Opposition Brief — Islamic Republic of Iran v. McKesson HBOC, Inc.

Supreme Court, U.S.

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Nos. 01-1521 and 01-1708

In the Supreme Court of the Gn

ISLAMIC REPUBLIC OF IRAN, PETITIO. %

Vv.

McKESSON HBOC, INC., ET AL.

McKESSON HBOG, INC., ET AL.,

CONDITIONAL CROSS-PETITIONERS

Vv.

ISLAMIC KEPUBLIC OF IRAN

ON PETITION AND CONDITIONAL CROSS-PETITION

FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

BRIEF FOR THE OVERSEAS PRIVATE INVESTMENT

CORPORATION IN OPPOSITION

THEODORE B. OLSON

Solicitor General

Counsel of Record

é ROBERT D. MCCALLUM, JR.

ee A. alan a. Assistant Attorney General

ee ee DOUGLAS N. LETTER 2

Overseas f’rtvate H. THOMAS BYRON III

Investment Corporation ;

Attorneys =

Washington, D.C. 20527

Department of Justice

ee aie Washington, D.C. 20530-0001

Department of State (202) 514-2217

Washington, D.C. 20520

QUESTIONS PRESENTED

The petition (No. 01-1521) presents the following

questions:

1. Whether the Treaty of Amity, Economic Rela-

tions and Consular Rights, June 16, 1957, U.S.-Iran, 8

U.S.T. 899, between the United States and Iran creates

a private right of action under United States law for a

United States corporation to sue petitioner in a United

States court for expropriation.

2. Whether petitioner is immune from suit under the

Foreign Sovereign Immunities Act of 1976 (FSIA)

because, according to petitioner, the commercial activ-

ity at issue did not cause a direct effect in the United

States.

3. Whether petitioner is immune from suit under the

FSIA because the alleged expropriation was accom-

plished, in part, through the non-payment of dividends

that, according to petitioner, were payable only in Iran.

4. Whether the court of appeals should have di-

rected the district court to enter summary judgment

for petitioner.

The conditional cross-petition (No. 01-1708) presents

the following additional questions:

5. Whether the court of appeals erred in reversing

the entry of summary judgment for cross-petitioner on

liability and remanding for further proceedings on one

of petitioner’s defenses.

6. Whether cross-petitioner was entitled to an

award of compound, rather than simple, prejudgment

interest.

(I)

TABLE OF CONTENTS

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City af Milwaukee v. Coment Liv, Nat'l Gypawn Ca.,

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IID _-osinscsseseepnensencenetessaenennastebaniecetaneianstanccnnenenessteurentitenttett

Dames & Moore v, Regan, 458 UB, G5A (1981) -.--r-rvcrvcrvrs

EEOC y. Kentucky State Police Dep't, 80 F.3d

1086 (6th Cir.), cert. denied, 519 U.S. 963 (1996) .............

First English Evangelical Lutheran Church v.

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Foster v. Neilson, 27 U.S. (2 Pet.) 258 (1829) ........c

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Cases—Continued: Page

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Baecuting Treaties, 88 Am, J. tit’) Ly, O98 (1998) occ, 10, 11

In the Supreme Court of the Anited States

No. 01-1521

ISLAMIC REPUBLIC OF IRAN, PETITIONER

Vv.

McKESSON HBOC, INC., ET AL.

No. 01-1708

McKESSON HBOC, INC., ET AL.,

CONDITIONAL CROSS-PETITIONERS

Vv.

ISLAMIC REPUBLIC OF IRAN

ON PETITION AND CONDITIONAL CROSS-PETITION

FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

BRIEF FOR THE OVERSEAS PRIVATE INVESTMENT

CORPORATION IN OPPOSITION

STATEMENT

1. Respondent Overseas Private Investment Corpo-

ration (OPIC) is a federal agency that insures United

States businesses against political risk in their invest-

ments abroad and also finances overseas business

through loans and loan guarantees. See generally 22

U.S.C. 2194. OPIC was created “(t]o mobilize and

facilitate the participation of United States private

capital and skills in the economic and social develop-

2

ment of less developed countries and areas, and coun-

tries in transition from nonmarket to market econo-

mies, thereby complementing the development assis-

tance objectives of the United States.” 22 U.S.C. 2191.

OPIC is a corporation wholly owned by the United

States Government. It functions as an agency of the

Executive Branch, independent of any Cabinet Depart-

ment but “under the policy guidance of the Secretary of

State.” Ibid. OPIC’s guaranty and insurance obliga-

tions are backed by the full faith and credit of the

United States of America, although the agency

operates on a self-sustaining basis at no net cost to the

taxpayers. See 22 U.S.C. 2191, 2196, 2197(c).

In 1973, OPIC insured a $2.5 million recapitalization

investment in a dairy operation in Iran (Pak Dairy),

made by respondent McKesson HBOC, Inc. (then

known as Foremost-McKesson, Inc.) and its wholly

owned subsidiary (collectively McKesson). By 1980,

McKesson owned 31% of the outstanding common stock

of Pak Dairy, and OPIC insured 64% of that share-

holding interest, providing $5.6 million of coverage

against expropriation. Between 1980 and 1982, OPIC

paid McKesson more than $4 million, in satisfaction of

claims for expropriation by Iran of McKesson’s invest-

ments in Pak Dairy.

