TIMBERLANE LUMBER CO., Danli Industrial, S.A., Maya Lumber Co., S. de R.L., Plaintiffs-Appellants, v. BANK OF AMERICA, N.T. & S.A., Pedro Casanova E. Hijos, S.A., Bank of America Corp., Importadore Mayorista, S. de R.L., Michael Casanova, Nasser Bonheur, Manuel Ruis, Louis Pasmino, Henry Malatesta, Jose Gonzales, Patrick Byrne, Defendants-Appellees. Gordon Sloan SMITH, Plaintiff-Appellant, v. BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, Defendant-Appellee. Miguel ARDON, Plaintiff-Appellant, v. BANK OF AMERICA, N.T. & S.A., Defendant-Appellee. Jorge LIMA, Plaintiff-Appellant, v. BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSN. and Bank of America Corp., Defendants-Appellees.
Nos. 74-2142, 74-2354, 74-2812 and 74-2813.
United States Court of Appeals, Ninth Circuit.
Dec. 27, 1976.
As Amended on Denial of Rehearing and Rehearing En Banc March 3, 1977.
549 F.2d 597 | 40 A.L.R.Fed. 314 | 1977-1 Trade Cases 61,233
Noble K. Gregory (argued), Pillsbury, Madison & Sutro, San Francisco, Cal., for defendants-appellees.
Appeal from the United States District Court for the Northern District of California.
Before BROWNING and CHOY, Circuit Judges, and GRAY,* District Judge.
OPINION
CHOY, Circuit Judge:
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 (
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,
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 оutside the pleading are presented to and not excluded by the court.” Erlich v. Glasner, 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. Buttes Gas & Oil Co., 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).
On the other hand, if the district court did hold as its basis for dismissing for lack of subject matter jurisdiction that the alleged facts bore an insufficient relation to the foreign commerce of the United States, that same deficiency could also be considered a ground on which the suit could be dismissed for failure to state a claim under the antitrust laws. See Hospital Building Co. v. Trustees of the Rex Hospital, 425 U.S. 738, 742 n.1 (1976). Although the Supreme Court in Hospital Building did not elaborate, it seems settled that, when a statute provides the basis for both the subject matter jurisdiction of the federal court and the plaintiffs’ substantive claim for relief, a motion to dismiss for lack of subject matter jurisdiction rather than for failure to state a claim is proper only when the allegations of the complaint are frivolous. O‘Neill v. Maytag, 339 F.2d 764, 766 & n.3 (2d Cir. 1964). See Bell v. Hood, 327 U.S. 678, 682-83 (1946). Such is clearly not the case here.5
Thus, if the district court dismissed under either Rule 56 itself or Rule 12(b)(6) (the proper motion for a defense pleading either the act of state doctrine or the lack of a sufficient nexus between the alleged violation and our foreign commerce), Rule 56 treatment would seem to have been indicated for the instant case. See also Rule 12(c).
Having secured Rule 56 treatment, it does not, however, necessarily follow that plaintiffs were entitled under Rule 56(e) to full discovery. That section provides only that the “court may permit affidavits to be supplemented or opposed by depositions, answers to interrogatories, or further affidavits.” (Emphasis added.) Accordingly, plaintiffs had no general right to discovery under the provisions of Rule 56(e).
Nevertheless, we note that the Supreme Court has expressed disapproval of summary disposition in this type of case:
We believe that summary procedures should be used sparingly in complex antitrust litigation where motives and intent play leading roles, the proof is largely in the hands of the alleged conspirators, and hostile witnesses thicken the plot. It is only when the witnesses are present and subject to cross-examination that their credibility and the weight to be given their testimony can be appraised. Trial by affidavit is no substitute for trial by jury which so long has bеen the hallmark of “even handed justice.”
Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 473 (1962). Putting plaintiffs to the test in such cases without ample opportunity for discovery is particularly disfavored. Hospital Building, supra, 425 U.S. at 746. From our review of the allegations and affidavits of both sides, it is clear to us that the factual circumstances here involved are indeed complicated. Therefore, in spite of the nonmandatory nature of Rule 56(e), we do not feel that it was proper to dismiss the instant complaint without affording plaintiffs an opportunity for full discovery.6
The only other possible basis on which the district court could properly have dismissed this suit would have been a ruling that plaintiffs, even with the aid of discovery and the benefit of all doubts on disputed points, could under no circumstances have established a claim for relief. We will, therefore, review the judgment on that basis, treating it as a Rule 12(b)(6) dismissal. Accordingly, we assume the allegations of the Timberlane plaintiffs to be true. Under the circumstances of the instant case, we find pertinent the recent observation of the Supreme Court in Hospital Building:
We have held that “a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46 (1957) (footnote omitted). And in antitrust cases, where “the proof is largely in the hands of the alleged conspirators,” Poller v. Columbia Broadcasting, 368 U.S. 464, 473 (1962), dismissals prior to giving the plaintiff ample opportunity for discovery should be granted very sparingly. Applying this concededly rigorous standard, we conclude that the instant case is not one in which dismissal should have been granted.
