With Obama administration's approval, 9th US Circuit Court of Appeals panel upholds judgment against US defense contractor in favor of Iran.Daily Journal
by John Roemer, Staff Writer
Despite tense U.S. relations with Iran, a San Diego defense contractor owes about $3 million to Iran's defense ministry, a 9th U.S. Circuit Court of Appeals panel held Thursday. The panel voted 3-0 to confirm an international arbitration award in Iran's favor on its breach of contract claims against Cubic Defense Systems Inc., a maker of high-tech combat training gear.
After seeking - and getting - a green light from the Obama administration, the court ruled the award is not "contrary to the public policy" of the U.S. Ministry of Defense of Iran v. Cubic Defense Systems Inc., 2011 DJDAR 17921. For a court to OK funds for a nation seen as an enemy could provoke a public backlash, but legal experts praised the opinion as a valid judicial excursion into foreign affairs. The decision returns the case to U.S. District Judge Rudi M. Brewster of of the Southern District with orders to consider Iran's motion for interest on the award.
The matter arose in 1977, when Cubic contracted with Iran's then-Ministry of War to sell and service air combat maneuvering equipment to train Iran's military. The Iranian Revolution ended the deal as militants hostile to the U.S. took over; Iran's new government sued Cubic in 1982. In 1997 the International Court of Arbitration of the International Chamber of Commerce, sitting in Switzerland, awarded Iran $2.8 million plus $60,000 for arbitration costs. Litigation over enforcement of the award and interest on the judgment has proceeded ever since.
Thursday's decision in a case that began more than 30 years ago when the U.S. had close ties to Iran's then-monarch, Shah Mohammad Reza Pahlavi, could strike an explosive note in the post-shah era. Today, President Mahmoud Ahmadinejad in Tehran routinely denounces America; Republican presidential candidate Newt Gingrich has called for his ouster and warned that an Iranian nuclear weapon is a potential second holocaust. "I'm sure someone will accuse liberal judges in California and liberal Obama lawyers of selling out to the enemy," said Cesare P.R. Romano, an authority on law, political science and international relations at Loyola Law School. "But a careful reading of the opinion doesn't support that at all. I'm happy to see the reasoning of cool heads not giving in to the hysteria surrounding the Iran situation."
Romano pointed out that the decision doesn't transfer any money to Iran. Indeed, the panel noted that Cubic would need a license from the U.S. Treasury to accomplish that. Romano suggested Cubic's funds, placed in an escrow account, could be considered a small carrot to be used in bilateral talks with Iran to further U.S. interests. Cubic's lawyers at Luce Forward Hamilton Scripps LLP argued that confirmation of the arbitration award "is contrary to a fundamental public policy of the United States against trade and financial transactions with the Islamic Republic of Iran." Their briefs pointed to a series of U.S. sanctions on Iranian assets including the Weapons of Mass Destruction Proliferators Sanctions.
In response, the circuit panel invited the Obama administration to address the issue. Government lawyers filed a friend of the court brief in Iran's favor, explaining that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, known as the New York Convention, should be observed. Signaling the issue's importance, the brief was signed by lawyers for the Department of the Treasury, the State Department and the attorney general. "The United States has an interest in the proper confirmation of the particular arbitration award at issue in this litigation, since the award may be relevant to ongoing proceedings involving Iran and the United States in the Iran-U.S. Claims Tribunal," they wrote. Concluded Circuit Judge Raymond C. Fisher for colleagues Alex Kozinski and Michael Daly Hawkins, "given Cubic's invocation of our country's fraught relationship with Iran as expressed through various trade sanctions, the government's confirmation that the [arbitration] award comports with the national and foreign policy of the United States is entitled to great weight."
Another expert in law and international relations, Kal Raustiala of UCLA School of Law, said that it will be difficult for critics of the opinion to get around the fact that Kozinski signed off on it. "Kozinski is a well known libertarian/conservative appointed by Ronald Reagan and a refugee himself from tyranny in Romania," Raustiala wrote in an email. "So Newt Gingrich can't tar this easily as just another liberal decision by the 9th circuit and evidence that Democrats are soft on Iran." Raustiala pointed out that diplomacy and trade often operate independently. "To put this in context, even after the Cuban Revolution - and the Missile Crisis - the Cuban government argued a similar case before the Supreme Court in 1964 and won," he wrote. "The bottom line is that national security and economic relations sometimes run on separate tracks, and we have a long tradition in our courts of permitting economic and legal disputes to move forward even when the other party is Public Enemy No. 1 - and even if the result is that they prevail against an American."
Cubic's lead counsel at Luce Forward, Charles A. Bird, said the opinion accurately described the case. "I'm not saying I agree with the outcome or how they balanced the interests," he said. He said his client had not decided yet whether to appeal. Iran's lawyer, sole practitioner Steven W. Kerekes, did not return a call for comment.
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Published: Tuesday, December 20, 2011