By 1979, petitioner, through its agencies and instru-

mentalities, owned a majority of the shares of Pak

Dairy and was thereby able to exercise effective corpo-

rate control over Pak Dairy’s board of directors.’ In

this suit, McKesson contends that petitioner used that

control to exclude McKesson from its role on the board

1 The Iranian agencies and instrumentalities are also named

defendants, but they have not appeared or otherwise participated

in this case. See Pet. App. 29a n.2, 90a n.4.

3

and thereby to deprive McKesson of its equity interest

in Pak Dairy. McKesson seeks compensation for that

unlawftil deprivation of its property interest. OPIC has

an interest in the suit because it paid insurance claims

on a portion of those losses.

2. In 1982, respondents brought this suit against

petitioner and certain of its agencies and instrumentali-

ties.2 At that time, all such claims were subject to a

stay and to arbitration before the Iran-United States

Claims Tribunal at the Hague. Exec. Order No. 12,294,

46 Fed. Reg:14,111 (1981); see Dames & Moore v.

Regan, 453 U.S. 654, 684-685 (1981). The claim was

presented to the Tribunal, which ruled that petitioner

was liable for the failure of Pak Dairy to pay dividends

and other amounts due to McKesson in 1979 and 1980.

The Tribunal awarded McKesson $1.4 million, which

petitioner paid from the security account established

under the Algiers Accords. Pet. App. 3a-4a.

In 1986, the Tribunal concluded that there had not

been an expropriation of McKesson’s interest in Pak

Dairy as of January 19, 1981, the date that established

the limits of the Tribunal’s jurisdiction. Pet. App. 3a-

4a. Accordingly, in 1988, respondents renewed this suit,

alleging that the actions of petitioner culminated in a

total expropriation sometime after January 19, 1981.

Years of further litigation, including three appeals,

ensued.

3. In the first interlocutory appeal, decided in 1990,

the court of appeals held that petitioner was not enti-

tled to sovereign immunity under the Foreign Sover-

2 OPIC has statutory authority “to represent itself or to con-

tract for representation in all legal and arbitral proceedings.” 22

U.S.C. 2199(d). Pursuant to that authority, OPIC was represented

in the courts below by the same counsel that represents McKesson.

4

eign Immunities Act of 1976 (FSIA), 28 U.S.C. 1330,

1602 et seg. See Pet. App. 125a-157a. The court con-

cluded that the claims in this case come within the

commercial activity exception to the FSIA, 28 U.S.C.

1605(a)(2). Pet. App. 149a-15la. The court of appeals

remanded the case, directing the district court to

conduct further fact-finding concerning the attribution

of the conduct of the agency and instrumentality

defendants to petitioner. Pet. App. 135a-148a, 153a-

156a.

In that first appeal, the court of appeals also specifi-

cally held that the allegations in respondents’ complaint

—that petitioner’s commercial activities in Iran had a

direct effect in the United States—satisfied the “direct

effect” requirement of 28 U.S.C. 1605(a)(2). Pet. App.

15la. The court pointed out that McKesson had alleged

that “there was a constant flow of capital, management

personnel, engineering data, machinery, equipment,

materials and packaging, between the United States

and Iran to support the operation of Pak Dairy,” which

was disrupted by the expropriation. Ibid. Those “close

commercial ties,” the court held, contradicted peti-

tioner’s claim that the expropriation of McKesson’s

interest in Pak Dairy would not have any direct effect

in the United States. Jbid.

4. Following remand from the first appeal, peti-

tioner pursued a second interlocutory appeal. Pet. App.

158a-174a. In that second appeal, petitioner again dis-

puted whether the FSIA’s commercial activity excep-

tion, 28 U.S.C. 1605(a)(2), applied to the allegations in

the complaint. See Pet. App. 165a-166a. The court of

appeals again concluded that activities of petitioner

alleged in the complaint had “direct effects” in the

5

United States and that the commercial activity excep-

tion therefore applied. Jd. at 167a. °

The court of appeals acknowledged that its first deci-

sion was mistaken insofar as it suggested that the

FSIA required a showing that the effects in the United

States must be “substantial” and “foreseeable.” Pet.

App. 166a-167a. This Court’s decision in Republic of

Argentina v. Weltover, Inc., 504 U.S. 607 (1992), had

expressly rejected “the suggestion that § 1605(a)(2)

contains any unexpressed requirement of ‘substantial-

ity’ or ‘foreseeability,’” in addition to the express statu-

tory requirement that the effects be “direct.” Pet. App.

166a (quoting Weltover, 504 U.S. at 618). Weltover,

however, “did not undermine [the court of appeals’]

separate determination that these alleged effects were

also ‘direct.’” Jd. at 167a. The court of appeals there-

fore concluded that its earlier decision constituted the

law of the case and should not be revisited. /d. at 168a.

This Court denied petitioner’s subsequent petition for a

writ of certiorari. Islamic Republic of Iran v.

McKesson Corp., 516 U.S. 1045 (1996).

5. On remand from the second appeal, the district

court resolved the parties’ cross-motions for summary

judgment. Pet. App. 88a-124a. That decision led to the

third appeal, and, in turn, the petition and conditional

cross-petition for writ of certiorari that are now before

the Court.

a. In 1997, the district court denied petitioner’s

motion for summary judgment, which was based in part

3 The court of appeals also affirmed the district court’s findings,

after the remand, that the acts of the agencies and instrumentali-

ties represented on Pak Dairy’s board of directors were attribut-

able to petitioner—a question left open in the first appeal. Pet.

