830 F.2d 449 (2nd Cir. 1987), 866, O.N.E. Shipping Ltd. v. Flota Mercante Grancolombiana, S.A.

Docket Nº:866, Docket 86-7988.
Citation:830 F.2d 449
Party Name:Trade Cases 67,727, 9 Fed.R.Serv.3d 498 O.N.E. SHIPPING LTD., Plaintiff-Appellant, v. FLOTA MERCANTE GRANCOLOMBIANA, S.A., Andino Chemical Shipping, Inc., and Maritima Transligra, S.A., Defendants-Appellees.
Case Date:October 01, 1987
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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Page 449

830 F.2d 449 (2nd Cir. 1987)

Trade Cases 67,727,

9 Fed.R.Serv.3d 498

O.N.E. SHIPPING LTD., Plaintiff-Appellant,

v.

FLOTA MERCANTE GRANCOLOMBIANA, S.A., Andino Chemical

Shipping, Inc., and Maritima Transligra, S.A.,

Defendants-Appellees.

No. 866, Docket 86-7988.

United States Court of Appeals, Second Circuit

October 1, 1987

Argued Feb. 26, 1987.

Evelyn Cohn, New York City (Caspar F. Ewig, Hill, Rivkins, Carey, Loesberg, O'Brien & Mulroy, of counsel), for plaintiff-appellant O.N.E. Shipping.

Edward M. Spiro, New York City (Catherine L. Redlich, Kostelanetz & Ritholz, New York City, Douglas E. Rosenthal, Arthur T. Downey, Sutherland, Asbill & Brennan, Washington, D.C., of counsel), for defendant-appellee Flota Mercante Grancolombiana.

Edward Schmeltzer, Washington, D.C. (Schmeltzer, Aptaker & Sheppard, Washington, D.C., of counsel), filed brief for defendants-appellees Andino Chemical Shipping and Maritima Transligra.

Before KAUFMAN and CARDAMONE, Circuit Judges, and POLLACK, District Judge. [*]

Page 450

MILTON POLLACK, Senior District Judge:

This appeal invokes the judicially created act of state doctrine on the anti-competitive effect of a foreign sovereign's cargo reservation laws--the laws of the Republic of Colombia--which require that 50% of licensed imports of liquid bulk cargo ("LBC") be transported on Colombian owned vessels, or on vessels chartered by a Colombian company.

The district court dismissed this suit brought under the Sherman Antitrust Act, 15 U.S.C. Sections 1, 2 (1982), on the ground that a federal court should not exercise jurisdiction hereof because "Colombian interests outweigh whatever antitrust enforcement interests the United States may have in this case as a matter of law." We affirm the dismissal.

Following the dismissal, appellant filed a motion under Rules 59 and 60 of the Federal Rules of Civil Procedure for reconsideration of the court's findings in light of allegedly new evidence and for an amendment of the judgment to reflect the disposition of its motion for a partial summary judgment. The court rejected the motions and sanctioned the appellant $500 under Rule 11. We reverse the order for sanctions.

BACKGROUND

In the late 1960s, Colombia passed a series of "Cargo Reservation Laws." The purpose of these laws was to favor Colombian shipping companies and the Colombian economy by requiring that imports and exports of certain types of cargo be transported exclusively by Colombian carriers. After 1969, those laws required that the first 50% of each licensed shipment imported into Colombia on trade routes served by Colombian carriers be transported on Colombian-owned vessels or on vessels chartered by a Colombian company. As the result of a delicate compromise between the United States and Colombia, U.S. flag lines were not subject to the protection laws.

Appellant O.N.E. Shipping Ltd. ("O.N.E."), a Bermuda corporation, and its predecessor in interest, Overseas Liquid Gas, Inc., a U.S. corporation, had offered regular liquid bulk cargo tanker service from U.S. gulf ports to Central and South America. Before 1973 there were no Colombian vessels capable of carrying LBC, so shipping to Colombia of this product was unaffected by the Colombia cargo reservation laws. This situation changed in 1973 and thereafter.

Appellee Flota Mercante Grancolombiana, S.A. ("Flota"), a Colombia shipping line substantially owned by the National Federation of Coffee Growers of Colombia, is a public organization and is "an agency or instrumentality" of the Colombian Government within the meaning of the Foreign Sovereign Immunities Act of 1976, 28 U.S.C. Section 1603(b). 1 Flota is Colombia's national line. Flota had no specially equipped LBC tankers of its own.

In 1973, to accommodate the needs of Colombian importers, Flota entered into a chartering agreement (revised in 1976) with appellee Andino Chemical Shipping, Inc., a Panamanian corporation and carrier of LBC, to handle Colombia's Atlantic coast trade.

In 1976, Flota entered into a similar chartering agreement with appellee Maritima Transligra, S.A. ("Transligra"), an Ecuadoran corporation, to charter the latter's tankers for use in Colombia's Pacific coast trade.

