U.S. THIRD CIRCUIT

Animal Science Products Inc. v. China Minmetals Corporation

ANTITRUST

New Jersey Law Journal

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Animal Science Products Inc. v. China Minmetals Corporation, No. 10-2288; Third Circuit; opinion by Chagares, U.S.C.J.; filed August 17, 2011. Before Judges Fuentes, Chagares and Pollak, District Judge, sitting by designation. On appeal from the District of New Jersey. [Sat below: Judge Brown.] DDS No. 59-8-3586 [21 pp.]

Plaintiffs Animal Science Products Inc. and Resco Products Inc. are domestic purchasers of magnesite. Plaintiffs allege, on behalf of a putative class, that defendants — Chinese producers and exporters of magnesite — engaged in a conspiracy to fix the price of magnesite that is exported to and sold in the United States. Plaintiffs allege that this conspiracy has impacted hundreds of millions of dollars of U.S. commerce. Plaintiffs assert federal claims pursuant to the Clayton Act, predicated on the defendants' alleged violation of § 1 of the Sherman Act.

Plaintiffs initiated this action by filing a complaint that named 17 Chinese business entities as defendants. Only five of those defendants are parties to this appeal and these defendants are divided into two groups: (1) the China Minmetals defendants and (2) the Sinosteel defendants. Plaintiffs moved for a default judgment. The China Minmetals defendants and the Sinosteel defendants responded, and moved to compel arbitration in China pursuant to arbitration clauses contained in several of the magnesite sales contracts.

The District Court dismissed all pending motions and sua sponte dismissed the plaintiffs' complaint on the ground that it lacked subject-matter jurisdiction to adjudicate the dispute pursuant to the Foreign Trade Antitrust Improvements Act of 1982 (FTAIA). The dismissal was without prejudice, and the District Court granted the plaintiffs leave to amend their complaint.

The plaintiffs filed their first amended complaint and, as instructed, included evidentiary proof with their allegations. The China Minmetals defendants and the Sino-steel defendants moved to dismiss on the basis that the District Court lacked subject-matter jurisdiction or should otherwise abstain from resolving this dispute. The District Court construed the FTAIA as imposing a jurisdictional restriction and, after engaging in extensive fact-finding, determined that neither of the FTAIA's two exceptions applied. Finding that the FTAIA deprived it of subject-matter jurisdiction, the District Court thus granted the defendants' motion and dismissed the plaintiffs' first amended complaint. Although the dismissal was partly without prejudice, plaintiffs declined the District Court's invitation to amend their complaint for a second time and filed a timely notice of appeal.

Held: The FTAIA imposes a substantive merits limitation rather than a jurisdictional bar on the application of the Sherman Act.

The threshold question presented by this appeal is whether, in enacting the FTAIA, Congress legislated pursuant to its Commerce Clause authority to articulate substantive elements that a plaintiff must satisfy to assert a meritorious claim for antitrust relief or whether Congress acted pursuant to its Article III powers to define the jurisdiction of the federal courts. In Turicentro, S.A. v. Am. Airlines Inc. and Carpet Group Int'l v. Oriental Rug Importers Ass'n, the Third Circuit presumed that the latter interpretation was correct, and thus analyzed the FTAIA as if it imposed a jurisdictional limitation on a court's ability to hear Sherman Act claims. Understandably, the District Court in this case adhered to this precedent. In light of the Supreme Court's subsequent decision in Arbaugh v. Y&H Corp., and other recent cases, however, the Third Circuit will now overturn this aspect of its Turicentro and Carpet Group decisions and hold that the FTAIA constitutes a substantive merits limitation rather than a jurisdictional limitation.

In Arbaugh, the Supreme Court articulated a rule to determine whether a statutory limitation sets forth a jurisdictional requirement or a substantive merits element: If the Legislature "clearly states" that a threshold limitation on a statute's scope shall count as jurisdictional, courts and litigants will be duly instructed. Otherwise, courts should treat the restriction as nonjurisdictional.

Arbaugh concerned Title VII's "employee-numerosity requirement." The Supreme Court, applying the "clearly states" rule, noted that the employee-numerosity requirement appears in a provision of Title VII that does not speak in jurisdictional terms or refer in any way to the jurisdiction of the district courts and determined that the threshold number of employees for application of Title VII is an element of a plaintiff's claim for relief, not a jurisdictional issue.

A review of the FTAIA's statutory text compels the same conclusion in this case. The FTAIA neither speaks in jurisdictional terms nor refers in any way to the jurisdiction of the district courts. The statutory text is wholly silent in regard to the jurisdiction of the federal courts. The FTAIA reads only that the Sherman Act "shall not apply" if certain conditions are met. Assessed through the lens of Arbaugh 's "clearly states" test, the FTAIA's language must be interpreted as imposing a substantive merits limitation rather than a jurisdictional bar. In enacting the FTAIA, Congress exercised its Commerce Clause authority to delineate the elements of a successful antitrust claim rather than its Article III authority to limit the jurisdiction of the federal courts. The Third Circuit therefore overrules its earlier precedent that construed the FTAIA as imposing a jurisdictional limitation on the application of the Sherman Act.

The District Court's opinion is vacated and the matter is remanded.

— By Debra McLoughlin

For plaintiff-appellants Animal Science Products Inc. and Resco Products Inc. — William A. Isaacson and Jennifer Milici (Boies, Schiller & Flexner), and David S. Stone, Robert A. Magnanini and Amy Walker Wagner (Stone & Magnanini), and Richard E. Donovan (Kelley, Drye & Warren). For defendant-appellees: Sinosteel Corporation — Jonathan S. Caplan, Timothy J. Helwick and Mark A. Baghdassarian (Kramer Levin Naftalis & Frankel); China Minmetals Corporation — Michael L. Weiner, Shepard Goldfein, Thomas Pak and Sean M. Tepe (Skadden, Arps, Slate, Meagher & Flom).

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