App. 169a-172a.

i.

on the same immunity arguments petitioner had raised

in its prior appeals. Pet. App. 123a-124a. The court

granted respondents’ motion for partial summary

judgment, finding petitioner liable for the expropriation _

of McKesson’s interest in Pak Dairy. The court held

that the expropriation had become complete by April 5,

1982, when Pak Dairy’s board, for the fourth time, paid

dividends to Iranian shareholders but not to McKesson,

after taking other actions denying McKesson its rights

as a shareholder. /d. at 114a-116a. The district court

concluded that respondents were entitled to relief

based on causes of action provided both by customary

international law and by the Treaty of Amity, Economic

Relations and Consular Rights Between the United

States and Iran, June 16, 1957, U.S.-Iran, 8 U.S.T. 899 —

(hereinafter Treaty of Amity]. Pet. App. 116a-123a.* In

a later decision, the district court determined that

petitioner and its agencies and instrumentalities were

jointly and severally liable for more than $20 million in

compensatory damages, of which more than $11 million

represented simple pre-judgment interest on the losses

suffered by respondents. Jd. at 27a-85a. The court

entered final judgment in that amount. Jd. at 86a-87a.

b. The court of appeals affirmed in part and reversed

in part, remanding the case to the district court with

instructions to proceed to trial on petitioner’s substan-

tive defense to liability. Pet. App. la-19a. The court

considered once again petitioner’s jurisdictional argu-

ments based on the FSIA, holding for the third time

that respondents’ claims come within the commercial

4 The district court noted that respondents had also argued

that Iranian law provided a cause of action, but the court did not

address that question. Pet. App. 116a n.23.

7

activity exception, 28 U.S.C. 1605(a)(2). Pet. App. 6a-

8a.°

The court of appeals then considered the district

court’s grant of summary judgment on liability. The

court held that the Treaty of Amity provides respon-

dents with a cause of action under United States law for

an expropriation by petitioner. It did not address the

district court’s alternative holding that customary

international law also provides a cause of action. Pet.

App. 10a-1la. The court of appeals concluded, however,

that petitioner had raised a genuine issue of material

fact concerning its defense that McKesson was required

to “come to the company” before receiving its divi-

dends. Jd. at 1la-14a. The court remanded the case for

trial on that question. Jd. at 15a, 19a.

The court of appeals also upheld the district court’s

determination of damages. Pet. App. 15a-16a. It re-—

jected respondents’ claim that the district court should

have awarded compound, rather than simple, prejudg-

ment interest. Jd. at 17a-19a. The court of appeals

concluded that, although the district court may have

erred in holding that compound interest was never

available under international law in such cases, an

award of compound interest was not required and the

district court did not abuse its discretion by declining to

make such an award. /d. at 18a-19a. .

The court of appeals denied rehearing and rehearing

en banc, modifying the original opinion in part. Pet.

App. 20a-24a. Petitioner then sought review in this

5 The court also considered Iran’s argument that OPIC’s claim

must be resolved by binding inter-governmental arbitration, pur-

suant to an international agreement between the United States

and Iran. The court held that, even though that agreement might

bar OPIC from proceeding, it would have no effect on McKesson’s

independent claims for the same amounts. Pet. App. 8a-9a.

Feil eC HR SR ERS CE SECS ALI“ NS

8

Court, and McKesson filed a conditional cross-petition

for certiorari.

ARGUMENT

The decision of the court of appeals is interlocutory

and does not conflict with any decision of this Court or

of any court of appeals. The Court should allow the

remand to run its course, followed by further appellate

review, before deciding whether any of the issues that

parties have raised would ultimately warrant this

Court’s review.

1. This Court’s customary practice is to “await final

judgment in the lower courts before exercising its cer-

tiorari jurisdiction.” Virginia Military Inst. v. United

States, 508 U.S. 946, 946 (1993) (opinion of Scalia, J.,

respecting denial of certiorari). See, e.g., Hamilton-

Brown Shoe Co. v. Wolf Bros. & Co., 240 U.S. 251, 258

(1916) (interlocutory character of a case “of itself alone

furnishe(s] sufficient ground for the denial” of review);

Brotherhood of Locomotive Firemen & Enginemen v.

Bangor & Aroostook R.R., 389 U.S. 327, 328 (1967)

(“because the Court of Appeals remanded the case, it is

not yet ripe for review by this Court”); Robert L. Stern

et al., Supreme Court Practice § 4.18, at 196 (7th ed.

1993). There is no reason for the Court to depart from

its normal practice in this case.

Petitioner prevailed in significant part below. The

court of appeals reversed the district court’s grant of

summary judgment for respondents and remanded for

trial on petitioner’s merits defense. The questions pre-

sented in the petition (and the second question pre-

sented in the cross-petition) will be moot if judgment

ultimately is entered in favor of petitioner in the

further proceedings ordered by the court of appeals.

