Metallgesellschaft Ag v. Sumitomo Corp. of America

Decision Date31 March 2003
Docket NumberNo. 00-3700.,00-3700.
PartiesMETALLGESELLSCHAFT AG and MGTS UK Holding, Plaintiffs-Appellants, v. SUMITOMO CORPORATION OF AMERICA, Sumitomo Corporation, Yasuo Hamanaka, et al., Defendants-Appellees.
CourtU.S. Court of Appeals — Seventh Circuit

Robert B. Bernstein, Michael D. Bleckman (argued), Kaye, Scholer, Fierman, Hays & Handler, New York, NY, for Plaintiffs-Appellants.

David R. Cross, Quarles & Brady, Milwaukee, WI, Bruce Birenboim (argued), Paul, Weiss, Rifkind, Wharton & Garrison, New York, NY, H. Peter Haveles, Jr., Cadwalader, Wickersham & Taft, New York, NY, for Defendants-Appellees.

Yasuo Hamanaka, Tokyo, Japan, pro se.

Before CUDAHY, ROVNER, and DIANE P. WOOD, Circuit Judges.

DIANE P. WOOD, Circuit Judge.

This case is part of the broader multi-district litigation that was spawned by an alleged conspiracy involving Sumitomo and others to raise the price of copper and manipulate the London Metals Exchange (LME). The plaintiffs, Metallgesellschaft AG (MG) and MGTS UK Holding (MGUK), both short-sellers that bought copper futures contracts from brokers in New York, Connecticut, and London, claim that they were injured by this conspiracy when Sumitomo Corporation (Sumitomo), along with Global Minerals and Metals Corporation, Inc. (Global) and other defendants in this case, cornered the market for physical copper available to satisfy copper futures contracts on the LME. They allege that the purpose of the conspiracy was to "squeeze" the LME shorts (parties with the obligation to sell copper to others) by cornering the supply of copper available in LME warehouses as well as LME warrants and thereby forcing the shorts to cover their positions at greatly inflated prices.

The plaintiffs brought claims under the Sherman Act, 15 U.S.C. §§ 1 and 2; the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1341, 1343 and 1962; N.Y. GEN BUS. LAW § 340; and state common law of fraud. The district court dismissed the action, finding that (1) the court did not have "subject matter jurisdiction" over the plaintiffs' claims, because of the limitations found in 15 U.S.C. § 6a, the Foreign Trade Antitrust Improvement Act of 1982 (FTAIA) and (2) the plaintiffs did not have standing under § 4 of the Clayton Act. We find, contrary to the district court, that the requirements of the FTAIA were satisfied. The issue of the plaintiffs' right to recover (called "standing" below) also requires further consideration in the district court. We therefore reverse the judgment and remand for further proceedings.

I

Although the United States is the second largest copper cathode producer and the largest consumer of copper cathode in the world, some 90 to 95% of the world's copper futures contracts are traded on the LME. Whether trades are made by open-outcry or by telephone, all LME contracts are denominated in U.S. dollars. There is an open-outcry system on the trading floor of the LME, but most American trading is interoffice trading through brokers in New York, who make their deals and then communicate the results via telephone or e-mail to brokers in London. Through this process, called matching, all U.S. trades are made on a 24-hour basis, with real time price quotes available. They are matched by an LME broker in London and then cleared through the London Clearing House in London. Although American trades on the LME are subject to regulations according to English law, they are also regulated by the U.S. Commodity Futures Trading Commission (CFTC).

Because the details of the Sumitomo conspiracy to inflate the price of copper can be found in our opinion in Loeb Industries, Inc. v. Sumitomo Corp., 306 F.3d 469 (7th Cir.2002), we will not rehash them here. The important points for this appeal are the identity and market role of the plaintiffs now before us, all of whom claim that they were injured by the alleged conspiracy. Plaintiff MG is a German-based corporation, and plaintiff MGUK is a British subsidiary of MG. MG is the assignee of claims of Metal Concentrates International Inc. (MCII), a New York-based, Delaware Company. MGUK is the assignee of the claims of MG Metal & Commodity Ltd (MGM), a London-based copper merchant. MG and MGUK assert that they were forced to cover their short positions by tendering high-priced warrants and physical copper cathode to various LME warehouses, including one in Long Beach, California. As a result, the short-sellers paid an overcharge for the physical copper (which they would not have had to procure had it not been for the conspiracy) and incurred additional freight and handling costs associated with their California deliveries.

