FTAIA Does Not Block Antitrust Claims Based on Sales of Finished Products Containing Price-Fixed Component to US Customers

In re Capacitors Antitrust Litigation, US District Court for the Northern District of California, September 20, 2018

This large international antitrust case alleging a conspiracy among Asian manufacturers to fix the prices of capacitors has led to many opinions addressing the applicability of the FTAIA (and US antitrust law) to a variety of different situations.  The present opinion deals with claims by Flextronics USA, Inc., which opted out of the class action, and its foreign affiliates.  The Court's rulings were organized by the situations to which they applied:

  • Capacitors sold and shipped by a non-US entity to a non-US Flextronics entity and incorporated into finished electronic products imported into the US:  The FTAIA does not block US "import commerce," and that term is not limited to products a defendant itself brings into the US.  The plaintiffs alleged that the defendants' conspiracy was "intended to and did inflate the price of capacitors sold in the US," that specific US customers were known to Flextronics's co-conspirators, and that the defendants had "specific conspiratorial discussions" about certain US customers.  The Court found that these facts might support a finding that the FTAIA exception for "import commerce" applied.
  • Capacitors sold and shipped by non-US entity to a non-US Flextronics entity, and incorporated into finished electronics products sold to customers outside the US:  The issue here is whether the products can satisfy the FTAIA requirement that a plaintiff not arguing that US import commerce was involved can show the ex-US conduct a "direct, substantial, and reasonably foreseeable effect on US commerce."  The Court found no basis to find any such effect: "There was no impact on a US purchaser or consumer, and no allegation that anyone in the US paid a supra-competitive price for these capacitors."
  • Capacitors shipped by a Defendant in the US to an Ex-US Customer.   The analysis above applies here:  Plaintiffs cannot sue in the US for alleged anticompetitive effects in other countries.

Conduct of Beneficially-Controlled US Company Imputed to Owners for Jurisdictional Purposes

In re: Packaged Seafood Products Antitrust Litigation, US District Court for the Southern District of California, September 5, 2018

[Editor's note:  We apologize for the unusual length of this summary, but it reflects the unusually extensive discussion of relevant issues that the opinion contains.] 

This litigation involves an alleged conspiracy to fix the prices of packaged seafood throughout the US.  As relevant here, the Court considered arguments by three defendants that personal jurisdiction did not exist over them:  Lion Capital (UK), a UK private equity firm that owns an American subsidiary, Lion Capital (US), and Big Catch, a Cayman Islands holding company that has an interest in the US Bumble Bee packaged seafood company.  The plaintiffs alleged that Lion Capital (UK) owns a majority of Big Catch.

The Court stated that personal jurisdiction must be based on service of process as authorized by relevant law and satisfaction of the requirements of the Due Process Clause of the US Constitution.  As to the former, it observed that the US antitrust laws provide for worldwide service of process.  As to the later, it stated that service of process throughout the US meant that jurisdiction must be based on a defendant's "minimum contacts" with the US as a whole, not just with the forum State.

"General" personal jurisdiction supports claims of any subject matter, but generally may only be asserted against a corporation where it is "at home"—in the State where it is incorporated or has its principal place of business.  Neither Lion Capital (UK) nor Big Catch is a corporate entity, but the Court applied the corporate test to them.  It found Lion Capital (UK) was "at home" only in the UK because it was organized and had its principal place of business there and most of its "designated members" likewise were UK domiciliaries.  Big Catch similarly was "at home" only in the Cayman Islands, with the Court determining that maintenance of a New York mailing address was insufficient to show otherwise in the absence of evidence that the entity did business there.  Nor did "exceptional circumstances" exist to deviate from the general rule limiting general jurisdiction.  Lion Capital (UK) held out the office of its US subsidiary as belonging to the parent generally, and held Board meetings there, but it remained at most a subsidiary office, especially compared with the scope of Lion Capital's UK operations. 

