Ninth Circuit Affirms Confirmation of Iran’s Arbitration Award Against Arms Supplier

An interesting decision in Ministry of Defense and Support for the Armed Forces of the Islamic v. Cubic Defense Systems (9th Cir. Dec. 15, 2011), dealing with the public policies in favor of confirming international arbitration judgments, and against transferring money to Iran. A few excerpts:

These appeals require us to decide whether confirmation of an arbitration award in favor of the Ministry of Defense and Support for the Armed Forces of the Islamic Republic of Iran is “contrary to the public policy” of the United States under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, known as the “New York Convention.” We hold, consistent with the position of the United States as amicus curiae, that confirmation of the award does not violate any public policy of the United States. We also hold that the district court’s judgment is a “money judgment” subject to postjudgment interest, and that a district court has discretion to award prejudgment interest and attorney’s fees in an action to confirm an arbitration award under the Convention. Accordingly, we affirm the judgment in part, vacate it in part and remand to the district court for reconsideration of the Ministry’s motions for prejudgment interest and attorney’s fees….

In 1977, Cubic International Sales Corporation, predecessor in interest to appellant Cubic Defense Systems, Inc. (“Cubic”), a United States corporation, contracted with the Ministry of War of the government of Iran, predecessor of appellee Ministry of Defense and Support for the Armed Forces of the Islamic Republic of Iran (“Ministry”), for sale and service of an air combat maneuvering range for use by Iran’s military. The Iranian Revolution resulted in nonperformance of the contracts. Consequently, the parties agreed in 1979 that the contracts would be discontinued and that Cubic would try to resell the equipment, with a later settlement of the accounts. In 1981, Cubic sold a modified version of the equipment to Canada.

In 1982, the Ministry filed breach of contract claims against Cubic with the Iran–United States Claims Tribunal at the Hague. In 1987, that tribunal issued an order stating that it lacked jurisdiction to hear the matter…. In 1991, the Ministry filed a request for arbitration before the International Court of Arbitration of the International Chamber of Commerce (ICC). The ICC, sitting in Switzerland, made a final award in those proceedings in May 1997. The final award makes a net award of $2,808,519 plus pre-award interest in favor of the Ministry. The ICC also directed Cubic to reimburse the Ministry $60,000 for arbitration costs.

In June 1998, after Cubic failed to pay, the Ministry filed a petition in federal district court to confirm the ICC’s award under the New York Convention. [Footnote: Confirmation is a summary proceeding that converts a final arbitration award into a judgment of the court. Once the award is confirmed, the judgment has the same force and effect of a judgment in a civil action and may be enforced by the means available to enforce any other judgment.]

The Ministry subsequently filed a motion for prejudgment interest covering the period between the ICC’s final award and the district court’s confirmation. The motion also requested attorney’s fees based on Cubic’s alleged failure to comply with the ICC’s decision. The district court denied the motion, concluding that prejudgment interest and attorney’s fees were unavailable in an action to confirm a foreign arbitration award under the Convention.

The district court entered judgment in August 1999. Cubic timely appealed confirmation of the award, and the Ministry timely cross appealed denial of prejudgment interest and attorney’s fees. Proceedings were suspended pending litigation over whether certain judgment creditors of Iran could attach the Ministry’s judgment. That litigation has now been concluded….

First, although American relations with Iran are heavily regulated, the applicable sanctions regulations “do not preclude the confirmation of the ICC Award.” The Iranian Assets Control Regulations, which the United States adopted in response to the seizure of American hostages in Tehran in 1979, block the transfer of certain property in which Iran has an interest. A general license, however, authorizes the transfer of property interests acquired after January 1981, and the Supreme Court has already held that Iran’s interests in this case are covered by that general license. See Ministry of Def. & Support for the Armed Forces of the Islamic Republic of Iran v. Elahi, 556 U.S. 366 (2009). The Iranian Assets Control Regulations accordingly do not prohibit payment, let alone confirmation, of the ICC award.

The Iranian Transactions Regulations and the WMD Sanctions Regulations also permit confirmation of the award. As noted, each of these sets of sanctions independently prohibits payment of the ICC award without a specific license issued by OFAC. Neither regime, however, prohibits confirmation of the award.

Second, although Cubic places great stock in the regulations’ prohibition on payment (absent a license), there is a great deal of difference between payment and confirmation. Confirmation, standing alone, transfers no wealth to Iran. Thus, even if Cubic is correct that the United States has a fundamental public policy against economic support for the government of Iran, confirmation does not violate that policy.

Third, the difference between confirmation and payment is accentuated when, as in this case, payment is subject to licensing rather than barred absolutely. We should not refuse to confirm an arbitration award because payment is prohibited when payment may in fact be authorized by the government’s issuance of a specific license. According to the United States’ brief, “[i]f this Court affirms the confirmation of the award, the Treasury Department can issue a license requiring Cubic to make any payment satisfying the judgment into a blocked account held in the Ministry’s name by a U.S. financial institution.” The possibility that OFAC could issue a license supports confirmation of the award. Cf. Belship Navigation, Inc. v. Sealift, Inc., No. 95 CIV. 2748, 1995 WL 447656, at *6 (S.D.N.Y. July 28, 1995) (“Any award that Belship might recover through arbitration would be placed in a ‘blocked’ interest bearing account until relations with Cuba improve to the point where the funds may be released to Belship. Allowing arbitration to proceed will hardly violate the United States’ ‘most basic notions of morality and justice.’ ”). [Footnote: The United States explains that OFAC may issue a license requiring Cubic to pay the award into an account where it would be used to offset any liability the United States may have to Iran in connection with ongoing proceedings in the Iran–U.S. Claims Tribunal regarding the Cubic contracts.]

Fourth, the applicable regulations provide general licenses authorizing legal representation of Iran in legal proceedings in the United States relating to disputes between Iran and a United States national. See 31 C.F.R. § 544.507(a)(3) (authorizing “legal services to … persons whose … interests in property are blocked,” for the “[i]nitiation and conduct of domestic U.S. legal … proceedings in defense of property interests subject to U.S. jurisdiction”); id. § 560.525(a)(3) (authorizing the provision of legal services for the”[i]nitiation and conduct of domestic United States legal … proceedings on behalf of the Government of Iran”). Although these regulations do not expressly authorize confirmation of foreign arbitration awards in favor of Iran, they show that legal proceedings to resolve disputes such as this one are, short of payment of a judgment, not in conflict with United States sanctions policy.

Finally, as noted, the United States as amicus curiae supports affirmance of the district court’s confirmation of the ICC’s award. An expression of national policy is not necessarily dispositive of the public policy issue under the Convention. See Parsons & Whittemore, 508 F.2d at 974 (“To read the public policy defense as a parochial device protective of national political interests would seriously undermine the Convention’s utility.”). Nonetheless, given Cubic’s invocation of our country’s fraught relationship with Iran as expressed through various trade sanctions, the government’s confirmation that the ICC’s award comports with the national and foreign policy of the United States is entitled to great weight. Cf. Nat’l Oil Corp., 733 F.Supp. at 820 (“Given [that the current Administration has given Libya permission to bring this action], this Court simply cannot conclude that to confirm a validly obtained, foreign arbitral award in favor of the Libyan Government would violate the United States’ ‘most basic notions of morality and justice.’ ”).

For these reasons, we hold that confirmation of the ICC’s award is not contrary to the public policy of the United States under Article V(2)(b) of the New York Convention. Cubic has not identified a public policy sufficient to overcome the strong federal policy in favor of recognizing foreign arbitration awards.

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