Canadian Bar Association 2005 Annual Fall Conference on Competition Law
November 3-4, 2005
CROSS-BORDER QUARRY: PURSUING CANADIAN LITIGATION IN AMERICAN COURTS
Outsiders often view with interest the private enforcement of competition law through the U.S. courts. Treble damages, per se offences, Illinois Brick, class actions and juries represent a potent mix of plaintiff-friendly factors that permit private U.S. claimants to impose shock and awe on alleged cartelists.
It is not surprising that foreign litigants might try to gain entry to this arena. If commodities are arbitraged to take advantage of cross-border differences in price or terms, why not litigation?
This paper considers recent jurisprudence relating to two manifestations of this phenomenon. The first involves Canadian litigants with Canadian price-fixing claims who seek to bring those claims in U.S. courts under U.S. antitrust law. The second involves Canadian claimants who, unbeknownst to them, have their claims resolved for them by U.S. courts.
Foreign Antitrust Claimants In U.S. Courts – Empagran (Again)
The U.S. courts have more or less completed their tortuous path toward determining whether foreign plaintiffs may bring Sherman Act claims in U.S. courts in respect of price-fixing in foreign markets. In the result, after four separate rulings in Empagran,1 the U.S. courts have decided that they generally lack subject matter jurisdiction over such claims.
Section 1 of the Sherman Act provides: "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal." The issue for foreign claims arises under the 1982 Foreign Trade Antitrust Improvements Act (the "FTAIA").2 The FTAIA provides generally that the Sherman Act is inapplicable to conduct involving non-import foreign trade or commerce.3 However, the FTAIA’s restraint on the scope of the Sherman Act is subject to an exception for conduct that has a "direct, substantial, and reasonably foreseeable effect" on (inter alia) domestic trade or commerce when such effect "gives rise to a claim" under the Sherman Act.4
The Empagran litigation arose in the context of the international vitamins cartels. These cartels affected domestic U.S. commerce and therefore gave rise to Sherman Act claims by U.S. purchasers. The issue was whether a foreign purchaser, who purchased vitamins in a foreign market, could bring a Sherman Act claim in U.S. courts or whether such a claim was excluded by the general rule in the FTAIA.
This issue was already the subject of recent conflicting decision by two circuits of the United States Court of Appeals. In Den Norske,5 a Norwegian oil company sought damages under the Sherman Act for an alleged conspiracy by a number of Dutch and British companies to fix the price of marine services in the North Sea. The plaintiff asserted not only that the alleged conspiracy raised operating costs in the North Sea but also that those increased costs led to higher oil prices in the United States. The plaintiff argued that the exception to the general FTAIA rule was thereby satisfied. The Fifth Circuit disagreed. It held that the FTAIA "precludes subject matter jurisdiction over claims by foreign plaintiffs where the situs of the injury is overseas and that injury arises from effects in a non-domestic market".6 It was not sufficient for a plaintiff injured solely in a foreign market to rely on the fact that there were also domestic effects arising from the cartel.
The Second Circuit came to the opposite conclusion in Kruman.7 This case involved a class of foreign plaintiffs, including Canadians, seeking damages from two auction houses for fixing the price of auction services provided to the class in respect of auctions conducted outside the U.S. The Second Circuit determined that U.S. courts did have subject matter jurisdiction over this claim. It noted that the alleged conspiracy affected not only foreign but also domestic auctions. It went on to hold that the requisite domestic effect need only give rise to "a" claim by anyone, and not "the" claims by the plaintiffs, to satisfy the FTAIA exception to the general rule that the Sherman Act would not apply.
The Empagran litigation was contemporaneous with Den Norske and Kruman but, unlike those cases, went on to the U.S. Supreme Court. At first instance, the District Court granted a defence motion to dismiss the foreign class claims for lack of subject matter jurisdiction under the FTAIA. On appeal, a divided panel of the D.C. Circuit reversed, holding that the FTAIA permits claims by foreign claimants injured only in foreign markets where the anti-competitive conduct also had the required effect on U.S. commerce.8 The majority on the D.C. Circuit seemed to be motivated, at least in part, by a desire to impose worldwide treble damages in order to better deter global conspiracies that might harm U.S. commerce.9
The U.S. Supreme Court subsequently granted certiorari to resolve the various circuit decisions with respect to the meaning and scope of the FTAIA.
In the result, the Supreme Court overturned the D.C. Circuit decision and held, unanimously, that U.S. courts lacked subject matter jurisdiction under the FTAIA in respect of anti-competitive conduct causing foreign harm that, alone, gives rise to the plaintiff’s claim.10 The court came to this conclusion not so much on the basis of a close semantic reading of the FTAIA but rather by applying notions of comity. The court held that it should construe ambiguous statutes like the FTAIA in a way that avoided "unreasonable interference with the sovereign authority of other nations". It went on to note that the plaintiff’s interpretation of the FTAIA, which would permit the application of U.S. antitrust law to independent foreign harm, would give rise to the unreasonable interference which the court sought to avoid. The court cited various amicus briefs filed by a number of foreign countries, including Canada, in support of its conclusions as to the nature of the interference in those countries’ domestic affairs that the application of the Sherman Act would cause.
