Minn–Chem, Inc. v. Agrium Inc.

• Citation: 683 F.3d 845,2012 Trade Cases P 77943
• Decision Date: 27 June 2012
• Docket Number: No. 10–1712.,10–1712.
• Parties: MINN–CHEM, INC., et al., Plaintiffs–Appellees, v. AGRIUM INC., et al., Defendants–Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

683 F.3d 845

2012-1 Trade Cases P 77,943

MINN–CHEM, INC., et al., Plaintiffs–Appellees,

v.AGRIUM INC., et al., Defendants–Appellants.

No. 10–1712.

United States Court of Appeals,Seventh Circuit.

Argued Feb. 8, 2012.

Decided June 27, 2012.

J. Timothy Eaton, Attorney, Shefsky & Froelich, Ltd., Steven A. Hart, Attorney, Segal, McCambridge, Singer & Mahoney, Marvin A. Miller, Attorney, Miller Law LLC, Chicago, IL, Bruce L. Simon (argued), Attorney, Pearson Simon Warshaw & Penny LLP, San Francisco, CA, Christopher P. Lovell, Attorney, Lovell Stewart Halebian, Beverly Tse, Attorney, Kirby McInerney & Squire, New York, NY, for Plaintiffs–Appellees.

Richard Parker, O'Melveny & Myers LLP, Charles A. Rothfeld (argued), Attorney, Mayer Brown LLP, Washington, DC, Jeffrey L. Kessler, Winston & Strawn LLP, Robert A. Milne, Attorney, White & Case, New York, NY, Stephen M. Shapiro, Attorney, Mayer Brown LLP, Brian J. Murray, Attorney, Jones Day, Duane M. Kelley, Attorney, Winston & Strawn LLP, Chicago, IL, for Defendants–Appellants.

Richard M. Brunell, Attorney, American Antitrust Institute, Newton, MA, for Amicus Curiae American Antitrust Institute.

Nickolai G. Levin, Attorney, Department of Justice, Antitrust Division, Appellate Section, for Amici Curiae United States of America and Federal Trade Commission.

Before EASTERBROOK, Chief Judge, and POSNER, MANION, KANNE, WOOD, SYKES, TINDER, and HAMILTON, Circuit Judges.^*

WOOD, Circuit Judge.

Potash, a naturally occurring mineral used in agricultural fertilizers and other products, is produced and sold in a global market. In this case, the plaintiffs, U.S. companies that are direct and indirect purchasers of potash, accuse several global producers of price-fixing in violation of the U.S. antitrust laws. See 15 U.S.C. §§ 1 et seq. The district court denied the defendants' motion to dismiss the complaint, but it certified its ruling for interlocutory appeal under 28 U.S.C. § 1292(b). We agreed with that court's assessment of the importance of the issues presented and accepted the appeal. A panel of the court concluded that the complaint failed to meet the requirements of the Foreign Trade Antitrust Improvements Act of 1982 (FTAIA), 15 U.S.C. § 6a, and it thus voted to reverse. Minn–Chem, Inc. v. Agrium Inc., 657 F.3d 650 (7th Cir.2011). We then decided to rehear the case en banc. We hold first that the FTAIA's criteria relate to the merits of a claim, and not to the subject-matter jurisdiction of the court. We therefore overrule our earlier en banc decision in United Phosphorus, Ltd. v. Angus Chem. Co., 322 F.3d 942 (7th Cir.2003). We then address the applicable standards for antitrust cases involving import commerce and the restrictions imposed by the FTAIA. We conclude that the district court correctly ruled that the complaint does state a claim under the federal antitrust laws.

I

The district court's opinion details the critical facts alleged in the Complaint, see In re Potash Antitrust Litig., 667 F.Supp.2d 907, 915–19 (N.D.Ill.2009), but for convenience we briefly summarize them here. The term “potash” refers to mineral and chemical salts that are rich in potassium. It is mined from naturally occurring ore deposits and its primary use is in agricultural fertilizers, but it is also used in the production of such varied products as glass, ceramics, soaps, and animal feed supplements. Importantly for our later antitrust analysis, potash is a homogeneous commodity: One manufacturer's supply is interchangeable with another's. As a result, buyers choose among suppliers based largely on price. Markets for this type of product are especially vulnerable to price-fixing.

