Animal Science Products, Inc. v. Hebei Welcome Pharmaceutical Co.
Docket: Nos. 06-MD-1738 (BMC)(JO), 05-CV-0453
Court: District Court, E.D. New York; November 15, 2012; Federal District Court
Defendants, comprising several Chinese vitamin C manufacturers, are accused of conspiring to manipulate competition by fixing prices and controlling export volumes of vitamin C sold internationally, including to U.S. customers. They filed motions to dismiss claims regarding foreign purchasers, arguing that these claims should be excluded from the Third Amended Complaint due to lack of subject matter jurisdiction. Additionally, they sought to strike evidence related to foreign purchasers and to exclude claims involving sales by non-defendants alleged to be co-conspirators. The court denied these motions.
The court previously certified a class of Direct Purchaser plaintiffs who bought vitamin C for delivery in the U.S. without an arbitration clause from defendants or their co-conspirators (excluding Northeast Pharmaceutical) between December 1, 2011, and June 30, 2006. Defendants contend that this class definition incorrectly encompasses claims by foreign purchasers involved in foreign sales, as they assert that sales made to foreign entities, which then resold the vitamin C in the U.S., fall outside antitrust laws and categorize U.S. buyers as indirect purchasers.
In contrast, plaintiffs argue that the defendants mischaracterize foreign purchasers as solely foreign entities, emphasizing that many are multinational corporations with significant U.S. presence or brokers purchasing vitamin C intended for U.S. delivery. They provide examples, including Mitsubishi International Food Ingredients, Inc. (MIFI), which contracted for direct shipments from China to Pennsylvania, and instances where U.S. companies utilized foreign brokers for direct purchases from defendants. Plaintiffs assert that all transactions involved direct sales from defendants to U.S. destinations, countering the defendants' claims that these were merely foreign sales.
He-Ro Chemicals Ltd., a Hong Kong broker, purchased vitamin C from defendant Hebei for direct shipment to California, while Sannex Products Ltd., a British Virgin Islands company, acquired vitamin C from Aland (now a settled defendant) for delivery to Charles Bowman Co. in Michigan. All exhibits from the defendants indicate U.S. locations as delivery destinations.
The defendants argue that claims by foreign purchasers fall outside the Court's subject matter jurisdiction, citing the Foreign Trade Antitrust Improvements Act (FTAIA), which excludes from the Sherman Act’s scope any anticompetitive conduct that results only in foreign injury. A legal question persists regarding whether the FTAIA impacts the district court's subject-matter jurisdiction or merely defines the coverage of antitrust laws. Recent Supreme Court rulings suggest that such questions pertain to the merits rather than jurisdictional issues. The Seventh Circuit has ruled that the FTAIA is an element of an antitrust claim, not a jurisdictional limitation, while the Third Circuit aligns with this view. However, the Second Circuit has historically treated the FTAIA as a jurisdictional constraint, although post-Morrison discussions have continued to address it in jurisdictional terms.
The significance of the FTAIA's jurisdictional status could affect the defendants' ability to raise this motion if they are deemed to have waived it, as plaintiffs contend. They argue that defendants delayed the motion until shortly before the trial despite having relevant information for nearly four years. Defendants counter that because the FTAIA concerns subject matter jurisdiction, they can invoke this motion at any time according to Rule 12(h)(3) of the Federal Rules of Civil Procedure.
The Court acknowledges the plaintiffs' concerns but finds that the scheduling orders allow for dispositive motions regarding damages at the time the defendants filed their motion. The motion in question challenges the plaintiffs' claims for damages calculated by Professor Bernheim, which recently emerged in expert discovery. The Court deems the defendants' motion timely, regardless of whether it is classified as a motion to dismiss for lack of subject matter jurisdiction or a merits-based motion regarding damages claims.
The Court establishes that it does not need to decide if the Foreign Trade Antitrust Improvements Act (FTAIA) is jurisdictional to assess the appropriate standard for the motion. Although the analysis for a motion to dismiss differs from that for a summary judgment, this distinction is moot as there are no disputed material facts; both parties agree that the vitamin C was purchased overseas and imported into the U.S., differing only in their interpretations of these facts. The Court's task is to ascertain whether the FTAIA prohibits the foreign purchaser claims based on these facts. The Court concludes that the FTAIA does not bar the claims, leading to the denial of the defendants' motion irrespective of its classification.
