In a much-awaited decision, the Seventh Circuit has taken a broad view of the ability of U.S. courts to hear antitrust cases concerning alleged foreign cartel activity that plaintiffs contend has effects in the U.S. The Court's ruling reviving a cartel case in the potash industry is likely to make it easier for future litigants to sue foreign defendants in U.S. courts for alleged cartel activity occurring overseas.
The decision also can be expected to have implications on criminal cartel investigations launched by the Department of Justice. By expressly adopting the Department's interpretation of what constitutes commerce having "direct" effects on the U.S., the decision will further bolster the Department's cartel enforcement activities, which have focused increasingly in recent years on foreign-based cartel activity that the Department contends has had effects in the U.S.
The Foreign Trade Antitrust Improvements Act ("FTAIA")
To appreciate the import of the Seventh Circuit's decision, it is necessary to have a basic understanding of the FTAIA. Congress enacted the statute 30 years ago to delineate the applicability of the Sherman Act, the basic U.S. antitrust statute, to foreign commerce and to provide a layer of protection against Sherman Act claims implicating foreign activities. The FTAIA provides that the Sherman Act:
shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless -
(1) such conduct has a direct, substantial, and reasonably foreseeable effect -
(A) on trade or commerce which is not trade or commerce with foreign nations, or on import trade or import commerce with foreign nations; or
(B) on export trade or export commerce with foreign nations, of a person engaged in such trade or commerce in the United States; and
(2) such effect gives rise to a claim under the provisions of [the Sherman Act].1
Courts have wrestled with the precise parameters of the FTAIA ever since it was enacted. The statute begins by stating a broad rule that the Sherman Act "shall not apply" to conduct involving foreign trade or commerce. But, it then restores applicability to such commerce if it satisfies the listed exceptions. It was on the scope of the exceptions that the Seventh Circuit focused its attention.
The Potash litigation began in 2008 when plaintiffs brought a series of class action antitrust lawsuits alleging a global conspiracy to raise the price of potash, a mineral used primarily in agricultural fertilizer.2 The cases were consolidated in federal court in Chicago as In re Potash Antitrust Litigation. According to the complaint, the foreign-based defendants produced 71 percent of the global supply of potash through mining operations located in the three countries housing the bulk of the global potash reserves (Canada, Russia, and Belarus).3 Plaintiffs alleged that the defendants jointly coordinated restrictions on potash output and operated a cartel allowing them to fix potash prices in Brazil, China, and India, which in turn increased the price in the U.S.4 The results purportedly included a 600 percent increase in the price of potash in the 2003-08 period.5
The issue for the District Court on the defendants' motion to dismiss focused on the applicability of the FTAIA. The Court agreed with the plaintiffs' position that "only conduct by the defendant involving the importation of goods or services into the United States" is covered by the "import trade or import commerce" exclusion to the FTAIA's coverage.6 It determined that there was a sufficiently "tight nexus between the alleged illegal conduct and Defendants' import activities" to satisfy this exclusion and denied the motion to dismiss.7
Recognizing the importance of the issue, the District Court permitted defendants an immediate appeal to the Seventh Circuit. Last year, a three Judge panel reversed the District Court.8 It found that the lower court improperly conflated the "import commerce" and "direct effects" exceptions of the FTAIA by finding foreign anticompetitive activity could "involve" U.S. import commerce even when directed entirely at markets overseas. Under the import-commerce exception, the relevant inquiry was "whether the defendants' alleged anticompetitive behavior 'was directed at an import market.'"9 It is "not enough that the defendants are engaged in the U.S. import market, though that may be relevant... Rather, ...[the import-commerce exception] requires that the defendants' foreign anticompetitive conduct target U.S. import goods or services."10 The panel concluded that the complaint failed to include specific allegations connecting defendants' foreign activities and the domestic U.S. market.11 Lacking these allegations, any nexus between foreign conduct and domestic prices was too indirect, and thus not within the reach of the FTAIA.12
The Seventh Circuit's En Banc Decision
After the panel issued its decision, the full Seventh Circuit elected to rehear the case leading to the June 27th decision. Sitting en banc, the Court reversed the panel and agreed with the District Court that the plaintiffs' Potash complaint was sufficient to survive a motion to dismiss. The Court focused on two issues in its analysis.
A. FTAIA Relates to the "Merits" of the Claim
The Court began by re-visiting the issue of whether the FTAIA affects the subject-matter jurisdiction of the federal courts or, instead, relates to the scope of coverage of the antitrust laws. Reversing one of its own precedents from 2003, the Seventh Circuit concluded the "FTAIA sets forth an element of an antitrust claim, not a jurisdictional limit on federal courts."13 The Court relied on the Supreme Court's Morrison decision,14 which had rejected the argument that the extraterritorial reach of the U.S. securities laws raised a question of subject matter jurisdiction. Finding Morrison "provides all the guidance we need," the Seventh Circuit concluded there was no Congressional intent in the FTAIA to strip the courts of subject matter jurisdiction.15
The Court noted that its determination that the FTAIA sets forth elements of a claim, rather than jurisdictional limitations, has procedural ramifications that will have the practical effect of favoring plaintiffs in future cases. Defendants seeking to "contest the propriety of an antitrust claim implicating foreign activities must, at the outset" of the case move to dismiss such claims pursuant to Federal Rule of Civil Procedure 12(b)(6), rather than Rule 12(b)(1).16 The Court is required to "'accept as true all of the allegations contained in a complaint'" when considering a motion brought under Rule 12(b)(6), whereas a motion under Rule 12(b)(1) to dismiss for lack of subject matter jurisdiction puts the burden on a plaintiff to allege facts demonstrating the propriety of the Court's ability to hear the case.17 The Seventh Circuit's decision, which is in accord with a Third Circuit decision from last year,18 helps shift the burden in favor of plaintiffs in future antitrust cases raising FTAIA issues.
