BAE SYSTEMS TECHNOLOGY SOLUTION & SERVICES, INC., Plaintiff - Appellee,
REPUBLIC OF KOREA'S DEFENSE ACQUISITION PROGRAM ADMINISTRATION; REPUBLIC OF KOREA, Defendants – Appellants. UNITED STATES OF AMERICA, Amicus Curiae. BAE SYSTEMS TECHNOLOGY SOLUTION & SERVICES, INC., Plaintiff - Appellant,
REPUBLIC OF KOREA'S DEFENSE ACQUISITION PROGRAM ADMINISTRATION; REPUBLIC OF KOREA, Defendants – Appellees. UNITED STATES OF AMERICA, Amicus Curiae.
Argued: October 24, 2017
from the United States District Court for the District of
Maryland, at Greenbelt. Paul W. Grimm, District Judge.
Christopher Onorato, SCHERTLER & ONORATO, LLP,
Washington, D.C., for Appellants/Cross-Appellees.
Gregory Michael Williams, WILEY REIN LLP, Washington, D.C.,
J. Spagnoletti, SCHERTLER & ONORATO, LLP, Washington,
D.C.; Jason D. Wallach, BLANK ROME LLP, Washington, D.C., for
Richard W. Smith, Ari S. Meltzer, Katherine C. Campbell,
Scott A. Felder, WILEY REIN LLP, Washington, D.C., for
A. Readler, Acting Assistant Attorney General, Sharon
Swingle, Benjamin M. Shultz, UNITED STATES DEPARTMENT OF
JUSTICE, Washington, D.C.; Stephen M. Schenning, Acting
United States Attorney, OFFICE OF THE UNITED STATES ATTORNEY,
Baltimore, Maryland, for Amicus Curiae.
MOTZ, KEENAN, and THACKER, Circuit Judges.
GRIBBON MOTZ, CIRCUIT JUDGE
appeals arise from a contract dispute between a United States
defense contractor, BAE Systems Technology Solutions &
Services, Inc. (BAE), and the Republic of Korea and its
Defense Acquisition Program Administration (collectively
Korea). BAE sought a declaratory judgment that it had not
breached any contractual obligation to Korea and a permanent
injunction barring Korea from prosecuting its suit against
BAE in Korean courts. The district court granted BAE the
requested declaration but refused to issue a permanent
anti-suit injunction. Korea appeals, and BAE cross-appeals.
For the reasons that follow, we affirm.
Arms Export Control Act (AECA), 22 U.S.C. §§ 2751
et seq., authorizes the Executive Branch to engage
in Foreign Military Sales (FMS) transactions when selling
certain U.S. military goods or services to a foreign
government. This dispute centers on such a transaction
between the United States and Korea.
FMS transaction, the foreign sovereign contracts with the
U.S. government through a Letter of Offer and Acceptance. The
U.S. government then contracts with a U.S. contractor for the
goods or services that the U.S. government will eventually
resell to the foreign sovereign. See 28 U.S.C.
§ 2762. Under the FMS structure, the U.S. contractor is
"directly obligated" to the U.S. government and
"has no direct contractual relationship" with the
foreign government. Def. Inst. of Sec. Cooperation Studies,
The Management of Security Cooperation (Green
Book) 9-3 (37.1 ed. May 2017). For that reason, this dual-contract
structure precludes the foreign sovereign from directly suing
the U.S. contractor for its performance on an FMS contract.
See Sec'y of State for Defence v. Trimble Nav.
Ltd., 484 F.3d 700, 707 (4th Cir. 2007).
structure also permits the U.S. government to exercise
significant control over the transaction. Once the two
sovereigns agree on the terms of sale, the foreign sovereign
must "trust" the U.S. government "to
negotiate a contract [with a U.S. contractor] that will meet
[the foreign government's] needs." Green
Book at 15-8. The U.S. government "determines the
contract type, selects the contract source, and negotiates
prices and contract terms with individual contractors."
Id. Importantly here, in an FMS transaction, the
U.S. government retains control over price. Although the
sovereign-to-sovereign agreement contains an initial price
estimate, the foreign government must pay whatever the U.S.
government contends the transaction costs - even if that
amount exceeds the previous estimate. See Def. Sec.
Cooperation Agency, U.S. Dep't of Def., Security
Assistance Management Manual (SAMM), Fig. C5.F4
§ 4.4.1, http://www.samm.dsca.mil (last visited February
9, 2018). In sum, the FMS structure provides advantages and
disadvantages for a foreign purchaser. One potential
advantage is that, in an FMS transaction, the foreign
purchaser benefits from the U.S. government's procurement
expertise. See Green Book at 15-7, 15-8. One
disadvantage, however, is the loss of control over several
aspects of the transaction.
instances, a foreign sovereign may choose whether to procure
goods and services through the FMS structure or whether to
purchase them directly from the U.S. contractor through a
Direct Commercial Sales (DCS) transaction. For military sales
it deems particularly sensitive, however, the U.S. government
requires the use of the FMS structure. See Trimble,
484 F.3d at 710 (noting the President has discretion to
designate which military items must be sold exclusively
through FMS channels); SAMM at § C4.3.5
("The AECA gives the President discretion to designate
which military end-items must be sold exclusively through FMS
channels. This discretion is delegated under statutory
authority to the Secretary of State. Generally, as a matter
of policy, this discretion is exercised upon the
recommendation of DoD.").
