Foreign Distributors' Antitrust Suit OKed

November 4, 2003
Connecticut Law Tribune, Legal Times, Legal Intelligencer, November 2003, by Thomas B. Sheffey
Overseas price-fixing claims against Union Carbide allowed
U.S. District Court in Hartford is the scene of a novel legal development--with foreign companies suing American suppliers for price fixing in world commerce.
Until recently, corporate lawyers in the United States had little reason to worry about foreign antitrust plaintiffs heading to U.S. courts with price-fixing complaints. As a general rule, only the largest and boldest foreign companies went on the offensive here.
But U.S. District Judge Alfred V. Covello recently ruled that three small companies based in India and Singapore could sue Union Carbide and its parent company, Dow Chemical, for violating the Sherman Antitrust Act. The plaintiffs contend that price-control strategies, hatched in Union Carbide's Danbury headquarters, to control chemical sales in India were designed to protect prices on the U.S. market.
The suit stems from Union Carbide's 1984 gas leak disaster in Bhopal, India, which killed 3,800 people and injured another 200,000. In the aftermath, Indian authorities attempted to criminally prosecute Union Carbide's CEO for murder. In such an atmosphere, brand-name recognition was the last thing Union Carbide needed in its ongoing efforts to market chemical products in India.
The company turned to three distributors in Singapore and India--MM Global Services, Mega Vista Solutions and Mega Visa Marketing, which traded a wide range of bulk chemicals used in food, drug, manufacturing and agriculture.
According to the three distributors' complaint, the once-promising relationship, formed in 1987, slowly deteriorated. By 2001, when Union Carbide and Dow Chemical merged, the foreign plaintiffs claim they were being squeezed by minimum resale price requirements imposed to keep sales in India from eroding U.S. price levels. If the distributors negotiated a deal below Union Carbide's minimum prices, the U.S. company would refuse to ship, with disastrous results, the distributors contend.
Shrinking Globe
In the U.S., price fixing is illegal under the Sherman Antitrust Act. So the U.S. is where the distributors sued, also alleging contract violations and multiple business torts, with combined damages well over $100 million.
Covello rejected defense arguments that the foreign companies had no jurisdiction to sue in U.S. courts, because any possible damage occurred abroad.
In doing so, the judge relied on international e-mail correspondence to recognize a case against Union Carbide and Dow, on grounds they had arguably "made pricing decisions for the Indian market based on anticipated domestic consequences."
Rebuffing the defense of no U.S. impact, Covello found the plaintiffs have "established that their claim involves a direct, substantial and reasonably foreseeable effect on the domestic commerce of the United States." The court relied on declarations of the distributors' counsel, Richard S. Taffet, of New York's Thelen, Reid & Priest, which were exhibits in the record, stating that Union Carbide and Dow "refused orders placed by the plaintiffs because of domestic market pricing concerns[,] examined competitive pricing during world strategy meetings [and] considered the firmness of domestic prices before deciding whether to meet competitive pricing in the India market." The plaintiffs also are represented by Robert M. Langer, of Wiggin & Dana's Hartford office.
Along with William L. Webber of the Washington, D.C. offices of Morgan, Lewis & Bockius, Union Carbide is represented by Craig A. Raabe and Edward J. Heath of Hartford-based Robinson & Cole.
The defense argued vigorously that the distributors lacked jurisdiction, due to the Foreign Trade and Antitrust Improvements Act of 1982, which amends the Sherman Act and bars claims merely "involving" foreign commerce, unless they have a "direct, substantial and reasonably foreseeable effect" on U.S. commerce.
Since the prices only were charged to end-users in India, any agreement "could have at most an indirect effect--not the requisite 'direct' effect--on U.S. domestic commerce," the defendants argued. They cited the 2002 case of Kruman v. Christie's International, the leading U.S. 2nd Circuit Court of Appeals case, for the point that it's the location of "the effect and not the location of the conduct that determines whether the antitrust laws apply."
But Covello found that, because the plaintiffs' complaint "alleges a per se violation of the Sherman Act, the anticompetitive effect of the alleged conduct is presumed."
Covello concluded the law of India applied to the plaintiffs' common law business tort claims--unfair competition, interference with contractual relationships and interference with business expectancies, but ruled that Indian law does not provide a similar basis for relief. Likewise, claims under the Connecticut Unfair Trade Practices Act were dismissed for lack of an Indian counterpart.