Friday, June 29, 2012

U.S. Impact of Potash Price Fixing Conspiracy Adequately Alleged

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

An alleged conspiracy among foreign producers of potash — a naturally occurring mineral used in agricultural fertilizers and other products — to fix prices charged to U.S. purchasers was not outside the scope of the Sherman Act, the U.S. Court of Appeals in Chicago, sitting en banc, ruled earlier this week.

The purchasers satisfied the requirements of the Foreign Trade Antitrust Improvements Act 1982 (FTAIA) with respect to challenged transactions that were not straightforward import transactions subject to the more general antitrust rules for effects on commerce.

The FTAIA makes clear that “the Sherman Act does not apply to every arrangement that literally can be said to involve trade or commerce with foreign nations.” The FTAIA excludes foreign activities, other than import trade or commerce, from the scope of the Sherman Act, unless the conduct has a “direct, substantial, and reasonably foreseeable effect” on domestic or import commerce.

The complaint alleged an international cartel in a commodity, and it asserted that the cartel succeeded in raising prices for direct U.S. purchasers of potash. The FTAIA’s requirements of substantiality and foreseeability were easily met. The complaint alleged that 5.3 million tons of potash were imported into the United States in one year alone and the vast majority of these imports came from the defendants. Over a five-year period, the price of potash allegedly increased by over 600 percent. Moreover, the effects alleged were a rationally expected outcome of the challenged conduct. It was objectively foreseeable that an international cartel with a grip on 71 percent of the world’s supply of a homogeneous commodity would charge supracompetitive prices, and in the absence of any evidence showing that arbitrage was impossible, those prices (net of shipping costs) would be uniform throughout the world.

Further, the effects were “direct” and not too remote, the court ruled. This was not a case where an action was undertaken in a foreign country and filtered through many layers, finally causing a few ripples in the United States. The court followed the Department of Justice approach with respect to the meaning of "direct" in the statute.

The Justice Department had suggested in a friend-of-the-court brief that the direct effects exception should not be limited to effects that follow as an immediate consequence of the challenged conduct. "Direct" is best defined as "reasonably proximate," according to the government brief.

Thus, the allegations stated a claim, as required by Federal Rule of Civil Procedure 8, and were enough to withstand a motion to dismiss under Rule 12(b)(6).

The case was before the appellate court because a district court decision (2010-2 Trade Cases ¶77,112), denying the defendants’ motion to dismiss, was certified for interlocutory appeal. An earlier decision of a three-judge panel, which reversed the lower court’s ruling after concluding that the complaint failed to meet the requirements of the FTAIA (2011-2 Trade Cases ¶77,611), was vacated in December 2011. The panel had suggested that the issue of whether the FTAIA was an element of a Sherman Act claim or jurisdictional in nature was ripe for reconsideration.

FTAIA as Element of Sherman Act Claim

Before taking on the particular issues in this case, the full appellate court considered whether the FTAIA was an element of a Sherman Act claim or was jurisdictional in nature. The court overruled a 2003 en banc decision of the Seventh Circuit, (United Phosphorus, Ltd. v. Angus Chem. Co., 322 F.3d 942, 2003-1 Trade Cases ¶73,971) and held that the FTAIA was an element of the Sherman Act. The FTAIA did not use the word “jurisdiction” or any commonly accepted synonym, it was noted. Instead, it spoke of the “conduct” to which the Sherman Act (or the Federal Trade Commission Act) applied.

Thus, a party contesting the propriety of an antitrust claim implicating foreign activities was required, at the outset, to use Federal Rule of Civil Procedure 12(b)(6), not Rule 12(b)(1). Because foreign connections were unlikely to be difficult to detect, parties who wanted to argue that a particular claim failed the requirements of the FTAIA would be able to do so within these generous time limits, the court reasoned.

The June 27, 2012, decision in Minn-Chem, Inc. v. Agrium Inc., No. 10-1712, will appear at 2012-1 Trade Cases ¶77,943.

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