227 F.3d 62 (3rd Cir. 2000), 99-5931, Carpet Group Int'l v Oriental Rug Importers

Docket Nº:99-5931
Citation:227 F.3d 62
Party Name:CARPET GROUP INTERNATIONAL; EMMERT ELSEA V. ORIENTAL RUG IMPORTERS ASSOCIATION, INC.; BASHIAN BROS., INC.; ALFANDARI AND ETESSAMI ORIENTAL RUG CO., INC.; MOUSSA ETESSAMI & SONS CORP.; NOONOO RUG CO.; PANDE CAMERON & CO. OF NEW YORK; KELATY RUGS INTERNATIONAL; DANIEL HODGES; GEORGE NEWMAN; ISAAC ETESSAMI, CARPET GROUP INTERNATIONAL CORPORATION AND E
Case Date:September 08, 2000
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit
 
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227 F.3d 62 (3rd Cir. 2000)

CARPET GROUP INTERNATIONAL; EMMERT ELSEA

V.

ORIENTAL RUG IMPORTERS ASSOCIATION, INC.; BASHIAN BROS., INC.; ALFANDARI AND ETESSAMI ORIENTAL RUG CO., INC.; MOUSSA ETESSAMI & SONS CORP.; NOONOO RUG CO.; PANDE CAMERON & CO. OF NEW YORK; KELATY RUGS INTERNATIONAL; DANIEL HODGES; GEORGE NEWMAN; ISAAC ETESSAMI,

CARPET GROUP INTERNATIONAL CORPORATION AND EMMERT ELSEA, APPELLANTS

No. 99-5931

United States Court of Appeals, Third Circuit

September 8, 2000

Argued: July 21, 2000

Appeal from the United States District Court For the District of New Jersey District Judge: Honorable Joseph A. Greenaway, Jr.

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Counsel for Appellants: David U. Fierst (Argued) Stein, Mitchell & Mezines 1100 Connecticut Avenue, N.W. Suite 1100 Washington, DC 20036

Counsel for Amicus-Appellant: Christopher Sprigman (Argued) Robert B. Nicholson United States Department of Justice Antitrust Division 601 D Street, N.W. Patrick Henry Building Washington, DC 20530

Counsel for Appellees: William J. O'Shaughnessy (Argued) McCarter & English 100 Mulberry Street Four Gateway Center Newark, NJ 07101-0652, Howard M. Nashel Nashel, Kates, Nussman, Rapone, Ellis & Traum 190 Moore Street, Suite 306 Hackensack, NJ 07102, Arthur M. Lieberman Lieberman & Nowak 350 Fifth Avenue Suite 7412 New York, NY 10118, Stuart Reiser Shapiro & Croland 411 Hackensack Avenue Hackensack, NJ 07601

Coram: Rendell, Rosenn, Circuit Judges, and O'Neill,[*] District Judge.

OPINION FOR THE COURT

Rosenn, Circuit Judge.

This appeal arises out of an action under the Sherman Act alleging a conspiracy to restrain trade and monopolize the thriving United States market for oriental rugs.1 It requires us to determine, among other things, whether the Foreign Trade Antitrust Improvements Act ("FTAIA" or "the Act"), 15 U.S.C. S 6, divested the District Court of subject matter jurisdiction over this action. The plaintiffs are Carpet Group International ("CGI"), a Virginia corporation, and Emmert Elsea, a citizen of Virginia who is CGI's founder and sole

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shareholder. Elsea founded CGI with the objective of making imported oriental rugs available to retailers directly from manufacturers, bypassing importers at the wholesale level and thereby reducing rug prices to United States consumers. The defendants charged with antitrust violations are an association of importer/wholesalers of oriental rugs called the Oriental Rug Importers Association, Inc. ("ORIA"), several companies who are members of ORIA, and three individuals who are past or present officers and directors of ORIA.

In the District Court and on appeal, the defendants object to the Court's subject matter jurisdiction primarily on the ground that the plaintiffs' claims were barred by the FTAIA. They assert that the plaintiffs failed to establish jurisdiction under the Act because they have not proven that the defendants' actions did not involve or otherwise substantially affect United States commerce.2 The United States District Court for the District of New Jersey, acting on the report and recommendation of a Magistrate Judge, granted the motion of the defendants for dismissal of the action, and the plaintiffs timely appealed. We reverse.

I.

Firms involved in the oriental rug trade in the United States have traditionally utilized a narrow chain of distribution. In this carefully constricted chain, foreign rug manufacturers sell their goods to wholesalers in the United States, who import the rugs and then sell them to U.S. retailers. The retailers in turn resell the rugs to consumers. In the early 1990s, plaintiff Emmert Elsea conceived a plan by which retailers and consumers in this country could purchase oriental rugs more cheaply. He theorized that if U.S. retailers were to purchase rugs directly from foreign manufacturers, bypassing the wholesaler link in the chain of distribution, they could reduce the costs to themselves and, consequently, to consumers. Elsea founded CGI in order to facilitate his vision of a new chain of rug distribution.

