Antitrust Law Daily Act of State doctrine bars claims over Mexican salt distribution
Friday, August 19, 2016

Act of State doctrine bars claims over Mexican salt distribution

By Jeffrey May, J.D.

An antitrust action against Mitsubishi Corporation and a major producer and exporter of solar sea salt products co-owned by Mitsubishi and the Mexican government was dismissed pursuant to the Act of State doctrine. The federal district court in Los Angeles held that the case implicated serious foreign affairs concerns sufficient to trigger the doctrine (Sea Breeze Salt, Inc. v. Mitsubishi Corp., August 18, 2016, Gee, D.).

Distributors of solar sea salt claimed that they were unable to obtain product as a result of the anticompetitive conduct of Mitsubishi and Exportadora de Sal, S.A. de C.V. (ESSA), a joint venture between Mitsubishi and the Mexican government. Mitsubishi held a 49 percent stake in ESSA, while the Mexican government held the remaining 51 percent stake. ESSA and Mitsubishi entered into an exclusive contract that gave Mitsubishi "100% of the distribution rights for ESSA produced salt."

ESSA allegedly refused to sell solar sea salt to plaintiff Innofood, S.A. de C.V., and as a result Innofood was unable to supply plaintiff Sea Breeze Salt, Inc. According to the plaintiffs, ESSA’s alleged price fixing and granting of exclusive rights to Mitsubishi "leads to less variety in the U.S. salt market, as well as less competition and higher prices for United States consumers."

Foreign Sovereign Immunities Act. At the outset, the court ruled that it was not barred from exercising jurisdiction over the claim by the Foreign Sovereign Immunities Act (FSIA). ESSA was a "foreign state" for purposes of sovereign immunity because Mexico owned a 51 percent stake in the company. However, the commercial activity exception to the FSIA applied because ESSA’s acts in Mexico were commercial in nature and caused a "direct effect" in the United States, according to the court. ESSA had operated as a private business for more than 15 years before becoming a joint enterprise in which Mitsubishi had a significant ownership interest. The "direct effects in the United States" requirement was satisfied by the plaintiffs’ allegation that ESSA’s conduct harmed U.S. consumers. The court also noted that there was no intervening act that broke the chain of causation leading from the asserted wrongful act to its impact in the United States.

Act of State doctrine. The court explained that the Act of State doctrine prohibits an action where "(1) there is an official act of a foreign sovereign performed within its own territory; and (2) the relief sought or the defense interposed in the action would require a court in the United States to declare invalid the foreign sovereign’s official act." The plaintiffs challenged an official act of a foreign sovereign performed within its own territory, in the court's view.

ESSA was a "foreign sovereign" and its challenged conduct amounted to "official acts," the court held. The plaintiffs took issue with the exclusive distribution rights granted to Mitsubishi and with ESSA's purported underpricing of salt sold to Mitsubishi. Moreover, the plaintiffs alleged that ESSA "engaged in vertical restraints on trade by means of price discrimination against non-Mitsubishi distributors."

With respect to the second prong of the analysis, the court concluded that resolution of the plaintiffs’ claims would require it to "impugn or question the nobility of a foreign nation’s motivation." It would have to rule on the validity of and motivation behind ESSA’s decisions to grant exclusive rights to Mitsubishi, offer Mitsubishi below-market pricing for its products, and renege on a contract it had reached with Innofood. The plaintiffs had attributed these actions to Mitsubishi’s having "taken advantage of the neglect of some Mexican government officials while actively corrupting or subverting others." The court noted that in order for the plaintiffs’ antitrust claims to succeed, they would have to prove the participation of ESSA, a joint-venture majority controlled by the Mexican government, in a conspiracy to restrain trade. Moreover, the plaintiffs sought damages in excess of $600 million subject to trebling and injunctive relief. The court warned that allowing the suit to proceed could either pave the way for the filing of other similar lawsuits against Mexican state-sponsored enterprises or give the Mexican government leverage in any bilateral negotiations with the United States.

"Commercial exception." The Ninth Circuit had not decided whether to adopt a commercial exception to the Act of State doctrine, and the court refused to apply it in this case. The court called the plaintiffs’ "arguments regarding a supposed commercial exception to the Act of State Doctrine unpersuasive."

Private party protection. The court also ruled that Mitsubishi, a private entity, could invoke the Act of State defense. "[T]to the extent that Mitsubishi’s actions are inextricably intertwined with those of ESSA, allowing this action to proceed against Mitsubishi would be tantamount to an end-run around the Act of State Doctrine," the court explained.

The case is No. 2:16-cv-02345-DMG-AGR.

Attorneys: Louise D. Nutt (Glaser Weil Fink Howard Avchen & Shapiro LLP) for Sea Breeze Salt, Inc. and Innofood, S.A. De C.V. Craig A. Benson (Paul, Weiss, Rifkind, Wharton & Garrison LLP) and Laura W. Brill (Kendall Brill & Kelly LLP) for Mitsubishi Corp. and Mitsubishi International Corp.

Companies: Sea Breeze Salt, Inc.; Innofood, S.A. De C.V.; Mitsubishi Corp.; Mitsubishi International Corp.

MainStory: TopStory Antitrust CaliforniaNews

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