Fourth Circuit Affirms Dismissal Of Broker’s Suit Alleging Partners Conspired To Cut It Out Of Lucrative Military Procurement Deal
11/22/2022On November 15, 2022, the United States Court of Appeals for the Fourth Circuit unanimously affirmed a district court’s dismissal of a broker’s suit against two aerospace contractors and South Korea alleging that they conspired to cut it out of a large, complex international military procurement transaction because the court lacked subject matter jurisdiction under the Foreign Sovereign Immunities Act (FSIA) and plaintiff’s antitrust claims were untimely under the Clayton Act’s four-year statute of limitations. Blenheim Capital Holdings Ltd. v. Lockheed Martin Corporation, No. 21-2104 (4th Cir. Nov. 15, 2022).
In this case, plaintiff alleged that it was wrongfully “cut out” of an “offset” transaction that it had brokered among the government of South Korea and the two corporate defendants, motivated at least in part by anticompetitive animus of one of the defendants. Specifically, plaintiff alleged that it had brokered a transaction to provide South Korea with 40 F-35 fighter planes and a “Next-gen” military satellite manufactured by two of the defendants. The deal was structured so that South Korea would pay only a portion of the cost of the military satellite — payment which plaintiff would then use as capital to obtain financing for the purchase of three satellites. The additional two satellites were to be retained and leased out by plaintiff, earning income to pay for the satellite production and financing costs and provide plaintiff with an alleged estimated profit of “at least $500 million.” Because the transaction involved highly sensitive military equipment designed for the U.S. military, it needed to be conducted as a “Foreign Military Sale,” subject to the approval and supervision of the U.S. Department of Defense.
After one defendant terminated the arrangement with plaintiff and restructured the deal as a “direct procurement” between the suppliers and South Korea, with continued supervision by the U.S. government, plaintiff brought suit, seeking damages and other monetary relief based on the alleged costs incurred in designing the transaction, and the lost prospective profit from the operation of the two satellites. Plaintiff claimed that defendants (1) tortiously interfered with its brokerage arrangement and its prospective business expectations; (2) conspired to do so; (3) were unjustly enriched; and (4) conspired to violate federal and state antitrust laws.
Defendants filed motions to dismiss, which the district court granted, concluding that it lacked subject matter jurisdiction over the tort claims because South Korea was presumptively immune under the Foreign Sovereign Immunities Act and did not fall into any exemption. The district court also held that plaintiff’s antitrust claims were barred by the applicable four-year statute of limitations and because the alleged anticompetitive conduct did not have sufficient effect on domestic or import commerce under the Foreign Trade Antitrust Improvements Act (FTAIA).
On appeal, plaintiff argued that the district court possessed subject matter jurisdiction under the “commercial activity” exemption to the FSIA because the transaction was “implemented through commercial contracts” executed solely by the parties, not including the U.S. government. Plaintiff also argued that, considering the “nature” of the activity, the offset transaction was commercial because it simply involved “the purchase and sale of goods,” and that it was irrelevant that the goods were being purchased by a sovereign government. The Fourth Circuit disagreed, citing to Republic of Argentina v. Weltover, Inc., 504 U.S. 607, 614 (1992), for the principle that when a sovereign engages in a transaction peculiar to sovereigns, and in which private parties cannot engage — such as in a military procurement subject to supervision of another sovereign government for national security reasons — it is engaged in sovereign activity that is not excepted from the immunity conferred by the FSIA, even if it involves the purchase of goods.
Plaintiff also argued that the district court erred in dismissing its antitrust claims for being outside the four-year statute of limitations and because the conduct was not subject to U.S. antitrust laws under the FTAIA. Plaintiff argued that defendants’ original letter terminating the agreement for cause (which was sent more than four years before the suit commenced) was invalid as a matter of law, and so the claims instead accrued when the agreement was terminated later (within the statute) under the “no cause” termination provisions of the contract. Plaintiff also argued that its injury was “not complete” until the restructuring of the offset transaction was finished and the military satellite was launched. The Fourth Circuit again disagreed, holding that whether the original termination itself was legal or illegal has no relevance because the original termination letter “cut [the plaintiff] out of the transaction and thus deprived it of its anticipated benefits.” The Court also held that plaintiff’s argument that the accrual date of its action extended until the transaction was complete lacked legal support because, under the Clayton Act, a plaintiff must sue within four years from when it first experiences the adverse impact of the alleged antitrust conspiracy.
Because the above grounds were enough to affirm dismissal, the Court expressly did not reach whether the complaint passed muster under the FTAIA, but did state that the district court had “persuasively” reasoned that the alleged anti-competitive conduct did not sufficiently affect U.S. domestic or import commerce.