The Republic of Iraq v. ABB AG
Filing
OPINION, Concurring & Dissenting, by CFD, FILED.[1322952] [13-618]
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DRONEY, Circuit Judge, concurring in part and dissenting in part:
2
In response to Iraq’s 1990 invasion of Kuwait, the United
3
Nations Security Council implemented economic sanctions—widely
4
characterized as the most far‐reaching in history—against the
5
regime of Saddam Hussein (the “Hussein Regime” or the “Regime”).
6
The U.S. Congress enforced the sanctions through the Iraq Sanctions
7
Act of 1990, which made all trade for economic gain with the
8
Hussein Regime a criminal offense. Pub. L. No. 101‐513, §
9
586E(2)(B), 104 Stat. 1979, 2049, 50 U.S.C. § 1701, note. To
10
“reconcile[e] strong sanctions against a corrupt Iraqi regime with
11
[the] need[] . . . [to provide] food and medicines to an innocent and
12
vulnerable
13
implemented—again with the U.S.’s support—the Oil‐for‐Food
14
Programme (the “Programme”). The Programme permitted Iraq to
15
sell oil on the international market on the condition that all of the
16
proceeds were placed into a U.N. escrow account established at the
population,”
the
U.N.
Security
Council
then
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New York branch of the Banque Nationale de Paris (“BNP”), to be
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used only for the humanitarian needs of the Iraqi people,
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administrative costs for the Programme, and war reparations to
4
Kuwait.
5
The invasion of Iraq and overthrow of the Hussein Regime by
6
a U.S.‐led coalition of forces in the spring of 2003 revealed pervasive
7
corruption in the Programme, described by some as the “largest
8
financial fraud in human history.” The corruption of the Programme
9
was documented in detail in a report of the U.N. Independent
10
Inquiry Committee into the United Nations Oil‐for‐Food
11
Programme. Based largely on this report, the defendants in this
12
litigation—two individuals, along with numerous business
13
entities—are alleged to have conspired with the Hussein Regime to
14
violate the sanctions and subvert the Programme. By purchasing oil
15
from the Regime at below‐market prices or selling humanitarian
16
supplies (often of sub‐standard quality) to it at above‐market prices
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while making side‐payments to the Regime—or, in the case of the
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BNP defendants, facilitating such payments—the defendants
3
allegedly diverted at least ten billion dollars intended for
4
humanitarian aid to the Regime. The two individual defendants
5
named here have already pled guilty to criminal charges relating to
6
their role in corrupting the Programme, and many of the business
7
entity defendants have entered into non‐prosecution or deferred
8
prosecution agreements with the U.S. Department of Justice in
9
which they admit to involvement in the scheme.
10
The majority nevertheless concludes that the Republic of Iraq
11
(the “Republic”) may not bring suit, through its current government,
12
to recover funds allegedly unlawfully siphoned off from the U.N.
13
escrow account. Because the Hussein Regime orchestrated the fraud,
14
the majority reasons, the Republic participated in the fraud as well,
15
and thus stands in equal fault (in pari delicto) with the defendants. I
16
disagree. In pari delicto is an “equitable defense . . . [,] rooted in the
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common‐law notion that a plaintiff’s recovery may be barred by his
2
own wrongful conduct.” Pinter v. Dahl, 486 U.S. 622, 632 (1988). But
3
the majority’s analysis does not rest on the Republic’s “own
4
wrongful conduct.” Instead, the majority begins its analysis with a
5
general principle of state responsibility under which “the obligations
6
of a foreign state are unimpaired by a change in that state’s
7
government,” Maj. Op., ante, at 28—a principle that we have never
8
before recognized in this context, where the conduct that the
9
defendants are alleged to have engaged in with a foreign
10
government was illegal under U.S. law from the beginning. The
11
majority then concludes, based on this purported principle of state
12
responsibility, that the post‐Hussein Republic should be treated as
13
complicit in the Regime’s fraud on a humanitarian relief program
14
specifically designed to aid the civilian population while not
15
enriching the Regime. The in pari delicto defense is founded on the
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twin premises that ”courts should not lend their good offices to
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mediating disputes among wrongdoers . . . [and] that denying
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judicial relief to an admitted wrongdoer is an effective means of
3
deterring illegality.” Bateman Eichler, Hill Richards, Inc. v. Berner, 472
4
U.S. 299, 306 (1985). Yet here it functions to release defendants of
5
liability for conduct that, if true, constituted a clear violation of U.S.
6
law and subversion of U.S. policy, and to deprive the ultimate
7
victims of the defendants’ conduct of any remedy.
