tabacalera Severiano Jorge, S.A. v. Standard Cigar

Co., 392 F.2d 706, 714 (Sth Cir.), cert. denied, 393 U.S. 924

(1968). Nevertheless, established law and custom provide con-

crete guidance for some such property. For example, trade-

marks consistently “have been held to be strictly territorial in the

state of registry, so that former Owners of marks registered in

the United States could claim rights to them against those claim-

ing under an act of a foreign siate.” Restatement (Third) of For-

eign Relations Law § 443, reporters’ note 4, at 375-376 (1986);

Maltina, 462 F.2d at 1026; Baglin v. Cusenier Co., 221 U.S.

580, 594-597 (1911). For other types of intangible property, it

may be necessary to take account of the course of dealing be-

tween the parties, the nexus of the transaction to the United

States and the foreign state, and the purposes underlying the act

of state doctrine. This approach ts consistent with this Court's

* Both parties and the courts below have regarded the Iranian Government's

acuions in divesting the prior owners of authority over the Consulting Firm

and subsequently dissolving it as effecting an expropriation of the Firm, Pet

3; Br. in Opp. 1, 6; Pet. App. 3a, 27a. We shall do the same

10

refusal in Sabbatine to lay down an “inflexible and all-encom-

passing rule” for resolution of all act of state casés. 376 U.S. at

427-428. Under this approach, the courts have developed work-

able rules and principles for addressing the territorial compo-

nent of the act of state doctrine as applied to particular catego-

ries of intangible property, such as bank deposits and funds or

accounts receivable that are tied directly to goods shipped to or

from the United States. See pages 15-16, infra.

The particular type of intangible property at issue in this case

is an unliquidated claim for breach of contract or unjust enrich-

ment based on services rendered in a foreign country. As a mat-

ter of Iranian law, the expropriation of the Consulting Firm pre-

vents the Firm (and petitioner Farough Farman-Farmaian on its

behalf) from prosecuting that claim. If the expropriation decree

is regarded as operating solely on the c/aim, it would be reason-

able to conclude that the act of state doctrine apphed. The terri-

torial limitation on that doctrine would not be triggered because

a nation ordinarily may exercise sovereign authority over the

claims of its own nationals against foreign parties, see Dames &

Moore v. Regan, 453 U.S. 654 (1981),° and the “situs” of such a

claim for act of state purposes therefore could properly be

deemed to be the domicile of the claimant, which in this case is

in Iran. Petitioners, however, believe that the question of terri-

toriality should be viewed not from the perspective of the party

that owned the claim (the Consulting Firm), but from the per-

spective of the party that allegedly is liable on the claim (re-

spondent). In petitioners’ view, that liability should be regarded

> In Dames & Moore, the Court sustained the President's settlement of the

claims of United States nationals against Iran through the establishment of the

Tribunal, 453 U.S. at 675-688, and it treated those claims as a species of prop-

erty protected by the United States Constitution, id. at 688-690, even though,

under petitioners’ theory, the property in question might as easily have been

regarded as the “debts” owed by Iran on those claims — property that, in peti-

tioners’ view, would have a situs in Iran. Any rules of situs fashioned by the

courts for purposes of the territorial component of the act of state doctrine

must preserve the constitutional authority of the President or Congress to act

upon the foreign claims of United States nationals as they have done in the

past and to insist that those acts by the United States are respected by other na-

uions.

1]

as a “debt,” ° and the situs of the debt should be deemed to be

the domicile of the “debtor” —in this case, Chicago, where re-

spondent has its offices. Under this theory, the Iranian decree

purported to expropriate property whose situs was outside the

territory of Iran, and it therefore cannoi be viven effect under

the act of state doctrine.

