BAE Sys. Tech. Solutions & Servs., Inc. v. Republic of Korea, No. 17-1070 (4th Cir. Mar. 27, 2018) [click for opinion]

Korea decided to upgrade its fighter planes in 2011 and to buy sensitive military technology for the upgrade. The U.S. government barred Korea, based on the nature of the transaction, from purchasing the technology directly from a U.S. contractor in a Direct Commercial Sales ("DCS") transaction. Instead, Korea had to go through the Foreign Military Sales ("FMS") process, wherein Korea could only contract with the U.S. government for the purchase of the technology. The U.S. government would then contract with a U.S. contractor and resell the technology to Korea.

Although in an FMS transaction the foreign government and U.S. contractor do not contract directly, they may coordinate in advance of government-to-government talks in an attempt to predetermine the contents of the eventual government-to-government agreement. In preparation for the FMS transaction, Korea solicited bids from a number of U.S. defense contractors, including BAE Systems Technology Solutions & Services, Inc. ("BAE"). BAE and Korea ultimately entered into a Memorandum of Agreement in which Korea could demand payment of $43.25 million if BAE failed to use its best efforts to ensure that the government-to-government negotiations were concluded on the terms specified in the BAE-Korea agreement.

Korea then sent a formal purchase request to the U.S. and the two sovereigns signed an initial FMS agreement. However, the U.S. later informed Korea that the price of the technology greatly exceeded initial estimates. BAE, as the contractor chosen to provide the requested goods and services, had participated in the inter-governmental discussions related to price. Korea therefore alleged that BAE had not used its best efforts to ensure that the U.S. government agreed to the price that Korea and BAE had worked out in advance, and demanded that BAE pay $43.25 million pursuant to the BAE-Korea agreement.

BAE filed this action in the United States District Court for the District of Maryland, seeking a declaration that it had not breached any obligations to Korea. Korea moved to dismiss, claiming that a forum selection clause in the BAE-Korea agreement required determination of the dispute in Korea. After the district court denied Korea's motion to dismiss, Korea answered the complaint and asserted a number of counterclaims against BAE. Korea also instituted a suit in a Korean court to litigate essentially the same issues. The district court denied BAE's motion for a stay of the Korean proceedings, but ultimately granted summary judgment for BAE, concluding that Korea had no cause of action for breach of the BAE-Korea agreement.

On appeal, the United States Court of Appeals for the Fourth Circuit first considered whether the forum selection clause—stating that disputes shall be decided by the Seoul Central District Court—was permissive, rather than mandatory. The court rejected Korea's argument that use of the word "shall" meant that the forum selection was mandatory, because the clause did not contain any specific language of exclusion, such as "sole," "only," or "exclusive." Because Korea had failed to otherwise meet the forum non conveniens criteria, the court held that the permissive forum selection clause did not provide a basis for dismissing the action.

Next, the court dealt with Korea's contention that the district court had erred in refusing to accord it immunity from suit under the Foreign Sovereign Immunities Act, 28 U.S.C. §§ 1602 et seq. (the "FSIA"). While the FSIA provides immunity from suit, a foreign sovereign can waive such immunity, either explicitly or by implication. One unmistakable instance of implicit waiver occurs when "a foreign state has filed a responsive pleading in a case without raising the defense of sovereign immunity." The court found that was exactly what had occurred here, because Korea had failed to assert sovereign immunity in its initial pleading, and instead asserted counterclaims against BAE. The court further determined that a foreign sovereign could not withdraw an implied waiver once it was made, and that Korea's amended answer and counterclaims, which did refer to the FSIA, could not revive the defense.

Finally, the court upheld the district court's decision not to impose a permanent anti-suit injunction barring Korea from bringing suit in Korea to enforce the agreement because of international comity concerns. The court noted that anti-suit injunctions must be used sparingly and therefore are not appropriate any time there are parallel proceedings, which are common. The court also noted BAE's argument that the injunction was warranted to protect U.S. national security interests, but found that the considerations of comity weighed too heavily against the injunction.