More foreign plaintiffs barred post-'Empagran'

It has been almost two years since the U.S. Supreme Court decided F. Hoffman-La Roche Ltd. v. Empagran S.A., 542 U.S. 155 (2004) ( Empagran I). That decision set boundaries on the extraterritorial reach of the U.S. antitrust laws under the Foreign Trade Antitrust Improvements Act of 1982 (FTAIA). The court in Empagran I dismissed the foreign plaintiffs’ antitrust claims, and established a rule that denied antitrust jurisdiction to redress foreign harm caused solely by foreign conduct-even when the conduct caused the same kind of injury to U.S. plaintiffs. But the court left open the question of whether a foreign plaintiff could properly assert a claim if it could show that its foreign-based injury would not have occurred “but for” the adverse domestic effects of the alleged misconduct. Subsequent to Empagran I, lower courts have further narrowed the foreign reach of the U.S. antitrust laws, rejecting uniformly even the most creative attempts to plead “but for” causation. The result is that a foreign plaintiff, whether an entirely foreign company or a foreign affiliate of a U.S. company, now has, at best, only limited access to the U.S. antitrust laws. The FTAIA removes foreign business activity from the purview of U.S. antitrust laws. Under the FTAIA, however, if anti-competitive conduct has “a direct, substantial, and reasonably foreseeable effect” on domestic commerce, then such “effect gives rise” to an antitrust claim. In Empagran I, plaintiffs were foreign purchasers of vitamins that alleged they were harmed by a worldwide price-fixing conspiracy. While the Supreme Court recognized that the price fixing adversely affected both U.S.-based and foreign companies, it assumed that the adverse foreign effect was independent of any adverse domestic effects. The court rejected the plaintiffs’ claim, holding that the FTAIA precludes a U.S. antitrust action when the alleged misconduct “causes independent foreign harm and that foreign harm alone gives rise to plaintiff’s claim.” Id. at 164. Because the lower court had not addressed it, the court refused to reach a determination on the plaintiffs’ alternative-”but for”-theory of liability under the Sherman Act, namely, that “because vitamins are fungible and readily transportable, without an adverse domestic effect (i.e., higher prices in the United States), the sellers could not have maintained their international price-fixing arrangement and the respondents would not have suffered their foreign injury.” Id. at 175. D.C. Circuit weighs in On remand, the U.S. Circuit Court of Appeals for the District of Columbia struck down the “but for” theory, holding that “[t]he statutory language-’gives rise to’-indicates a direct causal relationship, that is proximate causation, and is not satisfied by the mere but-for nexus the appellants advanced in their brief.” Empagran S.A. v. F. Hoffman-La Roche Ltd., 417 F.3d 1267, 1271 (D.C. Cir. 2005), cert. denied ( Empagran II) (affirming order of the district court dismissing complaint for lack of subject matter jurisdiction). In short, Empagran II took the analysis one step further: Not only must the domestic and foreign anticompetitive effects be dependent on each other, but the domestic effects must proximately have been caused by the foreign harm. With just one exception, district courts construing Empagran I have uniformly dismissed (with prejudice) the claims of plaintiffs alleging foreign harm as a result of a “global conspiracy.” No matter how artfully pleaded, courts simply have not been convinced by allegations that rely on that fact that global markets are interrelated; i.e. that what affects one market will necessarily affect another. Even before Empagran II was decided, the drumbeat against “global conspiracy” theories could be heard. Just two months after Empagran I, the 2d Circuit dismissed a plaintiff’s alternative argument urging the court to “infer from the general allegations in his amended complaint that the ‘domestic component’ of the alleged ‘worldwide conspiracy’ was ‘necessary . . . for the conspiracy’s overall success.’ ” Sniado v. Bank of Austria AG, 378 F.3d 210 (2d Cir. 2004) (holding that “such an inference, even if reasonable, is too conclusory to avert dismissal”). Three cases, all with substantially the same facts-foreign purchasers of fungible goods alleging worldwide conspiracies and price-fixing schemes-exemplify the evolution of plaintiffs’ attempts to plead their way into U.S. courts; the adoption of Empagran II‘s proximate cause standard; and, ultimately,the rejection of the “inter-related market” theory of recovery. In re Monosodium Glutamate Antitrust Litig. ( MSG I), No. Civ. 00MDL1328, 2005 WL 1080790 (D. Minn. May 2, 2005), exemplifies the attempt by plaintiffs to plead the requisite causal nexus just by pointing to the nature of a particular global market. The plaintiffs were foreign corporations that purchased MSG from various defendants in transactions that occurred outside of the United States, and alleged that the defendants participated in a global price-fixing conspiracy and market allocation scheme. The court was initially convinced by the plaintiffs’ causation argument that “price movements in one geographic sub-market were inextricably linked to all other markets so that the prices charged by Defendants and their co-conspirators in other countries were highly correlated with United States prices.” MSG I, 2005 WL 1080790, at 1. The “sufficient link” rule was short lived, however. After Empagran II, the district court overturned its ruling in MSG I and dismissed the complaint for lack of subject matter jurisdiction on the ground that the plaintiffs failed to show proximate causation. In re Monosodium Glutamate Antitrust Litig. (MSG II), No. Civ. 00MDL1328, 2005 WL 2810682 (D. Minn. Oct. 26, 2005). Similarly, the U.S. District Court for the Southern District of New York held that foreign purchasers of chemicals, which purchased those chemicals entirely in foreign markets at prices allegedly fixed by the defendants, also did not satisfy the second prong of the FTAIA analysis after Empagran II. In short, the allegation that “unlawful price fixing and market allocation conduct had adverse effects in the United States and in other