## Facts

- McKesson Corporation, a U.S. company, held a substantial minority equity interest in Pak Dairy, an Iranian joint-stock dairy company, after Iran encouraged foreign investment.
- Following the 1979 Islamic Revolution, Iran and state-controlled entities allegedly used corporate control over Pak Dairy to exclude McKesson from management and block payment of dividends.
- McKesson claimed Iran effectively expropriated its equity interest without compensation and withheld declared dividends.
- In 1982, McKesson sued Iran in the U.S. District Court for the District of Columbia; proceedings were stayed while related matters went to the Iran–U.S. Claims Tribunal.
- The Tribunal awarded McKesson roughly $1.4 million for withheld dividends for 1979–1980, but did not resolve the broader expropriation claim.
- The litigation continued through multiple appeals; on remand from a 2008 decision, the district court found Iran liable for expropriation and withheld dividends, relying on the Treaty of Amity as incorporated into Iranian law, and awarded damages exceeding $43 million including compound interest.

## Issues

1. Whether the act of state doctrine barred adjudication of claims arising from Iran’s conduct affecting a commercial enterprise located in Iran.
2. Whether McKesson had a private right of action based on (a) customary international law or (b) the 1955 U.S.–Iran Treaty of Amity as part of Iranian municipal law.
3. Whether the district court correctly found Iran liable for expropriation of McKesson’s equity interest and for withholding dividends.
4. Whether Iranian law authorized compound interest, or instead limited recovery to simple interest.

## Decision

- The court held the act of state doctrine did not bar the suit because the challenged conduct was tied to governance of a commercial enterprise in which Iran acted as a shareholder/market participant.
- The court reversed insofar as the district court permitted McKesson to base its claim directly on customary international law, concluding customary international law did not itself supply a private cause of action.
- The court affirmed that the Treaty of Amity, construed as part of Iranian law, supplied enforceable investor rights and a viable basis for McKesson’s claim in a U.S. court with FSIA jurisdiction.
- The court affirmed the district court’s liability findings that Iran expropriated McKesson’s equity interest and withheld dividends.
- The court reversed the award of compound interest and remanded for recalculation using simple interest.

## Legal Principles

- The act of state doctrine does not necessarily apply where a foreign sovereign’s challenged conduct is connected to commercial activity and resembles actions of a controlling shareholder rather than sovereign regulation.
- Post-*Sosa* doctrine limits reliance on customary international law as a freestanding source of a private right of action; a separate positive-law basis is generally required.
- A bilateral treaty may support liability when treated as incorporated into the foreign state’s domestic law and shown (through applicable foreign-law proof) to create enforceable rights for the claimant.
- Under FSIA, U.S. courts may exercise jurisdiction over a foreign state when claims fall within the commercial activity exception, even if relevant conduct occurred abroad.
- When a U.S. court applies foreign law to remedies against a foreign sovereign, the measure of interest must be supported by that foreign law; absent authorization, compound interest is improper.

## Conclusion

The D.C. Circuit permitted McKesson’s investment-related claims to proceed notwithstanding act-of-state concerns, rejected customary international law as a direct cause of action, sustained liability under Iranian law incorporating Treaty of Amity protections, and required damages to be recalculated using simple (not compound) interest.


McKesson Corp. v. Islamic Republic of Iran, 672 F.3d 1066 (D.C. Cir. 2012)