Iraq Wins Immunity|in Oil Contract Case

(CN) - A lawsuit accusing Iraq of canceling lucrative oil contracts with two Cyprus-based brokerage companies does not belong in U.S. courts, the 9th Circuit ruled, squashing the companies' bid for $6.25 million in fees.

The judicial panel in Pasadena voted 2-1 to overturn a federal judge's decision allowing the case to proceed, despite Iraq's assertion of sovereign immunity, which typically protects a foreign state from being sued in U.S. courts. Judge Sandra Ikuta said the contracts in the underlying lawsuit were too tenuously tied to the United States to justify jurisdiction here.

In their lawsuit against the Republic of Iraq, Pentonville Developers and Marblearch Trading -- both owned by Manuel Terenkian, a U.S. citizen -- said they agreed to buy Iraqi oil under the United Nations Oil for Food Program.

After the contracts were executed at the Cyprus Mission in New York, Iraqi officials allegedly demanded that the brokerage companies pay additional fees and then unilaterally canceled the contracts when the companies refused to pay the extra fees.

Pentonville claimed to have lost $3.75 million in brokerage fees, and Marblearch said it lost at least $2.5 million in fees.

They argued that their claims fell under the "commercial exception" to sovereign immunity, because some of the oil purchased "was intended for distribution in the United States." They also claimed the contracts had been executed in New York and required the companies to deposit money into a United Nations escrow account at a New York bank.

The district court rejected Iraq's motion to dismiss the case, but the 9th Circuit reversed.

"Plaintiffs' claim is based on neither a legally significant commercial act that occurred in the United States nor an act that had a direct and legally significant effect in the United States," Judge Ikuta wrote.

In a concise dissent, Judge John Noonan said the majority opinion "brushes off" Iraq's own position that courts in New York have jurisdiction over claims stemming from the Oil for Food Program.

"Iraq may not honestly say there is jurisdiction in New York and deny that there is jurisdiction of similar claims in San Diego," Noonan wrote.

"[I]n 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 do not create jurisdiction. Equities may discourage us from stretching beyond precedent to find reasons for letting Iraq off the hook on what the Hussein regime hung after its alleged attempts at extorting bribes had failed."

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