Timberlane Lumber Company v Bank of America

• Date: 03 March 1977
• Court: U.S. Court of Appeals — Ninth Circuit

United States, Court of Appeals, Ninth Circuit.

(Browning and Choy, Circuit Judges; Gray, District Judge)

Timberlane Lumber Company, et al.

and

Bank of America, N.T. and S.A., et al.

International law in general International comity Antitrust proceedings Extraterritorial jurisdiction Need to balance interests of United States and those of other countries The law of the United States

Jurisdiction In general Territorial Extraterritorial jurisdiction Antitrust laws When applicable to acts performed outside United States Effects doctrine Whether effects upon United States commerce sole consideration in determining jurisdiction Need to balance interests of United States and those of other nations Comity Judicial restraint The law of the United States

States as international persons In general Recognition of acts of foreign States and governments Act of State doctrine Nature of act of State Court order Whether order of court made at request of private party an act of State Defendants allegedly conspiring to obtain court order Government and officials of foreign State not object of criticism in action Antitrust action Jurisdiction Extraterritorial jurisdiction Effects doctrine Whether effects upon United States commerce sole consideration in determining jurisdiction Judicial restraint Need to balance interests of United States and those of other nations Comity The law of the United States

Summary: The facts:The first plaintiff, Timberlane Lumber Company (Timberlane), an Oregon partnership, brought an action for alleged violation of United States antitrust laws against Bank of America, National Trust and Savings Association (the Bank), a California corporation, and several other defendants of various nationalities. Timberlane alleged that the defendants had conspired to prevent Timberlane and its subsidiaries in Honduras from milling lumber in Honduras for export to the United States.

In 1971 a Honduras lumber mill (Lima) had been obliged by financial necessity to transfer its assets to its creditors: its own employees, the Bank, and one of its competitors (Casanova). In 1972, one of Timberlane's Honduran subsidiaries purchased the employees' interests in Lima with a view to using the Lima mill as a base for Timberlane's operations in Honduras. Timberlane alleged that Casanova and the Bank, which had financial interests in Casanova and the other main lumber mill in Honduras, conspired to frustrate this plan. Casanova and the Bank refused to sell their interests in Lima to Timberlane and transferred them to Sr. Caminals, a Spanish national Sr. Caminals then instituted proceedings in the courts of Honduras to enforce his claims against Lima. As a step in this litigation, he secured a court order placing an embargo upon all dealings with the Lima property, thereby paralysing Timberlane's operations in Honduras.

The District Court dismissed Timberlane's action for violation of the United States antitrust laws on the grounds that (a) the injuries allegedly suffered by Timberlane resulted from an act of State by Honduras, since the embargo was ordered by a court and enforced by court officials, and (b) the alleged conspiracy had not had a direct and substantial effect upon United States commerce, so that the Court lacked subject-matter jurisdiction. Timberlane appealed.

Held:The appeal was allowed and the case remanded to the District Court.

(1) The act of State doctrine did not apply in the present case. While corporate conduct which was compelled by a foreign State was protected from scrutiny by the United States courts, the act of State doctrine did not apply to all conduct which had received the approval of a foreign government. The crucial element in determining whether the doctrine applied to a particular case was the potential for interference with United States foreign relations. In the present case, there was no such potential. The alleged acts of the State of Honduras were the court order and its enforcement. These acts were sought by a private party, Sr. Caminals, not by the Government of Honduras or its officials. No public interest of the Government of Honduras was involved and Timberlane's action did not challenge the policy or sovereignty of Honduras in any way which might threaten relations between the United States and Honduras (pp. 2769).

(2) While there was no doubt that United States antitrust law had a measure of extraterritorial application there came a point at which the interest of the United States in particular actions was too weak and the incentive for restraint in the interests of international harmony too strong to justify extraterritorial assertion of jurisdiction. In order to identify that point it was not enough to consider solely the effects upon United States commerce. The Court had to examine:

(a) whether there was an effect, actual or intended, upon United States commerce;

(b) whether that effect was sufficiently large to amount to a civil violation of the plaintiff's rights; and

(c) whether the interests of the United States were sufficiently strong vis--vis those of other States to justify an assertion of extraterritorial authority. The Court had to be aware of the possible foreign implications of a decision. It had to take into account such factors as the nationality of the parties and the possible conflict with the law or policy of a foreign State (279286).