9

Although petitioner raises a claim of foreign sover-

eign immunity (Pet. 14-20; see Pet. 21-24), that factor

does not change the calculus. A claim of foreign sover-

eign immunity does include immunity from suit and not

merely from judgraent, and a denial of an assertion of

foreign sovereign immunity therefore may, in an

appropriate case, warrant review by this Court before

final judgment. This, however, is not such a case. The

court of appeals has now reviewed the applicability of

the FSIA’s commercial activity exception to this case

three times, and this Court denied an earlier petition

for certiorari in this case raising the same question

under the FSIA nearly six years ago. 516 U.S. 1045

(1996). Petitioner has litigated this case on the merits

for nearly twenty years, and all that remains is a trial

on a narrow defense that petitioner itself has raised,

and that may well eliminate any occasion for review of

the case by this Court. In these circumstances, the

additional burden of that trial is incrementally quite

small, and does not justify interlocutory review.

2. Petitioner contends (Pet. 9-14) that the court of

appeals (like the district court) misconstrued the

Treaty of Amity. As explained below, petitioner is

correct that the Treaty of Amity does not provide a

cause of action under United States law for a United

States national to sue a foreign sovereign in federal

court for expropriation. Although the court of appeals

did not properly evaluate that novel issue, its decision

does not warrant review under the circumstances

presented here.°

6 OPIC’s position in this Court, which departs from the argu-

ments pressed jointly by OPIC and the private respondents in the

courts below, represents the position of the United States Govern-

ment. See 28 U.S.C. 518 (Attorney General and Solicitor General

10

a. The court of appeals’ conclusion that the Treaty of

Amity provides a cause of action because it is “self-

executing” (Pet. App. 10a) conflates two separate in-

quiries. “Whether a treaty is self-executing is a ques-

tion distinct from whether the treaty creates private

rights or remedies.” Restatement (Third) of the For-

eign Relations Law of the United States § 111, cmt. “a

(1987). The creation of a private right of action ‘

analytically distinct from the ‘self-execution’ ian

Carlos M. Vazquez, The Four Doctrines of Self-

Executing Treaties, 89 Am. J. Int’l L. 695, 721 (1995).

As this Court explained in Foster v. Neilson, 27 U.S.

(2 Pet.) 253, 314 (1829), a treaty is self-executing “when-

ever it operates of itself without the aid of any

legislative provision.” But that means only that the

treaty is “regarded in courts of justice as equivalent to

an act of the legislature.” IJbid.; see, e.g., Whitney v.

Robertson, 124 U.S. 190, 194 (1888) (“If the treaty con-

tains stipulations which are self-executing, that is,

require no legislation to make them operative, to that

extent they have the force and effect of a legislative

enactment.”). Like an Act of Congress, a treaty may

establish legal standards or rules of decision in litiga-

tion without itself creating a private right of action.

And like an Act of Congress, a self-executing treaty

that speaks in terms of individual rights may well

create rights that are enforceable by courts in actions

that are authorized by or brought under other sources

of law.’

will conduct suits in the Supreme Court in which the United States

is interested); cf. 22 U.S.C. 2191 (OPIC functions under policy

guidance of Secretary of State).

7 For example, the cause of action in Foster tee in United

States v. Percheman, 32 U:S. (7 Pet.) 51 (1833), which involved the

same treaty) was a common-law claim for ejectment. Likewise,

11

The Court’s decision in Argentine Republic v.

Amerada Hess Shipping Corp., 488 U.S. 428 (1989),

illustrates the point. The Court there ruled that the

respondents could not sue Argentina for alleged

wrongs, explaining that the treaties on which the

respondents relied “only set forth substantive rules of

conduct and state that compensation shall be paid for

certain wrongs. They do not create private rights of

action for foreign corporations to recover compensation

from foreign states in United States courts.” Jd. at 442

(footnote omitted). Thus, even if those treaties were

self-executing, they did not confer a private cause of

action, and the Court held that they therefore did not

constitute an express waiver of sovereign immunity

under 28 U.S.C. 1605(a)(1).*

b. The Treaty of Amity’s prohibition against expro-

priation is self-executing, in the sense that it was

intended to establish substantive legal standards with-

out the need for implementing legislation. It states that

“(p]roperty of nationals and companies of” one state

party to the Treaty “shall not be taken [by the other]

except for a public purpose, nor shall it be taken with-

treaty rights may be raised as a defense in a suit brought under

another source of law. See, e.g., Vazquez, supra, 89 Am. J. int'l L.

at 721.

8 The court of appeals’ reliance (Pet. App. 10a) on Tel-Oren v.

Libyan Arab Republic, 726 F.2d 774, 809 (D.C. Cir. 1984) (Bork, J.,

concurring), cert. denied, 470 U.S. 1003 (1985), is misplaced. The

concurring judge correctly observed that a non-self-executing

treaty cannot confer a private right of action, but the converse is

not necessarily true: A treaty that is self-executing may or may

not confer a private right of action. There was no occasion for the

concurring judge to consider that question, and his statement

equating self-execution with the creation of private rights of action

was accordingly dicta. See, e.g., Vazquez, supra, 89 Am. J. Int’! L.

at 720-721.

12

out the prompt payment of just compensation.” Treaty

of Amity, art. IV, para. 2. That standard is effective of

its own force, and imposes a legal obligation on the

governments of Iran and the United States. Accord

Asakura v. Seattle, 265 U.S. 332, 341 (1924) (provision

of an earlier Treaty of Commerce and Navigation

between the United States and Japan “operates of itself

without the aid of any legislation, state or national; and

it will be applied and given authoritative effect by the

courts”).