8
I therefore concur only in the majority’s holding that the
9
Foreign Corrupt Practices Act does not create a private right of
10
action; otherwise, I respectfully dissent.
I.
11
12
The majority presents its decision as deriving from the long‐
13
established principle that “the legal position of a foreign state
14
survives changes in its government.” Maj. Op., ante, at 28. In
15
articulating this principle, the majority draws on two distinct lines of
16
cases. The first concerns foreign sovereigns’ conduct within the U.S.:
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it holds that, when a foreign sovereign acts under U.S. law—such as
2
by litigating in U.S. courts or entering into transactions—it does so
3
through its then‐recognized government and the government’s
4
designated representatives, such as ambassadors. See, e.g., Guar.
5
Trust Co. of N.Y. v. United States, 304 U.S. 126, 137‐41 (1938). The
6
second—the act of state doctrine—concerns foreign governments’
7
conduct within their own territory: it holds that generally “the
8
courts of this country [will not] inquir[e] into the validity of the
9
public acts [of] a recognized foreign sovereign power committed
10
within its own territory.” Banco Nacional de Cuba v. Sabbatino, 376
11
U.S. 398, 401 (1964). Neither of these doctrines applies here.
A.
12
13
The principle that a foreign state acts under U.S. law through
14
its recognized government has long been established. In The
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Sapphire, the Supreme Court held that the deposition of Emperor
16
Napoleon III did not abate a tort suit previously brought by France
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to recover for damages caused to a French ship in a collision in San
2
Francisco harbor. 78 U.S. 164, 168 (1870). “The reigning Emperor, or
3
National Assembly, or other actual person or party in power, is but
4
the agent and representative of the national sovereignty,” the
5
Supreme Court held, such that “[a] change in such representative
6
works no change in the national sovereignty or its rights.” Id. at 168.
7
Similarly, in Lehigh Valley Railroad Co. v. Russia, this Court held that
8
the then‐recognized representative of the provisional Russian
9
government could bring suit to recover for the destruction of
10
Russian‐owned ammunition and explosives while in transit in the
11
United States. 21 F.2d 396, 401 (2d Cir. 1927). Although the explosion
12
occurred in 1916, under the Imperial Russian Government, we held
13
that “[t]he suit did not abate by the change in the form of
14
government in Russia; the state is perpetual, and survives the form
15
of its government.” Id. at 401. Finally, and by the same logic, in
16
Guaranty Trust Co. of New York v. United States, the Supreme Court
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held that, where the prior recognized government of a foreign
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sovereign allowed the statute of limitations for a claim to run, the
3
U.S.’s subsequent recognition of a new government did not revive
4
the time‐barred claim. 304 U.S. at 141. Again, because “the rights of a
5
sovereign state are vested in the state rather than in any particular
6
government which may purport to represent it,” the change in the
7
recognized government effected no change in the time‐barred claim.
8
Id. at 137.
9
The majority identifies no decisions, however, in which this
10
principle of state “responsibility” operates—as it does here—to
11
release a non‐state defendant from liability for conduct that was
12
illegal under U.S. law from its inception. Such a conclusion is
13
inconsistent with the premise underlying the rule articulated in
14
Guaranty Trust. There the Supreme Court rejected the argument that
15
recognition of a new government of a foreign sovereign “renders of
16
no effect transactions here with a prior recognized government in
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conformity to the declared policy of our own government.” Id. at
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140. It rooted this conclusion both in the separation of powers and in
3
the need to protect legitimate reliance on the finality of a recognized
4
government’s acts. “What government is to be regarded here as
5
representative of a foreign sovereign state is a political rather than a
6
judicial question, and is to be determined by the political
7
department of the government,” the Court observed. Id. at 137. “The
8
very purpose of the recognition by our government,” the Court
9
continued, “is that our nationals may be conclusively advised with
10
what government they may safely carry on business transactions
11
and who its representatives are. If those transactions, valid when
12
entered into, were to be disregarded after the later recognition of a
13
successor government,” the Court concluded, “recognition would be
14
but an idle ceremony, yielding none of the advantages of established
15
diplomatic relations in enabling business transactions to proceed,
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and affording no protection to our own nationals in carrying them
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on.” Id. at 140‐41.
