Court Opinion

ID: 2996259
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:26:52.016854+00
Date Added: 2024-06-11T12:38:14.265134
License: Public Domain

In the
 United States Court of Appeals
               For the Seventh Circuit
                         ____________

No. 00-3700
METALLGESELLSCHAFT AG and
MGTS UK HOLDING,
                                          Plaintiffs-Appellants,
                                v.

SUMITOMO CORPORATION OF
AMERICA, SUMITOMO CORPORATION,
YASUO HAMANAKA, et al.,
                                         Defendants-Appellees.
                         ____________
              Appeal from the United States District Court
                 for the Western District of Wisconsin.
No. 00-C-040-C, MDL Docket No. 1303—Barbara B. Crabb, Chief Judge.
                         ____________
  ARGUED SEPTEMBER 5, 2001—DECIDED MARCH 31, 2003
                   ____________

 Before CUDAHY, ROVNER, and DIANE P. WOOD, Circuit
Judges.
  DIANE P. WOOD, Circuit Judge. This case is part of the
broader multi-district litigation that was spawned by an
alleged conspiracy involving Sumitomo and others to
raise the price of copper and manipulate the London
Metals Exchange (LME). The plaintiffs, Metallgesellschaft
AG (MG) and MGTS UK Holding (MGUK), both short-
sellers that bought copper futures contracts from brokers
in New York, Connecticut, and London, claim that they
were injured by this conspiracy when Sumitomo Corpora-
2                                                No. 00-3700

tion (Sumitomo), along with Global Minerals and Metals
Corporation, Inc. (Global) and other defendants in this
case, cornered the market for physical copper available
to satisfy copper futures contracts on the LME. They
allege that the purpose of the conspiracy was to “squeeze”
the LME shorts (parties with the obligation to sell copper
to others) by cornering the supply of copper available in
LME warehouses as well as LME warrants and thereby
forcing the shorts to cover their positions at greatly inflated
prices.
  The plaintiffs brought claims under the Sherman Act, 15
U.S.C. §§ 1 and 2; the Racketeer Influenced and Corrupt
Organizations Act (RICO), 18 U.S.C. §§ 1341, 1343 and
1962; N.Y. GEN BUS. LAW § 340; and state common law
of fraud. The district court dismissed the action, finding
that (1) the court did not have “subject matter jurisdic-
tion” over the plaintiffs’ claims, because of the limitations
found in 15 U.S.C. § 6a, the Foreign Trade Antitrust
Improvement Act of 1982 (FTAIA) and (2) the plaintiffs
did not have standing under § 4 of the Clayton Act. We
find, contrary to the district court, that the requirements
of the FTAIA were satisfied. The issue of the plaintiffs’
right to recover (called “standing” below) also requires
further consideration in the district court. We therefore
reverse the judgment and remand for further proceedings.

                              I
  Although the United States is the second largest copper
cathode producer and the largest consumer of copper cath-
ode in the world, some 90 to 95% of the world’s copper
futures contracts are traded on the LME. Whether trades
are made by open-outcry or by telephone, all LME con-
tracts are denominated in U.S. dollars. There is an open-
outcry system on the trading floor of the LME, but most
American trading is interoffice trading through brokers
No. 00-3700                                             3

in New York, who make their deals and then communicate
the results via telephone or e-mail to brokers in London.
Through this process, called matching, all U.S. trades are
made on a 24-hour basis, with real time price quotes
available. They are matched by an LME broker in London
and then cleared through the London Clearing House
in London. Although American trades on the LME are
subject to regulations according to English law, they are
also regulated by the U.S. Commodity Futures Trading
Commission (CFTC).
  Because the details of the Sumitomo conspiracy to in-
flate the price of copper can be found in our opinion in
Loeb Industries, Inc. v. Sumitomo Corp., 306 F.3d 469 (7th
Cir. 2002), we will not rehash them here. The important
points for this appeal are the identity and market role
of the plaintiffs now before us, all of whom claim that
they were injured by the alleged conspiracy. Plaintiff MG
is a German-based corporation, and plaintiff MGUK is a
British subsidiary of MG. MG is the assignee of claims
of Metal Concentrates International Inc. (MCII), a New
York-based, Delaware Company. MGUK is the assignee of
the claims of MG Metal & Commodity Ltd (MGM), a
London-based copper merchant. MG and MGUK assert
that they were forced to cover their short positions by
tendering high-priced warrants and physical copper cathode
to various LME warehouses, including one in Long Beach,
California. As a result, the short-sellers paid an over-
charge for the physical copper (which they would not
have had to procure had it not been for the conspiracy)
and incurred additional freight and handling costs as-
sociated with their California deliveries.
  The plaintiffs brought this suit in January, 2000. On
October 3, 2000, the district court granted the defen-
dant’s motion to dismiss, which was based on both FED. R.
CIV. P. 12(b)(1) and 12(b)(6), finding that the plaintiffs
had not established jurisdiction under the standards of
4                                               No. 00-3700