The Treaty itself, however, does not create a cause of

action for United States citizens to sue Iran in United

States courts. By its terms, the Treaty says nothing

about private rights of action to enforce its substantive

provisions. Thus, the Treaty can create such a cause of

action only by implication. In the analogous context of

statutes, this Court has exercised great circumspection

in recognizing causes of action through that means.

See, e.g., Alexander v. Sandoval, 532 U.S. 275, 285-287

(2001); see also Correctional Servs. Corp. v. Malesko,

122 S. Ct. 515, 519 n.3 (2001) (noting that this Court has

“retreated from [its] previous willingness to imply a

cause of action where Congress has not provided one”);

Transamerica Mortgage Advisors, Inc. v. Lewis, 444

U.S. 11, 24 (1979) (“The dispositive question remains

whether Congress intended to create any such

remedy.”).

The United States does not interpret the Treaty of

Amity to create a private right of action as a matter of

United States law for a United States citizen to sue

Iran in the courts of this country. The Treaty estab-

lishes legal standards and obligations that are designed

to protect the nationals (including corporations) of one

state party in the territory of the other. Thus, the

Treaty prohibits the uncompensated taking of “(p]rop-

13

erty of nationals and companies of either High

Contracting Party * * * within the territories of the

other High Contracting Party.” Treaty of Amity, art.

IV, para. 2. Equally significant, it refers to “access to

courts of justice and administrative agencies” by the

“({njationals and companies of either High Contracting

Party * * * within the territories of the other High

Contracting Party.” Jd., art. III, para. 2. But the

Treaty does not confer a right of access to the courts of

justice by the nationals and companies of one High

Contracting Party to that Party’s own courts, whether

to bring an action against the other party or for any

other purpose. It therefore does not itself create, -

expressly or by implication, a cause of action allowing a

United States national to bring an action against Iran in

a United States court for Iran’s expropriation of the

United States national’s property.°

The court of appeals’ contrary conclusion is incon-

sistent with this Court’s circumspection concerning

implied private rights of action and with the under-

standing that Congress defines what causes of action

are available in United States courts. See Trans-

america, 444 U.S. at 24. Because the treaty is focused.

® This case does not present the separate question whether the

Treaty of Amity should be read to create an implied private right

of action for Iranian nationals or companies to sue the United

States or other government actors in this country (see Pet. 11; Br.

in Opp. 10-11). In any event, the standards applicable to the

United States and the States under the Fifth Amendment of the

Constitution satisfy the substantive standards of the treaty, and

ample remedies exist under United States law for foreign nation-

als, as for United States citizens, to bring takings claims against

the government. See 28 U.S.C. 1491; Russian Volunteer Fleet v.

United States, 282 U.S. 481 (1931); see also First English Evan-

gelical Lutheran Church v. Los Angeles County, 482 U.S. 304

(1987).

14

on a host government's treatment of aliens, it would be

particularly odd to infer a cause of action for United

States nationals to sue a foreign government in United

States courts. There is similarly no reason to think

that, in negotiating the Treaty, the United States an-

ticipated that the Treaty could be invoked to create a

cause of action allowing Iranian nationals to sue the

United States in the courts of Iran. The courts should

not infer the creation of reciprocal rights by which

United States nationals could sue Iran in the courts of

this country.

The court of appeals’ interpretation would be detri-

mental to the broader foreign relations interests of the

United States. The United States is a party to numer-

ous Friendship, Commerce, and Navigation (FCN)

treaties. If United States courts conclude that FCN

treaties generally should be understood to confer

private rights of action on United States nationals to

sue a treaty partner in federal court in the United

States, it is to be anticipated that the courts of this

Nation’s treaty partners could reach a similar conclu-

sion, and the United States Government could be sub-

ject to a variety of new suits in foreign courts (including

Iranian courts) by foreign nationals.

c. Although the court of appeals erred in construing

the Treaty of Amity, that error does not warrant

review at this time. As McKesson points out (Br. in

Opp. 8-9), the court of appeals did not address, and

petitioner has not sought review of, any alternative

basis for respondents’ claims. Respondents’ complaint

identified at least three alternative sources for the

cause of action here—customary international law, the

Treaty of Amity, and other applicable law, including in

particular Iranian law. See McKesson Lodging L169 -

L176. The district court held that both the Treaty of

15

Amity and customary international! !2w provide a cause

of action sufficient to sustain this suit. See Pet. App.

116a-123a. The court of appeals did not address the

district court’s alternative conclusion that customary

international law provides a cause of action. Neither

court below addressed any other possible source of law,

including Iranian law.””

As a result of the remand ordered by the court of

appeals, the district court and court of appeals will have

an opportunity to consider further those possible alter-

native sources of a cause of action, as well as to consider

the position of the United States, set forth in this brief,

that the Treaty of Amity does not create a private right

of action. If judgment is ultimately entered against

petitioner at the conclusion of further proceedings, the

Court can then decide whether to grant review to

consider the existence of a cause of action under each of

those various sources of law to the extent they remain

in the case.

3. Petitioner reasserts (Pet. 14-17) its claim of for-

eign sovereign immunity, contending that this Court’s

decision in Saudi Arabia v. Nelson, 507 U.S. 349 (1993),

requires that the “act” of a foreign sovereign on which

For reasons similar to those set forth in the text concerning

the Treaty of Amity, even more difficult questions are raised by

the proposition that an implied right of action may be recognized

under customary international law in the absence of an Act of

Congress that codifies customary international law and thereby

furnishes at least some statutory basis for a cause of action under

federal law in United States courts. Nor have the contours of any

cause of action under iranian law been fully developed below.