Hospital Building, supra, 425 U.S. at 746-47.
Cast of Characters
There are three affiliated plaintiffs in the Timberlane action. Timberlane Lumber Company is an Oregon partnership principally involved in the purchase and distribution of lumber at wholesale in the United States and the importation of lumber into the United States for sale and use. Danli Industrial, S.A., and Maya Lumber Company, S. de R.L., are both Honduras corporations, incorporated and principally owned by the general partners of Timberlane. Danli held contracts to purchase timber in Honduras, and Maya was to conduct the milling operations to produce the lumber for export. (Timberlane, Danli, and Maya will be collectively referred to as “Timberlane.“)
The primary defendants are Bank of America Corporation (Bank), a California corporation, and its wholly-owned subsidiary, Bank of America National Trust and Savings Association, which operates a branch in Tegucigalpa, Honduras. Several employees of the Bank have also been named and served as defendants: Nasser Bonheur, manager of the Tegucigalpa branch from 1970 through January 1972; Jose Gonzales, Bonheur‘s successor as manager of the Tegucigalpa branch; Luis Pazmino,7 Regional Vice President for Central America, based in Guatemala City, with authority over the Tegucigalpa branch; and Henry Malatesta, Vice President and Senior Credit Administrator for Central America and the Caribbean, based in San Francisco. Bonheur, Gonzales, Pazmino, and Malatesta are all citizens of the United States.
Other defendants have been named, but have not been served. Included in this group are two more Bank employees in Central America: Manuel Ruiz,8 a citizen of the United States, and Patrick Byrne, a citizen of Canada. Also unserved are two Hоnduras corporations, Pedro Casanova e Hijos, S.A., and Importadore Mayorista, S. de R.L., and Michael Casanova, a citizen of Honduras (together referred to as “Casanova“), who together represent one of the two main competitors to Timberlane and its predecessor in the Honduran lumber business.
Timberlane also cited defendants “Does I to X.” Named and served as Doe I, but entering only a special appearance before the district court, was Laureano Gutierrez Falla, a citizen of Honduras and Honduran counsel for both the Bank and Danli during the time of the alleged conspiracy.
Facts as Alleged
The conspiracy sketched by Timberlane actually started before the plaintiffs entered the scene. The Lima family operated a lumber mill in Honduras, competing with Lamas and Casanova, in both of which the Bank had significant financial interests. The Lima enterprise was also indebted to thе Bank. By 1971, however, the Lima business was in financial trouble. Timberlane alleges that driving Lima under was the first step in the conspiracy which eventually crippled Timberlane‘s efforts, but the particulars do not matter for this appeal. What does matter is that various interests in the Lima assets, including its milling plant, passed to Lima‘s creditors: Casanova, the Bank, and the group of Lima employees who had not been paid the wages and severance pay due them. Under Honduran law, the employees’ claim had priority.
Enter Timberlane, with a long history in the lumber business, in search of alternative sources of lumber for delivery to its distribution system on the East Coast of the United States. After study, it decided to try Honduras. In 1971, Danli was formed, tracts of forest land were acquired, plans for a modern log-processing plant were prepared, and equipment was purchased and assembled for shipment from the United States to Danli in Honduras. Timberlane became aware that the Lima plant might be available and began negotiating for its acquisition. Maya was formed, purchased the Lima employees’ interest in the machinery and equipment in January 1972, despite opposition from the conspirators, and re-activated the Lima mill.
Realizing that they were faced with better-financed аnd more vigorous competition from Timberlane and its Honduran subsidiaries, the defendants and others extended the anti-Lima conspiracy to disrupt Timberlane‘s efforts. The primary weapons employed by the conspirators were the claim still held by the Bank in the remaining assets of the Lima enterprise under the all-inclusive mortgage Lima had been forced to sign and another claim held by Casanova. Maya made a substantial cash offer for the Bank‘s interest in an effort to clear its title, but the Bank refused to sell. Instead, the Bank surreptitiously conveyed the mortgage to Casanova for questionable consideration, Casanova paying nothing and agreeing only to pay the Bank a portion of what it collected. Casanova immediately assigned the Bank‘s claim and its own on similar terms to Caminals, who promptly set out to disrupt the Timberlane operation.
