Appeal from an order of the United States District Court for the Southern District of New York, Vincent A. Broderick, Judge, preliminarily enjoining payments under letters of credit issued in connection with a contract between plaintiff and the Iran Ministry of War. Affirmed.
Friendly, Oakes, and Cardamone, Circuit Judges.
Citibank, N.A. (Citibank), and Bank Tejarat (Tejarat) appeal from an order granting a preliminary injunction issued by the United States District Court for the Southern District of New York, Vincent L. Broderick, Judge, on October 15, 1982, and from a second order, entered by Judge Broderick on March 1, 1983, denying appellants' motion to vacate the prior order. The October 15 order enjoined Tejarat from making, and Citibank from honoring, demands under two letters of credit issued by Citibank in favor of Tejarat to secure the performance of plaintiff Rockwell International Systems, Inc. (Rockwell), under a contract between Rockwell and the Ministry of War of the Imperial Government of Iran. The gist of Rockwell's case is that, as a result of the revolution in Iran and its aftermath, it was prevented by the new government in Iran from completing performance of the contract and that the subsequent calls by Iranian officials at Tejarat on the letters of credit were fraudulent. Judge Broderick denied the defendant-appellants' motion to vacate a temporary restraining order that had remained in effect by consent*fn1 of the parties since May 5, 1980, and, after finding that Rockwell's showing satisfied the requirements of probable success on the merits and irreparable harm, granted the preliminary injunction. Tejarat and Citibank appeal; Rockwell cross-appeals that portion of Judge Broderick's order requiring it to indemnify Citibank against any damages resulting from the injunction. We affirm.
In September of 1977 Rockwell entered into Contract 120 (the contract) with the Ministry of War of the Imperial Government of Iran. Under the contract Rockwell was to provide engineering and advisory services and material in connection with the establishment of a communications system in Iran. Article 7.1 of the contract required that Rockwell
submit to the [Ministry of War] one or several Bank Guarantee[s] issued by one of the Iranian Bank[s] accepted by the [Ministry], which [sic] the total amount of them to be equal to 10% of the total amount of the Contract . . . for the correct performance of the Contract. . . .
Accordingly Tejarat's prerevolutionary predecessor, Iranians' Bank, issued two guarantees totalling $2,364,782 in favor of the Imperial Government to secure Rockwell's performance. These guarantees were in turn backed up by two letters of credit in favor of Iranians' Bank issued by Citibank at Rockwell's behest, thus establishing the four-corner arrangement customary in international transactions of this sort, involving what are commonly referred to as "standby letters of credit." See Getz, Enjoining the International Standby Letter of Credit: The Iranian Letter of Credit Cases, 21 Harv. Int'l L.J. 189, 198-200 (1980).
The events surrounding the Shah's fall and the seizure of the American Embassy in Iran need not be recounted here; suffice it to say that Rockwell, in a letter dated February 1, 1979, invoked the force majeure clause of Contract 120, demanded an extension of completion time and offered to "discuss th[e] matter . . . by telephone . . . or . . . in Iran, as soon as circumstances permit." A meeting between Rockwell representatives and the Ministry of War, now called the Ministry of Defense, took place in Tehran on September 22, 1979, at which time Rockwell proposed that it be paid $3,159,400 for work to date and that the contract be terminated. This proposal was rejected, but neither Tejarat nor Citibank dispute Rockwell's contention that the Iranian representatives at the meeting "made it clear that they expected no further performance from [Rockwell] pending further negotiations, the termination of Contract 120, and the execution of new contracts." Although Rockwell arguably could have cancelled the contract, thus securing release of the letters of credit,*fn2 it instead indicated its willingness to complete performance.
By November of 1979 relations between Iran and the United States had become hostile; in response to the embassy seizure, President Carter froze all Iranian assets on November 14, 1979. Diplomatic relations with Iran were severed on April 7, 1980, and the Iranian Assets Control Regulations, 31 C.F.R. §§ 535.101-535.904 (1982), were broadened so as to prohibit virtually all transactions between Iranian and American nationals. On April 25, 1980, Rockwell was informed by Citibank that it had, on March 31 and April 22, received Tejarat's demands for payments under the letters of credit.*fn3 Rockwell immediately filed suit, and on May 5, 1980, obtained a temporary restraining order preventing Citibank from honoring the demands.
As a threshold matter we emphasize that we deal here only with the propriety of interim, i.e., preliminary, injunctive relief. Judge Broderick's order did not permanently enjoin Citibank from paying Tejarat's demands under the letters of credit and, except to the extent necessary to review the finding of probability of success on the merits, we do not address the merits of the issues involved in the contractual dispute or the continued validity of the letters of credit.
We reject at the outset Tejarat's argument that, by virtue of the January 19, 1981, "Hostage Agreement"*fn4 establishing the Iran-United States Claim Tribunal (Tribunal), United States courts lack jurisdiction to grant preliminary injunctive relief. The Assets Control Regulations promulgated by the Executive Branch to implement the Tribunal Agreement prohibit only a "final judicial judgment or order (A) permanently enjoining, (B) terminating or nullifying, or (C) otherwise permanently disposing of any interest of Iran in any standby letter of credit. . . ." 31 C.F.R. § 535.504(b)(3)(i) (1983). As the "supplementary information" accompanying this regulation makes clear, the purpose of the regulation "is to preserve the status quo by continuing to allow U.S. account parties to obtain preliminary injunctions or other temporary relief to prevent payment on standby letters of credit. . . ." 47 Fed. Reg. 29,529 (1982). Although Iran is currently challenging the validity of this regulation before the Tribunal at least until such time as that body rules, precedent, see, e.g., Kolovrat v. Oregon, 366 U.S. 187, 194-95, 6 L. Ed. 2d 218, 81 S. Ct. 922 (1961), as well as prudence, counsel deference to the Executive's view that preliminary injunctive relief is not inconsistent with the agreement establishing the Tribunal.
Having determined that the district court had the authority to grant the preliminary injunction, we next address whether it properly did so in this case. In this circuit a movant must make a "showing of (a) irreparable harm and (b) either (1) likelihood of success on the merits or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly" in its favor. Jackson Dairy, Inc. v. ...