Because the court of appeals did not reach those issues, this Court

does not have the benefit of that court’s analysis of those ques-

tions. And because those alternative bases for a cause of action are

not before the Court, we do not address them further here.

16

jurisdiction is based, for purposes of 28 U.S.C.

1605(a)(2), must also form an element of the cause of

action. That argument, which rests on a misapprehen-

sion of both Nelson and respondents’ claims in this case,

is incorrect.

Nelson held that a plaintiff cannot obtain jurisdiction

under the FSIA’s commercial activity exception, 28

U.S.C. 1605(a)(2), to sue on a cause of action that is

itself based entirely on a sovereign’s non-commercial

activity. 507 U.S. at 356-358. To determine whether

the claim was “based upon” the act giving rise to juris-

diction, the Court analyzed whether the jurisdictional

acts were among the principal elements of the cause of

action. Jd. at 357. Petitioner mistakenly interprets

Nelson to require that every element of the cause of

action must also be an act that confers jurisdiction

under Section 1605(a)(2). But this Court expressly

rejected that notion. See Nelson, 507 U.S. at 358 n.4.

Moreover, there would have been no occasion for such a

conclusion in Nelson because the Court concluded that

the jurisdictional commercial activities in that case

formed no basis for the cause of action. Nelson is

satisfied here if commercial activity forms the central

basis of the cause of action.

Contrary to petitioner’s characterizations, this is a

claim for expropriation, not merely for “the cut-off of

commercial contacts” or for “the non-payment of divi-

dends.” Pet. 16. As the court of appeals recognized,

respondents alleged the expropriation took place when

petitioner, “acting through its various co-defendants on

Pak Dairy’s Board of Directors, used its majority

position to lock [McKesson] out of the management of

the company and deny [McKesson] its share of the

company’s earnings in the form of dividends.” Pet.

App. 149a (quoting district court); see also id. at 7a

17

(describing the commercial activity as “freezing-out

American corporations in their ownership of Pak

Dairy”) (quoting id. at 152a). The specific acts are laid

out in the complaint (McKesson Lodging L169 - L176)

and affidavits (see, e.g., id. at L31 - L414). Thus, the

theory of this suit is that the repeated failure to pay

dividends worked in combination with other actions (in

particular, as the district court found, the exclusion of

McKesson from any voice in Pak Dairy’s decisions and

the cutoff of contacts with McKesson) to demonstrate

that the expropriation was complete. See Pet. App. 7a-

8a, 115a.. And, as we explain below, the court of appeals

concluded that those actions resulted in direct effects

felt in the United States (the interruption of the “con-

stant flow of capital, management personnel, engineer-

ing data, machinery, equipment, materials and packag-

ing, between the United States and Iran”). Id. at 167a

(quoting id. at 15la). That conclusion presents no

conflict with Nelson."

4, Petitioner also argues (Pet. 17-20) that, under this

Court’s ruling in Republic of Argentina v. Weltover,

Inc. 504 U.S. 607 (1992), the commercial activity excep-

tion applies only if a specific payment or performance is

required to be made in the United States. Weltover

imposes no such rule. Weltover sustained the exercise

of jurisdiction under 28 U.S.C. 1605(a)(2) because the

foreign sovereign there was obliged to make interest

payments on bonds in New York. 504 U.S. at 619. In

that case, “the plaintiffs [were] all foreign corporations

11 There is no merit to petitioner’s effort to distinguish between

the statutory term “act” and the court of appeals’ reference to

“commercial activity.” Pet. 16. The FSIA itself refutes any such

distinction, defining a “commercial activity” to “mean[] either a

regular course of commercial conduct or a particular commercial

transaction or act.” 28 U.S.C. 1603(d) (emphasis added).

18

with no other connections to the United States” who

nevertheless chose to designate New York as the place

for payment. /d. at 618-619. The Court ruled that this

choice was sufficient te satisfy the “direct effect” re-

quirement. Jbid. The Court did not rule out the

possibility that other types of activities could establish

a “direct effect” in the United States.

In this case, petitioner’s disruption of a United

States’ corporation’s investment in and relationship

with Pak Dairy brought to a halt the “constant flow of

capital, management personnel, engineering data, ma-

chinery, equipment, materials and packaging, between

the United States and Iran to support the operation of

Pak Dairy.” Pet. App. 167a; id. at 151a. The court of

appeals ruled, on the facts before it, that this “constant

flow * * * between the United States and Iran”—like

the obligation to deliver money to a New York bank in

Weltover—established a sufficient connection with the

United States that the effects of its disruption were

plainly felt in this country, within the meaning of 28

U.S.C. 1605(a)(2).

The question whether the nature of a transnational

commercial relationship is sufficient to create a “direct

effect” is necessarily a fact-specific one. The court of

appeals’ resolution of that question in this case does not

conflict with Weltover or with any of the lower-court

decisions cited by petitioner (Pet. 18-19 nn.14-16) and

accordingly does not warrant review by this Court.”

