Sunday, September 2, 2018

K Todd Wallace, Seventh Circuit reverses the district court’s denial of a motion to dismiss a complaint alleging anticompetitive activities


Seventh Circuit reverses the district court’s denial of a motion to dismiss a complaint alleging anticompetitive activities occurring outside the United States pursuant to the Foreign Trade Antitrust Improvements Act

Two groups of plaintiffs filed class action suits against a number of defendants. Group one includes individuals who purchased potash in the United States directly from the defendants. The second group includes individuals who purchased potash products indirectly from the defendants. The Defendants are seven companies whose principal mining operations are located in Canada, Russia, and Belarus. They include Agrium Inc., Potash Corporation of Saskatchewan Inc. (“PCS”), The Mosaic Company, JSC Uralkali, JSC Silvinit, JSC Belarusian Potash Company (“BPC”), and JSC International Potash Company (“IPC”). Agrium, PCS, and Mosaic operate potash mines in the Canadian province of Saskatchewan. These three companies own Canpotex Ltd., a Canadian corporation that is named as a coconspirator but not as a defendant. Canpotex is a joint export marketing and distribution company tasked with coordinating the offshore sales of the potash supply of each of its three stakeholders.

The complaint alleges that the Defendants accounted for about 71% of the world’s potash supply. From 2003 to 2008, potash prices in the United States increased by 600% for no apparent reason. The Plaintiffs allege that the prices increased because the Defendants jointly agreed to restrict output and increase prices of potash. The potash industry is an oligopoly made up of high market concentration. The Plaintiffs also allege that the industry is marked by a high degree of cooperation, which provides the defendants with opportunities to conspire and share information, particularly for the three Defendants involved with Canpotex. All of the anticompetitive activity alleged in the complaint is said to have occurred outside of the United States. The Defendants moved to dismiss the Sherman Act claim for lack of subject matter jurisdiction under the Foreign Trade Antitrust Improvements Act (“FTAIA”). The district court denied the motion and the Defendants appeal.

The United States Court of Appeals for the Seventh Circuit reversed the district court’s decision and dismissed this suit pursuant to the FTAIA. The Sherman Act looks to determine whether the challenged anticompetitive conduct stems from an independent decision or from an agreement, tacit or expressed. The Court found that the FTAIA limits the applicability of the Sherman Act. The Sherman Act does not regulate the competitive conditions of other nations’ economies. It can reach outside the borders of the United States, but only when the conduct has an effect on American commerce. However, the FTAIA makes it clear that the Sherman Act does not prevent American exporters from entering into business arrangements as long as it only adversely affects foreign markets.

The Court applied the FTAIA’s requirements to the Plaintiff’s complaint, finding that it bars this suit. “The flaw in the district court’s reasoning is that it essentially conflates the ‘import commerce’ exception and the “direct effects” exception. If foreign anticompetitive conduct can ‘involve’ U.S. import commerce even if it is directed entirely at markets overseas, then the ‘direct effects’ exception is effectively rendered meaningless. Under the district court’s reading of the statute, a foreign company that does any import business in the United States would violate the Sherman Act whenever it entered into a joint‑selling arrangement overseas regardless of its impact on the American market. This would produce the very interference with foreign economic activity that the FTAIA seeks to prevent.” 657 F.3d 660‑61.

“The import‑commerce exception captures foreign anticompetitive conduct (thus bringing it back within the Sherman Act’s reach) if the overseas anticompetitive conduct actually ‘involves’ the U.S. import market. The direct‑effects exception captures foreign anticompetitive conduct that has a direct, substantial, and reasonably foreseeable effect on U.S. domestic or import commerce regardless of whether the overseas anticompetitive conduct actually ‘involves’ the U.S. import market.” “ Contrary to what the district court seemed to think, it is not enough that the defendants are engaged in the U.S. import market, though that may be relevant to the analysis. Rather, the import trade or commerce exception requires that the defendants’ foreign anticompetitive conduct target U.S. import goods or services.” 657 F.3d 661 (internal citation omitted).

The Court stated that the complaint offers very little information concerning the relationship between the Defendants’ alleged overseas anticompetitive conduct and the American domestic market for potash. “The problem with these generalized allegations is the absence of specific factual content to support the asserted proposition that prices in China, India, and Brazil serve as a benchmark for prices in the United States and that this benchmark, if it exists, has a strong enough relationship with the domestic potash market to raise a plausible inference that the defendants’ foreign anticompetitive conduct has a direct, substantial, and reasonably foreseeable effect on domestic or import commerce. That is, the complaint only generally alludes to a link between the cartelized prices in these three foreign markets and American potash prices.” 657 F.3d 662.

According to the Seventh Circuit, these general allegations are not enough to permit an inference that the increase in potash prices in another country due to the Defendants’ anticompetitive behavior had anything to do with the increased prices in the United States. The Court states that without something more, the Plaintiffs’ complaint fails to satisfy the direct and substantial effect test of the FTAIA. The complaint relied too heavily on chain‑of‑events allegations that the Court finds to be too cryptic and unreliable. Therefore, the Court holds that the complaint does not contain sufficient factual content to plead a plausible direct, substantial, and reasonably foreseeable connection between the alleged foreign anticompetitive activity and the domestic potash market.

Citation: Minn–chem v. Agrium Inc., 657 F.3d 650 (7th Cir. 2011).



*** K. Todd Wallace is an attorney at Wallace Meyaski in New Orleans. He has nearly 20 years of experience in the legal and business professions with established excellence in trial advocacy, negotiation, strategic and initiative planning, government relations, mergers and acquisitions, and team building. See http://www.walmey.com/our-attorneys/k-todd-wallace/