As is evident, these two views of the territorial issue— one fo-

cusing on the claim, the other on the debt — are opposite sides of

the same coin, We believe that to adopt one view or the other as

an unyielding rule governing all cases could, in some circum-

stances, defy common sense and accord insulticient weight to

the purposes of the act of state doctrine. We therefore are reluc-

tant to endorse an intlexible rule that looks only to whether the

“debtor” is domiciled in the United States. In fact, in the cases

upon which petitioners rely, there were aspects of the transac-

tion—in addition to the domicile of the “debtor” —that had a

substantial nexus to the United States. See pages 15-16, infra.

By contrast, in this case, where such further contacts in the

United States are lacking, there is much torce to the court of ap-

peals’ common sense observation that “it is strange to describe

the Consulting Firm as having an ‘American’ asset by virtue

merely of having a claim against an American company for

services performed on that company’s behalt in Iran.” Pet,

App. Ya. That result is not compelled either by precedent or by

the purposes of the act of state doctrine.

ce. In seeking to “localize” the situs of a debt tor act of state

purposes, some decisions have expressed the view that “a debt is

not located within a foreign state unless that state has the power

to entoree or collect it.” Menendez v. Saks & Co., 485 F.2d

1355, 1364 (2d Cir. 1973), rev’d on other grounds sub nom. Al-

fred Dunhill of London, Inc. v. Republic of Cuba, 425 U.S.

682, (1976). Accord Bundes, 852 F.2d at 667; United Bank Lid.

V. Cosmuc inel, Inc. , 342. &.2d 868, 873 (2d Cir. 1976); Republic

Of lraqg, 353 F.2d at Sl. Because the “power to enforce

Compare Pennsvivania Dep’) of Public Welfare \. Davenport, No. 89-189

(May 29, 1990), slip op. 4 (quoting TE U.S.C. 1011) Gor purposes of the

Bankruptes Code, “debt” means “hability on a claim”)

12

payment of a debt * * * generally depends on jurisdiction over

the person of the debtor” (Menendez, 485 F.2d-at 1365, citing

Harris v. Balk, 198 U.S. 215 (1904),’ and Restatement (Second)

of Foreign Relations Law § 43, comment d (1965)), these cases

have usually found the situs of the debt to be the “situs” of the

debtor

The Fifth Circuit crafted a somewhat different formulation in

Tabacalera: whether the foreign government “was * * * physi-

cally in a position to perform a fail accompli” with respect to the

transaction —/.e., whether the act at issue “is an accomplished

fact, that is when [the foreign government] has the parties and

the res before it and acts in such a manner as to change the rela-

tionship between the parties touching the res.” 392 F.2d at 715.

See also United Bank, 542 F.2d at 874; Maltina, 462 F.2d at

1028. In these cases, the courts found that the act of state could

not “come to complete fruition within the dominion of the [for-

eign state)” (Tabacalera, 392 F.2d at 715-716) and that the tor-

eign sovereign therefore was not in a position to “perform a fail

accompli” with respect to the intangible at issue. The result in

these cases was generally consistent with a rule locating the situs

at the domicile of the defendant-debtor.

However, contrary to petitioners’ assertion (Pet. 10), the Sec-

ond and Fifth Circuits have not infiexibly adhered to either the

analytical approach or the debtor-oriented result petitioners

urge. For example, in Callejo v. Bancomer, S.A., 764 F.2d

1101, 1123 (1985), the Fifth Circuit determined that strict

adherence to its “fait accompli” formulation in the context of a

foreign state’s seizure of the assets of its own debtor-bank would

unduly expand the act of state doctrine beyond what Tabacalera

had intended, because “the act of state doctrine would apply

whenever a foreign state seized assets owed by its bank, no mat-

ter how many ties the debts had to this country.” /bid. The court

instead focused on whether the relationship between the parties’

obligations and the foreign sovereign was “sufficiently close”

’ The due process holding in Harris v. Balk, though not its debt-situs analy-

sis, has been substantially overruled by Shaffer v. Heitner, 433 U.S. 186, 212

n.39 (1977). See Burnham v. Superior Court, No. 89-44 (May 29, 1990) slip

op. 13-16 (plurality opimion).