Caminals is characterized as the “front man” in the campaign to drive Timberlane out of Honduras, with the Bank and other defendants intending and carrying responsibility for his actions. Having acquired the claims of Casanova and the Bank, Caminals went to court to enforce them, ignoring throughout Timberlane‘s offers to purchase or settle them. Under the laws of Honduras, an “embargo” on property is a court-ordered attachment, registered with the Public Registry, which precludes the sale of that property without a court order. Honduran law provides, upon embargo, that the court appoint a judicial officer, called an “interventor” to ensure against any diminution in the value of the property. In order to paralyze the Timberlane operation, Caminals obtained embargoes against Maya and Danli. Acting through the interventor, since accused of being on the payroll of the Bank, guards and troops were used to cripple and, for a time, completely shut down Timberlane‘s milling operation. The harassment took other forms as well: the conspirators caused the manager of Timberlane‘s Honduras operations, Gordon Sloan Smith, to be falsely arrested and imprisoned and were responsible for the publication of several defamatory articles about Timberlane in the Honduran press.
Act of State
The classic enunciation of the act of state doctrine is found in Underhill v. Hernandez, 168 U.S. 250, 252 (1897):
Every sovereign State is bound to respect the independence of every other sovereign State, and the courts of one country will not sit in judgment on the acts of the government of another done within its own territory.
From the beginning, this principle has been applied in foreign trade antitrust cases. In American Banana Co. v. United Fruit Co., 213 U.S. 347 (1909), the first such case of significance, the American owner of a banana plantation caught in a border dispute between Panama and Costa Rica claimed that a competitor violated the Sherman Act by persuading the Costa Rican government to seize his lands. The act complained of would have required an adjudication of the legality of the Costa Rican seizure, an action which the Supreme Court said our courts could not challenge. More recently, see Occidental Petroleum Corp. v. Buttes Gas & Oil Co., 331 F.Supp. 92 (C.D.Cal.1971), affirmed 461 F.2d 1261 (9th Cir.), cert. denied, 409 U.S. 950, 93 S.Ct. 272, 34 L.Ed.2d 221 (1972), the case mentioned from the bench by the district court here in ruling in favor of the defense motion to dismiss.
The defendants argue as the district court apparently held that the injuries allegedly suffered by Timberlane resulted from acts of the Honduran government, principally in connection with the enforcement of the security interests in the Maya plant, which American courts cannot rеview. Such an application of the act of state doctrine seems to us to be erroneous. Even if the coup de grace to Timberlane‘s enterprise in Honduras was applied by official authorities, we do not agree that the doctrine necessarily shelters these defendants or requires dismissal of the Timberlane action.
The leading modern statement of the act of state doctrine appears in Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398 (1964). Despite contrary implications in Underhill and American Banana, the Court concluded that the doctrine was not compelled by the nature of sovereignty, by international law, or by the text of the Constitution. 376 U.S. at 421-23. Rather, it derives from the judiciary‘s concern for its possible interference with the conduct of foreign affairs by the political branches of the government:
The doctrine as formulated in past decisions expresses the strong sense of the Judicial Branch that its engagement in the task of passing on the validity of foreign acts of state may hinder rather than further this country‘s pursuit of goals both for itself and for the community of nations as a whole in the international sphere.
Id. at 423. The Court recognized that not every case is identical in its potential impact on our relations with other nations. For instance:
(S)ome aspects of international law touch much more sharply on national nerves than do others; the less important the implications of an issue are for our foreign relations, the weaker the justification for exclusivity in the political branches.
Id. at 428. Thus the Court explicitly rejected “laying down or reaffirming an inflexible and all-encompassing rule.” Id. Whether forbearance by an American court in a given situation is advisable or appropriate depends upon the “balance of relevant considerations.” Id.
In Alfred Dunhill of London, Inc. v. The Republic of Cuba, 425 U.S. 682 (1976), interventors appointed by the Cuban government to take possession of and operate nationalized Cuban cigar manufacturers had been paid large sums by importers in the United States and elsewhere for pre-nationalization shipments. These payments were found to have been made in error, since they should have been made to the prior owners of the cigar firms. The importers sought to recover the money. Counsel for the Cuban government and the interventors argued that the interventors’ refusal to repay the pre-intervention sums represented a sovereign repudiation of any obligation to refund the amounts and as such an act of state not subject to challenge in American courts. The Court disagreed, refusing to conclude that “the conduct in question was the public act of those with authority to exercise sovereign authority and was entitled to respect in our courts.” Id. at 694. There was no proof that the failure of the interventors to repay the money reached the level of an “act of state,” a sovereign assertion of the Cuban government:
No statute, decree, order or resolution of the Cuban government itself was offered in evidence indicating that Cuba had repudiated her obligations in general or any class thereof or that she had as a sovereign matter determined to confiscate the amounts due three foreign importers.