The plaintiffs brought this suit in January, 2000. On October 3, 2000, the district court granted the defendant's motion to dismiss, which was based on both FED. R. CIV. P. 12(b)(1) and 12(b)(6), finding that the plaintiffs had not established jurisdiction under the standards of the FTAIA. The district court determined that claims raised by the "mostly foreign plaintiffs who were injured abroad by effects felt abroad and not in American markets" did not fall within the requirements established by the FTAIA for suits brought under the Sherman Act. This lack of jurisdiction also implied, the district court thought, that the plaintiffs were not entitled to sue under § 4 of the Clayton Act.

II

This court, sitting en banc, has recently concluded that the FTAIA establishes limits on the "subject matter jurisdiction" of the district courts, rather than describing a limit on the legislative jurisdiction Congress has exercised in foreign commerce antitrust cases. See United Phosphorus, Ltd. v. Angus Chem. Co., No. 01-1693, 2003 WL 910592 (7th Cir. Mar.10, 2003). That is also the way the district court viewed the case. We therefore turn immediately to the question whether the conclusion the district court reached on the facts of this case was correct.

Our starting point is the language of the statute. In pertinent part, it reads as follows:

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.

15 U.S.C. § 6a.

Sumitomo and Global, relying on this statute, filed a motion seeking dismissal of the action. They argued that the plaintiffs' complaint has not asserted that there is conduct that has a "direct, substantial, and reasonably foreseeable effect" on either U.S. domestic commerce or on U.S. import commerce. It is important in this respect to note that the district court did not make jurisdictional findings of fact about the amount or nature of commerce affecting U.S. markets; its analysis was done as a matter of law, and we are thus free to review it de novo.

The first important question is what exactly Congress meant when it used the phrase "direct, substantial, and reasonably foreseeable effect" on "trade or commerce (other than import trade or import commerce) with foreign nations." At least two possible interpretations exist. The first, which the district court adopted, reads the statute as imposing a two-fold requirement: the conduct must affect the U.S. domestic marketplace, and the plaintiff's injuries must arise out of the very same anticompetitive effect on the marketplace. See In re Copper Antitrust Litig., 117 F.Supp.2d 875, 883 (W.D.Wis.2000); see also Den Norske Stats Oljeselskap As v. HeereMac Vof., 241 F.3d 420 (5th Cir.2001), cert. denied sub nom., Statoil ASA v. HeereMac v.o.f., 534 U.S. 1127, 122 S.Ct. 1059, 151 L.Ed.2d 967 (2002). The second draws a distinction between the effects on U.S. commerce that are necessary to support statutory coverage and the effects that would support the merits of a particular plaintiff's claim. See, e.g., Empagran S.A. v. F. Hoffman-LaRoche, Ltd., 315 F.3d 338 (D.C.Cir.2003); Kruman v. Christie's Int'l PLC, 284 F.3d 384 (2d Cir. 2002). According to the plaintiffs, who obviously support the latter interpretation, the FTAIA requires only that there be conduct that has "direct, substantial, and reasonably foreseeable" anticompetitive effects in the United States, whether or not the plaintiff's claim is based on those effects. They rely, for example, on Pfizer, Inc. v. Government of India, 434 U.S. 308, 98 S.Ct. 584, 54 L.Ed.2d 563 (1978), which the drafters of the FTAIA expressly noted that they had no intention to overrule or to undermine, see 1982 U.S.C.C.A.N 2487, 2496-97,H. REP. No. 97-686, at 11-12 (1982). In Pfizer, the Supreme Court recognized the right of the Government of India to sue for its injuries from antitrust violations that affected both the U.S. market and the Indian market.

There is currently a conflict in the circuits between the narrow interpretation, favored by the Fifth Circuit majority in Den Norske, and the broader interpretation, which the District of Columbia followed in Empagran and Caribbean Broadcasting System, Ltd. v. Cable & Wireless PLC, 148 F.3d 1080 (D.C.Cir.1998), and the Second Circuit adopted in Kruman. Thus, whatever position this court adopts, if and when the need arises, will simply be a matter of choosing sides on an existing issue.

The Fifth Circuit's decision in Den Norske is the leading authority at present for the stricter test, under which the anticompetitive effects in the United States must be the same effects as those supporting the plaintiff's claim. In ...

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