$250,000 Libel Award Against Izvestia Voided

A federal judge overturned on Monday an unprecedented $250,000 libel award against the Soviet newspaper Izvestia, concluding that U.S. citizens are barred under federal law from bringing libel suits against foreign governments.

U.S. District Judge David V. Kenyon let stand, however, a default judgment of $163,165 in contract damages awarded to the same Palo Alto businessman who filed the libel suit, ruling that the Soviet Union’s extensive trade missions in the United States render its representatives subject to the nation’s commercial tort laws.

“Respect for a sovereign’s public acts is necessary to keep courts away from those areas that touch very closely upon the sensitive nerves of foreign countries,” Kenyon wrote in concluding that statements about Raphael Gregorian in the government newspaper, although apparently “fabricated,” are protected under U.S. law.

“While noticing the unjustified injury to Mr. Gregorian resulting from the accusations in Izvestia, this court must also conclude that the libel was a wrong for which there is no remedy,” Kenyon wrote.

At the same time, Kenyon ruled that Gregorian was entitled to sue for the Soviet government’s failure to pay for more than $160,000 in medical equipment delivered by his Palo Alto company, California International Trade Corp., concluding that sovereign immunity does not extend to commercial contracts.

The decision overturns, in part, Kenyon’s ruling in July, 1986, awarding Gregorian $413,000 in damages stemming from Izvestia’s publication of an article accusing him of espionage, bribery, smuggling and other unscrupulous business practices.

Gregorian, owner of a medical equipment firm that had exported equipment to the Soviet Union for more than 12 years, said the article destroyed his reputation both at home and abroad. He claimed that the Soviets had trumped up the espionage charges to avoid paying him money he was owed on medical equipment and to avoid paying his commissions on future sales.

The Soviets claimed sovereign immunity and failed to appear in court on Gregorian’s suit, prompting the default judgment that Kenyon issued last year. Monday’s ruling represented a reconsideration of that judgment at the request of two Soviet trade organizations that reasserted the government’s immunity claims.

The U.S. State Department entered the fray early this year, urging the court to allow the Soviets to press their claims about diplomatic immunity and asserting that the default judgment would have “significant repercussions for other important United States interests with respect to the Soviet Union.”

The 36-page decision issued Monday addresses complex issues of international law, including what limits must be applied to foreign governments’ immunity claims and whether a government-published newspaper in the Soviet Union can properly be considered a commercial venture.

Under the Foreign Sovereign Immunities Act, the immunity of foreign governments is restricted to suits involving a state’s “public” acts and does not extend to suits based on its commercial or private acts.

Rejected Concept

The Soviet government has historically rejected the concept of “restricted” immunity, a position that has brought it into conflict with the laws of a number of Western nations, including the United States.

Kenyon did not appear to have resolved the issue of whether Izvestia could be considered a commercial venture of the Soviet government, as Gregorian’s lawyer, Gerald Kroll, claimed.

Instead, he noted that the U.S. government is immune as a matter of law from domestic libel suits and said it is “unlikely” that Congress intended that foreign sovereigns could be sued on claims for which the U.S. government is immune.

The court also ruled, however, that Gregorian’s contract claims that he was not paid for medical equipment clearly fall within the commercial exception of the immunity law, despite the Soviets’ claims that U.S. courts do not have jurisdiction over trade within the Soviet Union.

Kroll said he will attempt to begin collecting on the contracts part of the judgment, which he said totals about $200,000, with interest.

Destroyed Business

“Basically, to the extent that the decision vindicates my client, we’re pleased. The court recognized that the Soviets fabricated the story in Izvestia about my client, and it was that story that served to destroy my client’s business,” Kroll said.

“Now, it is really a question of whether the Soviets will use this opportunity to take a step forward in relations between our two countries,” Kroll added. “Now that they’ve had a chance to utilize our legal system, we look to the Soviets now to live up to the judgment that has been awarded against them and to immediately pay. . . . If the Soviets want us to believe that they are going to be honest and reliable trade partners, here’s their chance to prove it.”

Martin Popper, a New York-based attorney representing the Soviet defendants, said he had not yet seen the ruling.

“They sued for libel, and the (law) specifically says a foreign sovereignty is immune from any liability for libel. He agreed with us, apparently,” Popper said.