A corollary to the act of state doctrine in the foreign trade antitrust field is the often-recognized principle that corporate conduct which is compelled by a foreign sovereign is also protected from antitrust liability, as if it were an act of the state itself. Thus, in Interamerican Refining Corp. v. Texaco Maracaibo, Inc., 307 F.Supp. 1291 (D.Del.1970), a refusal by defendants to sell Venezuelan crude oil to plaintiff was held not to be an illegal restraint of trade because it was a complete defense that the Venezuelan government had imposed a boycott forbidding such sales. The court there observed that “(w)hen a nation compels a trade practice, firms there have no choice but to obey. Acts of business become effectively acts of the sovereign.” Id. at 1298.
On the other hand, mere governmental approval or foreign governmental involvement which the defendants had arranged does not necessarily provide a defense. In United States v. Sisal Sales Corp., 274 U.S. 268 (1927), the defendants were accused of conspiring to monopolize sales of sisal, a material used in making rope, from Mexico to the United States by inducing Mexican offiсials to recognize the conspirators as the exclusive traders and to impose discriminatory taxes on rival sellers. The Court rejected the defendants’ claim to act of state protection, ruling that a conspiracy formed in the United States for the purpose of monopolizing sales to the United States was not protected simply because one element of the conspiracy involved securing favorable action by foreign officials. In Continental Ore, the Court indicated that it continued to accept the Sisal reasoning. See 370 U.S. at 705.
The distinction was recognized and relied upon in United States v. The Watchmakers of Switzerland Information Center, Inc., 1963 Trade Cases ¶ 70,600 (S.D.N.Y.1962), order modified, 1965 Trade Cases ¶ 71,352 (S.D.N.Y.1965), the “Swiss Watch” case:
If, of course, the defendants’ activities had been required by Swiss law, this court could indeed do nothing. An American court would have under such circumstances no right to condemn the governmental activity of another sovereign nation. In the present case, however, the defendants’ activities were not required by the laws of Switzerland. They were agreements formulated privately without compulsion on the part of the Swiss Government. It is clear that these private agreements were then recognized as facts of economic and industrial life by that nation‘s government. Nonetheless, the fact that the Swiss Government may, as a practical matter, approve of the effects of this private activity cannot сonvert what is essentially a vulnerable private conspiracy into an unassailable system resulting from foreign governmental mandate.
See Davidow, Antitrust, Foreign Policy, and International Buying Cooperation, 84 Yale L.J. 268, 282-83 (1974); W. Fugate, Foreign Commerce and the Antitrust Laws 75-82 (2d ed. 1973); Kintner & Hallgarten, Application of United States Antitrust Laws to Foreign Trade and Commerce, 15 B.C. Ind. & Com.L.Rev. 343, 356-58 (1973).10
The touchstone of Sabbatino—the potential for interference with our foreign relations—is the crucial element in determining whether deference should be accorded in any given case. We wish to avoid “passing on the validity” of foreign acts. Sabbatino, 376 U.S. at 423. Similarly, we do not wish to challenge the sovereignty of another nation, the wisdom of its policy, or the integrity and motivation of its action. On the other hand, repeating the terms of Sabbatino, at 428, “the less important the implications of an issue are for our foreign relations, the weaker the justification for exclusivity in the political branches.”
While we do not wish to impugn or question the nobility of a foreign nation‘s motivation, we are necessarily interested in the depth and nature of its interest. The Restatement (Second) of Foreign Relations Law of the United States § 41 (1965) makes an important distinction on this basis in limiting the deference of American courts:
(A) court in the United States . . . will refrain from examining the validity of an aсt of a foreign state by which that state has exercised its jurisdiction to give effect to its public interests. (Emphasis added.)
The “public interest” qualification is intentional and significant in the context of Timberlane‘s action, as a comment to § 41 makes plain:
Comment d. Nature of act of state. An “act of state” as the term is used in this Title involves the public interests of a state as a state, as distinct from its interest in providing the means of adjudicating disputes or claims that arise within its territory. . . . A judgment of a court may be an act of state. Usually it is not, because it involves the interests of private litigants or because court adjudication is not the usual way in which the state exercises its jurisdiction to give effect to public interests.