In the present case the three tests were satisfied and the District Court's decision on jurisdiction reversed.

The following is the text of the judgment of the Court, delivered by Circuit Judge Choy:

Four separate actions, arising from the same series of events, were dismissed by the same district court and are consolidated here on appeal. The principal action is Timberlane Lumber Co. v. Bank of America (Timberlane action), an antitrust suit alleging violations of sections 1 and 2 of the Sherman Act (15 U.S.C. 1, 2) and the Wilson Tariff Act (15 U.S.C. 8).1 This action raises important questions concerning the application of American antitrust

laws to activities in another country, including actions of foreign government officials. The district court dismissed the Timberlane action under the act of state doctrine and for lack of subject matter jurisdiction. The other three are diversity tort suits brought by employees of one of the Timberlane plaintiffs for individual injuries allegedly suffered in the course of the extended anti-Timberlane drama. Having dismissed the Timberlane action, the district court dismissed these three suits on the ground of forum non conveniens. We vacate the dismissals of all four actions and remand.

I. The Timberlane Action

The basic allegation of the Timberlane plaintiffs is that officials of the Bank of America and others located in both the United States and Honduras conspired to prevent Timberlane, through its Honduras subsidiaries, from milling lumber in Honduras and exporting it to the United States, thus maintaining control of the Honduran lumber export business in the hands of a few select individuals financed and controlled by the Bank. The intent and result of the conspiracy, they contend, was to interfere with the exportation to the United States, including Puerto Rico, of Honduran lumber for sale or use there by the plaintiffs, thus directly and substantially affecting the foreign commerce of the United States.

Procedural Background

Some of the defendants moved to dismiss the Timberlane action.2 After a hearing and the submission of memoranda, affidavits, and depositions by both sides, the district court granted the motion in a brief judgment entered on March 20, 1974. The court gave as its reason that it is prohibited under the act of state doctrine from examining the acts of a foreign sovereign state; and in any event, that there is no direct and substantial effect on United States foreign commerce, the latter apparently being deemed a prerequisite for jurisdiction. No specific findings of fact were announced, nor were any more extensive conclusions of law stated.3

It is unclear whether the decision was a dismissal for lack of subject matter jurisdiction or for failure to state a claim, F.R Civ.P. 12(b)(1) & (6), or a summary judgment under F.R. Civ.P. 56. It appears from the transcript of the hearing that the district court and the defendants believed they were acting under Rule 12.4 Plaintiffs here argue, however, that the defense motion was, in any event, based upon and incorporated affidavits which the court did not exclude, and as such it was a speaking motion which must be treated as a motion for summary judgment under the tests of Rule 56. Under Rule 56(e), they contend, they should have been allowed discovery.

Affidavits were submitted and cited by the defendants to the district court and again to us. These submissions were not explicitly excluded by the district court. Plaintiffs are correct in their assertion that Rule 12(b) requires Rule 56 treatment when a motion to dismiss for failure to state a claim (Rule 12(b)(6)) is made and matters

outside the pleading are presented to and not excluded by the court.Erlich v. GlasnerUNK, 374 F.2d 681 (9th Cir. 1967). A motion to dismiss based on the act of state doctrine raises such a Rule 12(b)(6) objection, not a jurisdictional defect Occidental Petroleum Corp. v. Butte Gas & Oil Co.,[2] 331 F.Supp. 92, 113 (C.D.Cal.1971), aff'd, 461 F.2d 1261 (9th Cir.), cert. denied, 409 U.S. 950, 93 S.Ct. 272, 34 L.Ed.2d 221 (1972).

However, it is also true that summary judgment treatment under Rule 56 is not required for a Rule 12(b)(1) speaking motion. 2A Moore's Federal Practice 12.09[3], at 22972300, 2313 (2d ed. 1975). Therefore, because speaking motions to dismiss for want of subject matter jurisdiction are permitted, id. 12.09[2], at 2288, a dismissal based on affidavits alone without Rule 56 treatment might conceivably be sustainable on this ground.

On the other hand, if the district court did hold as its basis for dismissing for lack of...