Turicentro, S.A. v. American Airlines Inc.Turicentro, S.A. v. American Airlines Inc.
George G. Gordon (Argued), Jennifer R. Clarke, Dechert, Price & Rhoads, Philadelphia, PA, for Appellee, American Airlines, Inc.
Ann T. Field, Cozen & O‘Connor, The Atrium, Philadelphia, PA, for Appellee, Continental Airlines, Inc.
Francis P. Newell, Montgomery, McCracken, Walker & Rhoads, Philadelphia, PA, for Appellee, Delta Airlines, Inc.
Bert W. Rein (Argued), John B. Wyss, Wiley, Rein & Fielding, Washington, DC, Bruce P. Merenstein, Schnader, Harrison, Segal & Lewis, Philadelphia, PA, for Appellee, International Air Transport Association.
Richard J. Favretto, Mayer, Brown, Rowe & Maw, Washington, DC, for Appellee, United Airlines, Inc.
Before: SCIRICA and COWEN, Circuit Judges, and RESTANI, Judge, United States Court of International Trade.*
OPINION OF THE COURT
SCIRICA, Circuit Judge.
At issue in this proposed class action is the extraterritorial scope of the Sherman Antitrust Act and its application in this case. The putative plaintiff class comprises certain foreign travel agents located outside the United States who allege major United States air carriers and their trade association illegally conspired to lower their sales commissions. The District Court held the Foreign Trade Antitrust Improvements Act,
The major United States air carriers have delegated the licensing of travel agents to their trade association, the International Air Transport Association (IATA).1 All travel agents must have an IATA license to access reservation systems of United States-based airlines. In order to make a customer reservation, a travel agent can only enter the airline‘s electronic system with an IATA number. The travel agent‘s commission is automatically computed from a database in the airline‘s electronic system.
The Passenger Tariff Coordinating Conference is an IATA committee of airline company representatives who determine and fix the commission rates for travel agents. At the July 1999 Passenger Tariff Coordinating Conference meeting in Montreal, Canada, the Conference reduced commissions paid to IATA-accredited agents in Central America and Panama to a flat seven-percent rate. Previous commission rates had varied from country to country and ranged as high as eleven percent.
On December 27, 1999, Grupo Taca, an alliance of the principal Central American airlines (and not a party to this suit), announced it would pay Central American travel agents only six-percent commissions. The next day, American Airlines announced it would pay six-percent commissions on tickets sold in Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama. Soon thereafter, Continental Airlines, United Airlines, and Delta Airlines followed suit.
Defendants American Airlines, Delta Airlines, and United Airlines are members of the Passenger Tariff Coordinating Conference. Defendant Continental Airlines is not. None of the airline defendants’ representatives attended the 1999 Passenger Tariff Coordinating Conference meeting in Montreal. The minutes of the meeting reflect that “U.S.-based TC [Tariff Commission] Members were prohibited by their authorities from participating in such discussions and ... were therefore not present for this part of the Agenda.” The complaint alleges that during the Montreal meeting, an unidentified Passenger Tariff Coordinating Conference member proposed the reduction in commissions because new technology had streamlined the travel agents’ traditional ticket-selling functions.
The named plaintiffs are two San Jose, Costa Rica travel agencies and two Managua, Nicaragua travel agencies, who filed suit on behalf of a class of similarly situated travel agencies. The complaint alleged that four major United States air carriers—American Airlines, Continental Airlines, Delta Airlines, and United Airlines—and IATA violated the Sherman Antitrust Act by conspiring to lower travel agents’ commissions, a form of horizontal price fixing constituting a per se violation of the antitrust laws. See United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 223-26, 60 S. Ct. 811, 84 L. Ed. 1129 (1940). All four airline defendants are based in the United States, providing air passenger service between United States cities and locations within Latin America and the Caribbean (and elsewhere).