Id. at 127.11
On the basis of the foregoing analysis, we conclude that the court below erred in dismissing the instant suit on the authority of Occidental Petroleum Corp. v. Buttes Gas & Oil Co., 331 F.Supp. 92, 108-13 (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). The actions of the Honduran government that are involved here—including the application by its courts and their agents of the Honduran laws concerning security interests and the protection of the underlying property against diminution—are clearly distinguishable from the sovereign decrees laying claim to off-shore waters that were at issue in Occidental Petroleum, see 331 F.Supp. at 99-101 & n.11. Here, the allegedly “sovereign” acts of Honduras consisted of judicial proceedings which were initiated by Caminals, a private party and one of the alleged co-conspirators, not by the Honduran government itself. Unlike the Occidental Petroleum plaintiffs, see id. at 110, Timberlane does not seek to name Honduras or any Honduran officer as a defendant or co-conspirator, nor does it challenge Honduran policy or sovereignty in any fashion that appears on its face to hold any threat to relations between Honduras and the United States. In fact, there is no indication that the actions of the Honduran court and authorities reflected a sovereign decision that Timberlane‘s efforts should be crippled or that trade with the United States should be restrained. Compare Alfred Dunhill of London, Inc. v. The Republic of Cuba, 425 U.S. at 695. Moreover, and once again unlike the situation in Occidental Petroleum, see 331 F.Supp. at 109-10 n. 28, plaintiffs here apparently complain of additional agreements and actions which are totally unrelated to the Honduran government. These separate activities would clearly be unprotected even if procurement of a Honduran act of state were one part of defendants’ overall scheme. Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. at 704-05; United States v. Sisal, 274 U.S. at 275-76.
Extraterritorial Reach of the United States Antitrust Laws
There is no doubt that American antitrust laws extend over some conduct in other nations.12 There was language in the first Supreme Court case in point, American Banana Co. v. United Fruit Co., 213 U.S. 347 (1909), casting doubt on the extension of the Sherman Act to acts outside United States territory. But subsequent cases have limited American Banana to its particular facts, and the Sherman Act—and with it other antitrust laws—has been applied to extraterritorial conduct. See, e. g., Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690 (1962); United States v. Sisal Sales Corp., 274 U.S. 268 (1927); United States v. Aluminum Co. of America, 148 F.2d 416 (2d Cir. 1945) (the “Alcoa” case).13 The act may encompass the foreign activities of aliens as well as American citizens. Alcoa, supra; Swiss Watch, 1963 Trade Cases ¶ 70,600; United States v. General Electric Co., 82 F.Supp. 753 (D.N.J.1949), judgment implementing decree, 115 F.Supp. 835 (D.N.J.1953).
That American law covers some conduct beyond this nation‘s borders does not mean that it embraces all, however. Extraterritorial application is understandably a matter of concern for the other countries involved. Those nations have sometimes resented and protested, as excessive intrusions into their own spheres, broad assertions of authority by American courts. See A. Neale, The Antitrust Laws of the United States of America 365-72 (2d ed. 1970); Assn. of the Bar of the City of New York, National Security and Foreign Policy in the Application of American Antitrust Laws to Commerce with Foreign Nations 7-18 (1957); Zwarensteyn, The Foreign Reach of the American Antitrust Laws, 3 Am.Bus.L.J. 163, 165-69 (1965). Our courts have recognized this concern and have, at times, responded to it, even if not always enough to satisfy all the foreign critics. See Alcoa, 148 F.2d at 443; Swiss Watch, 1965 Trade Cases ¶ 71,352 (modification of order); General Electric, 115 F.Supp. at 878 (implementation of decree). In any event, it is evident that at some point the interests оf the United States are too weak and the foreign harmony incentive for restraint too strong to justify an extraterritorial assertion of jurisdiction.
What that point is or how it is determined is not defined by international law. Miller, Extraterritorial Effects of Trade Regulation, 111 U.Pa.L.Rev. 1092, 1094 (1963). Nor does the Sherman Act limit itself.14 In the domestic field the Sherman Act extends to the full reach of the commerce power. United States v. South-Eastern Underwriters Assn., 322 U.S. 533, 558 (1944). To define it somewhat more modestly in the foreign commerce area courts have generally, and logically, fallen back on a narrower construction of congressional intent, such as expressed in Judge Learned Hand‘s oft-cited opinion in Alcoa, 148 F.2d at 443:
(T)he only question open is whether Congress intended to impose the liability and whether our own Constitution permitted it to do so: as a court of the United States we cannot look beyond our own law. Nevertheless, it is quite true that we are not to read general words, such as those in this Act, without regard to the limitations customarily observed by nations upon the exercise of their powers; limitations which generally correspond to those fixed by the “Conflict of Laws.” We should not impute to Congress an intent to punish all whom its courts can catch, for conduct which has no consequences within the United States.
(I)t is settled law . . . that any state may impose liabilities, even upon persons not within its allegiance, for conduct outside its borders that has consequences within its borders which the state reprehends; and these liabilities other states will ordinarily recognize.15
Despite its description as “settled law,” Alcoa‘s assertion has been roundly disputed by many foreign commentators as being in conflict with international law, comity, and good judgment.16 Nonetheless, American courts have firmly concluded that there is some extraterritorial jurisdiction under the Sherman Act.