the FTAIA. The district court determined that claims
raised by the “mostly foreign plaintiffs who were injured
abroad by effects felt abroad and not in American mar-
kets” did not fall within the requirements established
by the FTAIA for suits brought under the Sherman Act.
This lack of jurisdiction also implied, the district court
thought, that the plaintiffs were not entitled to sue
under § 4 of the Clayton Act.

                             II
  This court, sitting en banc, has recently concluded
that the FTAIA establishes limits on the “subject matter
jurisdiction” of the district courts, rather than describing
a limit on the legislative jurisdiction Congress has exer-
cised in foreign commerce antitrust cases. See United
Phosphorus, Ltd. v. Angus Chem. Co., No. 01-1693, 2003
WL 910592 (7th Cir. Mar. 10, 2003). That is also the way
the district court viewed the case. We therefore turn
immediately to the question whether the conclusion the
district court reached on the facts of this case was correct.
  Our starting point is the language of the statute. In
pertinent part, it reads as follows:
    Sections 1 to 7 of this title [Sherman Act] shall not
    apply to conduct involving trade or commerce (other
    than import trade or import commerce) with foreign
    nations unless—
        (1) such conduct has a direct, substantial and rea-
        sonably foreseeable effect—
            (A) on trade or commerce which is not trade or
            commerce with foreign nations, or on import
            trade or import commerce with foreign na-
            tions; or
            (B) on export trade or export commerce with
            foreign nations, of a person engaged in such
            trade or commerce in the United States; and
No. 00-3700                                                 5

        (2) such effect gives rise to a claim under the provi-
        sions of sections 1 to 7 of this title, other than
        this section.
15 U.S.C. § 6a.
  Sumitomo and Global, relying on this statute, filed a
motion seeking dismissal of the action. They argued that
the plaintiffs’ complaint has not asserted that there is
conduct that has a “direct, substantial, and reasonably
foreseeable effect” on either U.S. domestic commerce or
on U.S. import commerce. It is important in this respect
to note that the district court did not make jurisdic-
tional findings of fact about the amount or nature of
commerce affecting U.S. markets; its analysis was done
as a matter of law, and we are thus free to review it
de novo.
   The first important question is what exactly Congress
meant when it used the phrase “direct, substantial, and
reasonably foreseeable effect” on “trade or commerce (other
than import trade or import commerce) with foreign na-
tions.” At least two possible interpretations exist. The
first, which the district court adopted, reads the statute
as imposing a two-fold requirement: the conduct must
affect the U.S. domestic marketplace, and the plaintiff’s
injuries must arise out of the very same anticompeti-
tive effect on the marketplace. See In re Copper Antitrust
Litig., 117 F.Supp.2d 875, 883 (W.D. Wis. 2000); see also
Den Norske Stats Oljeselskap As v. HeereMac v.o.f., 241 F.3d
420 (5th Cir. 2001), cert. denied sub nom., Statoil ASA v.
HeereMac v.o.f., 534 U.S. 1127 (2002). The second draws
a distinction between the effects on U.S. commerce that
are necessary to support statutory coverage and the ef-
fects that would support the merits of a particular plain-
tiff’s claim. See, e.g., Empagran S.A. v. F. Hoffman-
LaRoche, Ltd., 315 F.3d 338 (D.C. Cir. 2003); Kruman v.
Christie’s Int’l PLC, 284 F.3d 384 (2d Cir. 2002). According
6                                               No. 00-3700

