United Phosphorus, Ltd. v. Angus Chemical Co., 94 C 2078.

• Decision Date: 16 February 2001
• Docket Number: No. 94 C 2078.,94 C 2078.
• Citation: 131 F.Supp.2d 1003
• Parties: UNITED PHOSPHORUS, LTD., an Indian corporation; Shroff's United Chemicals, Ltd., an Indian corporation; and J.C. Miller & Associates, Inc., an Illinois corporation, Plaintiffs, v. ANGUS CHEMICAL COMPANY, a Delaware corporation; Angus Chemie GmbH, a German corporation; the Estate of Freeman Hughes through its representative Yvonne Hughes; Ollie W. Chandler; Lowell Pals; Gary W. Granzow; D.B. Gupta; and Lupin Laboratories, Ltd., an Indian corporation, Defendants.
• Court: U.S. District Court — Northern District of Illinois

131 F.Supp.2d 1003

UNITED PHOSPHORUS, LTD., an Indian corporation; Shroff's United Chemicals, Ltd., an Indian corporation; and J.C. Miller & Associates, Inc., an Illinois corporation, Plaintiffs, v. ANGUS CHEMICAL COMPANY, a Delaware corporation; Angus Chemie GmbH, a German corporation; the Estate of Freeman Hughes through its representative Yvonne Hughes; Ollie W. Chandler; Lowell Pals; Gary W. Granzow; D.B. Gupta; and Lupin Laboratories, Ltd., an Indian corporation, Defendants.

No. 94 C 2078.

United States District Court, N.D. Illinois, Eastern Division.

February 16, 2001.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Peter Michael katsaros, Baum, Sigman, Auerbach, Pierson, Neumann & Katsaros, Ltd., Frederick Scott Rhine, Terence J. Moran, James Eric Vander Arend, Gessler, Hughes & Socol, Ltd., Chicago, IL, for United Phosphorus, Ltd., Shroff's United Chemicals, Ltd. and J.C. Miller & Associates, Inc.

T. Mark McLaughlin, Andrew Stanley Marovitz, Kaspar J. Stoffelmayr, Mayer, Brown & Platt, Stephen Novack, Patrick A. Fleming, Jennifer Lyn Friedes, Novack & Macey, Chicago, IL, for Angus Chemical Company, Angus Chemie GMBH, Freeman Hughes, Ollie W. Chandler, Lowell Pals and Gary W. Granzow.

Barrie Laine Brejcha, David G. Wix, Matthew G. Allison, Baker & McKenzie, Chicago, IL, for D.B. Gupta and Lupin Laboratories, Ltd.

MEMORANDUM OPINION AND ORDER

LEVIN, United States Magistrate Judge.

Before the court are Defendants' motion(s) to dismiss for lack of subject matter jurisdiction (pursuant to Fed.R.Civ. P.12(b)(1)) as to Counts I and II of the second amended complaint.

INTRODUCTION

Plaintiffs are (a) an Indian chemical manufacturer called United Phosphorus, Ltd. ("UPL"), (b) an Indian company entitled Shroff's United Chemicals Ltd. ("SUCL") (Shroff Dep. 25), ("the Indian Plaintiffs") and (c) an American firm, J.C. Miller & Associates ("JCM"), which once had an interest in a joint venture that wanted to sell technology to the Indian Plaintiffs. Defendants are (a) Angus Chemical Corporation and its corporate officers, Freeman Hughes, Ollie Chandler, Lowell Pals, Gary W. Granzow (collectively "Angus"), (b) Angus Chemie GmbH ("Chemie"), and (c) Lupin Laboratories, Ltd. and its officer and owner D.B. Gupta (collectively "Lupin"). Counts I and II of the second amended complaint, essentially, allege that Defendants attempted to monopolize, monopolized and conspired to monopolize the market for certain chemicals in violation of § 2 of the Sherman Antitrust Act. 15 U.S.C. § 2.

Defendants threshold argument is that the court lacks subject matter jurisdiction under the Foreign Trade Antitrust Improvements Act ("FTAIA"), which limits application of the Sherman Act to conduct with a "direct, substantial, and reasonably foreseeable effect" on domestic commerce. 15 U.S.C. § 6a.

BACKGROUND FACTS

The following was expressed by the District Court in ruling on a motion under the original complaint herein:

India currently has the greatest incidence of tuberculosis in the world. The primary pharmaceutical drug used in India to cure this potentially fatal illness is Ethambutol. Two chemicals, 2-Amino-1 Butanol ("AB"), the key ingredient of Ethambutol, and 1-Nitro-Propane ("1-NP"), the raw material used to make AB, are the subjects of this litigation. To make Ethambutol, Indian chemical laboratories, including Defendant Lupin, use AB, which they buy from Defendant Chemie, currently the world's only manufacturer of AB. Chemie, a German subsidiary wholly owned by Defendant Angus, uses 1-NP as raw material to manufacture AB at its plant in Germany. Angus, a Delaware Corporation in the business of manufacturing and selling chemical products, makes 1-NP at a plant in Sterlington, Louisiana, and is presently the world's only manufacturer of 1-NP. Mem. Op. & Order, 1994 WL 577246, *1 (N.D.Ill. Oct. 18, 1994).