Even among American courts and commentators, however, there is no consensus on how far the jurisdiction should extend. The district court here concluded that a “direct and substantial effect” on United States foreign commerce was a prerequisite, without stating whether other factors were relevant or considered. The same formula was employed, to some extent, by the district courts in the Swiss Watch case, 1963 Trade Cases ¶ 70,600, in United States v. R. P. Oldham Co., 152 F.Supp. 818, 822 (N.D.Cal.1957), and in General Electric, 82 F.Supp. at 891.17 It has been identified and advocated by several commentators. See, e. g., W. Fugate, Foreign Commerce and the Antitrust Laws 30, 174 (2d ed. 1973); J. Van Cise, Understanding the Antitrust Laws 204 (1973 ed.). See also Report of the Attorney General‘s National Committee to Study the Antitrust Laws 76 (1955) (“substantial anticompetitive effects“); Restatement (Second) of Foreign Relations Law of the United States § 18.18
Other courts have used different expressions, however. See, e. g., Thomsen v. Cayser, 243 U.S. 66, 88 (1917) (“the combination affected the foreign commerce of this country“); Alcoa, 148 F.2d at 444 (“intended to affect imports and exports (and) . . . is shown actually to have had some effect on them“);19 United States v. Imperial Chemical Industries, Ltd., 100 F.Supp. 504, 592 (S.D.N.Y.1951) (“a conspiracy . . . which affects American commerce“); United States v. Timken Roller Bearing Co., 83 F.Supp. 284, 309 (N.D.Ohio 1949), modified and affirmed, 341 U.S. 593 (1951) (“a direct and influencing effect on trade“). See also citations in 1 J. von Kalinowski, Antitrust Law and Trade Regulation § 5.02(2), at 5-120.
Few cases have discussed the nature of the effect required for jurisdiction, perhaps because most of the litigated cases have involved relatively obvious offenses and rather significant and apparent effects on competition within the United States. Id.; P. Areeda, Antitrust Analysis 129 n.455 (1974). It is probably in part because the standard has not often been put to a real test that it seems so poorly defined. William Fugate, who has identified the “direct and substantial” standard as the rule, has described the meaning of that phrase as being “quite broad.” W. Fugate, supra, at 174. What the threshold of significance is, however, has not been identified.21 Nor is it quite clear what the “direct-indirect” distinction is supposed to mean.22 It might well be, as was said in the context of transnational securities regulation:
Although courts have spoken in terms of the Restatement and of congressional policy, findings that an American effect was direct, substantial, and foreseeable, or within the scope of congressional intent, have little independent analytic significance. Instead, cases appear to turn on a reconciliation of American and foreign interests in regulating their respective economies and business affairs . . . .
Note, American Adjudication of Transnational Securities Fraud, 89 Harv.L.Rev. 553, 563 (1976).
Implicit in that observation, as it is in several of the cases and commentaries employing the “еffects” test, is the suggestion that factors other than simply the effect on the United States are weighed, and rightly so. As former Attorney General (then Professor) Katzenbach observed, the effect on American commerce is not, by itself, sufficient information on which to base a decision that the United States is the nation primarily interested in the activity causing the effect. “(A)nything that affects the external trade and commerce of the United States also affects the trade and commerce of other nations, and may have far greater consequences for others than for the United States.” Katzenbach, Conflicts on an Unruly Horse, 65 Yale L.J. 1087, 1150 (1956).
The effects test by itself is incomplete because it fails to consider other nations’ interests.23 Nor does it expressly take into account the full nature of the relationship between the actors and this country. Whether the alleged offender is an American citizen, for instance, may make a big difference; applying American laws to American citizens raises fewer problems than application to foreigners. As was observed in Pacific Seafarers, Inc. v. Pacific Far East Line, Inc., 404 F.2d 804 (D.C. Cir. 1968), cert. denied, 393 U.S. 1093 (1969):
If . . . (American antitrust) policy cannot extend to the full sweep of American foreign commerce because of the international complications involved, then surely the test which determines whether United States law is applicable must focus on the nexus between the parties and their practices and the United States, not on the mechanical circumstances of effect on commodity exports or imports.
American courts have, in fact, often displayed a regard for comity and the prerogatives of other nations and considered their interests as well as other parts of the factual circumstances,24 even when professing to apply an effects test.25 To some degree, the requirement for a “substantial” effect may silently incorporate these additional considerations, with “substantial” as a flexible standard that varies with other factors. The intent requirement suggested by Alcoa, 148 F.2d at 443-44, is one example of an attempt to broaden the court‘s perspective, as is drawing a distinction between American citizens and non-citizens.26
The failure to articulate these other elements in addition to the standard effects analysis is costly, however, for it is more likely that they will be overlooked or slighted in interpretating past decisions and reaching new ones. Placing emphasis on the qualification that effects be “substantial” is also risky, for the term has a meaning in the interstate antitrust context which does not encompass all the factors relevant to the foreign trade case.
