Claims Against Sotheby's Revived

In a decision that could affect the $512 million dollar class action settlement in the Christie's and Sotheby's price fixing case, the 2nd U.S. Circuit Court of Appeals on Wednesday reinstated claims by customers involved in auctions overseas. Vacating a federal judge's dismissal of the foreign claims, the court ruled that the price fixing had the required effect on domestic commerce to be actionable under the Sherman Antitrust Act.

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In a decision that at least one lawyer said could affect the $512 million dollar class action settlement in the Christie’s and Sotheby’s price fixing case, the 2nd U.S. Circuit Court of Appeals on Wednesday reinstated claims by customers involved in auctions overseas. The 2nd Circuit vacated the decision of Judge Lewis A. Kaplan of the Southern District of New York, who had dismissed the so-called foreign claims for a lack of subject matter jurisdiction just weeks before he conditionally approved the $512 million settlement on the domestic claims in 2001. Kaplan ruled that under a 1982 act of Congress, the plaintiffs had failed to show that price-fixing on foreign auctions had a “direct, substantial and foreseeable effect” on domestic commerce. But the 2nd Circuit, while agreeing with Kaplan that the Foreign Trade Antitrust Improvements Act of 1982 applied to the auction houses’ conduct, reversed the judge by ruling that the price fixing had the required effect on domestic commerce to be actionable under the Sherman Antitrust Act. And deciding an issue that has yet to be addressed in the circuit or the U.S. Supreme Court, the 2nd Circuit concluded that the Foreign Trade Antitrust Improvements Act does not alter the law with “respect to the requisite ‘effect’ on domestic commerce needed to support an antitrust claim based on conduct that is also directed at foreign markets.” The ruling in the case of Kruman v. Christie’s International Plc, 01-7300, threatens the settlement of domestic claims approved last year by Kaplan, said J. Douglas Richards of New York-based Milberg, Weiss, Bershad, Hynes & Lerach, one of several lawyers for foreign claims plaintiffs. Richards contends, in a separate appeal to the 2nd Circuit, that the initial settlement between the auction houses and lead plaintiffs’ counsel David Boies of Armonk, N.Y.-based Boies Schiller & Flexner should not have been approved because it prejudiced the foreign claims. For their part, the defendant auction houses are asking the 2nd Circuit to rule that the release signed as part of the $512 million settlement be broadly construed to include foreign claims. “The defendants always defended the settlement by arguing that it doesn’t matter if Boies might have prejudiced the foreign claims, because the foreign claims aren’t viable,” Richards said. “This shows that they are viable.” Richards said the damages from the foreign claims are “very comparable in order of magnitude” with the domestic claims, valued at more than $512 million when millions more in coupons to be used at auction houses are included. But Philip C. Korologos, of Boies Schiller, laughed when he was asked if the $512 million domestic claims settlement was in jeopardy. “I don’t believe this is going to have any effect on the settlement of our case for the simple reason that the settlement in our case does not release foreign claims,” Korologos. “It may have an effect on the defendants’ ability to broaden the release in our case to include the foreign claims, but it will not affect the settlement.” Korologos said the defendant auction houses tried, but failed, to have the scope of the release broadened before Judge Kaplan, but the judge refused, leaving it up to the 2nd Circuit to determine whether a release of foreign claims is permissible absent consideration. But Korologos said that with Wednesday’s decision, which appeared to add some value to the foreign claims, “the defendants’ appeal appears somewhat less likely to succeed.” FOREIGN CONDUCT Wednesday’s opinion was an opportunity for the 2nd Circuit to clarify the reach of antitrust law to foreign conduct. Writing for the court, Judge Robert A. Katzmann said the Foreign Trade Antitrust Improvements Act was intended to exempt from the Sherman Act export transactions that did not injure the U.S. economy. But the Foreign Trade Antitrust Improvements Act also clarified a standard for whether foreign conduct can be actionable under American antitrust law, and that standard is whether the conduct has a “direct, substantial and foreseeable effect” on domestic commerce. In the case of the foreign claims, Katzmann said, the defendants argued that the act was a departure from prior 2nd Circuit and Supreme Court case law in that it added a new plaintiffs’ injury element to prior law: that defendants are only liable to plaintiffs who suffer injury in domestic commerce. But Katzmann said: “We find that an interpretation centered on whether the plaintiff has suffered domestic injury cannot be squared with the text of the [Foreign Trade Antitrust Improvements Act].” Moreover, Katzmann said the lower court mistakenly focused on the injury to plaintiffs in its ruling. Katzmann said that the act exempts certain forms of anticompetitive conduct. The district court, he said, interpreted the word “conduct” to mean “the precise acts” that injured the plaintiffs, when in fact the term “conduct” really refers to acts that are illegal under the Sherman Act. “The illegal act in this case was not the imposition of high prices but the formation of the agreement to fix prices,” Katzmann said. Thus, he said that “because the plaintiffs’ complaint describes conduct that has the requisite ‘effect’ on domestic commerce under the [Foreign Trade Antitrust Improvements Act] to be regulated by the Sherman Act, we vacate the district court’s judgment granting the defendant’s motion to dismiss and remand … ” to the district court. On remand, Judge Kaplan will also have the opportunity to resolve issues of venue and standing, Katzmann said. The appellate court said there were several policy considerations that supported this interpretation of the act, including effective deterrence of anticompetitive behavior. “When a foreign scheme magnifies the effect of the domestic scheme, and plaintiffs affected only by the foreign scheme have no remedy under our laws, the perpetrator of the scheme may have a greater incentive to pursue both the foreign scheme and the domestic scheme rather than the domestic scheme alone,” Katzmann said. “Our markets can benefit from the additional deterrence of conduct affecting foreign markets.” Katzmann was joined by Judge Chester J. Straub and Judge Frank J. Magill of the 8th U.S. Circuit Court of Appeals, sitting by designation. Shepard Goldfein of New York’s Skadden, Arps, Slate, Meagher & Flom was lead counsel for Christie’s. Steven A. Reiss of New York’s Weil, Gotshal & Manges was lead counsel for Sotheby’s Inc.

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