As required by Colombian law, Flota's chartering agreements were filed with and approved by the Colombian Government, enabling the non-Colombian tankers to receive the preferences accorded to Colombian flag vessels under the cargo reservation laws. 2 Together, the three appellees have captured up to 89% of the shipping imports

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of LBC into Colombia and O.N.E. has been virtually shut out therefrom.

As mentioned above, following a bilateral negotiation, no restrictions were placed by Colombia on the carriage of products imported from the United States if carried on United States flag vessels.

In April 1977, Flota, Andino and Transligra sought approval of their chartering agreements from the United States Federal Maritime Commission ("FMC") which would provide an exemption from U.S. antitrust laws. The FMC conditionally disapproved the agreements and subsequently conducted an investigation and a hearing. On May 23, 1983, the Administrative Law Judge ("ALJ") also disapproved the agreements. The ALJ found that Flota had attained near monopoly control over the LBC service to Colombia and that the agreements were prospectively unlawful. On appeal, the FMC affirmed the ALJ's order of disapproval and ruled that the agreements were anticompetitive, detrimental to United States commerce, contrary to the public interest and artificially increased transportation rates. The FMC ordered appellees to cease and desist. With these rulings in hand O.N.E. brought this antitrust action in the district court below.

O.N.E. charges appellees with unlawful concerted refusal to deal, conspiracy to exclude competitors, unlawful exclusive dealing, conspiracy to fix prices, conspiracy to divide markets and allocate customers, and attempt and conspiracy to monopolize.

DISCUSSION

O.N.E.'s antitrust suit represents a direct challenge to Colombia's cargo reservation laws and to the legality of appellees' space chartering agreements under those laws. The laws were designed to promote the development of a strong Colombian merchant marine and to assist Colombia's economic development.

Among other purposes, the cargo reservation laws enable the Colombian Government to monitor the allocation of the resources of Colombian shipping companies, to determine whether particular trade routes could prove harmful to the country's economy and to consider whether an applicant would provide effective, regular and continuous service.

The Colombian Government has repeatedly made known to the United States Department of State, as well as to the Federal Maritime Commission, its strong support for the cargo reservation laws and the chartering agreements thereunder among the appellees.

Applying the balancing tests of Timberlane Lumber Co. v. Bank of America, N.T. & S.A., 549 F.2d 597 (9th Cir.1976) and Mannington Mills, Inc. v. Congoleum Corp., 595 F.2d 1287 (3d Cir.1979) the district court concluded that because of Colombia's strong interest in its protectionist legislation and because of the Colombian government's ownership interest in Flota through the National Federation of Coffee Growers, there would be probable adverse effects upon our foreign relations were it to assert jurisdiction over this suit. The comity balancing test has been explicitly used in this Court. See Joseph Muller Corp. Zurich v. Societe Anonyme de Gerance et D'Armament, 451 F.2d 727 (2d Cir.1971) (per curiam), cert. denied, 406 U.S. 906, 92 S.Ct. 1609, 31 L.Ed.2d 816 (1972). 3

In an effort to provide a single standard to determine whether American antitrust laws apply to a given extraterritorial transaction, Congress enacted the Foreign Trade Antitrust Improvements Act of 1982, Pub.L. No. 97-290, 96 Stat. 1246 (codified at 15 U.S.C. Section 6a) [hereinafter referred to as the "Act"].

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Given the dismissal on comity grounds, the district judge did not decide whether the complaint should be dismissed under the "Act", although he did state that the Act "would not appear to provide a basis for refusing to exercise jurisdiction over this action."

Congress left it to the courts to decide when to employ notions of abstention from exercising jurisdiction in extraterritorial antitrust cases. Ninety years ago, the United States Supreme Court enunciated the American version of the act of state doctrine as follows:

Every sovereign State is bound to respect the independence of every other sovereign State, and the courts of one country will not sit in judgment on the acts of government of another done within its own territory. Redress of grievances by reason of such acts must be obtained through the means open to be availed of by sovereign powers as between themselves.

Underhill v. Hernandez, 168 U.S. 250, 252, 18 S.Ct. 83, 84, 42 L.Ed. 456 (1897).

In the landmark case of Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 84 S.Ct. 923, 11 L.Ed.2d 804 (1964), the Supreme Court analyzed the significant policy considerations and "constitutional underpinnings" of the doctrine, noting that no case subsequent to Underhill had manifested any retreat therefrom. 376 U.S. at 416, 421-23, 84 S.Ct. at 934, 936-37. In addition to Sabbatino and Underhill, see Oetjen v. Central Leather Co., 246 U.S. 297, 38 S.Ct. 309, 62 L.Ed. 726 (1918), and Ricaud v. American Metal Co., 246 U.S. 304, 38 S.Ct. 312, 62 L.Ed. 733 (1918).

In essence, the act of state doctrine is a principle of law designed primarily to avoid judicial inquiry into the acts and conduct of the...

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