Indeed, that “substantial effects” element of interstate antitrust analysis may well be responsible for the use of an effects test for foreign commerce. The Sherman Act reaches restraints directly intended to limit the flow of interstate trade or whose sole impact is on interstate commerce, but it also reaches “wholly local business restraints” if the particular restraint “substantially and adversely affects interstate commerce.” Hospital Building, 425 U.S. at 743; Gulf Oil Corp. v. Copp Paving Co., 419 U.S. 186, 195 (1974).
A tripartite analysis seems to be indicated. As acknowledged above, the antitrust laws require in the first instance that there be some effect actual or intended on American foreign commerce before the federal courts may legitimately exercise subject matter jurisdiction under those statutes. Second, a greater showing of burden or restraint may be necessary to demonstrate that the effect is sufficiently large to present a cognizable injury to the plaintiffs and, therefore, a civil violation of the antitrust laws. Occidental Petroleum, 331 F.Supp. at 102-03; Beausang, The Extraterritorial Jurisdiction of the Sherman Act, 70 Dick.L.Rev. 187, 191 (1966). Third, there is the additional question which is unique to the international setting of whether the interests of, and links to, the United States including the magnitude of the effect on American foreign commerce are sufficiently strong, vis-a-vis those of other nations, to justify an assertion of extraterritorial authority.
(W)e are not to read general words, such as those in this Act, without regard to the limitations customarily observed by nations upon the exercise of their powers; limitations which generally correspond to those fixed by the “Conflict of Laws.”
148 F.2d at 443. The same idea is reflected in Restatement (Second) of Foreign Relations Law of the United States § 40:
Where two states have jurisdiction to prescribe and enforce rules of law and the rules they may prescribe require inconsistent conduct upon the part of a person, each state is required by international lаw to consider, in good faith, moderating the exercise of its enforcement jurisdiction . . . .27
The act of state doctrine discussed earlier demonstrates that the judiciary is sometimes cognizant of the possible foreign implications of its action. Similar awareness should be extended to the general problems of extraterritoriality. Such acuity is especially required in private suits, like this one, for in these cases there is no opportunity for the executive branch to weigh the foreign relations impact, nor any statement implicit in the filing of the suit that that consideration has been outweighed.28
What we prefer is an evaluation and balancing of the relevant considerations in each case in the words of Kingman Brewster, a “jurisdictional rule of reason.”29 Balancing of the foreign interests involved was the approach taken by the Supreme Court in Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 82 S.Ct. 1404, 8 L.Ed.2d 777 (1962), where the involvement of the Canadian government in the alleged monopolization was held not to require dismissal. The Court stressed that there was no indication that the Canadian authorities approved or would have approved of the monopolization, meaning that the Canadian interest, if any, was slight and was outweighed by the American interest in condemning the restraint.30 Similarly, in Lauritzen v. Larsen, 345 U.S. 571, 73 S.Ct. 921, 97 L.Ed. 1254 (1953), the Court used a like аpproach in declining to apply the Jones Act to a Danish seaman, injured in Havana on a Danish ship, although he had signed on to the ship in New York.
We conclude, then, that the problem should be approached in three parts: Does the alleged restraint affect, or was it intended to affect, the foreign commerce of the United States? Is it of such a type and magnitude so as to be cognizable as a violation of the Sherman Act? As a matter of international comity and fairness, should the extraterritorial jurisdiction of the United States be asserted to cover it? The district court‘s judgment found only that the restraint involved in the instant suit did not produce a direct and substantial effect on American foreign commerce. That holding does not satisfy any of these inquiries.
The Sherman Act is not limited to trade restraints which have both a direct and substantial effect on our foreign commerce. Timberlane has alleged that the complained of activities were intended to, and did, affect the export of lumber from Honduras to the United States the flow of United States foreign commerce, and as such they are within the jurisdiction of the federal courts under the Sherman Act. Moreover, the magnitude of the effect alleged would appear to be sufficient to state a claim.35
We, therefore, vacate the dismissal and remand the Timberlane action.
II. The Smith, Ardon, and Lima Actions
Three employees of Maya in Honduras allege that they were personally injured in the course of the conspirators’ harassment оf Timberlane and have filed tort suits against the Bank and its corporate parent. Gordon Sloan Smith, a citizen of Canada and a resident of Honduras from 1971 through 1973 and of Miami since, asserts charges of malicious prosecution, abuse of process, and theft of personal property. Miguel Ardon and Jorge Lima are both citizens of Honduras, and both allege claims of malicious prosecution and abuse of process. Pursuant to local court rules, these suits were reassigned to the same district judge who had handled the Timberlane antitrust action, which by that time had already been dismissed. Shortly thereafter, the court granted the Bank‘s motion to dismiss the three suits on the ground of forum non conveniens.