While the Supreme Court was clear in its interpretation and application of the FTAIA, it did so at an expressly theoretical level. The court based its conclusions on an assumption that the anti-competitive conduct alleged by the Empagran plaintiffs "independently caused foreign injury". The court remanded the case back to the D.C. Circuit for resolution of the plaintiffs’ alternative argument that their injuries in fact arose from price-fixing in the U.S. market. Accordingly, the Supreme Court decision did not end the Empagran litigation but rather closed one chapter and started another.
The D.C. Circuit dealt with the remanded case in the spring and early summer of 2005.11 On remand, the court assessed the plaintiffs’ theory that, "because vitamins are fungible and readily transportable, without adverse domestic effect (i.e. higher prices in the United States), the sellers could not have maintained their international price-fixing arrangement and respondents would not have suffered therefore an injury".12 In other words, according to the plaintiffs, in order to maintain the price-fixing conspiracy and sustain higher prices abroad, the conspirators were also required to fix prices in the United States to prevent foreign purchasers from purchasing vitamins in or from the U.S. at lower, competitive prices. The plaintiffs argued that, as a result, they had satisfied the FTAIA requirement that the impugned conduct have an effect on U.S. commerce and that such effect "gives rise to" the plaintiffs’ claim in respect of foreign purchases.
The D.C. Circuit described the plaintiffs’ theory as representing a "plausible scenario" in which high U.S. cartel prices "might well have been a ‘but-for’ cause of the [plaintiffs’] foreign injury".13 However, the court held that this failed to meet the FTAIA requirement that the domestic effect "give rise to" the injury claimed. The court held that the FTAIA required a direct causal relationship, or proximate causation, that could not be satisfied by a "mere" but-for connection. While the domestic conspiracy may have facilitated (or may even have been a precondition for) the conspiracy with respect to foreign markets, it did not directly cause the plaintiffs’ foreign injuries. The direct cause of those injuries was foreign price-fixing.
The court found comfort for its views in the notions of comity that were discussed by the Supreme Court in overturning the Circuit Court’s earlier decision. The court noted that the plaintiffs’ interpretation of the FTAIA, that would permit suits in respect of foreign harm as to which domestic effects were simply a but-for cause, would unreasonably interfere with other nations’ rights to establish and enforce within their own borders such competition laws as then thought appropriate.14 This represents a considerable about face for a court that, in its prior Empagran decision, had applauded the extension of the U.S. treble damage regime around the world.
Does this mark the end of foreign antitrust claims in U.S. courts? Almost certainly not. Plaintiffs will now work harder to plead domestic harm, such as alleging that foreign purchases were actually made through or paid by U.S. head offices. Plaintiffs will also work harder at alleging that foreign harm more directly arose from U.S. domestic effects, perhaps by pleading reciprocal cross-border tying arrangements or conspiracies that affected U.S. suppliers’ ability to supply foreign markets. Nevertheless, unless significantly altered in subsequent decisions, the comity driven approaches of the U.S. Supreme Court and the D.C. Circuit suggest that attempts by foreign plaintiffs to bring Sherman Act claims in the United States in respect of foreign harm have been dealt a serious blow.
Unwitting Litigants – North American Classes In U.S. Courts
The Empagran case rejected attempts by foreign plaintiffs to get judgment from U.S. courts under U.S. law. This section deals with the opposite situation – U.S. courts granting judgment to foreign plaintiffs who do not seek their assistance.
The situation arises when U.S. lawyers plead North American or international classes in U.S. class action litigation. When such a case is settled, resolved by judgment or dismissed, to what extent are the foreign class members bound? To put it another way, can U.S. courts pre-empt Canadians’ ability to bring claims in Canada?
The disposition of the claims of a Canadian class by a U.S. court has been successfully implemented where the parties (or, more importantly, their counsel) acted co-operatively. In Kruman, after the Second Circuit ruling that foreign plaintiffs could advance their foreign claims in U.S. courts under the Sherman Act, the parties reached a settlement of the claims of all class members, including Canadians. However, there was already an uncertified Canadian class action covering Canadians and alleging the same harm. U.S. class counsel persuaded Canadian class counsel to co-operate, in part because of the superior benefits that would be available to Canadians under the U.S. settlement. Accordingly, as part of the overall arrangement, the Canadian litigation was dismissed on consent at about the time the U.S. settlement was approved.