nations that caused injury to Plaintiffs” was insufficient to confer jurisdiction over the foreign claims. Latino Quimica-Amtex S.A. v. Akzo Nobel Chemicals B.V., No. 03 Civ. 10312, 2005 WL 2207017 (S.D.N.Y. Sept. 8, 2005). Relying on Sniado, the court further held that repleading under this theory would be futile. Id. at 11. Even quite explicit attempts to plead the requisite causation have failed. In In re Dynamic Random Access Memory (DRAM) Antitrust Litig., nos. C 02-1486, C 05-3026, 2006 WL 515629, at 4 (N.D. Calif. March 1, 2006), the plaintiffs alleged that “defendants used the supra-competitive prices of DRAM in the United States to raise prices worldwide . . . and without these supra-competitive prices for DRAM in the United States, Plaintiff and class members located outside of the United States would not have paid artificially inflated prices.” Even these averments, however, were insufficient to plead proximate causation as opposed to “but-for” causation. The court held that “[w]ithout a different theory of recovery altogether, plaintiff cannot escape a finding that no subject matter jurisdiction exists.” Id. at 6 (citing Latino Quimica-Amtex S.A., 2005 WL 2207017, at 12-13 (“[U]nder the FTAIA, the mere inter-dependence of markets cannot be sufficient to satisfy the requirement that a domestic effect ‘gives rise’ to the plaintiff’s claim) (denying leave to amend as futile)). Foreign affiliates also barred Courts have utilized the proximate cause analysis to limit the application of U.S. antitrust laws to plaintiffs that are foreign affiliates of U.S. entities, even when the U.S. entity has properly pleaded a claim. For example, in CSR Ltd. v. Cigna Corp., 405 F. Supp. 2d 526, 531 (D.N.J. 2005), asbestos producers alleged a group boycott by various foreign and domestic insurers, averring that “Defendants jointly decided to link renewal of CSR’s 1992-93 worldwide insurance coverage to withdrawal of CSR’s asbestos-related claims [in the United States].” In this case, despite the plaintiffs’ arguments that the U.S. defendants participated in and “played a major role in negotiating and managing the Policies throughout the years and in coordinating the anticompetitive boycott,” the court focused on the effects those actions allegedly caused. Id. at 545-46, 549 (“[T]he Court must assess separately the claims of CSR Limited . . . and CSR America, and the effects of Defendants’ alleged conduct, with regard to each Plaintiff.”). Examining independently the claims of CSR Ltd., the foreign affiliate, and CSR America, the court held that the “direct effects [claimed by CSR Ltd.] were only felt in the Australian insurance market in which CSR [Ltd.] participated. Impact on any “market” for coverage of U.S. risks or asbestos claims was at best secondary.” Id. at 549. As a result, the court dismissed the claims of CSR for lack of subject matter jurisdiction. In contrast, the court held the claims of CSR America-that the “group boycott extended to CSR America through various Defendants’ attempts to impact CSR America’s ability to purchase insurance in the United States”-were sufficient to support maintaining jurisdiction over those claims. Id. at 551 (“If CSR America was a target of Defendants’ alleged conduct, then Defendants’ conduct in this regard could be said to have had a direct, substantial, and reasonably foreseeable effect on United States commerce.”). One lone outlier The only outlier in the line of cases interpreting Empagran I is MM Global Services Inc. v. The Dow Chemical Co., 329 F. Supp. 2d 337 (D. Conn. 2004) (denying motion to dismiss on ground of lack of subject matter on the theory that the foreign and domestic effects were not “entirely independent”). MM Global Services was decided prior to Empagran II. In MM Global Services, the plaintiffs purchased various products from Union Carbide in the United States for resale in India. The plaintiffs alleged that they were compelled to agree to a price-fixing conspiracy for the resale of those products, and that this anticompetitive conduct directly resulted in diminished competition in the sale and resale of those products in and from the United States. The plaintiffs further alleged that as a result of such effect on competition, the plaintiffs were injured by being precluded from effectively and fully competing and maximizing their sales of products. Reasoning that the Empagran I decision “was expressly limited to whether the Sherman Act conferred jurisdiction over foreign effects that are ‘entirely independent’ of domestic effects,” the court determined that jurisdiction did exist. Id. at 342. As the court noted, it is not “inconceivable for both domestic effects to give rise to the plaintiffs’ injuries and for those injuries to also affect domestic commerce.” Id. at 343. It is not clear whether MM Global Services would have been decided differently post- Empagran II. However, the facts of MM Global Services are distinguishable from Empagran-most notably, the plaintiffs in MM Global Services had interaction with and participated in the domestic market-and only a few commentators have suggested that the court “misread” the Supreme Court’s decision in Empagran I. The continued restriction on the extraterritorial reach of the U.S. antitrust laws is consistent with the principles of international comity enunciated by the Supreme Court in Empagran I. While many countries now have antitrust laws similar to those of the United States, most of these laws differ in the remedies that they provide. The right of a plaintiff to pursue a private cause of action for treble damages is, for the most part, a uniquely American remedy. Courts have become extremely hesitant to allow foreign plaintiffs to bypass the laws of their own country to seek redress in the U.S. judicial system. As the Supreme Court stated, “[i]f America’s antitrust policies could not win their own way in the international marketplace for such ideas, Congress, we must assume, would not have tried to impose them in an act of legal imperialism thorough legislative fiat.” Empagran I, 542 U.S. at 169. Barry G. Sher is the chairman of, and Daniel Goldman is a partner in, the New York litigation department of Paul, Hastings, Janofsky & Walker. Victoria Ashworth is a litigation associate at the firm.