Foremost-McKesson, Inc. v. Islamic Republic of Iran

American company Foremost-McKesson, Inc. (Foremost) (plaintiff) sued the Islamic Republic of Iran (Iran) and others (defendants) to recover over $7 million in economic damages after Foremost was divested of its minority interest in and executive control of Pak Dairy, located in Iran, when the Ayatollah Khomeini came to power. Iran filed an answer to Foremost’s complaint, but the answer did not respond to factual allegations or raise any affirmative defenses, including sovereign immunity. Instead, Iran’s answer asserted that no response was required and that the dispute should be heard by the Iran-U.S. Claims Tribunal (tribunal), pursuant to an agreement between the U.S. and Iran and an executive order that effectively created the tribunal and transferred any U.S.-Iranian commercial disputes thereto for binding arbitration. The tribunal heard the case and ruled partially in Foremost’s favor, awarding Foremost over $1 million. Foremost then moved to revive its original lawsuit against Iran in federal court to recover the balance of the $7 million Foremost had claimed. The district court permitted Iran to amend its original answer with affirmative defenses and move to dismiss on the grounds of sovereign immunity. In opposition to Iran’s amended answer and motion to dismiss, Foremost argued that per Section 1605(a)(1) of the Foreign Sovereign Immunity Act (FSIA), Iran implicitly waived sovereign immunity by failing to raise it as a defense in its original answer and by agreeing to be subject to binding arbitration by the tribunal.