Plaintiffs contend defendants implemented the conspiracy in December 1999, when they began paying the lower six-percent commissions. The reduced commissions allegedly affected United States commerce because reservations on the four defendant airlines account for a substantial portion of the business of Latin American and Caribbean travel agents. The complaint alleges the Passenger Tariff Coordinating Conference meeting in Montreal disguised a pre-arranged agreement by United States air carriers to create the illusion of non-involvement in the reduction of commission rates, in an attempt to avoid antitrust liability under United States laws. Plaintiffs contend defendants assisted in planning this agenda, were aware the vote would be taken and endorsed the reduced rates. Plaintiffs claim the loss of substantial commissions, causing one member of the proposed class to close its business. They request treble damages.
The District Court dismissed the action under
We have jurisdiction under
III.
Federal jurisdiction obtains for “any civil action or proceeding arising under any Act of Congress regulating commerce or protecting trade and commerce against restraints and monopolies.”
Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal.... Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony....
Federal courts have often disagreed about the extraterritorial scope of the Sherman Act. Various judicial constructions of the Act were developed over the last century. See Den Norske Stats Oljeselskap As v. HeereMac Vof et al., 241 F.3d 420, 423-24 (5th Cir.2001) (”Statoil“) (“The history of this body of case law is confusing and unsettled.“). Am. Banana Co. v. United Fruit Co., 213 U.S. 347, 29 S. Ct. 511, 53 L. Ed. 826 (1909) (Holmes, J.), was the first time the Supreme Court considered the extraterritorial application of the Sherman Act, holding it did not apply to conduct occurring outside United States borders. Id. at 357-58, 29 S. Ct. 511. Over time, the Supreme Court altered its approach, holding plaintiffs could bring Sherman Act claims against foreign defendants, provided some of defendants’ conduct occurred within the United States. See, e.g., United States v. Sisal Sales Corp., 274 U.S. 268, 275-76, 47 S. Ct. 592, 71 L. Ed. 1042 (1927).
In 1945, the Court of Appeals for the Second Circuit established an “effects test” to determine whether there was antitrust jurisdiction over foreign conduct. See United States v. Aluminum Co. of Am., 148 F.2d 416, 443-44 (2d Cir.1945) (Hand, J.). Aluminum Co. held that a federal court had jurisdiction over the conduct of a foreign corporation where the conduct was intended to, and did in fact, affect United States commerce. Id. at 443 (“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.” (citation omitted)). Over the next half-century, the “effects test,” despite its apparent simplicity, proved difficult to apply in many Sherman Act cases. Considerations of international comity, not expressly considered in Aluminum Co., occasionally entered the analysis of later courts. See, e.g., Am. Rice, Inc. v. Ark. Rice Growers Co-op. Ass‘n, 701 F.2d 408, 413-16 (5th Cir.1983); Timberlane Lumber Co. v. Bank of Am., 549 F.2d 597, 613-15 (9th Cir.1976).
Legislating on this background, Congress in 1982 enacted Title IV of the Export Trading Company Act—known as the Foreign Trade Antitrust Improvements Act—to facilitate domestic exports and to clarify the application of United States antitrust laws to foreign conduct. The Foreign Trade Antitrust Improvements Act encourages United States exports by facilitating the formation of export trading companies and by exempting certain export transactions from the antitrust laws.
Although passed two decades ago, few federal courts have had occasion to apply the Foreign Trade Antitrust Improvements Act. In one such case, we held the Act demonstrated Congress‘s intent to exempt from the Sherman Act export transactions not injuring the United States economy, thereby relieving exporters from a competitive disadvantage in foreign trade. Carpet Group Int‘l v. Oriental Rug Imps. Ass‘n, 227 F.3d 62, 71 (3d Cir.2000); see also H.R. REP. NO. 97-290 (1982), reprinted in 1982 U.S.C.C.A.N. 2431 (“It is the purpose of this act to increase United States exports of products and services by... modifying the application of the antitrust laws to certain export trade.“). In Carpet Group, we held defendants’ conduct controlled the inquiry over subject matter jurisdiction. 227 F.3d at 73 (“The crux of [plaintiffs‘] case involves [defendants‘] conduct in the United States, not conduct abroad. We hold that these activities are not the type of conduct Congress intended to remove from our antitrust jurisdiction when it enacted the FTAIA.“); see also Caribbean Broad. Sys., Ltd. v. Cable & Wireless PLC, 148 F.3d 1080, 1086-87 (D.C.Cir.1998) (alleged injury to advertisers in the United States satisfied the Foreign Trade Antitrust Improvements Act, regardless of the geographic location of the supplier plaintiffs).