13

{oO warrant recognition of the foreign sovereign act, concluding

that “the proper test for determining situs is where the incidents

of the debt, as a whole, place it.” The court then looked to

various factors (“place of payment, intent of the parties (if

any),” etc.) to “determine the extent of the foreign government’s

interest in the debt.” /d. at 1123-1124.

Similarly, in Allied Bank Int’l y. Banco Credito Agricola, 757

F.2d 516, 521-522, cert. dismissed, 473 U.S. 934 (1985), the Sec-

ond Circuit, after inquiring into whether the purported taking

came to “complete fruition” in the foreign country, conducted a

separate situs analysis, examining various incidents of the trans-

action (place of payment, place of negotiation, etc.), as well as

the interests of the respective sovereigns in that transaction.

And contrary to petitioners’ assertion (Pet. 7, 8) that the courts

otf appeals had uniformly followed « “debtor-oriented” ap-

proach to these questions prior to the Ninth Circuit’s decision in

Tchacosh, the Second Circuit in A/lied Bank concluded that the

Situs of the debt was at the creditor's location (New York), not

that of the debtor-banks (Costa Rica). 757 F.2d at 522. Com-

pare Braka v. Bancomer, S.N.C., 762 F.2d 222, 224 (2d Cir.

1985) (finding situs of deposit in foreign country).

In sum, recent decisions suggest some willingness on the part

of the courts of appeals, in appropriate circumstances, to es-

chew formulaic solutions to the situs issue in act of state cases in

favor of an examination of the relationship between {he parties’

obligations and the foreign sovereign, as well as the interest of

the foreign sovereign in application of the rule of decision em-

bodied in its act of state. The earlier cases discussed above

sought — somewhat in the manner of the First Restatement of

Contlict of Laws—to identify “some single significant factor in

[the] transaction” that would “identify the place * * * whose law

should govern the transaction.” See R. Leflar, L. McDougal &

R. Felix, American Conflicts Law § 86, at 255 (1986). However,

much as American contlict-of-laws principles have departed

from strict adherence to territorially based “vested rights” theo-

ries in tavor of an “interest analysis,” as in the Second Restate-

ment of Contlict of Laws (see R. Letlar, L. McDougal & R.

Felix, supra, §§ 90-91, at 264-270), Callejo and Allied Bank ad-

4

dressed the territorial component of the act of state doctrine ina

less rigid fashion; those more recent cases have instead sought to

identify the state with the “most significant relationship” to the

transaction at issue (R. Leflar, L. McDougal & R. Felix, supra,

§ 90, at 266-270). See Note, supra, 86 Colum. L. Rev. al

601-605.

d. We by no means suggest that the courts, in applying the

act of state doctrine, should abandon concepts of territoriality

in favor of an amorphous interest analysis patterned after mod-

ern contlict-of-laws principles. But we do believe that the inter-

est analysis developed in the analogous conflict-of-laws context

sheds light on the proper application of the territorial compo-

nent of the act of state doctrine. In particular, consideration of

the respective interests of the United States and Iran, as well as

the underlying purposes of the act of state doctrine, support the

court of appeals’ decision not to apply a rigid, debtor-oriented

rule in the circumstances of this case.

The court below rejected the argument that respondent's mere

presence in the United States was sufficient to render the act ot

state doctrine inapplicable. The court noted that such a propost-

tion would “greatly reduce the accepted scope of the act of state

doctrine,” since “[a] dispute between an Iranian corporation do-

ing business entirely in Iran, and the government of Iran, could

pop up in an American court merely because the corporation

was owed some money by an American firm.” Pet. App, 9a-10a.

