When thinking of Memphis, Tennessee, I imagine:
- John Grisham, Tom Cruise and The Firm;
- Elvis Presley and Graceland; and
- the pure joy of Bill Clinton jumping into a car and driving from Little Rock to Memphis in search of his favorite barbecue.
I don’t imagine a major European international price fixing and market allocation conspiracy, prosecuted by the European Commission, resulting in not one but two published decisions and subject to further attack in a Memphis Federal court. But for that matter, neither did the judge. She not only dismissed the case for lack of subject matter jurisdiction and failure to state a claim,1 but she also dismissed two previously filed similar cases.2
The 6th Circuit recently reversed and remanded. Carrier Corporation v. Outokumpu (6th Cir. 2012).3 However, the original district court judge won’t have to deal with the remand – she has been confirmed to join the 6th Circuit, hopefully in time to weigh in on the defendants’ pending petition for rehearing en banc.4
Plaintiff Carrier Corp. and its subsidiaries, Carrier France SA and Carrier Italia S.p.A, the world’s largest manufacturer of air conditioning and commercial refrigeration equipment, sued producers and U.S. sellers of copper tubing for air-conditioning and refrigeration applications. The principal named defendants were Outokumpu Oyj, a Finish company, and its European and American subsidiaries.
In order to appreciate this case – we have to leave images of Memphis behind for a moment and begin our analysis in Brussels.
In drafting the allegations of its complaint, Carrier borrowed liberally from two decisions issued by the European Commission (EC) (2003 – industrial tubes;5 2004 – plumbing tubes6) that found the defendants guilty of target pricing and market allocation conspiracies in violation of European law.
Although the two decisions did not address whether wrongdoing extended beyond European markets, Carrier alleged that the conspiracy was also directed at the U.S. market in violation of Section 1 of the Sherman Act. Carrier stated that between 1988 and 2001, the defendants developed “a customer and geographic market allocation scheme” under which Carrier’s business in the United States was allocated to the Outokumpu defendants, and the other conspirators agreed not to pursue Carrier’s U.S. business. In return, the other conspirators received Carrier’s European business and the Outokumpu defendants agreed not to pursue Carrier’s European business.
While the allegations of market allocation in the U.S. were largely circumstantial, the complaint alleged a number of traditional “plus” factors commonly associated with horizontal conspiracies, including allegations that:
- Defendants coordinated the conspiracy through trade association meetings,
- Defendants scheduled pricing review meetings with Carrier and their other U. S. customers following the annual trade association meetings,
- The conspiracy was global, otherwise Carrier – the largest purchaser of copper tubing in the world – could break the conspiracy by buying all of its tubing in the U.S. and ship it to the parts of the world where it needed the tubing, and
- None of Outokumpu’s competitors approached Carrier in the U.S. until after the EU action ended the cartel.
As a result, Carrier alleged the price of copper tubing was artificially inflated in the U.S., as well as in Europe.
As with both of the prior cases, the judge granted Outokumpu’s motion to dismiss for lack of subject matter jurisdiction and failure to state a claim, finding that Carrier’s complaint was “wholly insubstantial.”
Carrier appealed. In a decision released last month, nearly five years after dismissal, the Sixth Circuit reversed and remanded based largely on the key issue of subject matter jurisdiction.
The decision has implications for any U.S. company with operations overseas.
Subject Matter Jurisdiction
The lower court had concluded that the plaintiff’s complaint was “wholly insubstantial” because it was based on the EC’s decisions which spoke only of a conspiracy focused on the EU. As such, the defendants argued that the effects of the EU conspiracy were not directed at the U.S. But the court of appeals pointed out that while a good portion of the complaint did recite facts about the conspiracy which appeared in the Commission’s two decisions involving the defendant’s European companies, Carrier had done more. Carrier had alleged that the U.S. market was intertwined in the conspirators’ market allocation scheme, and that – as a result – U.S. prices for copper tubing were raised as well. Bottom line, there was enough circumstantial evidence from the EU decisions and traditional plus factors in the U.S. to allege an effect on U.S. commerce7 sufficient to survive a motion to dismiss on subject matter jurisdiction grounds.
Why This Matters?
The case is important because it provides subject matter jurisdiction for a U.S. antitrust action can be based largely on facts developed at the European Commission or other foreign competition authorities. This is good news to U.S. plaintiffs (especially those that aspire to be class representatives), but bad news for U.S. companies with foreign ties that may be forced to defend U.S. actions based on overseas conduct.
What happens in Vegas may “stay in Vegas.” But what happens in Brussels may survive a motion to dismiss in a court near you.