Plaintiffs contend there is subject matter jurisdiction and the Foreign Trade Antitrust Improvements Act does not bar their claim. As noted, the District Court dismissed plaintiffs’ claim under
[A]ssuming as true that the alleged conspiracy and the actions taken in furtherance thereof did occur within United States commerce, the plaintiffs aver nothing from which this Court could find that Defendants’ purported conspiracy caused any injury which was felt in the U.S. or which affected the American economy in any way.
152 F. Supp. 2d at 834. We exercise plenary review over this legal conclusion. Gould Elec. Inc. v. United States, 220 F.3d 169, 176 (3d Cir.2000). In this
IV.
Section 402 of the Foreign Trade Antitrust Improvements Act provides:
[The 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 reasonably 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 nations; 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
(2) such effect gives rise to a claim under the provisions of [the Sherman Act] other than this section.
If [the Sherman Act] appl[ies] to such conduct only because of the operation of paragraph (1)(B), then[the Sherman Act] shall apply to such conduct only for injury to export business in the United States.
As noted, the central issue on appeal is whether the Foreign Trade Antitrust Improvements Act bars subject matter jurisdiction in this Sherman Antitrust Act case. Therefore, our primary task is one of statutory interpretation. Cf. United States v. Knox, 32 F.3d 733, 744 (3d Cir.1994). We have described the Foreign Trade Antitrust Improvements Act as “inelegantly phrased.” Carpet Group, 227 F.3d at 69 (quoting United States v. Nippon Paper Indus. Co., 109 F.3d 1, 4 (1st Cir.1997)). In rather convoluted language, the Foreign Trade Antitrust Improvements Act introduces two requirements that must be satisfied for a plaintiff to state a valid antitrust claim regarding “conduct involving trade or commerce ... with foreign nations.”5 The first is whether the conduct in fact involves “trade or commerce (other than import trade or import commerce) with foreign nations,” as those terms are understood under the statute.
The first inquiry derives from § 6a of the Foreign Trade Antitrust Improvements Act: “[The Sherman Act] shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless....” We must determine whether the conduct plaintiffs describe is “trade or commerce with foreign nations” or “import trade or commerce with foreign nations.”7 Stated differently, under the Foreign Trade Antitrust Improvements Act, the Sherman Antitrust Act applies to conduct “involving” import trade or import commerce with foreign nations, provided other jurisdictional hurdles are cleared. Carpet Group, 227 F.3d at 69.
1.
The phrase “trade or commerce with foreign nations” includes transactions between foreign and domestic commercial entities, not just transactions involving a foreign sovereign. See, e.g., Hartford Fire Ins., 509 U.S. at 796, 113 S. Ct. 2891 (Sherman Act applicable to London insurers engaging in unlawful conspiracies to affect United States markets); see also United States v. Holliday, 70 U.S. (3 Wall.) 407, 417, 18 L. Ed. 182 (1865) (“Commerce with foreign nations, without doubt, means commerce between citizens of the United States and citizens or subjects of foreign governments, as individuals.“). Generally, the conduct must involve a United States purchaser or seller. Cf. Statoil, 241 F.3d at 426; In re Copper Antitrust Litig., 117 F. Supp. 2d 875, 882 (W.D.Wis.2000) (“The term `commerce ... with foreign nations’ generally refers to transactions in which a foreign seller deals with an American purchaser, or vice versa....” (citations omitted)).8 But where conduct allegedly violating the Sherman Act is directed at the competitiveness of a foreign market, such conduct involves “foreign trade or commerce.” See Kruman v. Christie‘s Int‘l PLC, 284 F.3d 384, 395 (2d Cir.2002) (“[W]hen there is conduct directed at reducing the competitiveness of a foreign market ... such conduct involves foreign trade or commerce, regardless of whether some of the conduct occurred in the United States.“).