Moreover, the “American interest” in the parties’ transactions

here was “attenuated,” since “all the services under the contract

were to be performed in the foreign country,” “all of the firm's

assets and operations were there,” ¢bid., and payment was to be

made primarily in rials through Iranian banks. Compare Allied

Bank, 757 F.2d at 518-519, 521 (attaching significance to par-

ties’ agreement concerning place and manner of payment);

Braka, 762 F.2d at 224-225 (same). Although the “United States

has an independent concern with protecting property and trans-

actions * * * within its borders,” that “interest is not present

here,” because “[wJhat is at issue * * * is the propriety of deal-

ings between the Iranian government and an Irgnian corpora-

tion.” Pet. App. 10a-lla. Because “all of the functional ele-

—

15

ments of the [parties’] relationship were centered in ran,” the

court of appeals reasonably concluded that the territorial limita-

tion did not preclude giving effect to the expropriation in this

case. /d, at lla, 25a-26a.

The decision below is consistent with the ruling by the Ninth

Circuit on virtually identical facts in Tchacosh. There, all rele-

vant aspects of the parties’ transaction likewise were located in

Iran, with the sole exception of the defendant-debtor’s domicile.

766 F.2d at 1338. Under these circumstances, the court rejected

the plainuff's attempt to “localize” the debt in the United States,

observing that in “no case” had “a court * * * refused to give ef-

fect to the acts of the foreign state” where “the nexus of the rele-

vant relationship with a foreign country is so strong, and that

with the United States so weak.” /bid. Looking instead to the

policies underlying the act of state doctrine, the court concluded

that “the relations between [plaintiff] and [defendant} have a far

greater impact upon Iran than upon the United States.” /bid.*

e. Against this background, despite the somewhat varying

verbal formulations used in some Second and Fifth Circuit

cases, there is no circuit conflict on the territorial component of

the act of state doctrine that warrants review by this Court.

Three factors support this conclusion:

First, as respondent notes (Br. in Opp. 10-12), in the other act

of state cases upon which petitioners rely (see Pet. 8-11), the

transaction had a substantial nexus to the United States — and

specifically to property physically located in the United States —

in addition to the mere presence of the debtor-defendant. See

Bandes, 852 F.2d at 664-665 (claims to funds present in United

States as payment for United States goods ordered but not

shipped to foreign country at time of expropriation); United

Bank, 542 F.2d at 870-871 & n.2 (claim to funds held in United

* In this case, unhke in Tcohacosh, the agreement between the parties pro-

vided that U was governed by domestic (Illinois) rather than foreign law. See

Pet. 2. We do not believe that contractual provision requires a different result

here, since implementation of the contract occurred entirely in lran and an

agreement between private parties regarding the law that defines their contrac-

tual relationship does not in any event alter the power of a government (Iran)

to take whatever property rights arise out of that relationship.

16

States to pay for goods shipped to United States prior to expro-

priation); Menendez, 485 F.2d at 1360, 1364,-1370 (claim ot

right to payment for goods shipped to United States prior to ex-

propriation); Tabacalera, 392 F.2d at 707 (same); Maltina, 462

F.2d at 1028 (trademark registered in United States); Republic

of Iraq, 353 F.2d at 51 (deposit in and stock held by United

States bank).’ By contrast, in Tchacosh and the instant case, the

courts concluded that the only significant United States contact

was the defendant's presence. 766 F.2d at 1338 & n.6; Pet. App.

Qa-l la, 26a. Indeed, the court below distinguished Bandes and

United Bank on these very grounds. /d. at Ya

Second, specifically relying on the Fifth Circuit’s decision in

Tabacalera, the court of appeals in Tchacosh and the district

court in the instant case both concluded that because all of the

functional elements of the relationship were centered in Iran,

the Iranian Government was in a position to “perform a fail ac-

compli” concerning the payment or receipt of any money

respondent owed the Consulting Firm. 766 F.2d at 1338; Pet.

App. 26a. This obviously undermines petitioners’ contention

(Pet. 7, 9-10) that the result in this case and Tchacosh contlicts

with Tabacalera.