to the plaintiffs, who obviously support the latter interpre-
tation, the FTAIA requires only that there be conduct
that has “direct, substantial, and reasonably foreseeable”
anticompetitive effects in the United States, whether or
not the plaintiff’s claim is based on those effects. They
rely, for example, on Pfizer, Inc. v. Government of India,
434 U.S. 308 (1978), which the drafters of the FTAIA
expressly noted that they had no intention to overrule or
to undermine, see H. REP. NO. 97-686, at 11-12 (1982).
In Pfizer, the Supreme Court recognized the right of the
Government of India to sue for its injuries from anti-
trust violations that affected both the U.S. market and
the Indian market.
  There is currently a conflict in the circuits between the
narrow interpretation, favored by the Fifth Circuit ma-
jority in Den Norske, and the broader interpretation,
which the District of Columbia followed in Empagran and
Caribbean Broadcasting System, Ltd. v. Cable & Wireless
PLC, 148 F.3d 1080 (D.C. Cir. 1998), and the Second Cir-
cuit adopted in Kruman. Thus, whatever position this
court adopts, if and when the need arises, will simply be
a matter of choosing sides on an existing issue.
  The Fifth Circuit’s decision in Den Norske is the leading
authority at present for the stricter test, under which
the anticompetitive effects in the United States must be
the same effects as those supporting the plaintiff’s claim.
In Den Norske, the plaintiff (“Statoil”) was a Norwegian
oil corporation that conducted business in the North Sea.
Statoil alleged that it had been injured by a global con-
spiracy that inflated its operating costs. Like the district
court in this case, the Fifth Circuit granted a motion
to dismiss for lack of “subject matter jurisdiction” and
decided that § 2 of the FTAIA meant that “the higher
prices paid by United States companies for heavy-lift
services in the Gulf of Mexico—must give rise to the
claim that Statoil asserts against the defendants.” Id.
No. 00-3700                                                7

at 427. The court further noted that the Sherman Act
does not cover foreign transactions between foreign en-
tities, which was enough to eliminate any remaining
U.S. antitrust claim the plaintiffs might have had. Id. at
426. Judge Higginbotham dissented on exactly this point,
observing that he was “not persuaded that when illegal
conduct produces these domestic effects [as described in the
FTAIA], that Congress intended to close the door to a
foreign company injured by the same illegal conduct. That
was not the law before this effort to assist American
business abroad, and Congress did not intend to change
it or do so unwittingly.” Id. at 431.
  The D.C. Circuit, which had already essentially come to
the opposite conclusion in Caribbean Broadcasting, made
its position clear in Empagran, in which the court had
the following to say on this point:
      We hold that where the anticompetitive conduct
    has the requisite harm on United States commerce,
    FTAIA permits suits by foreign plaintiffs who are
    injured solely by that conduct’s effect on foreign com-
    merce. The anticompetitive conduct itself must vio-
    late the Sherman Act and the conduct’s harmful effect
    on United States commerce must give rise to “a claim”
    by someone, even if not the foreign plaintiff who is
    before the court. Although the language of § 6a(2) does
    not plainly resolve this case, we believe that our hold-
    ing regarding the jurisdictional reach of the FTAIA
    is faithful to the language of the statute. We reach
    this conclusion not only by virtue of our literal read-
    ing of the statute, but also in light of the statute’s
    legislative history and underlying policies of deter-
    rence emanating from the Supreme Court’s decision in
    Pfizer, Inc. v. Government of India, 434 U.S. 308 (1978).
315 F.3d at 341.
8                                               No. 00-3700

   In so holding, the D.C. Circuit expressly recognized the
circuit split between the Fifth Circuit’s Den Norske deci-
sion and the Second Circuit’s Kruman decision, and,
while not fully endorsing every word of the Second Cir-
cuit’s test, it described itself as “somewhat closer” to the
Second than to the Fifth Circuit. 315 F.3d at 350. In
Kruman, the Second Circuit held that if foreign anti-
competitive conduct has the necessary “direct, substantial,
and reasonably foreseeable effects” on the U.S. domestic
market, the defendants fall within the reach of the U.S.
antitrust laws, without any further showing. The Kruman
court found that the FTAIA did not alter existing stan-
dards of antitrust law, as outlined in that court’s 1981
opinion, National Bank of Canada v. Interbank Card
Assoc., 666 F.2d 6, 8 (2d Cir. 1981) (finding that “injuries
to United States commerce which reflect the anticom-
petitive effect either of the violation or of anticompetitive
acts made possible by the violation” may form the basis
of an antitrust action in federal court). Despite Den
Norske, the Kruman court squarely found that “an inter-
pretation centered on whether the plaintiff has suffered
domestic injury cannot be squared with the text of the
FTAIA.” 284 F.3d at 396 (referring at the end of this
discussion to Judge Higginbotham’s dissenting opinion in
Den Norske). It noted, as further textual support for
its reading of the statute, that the final sentence of the
FTAIA would be superfluous if the Den Norske reading
were adopted. Id. (That sentence provides that if the
Sherman Act applies to foreign conduct only because the
conduct affects U.S. exports, then “sections 1 to 7 of this
title shall apply to such conduct only for injury to export
business in the United States.” 15 U.S.C. § 6a.)
  In addition to the points on which the Kruman court
relied, plaintiff MG has argued that the use of the indef-
inite article “a” in the FTAIA, § 6a(2), where it says “give
rise to a claim,” implies that the claim need not be tied
No. 00-3700                                                9