The complaint alleges a conspiracy between four domestic airlines and their trade association to fix commissions paid to foreign travel agents located outside the United States. Defendants’ alleged conduct was directed at reducing the competitiveness of Costa Rican, Nicaraguan, and similarly situated foreign travel agents, all of whom were foreign-based. Therefore, the complaint properly alleges trade or commerce with foreign commercial entities.9
2.
Next we consider whether defendants’ conduct involves “trade or commerce with foreign nations” that is “import trade or import commerce.” If so, plaintiffs’ claims could still be cognizable under the Sherman Act, because the Foreign Trade Antitrust Improvements Act only removes certain non-import commerce from federal antitrust jurisdiction. See Carpet Group, 227 F.3d at 69 (“[T]he initial sentence of Section 6a, along with its `import trade or commerce’ parenthetical, provides that the antitrust law shall apply to conduct `involving’ import trade or commerce with foreign nations (provided, of course, that jurisdiction is found to exist under the Sherman Act itself).“). In Carpet Group, we held, “Since the FTAIA clearly states that the Sherman Act is not applicable to trade or commerce other than import trade or import commerce, the Sherman Act continues to apply to import trade and import commerce, thereby rendering the FTAIA‘s requirement of a direct, substantial, and reasonably foreseeable effect inapplicable to an action alleging an impact on import trade and import commerce.” Id. at 72 (quoting 54 Am.Jur.2d § 18, at 77).10
In Kruman, defendants’ conspiracy was “directed at controlling the prices they charged for their services in foreign auctions.” 284 F.3d at 395. The Court of Appeals for the Second Circuit found defendants’ conduct did not involve “import trade or commerce“:
The relevant inquiry is whether the conduct of the defendants — not the plaintiffs — involves import trade or commerce. The plaintiffs did not describe conduct by the defendants that was directed at an import market. To the contrary, the defendants’ conspiracy appears to have been directed at controlling the prices they charged for their services in foreign auctions. As the district court aptly observed, the commerce that is the focus of this case is the charging of fixed commissions on the purchase and sale of goods at foreign auctions, not the trade in and subsequent movement of the goods that were purchased and sold.
Id. (quotations and citations omitted). That “some of the goods purchased in those auctions may ultimately have been imported by individuals into the United States” was immaterial to determining if defendants were involved in “import trade or import commerce.” Id. at 395-96. In this respect, the facts here are similar. The alleged conspiracy in this case was directed at commission rates paid to foreign travel agents based outside the United States. That some of the services plaintiffs offered were purchased by United States customers is not dispositive under this inquiry. Defendants were allegedly involved only in unlawfully setting extra-territorial commission rates. Their actions did not directly increase or reduce imports into the United States.
The statutory term “involving” has a precise meaning.11 In Carpet Group, we compared the “import trade or commerce” language with another provision of the statute:
Admittedly, the FTAIA differentiates between conduct that “involves” such [import] commerce, and conduct that “directly, substantially, and foreseeably” affects such commerce. To give the latter provision meaning, the former must be given a relatively strict construction.
227 F.3d at 72. Unlike in Carpet Group, where the defendant association identified itself as an organization of “rug importers,” none of the airline defendants or the IATA self-identifies as an “importer” here. Id. Nor, under the terms of the statute, were defendants “involved” in any of plaintiffs’ “exporting activity.”
Nor do we agree with plaintiffs’ contention that a foreign travel agent‘s access to a computer system based in the United States “transforms” “foreign commerce” into “import commerce.” Again, our focus remains on the conduct of defendants, not plaintiffs, rendering this argument extraneous. But we note that under plaintiffs’ interpretation, a legion of activities transacted by foreign merchants with some connection to instruments in the United States economy — a telephone, a fax machine, an Internet connection — would constitute “import commerce.” Although defendants paid commissions in United States dollars, neither the payments nor their calculations on computers based in the United States are properly considered “imports.” No items or services were brought into the United States by the payments alone. Nor can plaintiffs demonstrate that defendants’ conduct reduced imports of goods or services into the United States. Therefore, defendants were not involved in “import trade or import commerce,” but rather were engaged in “conduct involving trade or commerce (other than import trade or import commerce) with foreign nations.”