Because class counsel in both jurisdictions co-operated, the question of whether the U.S. court had jurisdiction over the Canadian claimants and whether any U.S. judgment should be binding on Canadian class members was never put in issue. However, in a non-competition law setting, that issue arose and was litigated in Currie v. MacDonald’s Restaurants of Canada Limited, et al.15
The Currie litigation arose from promotional games sponsored by MacDonald’s and provided and operated by Simon Marketing. In 2001, a number of people were indicted in the United States for embezzling prizes associated with the MacDonald’s games. A Simon Marketing employee later testified at a criminal trial that MacDonald’s had instructed them to manipulate the games to ensure that no high value prizes would be awarded to contestants in Canada.
A U.S. class action ("Boland") was commenced in Illinois in August 2001. A settlement was reached in April 2002. While the Boland complaint did not specifically plead the manipulation of Canadian prizes, the release contemplated by the settlement was broad enough to cover all claims in respect of Canada.
The parties in Boland applied for preliminary approval of the settlement in May 2002 and Judge Schiller granted relief in June. He designated August 28, 2002 as the final opt out date and scheduled a final fairness hearing for September 17, 2002. The May hearing also considered the manner in which Canadian customers should receive notice. Judge Schiller’s order required notice to be published in each of three French language Quebec newspapers on one date in July 2002, in MacLean’s magazine on two dates in July 2002 and in two U.S. publications that also had circulation in Canada.
The first Canadian class action ("Parsons") was only commenced, in Ontario, on September 13, 2002. Three days later Mr. Parsons, and others, sought leave to intervene in Boland in order to object to the Boland settlement on the basis that the U.S. court had no jurisdiction to grant relief in respect of Canadian claims. Parsons and the other Canadian objectors also appeared at the final fairness hearing the next day to object on this basis. The Currie action was commenced about two weeks after the final fairness hearing was completed in Boland. The Currie case proposed the same class, made the same allegations and was brought by the same class counsel as in the Parsons action.
In January 2003 Judge Schiller gave final approval of the Boland settlement and dismissed the objections of the Canadian objectors. The formal order contained the release of the defendants together with a declaration that all members of the class who had not opted out were bound thereby. The defendants in the Parsons and Currie actions subsequently moved to dismiss or stay both cases on the basis that the claims had been finally disposed of in the Boland Action. The Parsons action was dismissed on the basis that Parsons had attorned to the jurisdiction of the U.S. court by objecting to the settlement and that the Boland judgment should therefore be recognized and enforced against him. However, the motion judge refused to restrain the Currie action. He found that the U.S. court had jurisdiction over Canadian class members even though they were non-resident, non-attorning parties. But he also found that the notice given to Canadian class members was so inadequate as to violate the rules of natural justice. For that reason, the judge held that the Boland judgment should not be enforced against Currie and his class.
Parsons did not appeal. The defendants appealed in respect of the Currie action.
The Ontario Court of Appeal dismissed the appeal and upheld the motion judge’s refusal to restrain the Currie action, although not for precisely the reasons of the motions judge. The court considered three discreet but related issues in coming to its conclusion. Two issues, relating to the level of notice required to be given to class members and whether a class in one case can be bound by decisions in respect of an identical class in a separate case, raise interesting practical issues for class action practitioners. However the first issue, whether or not Canadian courts should recognize and enforce foreign judgments against non-attorning Canadian plaintiffs, is the key issue in any consideration of cross-border litigation.
The court began its analysis by reference to general conflict of laws principles relating to the recognition and enforcement of foreign judgments.16 Currie conceded that if the Boland judgment should be recognized in Ontario under the appropriate conflicts principles, he and his class would be bound and his proposed action would be precluded.17
The Court of Appeal started by reiterating the basic tenets derived from Morguard and Beals. In particular, it focused not only on "real and substantial connection" but also "order and fairness" as the "twin principles" that underlie the analysis of whether to recognize and enforce a foreign judgment.