12 This case does not present the question whether Section

1605(a)(2)’s “direct effect” standard would be satisfied by the mere

non-payment of dividends. As the court of appeals explained, the

effects of the expropriation here were much more substantial.

Furthermore, the court of appeals’ decision quite properly does not

suggest that the FSIA’s commercial activity exception offers a

vehicle for challenging expropriations that are undertaken by

19

5. Finally, petitioner contends that the court of

appeals should have directed the entry of summary

judgment in petitioner’s favor, rather than merely

reversing the grant of summary judgment to respon-

dents and remanding for trial on petitioner’s substan-

tive defense. Petitioner provides no sound reason for

this Court to exercise its discretionary jurisdiction on

certiorari to resolve such a fact-bound, interlocutory

question.

a. Petitioner first argues (Pet. 20-24) that it was

entitled to summary judgment on the ground that there

was no “direct effect” in the United States within the

meaning of the FSIA’s commercial activity exception.

That argument merely restates petitioner’s mistaken

objections to the application of the FSIA to the facts of

this case. See Pet. 22-24 (citing Nelson); Pet. 24 (“if

Iran’s interpretation of Weltover and its progeny is

correct, Iran was therefore entitled to summary judg-

ment”). It does not provide a separate basis for review.

Petitioner’s legal argument that the decision below

conflicts with Nelson and Weltover is incorrect for the

sovereign acts rather than through commercial means. As the

FSIA recognizes, the commercial activity exception is distinct

from the exception for situations involving a sovereign act “in

which rights in property [are] taken in violation of international

law.” 28 U.S.C. 1605(a)(3). This case is unusual because foreign

states normally do not effectuate an expropriation through com-

mercial means. The court of appeals concluded that nothing in

Section 1605(a)(3) precludes a finding, in an appropriate case,

that an expropriation undertaken by commercial means might

also come within the commercial activity exception of Section

1605(a)(2). See Pet. App. 150a n.15; see also id. at 110a n.17

(district court’s observation that “McKesson’s claims are akin to a

corporate dispute between majority and minority shareholders”).

That conclusion does not conflict with any decision of another court

of appeals.

20

reasons previously explained. Respondents do not seek

relief for the “cut-off of commercial contacts” (Pet. 22)

or for non-payment of dividends (Pet. 23), standing

alone. Instead, they assert that petitioner undertook a

full expropriation through commercial means. See Pet.

App. 90a-91a (cause of action for expropriation accrues

when deprivation of property is irreversible).

b. Petitioner also asserts (Pet. 24-25) that the court

of appeals should have directed summary judgment in

its favor on the substantive defense that petitioner

raised, instead of remanding for trial on that question.

That question involves the application of settled law

respecting summary judgment to the particular facts of

this case. : Petitioner’s fact-bound claim does not war-

rant this Court’s review.

The parties disputed whether Pak Dairy had imposed

a requirement that shareholders or their representa-

tives physically appear to collect their dividends—a

“come to the company” requirement. The court of ap-

peals rejected petitioner’s broadest argument—that

Iranian law imposed such a requirement on all dividend

distributions by any Iranian corporation—but held that

“Iranian law permitted Pak Dairy’s board of directors

to adopt such a binding requirement.” Pet. App. 12a.

The court then concluded that petitioner’s affidavits

were sufficient to demonstrate a disputed issue of

material fact (though not sufficient to compel summary

judgment in petitioner’s favor) over whether “Pak

Dairy exercised its discretion to implement a ‘come to

the company’ requirement.” Jd. at 12a-13a.

The court of appeals acknowledged respondents’ ob-

jections to the “self-serving, vague, and uncorrobo-

rated” nature of the affidavits on which petitioner

relied. Pet. App. 18a. Those objections demonstrated

the disputed factual question at the center of peti-

21

tioner’s defense—what Pak Dairy’s board of directors

had actually decided. The court recognized that the

question whether summary judgment was properly

granted to respondents was a close one. Jd. at lla. It

ultimately held that petitioner’s affidavits were “suffi-

cient to preclude summary judgment,” but only “in

view of the generous reading we owe the opposing

party’s evidence at this stage.” Jd. at 13a-14a (empha-

sis added).

Just as the court of appeals concluded that summary

judgment in favor of respondents was inappropriate,

summary judgment in favor of petitioner would have

been inappropriate as well. Respondents raised factual

objections to petitioner’s “come to the company”

defense. The district court found that it would have

been futile for McKesson to attempt to comply with a

requirement that shareholders appear in Iran, even if

such a requirement existed. Pet. App. 14a, 11la-112a.

After reviewing the summary judgment evidence on

the question of futility, the court of appeals concluded

that that question also posed unresolved disputes of

material fact. Id. at 14a-15a.

6. McKesson’s conditional cross-petition urges that,

if the Court grants the petition for a writ of certiorari,

it should also grant review on two additional questions.

Although neither of those questions in the conditional

cross-petition warrants review in its own right at this

stage of the proceedings, each may warrant review if

the Court grants the petition.

a. McKesson urges (Cross-Pet. 9-23), as Question 1

of the cross-petition, that it was entitled to summary

judgment on liability, notwithstanding petitioner’s de-

fenses. That argument is essentially the obverse of

petitioner’s contention, in Question 4 of its petition, that

petitioner was entitled to summary judgment.