As we have stated, the Foreign Trade Antitrust Improvements Act bars plaintiffs’ claim unless defendants’ conduct has “a direct, substantial, and reasonably foreseeable” anticompetitive effect on United States commerce, and that conduct “gives rise” to a Sherman Act claim.12
1.
Plaintiffs allege defendants’ conduct has substantially reduced their business values, forcing at least one member of the putative class out of business. But the District Court found the complaint contained no allegations amounting to any “effect” on United States commerce, failing to satisfy the requirements of
We agree. The “direct, substantial, and reasonably foreseeable effect” test was intended to serve as “a simple and straightforward clarification of existing American law.” H.R. REP. NO. 97-686, reprinted in 1982 U.S.C.C.A.N. 2487-88. The House Judiciary Committee Report accompanying the Foreign Trade Antitrust Improvements Act stated: “Since Judge Learned Hand‘s opinion in United States v. Aluminum Co. of America, 148 F.2d 416, 443-44 (2d Cir.1945), it has been relatively clear that it is the situs of the effects, as opposed to the conduct, that determines whether United States antitrust law applies.” H.R. REP. NO. 97-686, reprinted in 1982 U.S.C.C.A.N. 2490.
The Foreign Trade Antitrust Improvements Act‘s emphasis on the geographical “effect” of allegedly illegal conduct reiterates longstanding antitrust principles.13 Above all, the United States antitrust laws strive to maintain competition in our domestic markets. See 1 PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW 4 (2000) (“The general goal of the antitrust laws is to promote `competition‘....“). Generally, federal antitrust laws do not extend to protect foreign markets from anticompetitive effects and “do not regulate the competitive conditions of other nations’ economies.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 582, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986) (citations omitted); see also Statoil, 241 F.3d at 421 (applying Matsushita to an Foreign Trade Antitrust Improvements Act claim). But it is “well established by now that the Sherman Act applies to foreign conduct that was meant to produce and did in fact produce some substantial effect in the United States.” Hartford Fire Ins., 509 U.S. at 796, 113 S. Ct. 2891.
The geographic target of the alleged anticompetitive conduct matters greatly. As the Court of Appeals for the Second Circuit recently observed, “There is a distinction between anticompetitive conduct directed at foreign markets that only affects the competitiveness of foreign markets and anticompetitive conduct directed at foreign markets that directly affects the competitiveness of domestic markets. The antitrust laws apply to the latter sort of conduct and not the former.” Kruman, 284 F.3d at 393.
Plaintiffs claim that collusion by United States air carriers to fix commissions paid to foreign travel agents satisfies the statutory language. But that allegation does not characterize an “effect” on United States commerce. The alleged collusion is the reason for the lawsuit. It does not designate the geographical effect of defendants’ allegedly illegal activity. That certain activities might have taken place in the United States is irrelevant if the economic consequences are not felt in the United States economy. Fixing the commissions paid foreign travel agents might constitute an illegal conspiracy.14 But this conspiracy only targets the commissions foreign travel agents would receive for work performed outside the United States. United States antitrust laws only apply when a price-fixing conspiracy affects the domestic economy. Cf. Statoil, 241 F.3d at 427-28 (rejecting plaintiffs’ attempt to equate “effect” and “conduct” in this context as “not true to the plain language of the FTAIA” and an overly “expansive reading of the antitrust laws” never intended by Congress). Several antitrust actions have been dismissed on analogous grounds. See, e.g., Matsushita, 475 U.S. at 582 n. 6, 106 S. Ct. 1348 (“The Sherman Act does reach conduct outside our borders, but only when the conduct has an effect on American commerce.“) (citation omitted) In re Copper Antitrust Litig., 117 F. Supp. 2d at 887 (“[I]t is irrelevant that some of defendants’ conduct took place in the United States. It was not the conduct that caused plaintiffs’ injuries.“); Liamuiga Tours v. Travel Impressions, Ltd., 617 F. Supp. 920, 924 (E.D.N.Y.1985) (dismissing a plaintiff service operator‘s claim against an American wholesale tour operator operating in St. Kitts, where all “effects” from the conspiracy were felt outside the United States). Therefore, plaintiffs cannot state a cognizable Sherman Act claim, given the plain text of the Foreign Trade Antitrust Improvements Act.15
Nor need we remand these proceedings to allow plaintiffs to demonstrate “newly discovered effects” on United States commerce. Though they had ample notice of possible deficiencies in their complaint, plaintiffs made no attempt to amend before the District Court ruled on the motion to dismiss. Moreover, the District Court appropriately considered the possible “effects” of defendants’ actions, and how they impacted its jurisdiction. Given these circumstances, we will not grant leave to amend.
