After the Islamic Revolution of 1979, McKesson Corporation (McKesson), an American health information technology company, filed suit in 1982 in the District of Columbia federal District Court after the Iranian government expropriated McKesson's share in an Iranian dairy company.
McKesson had partnered with Iranian investors to create the dairy in Iran in the 1960s, but the company and its personnel fled Iran during the Revolution. McKesson accused Iran of expropriating its interests in the dairy and sued for damages. After a 32-year legal battle, including at least half a dozen appearances in the D.C. Circuit, Iran challenged the jurisdiction of U.S. courts to hear the case over McKesson's share in the dairy. McKesson sought to recoup attorney's fees spent during the decades-long pursuit. Finally, in May 2013, McKesson secured a judgment and was awarded over $29 million in damages, plus interest, caused by the seizure, along with $13.4 million in attorney's fees. The key issue now is whether the District Court properly calculated the $13.4 million in attorney's fees awarded to McKesson under Iranian law.
Iran challenged the attorney's fees on multiple fronts, from the court's jurisdiction to award them at all, to the reasonableness of rates charged by the law firms involved. The firms sought fees for work done in the case from 2000 to 2012; pre-2000 attorney fees were the subject of a separate order.
According to expert testimony, Iranian law did allow for recovery of attorney fees and costs.
Under the Treaty of Amity--the treaty between Iran and the United States that McKesson brought its claim under--the losing party can be made responsible for attorney's fees.
McKesson argued that the court should use the law firms' standard rates to calculate fees, while Iran argued that the standards used in the Laffey Matrix should apply. Based on independent law firm billing surveys, the District Court ruled that both firms involved charged reasonable rates. The court then granted McKesson's request to use the firms' 2012 billing rates to calculate fees for work done between 2000 and 2012 as an enhancement to compensate for delays in being paid over the past decade. However, the court also found that Iran raised legitimate concerns about how efficiently McKesson's attorneys managed the case and also about the use of vague descriptions for certain time entries in billing records.
The District Court held that it had authority to award reasonable attorney's fees under international law or, alternatively, Iranian law, and considered three fee petitions from McKesson. Despite having decided that Iranian law controls, the District Court assessed the reasonableness of McKesson's attorney-fee award using United States case law. Iran contended that an official tariff applied to McKesson's fee petitions under Article 3 of Iran's 2006 regulation on attorney's fees and Article 518 of Iran's Civil Procedure Act of 2000 (Act). Iran calculated that the tariff only yielded a mere $29,516 in fees for McKesson. Iran now appeals the District Court's fee awards of attorney's fees.
The U.S. Court of Appeals for the District of Columbia Circuit vacates the $13 million attorney's fee award and remands. The Court reasons that the burden of proof was on McKesson to show that the tariff did not apply, which it failed to do. The D.C. Circuit further held that discretion only exists where the tariff does not apply and, in McKesson's case, the tariff did. For these reasons, the D.C. Circuit vacates and remands with the instruction to grant McKesson $29,516 in attorney's fees.
Specifically, this appeal turns on whether Article 518 of the Act is applicable in this case. The Court construes Article 518's plain language to provide that "decided by the court" applies only in instances where the amount of attorney's fees is not fixed in the law or official tariff. Article 518 provides a general rule that courts must enforce an official tariff or other amount fixed by law when awarding attorney's fees.
Over the course of the litigation, McKesson had filed five separate petitions for attorney's fees accrued during five distinct time periods. On November 30, 2000, the District Court ruled on the first petition. McKesson Corp. v. Islamic Republic of Iran, No. 82-00220 (D.D.C. Nov. 30, 2000). It concluded that "in determining whether a prevailing party is entitled to fees and expenses, a court looks to the substantive law on which the successful claim is based." At the time, however, the court had not yet determined what substantive law provided McKesson with a cause of action. The District Court held that it had authority to award reasonable fees under international law or, alternatively, under Iranian law, thereby granting McKesson $2.95 million in fees and expenses for legal work performed through July 2000.
On March 27, 2013, the district court ruled on McKesson's subsequent three petitions, covering the legal work completed from August 2000 to June 2012. It also noted that the court had determined in 2012 that Iranian law recognizes McKesson's cause of action and held that the issue of whether attorney's fees may be awarded to McKesson is governed by Iranian law. Despite having acknowledged that Iranian law governed, however, the District Court proceeded to assess the reasonableness of McKesson's request by referring exclusively to United States case law and federal fee-shifting statutes. It held that a fee award of just over $10 million was reasonable under this precedent. Id. at 45. The District Court subsequently granted McKesson's fifth fee request--$434,385 for fees incurred for work completed between July 2012 and April 2013 for the same reasons given for the second through fourth requests.