Alternatively, the plaintiffs sought to impute the operations of Lion Capital (US), over which general jurisdiction existed, to its parent on the theory that the two entities were "alter egos" of one another.  The Court stated that corporate separateness is presumptively respected in jurisdictional analyses, with a plaintiff required to demonstrate the following to overcome it: "(1) that there is such unity of interest and ownership that the separate personalities of the two entities no longer exist and (2) that failure to disregard their separate identities would result in fraud or injustice."  The Court recognized that one factor supporting the alter ego theory was Lion Capital (UK)'s apparent characterization of its subsidiary's US office as its own, but without "further evidence of day-to-day control" found the showing inadequate.  The mere existence of shared directors and officers likewise was insufficient, especially given evidence that the two entities had different compensation structures and paid their own employees.

"Specific" personal jurisdiction is more limited and may be found in an antitrust case (1) where a defendant "purposefully directs" its activities toward the forum, (2) the claim "arises out of or relates to the defendant's forum-related activities," and (3) the exercise of jurisdiction is reasonable—i.e., comports with "fair play and substantial justice."  The Court's principal discussion centered on the preliminary question whether the contacts of the US-based entity Lion Bumble Bee could be attributed to Lion Capital (UK) and Big Catch.  It began by reviewing the complicated ownership and control structure among the related entities and concluded that indicia of Lion Capital's "equitable ownership" of Bumble Bee and Big Catch were sufficient to support an alter ago analysis.  But it found no evidence of the parent "dictated every facet" of the subsidiary's affairs, to the level of making hiring and firing or "routine purchase" decisions, for example.  The Court further dismissed the facts that Lion capital (UK) placed a number of directors on Bumble Bee's Board, characterizing that as a routine exercise of control by a parent, and that Bumble Bee maintained a high debt-to-equity ratio, finding the allegation inadequate to meet the test that capitalization be too small to allow a corporation to operate its business and pay its debts as they come due.

The Court then turned to the "purposeful direction" prong of the test for specific personal jurisdiction, finding most relevant the expression of it in the "Calder effects" test:  That the defendant "(1) committed an intentional act, (2) expressly aimed at the forum state, (3) causing harm that the defendant knows is likely to be suffered in the forum state."  Although Lion capital (UK) committed no relevant "intentional acts" itself, the Court found that certain of its partners had, and imputed those to the partnership.  The situation was different as to Big Catch, which was merely a holding company.  The test continued as to Lion Capital, and the Court stated that "express aiming" required "something more" than the mere foreseeability of US effects.  The Court found that "more" in evidence that Lion Capital (UK) focused specifically on the US market and placed directors on the board of the US Bumble Bee entity and otherwise was involved with the direction and control of Bumble Bee and indeed had received from Bumble Bee evidence of the alleged conspiracy.

The Court addressed the second prong of the specific personal jurisdiction test by concluding that the Lion Capital's contacts with the forum were the "but for" cause of the plaintiffs' alleged injury of paying higher prices and therefore satisfied the test.  It concluded that the third prong of the test—reasonableness—was satisfied by the fact that Lion Capital (UK) had undeniably inserted itself into the US market through its acquisition of the US Bumble Bee company.  The Court thus concluded that specific personal jurisdiction over Lion Capital (UK) existed. 

Finally, the Court applied the alter ego test to consider whether jurisdiction over Bumble Bee and Lion Capital (UK) could be imputed to Big Catch, the Bahamian holding company.  It rejected the plaintiffs' arguments that alter ego status could be inferred from the large number of American limited partners in Big Catch but gave credence to the fact that the business of Big Catch, with no employees or property, may well be identical to the business of Bumble Bee.  The requirement that a failure to disregard the separate corporate status of Big Catch and Bumble Bee might result in "fraud and injustice" was satisfied by Big Catch having a contingent arrangement to make whole the amount of a criminal fine against Bumble Bee that had been reduced by Bumble Bee's insufficient funding to pay the fine itself.  This, in turn, also led the Court to conclude that specific personal jurisdiction over Lion Capital (UK) could be imputed to Big Catch, as a failure to do so would permit Lion Capital's owners potentially to profit from the alleged fraud for which Big Catch could be liable.

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