to the McKesson Corp. for nationalizing the Pak Dairy Co., Iran’s moist famous milk and ice cream firm, after the revolution. The case has been in the US court system for 28 years and this may not be the last word.
Eight years ago, the US Supreme Court refused to hear an appeal from the Islamic Republic asking that it not be required to pay $20 million to McKesson Corp. Through its Foremost Dairies subsidiary, McKesson was a partial owner of the Pak Dairy Co., pak meaning clean or pure in Persian, which Foremost and local investors created in 1960. The core issue in the long dispute is whether an American firm can sue a foreign government in the United States courts for nationalizing its property.
Iran has repeatedly lost—in the trial courts, in the appeals courts, and in the US Supreme Court. But even after losing in the Supreme Court in 2002, Iran refused to give up. The Supreme Court wouldn’t even hear Iran’s arguments. It simply refused to accept Iran’s appeal—as it refuses to accept most appeals—thereby automatically affirming the decision issued previously by the United States Court of Appeals for the District of Columbia Circuit. Iran’s handling of the McKesson case is in sharp contrast to its handling of the multitude of cases filed against it that demand payment of damages for supporting terrorist acts that have killed or injured assorted Americans. In those cases, Iran simply refuses to recognize the jurisdiction of the American courts. It has never responded to a suit.
As a result, Iran automatically loses each case by default. But it has fought the McKesson suit and fought it hard. A key argument has been that Iran cannot be sued in any foreign court because it enjoys “sovereign immunity”—the principle that a sovereign state cannot be sued. All the US courts have said that the US statute on sovereign immunity clearly carves out an exception when a state takes a “commercial action” and that the takeover of Pak Dairy was a commercial action. McKesson said the Islamic Republic cut off the flow of dividends to it and blocked access by McKesson board members before nationalizing its 31 percent interest in Pak Dairy in 1982.
The case was one of many sent to the Iran-US Claims Tribunal in The Hague. That court awarded McKesson $1.4 million for withheld dividends and other claims, but ruled that the nationalization took place after January 19, 1981, the cut-off date for the Tribunal’s jurisdiction. That sent the issue back into the US courts.
Iran has repeatedly argued and lost on the sovereign immunity issue. Both Iran and McKesson have argued that the valuation that McKesson owed Iran $20 million was wrong. Iran said it was too high; McKesson says it was too low (because the courts awarded simple rather than compound interest).
In 2001, the Appeals Court said the $20 million figure was fair. The Supreme Court action did not end the case, however. The Supreme Court upheld the Court of Appeals, but the Court of Appeals said there was merit to one of Iran’s points and ordered the district court to try that issue. So the 23-year-old case went back to trial. The remaining issue involved Iran’s contention that shareholders must physically go to the company offices and pick up a check for payable dividends. McKesson said there was no such rule at Pak Dairy and further argued that such an act would be a waste of time because the Iranian firm had indicated it would pay no dividends anyway.
The appeals court said the facts submitted on those two points—the “come to the company” rule and whether the Iranian firm had actually refused to pay—were sufficiently in dispute to warrant a trial. But Iran lost that argument at the next trial date. And, in the court decision issued last month. US District Judge Richard Leon said Iran owned much more, a total of $44 million with damages and interest added on. Leon said Iran had violated both Iranian and international law when it seized Pak.
