ANTITRUST LAW: JURISDICTIONAL REVIEW--Analysis of Sherman Act Claims Against Foreign Defendants Requires a Merits-Based Review--Animal Sci. Prods., Inc. v. China Minmetals Corp., 654 F.3d 462 (3d Cir. 2011).
The Sherman Act prohibits actions designed to restrict or monopolize trade between states or with foreign nations. (1) Congress enacted the Foreign Trade Antitrust Improvements Act (FTAIA) in 1982 to clarify the foreign application of U.S. antitrust law. (2) In Animal Science Products, Inc. v. China Minmetals Corp., (3) the U.S. Court of Appeals for the Third Circuit considered whether the FTAIA functions as a limitation on the subject matter jurisdiction of federal courts, or whether it simply constitutes an element of a claim under the Sherman Act in a suit brought by U.S. companies against a group of Chinese rare metals producers. (4) The Third Circuit held the FTAIA needs to be read as an element of a Sherman Act claim, not as a jurisdictional bar. (5)
In September 2005, Animal Science Products and Resco Products, Inc., both U.S. entities, initiated a civil action in the District Court of New Jersey against seventeen Chinese entities, alleging violations of the Sherman Act. (6) The plaintiffs, who were importers and consumers of magnesite products, alleged the defendants, all producers of magnesite, conspired together as secret cartels to artificially increase prices of magnesite. (7) They further claimed that because these cartels controlled a majority of the world's supply of magnesite, the cartels' actions had a substantial effect on U.S. commerce. (8)
In December 2008, after declining to grant plaintiffs' motion for default judgment, the district court determined sua sponte that it lacked subject matter jurisdiction and dismissed the suit without prejudice. (9) Finding the FTAIA acted as a jurisdictional limitation, the court used external evidence beyond the plaintiffs' complaint, as allowed by Federal Rule of Civil Procedure (FRCP) 12(b)(1). (10) The plaintiffs appealed the decision, arguing the proper standard for review was in fact FRCP 12(b)(6) because the FTAIA is only one aspect of a Sherman Act claim, not a limitation on subject matter jurisdiction for the federal courts. (11)
Congress enacted the Sherman Antitrust Act of 1890 to limit certain anticompetitive actions such as monopolies and trusts that restrict trade. (12) Throughout the twentieth century, courts struggled to define the extraterritorial reach of the Act. (13) Originally, the Supreme Court established a "strict territorial test" to determine whether the Sherman Act was violated: courts should look to the legality of the alleged violation in the foreign jurisdiction where it occurred. (14) This test persisted until the Second Circuit established a two-pronged "substantial effects" test, under which foreign conduct that was "intended to affect imports and [that] did affect them" could be a violation of the Sherman Act. (15)
By 1982, Congress expressed concern over both the lack of conformity in the domestic application of the "substantial effects" test and the perception that plaintiffs were excessively utilizing U.S. courts to litigate foreign issues to the detriment of domestic and international commerce. (16) In an attempt to correct this, Congress enacted the FTAIA, which amended the Sherman Act and required that foreign conduct must have a "direct, substantial, and reasonably foreseeable effect ... on trade" in the United States. (17) The FTAIA has been described as "inelegantly phrased," and courts have struggled to define what foreign acts violate U.S. antitrust law. (18) At the forefront of the confusion was a debate whether the FTAIA acted as a limit on subject matter jurisdiction or as a substantive element of an overall Sherman Act claim. (19) Over time, a consensus emerged through federal courts that the FTAIA acted as a limitation of subject matter jurisdiction, an idea supported by the historical application of U.S. antitrust law and the legislative history of the Act. (20) This was not without controversy, as commentaries and strongly-worded dissents argued the FTAIA was a substantive limitation that should be analyzed as a merits-based limitation as part of the overall claim under the Sherman Act. (21)
Beyond the FTAIA, a general debate developed in recent decades over whether to treat legislation, absent express direction from Congress, as jurisdictional limitations or as elements of a claim. (22) In 2006, the Supreme Court established a bright line rule to resolve this debate, in Arbaugh v. Y&H Corp. (23) The Court held that a limitation should be read as an element of a claim unless Congress clearly states the limitation is jurisdictional. (24) The Court did not discuss whether legislative intent may factor into the decision or whether contradictory legislative intent may affect the plain meaning of the statute with regards to jurisdiction. (25) Despite this ruling, post-Arbaugh courts have failed to address whether the Supreme Court's decision applies to the analysis of an antitrust claim under the FTAIA. (26)
In Animal Science Products, Inc. v. ChinaMinmetals Corp., (27) the Third Circuit held the FTAIA must be analyzed as an element of an antitrust claim because the Act is not a jurisdictional bar to federal courts. (28) Noting its decision overturned its own precedent and created a split with all other circuits, the court determined recent Supreme Court decisions, particularly Arbaugh, required federal courts to consider the threshold limitations of the FTAIA as elements of the merits of the claim, and not as a limitation on court jurisdiction. (29) Finding no language in the statute to justify a jurisdictional limitation, the court determined that the district court erred in holding the FTAIA acted as a jurisdictional bar to review of the plaintiffs' claim. (30) Having made this determination, the court remanded and ordered the district court to analyze plaintiffs' claim under FRCP 12(b)(6), as opposed to its prior analysis under FRCP 12(b)(1). (31)
In deciding that the plain language of the FTAIA did not strip jurisdiction from the federal courts, the Third Circuit failed to address the conflicting legislative history of the Act. (32) Although the text of the statute contains no reference to jurisdictional limitations, the legislative history expressly states the FTAIA was drafted only to address subject matter jurisdiction, leaving the merits of an antitrust claim unaffected. (33) The Third Circuit's reading of Arbaugh to apply only to the exact text of legislation fails to address the contradiction between its own finding and the clear legislative intent. (34) Although the Supreme Court did not address this issue in Arbaugh, its prior precedent does support the use of legislative history to determine the meaning of a statute. (35) Additionally, the court failed to address the potential of its decision to expand litigation under the FTAIA, something the Supreme Court previously stated was not the intent of Congress in enacting the FTAIA. (36)
Moving forward, other federal circuit courts will have several options in deciding an FTAIA claim. (37) They may follow the lead of the Third Circuit and find the FTAIA acts as an element of...