2.
Even if plaintiffs identified a “direct, substantial, and reasonably foreseeable” anticompetitive effect on United States commerce, they would need to demonstrate the anticompetitive effect “gives rise to a claim” under the Sherman Act.
Based on the language of Section 2 of the FTAIA, the effect on United States commerce — in this case, 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. That is, Statoil‘s injury must stem from the effect of higher prices for heavy-lift services in the Gulf.
241 F.3d at 427; see also Matsushita, 475 U.S. at 584 n. 7, 106 S. Ct. 1348 (“However one decides to describe the contours of the asserted conspiracy — whether there is one conspiracy or several — respondents must show that the conspiracy caused them an injury for which the antitrust laws provide relief.“). But in Kruman, the Court of Appeals for the Second Circuit, without referencing Statoil, reached the contrary conclusion:
[A] violation of the Sherman Act is not predicated on the existence of an injury to the plaintiff.... Rather than require that the domestic effect give rise to an injury that would serve as the basis for a Clayton Act action, subsection 2 of the FTAIA only requires that the domestic effect violate the substantive provisions of the Sherman Act.
284 F.3d at 399-400. We need not take sides in this dispute. Plaintiffs have failed to allege a “direct, substantial, and reasonably foreseeable effect” on United States commerce.
For these reasons, plaintiffs’ claims are barred by the Foreign Trade Antitrust Improvements Act. Therefore, they may not state a cognizable Sherman Act claim.
V.
Defendants also contend plaintiffs lack standing under United States antitrust laws, a proposition not squarely addressed by the District Court.16 This argument implicates many of the same issues as the jurisdictional analysis under the Foreign Trade Antitrust Improvements Act. And for the reasons noted, we likewise find plaintiffs lack antitrust standing. See Assoc. Gen. Contractors, Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 535-45, 103 S. Ct. 897, 74 L. Ed. 2d 723 (1983) (holding the standing inquiry in antitrust cases is dependent on the finding of subject matter jurisdiction).
Plaintiffs’ injuries occurred exclusively in foreign markets. They are not of the type Congress intended to prevent through the Foreign Trade Antitrust Improvements Act or the Sherman Act. Cf. In re Microsoft Corp. Antitrust Litig., 127 F. Supp. 2d 702, 716 (D.Md.2001) (“a plaintiff who has not participated in the U.S. domestic market may not bring a Sherman Act claim under the FTAIA“). Unlike in Carpet Group, where the plaintiffs’ harm was “inextricably intertwined with the defendants’ wrongdoing,” 227 F.3d at 77 (quotation and citations omitted), the conduct at issue here was not directly related to the United States marketplace.
VI.
Defendant IATA urges us to affirm on the basis of its alleged statutory immunity under Sections 412 and 424 of the Federal Aviation Act,
VII.
For the foregoing reasons we will affirm the judgment of the District Court. The Foreign Trade Antitrust Improvements Act acts as a bar to plaintiffs’ proposed Sherman Antitrust Act class action.