3
Here, however, the United States had no diplomatic relations
4
with the Regime during the relevant time, and the side‐agreements
5
allegedly entered into between the defendants and the Hussein
6
Regime were not in any sense “valid when entered into” or “in
7
conformity [with] the declared policy of our own government.” On
8
the contrary, the side‐agreements stood in clear violation of U.S. law
9
and violated the U.S.’s trade embargo policy towards Iraq. The rule
10
articulated in Guaranty Trust serves to prevent courts from
11
questioning determinations properly left to the political branches,
12
and to protect legitimate reliance “upon the finality and legality of
13
[a] government’s acts.” Banco de Espana v. Fed. Reserve Bank of N.Y.,
14
114 F.2d 438, 444 (2d Cir. 1940). But the political branches prohibited
15
transactions with the Hussein Regime, except those that took place
16
through the Programme. The defendants here could have no
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legitimate expectations in the “finality” or “legality” of a side‐
2
agreement with the Hussein Regime. Indeed, attempting to enforce
3
one of these alleged agreements in a U.S. court would likely entail
4
admitting to a felony. Under these circumstances, the rule
5
articulated in Guaranty Trust has no application.
B.
6
7
The majority further asserts that the actions of the Hussein
8
Regime are properly attributed to the Republic because the Regime
9
“acted as the government of Iraq.” Maj. Op., ante, at 30. This
10
conclusion again relies on a principle that does not apply to this
11
case. The decisions that the majority cites in support of this assertion
12
primarily involve the act of state doctrine, which, in its traditional
13
formulation, holds that “the courts of one country will not sit in
14
judgment on the acts of the government of another, done within its
15
own territory.” Underhill v. Hernandez, 168 U.S. 250, 252 (1897). The
16
court below, however, found that the act of state doctrine did not
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preclude the Republic’s claims, Republic of Iraq v. ABB AG, 920 F.
2
Supp. 2d 517, 533‐34 (S.D.N.Y. 2013), and the majority does not reject
3
this conclusion.
4
The district court was correct in its determination that the act
5
of state doctrine does not preclude the Republic’s claims.
6
Adjudicating Iraq’s claim would not require a court to “inquir[e]
7
into the validity of the public acts a recognized foreign sovereign
8
power committed within its own territory.” Banco Nacional de Cuba,
9
376 U.S. at 401. In W.S. Kirkpatrick & Co. v. Environmental Techtonics
10
Corp., International, an unsuccessful bidder for a contract with the
11
Nigerian government sued a successful bidder, contending that the
12
successful bidder violated RICO, the Robinson‐Patman Act, and
13
New Jersey state anti‐racketeering laws in procuring the contract by
14
paying bribes to Nigerian officials. 493 U.S. 400, 402 (1990). The
15
successful bidder argued that the act of state doctrine precluded the
16
litigation, since the facts necessary to establish that the bribery
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occurred would also “support a finding that the contract [was]
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invalid under Nigerian law.” Id. at 406. The Supreme Court rejected
3
this argument. Id. “Act of state issues only arise when a court must
4
decide—that is, when the outcome of the case turns upon—the effect
5
of official action by a foreign sovereign,” the Court found. Id.
6
(emphasis in original). “When that question is not in the case,
7
neither is the act of state doctrine.” Id.
8
Here, similarly, although a finding against the defendants
9
would tend to imply that the Hussein Regime violated its
10
international obligations by corrupting the Programme (a conclusion
11
that, in any event, seems beyond dispute), no aspect of the
12
Republic’s claims turns on the validity of the Hussein Regime’s
13
conduct. The Republic’s complaint challenges the conduct of non‐
14
state defendants under U.S. law.1 Indeed, if adjudicating the
That the Republic’s claims are based on domestic law, and are asserted against non‐
state defendants, also explains the inapplicability of the rule that “[a] state is responsible
for any violation of its obligations under international law resulting from action or
inaction by [] the government of the state.” Restatement (Third) of Foreign Relations Law
of the United States § 207 (1987). The district court cited this rule in support of its
1
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Republic’s claims against the defendants required an inquiry into
2
the validity of the Hussein Regime’s official acts, then the criminal
3
convictions of the two individual defendants and the non‐
4
prosecution agreements entered into between the Department of
5
Justice and various corporate defendants would stand on faulty
6
premises: a U.S. court could never adjudicate such charges without
7
violating the act of state doctrine.
8
Furthermore, the Republic’s claims do not implicate acts by
9
the Hussein Regime performed solely on Iraqi territory. See
10
Underhill, 168 U.S. at 252; Banco de Espana, 114 F.2d at 443 (“It has
11
been squarely held that the courts of this country will not examine
12
the acts of a foreign sovereign within its own borders, in order to
conclusion that the Hussein Regime’s conduct redounds to the Republic, see Republic of
Iraq, 920 F. Supp. 2d at 536, but the majority does not appear to rely on it. The majority is
correct not to base its decision on this rule. The rule governs state responsibility for
violations of “obligations under international law”; it is a rule of international law. As the
Third Restatement observes, “[t]he principal persons under international law are states,”
and it is primarily states that “have legal personality and rights and duties under
international law.” Restatement (Third) of Foreign Relations Law of the United States pt.
