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Minn-Chem, Incorporated, et al v. Agrium Incorporated

September 23, 2011

MINN-CHEM, INCORPORATED, ET AL., PLAINTIFFS-APPELLEES,
v.
AGRIUM INCORPORATED, ET AL., DEFENDANTS-APPELLANTS.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 08 C 6910-Ruben Castillo, Judge.

The opinion of the court was delivered by: Sykes, Circuit Judge.

ARGUED JUNE 3, 2010

Before MANION, EVANS,*fn1 and SYKES,Circuit Judges.

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 alter-natively, that the complaint did not satisfy the pleading requirements of Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 129 S. Ct. 1937 (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, 130 S. Ct. 2869, 2876-77 (2010); Arbaugh v. Y & H Corp., 546 U.S. 500, 515-16 (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 eitherRule 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 them-selves 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. From 2003 to 2008, potash *fn2 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 informa- tion 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 publicly complimented BPC (the Belarusian exporter) for showing "tremendous discipline . . . in terms of managing supply in the marketplace."

From these allegations about general "opportunities to conspire" the complaint moves on to allege specific parallel business conduct consisting of reductions in output designed to keep prices artificially high and parallel increases in prices. Some of these allegations are general and others specific to certain foreign markets. For example, the complaint alleges that as global demand for potash declined in the second half of 2005, the defendants "jointly restricted" the output of potash for the purpose of maintaining an artificially high price. In the last two months of 2005, PCS, the world's leading potash producer, announced the shutdown of three of its mines. These shutdowns resulted in the removal of 1.34 million tons of potash from the market. At the same time, Mosaic also announced a temporary, 200,000-ton reduction in potash production. Uralkali, Belaruskali, and Silvinit followed suit with reductions of their own in the first half of 2006. These production cuts continued through 2008 despite the fact that the defendants maintained sizeable excess capacity.

The complaint also points to an event in October of 2007, when Silvinit announced that a sinkhole at one of its mines might cause a long-term disruption in production at that location. Within a day of the announcement, PCS, Uralkali, Agrium, and BPC (but apparently not Mosaic) announced that they would suspend new sales in the wake of Silvinit's disclosure. Roughly two weeks later, Silvinit announced that the sinkhole was not as severe as initially feared and that the mine in question would return to business as usual. At this point the other companies ended their self-imposed moratorium on new sales. The complaint alleges that [t]he joint suspension of sales by PCS, Uralkali, Agrium and BPC during the shutdown by Silvinit, a supposed competitor, makes no economic sense absent a cartel. Had the market truly been competitive, defendants would have the incentive to increase, not suspend, production to take advantage of their competitor's reduced output and thus gain market share.

The complaint's other factual allegations of parallel conduct focus exclusively on three foreign markets-Brazil, China, and India-giving examples of supply and pricing activity by the defendants beginning in 2003. For example, the complaint alleges that in "early 2003, IPC announced that it would increase its potash prices by eight dollars per ton. Within a month Canpotex announced that it would seek a nearly identical price increase for its sales in Brazil." Then, "[b]y mid-2003 all suppliers to Brazil were announcing that they had achieved an increase of eight dollars per ton." Later, in 2004, "IPC announced a price increase to buyers in India," and "[s]hortly after these announcements, PCS announced two five dollar per ton increases within a five week period." Other allegations focus on claimed coordination of supply restrictions in these countries. For example, the complaint alleges that potash demand dropped by 20.9% in Brazil during 2005 and the Russian and Belarusian defendants reduced their combined exports to that country by the same percentage; Canpotex followed suit and cut its Brazilian exports "by almost exactly the same percentage." Plaintiffs also allege that Canpotex and BPC jointly restricted exports to China in an effort to boost the price of potash in that country.

Notably, all of the anticompetitive conduct identified in the complaint is alleged to have occurred outside the United States. The only link between the activities of this wholly foreign conspiracy and the U.S. potash market are general allegations that potash prices in the United States were adversely affected by the coordinated price hikes in Brazil, China, and India. That is, the complaint alleges that ...


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