The FTAIA limits the Sherman Act's scope concerning export activities and foreign commercial activities, allowing exceptions if such conduct has a direct, substantial, and foreseeable effect on U.S. trade or commerce, or if it involves import trade. Specifically, the FTAIA has two exceptions relevant to Sherman Act claims: the "import exception," which applies to conduct involving import trade, and the "domestic effects exception," which re-establishes the Sherman Act's applicability to non-import trade that significantly affects import commerce, provided the claim arises from that effect.
Plaintiffs contend that the Foreign Trade Antitrust Improvements Act (FTAIA) does not apply to their foreign purchaser claims due to the import exception. They argue that despite some transactions occurring abroad, the contracts attached to Defendants’ motion demonstrate that vitamin C was shipped directly to a U.S. port in exchange for payments from class members. Defendants counter that the import exception is inapplicable because the transactions involved foreign buyers and sellers and occurred outside the U.S. They maintain that their interpretation of the import exception is correct, emphasizing transaction location.
The FTAIA does not define "import," but it generally refers to products brought into the U.S. The law clarifies that not only import commerce but also conduct involving import commerce is subject to the Sherman Act's reach. The import exception, while requiring strict construction, does not necessitate that defendants act as physical importers. Instead, the focus is on whether defendants’ alleged anticompetitive behavior targeted the U.S. import market.
The Third Amended Complaint alleges that defendants engaged in discussions about pricing, sales volume, and exports to the U.S., indicating that their conduct was directed at the U.S. import market. The contracts provided confirm that deliveries were specifically for U.S. locations. Even if many transactions occurred abroad, their intent and outcome were the direct importation of vitamin C into the U.S. This applicability of U.S. law to such transactions is predictable for foreign entities and protects U.S. consumers. Comparisons to other cases reveal that the import exception is applicable here, as seen in Carpet Group and In re TFT-LCD antitrust litigation, where defendants took actions affecting the U.S. market directly. Conversely, the exception does not apply when goods or services are not delivered directly into the U.S.
Defendant air carriers conspired to fix commission rates for plaintiffs, travel agents outside the U.S. Despite some U.S. customers using plaintiffs' services, the Third Circuit ruled that defendants were not engaged in “import trade or commerce” as they did not directly bring goods into the U.S. or affect imports. Similarly, the Second Circuit in Kruman found the exception inapplicable as the conspiracy was focused on foreign auction prices, not U.S. trade. In contrast, the current litigation centers on the trade and movement of goods to the U.S., as defendants contracted with foreign entities knowing the goods (vitamin C) were to be delivered directly to the U.S. This delivery aspect is crucial in determining whether the actions targeted the U.S. import market. Thus, the effects of defendants' price-fixing impacted American consumers, making the foreign purchaser claims fall within the import trade or commerce exception, rendering the FTAIA inapplicable.
Additionally, plaintiffs argue that even if the FTAIA applies, their claims still relate to the Sherman Act due to their "direct, substantial, and foreseeable effect" on domestic commerce. Defendants contend plaintiffs cannot claim this exception without showing that domestic effects caused their foreign injuries. The Court agrees that domestic effects must precede and proximately cause foreign claims but concludes that the domestic effects exception does apply here. The geographic target of the alleged anticompetitive conduct is significant, as established by previous cases. Plaintiffs allege that defendants engaged in a global conspiracy to fix vitamin C prices, specifically targeting U.S. consumers and demonstrating through contracts that products were shipped directly to the U.S. The Direct Purchaser Damages Class includes only those who purchased vitamin C for delivery in the U.S.
Super-competitive prices for vitamin C in the U.S. resulted directly from the defendants’ actions, fulfilling the first prong of the domestic effects exception. The defendants' arguments mainly address the second prong under § 6a(2), which evaluates whether the domestic effects lead to an antitrust claim. The Supreme Court in Empagran clarified that this prong is unmet if a plaintiff's claim is based solely on foreign harm. However, the Court did not resolve whether the domestic effects exception could apply if the domestic consequences were linked to foreign harm, remanding for further consideration. On remand, plaintiffs contended that the fungibility and global marketing of vitamins allowed defendants to maintain high prices abroad only by sustaining similar prices in the U.S. The D.C. Circuit rejected this theory, determining that while U.S. prices may have facilitated foreign pricing, this only indicated but-for causation, not proximate causation of the foreign injuries. Other courts have echoed this view, emphasizing that a global market's influence on domestic pricing does not satisfy the proximate cause requirement under the FTAIA. For example, in the context of the wheat market, multiple factors influenced domestic prices beyond defendants' actions. In contrast, the current case is distinct; the defendants' agreement to restrict production directly raised vitamin C prices in the U.S., establishing a direct link between their conduct and the elevated prices paid by foreign purchasers. There are no identified intervening factors affecting these prices outside of the defendants’ anticompetitive behavior.