II, intro. note (1987). I see no basis for applying a principle of state responsibility under
international law to immunize non‐state defendants from liability for conduct under
domestic law.
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determine whether or not those acts were legal under the municipal
2
law of the foreign state.” (emphasis added)); see also Bernstein v. Van
3
Heyghen Freres Societe Anonyme, 163 F.2d 246, 249 (2d Cir. 1947)
4
(barring, under the act of state doctrine, U.S. court from hearing
5
claim based on conversion of property committed in Germany by
6
German officials). Instead, the Republic contends that the
7
defendants—individuals and corporations located outside of Iraq—
8
conspired with the Hussein Regime to subvert an international
9
humanitarian relief program, run out of the U.N. headquarters in
10
New York, in ways that diverted money that would otherwise have
11
been placed in an escrow account established at a bank branch in
12
New York. Indeed, the requirement that all transactions be
13
approved by the U.N. and pass through an escrow account outside
14
of Iraqi control was plainly crucial to the functioning Programme,
15
since it was designed to ensure that the proceeds of oil sales were
16
not diverted from humanitarian uses. Because “[a]cts of foreign
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governments purporting to have extraterritorial effect . . . by
2
definition[] fall[] outside the scope of the act of state doctrine,” the
3
conduct of the Hussein Regime in subverting the Programme cannot
4
be encompassed by the doctrine. Allied Bank Int’l v. Banco Credito
5
Agricola de Cartago, 757 F.2d 516, 522 (2d Cir. 1985).
6
Even if the act of state doctrine were implicated in this case,
7
that would not end the analysis. Once a court determines the
8
doctrine’s “technical availability,” it then considers whether “the
9
policies underlying the act of state doctrine” indicate that it “should
10
nonetheless not be invoked.” W.S. Kirkpatrick & Co., 493 U.S. at 409.
11
Key among these considerations is whether “the government that
12
committed the challenged act of state is no longer in existence.” Id.
13
(internal quotation marks omitted). Even in cases that—unlike this
14
case—do require a U.S. court to assess the validity of a foreign
15
government’s acts within its own territory, therefore, we do not
16
apply an inflexible rule that imputes the conduct of a former
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government to a current government. Because the act of state
2
doctrine protects against litigation that would “embarrass or hinder
3
the executive in the realm of foreign relations,” it would contravene
4
the doctrine’s purpose to prevent the current government of a
5
foreign state from repudiating the conduct of a prior government on
6
the foreign state’s territory. Bigio v. Coca‐Cola Co., 239 F.3d 440, 452
7
(2d Cir. 2000). In Bigio v. Coca‐Cola Co., for instance, we found that
8
the act of state doctrine did not bar plaintiffs’ action to recover
9
property that a former Egyptian government had confiscated
10
because the plaintiffs’ were Jewish. 239 F.3d at 453. We noted that
11
the Nasser regime, which effected the property seizure, was “long
12
gone,” and that “the current government . . . has apparently
13
repudiated the acts in question and has sought to have the property
14
or its proceeds returned to the [plaintiffs].” Id. Here, not only is the
15
regime that committed the wrongdoing no longer in existence, but
16
its successor government is itself the plaintiff in this matter. Indeed,
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a conclusion that the Republic is barred from seeking redress against
2
these defendants in the U.S. courts—even as the U.S. government
3
itself extracts fines from many of the same defendants for the same
4
conduct—arguably poses a greater risk of “interfer[ing] with the
5
relationship between [the Republic of Iraq] and the United States”
6
than allowing the litigation to proceed. Id.
7
Because the Republic’s claims do not require that the court
8
assess the validity of the Iraqi government’s acts on Iraqi territory,
9
the act of state doctrine does not apply to this case. And because the
10
act of state doctrine does not apply, the fact that “the Hussein
11
Regime’s effort to subvert the Programme was the policy of the Iraqi
12
government” does not preclude the Republic’s claims. Maj. Op., ante,
13
at 30. Indeed, the majority’s reliance on act of state case law leads to
14
the paradoxical conclusion that defendants are insulated from
15
liability to the Republic for their conduct precisely because they did
16
not merely aid a single corrupt Iraqi official in embezzling funds for
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personal benefit, but instead conspired with an entire authoritarian
2
regime in a concerted scheme to violate U.S. law and subvert U.S.
