July 16 (Reuters) - Iraq is not liable for the end of two
oil-for-food contracts dating from the Saddam Hussein regime, a
divided U.S. federal appeals court ruled in a decision that
could make it harder to pursue contract claims against countries
asserting sovereign immunity.
The 9th U.S. Circuit Court of Appeals in California said
Iraq's current government deserves protection under the Foreign
Sovereign Immunities Act of 1976 because the case did not
involve "legally significant" U.S. commercial activity.
Monday's decision comes as a growing number of federal
judges more closely scrutinize whether plaintiffs may pursue
cases in U.S. courts to address wrongdoing outside the country.
The case involved a 2003 lawsuit stemming from a decision by
an Iraq state-owned oil company to cancel contracts to sell 5
million barrels of oil to two Cyprus-based companies owned by
Manuel Terenkian, a U.S. citizen.
These contracts were among those allowed under the United
Nations Oil for Food Program, which let Iraq sell oil to finance
the purchase of tens of billions of dollars of food, medicine
and other goods for citizens hurt by international trade
Terenkian said the state oil company canceled the contracts
with his companies Marblearch Trading Ltd and Pentonville
Developers Ltd after he refused to pay bribes, and sued to
recover the loss of more than $6.25 million of fees.
Invoking the commercial activity exception to sovereign
immunity under the 1976 law, he said Iraq should be held liable
because New York was where the contracts were signed and from
where the Oil for Food Program was run, and because some oil was
destined for and was to be paid for in the United States.
But in reversing a 2010 ruling by a Los Angeles federal
judge, the 9th Circuit said it would be improper to hold Iraq's
current government liable for wrongdoing, saying the contracts
lacked sufficient links to the United States.
"Although we may decry the practices conducted by the regime
of Saddam Hussein, we best serve our nation's principles of
equity and justice by applying the law in a fair and even-handed
manner to all parties before us," Circuit Judge Sandra Ikuta
wrote for a 2-1 majority.
Edward Vaisbort, a lawyer for the plaintiffs, said his
clients are disappointed and evaluating their options. He noted
that Iraq has taken an opposite position in separate litigation
in a New York federal court, and is seeking to recover damages
related to what it called Hussein's kickback scheme.
"Iraq shouldn't have the benefit of being able to litigate
in one court, without the burden of having to defend against
claims over similar activity in another court," said Vaisbort, a
partner at Litchfield Cavo in Los Angeles.
Edward Powers, a partner at Zukerman Gore Brandeis &
Crossman representing Iraq, said he is gratified by Monday's
Circuit Judge John Noonan dissented from the decision,
saying "there is nothing specifically sovereign about bartering
oil," and that the majority misapplied earlier cases that had
found Argentina and Nigeria liable for U.S. commercial activity.
"In order to protect its treasury the Republic of Iraq has
chosen to step into the shoes of the wretched regime that once
ruled the country," he wrote. "Equities may discourage us from
stretching beyond precedent to find reasons for letting Iraq off
The case is Terenkian et al v. Iraq, 9th U.S. Circuit Court
of Appeals, No. 10-56708.
For Terenkian: G. David Rubin of Litchfield Cavo.
For Iraq: David Ackerman of Bingham McCutchen.
(Reporting By Jonathan Stempel)
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