Blomkest Fertilizer, Inc. v. Potash Corp. of Saskatchewan, Inc.
| Decision Date | 07 May 1999 |
| Docket Number | No. 97-1330,97-1330 |
| Citation | 176 F.3d 1055 |
| Parties | 1999-1 Trade Cases P 72,515 BLOMKEST FERTILIZER, INC.; Cobden Grain & Feed, on behalf of themselves and all others similarly situated; Plaintiffs, Hahnaman Albrecht, Inc.; John Peterson, doing business as Almelund Feed & Grain; Laing-Gro Fertilizers, Inc.; Plaintiffs--Appellants, Clearbrook AG Service, Inc., on behalf of itself and all others similarly situated; Reamford Liquid Fertilizer, Inc., on behalf of itself and all others similarly situated; Tolley's, Inc., on behalf of itself and all others similarly situated; Plaintiffs, James River Farm Service, Inc., on behalf of itself and all other similarly situated; Plaintiffs--Appellants, Angela Coleman, on behalf of herself and all others similarly situated; Plaintiffs, AG Network, Inc.; Plaintiffs--Appellants, Marcelline Farm Supply, Inc., on behalf of itself and all others similarly situated, Plaintiffs, v. POTASH CORPORATION OF SASKATCHEWAN, INC.; Potash Corporation of Saskatchewan Sales, Inc.; Potash Company of America, Inc.; IMC Fertilizer Group, Inc.; Kalium Chemicals, Ltd.; Kalium Canada, Ltd.; Noranda Minerals, Inc.; Central Canada Potash Co.; Noranda Sales Corporation, Ltd.; Cominco, Ltd.; Cominco American, Inc.; Eddy Potash, Inc.; New Mexico Potash Corporation; Defendants--Appellees, Rio Algom, Ltd.; Defendant, PPG Canada, Limited; PPG Industries, Inc.; IMC Global, Defendants--Appellees. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Richard A. Epstein, Chicago, Illinois, argued (Mark Reinhardt and Harvey H. Eckhart, St. Paul, Minnesota, Joel C. Meredith and Bruce K. Cohen, Philadelphia, Pennsylvania, on the brief), for Plaintiffs-Appellants.
Richard J. Favretto, Washington, DC, argued (Marc Gary, Charles Rothfeld, Kerry Lynn Edwards, and Gary A. Winters, Washington, DC, John D. French and Gordon G. Busdicker, Minneapolis, Minnesota, Michael Evan Jaffe and Gerald Zingone, Washington, DC, Jerome B. Pederson, Minneapolis, Minnesota, Gerald A. Connell and Ronald M. Wick, Washington, DC, Leon R. Goodrich, St. Paul, Minnesota, Douglas E. Rosenthal and Amy L. Bess, Washington, DC, Victor S. Friedman and Eric Queen, New York, New York, on the brief), for Defendants-Appellees.
Stephen A. Marshall and Martin P. Michael, New York, New York, and Carol A. Peterson, Minneapolis, Minnesota, argued, for Defendants-Appellees New Mexico Potash Corporation and Eddy Potash, Inc.
Frank A. Taylor and Scott A. Smith, Minneapolis, Minnesota, argued, for Defendants-Appellees PPG Industries, Inc., and PPG Canada, Ltd.
Before BEAM, HEANEY, and JOHN R. GIBSON, Circuit Judges.
A certified class of potash buyers appeals the district court's entry of judgment in favor of the defendant potash producers in this antitrust case. The class claims that the producers conspired to fix potash prices in violation of section one of the Sherman Act, 15 U.S.C. § 1 (1994). The district court adopted a recommendation of the Magistrate Judge concluding that the class had not produced any evidence supporting an inference of conspiracy. Although much of the class's evidence of behavior in the potash industry was consistent with a price-fixing conspiracy, the court held that the facts were equally consistent with legal oligopolistic behavior. Relying on Monsanto Company v. Spray-Rite Service Corp., 465 U.S. 752, 104 S.Ct. 1464, 79 L.Ed.2d 775 (1984), and Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986), the court entered summary judgment against the class. In re Potash Antitrust Litigation, 954 F.Supp. 1334 (D.Minn.1997). The class appeals, arguing that the district court misapplied the standards of Monsanto and Matsushita to change the standard for summary judgment in antitrust cases. We reverse in part and affirm in part.
The potash industry is an oligopoly 1 in which the producers ended a price war and raised prices dramatically. The question is whether the class has shown that the new prices resulted from an agreement among the producers to raise and stabilize prices, rather than from innocent reactions to market conditions, combined with actions of the United States and Canadian governments.