We focus our analysis on the Direct Purchaser Amended Consolidated Class Action Complaint (referred to here simply as the Complaint), because the complaint filed by the indirect potash purchasers focuses primarily on state law remedies (since indirect purchasers are not entitled to sue for damages under the federal antitrust laws, see Illinois Brick Co. v. Illinois, 431 U.S. 720, 729, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977)).¹ The Complaint alleges that the world's potash reserves are confined to a handful of areas, with over half of global capacity located in just two regions—Canada and the former Soviet Union (in particular, Russia and Belarus). Commercially, the industry has been dominated by a small group of companies that market, sell, and distribute potash. The key actors are:

• Potash Corporation of Saskatchewan (Canada) Inc. and its U.S. subsidiary Potash Sales (USA), Inc. (collectively PCS), the world's largest producer of potash;

• Mosaic Company and Mosaic Crop Nutrition (Mosaic) a Delaware company headquartered in Minnesota, number three globally; • Agrium Inc. and Agrium U.S. Inc. (Agrium), a Canadian corporation and its wholly owned U.S. subsidiary;

• Uralkali, a Russian joint venture headquartered in Moscow; fifth largest in the world and holder of a one-half interest in JSC Belarusian Potash Company (Belarusian Potash), which acts as the exclusive distributor of potash for Uralkali;

• Belaruskali, a Belarusian company and the owner of the other one-half interest in Belarusian Potash, which, as it is for Uralkali, is Belaruskali's exclusive distributor;

• Silvinit, a Russian company that sells potash throughout the world, including the United States; and

• IPC, another Russian company, which is Silvinit's exclusive distributor.

The Complaint alleges that as of 2008, these seven entities produced approximately 71% of the world's potash.

In 2008, the United States consumed 6.2 million tons of potash. Of that total, 5.3 million tons were imports, and PCS, Mosaic, Agrium, and Belarusian Potash (acting for both Uralkali and Belaruskali, its equal and joint owners) were responsible for the lion's share of those sales. Data for other years covered by the Complaint are comparable.

The total world market for potash, in which the United States is an important consumer (second only to China, Complaint ¶ 51), is allegedly under the thumb of a global cartel consisting primarily of the companies listed above. This cartel restrained global output of potash in order to inflate prices. The cartel members used a rolling strategy: They would first negotiate prices in Brazil, India, and China (Complaint ¶ 111), and then use those prices as benchmarks for sales to U.S. customers. (Complaint ¶¶ 117–121). For example, in May 2004, the cartel arranged for prices to increase by $20 per ton for some foreign customers; shortly thereafter, prices in the United States went up by precisely the same amount.

The cartel initiated a sustained and successful effort to drive prices up beginning in mid–2003; by 2008 potash prices had increased at least 600%. The plaintiffs assert that this increase cannot be explained by a significant uptick in demand, changes in the cost of production, or other changes in input costs. In fact, U.S. consumption of fertilizer, of which potash is a consistent part, remained relatively steady throughout the period covered by this case; demand declined somewhat in 2008 but then returned to normal levels in 2009.² One might think that the decrease in demand in 2008 was because of the increase in price, but the slippage in demand did not build up over the entire Class Period and appears to have been only temporary, and is thus not correlated to potash price movements. Furthermore, the specific allegation in the Complaint that a $100 per ton increase in the price of potash adds only $0.03 to the production cost of a bushel of corn suggests that demand for potash is inelastic. Complaint ¶ 54. Prices for potash rose and stayed high, increasing even while fertilizer prices declined. Based on World Bank statistics, average fertilizer price indices rose from 1.0 to 2.2, and then fell back to 1.0 in 2008, while potash price indices started in 2008 at 1.0 and rose to 3.5 by the end of the year. Earnings by cartel members reinforce this picture of financial gain even in the face of waning demand: PCS posted first-quarter income figures in 2008 that tripled its previous-year figure, while Mosaic's earnings for that quarter were up more than tenfold over the year before.

The Complaint goes into detail about ways in which the defendants managed their collective output. (A cartel will always try to restrict output to the level where marginal cost equals marginal revenue, but in the real world, this normally requires constant adjustment.) For example, when global demand for potash declined in 2005, rather than decreasing its price, PCS announced that it was shutting down three of its mines in November and December 2005 for “inventory control purposes.” Complaint ¶ 88. This action had the effect of removing 1.34 million tons of potash from the world market. At the same time, rather than jumping into the gap this drastic cutback created, Mosaic announced that it too was implementing temporary cutbacks that would remove an additional 200,000 tons from the market. These (allegedly) coordinated and deep reductions continued into 2006. In the first three months of that year, PCS reduced output from 2.4 million tons to 1.3 million tons, removing yet another 1.1 million tons from the market, or the equivalent of 32 weeks of mining. Uralkali reduced its output by 200,000 tons, and Belaruskali cut its exports back by 50%, or 250,000 tons. In the second quarter of that year, Silvinit followed suit with mine stoppages that removed about 100,000 tons from the market. Collectively, these three companies removed over half a million tons of potash from the market in early 2006. See Complaint ¶¶ 88–93. Their compatriots applauded the “discipline” of the former Soviet Union producers, “noting that many years earlier when demand for potash declined those same producers had sought to maintain volume over price and flooded the market with excess supply.” Complaint ¶ 93.

China was a particular target of the cartel's efforts, given...