22

Whether viewed from petitioner’s or McKesson’s per-

spective, the basic issue—whether the court of appeals

properly applied settled standards for granting sum-

mary judgment to the facts of this case—does not

warrant this Court’s review. The court of appeals’

application of law to the facts does not present any

issue worthy of this Court’s determination. Neverthe-

less, if the Court were to grant review of Question 4 of

the petition, it should also grant review of Question 1 of

the cross-petition. Because the questions are essen-

tially the obverse of one another, if the Court were to

grant one, it should also grant the other.

b. McKesson also urges (Cross-Pet. 23-29) that, if

the Court grants the petition, it should also review the

court of appeals’ determination that the district court

did not abuse its discretion in awarding simple, rather

than compound, prejudgment interest on the damage

award. Pet. App. 17a-19a. That issue would not nor-

mally warrant this Court’s review. Like the rulings

that petitioner challenges, the court’s prejudgment

interest ruling is interlocutory and, in any event, does

not conflict with any decision of this Court or any other

court of appeals. Furthermore, the court of appeals’

fact-specific determination that the district court acted

within its discretion in awarding simple interest does

not present an issue of sufficient importance to justify

this Court’s review.

This Court has recognized that an award of pre-

judgment interest ordinarily “rests very much in the

discretion of the tribunal which has to pass upon the

subject, whether it be a court or a jury,” City of

Milwaukee v. Cement Div. Nat'l Gypsum Co., 515 U.S.

189, 196 (1995) (quoting The Scotland, 118 U.S. 507, 518-

519 (1886))—subject, of course, to whatever limitations

are imposed on the exercise of that discretion by

23

applicable laws." -See Pet. App. 19a. As a general

matter, “the decision whether to award compound or

simple interest is in the trial court’s discretion:” EEOC

v. Kentucky State Police Dep’t, 80 F.3d 1086, 1098 (6th

Cir.), cert. denied, 519 U.S. 963 (1996); see, e.g., Rite-

Hite Corp. v. Kelley Co., 56 F.3d 1538, 1555 (Fed. Cir.),

cert. denied, 516 U.S. 867 (1995) (upholding award of

simple rather than compound interest). See Pet. App.

18a-19a. There are no compelling grounds for con-

cluding that the district court abused its discretion

here."

13 Similarly, the Iran-United States Claims Tribunal has held

that in its proceedings, “(t]he determination of the applicable

principles of law in any given case, and consequently the question

of whether an award of interest is appropriate, must rest with the

[Tribunal] Chamber concerned,” relating as it does “to the exercise

by the Chambers of the discretion accorded to them in deciding

each particular case.” Islamic Rep. of Iran v. United States, 16

Iran-US. Cl. Trib. Rep. 285, 290 (1987).

14 McKesson argues that there is a presumption in favor of

compound interest. No such presumption appears, however, in the

rules of most States, foreign legal systems, and international law.

Indeed, a considerable number of legal systems and international

law authorities proscribe or sharply limit the use of compound

interest and limit prejudgment interest to simple rates. See, e.g.,

Michael S. Knoll, A Primer on Prejudgment Interest, 75 Tex. L. ©

Rev. 293, 306-307 (1996) (urging change from “[t]he traditional,

common-law rule * * * that prejudgment interest is not com-

pounded,” which remains the “majority rule” among States); id. at

306 n.76 (noting that prohibition on compound interest is the rule

in the United Kingdom, citing President of India v. La Pintada

Compania Navegacion S.A., [1984] 1 A.C. 104); Pet. App. 18a (“com-

pound interest is not generally awarded under international law or

by international tribunals”) (quoting James Crawford, Third Re-

port on State Responsibility, [2000] 2 Y.B. Int’l L. Comm. 50 U.N.

Doc. A/CN.4/507/2000/Add.1).

24

Nevertheless, if the Court were to grant the petition,

it may wish to grant review of Question 2 of the cross-

petition as well. If the Court grants the petition on

Question 1, concerning whether the Treaty of Amity

creates a private cause of action in the circumstances of

this case, resolution of the substantive source of law for

any cause of action available to respondents in this case

—the Treaty, customary international law, or Iranian

law—could have a bearing on the question of the award

of simple or compound interest under that particular

source of law. Similarly, if the Court decides to

undertake what would necessarily be a fact-intensive

review of other aspects of the case, then it may find it

beneficial to preserve the option of addressing all of the

outstanding issues. And insofar as the Court’s decision

might alter the underlying judgment, the Court may

wish to preserve the option of directing the district

court to reevaluate its exercise of discretion in

awarding prejudgment simple interest in light of any

changed circumstances that the Court’s decision might

provide.

25

CONCLUSION

For the foregoing reasons, the petition for a writ of

certiorar i. Ne. Ui-1324 shed be denied. However, if

the Court grants the petition in whole or in part, then it

should also grant review on Question 2 of the condi-

tional cross-petition for a writ of certiorari in No. 01-

1708. If the Court grants review on Question 4 of the

petition, it should grant review on Question 1 of the

conditional cross-petition.

Respectfully submitted.

THEODORE B. OLSON

Solicitor General

ROBERT D. MCCALLUM, JR.

Assistant At G l

MARK A. GARFINKEL pienso dagamaaata

General Councel DOUGLAS N. LETTER

. H. THOMAS BYRON III

Overseas Private At

Investment Corporation . torneys

WILLIAM H. TAFT, IV

Legal Adviser

Department of State

JULY 2002