3
foreign policy. In concluding that the alleged conspiracy pursued a
4
“public goal,” the majority notes that the Hussein Regime regarded
5
the corruption of the Oil‐for‐Food Programme as crucial to
6
undermining the sanctions and remaining in power. Maj. Op., ante,
7
at 31. But it was the public goal of our government to weaken the
8
Hussein Regime through economic sanctions while minimizing,
9
through the Oil‐for‐Food Programme, the suffering of the Iraqi
10
civilian population. I see no basis in our law for treating the
11
defendants’ conduct differently simply because they conspired with
12
a foreign government to achieve a “public goal” that was directly at
13
odds with U.S. policy.
II.
14
15
The absence of a rule that treats the Republic as complicit in
16
the Regime’s wrongdoing and the deleterious impact of the
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defendants’ alleged actions on U.S. policy have special salience here.
2
The doctrinal mechanism through which Iraq’s purported
3
“participation” in the Regime’s conduct operates to bar the
4
Republic’s claims—in pari delicto—has been recognized under
5
federal law only in its traditional formulation, in which it “was
6
narrowly limited to situations where the plaintiff truly bore at least
7
substantially equal responsibility for his injury.” Bateman Eichler, 472
8
U.S. at 307. The Supreme Court has emphasized, moreover, that
9
“public policy implications [must] be carefully considered before the
10
defense is allowed” to “ensure[] that the broad judge‐made law does
11
not undermine the congressional policy favoring private suits as an
12
important mode of enforcing federal [] statutes.” Pinter, 486 U.S. at
13
633 (internal citation omitted). Under federal law, therefore, the in
14
pari delicto defense is allowed “only where (1) as a direct result of his
15
own actions, the plaintiff bears at least substantially equal
16
responsibility for the violations he seeks to redress, and (2)
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preclusion of suit would not significantly interfere with the effective
2
enforcement of the . . . laws.” Id. at 310‐11. The defendants here
3
satisfy neither of these two prongs.
4
To satisfy the first prong, the defendant must establish that
5
the plaintiff was an “an active, voluntary participant in the unlawful
6
activity that is subject of the suit.” Pinter, 486 U.S. at 636. This
7
requirement reflects the in pari delicto doctrine’s equitable origins in
8
the idea that a party that has morally tainted itself in a matter cannot
9
invoke the court’s equitable powers. For instance, Judge Learned
10
Hand wrote for this Court that the closely related “unclean hands”
11
defense is “derived from the unwillingness of a court . . . to give its
12
peculiar relief to a suitor who in the very controversy has so
13
conducted himself as to shock the moral sensibilities of the judge.”
14
Art Metal Works, Inc. v. Abraham & Straus, 70 F.2d 641, 646 (2d Cir.
15
1934) (Hand, J., dissenting), original decree vacated and dissent adopted
16
as opinion of the court on reh’g, 107 F.2d 944 (2d Cir. 1939) (per
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curiam). Accordingly, for “immoral conduct to be relevant,” it “must
2
touch and taint the plaintiff personally”; actions that are “imputed to
3
[the plaintiff] legally[] do not impugn his conscience vicariously.” Id.
4
The Republic’s supposed participation in the fraud derives, in
5
the majority’s analysis, from the principle that “the obligations of a
6
foreign state are unimpaired by a change in that state’s
7
government.” Maj. Op., ante, at 28. But, like the unclean hands
8
defense, in pari delicto “has nothing to do with the rights or liabilities
9
of the parties.” Art Metal Works, 70 F.2d at 646 (Hand, J., dissenting).
10
Even if the principle of state responsibility that the majority
11
identifies had any applicability under the circumstances of this
12
case—where the agreements that the foreign government allegedly
13
entered into were illegal under U.S. law from the very beginning—it
14
does not establish the direct responsibility demanded by the first
15
prong of the in pari delicto defense.
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To apply the defense in the absence of direct conduct is
2
especially inappropriate here, where the “agent” is an authoritarian
3
regime and the “principal”—to which the agent’s “sins” are
4
imputed—is the state that the regime tyrannized. The majority does
5
not cite to—nor do I know of—any decisions where the in pari delicto
6
defense has been applied against a foreign sovereign based on its
7
prior government’s conduct, much less under the extraordinary
8
circumstances as issue here, where the wrongful conduct imputed to
9
the foreign sovereign involved the subversion of a humanitarian
10
relief program designed to benefit the people of the foreign
11
sovereign. Courts have, however, long rejected efforts to invoke
12
equitable defenses against the U.S. government and its agencies,
13
concluding that such defenses may not be “applied to frustrate the
14
purpose of [the United States’] laws or to thwart public policy.” Pan‐
15
Am. Petroleum & Transp. Co. v. United States, 273 U.S. 456, 506 (1927);
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see, e.g., United States v. Philip Morris, Inc., 300 F. Supp. 2d 61, 75‐76
2
(D.D.C. 2004).
