Minn–chem v. Agrium Inc.

• Decision Date: 23 September 2011
• Docket Number: No. 10–1712.,10–1712.
• Parties: MINN–CHEM, INCORPORATED, et al., Plaintiffs–Appellees,v.AGRIUM INCORPORATED, et al., Defendants–Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

657 F.3d 650

2011-2 Trade Cases P 77,611

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

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

No. 10–1712.

United States Court of Appeals, Seventh Circuit.

Argued June 3, 2010.Decided Sept. 23, 2011.

J. Timothy Eaton, Attorney, Shefsky & Froelich, Steven A. Hart, Attorney, Segal, McCambridge, Singer & Mahoney, Chicago, IL, Bruce L. Simon (argued), Attorney, Pearson Simon Warshaw & Penny LLP, San Francisco, CA, Beverly Tse, Attorney, Kirby McInerney & Squire, New York, NY, Marvin A. Miller, Attorney, Miller Law, Chicago, IL, for Plaintiffs–Appellees.Richard Parker, O'Melveny & Myers LLP, Washington, DC, Stephen M. Shapiro (argued), Attorney, Mayer Brown LLP, Brian J. Murray, Attorney, Jones Day, Chicago, IL, Jeffrey L. Kessler, Attorney, Dewey & LeBoeuf, Robert A. Milne, Attorney, White & Case, New York, NY, Duane M. Kelley, Attorney, Winston & Strawn LLP, Chicago, IL, for Defendants–Appellants.Before MANION, EVANS ^*, and SYKES, Circuit Judges.SYKES, Circuit Judge.

This multi-district antitrust class action alleges a global conspiracy to raise the price of potash, a mineral used primarily in agricultural fertilizer. Most of the world's potash reserves are concentrated in three countries—Canada, Russia, and Belarus—and the defendants are leading producers whose mining operations are located in those countries. The plaintiffs are direct and indirect potash purchasers in the United States. They allege that the Canadian, Russian, and Belarusian producers operated a cartel through which they fixed potash prices in Brazil, China, and India, and the inflated prices in these overseas markets in turn influenced the price of potash sold in the United States. The defendants moved to dismiss under Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure, arguing first that the district court lacked subject-matter jurisdiction under the Foreign Trade Antitrust Improvements Act (“FTAIA”), 15 U.S.C. § 6a, and alternatively, that the complaint did not satisfy the pleading requirements of Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), and Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). The district court denied the motion but certified its order for immediate review. See 28 U.S.C. § 1292(b). We accepted review and now reverse.

As relevant here, the FTAIA limits the extraterritorial reach of the Sherman Antitrust Act to foreign anticompetitive conduct that either involves U.S. import commerce or has a “direct, substantial, and reasonably foreseeable effect” on U.S. import or domestic commerce. 15 U.S.C. § 6a. In United Phosphorus, Ltd. v. Angus Chemical Co., 322 F.3d 942 (7th Cir.2003), we sat en banc to address whether the FTAIA's limitations are jurisdictional or instead are elements of a Sherman Act claim that implicates offshore anticompetitive conduct. We held that the FTAIA's requirements are jurisdictional. Id. at 950–52. A substantial minority of the court disagreed, see id. at 953–54 (Wood, J., dissenting), and the dissent's approach has since prevailed in the Supreme Court, although in decisions involving other statutes. See Morrison v. Nat'l Austl. Bank, ––– U.S. ––––, 130 S.Ct. 2869, 2876–77, 177 L.Ed.2d 535 (2010); Arbaugh v. Y & H Corp., 546 U.S. 500, 515–16, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006). These intervening developments suggest that United Phosphorus may be ripe for reconsideration, but we need not undertake that task here. Whether it blocks jurisdiction or establishes an element of a Sherman Act claim, the FTAIA applies here to bar this antitrust suit. The defendants are entitled to dismissal under either Rule 12(b)(1) or 12(b)(6).

I. Background

Two separate groups of plaintiffs filed nearly identical antitrust class actions against the world's leading potash producers. The first group—Minn-Chem, Inc.; Gage's Fertilizer and Grain, Inc.; Kraft Chemical Company; Shannon D. Flinn; Westside Forestry Services; and Thomasville Feed & Seed, Inc.—sued on behalf of themselves and all others who purchased potash products in the United States directly from the defendants. The second group—Kevin Gillespie, Gordon Tillman, Feyh Farms Company, William H. Coaker, Jr., and David Baier—sued on behalf of themselves and all others who purchased potash products in the United States indirectly from the defendants.