The lawsuit in this case stems from prior trade secret litigation between several of the parties. In the early 1990's, the Indian Plaintiffs began to consider manufacturing AB. The Indian Plaintiffs planned to acquire the technology for making AB, and its raw material 1-NP, from Dr. John Miller (owner of JCM) who also was the former Vice President of Research and Development for Angus (makers of AB and 1-NP). While at Angus, Miller supervised Angus's propriety efforts to improve its AB processes and had ongoing access to the manufacturing process details for Angus's products.

Defendants position was as follows: While Rajju Shroff (the principal of Indian Plaintiffs) worked to acquire AB technology from Dr. Miller, he concealed Miller's identity and background from his own government by filing an official application to the Indian government falsely declaring that the technology for the AB process would be acquired from a different scientist, Dr. Phillip Adams. Adams Dep. 99-101, 133. Shroff, assertedly, withheld Miller's involvement in the project stating that Angus didn't "know that we [Shroff and Miller] are in touch." They still think it is Dr. Phil Adams. Letter from Shroff to Miller (July 30, 1991) (DX 41).

Avowedly, as soon as Angus learned that Shroff would be obtaining AB technology from Miller, Angus filed suit in the Circuit Court of Cook County ("the Cook County Action") to enjoin Miller from misappropriating its trade secrets. Two years later, when Angus was faced with a discovery ruling that would have required it to disclose the very details of the technology it sued to protect, Angus voluntarily dismissed its own suit.

The following year, in 1994, Plaintiffs initiated this action challenging Angus's pursuit of the Cook County Action. The Indian Plaintiffs allege that, but for Angus's initiation of the Cook County Action, Plaintiffs would have sold AB as well as other chemicals for profit. Moreover, JCM claims that it would have sold technology to the Indian Plaintiffs and others. Thus, in the second amended complaint, the Indian Plaintiffs alleged, inter alia, that they intended to manufacture AB, 1-NP and certain other specified chemicals and that Defendants used various anticompetitive means to thwart Plaintiffs' plans.

RELEVANT STATUTE

The FTAIA, states:

Sections 1 to 7 of this title (Sherman Act) shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless —

(1) such conduct has a direct, substantial, and reasonably foreseeable effect —

(A) on trade or commerce which is not trade or commerce with foreign nations, or on import trade or import commerce with foreign nations; or

(B) on export trade or export commerce with foreign nations, of a person engaged in such trade or commerce in the United States; and

(2) such effect gives rise to a claim under the provisions of sections 1 to 7 of this title, other than this section.

If sections 1 to 7 of this title apply to such conduct only because of the operation of paragraph (1)(B), then sections 1 to 7 of this title shall apply to such conduct only for injury to export business in the United States. 15 U.S.C. § 6a (1982).

ANALYSIS

Defendants move to dismiss Plaintiffs' second amended complaint for lack of subject matter jurisdiction.¹

I. SUBJECT MATTER JURISDICTION

A. DIRECT, SUBSTANTIAL, AND REASONABLY FORESEEABLE EFFECT ON DOMESTIC COMMERCE.

Defendants threshold argument is that the court lacks subject matter jurisdiction because Plaintiffs have failed to demonstrate that Defendants' alleged antitrust conduct has a "direct, substantial, and reasonably foreseeable effect" on United States commerce as required by the FTAIA.

Section 1 of the Sherman Act prohibits conspiracy "in restraint of trade or commerce among the several States, or with foreign nations." 15 U.S.C. § 1. Section 2 of the Sherman Act prohibits monopolization and attempted monopolization "of the trade or commerce among the several States, or with foreign nations." 15 U.S.C. § 2. Section 6a, supra, which was added to the Sherman Act in 1982, sets forth the criteria for determining United States antitrust jurisdiction over international business transactions. 15 U.S.C. § 6a.

In 1982, Congress enacted the FTAIA as an amendment to the Sherman Act to clarify the extraterritorial reach of the federal antitrust laws. O.N.E. Shipping, Ltd. v. Flota Mercante Grancolombiana, S.A., 830 F.2d 449, 451 (2d Cir.1987); Roger P. Alford, "The Extraterritorial Application of Antitrust Laws: A Postscript on Hartford Fire Insurance Co. v. California," 34 Va.J.Int'l L. 213, 216 (1993). The purposes of the FTAIA, as set forth in its legislative history, are to "encourage the business community to engage in efficiency producing joint conduct in the export of American goods and services" and to amend the Sherman Act to create a unitary statutory test to determine whether American antitrust jurisdiction exists over certain international transactions. H.R.Rep. No. 686, 97th Cong., 2d Sess., reprinted in 1982 U.S.Code Cong. & Ad. News 2487.

Congress enacted the FTAIA because it believed that American jurisdiction over international commerce should be limited to transactions that affect the American economy. Hartford Fire Ins. v. California, 509 U.S. 764, 796, n. 23, 113 S.Ct. 2891, 125 L.Ed.2d 612 (citing H.R.Rep. No. 686, 97th Cong., 2d Sess., reprinted in 1982 U.S.Code Cong. & Ad. News 2487); Phillip Areeda & Herbert Hovenkamp, Antitrust Law, ¶ 236'a (Supp.1992). Congress believed that "the concern of the antitrust laws is protection of American consumers and American exporters, not foreign consumers or producers." Phillip Areeda & Herbert Hovenkamp, Antitrust Law, ¶ 272h2 (1997) (emphasis in original). With this in mind, Congress amended the Sherman Act by passing the FTAIA so that jurisdiction over foreign commercial conduct would not be exercised unless such conduct had a "direct, substantial, and reasonably foreseeable effect" on United States commerce. Moreover, Congress intended that the antitrust laws would not be ...