so closely to the U.S. effects. The defendants’ reading
would be more compelling, it asserts, had the definite
article “the” been used in that phrase instead. See also
Den Norske, 241 F.3d at 431 (Higginbotham, J., dissenting)
(Noting that even though the plaintiff Statoil was a for-
eign company, “it was injured by the same acts of defen-
dants that injured American plaintiffs,” who were permit-
ted to recover for their losses.). A violation of the Sherman
Act, MG also points out, does not depend on the existence
of an injury to a private plaintiff. The U.S. government and
the state attorneys general also have the right to enforce
the Sherman Act, and they are equally subject to the
subject matter jurisdiction rules in the FTAIA. (Indeed,
particularly if the FTAIA is a statute defining the subject
matter jurisdiction of the courts, as this court has now held
in United Phosphorus, supra, its standards surely apply to
all plaintiffs authorized to sue under the statute, including
governmental plaintiffs.)
  Although we need not come to a definitive resolution
of the issue in this case, the United Phosphorus result
appears to point in the direction of the approach taken
by the D.C. and Second Circuits. But we reserve the
question for another day, because in our view the result
in the case now before us would be the same no matter
which side of the debate we joined. These plaintiffs have
not only alleged that the defendants engaged in a conspir-
acy that had direct, substantial, and reasonably fore-
seeable effects in U.S. domestic commerce; they also al-
leged that they themselves suffered injury in the United
States as a result of physical copper transactions that
took place within the United States or copper futures
transactions on a U.S. exchange. That is enough, we
believe, to satisfy even the panel majority in Den Norske.
  Sumitomo argues that MG alleges only a ripple effect
on the U.S. market that indirectly resulted in higher prices
10                                               No. 00-3700

for Comex New York buyers, similar to that alleged in
de Atucha v. Commodity Exchange, Inc., 608 F.Supp. 510
(S.D.N.Y. 1985). We are certainly not bound by de Atucha,
which is a district court opinion from another circuit,
but beyond that technicality, we do not find de Atucha
similar enough to be useful as persuasive authority. In
de Atucha, the district court did not consider the issue
of jurisdiction because the complaint was dismissed for
lack of standing under the FTAIA. The plaintiff first al-
leged a conspiracy artificially to inflate the price of silver
on the Comex. Next, he claimed that the price of silver
on the Comex influenced the LME contracts he had ac-
tually purchased. The court found that de Atucha lacked
standing to sue, noting that because the plaintiff’s “theory
of antitrust injury depends upon a complicated series
of market transactions . . . antitrust damages in this case
would engage the court in hopeless speculation concerning
the relative effect of an alleged conspiracy” in the U.S.
market. Id. at 515-16. We have no reason to disagree
with this evaluation of the remoteness of de Atucha’s in-
jury. In the present case, however, the plaintiffs have not
attempted to rely on the way in which Comex prices
might have influenced LME prices; they claim instead
that they directly purchased LME contracts and physical
copper.
   In support of those allegations, the plaintiffs submitted
affidavits from Philip Bacon, president of MG, Michael
Farmer, CEO of MG, and Craig Young, president of
MGUK. The affidavits described the copper market, the
plaintiffs’ participation in the market, their injury result-
ing from the copper conspiracy, and how their injuries
are tied to the United States. When these factors, as al-
leged by the plaintiffs, are considered together, the plain-
tiffs have adequately alleged an injury in the U.S. market.
The United States is the single largest copper consumer
in the world and the second largest copper producer. MG
No. 00-3700                                               11

and MGUK purchased copper futures on the LME through
brokers in New York. MGUK delivered copper to the LME
warehouse in California. These transactions were pos-
sible even after the close of business in London, and
the trades post real time. (This is therefore not a case like
Dee-K Enterprises, Inc. v. Heveafil Sdn. Bhd., 299 F.3d
281 (4th Cir. 2002), which found that the FTAIA did not
apply at all because only import commerce was affected,
and then found that the “links to the United States [were]
mere drops in the sea of conduct that occurred in South-
east Asia (and around the world).” Id. at 295. Here the
FTAIA does apply, and there are allegations of substan-
tial effects in the United States.)
  The district court found this evidence to be insufficient
to show an effect on the U.S. market, explaining that
“neither the fact that American merchants and traders
may trade on the LME through American investment
banks that go through official LME brokers in London
nor the fact that the LME accepts delivery of copper
from all major American copper producers makes the LME
an American market.” In re Copper Antitrust Litig., 117
F.Supp. at 887. We find this conception of the U.S. market
to be too narrow. Indeed, if it were correct, it is hard to
see how the CFTC could regulate the New York traders
who work with the LME, even though the agency certainly
does so.
  In a global economy, where domestic and foreign mar-
kets are interrelated and influence each other, it is some-
times difficult to put strict economic boundaries around
any particular country. Indeed, this fact has driven the
antitrust agencies of the world to create a new Interna-
tional Competition Network, under whose auspices they
are attempting to achieve better coordination of interna-
tional competition policy and enforcement. See, e.g., R.
Hewitt Pate, Acting Assistant Attorney General, Antitrust
Division, U.S. Department of Justice, “The DOJ Interna-
12                                             No. 00-3700

