With its decision affirming dismissal for lack of subject matter jurisdiction in In re: Monosodium Glutamate Antitrust Litig., 2007 U.S. App. LEXIS 2772 (8th Cir. Feb. 8, 2007) ("MSG"), the Eighth Circuit delivered another setback to foreign plaintiffs intent on using U.S. antitrust laws to redress injuries from wholly foreign purchases allegedly subject to unified global price-fixing conspiracies. MSG is part of a growing body of law applying the Supreme Court’s landmark decision in F. Hoffmann-La Roche Ltd. v. Empagran S.A., 542 U.S. 155 (2004) ("Empagran I"), which addressed the applicability of the Sherman Act to foreign purchaser claims under the Foreign Trade Antitrust Improvements Act of 1982 ("FTAIA").
Under the FTAIA, the Sherman Act does not apply to export conduct or wholly-foreign conduct unless two jurisdictional requirements are met: (1) the conduct must have a "direct, substantial, and reasonably foreseeable effect" on U.S. domestic commerce; and (2) the domestic effect must "give rise to" the plaintiff’s Sherman Act claim. Empagran I, 542 U.S. at 162. The Supreme Court held in Empagran I that where the foreign harm suffered by plaintiff is independent of any adverse domestic effect (e.g., higher prices in the U.S.), no jurisdiction can lie. Id. at 165. The Court, however, expressly left open the question whether the Sherman Act might apply to claims "linked to" domestic effects (i.e., claims in which the foreign injury was not independent of the domestic effect). Id. at 175.
On remand in Empagran, in considering whether a sufficient link existed between the allegedly anticompetitive conduct and the harm to the foreign plaintiffs, the D.C. Circuit held that to prove the requisite nexus between domestic effect and foreign injury, plaintiffs needed to allege more than a mere link between domestic effect and foreign injury. Rather, the D.C. Circuit held, proximate causation is the appropriate standard. See Empagran S.A. v. F. Hoffmann-Laroche, Ltd., 417 F.3d 1267, 1271 (D.C. Cir. June 28, 2005), cert. denied, 126 S. Ct. 1043 (2006) ("Empagran II"). In that case, plaintiffs alleged that the defendant vitamin sellers engaged in a global conspiracy to fix the prices for vitamins, leading to higher vitamin prices in the U.S. and independently leading to higher vitamin prices in other countries. Applying the proximate cause standard, the D.C. Circuit found that plaintiffs had failed to allege sufficiently that the domestic effects cited by plaintiffs — increased prices in the U.S. — gave rise to their foreign injury. Specifically, the court found that "while maintaining super-competitive prices in the United States may have facilitated [defendants]’ scheme to charge comparable prices abroad, this fact demonstrates at most but-for causation . . . [that] establishes only an indirect connection between the U.S. prices and the prices [plaintiffs] paid when they purchased vitamins abroad." Id.
Since Empagran I, decisions in global cartel cases have not been kind to foreign plaintiffs, in all but one instance denying jurisdiction under the FTAIA. See Empagran II; eMag Solutions LLC v. Toda Kogyo Corp., 2005 U.S. Dist. LEXIS 44512 (N.D. Cal. July 20, 2005) (not for citation); Latino Quimica-Amtex S.A. v. Akzo Nobel Chemicals B.V., 2005 U.S. Dist. LEXIS 19788 (S.D.N.Y. Sept. 8, 2005); In re Dynamic Random Access Memory Antitrust Litig., 2006 U.S. Dist. LEXIS 8977 (N.D. Cal. Mar. 1, 2006); In re Intel Microprocessor Antitrust Litig., 452 F. Supp. 2d 555 (D. Del. Sept. 26, 2006); In re Graphite Electrodes Antitrust Litig., 2007 U.S. Dist. LEXIS 3349 (E.D. Penn. Jan. 16, 2007). MSG continues this trend.
In MSG, the plaintiff-appellants were foreign corporations that purchased monosodium glutamate (MSG) and nucleotides from the defendants in transactions occurring outside the United States. 2007 U.S. App. LEXIS 2772, at *1. They contended that the defendants participated in a global price-fixing and market allocation scheme to increase the worldwide price of MSG and nucleotides, both inside and outside the United States. Plaintiffs claimed that the U.S. market was included within the scheme because the fungible nature and worldwide flow of these products made the domestic and foreign markets interconnected, such that super-competitive prices abroad could be sustained only by maintaining super-competitive prices in the U.S. According to plaintiffs, they purchased overpriced MSG and nucleotides abroad because defendants’ inclusion of the domestic market in the conspiracy prevented plaintiffs from buying competitively priced MSG and nucleotides either directly from the U.S. or from arbitrageurs selling MSG or nucleotides imported from the U.S. Id., at *1-*2.
Relying on the D.C. Circuit’s decision in Empagran II, the District Court dismissed the complaint with prejudice (on a motion to reconsider defendants’ previously denied motion to dismiss), holding that the plaintiffs had not stated a claim under the Sherman Act because they had not shown that the domestic effect of the global price-fixing cartel proximately caused their injuries. 2005 U.S. Dist. LEXIS 39641, at *20 (D. Minn. Oct. 26, 2005).
On appeal, the Eighth Circuit rejected plaintiffs’ invitation to part ways with the D.C. Circuit and apply a less direct causation standard. 2007 U.S. App. LEXIS 2772, at *6-*9. The Court observed that principles of prescriptive comity required it "to respect the sovereign authority of foreign nations and to construe ambiguous statutory language in a way that avoids unreasonable interference with such authority." Id., at *6-*7. It went on to conclude that the statutory "gives rise to" language requires a direct or proximate causal relationship and that this standard is in accord with the principles of prescriptive comity, as well as "general antitrust principles, which typically require a more direct causation standard." Id., at *7 (citing, e.g., Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 533-35 (1983)).
The Eighth Circuit found that the MSG plaintiffs’ "global indivisibility" or "arbitrage" theory of jurisdiction was essentially identical to that presented in Empagran II and did not met the proximate cause standard:
The domestic effects of the price fixing scheme (increased U.S. prices) were not the direct cause of [plaintiffs]’ injuries. Rather, it was the foreign effects of the price fixing scheme (increased prices abroad). Although United States prices may have been a necessary part of [defendants]’ plan, they were not significant enough to constitute the direct cause of the [plaintiffs]’ injuries, as they constituted merely one link in the causal chain. The theory proffered by [plaintiffs] therefore establishes at best only an indirect connection between the domestic prices and the prices paid by [plaintiffs]. While such an indirect connection may be enough to satisfy a "but for" causation standard, it is too remote to satisfy the proximate cause standard.
Id., at *10-*11.
In conclusion, the Eighth Circuit acknowledged plaintiffs’ policy argument in support of jurisdiction based on the importance of enforcing the Sherman Act’s deterrence goal, but found it "unavailing in light of the dictates of the FTAIA and the considerations of comity." Id., at *11.
The lone post-Empagran I decision denying a challenge to foreign purchaser jurisdiction under the FTAIA, MM Global Servs., Inc. v. Dow Chem. Co., 329 F. Supp. 2d 337 (D. Conn. 2004), arguably is no exception to this trend at all because the plaintiffs there alleged their participation in U.S. commerce. See id. at 339 (plaintiffs "purchased [defendants’] products in the United States and resold them to end-users in India") (emphasis added).
Authored By: Michael W. Scarborough