Metropolitan News-Enterprise


Friday, December 16, 2011


Page 1


Ninth Circuit Upholds Arbitration Award in Favor of Iran

Judges Reject Defense Contractor’s Claim That Enforcement Would Violate Public Policy




Public policy does not preclude enforcement in the United States of an arbitration award in favor of the Iranian government, the Ninth U.S. Circuit Court of Appeals ruled yesterday.

The panel affirmed a district judge’s order confirming an award in favor of Iran’s Ministry of Defense against Cubic Defense Systems, Inc., which is based in San Diego. It sent the case back to the district court with instructions to consider Iran’s motion for postjudgment interest and attorney fees.

Cubic’s dispute with Iran goes back to 1977, when it entered into a contract to sell and service an Air Combat Maneuvering Range for use by the Iranian Air Force. Like other military items, however, the system went undelivered after the Iranian revolution of 1979.

Swiss Panel

In 1991, Iran invoked the arbitration clauses of its contracts with Cubic and called for proceedings before the Zurich-based International Chamber of Commerce. The panel ruled in favor of Iran, and in 1998 Iran petitioned the Southern District court to confirm the $2.8 million award.

U.S. District Judge Rudi M. Brewster of the Southern District of California granted confirmation, which Cubic appealed. The appeal was suspended, however, after Dariush Elahi filed a lien against the award to enforce a judgment obtained under the Antiterrorism and Effective Death Penalty Act of 1996.

Elahi won a judgment for more than $300 million after his brother, an Iranian-born U.S. citizen, was murdered in Paris in 1990, reportedly by agents of the Iranian regime. The U.S. Supreme Court ruled in 2009 that sovereign immunity barred Elahi from collecting, and that an exception that might otherwise apply was waived when Elahi accepted partial payment from the U.S. government under the Terrorism Risk Insurance Act of 2002.

New York Convention

Resuming its consideration of the Cubic appeal, the court heard argument earlier this year, then asked the U.S. government for its views on whether public policy rendered the award unenforceable. Public policy is one of seven defenses to the confirmation of an arbitration award under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, known as the “New York Convention.”

The government, in a brief signed by lawyers from the State, Treasury, and Justice departments, took the position that confirmation of the award would not violate public policy.

Judge Raymond Fisher, writing for the Ninth Circuit, agreed.

Cubic argued that economic sanctions imposed by the United States on Iran, subsequent to the seizure of Americans at our embassy there in 1979, reflected a public policy against economic transactions with that country. It cited the requirement that all such transactions be licensed by the Treasury Department’s Office of Foreign Assets Control.

Fisher, however, said the argument “gives too little weight to this country’s strong public policy in support of the recognition of foreign arbitration awards, and too much weight to the regulatory restrictions governing payment of the ICC’s award.”

General License

The judge noted that OFAC has issued a general license authorizing the transfer of property interests acquired after January 1981. While other aspects of the regulations may require Cubic to obtain a special license before it can pay the award, nothing in those rules precludes the courts from confirming it, Fisher added.

As to Cubic’s claim that it faces a “nightmare” scenario, because it could conceivably be prosecuted if it pays the award and suffer the consequences of an unsatisfied judgment if it does not, Fisher said Cubic could resolve the dilemma either by asking OFAC for a special license or asking the district judge for a stay of execution.

Fisher went on to say that Brewster erred in concluding that he could not grant postjudgment attorney fees or costs—which Iran sought on the ground that Cubic had refused in bad faith to pay the award—because there was no statute or rule expressly authorizing such an award. The appellate jurist explained that federal courts have inherent authority to award costs and fees as sanctions for bad faith or vexatious litigation conduct in federal question cases.

Chief Judge Alex Kozinski and Senior Judge Michael Daly Hawkins joined in the opinion.

San Diego attorney Charles A. Bird of Luce, Forward, Hamilton & Scripps LLP argued the case for Cubic. Steven W. Kerekes argued for Iran.

The case is The Ministry of Defense and Support for the Armed Forces of the Islamic Republic of Iran v. Cubic Defense Systems, Inc., 99-56380.


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