Third, utilization of an “interest analysis”-type approach in

the particular circumstances of Allied Bank and Callejo suggests

that, contrary to petitioners’ premise, the Second and Fifth Cir-

cuits might well agree with the result reached by the court below

and the Ninth Circuit in Tchacosh. Following that approach in

* Petitioners also rely (Pet. 9 n.7) on Vishipco Line v. Chase Manhattan

Bank , 660 F.2d 854, 8612 (2d Cir. 1981), cert. denied, 459 U.S. 976 (1982), but

that case was not decided on act of state grounds. See U.S. Amicus Br. (at

10-14) in Chase Manhattan Bank, N.A,. v. Vishipco Line, 459 U.S. 976 (1982).

The Second Circuit held in Vishipco that a bank account in Citibank’s Saigon

branch “sprung” back to Citibank’s home office in New York when Citibank

closed the Saigon branch, prior to any seizure by local Vietnamese authorities.

For the reasons stated in our amicus brief (at 26-27 & n.21) in Citibank, N.A.

v. Wells Fargo Asia Lid., No. 88-1260 (May 29, 1990), that theory of lability

in Vishipco is wrong. The closure of the branch in Saigon did not change the

situs of the debt; rather, if the closure of the bank and the resulting refusal of a

demand for payment were wrongful, the depositor had a cause of action for

damaves in New York for breach of contract. See United States v. First Nat'l

City Bank, 379 U.S. 378, 405 n.17 (1965) (Harlan, J., dissenting).

17

the circumstances of this case would be consistent with the pur-

poses and rationale of the act of state doctrine because, as the

court of appeals observed (Pet. App. 10a-lla), both interna-

tional comity and the risk of offense to a foreign sovereign (and

resulting interference with the conduct of foreign relations by

the Executive Branch) weigh more heavily in favor of giving ef-

fect to the foreign sovereign act when the interests of the United

States are attenuated and those of the foreign sovereign sub-

stantially predominate.

t. Kinally, even if the “situs” issue petitioners raise might

Warrant review al some point, this is not the right case in which

to address that issue. The district court concluded that because

the Consulting Firm was entitled to receive payment from re-

spondent only after respondent first received payment from

lran—and because respondent had not received payment from

Iran at the time of the expropriation—the Consulting Firm’s

claim against respondent matured only affer the expropriation.

Pet. App. 27a. Whatever may be the proper “situs” of an ordi-

nary breach-of-contract or unjust-enrichment claim, the courts

below cannot be faulted for declining to hold that an unripe

claim arising out of anticipated payment in Iran for services ren-

dered in Iran by an Iranian company is somehow situated in the

United States.

Morcover, recognizing that a rule looking only to whether the

debtor is an American company would render the act of state

doctrine “meaningless,” petitioners apparently concede (Pet. 9;

Reply Br. 4, 6) that the doctrine would bar their suit if respond-

ent had assets in Iran at the time of the expropriation. Under pe-

utioners’ own theory, however, respondent did have assets in

Iran at the time of the expropriation, because in their view the

situs of a debt is the domicile of the debtor, and the situs of the

debt that /ran owed respondent at that time therefore was in

Iran. Indeed, Iran’s power to decide whether to pay respondent

the tunds out of which the Consulting Firm would be paid, or to

expropriate a portion of those funds, shows that Iran could ex-

ercise complete dominion over the Consulting Firm’s contingent

claim against respondent. At least in these unique circum-

stances, the court of appeals reasonably found that the expro-

18

priation of the Consulting Firm’s claim (or respondent’s debt)

was compleie in Iran. g

2. Petitioners also urge (Pet. 17-20) the Court to grant certi-

orari to consider whether the courts below erred in not soliciting

the views of the Executive Branch on the foreign relations im-

pact of their suit before ordering it dismissed. But petitioners

did not request the district court to solicit the views of the

United States, and they requested the court of appeals to do so

only after oral argument, first in a letter to the Clerk and then in

their petition for rehearing. See Pet. 5; Br. in Opp. 9; Br. in

Opp. App. 2a. Accordingly, it is not surprising that neither the

panel opinion nor the order denying rehearing mentions the is-

sue. Pet. App. la-lla, 13a. “This Court usually will decline to

consider questions presented in a petition for certiorari that

have not been considered by the lower court.” Patrick v. Burget,

486 U.S. 94, 99 n.5 (1988); Youakim v. Miller, 425 U.S. 231,

234 (1976). Because there is no indication that the court below

gave consideration on the merits to soliciting the views of the

Executive Branch (as opposed to disregarding petitioners’ re-

quests on grounds of tardiness), the Court should deny review

on this issue, especially now that the Court has cured whatever

defect ther@ might have been by inviting the Solicitor General to

file this brief.

