International Potash Cartel Suit Rejected by Seventh Circuit Under Both FTAIA And Twombly Standards
In Minn-Chem Inc. v. Agrium Inc.,the Court of Appeals for the Seventh Circuit recently reversed a District Court’s failure to dismiss a putative class action in which it was claimed that the major international potash producers had engaged in a price fixing cartel outside the United States that ultimately had anticompetitive effects in this country. According to the Seventh Circuit, the Complaint did not sufficiently allege foreign conduct that meets the requirements of the Foreign Trade Antitrust Improvements Act (“FTAIA”) allowing Sherman Act challenge, and also failed to meet the pleading standards established for private antitrust suits in the Supreme Court’s 2007 Twombly decision.The decision is of interest with respect to each of the reasons the court required dismissal.
Potash is a mineral used mainly in the production of agricultural fertilizer. The Minn-Chem suit was brought against seven foreign companies that mine and distribute the vast majority of the world supply of potash--more than 70%--from only a few key regions in Canada, Belarus and Russia. According to the Complaint, filed on behalf of a putative class of U.S. direct and indirect purchasers, the defendants engaged in a cartel in foreign countries designed to reduce output and increase the prices of potash worldwide. The Complaint containedthe following factual allegations in support of its price fixing and market manipulation contentions: (i) The potash industry is highly concentrated, with high entry barriers worldwide; (ii) demand for potash is inelastic because there are no viable substitutes; (iii) the defendants shared marketing information at meetings and industry conferences; (iv) there was evidence of parallel price increases during the 2003-2008 time period at issue, despite the fact that the defendants had excess capacity and the increases in price were not justified by any cost considerations; and (v) in addition to price increases elsewhere in the world, prices increased 600% in the U.S. during the six years at issue.Despite the huge price increases in the U.S., however, the Complaint challenged only conduct that took place outside of the U.S., and there were no allegations that the defendants agreed to potash prices in the U.S.
The District Court Decision
The District Court denied the defendants’ motion to dismiss, stressing that although the Complaint did not allege any specific agreement or discussion among the defendants targeting prices in the U.S., plaintiffs had alleged that the higher prices elsewhere became the benchmark for prices in the U.S., and there was enough of a “tight nexus” between the alleged anticompetitive conduct in China, Brazil and India and the importing of the potash in the U.S. to justify the application of the Sherman Act. Thus, the court rejected the dismissal of the Complaint pursuant to the FTAIA limitation on Sherman Act jurisdiction to conduct involving foreign trade or commerce that involves U.S. import trade or has “a direct, substantial, and reasonably foreseeable effect” on U.S. domestic or import trade.
Despite its denial of the dismissal motion, because of the importance of the FTAIA issue, and the District Court’s belief that the language of the FTAIA was ambiguous, it took the unusual step of certifying its order denying dismissal for immediate appeal to the Seventh Circuit pursuant to 28 U.S.C. § 1292(b).
The Seventh Circuit Opinion
In the Seventh Circuit, the defendants argued alternative grounds for dismissal. First, they contended that the Complaint failed to meet the FTAIA requirements for the U.S. antitrust laws to apply to the challenged conduct. Separately, they argued that dismissal also was required because the Complaint did not meet the Twombly pleading requirement of “plausibly” stating a claim that the challenged parallel conduct suggested an anticompetitive agreement to fix prices or limit distribution in the U.S.The Seventh Circuit reversed, and required dismissal of the Complaint, declaring that the result was no different whether the Complaint was viewed on the basis of the FTAIA requirements or failure to meet the Twombly pleading standard.The Panel emphasized that dismissal was mandated on the FTAIA ground alone, without the need to discuss the pleading standard,but in fact went on to rule that dismissal was warranted for that reason as well.
In considering the substantive requirements of the FTAIA, the Panel pointedly remarked that the statutory language was “awkwardly phrased.”It noted that it was unclear whether the statute entirely stripped the court of subject matter jurisdiction or just involved an element of a Sherman Act claim. While the Seventh Circuit had ruled en banc in 2003 that the FTAIA requirements were jurisdictional,this Panel noted that two subsequent Supreme Court decisions and a very recent Third Circuit decision brought that view into question.It concluded that it was unnecessary to reconsider its earlier view because dismissal was appropriate whether the application of the FTAIA was jurisdictional or merely an element to consider in a Sherman Act case.
The Panel then went on to consider whether the allegations relating to the impact of the challenged conduct on U.S. commerce met the Twombly “plausibility” standard, commenting that more than “probability” or the “sheer possibility” of wrongdoing is necessary to meet the required standard.The court concluded that the Complaint failed to allege a violation under both of the FTAIA requirements for Sherman Act coverage. First, it did not meet the “import commerce” requirement because it was not alleged that the conspiracy involved potash that actually was “targeted” for the U.S.The Complaint failed to meet the separate, “direct, substantial and reasonably foreseeable” effect on U.S. commerce standard as well, because finding an impact in the U.S. “relied on too many intervening variables.”There was at most a “ripple” effect in the U.S., not a direct effect.Thus, neither FTAIA requirement for Sherman Act coverage was met, and the Complaint should have been dismissed.
Potential Impact of the Decision
The Minn-Chem decision is significant from the standpoint of the narrow reading the Seventh Circuit gave to the FTAIA requirements for the application of the Sherman Act to foreign conduct-- unusual in the sense that antitrust exemptions usually are not liberally construed by the Supreme Court. Beyond that, this decision continues the string of Circuit Court decisions that seem to be at odds with each other in interpreting the “plausibility” pleading standard adopted by the Supreme Court in Twombly. Here, despite factual details in the Complaint concerning overseas conduct, the Seventh Circuit nevertheless discerned “very little of substance” concerning the “relationship between . . . overseas anticompetitive conduct and the American domestic market,” which was required for foreign conduct to be subject to the Sherman Act .
No-1712 (7th Cir. Sept. 23, 2011) (citations to Slip Op.).
Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007.
Minn-Chem at 5-11.
15 U.S.C. §§ 6a & 6a(1)(A). See Minn-Chem at 19, quoting the District Court opinion.
Bell Atlantic Corp. v. Twombly, 550 U.S. 655 (2007). See also Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009).
Minn-Chem at 16-17.
Id. at 12.
Id. at 13.
See United Phosphorus, Ltd. v. Angus Chemical Co., 322 F.3d 942 (7th Cir. 2003)(en banc).
See Morrison v. National Austl. Bank, 130 S. Ct. 2869, 2876-77 (2010)( (extraterritorial reach of Securities Act provision not jurisdictional); Arbaugh v. Y & H Corp., 546 U.S. 500, 515-16 (2006) (Title VII definition of employer not jurisdictional). Compare Animal Sci. Prods., Inc. v. China Minmetals Corp, 2011 WL 3606995 (3d Cir. , Aug. 17, 2011)( FTAIA only establishes an element of a Sherman Act claim).
Minn-Chem at 16-17.
Id. at 17-18.
Id. at 20.
Id. at 26.