tional Antitrust Program—Maintaining Momentum,”
Speech before the ABA Section of Antitrust Law, 2003
Forum on International Competition Law, New York City,
February 6, 2003, available at . A global conspiracy to in-
flate prices could have anticompetitive effects on the U.S.
economy whether the conspiracy occurred within the United
States or abroad.
   There are undoubtedly limitations to the reach of any
country’s laws, and U.S. courts have been grappling with
where to draw those limits. See, e.g., Ferromin Int’l Trade
Corp. v. UCAR Int’l, Inc., 153 F.Supp.2d 700 (E.D. Pa.
2001) (Injury on the worldwide market is not enough,
instead, the injury must occur in the United States to state
a claim under the FTAIA.); Dee-K Enters., supra. In this
case, however, we have no need to come to some ultimate
conclusion about where U.S. interests end and those of
other countries take over. The plaintiffs before us have
alleged more than a global conspiracy that has significant
effects in the United States. The plaintiffs traded in New
York, using the assistance of New York offices; those trades
are regulated by the CFTC; and the trades were completed
only after the New York traders contacted their LME
counterparts for matching purposes. Moreover, the plain-
tiffs delivered physical copper to LME warehouses in the
United States. Although there is a “matching” process
with brokers in London, and the trades are ultimately
cleared through the clearinghouse in London, it would
be inappropriate to ignore the presence of actual trading
on copper futures in the United States and the deliveries
of physical copper to the California warehouse. These ties
are enough to satisfy the standards imposed by the FTAIA.
They demonstrate that MG and MGUK were injured in
the U.S. market and that the alleged foreign activities
had a direct, substantial, and reasonably foreseeable ef-
fect on U.S. non-import commerce.
No. 00-3700                                               13

   After finding the plaintiffs had not satisfied the FTAIA’s
jurisdictional standard, the district court sua sponte also
granted the defendants’ motion to dismiss on the theory
that the plaintiffs could not satisfy the requirements of
so-called antitrust standing. Plaintiffs argue that the
district court improperly addressed this issue. It is true,
of course, that a district court may dismiss a case sua
sponte for lack of Article III standing if it finds that
the plaintiff has not suffered injury-in-fact. Johnson v.
Allsteel, 259 F.3d 885, 887-88 (7th Cir. 2001). In Stewart
Title Guaranty Co. v. Cadle Co., 74 F.3d 835 (7th Cir. 1996),
the court determined that it was error for a court to dis-
miss a claim sua sponte if it deprived “the losing party
of the opportunity to present arguments against dis-
missal.” Id. at 836. Here, the question whether the plain-
tiffs have suffered antitrust injury (which is to say wheth-
er the kind of injury they have asserted is the type the
statutes were intended to address), whether their injuries
are too remote from the conspiracy to permit recovery,
and whether the conspirators are liable for all over-
charges made possible by the conspiracy (no matter whose
copper was being purchased) are distinct from Article III
and prudential standing. The right to recover for such
damages also presents a question distinct from the FTAIA
inquiry.
  In our view, this array of issues related to the right
of these particular plaintiffs to sue under the antitrust
laws must be reconsidered in light of our opinion in Loeb
Industries v. Sumitomo. We thus decline the defendants’
invitation to affirm the result below on this alternate
ground. On remand, the district court should revisit the
question whether these plaintiffs, who are futures traders,
can recover any damages, with careful attention to the
particular type of damages they are asserting.
14                                          No. 00-3700

                          III
  The district court’s judgment for the defendants is
REVERSED, and the case is remanded for further proceed-
ings in accordance with this opinion.

A true Copy:
      Teste:

                      ________________________________
                      Clerk of the United States Court of
                        Appeals for the Seventh Circuit

                 USCA-02-C-0072—3-31-03