3
The majority cites to New York case law holding that the
4
wrongdoing of corporate managers and agents may be imputed to
5
the corporation in the application of the in pari delicto defense. See
6
Maj. Op. at 32‐33 (discussing Kirschner v. KPMG LLP, 15 N.Y.3d 446,
7
466‐67 (2010). But even in that context courts are not uniform in their
8
views. In deciding whether to give effect to the in pari delicto
9
doctrine, other states have “draw[n] a sharp distinction between
10
those who deal in good faith with the principal‐corporation . . . and
11
those who do not,” concluding that “the ordinary rationale
12
supporting imputation breaks down completely in scenarios
13
involving secretive, collusive conduct between corporate agents and
14
third parties,” such as where an auditor conspires with corporate
15
management to defraud a corporation. Official Comm. of Unsecured
16
Creditors of Allegheny Health Educ. & Research Found. v.
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PricewaterhouseCoopers, LLP, 605 Pa. 269, 305‐06 (2010). “[B]ecause
2
imputation rules justly operate to protect third parties on account of
3
their reliance on an agent’s actual or apparent authority,” these
4
courts reason, “such principles do not (and should not) apply . . .
5
where both the agent and the third party know very well that the
6
agent’s conduct goes unsanctioned by one or more of the tiers of
7
corporate governance.” Id. at 307; see also NCP Litig. Trust v. KPMG
8
LLP, 187 N.J. 353, 371 (2006) (“[T]he imputation defense exists to
9
protect innocent third parties from being sued by corporations whose
10
agents have engaged in malfeasant behavior against those third
11
parties.” (emphasis added)). The same logic applies here, where the
12
defendants allegedly engaged in secretive, collusive conduct with
13
the Hussein Regime, while knowing full well that their conduct was
14
illegal under U.S. law.
15
The relationship between a corporation and its officers also
16
differs in several obvious respects from the relationship between a
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sovereign state and its government—particularly where that
2
government is an authoritarian regime—rendering the policy
3
justifications that might support imputation in the former context
4
altogether inapplicable in the latter. The New York Court of Appeals
5
has justified imputing the acts of corporate officers to the
6
corporation itself by observing that “imputation fosters an incentive
7
for a principal to select honest agents and delegate duties with care.”
8
Kirschner, 15 N.Y.3d at 466. But Saddam Hussein seized power in a
9
military coup; his regime maintained its control over the Iraqi state
10
through “extensive, systematic, and continuing human rights abuses
11
. . . , including summary executions, mass political killings,
12
disappearances, widespread use of torture, arbitrary arrest and
13
prolonged detention without trial of thousands of political
14
opponents, forced relocation and deportation, denial of nearly all
15
civil and political rights such as freedom of association, assembly,
16
speech, and the press, and the imprisonment, torture, and execution
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of children.” § 586F(a)(4), 164 Stat. at 250. Allowing the in pari delicto
2
defense under these circumstances excises the doctrine’s
3
requirement that the plaintiff be an “an active, voluntary participant
4
in the unlawful activity that is subject of the suit,” Pinter, 486 U.S. at
5
636—transforming a defense founded “upon the court’s repugnance
6
to the suitor personally,” Art Metal Works, 70 F.2d at 646 (Hand, J.
7
dissenting), into a rule of derivative guilt.
8
Insulating the defendants from liability to the Republic for
9
their alleged wrongdoing is, moreover, contrary to public policy, the
10
second prong of the in pari delicto test. RICO’s express private right
11
of action is designed to aid “in eradicating organized crime from the
12
social fabric” by “divest[ing] the [defendant] of the fruits of its ill‐
13
gotten gains.” United States v. Turkette, 452 U.S. 576, 585 (1981). This
14
goal is especially important when the alleged conspiracy
15
undermined a trade embargo established—with the support of both
16
political branches—in response to “an unusual and extraordinary
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threat to the national security and foreign policy of the United
2
States,” Exec. Order No. 12,722, 55 Fed. Reg. 31,803 (Aug. 2, 1990); §
3
586C, 104 Stat. at 2048, and corrupted a humanitarian relief program
4
designed to alleviate the “near apocalyptic results” that the embargo
5
and the Hussein Regime’s ongoing brutality had on the Iraqi people.