In 1993 and 1994, CGI sponsored two trade shows in the United States at which foreign rug manufacturers were invited to display rugs and sell directly to American retailers. CGI expected to earn fees paid by the manufacturers for space at the trade show. In addition, Elsea, and later CGI, took U.S. retailers on buying trips to rug-producing countries in exchange for fees. On these trips, the plaintiffs arranged for the retailers to purchase rugs directly from foreign rug manufacturers. CGI's trade shows and buying trips were the mechanisms through which the plaintiffs attempted to effectuate their plan to assist American retailers in purchasing oriental rugs directly from the foreign manufacturer.

The plaintiffs claim that the defendants conspired to sabotage their efforts to facilitate direct sales between foreign manufacturers and United States retailers and, more specifically, conspired to wreck plaintiffs' trade shows. Plaintiffs' amended complaint alleges that the defendants used the following tactics:

(a) threatening not to purchase rugs from any manufacturer who participated in the trade shows;

(b) threatening not to purchase rugs from any manufacturer who sells rugs to any retailer on a buying trip;

(c) threatening and retaliating, including expulsion from the association, against any ORIA member that participated in the plaintiffs' trade shows;

(d) inducing the Carpet Export Promotion Council of India, the Export Promotion Board of Pakistan, and the Pakistan Carpet Manufacturers and Exporters Association not to

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subsidize the participation of manufacturers from those countries in the plaintiffs' trade shows;

(e) threatening not to sell rugs to retailers who participate in the buying trips sponsored by plaintiffs.

The defendants moved to dismiss the action for lack of subject matter jurisdiction. The defendants argued that the Foreign Trade Antitrust Improvements Act ("FTAIA"), 15 U.S.C. S 6a, deprived the District Court of subject matter jurisdiction under the antitrust laws by excluding the plaintiffs' claims from the coverage of those laws. The FTAIA provides, in relevant part,

Sections 1 to 7 of this title[, which include the 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....

15 U.S.C. S 6a.3 The District Court referred the motion to a Magistrate Judge. In accordance with circuit precedent, the plaintiffs introduced evidence to support their contention that the FTAIA did not apply to their claims and therefore did not deprive the District Court of jurisdiction.

A. The Jurisdictional Evidence.

The plaintiffs offered documentary evidence before the Magistrate Judge dealing with activity by ORIA and its members to convince foreign governments, foreign rug trade associations, and one domestic rug retailers' association not to provide financial assistance to the CGI trade shows. For example, ORIA wrote to the secretary of the Carpet Export Promotion Council of India ("CEPC") that in deciding whether or not to co-sponsor CGI's November 1993 Chicago trade show, the CEPC should consider that doing so would "possibly jeopardize a very friendly and prosperous relationship" between Indian rug manufacturers and American importers. (JA.92). In addition, defendant Hodges (the president of defendant Pande Cameron & Co. of New York, an importer/wholesaler) wrote to the chairman of the CEPC, expressing his opinion that the CGI 1993 show was "destined for failure," asking for the chairman's "comments and observations in lending CEPC support to this show," and requesting "the names of those exporters from India who plan on exhibiting." With respect to this last request, Hodges wrote: "These would be exporters, I can assure you we would avoid in any future business discussions." (JA.93). There is no evidence in this record that CEPC furnished Hodges with these names.

CGI planned another trade show in Washington, DC in August 1994. In March of that year, defendant Newman (the president of defendant Noonoo Rug Co.) wrote to the vice-chairman of the Export Promotion Bureau of Pakistan ("EPB") and the Pakistan Carpet Manufacturers and Exporters Association ("PCMEA") regarding this trade show, urging the PCMEA and the EPB "not to encourage nor support the `renegade' activities and selfish motives of a few Pakistani trader/exporters and their American retail counterparts." Newman also noted that "[t]o do so would be to continue on the road leading to ill will and chaos." (JA.94-95). The PCMEA subsequently made efforts toward conciliation with ORIA. Its vice chairman wrote to ORIA informing it of PCMEA's decision not to officially participate in the Washington Fair being held in August that year, and of its request that the EPB not "give any facility to" the participants. He reiterated that "no manner of encouragement or patronage" would

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be provided by the Association to any firm desiring to participate in the fair. (JA.96).

On March 23, 1994, Hodges, acting in his capacity as ORIA president, wrote to the president of the Oriental Rug Retailers Association ("ORRA"), a United States trade association, regarding the August 1994 CGI trade show. He stated:

Rumor has it that the ORRA has been approached by CGI to cosponsor this function. I think you are well aware of our sentiments regarding the purpose of this trade fair in undermining existing channels of...

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