U.S. Backs Soviet Union in Businessman’s Libel Suit

Attorneys for the Soviet Union and the U.S. government joined forces in an unusual alliance on Thursday to battle an American businessman’s lawsuit in federal appeals court.

The thorny case of Raphael Gregorian, an American denounced by the Soviets and barred from doing business in Moscow after 14 years, raises potentially precedent-setting international issues.

He has sued the Soviets for libel. The Soviets have resisted and the U.S. State Department has sided with the Soviets, saying they may not be sued for libel in the United States. The case is before the 9th U.S. Circuit Court of Appeals.

“This specific litigation has been the subject of extensive diplomatic discussions between American and Soviet officials,” according to a “statement of interest” filed by Justice Department attorney Douglas Letter. “As a foreign relations matter, the United States has considerable interest in the outcome of these appeals.”

Gregorian’s problems began in 1984 when, after a 14-year amicable relationship, the Soviets suddenly revoked Gregorian’s permit to sell medical supplies in the Soviet Union. Until then, his California International Trade Corp., based in Palo Alto, had done a thriving business exporting such items as kidney dialysis machines, heart-lung machines and batteries for heart pacemakers.

Soon after revoking his permit, the Soviet newspaper Izvestia printed a story denouncing Gregorian as a “duplicitous negotiator,” accusing him of bribery and smuggling and intimating he was a U.S. spy.

Gregorian, adamant about his innocence, did something no one had done before. He sued the Soviet Union in U.S. courts for libel. He also demanded that the Soviet Union pay for medical equipment still in Moscow.

The Soviet Union at first ignored the suit. But in 1985, U.S. District Judge David Kenyon entered a default judgment against them in Los Angeles, awarding Gregorian total damages of $413,000.

Of that amount, $250,000 was for libel.

The Soviets refused to pay. Gregorian’s attorney, Gerald Kroll, said he would seize Soviet assets. In a colorful episode, he took custody of a typewriter at an Izvestia correspondent’s Washington home as partial payment

Then, Soviet and U.S. State Department lawyers went to court. The Soviet agency V.O. Medexport, which did business with Gregorian, asserted its immunity from suit under the Foreign Sovereign Immunities Act and moved to reverse the judgment.

On April 5, 1987, Kenyon dismissed the libel judgment because of immunity considerations. However, he let stand his ruling the Soviets should meet their contractual obligation to pay for the medical supplies.

Kroll appealed the ruling on libel to the U.S. 9th Circuit Court of Appeals. The Soviets appealed the contractual award and disputed the libel claim.

Kroll’s argument is based on a theory that libel stemming from a commercial activity is exempt from the Foreign Sovereign Immunities Act and must be tried as a civil claim in U.S. courts.

New York attorney Martin Popper, who represents the Soviets, said in his legal brief that there is no precedent for such a claim.

The U.S. Justice Department’s brief sided with the Soviets, saying “Congress did not intend that foreign states could be sued for claims of libel.”