6
The in pari delicto defense is “based not on solicitude for the
7
defendant, but on concern for the public welfare, and thus when
8
application of the doctrine would not be in the public interest, the
9
courts will permit recovery.” In re Leasing Consultants Inc., 592 F.2d
10
103, 110 (2d Cir. 1979). Accordingly, I do not believe that we should
11
allow the defense where it leads to results so clearly at odds with
12
U.S. public policy.
13
Indeed, the application of the in pari delicto defense in this case
14
leads to a result that directly contradicts U.S. policy towards Iraq
15
throughout the relevant time. U.S. policy towards Iraq did not treat
16
the Iraqi state as collectively complicit in the Hussein Regime’s
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conduct. From the beginning, the economic sanctions recognized an
2
exception for “donations of articles intended to relieve human
3
suffering, such as food, clothing, medicine and medical supplies
4
intended strictly for medical purposes.” Exec. Order No. 12,722 §
5
2(b); see also § 586C(b), 104 Stat. at 2048; Exec. Order No. 12,724 §
6
2(b), 55 Fed. Reg. 33,089 (Aug. 9, 1990); S.C. Res. 661, para. 4, U.N.
7
Doc. S/RES/661 (Aug. 6, 1990) (recognizing exception for “payments
8
exclusively for strictly medical or humanitarian purposes”). The core
9
premise of the Oil‐for‐Food Programme was that the Hussein
10
Regime should be permitted to sell its oil on the international
11
market, provided “that all States . . . take any steps that may be
12
necessary . . . to ensure that the proceeds of the sale [were] not
13
diverted from” the authorized purposes. S.C. Res. 986, paras. 8, 14,
14
U.N. Doc. S/RES/986 (Apr. 14, 1995). Far from treating the entire
15
state as complicit in the Regime’s conduct, in 1998, in the midst of
16
the trade embargo, the U.S. Congress approved the appropriation of
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five million dollars to support “Iraqi democratic opposition”
2
through “such activities as organization, training, communication
3
and dissemination of information, developing and implementing
4
agreements among opposition groups, [and] compiling information
5
to support the indictment of Iraqi officials for war crimes . . . .” 1998
6
Supplemental Appropriations and Rescission Act, Pub. L. No. 105–
7
174, § 10008, 112 Stat. 58, 101.
8
The majority’s discussion of the second prong of the in pari
9
delicto defense concludes in general terms that “it is consistent with
10
the purpose of RICO to recognize an in pari delicto defense in cases
11
where, as a direct result of the plaintiff’s affirmative wrongdoing,
12
the plaintiff bears at least substantially equal responsibility for the
13
RICO violations of which it complains.” Maj. Op., ante, at 35
14
(internal citations and quotation marks omitted). Other circuits that
15
have recognized the in pari delicto defense in the RICO context,
16
however, did so in circumstances where allowing the plaintiff to
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recover “under RICO would not divest RICO violators of their ill‐
2
gotten gains; it would result in a wealth transfer among similarly
3
situated conspirators.” Official Comm. of Unsecured Creditors of PSA,
4
Inc. v. Edwards, 437 F.3d 1145, 1155 (11th Cir. 2006); see also Rogers v.
5
McDorman, 521 F.3d 381, 391 (5th Cir. 2008) (recognizing in pari
6
delicto defense to RICO claims where the “scheme could not work
7
without [the plaintiffs’] active participation,” and observing that
8
“[t]his is not a situation where an innocent or passive victim is being
9
deprived of a RICO remedy”). Here, by contrast, allowing the
10
Republic to recover under RICO from the individuals and
11
corporations that allegedly conspired to subvert the Programme
12
would divest RICO violators of their illegal profits, and would allow
13
compensation for the ultimate victims of the defendants’ alleged
14
fraud.
15
The application of the in pari delicto defense demands that
16
courts carefully scrutinize the specific plaintiff’s alleged conduct in
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relation to the relevant public policy. In Perma Life Mufflers, Inc. v.
2
International Parts Corp., for instance, the Supreme Court addressed
3
the question of whether Midas Muffler franchisees who knew about
4
allegedly anti‐competitive clauses in their franchise agreements
5
could later bring an antitrust claim. 392 U.S. 134, 140 (1968).
