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.

Seventh Circuit to Rehear Potash Price Fixing Conspiracy Claim

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

The U.S. Court of Appeals in Chicago, sitting en banc, will rehear a case brought by purchasers of potash, alleging a global price fixing conspiracy among producers.

A three-judge panel of the court had rejected the claims on the ground that the Foreign Trade Antitrust Improvements Act (FTAIA) applied to bar the suit (2011-2 Trade Cases ¶77,611). The panel’s opinion and judgment were vacated on December 2.

The panel had concluded that the assertion that the defendants “conspired to coordinate potash prices and price increases so as to fix, raise, maintain, and stabilize the price at which potash was sold in the United States at artificially inflated and anticompetitive levels” was wholly conclusory and insufficient to satisfy the pleading standards established by the U.S. Supreme Court in Bell Atlantic Corp. v. Twombly (2007-1 Trade Cases ¶76,785).

The complaint purportedly described anticompetitive conduct aimed at the potash markets in Brazil, China, and India—not the U.S. import market.

The rehearing order is Minn-Chem, Inc.v. Agrium Inc., December 2, 2011.

Twombly-Iqbal Standard “a Mess”

In a posting on the Wolters Kluwer Antitrust Connect blog, Christopher L. Sagers, Professor at Cleveland-Marshall College of Law, wrote that there is a growing consensus that the Twombly-Iqbal standard “is a mess,” having destabilized the our entire system of civil litigation and adopting a pleading system foreign to fundamental procedural principles.

The en banc order in this case is very welcome, wrote Sagers, since the three-judge panel’s opinion exempted from antitrust challenge a conspiracy “that was alleged to have caused billions of dollars in consumer injury, even while acknowledging plaintiffs had adequately alleged a worldwide conspiracy to inflate potash prices, had supported their claims with elaborate plus-factors pleading, and had alleged that contemporaneously with the conspiracy potash prices in the United States increased by six hundred percent.”

The blog posting appears here on the Antitrust Connect blog.

Global Price Fixing Conspiracy Claim Barred by Foreign Trade Antitrust Improvements Act

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

Federal antitrust claims asserted by direct and indirect purchasers of potash—alleging a global price fixing conspiracy among producers—were beyond the subject matter jurisdiction of a federal court in Illinois, the U.S. Court of Appeals in Chicago has ruled.

The Foreign Trade Antitrust Improvements Act (FTAIA) applied to bar the suit regardless of whether the FTAIA was construed to state a jurisdictional requirement or an element of the plaintiffs’ Sherman Act claim. A federal district court’s refusal to dismiss the suit on jurisdictional or pleading grounds was vacated and remanded.

Import Commerce, Direct Effects

The lower court found that FTAIA’s "import commerce" exception applied because the defendants’ importation of potash and purported conspiracy to fix the price of potash globally created a sufficiently tight nexus between the alleged illegal conduct and the defendants’ import activities.

The lower court’s reasoning essentially conflated the FTAIA’s "import commerce" exception and its "direct effects" exception, the appellate court explained. If foreign anticompetitive conduct were deemed to involve U.S. import commerce even if directed entirely at markets overseas, then the "direct effects" exception would be effectively rendered meaningless.

Reading the FTAIA to mean that a foreign company doing any import business in the United States would violate the Sherman Act whenever it entered a joint-selling arrangement overseas—regardless of its impact on the American market— "would produce the very interference with foreign economic activity that the FTAIA seeks to prevent," according to the appellate court.

The complaint contained no factual allegations to support application of the import commerce exception, the appellate court said. Its specific allegations described anticompetitive conduct aimed at the potash markets in Brazil, China, and India—not the U.S. import market.

The general assertion that the defendants "conspired to coordinate potash prices and price increases so as to fix, raise, maintain, and stabilize the price at which potash was sold in the United States at artificially inflated and anticompetitive levels" was wholly conclusory and insufficient to satisfy the pleading standards established by the U.S. Supreme Court in Bell Atlantic Corp. v. Twombly (2007-1 Trade Cases ¶75,709) and Ashcroft v. Iqbal (2009-2 Trade Cases ¶76,785).

Overseas, Domestic Prices

Moreover, the connection asserted in the complaint between the alleged cartelized prices of potash overseas and the domestic price of potash was too speculative and indirect to state an actionable claim under the FTAIA’s "direct effects" exception, the court stated. The complaint’s general allusion to a link between the prices in the Brazilian, Chinese, and Indian markets and American potash prices was insufficient on its own to permit a plausible inference of direct effects.

The "cryptic" chain-of-events allegation offered by the plaintiffs relied on too many intervening variables to support application of the direct effects exception.

The decision is Minn-Chem, Inc. v. Agrium Inc., 2011-2 Trade Cases ¶77,611.