in an FMS transaction the foreign government and U.S.
contractor do not contract directly, the foreign sovereign
and U.S. contractor may coordinate in advance of the
government-to-government talks in an attempt to pre-determine
the contents of the eventual government-to-government
agreement. Before submitting its FMS purchase request to the
U.S. government, for instance, a foreign sovereign may
negotiate proposed pricing and technical specifications with
a favored U.S. contractor and then urge the U.S. government
to provide a sole source award to that contractor under the
pre-negotiated terms. But the U.S. government need not agree
to do so.
dual-contract structure of an FMS transaction has important
implications for resolving legal disputes. The foreign
sovereign cannot directly sue the U.S. contractor for its
performance on an FMS contract. Nor can the two sovereigns
sue each other for failure to perform on the
government-to-government contract: their only recourse is to
hold bilateral consultations. SAMM at Fig. C5.F4
2011, Korea announced its intention to upgrade its fighter
planes. Because this upgrade program required Korea to obtain
sensitive military technology, the U.S. government barred
Korea from purchasing directly from U.S. contractors through
a direct purchase DCS transaction and instead required Korea
to procure the desired goods and services through an FMS
preparation for this FMS transaction, Korea solicited bids
from U.S. defense contractors, including BAE, as to the cost
of providing the desired upgrades. BAE responded and issued
successive Letters of Guarantee to Korea. In those letters,
BAE agreed to pay Korea $43.25 million if BAE failed to
"respond timely to the evaluation formalities of the
bidder's qualification," assuming BAE was
"designated as an eligible bidder," or if
BAE failed to execute a contract with Korea after Korea
awarded its bid to BAE. BAE issued the first Letter of
Guarantee in late 2011; soon thereafter, Korea selected BAE
as its favored contractor for the upgrade program. In the
ensuing years, BAE renewed its Letter of Guarantee several
times, including in 2013 and 2014.
the dual-contract structure in an FMS transaction, Korea and
BAE attempted to pre-negotiate key aspects of the
inter-governmental talks. They agreed on what Korea would
request from the U.S. government and at what price. BAE
promised to "put forth its best effort" to convince
the U.S. government to agree to those terms. In exchange,
Korea promised to recommend BAE as its favored contractor to
supply the requested goods and services to the U.S.
August 1, 2012, BAE and Korea memorialized their
understandings in a Memorandum of Agreement. That BAE-Korea
agreement authorized Korea to demand payment of the $43.25
million promised in the Letters of Guarantee if (1) BAE
failed to use its "best effort" to secure the terms
specified in the BAE-Korea agreement in the separate
agreement between the U.S. and Korean governments, and (2)
BAE's failure to use its "best effort" delayed
conclusion of the government-to-government negotiations. The
BAE-Korea agreement also contains a forum selection clause,
which provides that any dispute between BAE and Korea
"shall be resolved through litigation and the Seoul
Central Court shall hold jurisdiction." Finally, the
BAE-Korea agreement provides that it "automatically
terminate[s]" upon execution of an FMS agreement between
the U.S. and Korean governments.
then sent its formal purchase request to the U.S. government,
initiating the FMS government-to-government negotiations. In
December 2013, the two sovereigns signed an initial FMS
agreement that covered preliminary issues and anticipated a
"follow-on amendment" to execute the core of the
FMS transaction. With respect to the anticipated follow-on
amendment, the U.S. government initially signaled it could
meet Korea's budget but later informed Korea that the
price tag of the FMS transaction would greatly exceed initial
estimates. BAE, as the contractor chosen to provide the
requested goods and services, had participated in
inter-governmental discussions related to price. After the
U.S. government raised its overall price estimate, Korea
charged that BAE had breached the BAE-Korea agreement by
failing to use its best efforts to ensure the U.S. government
agreed to the price that Korea and BAE had worked out in
advance. BAE steadfastly denied this, explaining that the
U.S. government increased its price for reasons having
nothing to do with BAE and despite its best efforts.
Nonetheless, Korea demanded that BAE pay $43.25 million
pursuant to the BAE-Korea agreement.
then filed this action in federal court, seeking a
declaration that it had not breached any obligations to
Korea. After the court denied Korea's motion to dismiss,
Korea answered the complaint and asserted a number of
cross-claims against BAE. Korea also initiated a suit in a
Korean court to litigate essentially the same issues. The
district court issued the requested declaratory judgment to
BAE but refused to enjoin the litigation in Korea. This
timely appeal followed.
initially grounds its appeal in the forum selection clause
contained in the BAE-Korea agreement. That forum selection
clause provides that any dispute arising from or relating to
the BAE-Korea agreement "shall be resolved through a
litigation and the Seoul Central District Court shall hold
jurisdiction." Korea claims this is a mandatory forum
selection clause, requiring all litigation to occur in Korea,
and thus requires dismissal of BAE's suit. BAE maintains
that it is permissive, providing that Seoul, Korea is an
appropriate forum for litigation, but not barring litigation
the parties agree that we consider this question de
novo, and we traditionally have done so, the more
deferential, abuse-of-discretion standard of review may be
appropriate in light of Atlantic Marine Construction Co.
v. U.S. District Court, 134 S.Ct. 568
(2013). We need not resolve the