Although courts generally review an attorney's fees award for abuse of discretion, the district court must apply the correct legal standard and underlying substantive law. Here, the parties stipulated that, under both Articles 515 and 519 of the Act, McKesson is entitled to receive some measure of attorney's fees. Furthermore, Article 515 authorizes the prevailing party to "demand compensation for damages resulting from the court proceeding." Article 519 defines damages to include "legal fees and other costs which are directly or indirectly related to the court proceeding and have been necessary to prove or defend the case."
According to Iran's calculation, that tariff yields a fee award of $29,516. McKesson does not dispute that calculation nor does it dispute that the tariff would apply if this action had been brought in an Iranian court. However, it was brought in a United States court. McKesson contends this is pertinent because Iran presented no evidence that the tariff applies in this type of case, i.e., a case tried in courts by non-Iranian counsel outside of Iran. Since this case is not one in which damages are fixed in the law by official tariff, McKesson argues that the amount of attorney's fees is to be decided at the court's discretion.
As the party seeking attorney's fees under foreign law, McKesson bears the burden of establishing the substance of foreign law. In re Avantel, S.A., 343 F3d 311, 321-22 (5th Cir. 2003) (party seeking to apply Mexican privilege law "had the burden of proving its substance to a reasonable certainty such that the district court could apply it to the documents at issue").
McKesson must demonstrate that the general rule (that an official tariff controls) does not apply here. The court rejected McKesson's attempt to shift the burden by requiring Iran to show that the general rule does apply and the exception does not. Moreover, McKesson's argument invoked Iranian law to argue that the court has discretion to award attorney's fees yet neither addressed how the court should exercise such discretion nor did it cite one instance of Iranian precedent. Instead, as stated above, McKesson relied solely on U.S. precedent awarding attorney's fees under federal fee-shifting statutes. In other words, McKesson used Iranian law to determine fees that would be more generous than the default American Rule. Hardt v. Reliance Std. Life Ins. Co., 560 U.S. 242, 252-53 (2010) (each litigant pays its own attorney's fees unless statute or contract provides otherwise). However, McKesson runs from Iranian law where it is less generous than U.S. law--i.e., where the applicable tariff yields a smaller award than might have been granted if McKesson had brought its action under a U.S. fee-shifting statute. McKesson attempts to construe Iranian law solely to its advantage.
"The parties disagree on the calculation of fees. The dispute therefore turns on the applicability vel non of Article 518 of the Act, which provides:' In the instances where the amount of expenses and damages are [sic] not fixed in the law or official tariff, the amount of such expenses and damages shall be decided by the court.' Iran contends that an 'official tariff applies here--Article 3 of Iran's 2006 regulation on attorney's fees. By Iran's calculation, that tariff yields a fee award of $29,516. McKesson does not dispute that calculation nor does it dispute that the tariff would apply if this action had been brought by Iranian counsel in an Iranian court. It was brought in an American court, however. McKesson contends this makes all the difference because Iran 'presented absolutely no evidence below that the tariff applies in this type of case, i.e., a case tried in courts outside of Iran by non-Iranian counsel.' ... Because this case is therefore not one in which damages are 'fixed in the law or official tariff,' McKesson contends, the amount of attorney's fees is to be decided 'by the court'--i.e., in the court's discretion."
"We read Article 518's plain language to provide that 'decided by the court' applies only '[i] n the instances where the amount of [attorney's fees is] not fixed in the law or official tariff.' That is, Article 518 provides a general rule that courts must use an official tariff or other amount fixed by law in awarding attorney's fees. The court has discretion only when the tariff (or other fixed amount) does not apply. As the party seeking attorney's fees under foreign law, McKesson bears the burden of establishing the substance of foreign law.... It is therefore up to McKesson to show that the general rule (that an official tariff controls) does not apply here. We reject McKesson's attempt to shift the burden by requiring Iran to show that the general rule does apply and the exception does not. Although McKesson criticizes Iran's expert on Iranian law for not supplying authority for the proposition that the tariff applies in actions pursued outside Iranian courts, neither does McKesson's expert offer any authority supporting the notion that it does not apply in such cases." (footnote omitted) [Slip op. 3]
The Court ultimately holds that the official tariff does apply. Accordingly, the Court vacates the District Court's fee award and instructs the District Court to grant McKesson $29,516 in attorney's fees on remand.
CITATION: McKesson Corp. v. Islamic Republic of Iran, No. 01-7041 consolidated with 13-7070, 13-7121 (DC Cir. June 3, 2014).
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|Title Annotation:||McKesson Corp. v. Islamic Republic of Iran|
|Publication:||International Law Update|
|Article Type:||Case overview|
|Date:||Jul 1, 2014|
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