Karen LeCraft Henderson.
Karen LeCraft Henderson. (Photo: Diego M. Radzinschi/NLJ.)

Lawyers for a company awarded approximately $13.4 million in legal fees in a decades-long dispute over Iranian dairy interests got bad news Tuesday morning. A federal appeals court in Washington reversed the fee awards, finding their client was instead entitled to only $29,516 in fees.

Morgan, Lewis & Bockius and Winston & Strawn represented McKesson Corp. in litigation against Iran. McKesson partnered with Iranian investors to create a dairy in Iran in the 1960s, but the company and its personnel fled during the Iranian Revolution in 1979. In litigation dating to 1982, McKesson accused Iran of expropriating its interests in the dairy and sued for damages.

The case made numerous trips to the appeals courts over the years, but McKesson ultimately prevailed, winning a $29.3 million judgment in 2013. Between 2000 and 2013, McKesson was awarded approximately $13.4 million in legal fees.

Iran, represented by Harris, Wiltshire & Grannis, appealed the fee awards.

Judge Karen LeCraft Henderson said the trial court applied the wrong law in determining how much Iran owed. The litigation was governed by Iranian law, she said, so the judge could not decide fees under American law. Iran argued that under Iranian regulations, an “official tariff” applied, which would result in a $29,516 fee award.

McKesson countered that Iran failed to show that the tariff applied in cases in non-Iranian courts involving non-Iranian lawyers. But Henderson said the burden was on McKesson to prove that the Iranian rules did not apply, and not vice versa.

“Although McKesson criticizes Iran’s expert on Iranian law for not supplying authority for the proposition that the tariff applies in actions pursued outside Iranian courts, neither does McKesson’s expert offer any authority supporting the notion that it does not apply in such cases,” Henderson wrote.

Henderson pointed to internal inconsistencies in McKesson’s position. The company invoked Iranian law to argue its entitlement to legal fees, she wrote, but “runs from Iranian law where it is less generous than U.S. law—i.e., where the applicable tariff yields a smaller award than might have been granted if McKesson had brought its action under a U.S. fee-shifting statute.”

The appeals court put its order on hold until McKesson exhausts any effort to challenge the ruling. Judges Judith Rogers and Davis Tatel also heard the case.

Mark Bravin, a partner and co-chairman of the international arbitration practice at Winston & Strawn, argued for McKesson. He declined to comment.

Patrick O’Donnell of Harris, Wiltshire & Grannis argued for Iran. “We’re gratified by the court’s prompt ruling,” he said in an email.

Contact Zoe Tillman at ztillman@alm.com. On Twitter: @zoetillman.