Court Sides With Soviet Union, Upholds Voiding of Businessman’s Libel Judgment

A federal appeals court sided with the Soviet Union on Wednesday in its legal battle with a Palo Alto businessman, who charged the Soviet government with libel and breach of contract and tried to recover his losses by attaching its bank accounts in this country.

The U.S. 9th Circuit Court of Appeals upheld a federal district court ruling that overturned a $250,000 libel judgment to Raphael Gregorian, 59, a former exporter of medical supplies. At the same time, the judges reversed the federal court’s decision to award the businessman $163,000 in a breach-of-contract dispute.

In a telephone interview, Gregorian said the decision was frustrating. He said his business was ruined by Soviet allegations of espionage and criticized the U.S. government for aiding the Soviets.

“It seems the higher I go in the judicial system, the less immune the justices are to the influence of Washington,” said the Soviet-born Gregorian, who moved to this country 40 years ago. “Maybe I should take my case straight to (Mikhail) Gorbachev.”

But Gregorian’s attorney said they will take their case to the U.S. Supreme Court.

“This could be the litmus test for the Soviet’s efforts of perestroika ,” said Los Angeles attorney Gerald Kroll, referring to the Soviet policy of economic openness. “This is certainly an example of perestroika gone wrong. It shows businessmen in this country what can happen when they get into a legal dispute with the Soviet Union--and it’s not a pretty picture.”

In his 1985 lawsuit, Gregorian charged that the Soviet government planted an article in the Soviet government newspaper Izvestia that accused his company, California International Trade Corp., of espionage, bribery, smuggling and other unscrupulous business practices.

“I had been sending supplies to that country for 12 years and after that article, I couldn’t get any new contracts,” said Gregorian, who also claimed he was not paid for certain medical supplies.

After winning the judgment in 1986, Kroll said he contacted the Soviet consul general to collect the award but never received any response. He then went to U.S. District Judge David V. Kenyon, who froze Soviet bank accounts. Kroll also seized a typewriter that belonged to an Izvestia correspondent in Washington.

A year later, the U.S. State Department entered the battle and urged the court to allow the Soviets to present claims of immunity from the judgment under the Foreign Sovereign Immunities Act. Soviet lawyers said the 1976 law precludes suits against a foreign state’s business dealings and other “public acts.”

State department officials also argued that the judgment would have “significant repercussions for other important United States interests with respect to the Soviet Union.”

“They said the decision would impact the arms control talks,” Kroll said. “I fail to see how forcing the Soviet government to pay for medical supplies is going to cause World War III.”

In 1987, Kenyon overturned the libel judgment but upheld the breach of contract award, saying that commercial activity is not immune to lawsuits.

In their decision Wednesday, the three appellate judges said the Foreign Sovereign Immunities Act applied to the breach-of-contract claim, as well as the libel charge.