The premise of petitioners’ submission on this point is mis-

taken in any event. In arguing that the Executive Branch’s views

should have been solicited, petitioners rely (Pet. 17, 19-20; Re-

ply Br. 9-10) on the court of appeals’ observation that it would

be a “slap in the face of the Iranian regime” for a United States

court to entertain this suit. Pet. App. 10a-lla. Petitioners ap-

parently read the quoted phrase to constitute a particularized

judicial determination that adjudication of this suit would ad-

versely affect the foreign relations of the United States. If the

decision of the court of appeals actually turned on a particular-

ized assessment of the foreign policy interests of the United

States in its relations with Iran, we would agree —in accordance

with the submission in our amicus brief (at 32-33) in Kirkpat-

rick, quoted by petitioners (Pet. 19)--that a court should not

undertake to determine such matters for itself and should

19

instead solicit and give great weight to the views of the Executive

Branch. But we think petitioners read far too much into a single

phrase in the court of appeals’ opinion. In context, it is clear

that the court intended the quoted phrase to be nothing more

than the most immediate illustration of the comity and separa-

tion of powers concerns that underlie the act of state doctrine as

a general matter. See Pet. App. 10a-lla. This Court took ac-

count of such concerns in Sabbatino, 376 U.S. at 428-436, and

the court of appeals was not barred from doing so here.

In a related vein, petitioners urge (Pet. 18-19) the Court to

adopt a “reverse-Bernstein” approach to act of state cases, un-

der which a suit would not be barred unless the Executive

Branch interposed an objection in the particular case.'® Peti-

tioners concede (Pet. 18-19; Reply Br. 9), however, that the

Court in Sabbatino specifically rejected that approach (376 U.S.

at 436) and that they are essentially asking the Court to overrule

Sabbatino in this regard. Petitioners advance no reason why the

Court should do so. Moreover, contrary to petitioners’ conten-

tion (Pet. 19; Reply Br. 8), we did not urge the Court in Kirk-

patrick to reconsider this holding in Sabbatino (see U.S. Kirk-

patrick Br, at 31-32 & n.32)—which the United States supported

in Sabbatino itself—and we do not do so here.

‘in Bernstein vy. N.V. Nederlandsche-Amerikaansche, 210 F.2d 375 (2d

Cir, 1954), as understood by this Court in First National City Bank v. Banco

Nacional de Cuba, 406 U.S. 759 (1972), the court of appeals recognized an ex-

ception to the act of state doctrine where the Executive Branch represented

that application of the doctrine would not advance the interests of United

States foreign policy. In First National City Bank, three Justices approved that

approach. 406 U.S. at 768 (plurality opinion). Justice Powell, in his concur-

rng opinion (id, at 773), and Justice Brennan, in his dissenting opinion for

four Justices (id. at 776-777, 782-793), disapproved of a “Bernstein

exception.” See also id. at 773 (Douglas, J., concurring). Under a “reverse-

Bernstein” approach, the court would have a duty to adjudicate in the absence

of an Executive Branch representation that United States foreign policy inter-

ests Would be adversely affected. See Sabbatino, 376 U.S. at 467-472 (White,

J., dissenting).

en ee

20

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

KENNETH W. STARR

Solicitor General

STUART M. GERSON

Assistant Attorney General

JOHN G. ROBERTS, JR.

Deputy Solicitcr General

EDWIN S. KNEEDLER

Assistant to the Solicitor General

MICHAEL JAY SINGER

JOHN P. SCHNITKER

Altorneys

JUNE 1990