6
Observing that “the purposes of the antitrust laws are best served by
7
insuring that the private action will be an ever‐present threat to
8
deter anyone contemplating business behavior in violation of the
9
antitrust laws,” the Court declined to bar antitrust plaintiffs’ claims,
10
concluding that, in light of the economic power of the franchisor, the
11
franchisees’ “participation was not voluntary in any meaningful
12
sense.” Id. at 139‐40. In Bateman Eichler, Hill Richards, Inc. v. Berner,
13
the Supreme Court again declined to apply the in pari delicto defense,
14
this time in the context of a securities action brought by investors
15
who made trades on the basis of “inside information” that turned
16
out to be false. 472 U.S. at 301‐02, 317. Noting the important role that
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private actions play in the securities enforcement system, the Court
2
rejected the suggestion “that an investor who engages in [insider]
3
trading is necessarily as blameworthy as a corporate insider or
4
broker‐dealer who discloses the information for personal gain,”
5
concluding that such a finding would ignore “important distinctions
6
between the relative culpabilities of tippers, securities professionals,
7
and tippees.” Id. at 312‐13. Finally, in Pinter v. Dahl—another
8
securities action, this time involving claims based on the unlawful
9
sale of unregistered securities—the Supreme Court rejected the
10
suggestion that “a purchaser’s knowledge that the securities are
11
unregistered can[], by itself, constitute equal culpability, even where
12
the investor is a sophisticated buyer who may not necessarily need
13
the protection of the Securities Act.” 486 U.S. at 636. “Because the
14
[Securities] Act is specifically designed to protect investors,” the
15
Court reasoned, “even where a plaintiff actively participates in the
16
distribution of unregistered securities, his suit should not be barred”
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except where his role was “more as a promoter than as an investor.”
2
Id. at 638‐39.
3
4
defense is circumscribed in light of public policy considerations,
5
these decisions reflect the specificity with which the Supreme Court
6
determines the defense’s availability. The question answered in
7
these decisions is not simply whether the in pari delicto defense
8
operates in the context of an antitrust or securities claim. Rather, the
9
question is whether the Court should recognize a “broad rule of
10
caveat tippee,” Bateman Eichler, 472 U.S. at 315, or whether the in pari
11
delicto defense bars a claim by “a plaintiff [who] actively participates
12
in the distribution of unregistered securities” but whose
13
“promotional efforts are incidental to his role as an investor,” Pinter,
14
486 U.S. 638‐39.
Aside from demonstrating how narrowly the in pari delicto
15
Even if the in pari delicto defense may properly be applied to
16
bar a plaintiff’s RICO claims in some circumstances, therefore, I do
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not believe that it should here. The U.S. public policy behind the
2
economic sanctions against Iraq and the Programme was critically
3
important to our national interests. There are, moreover, “important
4
distinctions between the relative culpabilities” of the defendants,
5
which allegedly participated in the fraud of their own choosing and
6
for vast profits, and the Republic, whose “responsibility” for a
7
scheme that deprived its own civilian population of desperately
8
needed humanitarian relief is entirely derivative of an authoritarian
9
regime that has now been overthrown. Bateman Eichler, 472 at 312‐13.
*
10
*
*
11
Courts should proceed cautiously in cases that implicate
12
foreign relations, cognizant that the “courts[’] . . . powers to further
13
the national interest in foreign affairs are necessarily circumscribed
14
as compared with those of the political branches.” Banco Nacional de
15
Cuba, 376 U.S. at 412. But allowing the Republic’s claims to proceed
16
in this case would not cross the guideposts that have long operated
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to ensure that the courts do not encroach on areas properly reserved
2
for the political branches. Allowing the Republic’s claims to proceed
3
would not violate the doctrine that U.S. nationals may safely carry
4
on business transactions with the recognized government of a
5
foreign state, confident that the validity of such agreements will not
6
be called into question based on the legitimacy of the government or
7
its subsequent overthrow. See Guar. Trust Co. of N.Y., 304 U.S. at 137.
8
Nor would allowing the Republic’s claims to proceed in any way
9
conflict with the act of state doctrine, since adjudicating the case
10
would not “require[] a court in the United States to declare invalid
11
the official act of a foreign sovereign performed within its own
12
territory.” W.S. Kirkpatrick & Co., 493 U.S. at 405.
13
14
pari delicto defense to immunize the defendants from liability for
15
conduct that was illegal under U.S. law from the very beginning and
16
that undermined an important U.S. policy. The Supreme Court has
But I see no reason to embrace a novel application of the in
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cautioned against “expanding judicial incapacities” to hearing cases
2
simply because they have an international dimension, observing that
3
“[c]ourts in the United States have the power, and ordinarily the
4
obligation, to decide cases and controversies properly presented to
5
them.” Id. at 409. The plaintiff here alleges that it was the victim of a
6
fraud. The vast scale of the alleged fraud does not render the
7
Republic’s allegations any less proper for judicial resolution, and I
8
believe it is more consistent with principles of equity to hold the
9
defendants accountable for their own role than to impute to the
10
plaintiff the wrongdoing of its former authoritarian regime.
37
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