The court noted, however, that this case raised for the first time the attempted enforcement of a foreign judgment not by a successful plaintiff against a reluctant defendant but, rather, by a defendant against unwilling plaintiffs. Unlike in a traditional action, the Canadian class members neither retained U.S. counsel nor sought the assistance of the U.S. courts to resolve their uniquely Canadian claims. The court noted that the Canadian class members participated in Canada in games presented by MacDonald’s Canada and had done nothing that would give rise to any expectation that their legal claims would be adjudicated in the U.S. All of the plaintiffs’ activities, and all of their harm, occurred in Ontario. Moreover, Illinois was an "opt-out" jurisdiction in which foreign class members are deemed to be included unless they opt out. The court spent considerable time identifying and weighing different considerations as to whether plaintiffs in this situation ought to be bound by the foreign order. In the result, the court accepted the motion judge’s finding that notice to the Canadian class members was inadequate. Unlike the motions judge, however, the Court of Appeal applied this inadequacy to the jurisdictional requirement of "order and fairness" and held that, absent proper notice of the settlement and the right to opt out, recognition and enforcement of the Boland decision would not be fair. In other words, the Court of Appeal held that the absence of adequate notion went to the U.S. courts’ jurisdiction rather than constituting a defence to the enforcement of an order otherwise made within jurisdiction.18
More important, however, were the Court of Appeal’s (technically obiter) comments as to whether, apart from the notice issue, the Boland decision would have be recognized and enforceable against Canadian plaintiffs. On this point, the court concluded as follows:
Given the substantial connection between the alleged wrong and Illinois, and given the small stake of each individual class member, it seems to me that the principles of order and fairness could be satisfied if the interests of the non-resident class members were adequately represented, and if it were clearly brought home to them that their rights could be affected in the foreign proceedings if they failed to take appropriate steps to be removed from those proceedings.19
A number of observations can be drawn from this statement and the analysis that preceded it. First, the "substantial connection" relied on by the court was the fact that the alleged wrongdoing took place in the U.S. However, in other recent cases, motions brought by defendants arguing Morguard principles and alleging that Canadian jurisdiction ought not to be taken where the defendants and the alleged misconduct took place abroad have been rejected on the premise that the place of the plaintiffs, and the place at which they suffered from the misconduct, were paramount.20
Second, the court’s approach may give rise in the future to the need to analyze the manner in which the Canadian class members were actually represented in the foreign proceeding. The court noted concerns in the U.S. literature about the possibility that non-resident class members may be sold short by foreign counsel interested in achieving an overall settlement.21 The Court of Appeal seemed to temper this concern by noting the foreign court’s obligation to safeguard the interests of all class members, but said nothing about the practical difficulty most courts face in doing so when both class counsel and the defendants put forward a negotiated settlement for approval.
And the Court of Appeal said nothing about two other points. First, the Canadian class members did not simply have no expectation that their claims would be adjudicated in the United States (as noted by the court). Rather, they actively took steps (through class counsel) to litigate in Ontario. Accordingly, these plaintiffs were not just passive members of a U.S. class, they were instead members of an active Canadian class. Their de facto opt out from the U.S. litigation was not taken into account.
The second, more practical, point arises from the first. Class actions are much less about classes than they are about class counsel. The Currie/Boland dispute, like the Kruman case before it, really engaged the respective interests of class counsel on either side of the border. In Kruman, class counsel worked together to find a co-operative solution. In Currie, for whatever reason, that did not occur. The commencement of the Currie litigation was more an effort by Canadian class counsel to safeguard both their investment in the case and their hope for a recovery than anything else. The judgment does not reveal any analysis of the benefits that would flow to Canadian class members from the Boland settlement and the extent to which there was any likelihood that Canadians might do better upon the ultimate disposition of the Currie case.
Sometimes you don’t get what you ask for, and sometimes you get what you don’t ask for. These cases illustrate that, even as plaintiffs may find it more difficult to bring their foreign antitrust claims in the U.S., defendants (in some circumstances) may be able to settle foreign claims in the U.S. and to enforce those settlements abroad.
1. F. Hoffmann-La Roche Ltd. et al v. Empagran S.A. et al.
2. 96 Stat. 1246, 15 U.S.C.
3. Ibid., s. 6a
4. Ibid., s. 6a.
5. Den Norske Stat Oljeselskap v. HeereMac, 241 F. 3d 420 (Fifth Cir. 2001).
6. Ibid., at 428.
7. Kruman v. Christie’s International plc et al., 284 S. 3d 384 (Second Cir. 2002).
8. 2001 WL 761360 (D.D.C. June 7, 2001; 315 F. 3d 338 (D.C. Cir. 2002).
9. Ibid., at 356.
10. Hoffman-La Roche, Ltd. v. Empagran S.A., 2004 WL 1300131 (2004).
11. Empagran S.A. et al. v. F. Hoffmann-La Roche Ltd. et al., 01-7115 (D.C. Cir., June 28, 2005).
12. Ibid, at 4.
13. Ibid, at 7.
14. Ibid, at 7.
15. 2004, 70 O.R. (3d) 53 (F.C.J.); aff’d (February 16, 2005 – C.A.).
16. The court cited Morguard Investments Ltd. v. De Savoye,  3 S.C.R. 1077; Beals v. Saldanha,  3 S.C.R. 416. See para. 9.
17. para. 9.
18. para. 31.
19. para. 25.
20. Eg. Gariepy v. Shell Oil Co. (2000) 51 O.R. (3d) 181 (S.C.J.); leave to appeal refused (April 24, 2001) and VitaPharm Canada Ltd. v. F. Hoffmann-La Roche Ltd. (2000), 20 C.P.C. (5th) 315 (S.C.J.).
21. para. 17.
The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.
© Copyright 2005 McMillan Binch Mendelsohn LLP