B. The FTAIA and Import Commerce
Having determined the FTAIA relates to the merits of a claim, the Court turned to the "principal" issue of the case: how to interpret the FTAIA.19
First, the Court noted that "import trade and commerce" are excluded "at the outset from the coverage of the FTAIA in the same way that domestic interstate commerce is excluded."20 In other words, domestic trade and pure import trade are not subject to the special requirements of the FTAIA, but rather are subject to the Sherman Act's general requirements.21 For import trade, to withstand scrutiny, the complaint must allege that "the import trade has been substantially and intentionally affected by an anticompetitive arrangement (i.e., something that would violate the U.S. antitrust laws)."22
The Court also expanded on its main focus: the FTAIA's treatment of non-import, non-domestic commerce.23 In this regard, the Court noted the FTAIA places all non-import activity involving foreign commerce outside of the Sherman Act's reach, but then brings such conduct back within the reach of the Sherman Act if two criteria are satisfied: (1) the foreign commerce has a "direct, substantial, and reasonably foreseeable effect" on either U.S. domestic commerce or U.S. import commerce and (2) the "direct, substantial, and foreseeable effect" gives rise to a substantive claim under the Sherman Act.24 The criteria spelled out by the FTAIA apply "regardless of whether the case is brought by the government or in private litigation."25
The Court adopted a relaxed standard for defining a "direct, substantial and reasonably foreseeable" effect. First, it found the requirements of substantiality and foreseeability "easily met" as the price of potash had allegedly increased by over 600 percent in five years in the U.S. and the foreign defendants allegedly controlled 71 percent of the world's supply of potash, a homogeneous commodity.26 Turning to the issue of "direct" effects, the Seventh Circuit adopted a position previously advocated by the Department of Justice: "for FTAIA purposes, the term 'direct' means only 'a reasonably proximate causal nexus.'"27 The Seventh Circuit considered itself "persuaded" by the Department of Justice's approach that the term "direct" addresses the classic concern of remoteness, finding the "FTAIA exclude[s] from the Sherman Act foreign activities that are too remote from the ultimate effects on U.S. domestic or import commerce."28
Applying this standard to the allegations in the complaint at issue, the Court concluded plaintiffs easily had alleged that the conduct of the foreign potash producers was meant to produce and did proximately cause a substantial effect in the U.S.29
The Seventh Circuit's decision is likely to bolster plaintiffs in future antitrust cases. The Court's determination that the FTAIA provides a substantive element, rather than a jurisdictional bar, shifts the burden in favor of plaintiffs at the motion practice stage in any cases that have FTAIA implications. And the Seventh Circuit's interpretation of commerce having a "direct" effect as meaning only "a reasonably proximate causal nexus" will lower the burden on plaintiffs to draft complaints that will be able to survive motions to dismiss. In this regard, the Court's embrace of the Department of Justice's reasoning can also be expected to embolden the Department to take a hard line in resisting arguments that the FTAIA restricts its ability to investigate and prosecute international cartels.
1 15 U.S.C. Â§ 6a
2 In re Potash Antitrust Litig., 667 F. Supp. 2d 907, 913 (N.D. Ill. 2009)
3 Id. at 915
4 Id. at 915-16
5 Id. at 915
6 Id. at 927
8 Minn-Chem, Inc. v. Agrium Inc., 657 F.3d 650, 661 (7th Cir. 2011)
9 Id. at 661 (quoting Animal Science Prods., Inc. v. China Minmetals Corp., 654 F.3d 462, 470 (3rd Cir. 2011))
10 Id. at 661
12 Id. at 662-63
13 Minn-Chem, Inc. v. Agrium Inc., No. 10-1712, Slip Op. at 12 (7th Cir. June 27, 2012) (en banc)
14 Morrison v. Nat'l Australia Bank Ltd., 130 S. Ct. 2869 (2010)
15 Minn-Chem at 12
16 Id. at 13
17 Id. at 13
18 Animal Science Prods., Inc. v. China Minmetals Corp., 654 F.3d 462 (3rd Cir. 2011)
19 Id. at 14
20 Id. at 16
21 Id. at 16. The Court further expanded on this point, noting that "trade involving only foreign sellers and domestic buyers (i.e., import trade) is not subject to the FTAIA's extra layer of protection against Sherman Acts claims implicating foreign activities." Id. at 19-20.
22 Id. at 19
23 Id. at 17
24 Id. at 17. The FTAIA also includes a provision related to the export trade or commerce of a U.S. exporter. As this provision was not at issue in the case, it was not addressed by the Seventh Circuit.
25 Id. at 20
26 Id. at 21
27 Id. at 22. In this regard, the Seventh Circuit diverged from an approach used in the Ninth Circuit that "direct" means "follows as an immediate consequence of the defendant's ... activity." The Seventh Circuit concluded that "[t]o demand a foreseeable, substantial, and 'immediate' consequence on import or domestic commerce comes close to ignoring the fact that straightforward import commerce has already been excluded from the FTAIA's coverage." Id. at 23
28 Id. at 23-24
29 Id. at 26.
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