The defendants are seven companies whose principal mining operations are located in Canada, Russia, and Belarus, where most of the world's potash reserves are found: Agrium Inc., Potash Corporation of Saskatchewan Inc. (“PCS”), The Mosaic Company, JSC Uralkali, JSC Silvinit, JSC Belarusian Potash Company (“BPC”), and JSC International Potash Company (“IPC”). Agrium, PCS, and Mosaic operate potash mines in the Canadian province of Saskatchewan. These three companies own Canpotex Ltd., a Canadian corporation that is named as a coconspirator but not as a defendant. Canpotex is a joint export marketing and distribution company tasked with coordinating the offshore sales of the potash supply of each of its three stakeholders. Canpotex is specifically structured to exclude the U.S. and Canadian markets. Export marketing through Canpotex is explicitly authorized and encouraged by Canadian law. In other words, Canpotex's coordination of Canadian potash exports is lawful under the domestic law of that country.

The remaining defendants conduct their mining operations in Russia and Belarus. Silvinit is a Russian company, and IPC is the exclusive international distributor of Silvinit's potash product. BPC is the exclusive international distributor for Uralkali (a Russian company headquartered in Moscow) and RUE PA Belaruskali. Uralkali and Belaruskali jointly own BPC. Belaruskali was initially named as a defendant, but because it is owned by the Republic of Belarus, it was dismissed from the suit under the Foreign Sovereign Immunities Act. See 28 U.S.C. § 1604 et seq.

We take the facts from the amended consolidated class-action complaint. The class period covered by the complaint is July 1, 2003, to the present. As of 2008 the named defendants accounted for roughly 71% of the world's potash supply. The complaint generally alleges a conspiracy to restrict output and fix prices of potash at artificially high levels in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1.¹ From 2003 to 2008, potash prices in the United States increased by a staggering amount—roughly 600%. This dramatic increase came after years of relatively stable pricing. The plaintiffs contend that the spike in prices cannot be explained by rising production costs or increased demand; indeed, they claim that demand was falling for much of this period. They also contend that the sharp increase in prices cannot be attributed to production shortages; the defendants are alleged to have plenty of excess capacity. The plaintiffs allege that the surge in prices was instead the result of an agreement by the defendants to jointly restrict output and increase prices as exemplified by parallel business conduct in three foreign markets—Brazil, China, and India.

The factual section of the complaint begins with a general description of the characteristics of the potash market, which the plaintiffs allege are conducive to forming a stable cartel. Potash is an element mined from naturally occurring ore deposits and used primarily as an ingredient in agricultural fertilizer. It is (for the most part) a homogeneous product, but only a handful of countries possess significant quantities of this valuable resource. Accordingly, the potash industry is an oligopoly characterized by high market concentration. The Canadian province of Saskatchewan is the leading producer, accounting for roughly one-third of global production. Russia and Belarus are the next biggest exporters. Since potash accounts for a relatively small percentage of total crop-production costs and has no obvious substitutes, demand for the product is relatively inelastic, although not entirely so because farmers can opt to reduce the amount of fertilizer they use in a given season. Also, the majority of production costs for potash are variable rather than fixed; therefore, producers face less pressure in a given year to hit any particular output target in order to recoup their expenses. Finally, there are high barriers to entry into the potash business. In addition to first finding a promising source of potash deposits, any potential entrant would incur approximately $2.5 billion in start-up costs over a five-to-seven-year development period before production could commence.

With these background allegations in place, the complaint proceeds to explain that “the potash industry is marked by a high degree of cooperation” providing “opportunities to conspire and share information.” In this regard, the complaint notes that PCS, Agrium, and Mosaic have access to one another's sensitive information about production capacity through their joint ownership of Canpotex. Canpotex also offers these three defendants a convenient forum to discuss matters of pricing and output. Moreover, Canpotex previously had a joint marketing agreement with Uralkali. The complaint also alleges that the interests of Uralkali and Silvinit are aligned because they share a common, influential shareholder, Dmitry Rybolovlev, who is alleged to own 66% of Uralkali and 20% of Silvinit's voting stock. The plaintiffs also allege that the defendants participate in an “exchange program of mutual visits” and “these visits have provided opportunities to conspire and exchange highly sensitive competitive information.” Finally, the defendants meet together at the annual conference of the International Fertilizer Industry Association. The complaint alleges that the “major potash manufacturers” announced price increases during the Association's 2007 conference. Also, a PCS executive is alleged to have...