The latest element of the battle involved whether the Islamic Republic must pay McKesson compound or just simple interest for seizing Pak. A US court now says Iranian law only requires simple interest.
US District Judge Richard Leon ruled in Washington, DC, in November 2010 that Iran violated its own laws and international laws when it took control of Pak Dairy Co. and withheld dividends from San Francisco-based McKesson.
Leon awarded McKesson $20 million for the value of Pak plus $23.9 million in compound interest. Last Tuesday, an appeals court in Washington reversed the decision to grant compound interest and sent the decision back to the lower court to recalculate the award based on simple interest.
“In light of the utter lack of evidence indicating that compound interest is a recognized remedy under Iranian law, we reverse that portion of the award,” the appeals court said. “However, because Iran does not challenge the award of simple interest in this case, we remand for calculation of an award consisting of the value of McKesson’s expropriated interest in Pak and its withheld dividends plus simple interest.”
The parties have been fighting since at least 1982 over the dairy, and the case has been the subject of several appeals over jurisdiction.
Nine 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.
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 has been 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 US 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 also argued that the valuation that McKesson owed Iran $20 million was wrong. Iran said it was too high; McKesson says it was too low. In 2001, an 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 in November 2010, US District Judge Leon said Iran owned much more, a total of $44 million with damages and compound interest added on.
Leon said Iran had violated both Iranian and international law when it seized Pak.
Thomas Corcoran Jr., one of Washington’s most celebrated attorneys, handles the case for Iran. He said, “I think they [McKesson] will have a problem” collecting any money. “Iran doesn’t have anything out there to collect on.”
And, indeed, no one is known to have collected a cent in any of the many cases that the Islamic Republic has lost in the United States over the decades.