Plaintiffs argue that foreign purchasers of vitamin C for delivery in the United States were overcharged due to a conspiracy by defendants to fix prices, distinguishing their case from previous rulings that addressed transactions where goods did not enter the U.S. market. They assert that the domestic effects exception to the Foreign Trade Antitrust Improvement Act (FTAIA) applies because the overcharging was an immediate consequence of these U.S.-bound purchases. Defendants counter that the location of the purchase, not delivery, determines the applicability of the FTAIA and foreign purchasers' standing under antitrust laws. They cite two cases suggesting that the location of the transaction is pivotal. However, the summary of these cases demonstrates that payments made in the U.S. can establish a domestic effect without requiring that the purchase itself occur within the U.S. The Supreme Court’s decision in Empagran supports the notion that both the purchase and delivery occurring outside the U.S. does not satisfy the domestic effects exception, but it does not negate the relevance of payments made domestically in establishing such effects.
Empagran indicates that the domestic effects exception under the Foreign Trade Antitrust Improvements Act (FTAIA) may be satisfied if goods are either purchased or delivered within the U.S. The court notes a lack of precedent where the delivery of goods into the U.S. was deemed insufficient for FTAIA purposes. To establish standing under antitrust laws, a plaintiff must demonstrate an injury that the laws were intended to prevent, which must stem from the defendant's unlawful actions. Foreign entities can have standing under U.S. antitrust laws if their claims have a clear impact on U.S. commerce. The court supports this stance, referencing In re Air Cargo Shipping Services Antitrust Litigation, where it was determined that foreign purchasers could assert claims if they satisfy the FTAIA's import exception.
The court has established that the FTAIA does not prevent applying antitrust laws to foreign purchaser claims that meet both the import and domestic effects exceptions. Defendants challenge this by arguing that the transaction location is more critical than the market of delivery; however, the court disagrees, maintaining that conduct affecting the U.S. market through delivery constitutes a cognizable antitrust injury, regardless of where the purchase occurred. Additionally, defendants express concern about potential double recovery for damages, which the court finds unfounded, as the Direct Purchaser Damages Class is limited to direct purchasers, excluding indirect purchasers from recovery.
Lastly, the defendants' motion to exclude evidence regarding damages from foreign purchaser claims is contingent upon the dismissal of those claims, which the court has already determined to be cognizable.
Defendants challenge Professor Bernheim's inclusion of 6.9 million kilograms of shipments from foreign purchasers in his damages calculation, arguing that claims related to these purchasers should be dismissed. The Court denies this motion, stating that since the foreign purchaser claims remain intact, evidence associated with them cannot be struck. Additionally, defendants seek to exclude damages calculations involving purchases from non-defendant co-conspirators Hualong and Tiger, claiming insufficient evidence exists to demonstrate that these purchases were not governed by contracts with arbitration clauses. Despite Professor Bernheim's admission of lacking verification about such contracts, the Court finds no evidence from defendants confirming their existence. Consequently, whether these purchases should be excluded from the class definition is left for the jury to decide, as the Court is hesitant to dismiss claims based solely on defendants' conjecture.
The Court also addresses the involvement of Ranis Co. Inc., the class representative, who is partially an indirect vitamin C purchaser via its assignment of claims from Graymoor Chemical Co. Inc. The motion highlights the nuances of foreign purchaser claims, referencing case law that distinguishes between direct and indirect effects of antitrust violations, but finds that the actions of the defendants in bringing vitamin C into U.S. commerce justify the claims. The Court rejects defendants' reliance on precedent cases, clarifying that the circumstances in this case differ, as direct purchases from defendants exist without intermediaries. The Court concludes by denying all of defendants’ motions regarding the foreign purchaser claims and the purchases from Hualong and Tiger.