Potash is a mineral which is an essential ingredient in fertilizer. Because potash is an essential ingredient, the demand for potash is "inelastic," meaning that people will continue to buy it even if the price goes up, and they will not buy much more, even if the price goes down. The effect of this inelastic demand is that low prices are bad for the producers because the low price does not result in greater sales, except insofar as one producer can take sales away from other producers. Conversely, producers benefit from high prices, because they can sell about as much potash and keep the extra money.
The market for potash in the United States is dominated by Canadian firms. Their share of sales in the United States rose in the early and mid 1980's. Canadian potash constituted 76.7% of the United States' domestic consumption in 1984, 82.6% in 1985, and 84.3% in 1986. David G. Haglund and Alex von Bredow, U.S. Trade Barriers and Canadian Minerals: Copper. Potash and Uranium 68. Not only did the Canadians have a tremendous share of world potash reserves (the province of Saskatchewan alone had nearly fifty percent of world reserves), but the Canadians also enjoyed the advantage of being closer to prime United States agricultural areas than were the U.S. domestic producers, who were concentrated in the Southwest.
The principal Canadian potash producers are defendants in this case: Potash Corporation of Saskatchewan Incorporated (PCS); 2 Potash Corporation of America (PCA); IMC Fertilizer Group, Inc.; Kalium 3; Noranda Minerals, Inc. 4 ; and Cominco. 5 These Canadian firms are allied in Canpotex, a cartel that exists to sell potash outside the United States. (In addition to these Canadian firms, two affiliated American companies, New Mexico Potash Corporation and Eddy Potash, are also named as defendants.)
The biggest of these Canadian firms, PCS, was originally owned by the province of Saskatchewan and was run as a governmental company for the avowed purposes of providing jobs and promoting the local Saskatchewan economy. Unfortunately for the potash industry, due to a slump in agriculture, potash demand fell tremendously in the 1980's, resulting in oversupply. The effect of the oversupply was a potash price war, with prices bottoming in 1986 when PCS charged C$45.36 per ton FOB mine. 6 The industry was in crisis. PCS alone lost $103 million in 1986. The president of PCS Sales wrote in an internal memorandum that the industry would not be able to end the price war without "joint action":
It is not possible for a single producer to affect [sic] a turn-around; however, joint action by a group of producers or governments could achieve this.
Given the competitive nature of the business, joint action in North America is not possible except through a vehicle such as Canpotex. Canpotex by itself cannot achieve the objectives unless there is tacit approval and support on the part of other potash exporters. The danger inherent in multilateral decisions by Canpotex (or PCS Sales) is that the world will again see us as a residual supplier.... PCS Sales' past support of price with a view to achieve stability is proof of the fallacy of such attempts.
In fact, Noranda, Kalium, PCA, and PCS had each tried to increase prices unilaterally during 1986, and were forced to rescind the increases when the other producers undercut them.
In 1986, the province of Saskatchewan elected a government which promised to privatize PCS. In preparation for privatizing the company, PCS replaced its management with Charles Childers, CEO, and William Doyle, sales chief, who came to PCS from rival company IMC. Childers was quoted in a trade publication as saying that it was incumbent on PCS "to lead" in order to "straighten out our own company and hopefully give some strength to the potash industry as a whole."
Also in 1986, two American producers 7 filed a complaint with the United States Department of Commerce alleging that the Canadian companies were dumping potash in the United States at less than fair value (which can mean below prices charged for exports to a third country, below domestic prices in the country where the product is produced, or below a reconstructed cost of production, Haglund and von Bredow, supra, at 65). The Department investigated the claim and in August 1987 issued a preliminary determination that the Canadian producers were dumping potash. The Department ordered the Canadian companies to post bonds on all exports to the United States, which would be payable to the United States as a duty if there were a final determination of dumping and injury to American producers. The amount of the bond varied for each firm according to the firm's "dumping margin," that is, the average amount by which the firm's United States sale price fell below the foreign market value in the cases examined by the Department. The dumping margins varied wildly, from 9.14 percent for IMC up to a crippling 85.2 percent for Noranda.
The Saskatchewan government responded to the United States's action by adopting legislation which would give the province the power to limit and prorate production among Saskatchewan producers. Haglund and von Bredow, supra, at 76. Within days of the introduction of the Saskatchewan legislation, on September 4, 1987, PCS announced that it would increase its prices by $35 per ton (from $58 to $93 per short ton for coarse grade f.o.b. mine), or sixty percent, to account for the bond expense. PCS's dumping margin was set at 51.9 per cent. PCS chose to raise its price only by $35, the amount necessary to pay duties on the industry average dumping margin of 36.62 per cent, rather than by the amount necessary to pay its own duty of...
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