Dismissal on the basis of forum non conveniens is within the district court‘s power. Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 67 S.Ct. 839, 91 L.Ed. 1055 (1947). The fact that there is no lack of jurisdiction or mistake of venue does not foreclose application of the doctrine; indeed, proper jurisdiction and venue are assumed.
Gulf Oil noted that the decision falls within the discretion of the district court, but observed that “unless the balance is strongly in favor of the defendant, the plaintiff‘s choice of forum should rarely be disturbed.” Id. at 508-09, 67 S.Ct. at 843. The Court also outlined some of the factors, reflecting both the private interests of the litigants and the public interеsts, to be weighed, a compendium we need not repeat.
Given the circumstances existing at the time of the dismissal, we would be reluctant to say that the district court abused its discretion. The alleged torts took place in Honduras. Most of the witnesses and evidence are apparently based there, as are two of the plaintiffs, and Honduran law would have to be applied. The only particular interest of the Northern District of California is that the Bank is headquartered there.
Vacated and remanded.
Notes
This cause came on for hearing on defendants’ motion to dismiss the Timberlane action (C-73-0792 SW) for lack of subject matter jurisdiction and for failure to state a claim upon which relief can be granted. The Court has considered the pleadings, the argument of counsel and the legal memoranda and numerous affidavits and depositions filed by the parties. It is the judgment of the Court 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. It is therefore
ORDERED thаt the Timberlane action (C-73-0792 SW) be and is hereby dismissed for lack of subject matter jurisdiction and for failure to state a claim upon which relief can be granted.
MR. GREGORY (Bank‘s counsel): . . . (O)ur motion is a motion to dismiss under Rule 12, not a motion for summary judgment.
THE COURT: It is a Rule 12 motion, yes.
327 U.S. at 682. See also A.H. Bull S.S. Co. v. National Marine Engineers’ Beneficial Ass‘n, 250 F.2d 332, 337 (2d Cir. 1957).Jurisdiction, therefore, is not defeated as respondents seem to believe, by the possibility that the averments might fail to state a cause of action on which petitioners could actually recover. For it is well settled that the failure to state a proper cause of action calls for a judgment on the merits and not for a dismissal for want of jurisdiction. Whether the complaint states a cause of action on which relief could be granted is a question of law and just as issues of fact it must be decided after and not before the court has assumed jurisdiction over the controversy. If the court does later exercise its jurisdiction to determine that the allegations in the complaint do not state a ground for relief, then dismissal of the case would be on the merits, not for want of jurisdiction.
Id. at 285. See also United States v. Sisal Sales Corp., 274 U.S. 268, 275-76 (1927).Acts done outside a jurisdiction, but intended to produce and рroducing detrimental effects within it, justify a State in punishing the cause of the harm as if he had been present at the effect, if the State should succeed in getting him within its power.
A. Neale, supra, at 365.The ‘effects’ doctrine of Alcoa is particularly detested. It is considered a violation of international comity that the United States should take jurisdiction over the conduct of non-nationals of the United States on the ground that this conduct has repercussions within the United States, when the conduct is at the same time legal in the countries where it takes place.
152 F.Supp. at 822 (emphasis added). In General Electric, the court said:. . . it is only that conduct which directly and substantially affects the foreign commerce of the United States that comes within the scope of our antitrust laws.
82 F.Supp. at 891 (emphasis added).It is not even necessary, in the case of a conspiracy to reach the foreign commerce of this country, to prove the foreign commerce was actually restrained, but only that there was a conspiracy to do so and it was of such a nature as to be admitted of a direct and substantial effect upon it.
A state has jurisdiction to prescribe a rule of law attaching legal consequences to conduct that occurs outside its territory and causes an effect within its territory, if either
(a) the conduct and its effect are constituent elements of a activity to which the rule applies; (b) the effect within the territory is substantial, occurs as a direct and foreseeable result of the conduct outside the territory, and the rule is not inconsistent with the principles of justice generally recognized by states that have reasonably developed legal systems.
Where two states have jurisdiction to prescribe and enforce rules of law and the rules they may prescribe require inconsistent conduct upon the part of a person, each state is required by international law to consider, in good faith, moderating the exercise of its enforcement jurisdiction, in the light of such factors as
(a) vital national interests of each of the states, (b) the extent and the nature of the hardship that inconsistent enforcement actions would impose upon the person, (c) the extent to whiсh the required conduct is to take place in the territory of the other state, (d) the nationality of the person, and (e) the extent to which enforcement by action of either state can reasonably be expected to achieve compliance with the rule prescribed by that state.
Id. at 891.In view of the fact that the Philips company was a foreign corporation and its activities were conducted outside of the United States, it can only be held liable for a violation of the Sherman Act if it has been shown that its activities had a direct and substantial effect upon the trade and commerce of the United States.