ANIMAL SCIENCE PRODUCTS, INC. et al v. CHINA NATIONAL METALS & MINERALS IMPORT & EXPORT CORPORATION et al

Filing 163

OPINION. Signed by Judge Kevin McNulty on 7/24/14. (DD, )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
ANIMAL SCIENCE PRODUCTS, INC.,
and RESCO PRODUCTS, INC.,

Civ. No. 2:05-cv-04376 (KM)

Plaintiffs,
v.

OPINION

CHINA MINMETALS CORP., et al.,
Defendants.

McNulty, District Judge
TABLE OF CONTENTS
TABLES OF PARTIES, CLAIMS AND MOTIONS

3

INTRODUCTION

5

I. Procedural History

6

II. Factual Background

8

A. Plaintiffs
B. Defendants
C. Summary of the Claims

8
9
10

III. Legal Standards

12

A. Sherman Act
B. Clayton Act
C. Motion to Dismiss
1. Rule 12(b)(6) standards in general
2. Dismissal based on lack of antitrust standing
3. Dismissal based on Foreign Trade Antitrust
Improvements Act (“FTAIA”)
D. Motion to Compel Arbitration

1

12
13
16
16
18
19
21

IV. Discussion

.

A. Failure to State a Claim Injury, Antitrust
Standing and the Direct Purchaser Rule
1. Antitrust standing in general
2. Antitrust injury and causation
3. Antitrust purchaser standing
a. Statutory standing and the appropriate plaintiff
b. The direct purchaser requirement as a bright-line
standing rule
4. Analysis of Resco’s direct purchaser standing
a. Class members’ standing not attributable to Resco
b. Direct purchases from Defendants
c. Direct purchases from Chinese “co-conspirators”
d. Resco’s acquisition of Worldwide Refractories
e. Assignment of claims from Possehl to Resco
i. The face of the complaint and the assignment.
ii. Allegations in other pleadings
5. Dismissal with or without prejudice

23

—

.

B. Motion to Compel Arbitration
C. Motions to Dismiss under the FTAIA

.

23
25
30
32
32
37
40
40
41
44
47
48
48
55
58
59
65
69

CONCLUSION

2

TABLES OF PARTIES, CLAIMS AND MOTIONS
Against

Claim/Statute

Brought by

Clayton
Antitrust Act,
15 U.S.C. § 4
(for treble
damages)
seeking, inter
alia, a decree
that Defendants
have entered
into an
“unlawful
combination
and conspiracy
[that is] an
unreasonable
restraint of
trade or
commerce in
violation of
Section 1 of the
Sherman Act,
15 U.S.C. § 1”
AC ¶j 1, 6,
Prayer for Relief

Resco on behalf of itself and the
direct purchasers class (“afl
persons or entities who have
directly purchased magnesite or
magnesite products
manufactured by any Defendant
or their co-conspirators from
September 2001 to the date of the
cartel is ended by injunction or
otherwise”). AC ¶ 32.

Clayton
Antitrust Act,
15 U.S.C. § 16
(for injunctive
relief)

Animal Science on behalf of itself All Defendants
(same as above)
and indirect purchasers (“all
persons or entities who have
purchased magnesite or
magne site products
manufactured by any Defendant
for delivery in the United States”)
AC 31.

Defendants moving to
dismiss (ECF 98, 99) and to
compel arbitration (ECF 37):
1. china Minmetals
Corporation
2. China National Minerals Co.,
Ltd.
(the “Minmetals Defendants”)
3. Sinosteel Corporation,
4. Sinosteel Trading Company,
5. Liaoning Jiayi Metals &
Minerals Co, Ltd.
(the “Sinosteel Defendants”)

Defendants moving to
compel arbitration (ECF 37):
6. Haicheng Houying Corp, Ltd.
7. Haicheng Huayu Group
Import & Export Co. Ltd.
(the “Haicheng Defendants”)
Inactive Defendants:
Xiyang Group, Xiyang (Pacific)
Import & Export Ltd.
Company, Xiyang Refractory
Materials Ltd. Company,
Xiyang Fireproof Material Co.
Ltd., Liaoning Foreign Trade
General Corporation, Liaoning
Jinding Magnesite Group,
Dalian Golden Sun Import &
Export Corp., Haicheng Pailou
Magnesite Ore Co. Ltd.,
Yingkou Huachen (Group) Co.
Ltd.

3

“Co-conspirators” (identified in Complaint but not named as Defendants)
Shangawa Rongyuan Refractories Co., Ltd.
Yingkou Sanhua Refractory Materials Co., Ltd.
Shenyang Metals and Minerals
CITIC Trading.

Motions

Brought on behalf of

Motion to Dismiss

The Sinosteel Defendants:
Sinosteel Corporation, Sinosteel Trading Company,
and Liaoning Jiayi Metals & Minerals Co, Ltd.

(Docket No. 98)
Motion to Dismiss
(Docket No. 99)

The Minmetals Defendants:
China Minmetals Corp. and China National
Minerals Import and Export Corp.

Motion to Compel
Arbitration (Docket No.
37)

The Minmetals, Sinosteel, and Haicheng
Defendants (collectively, the “Seven Defendants”):
China Minmetals Corp., China National Minerals
Import and Export Corp., Sinosteel Corporation,
Sinosteel Trading Company, Liaoning Jiayi Metals
& Minerals Co, Ltd., Haicheng Houying Corp, Ltd.,
and Haicheng Huayu Group Import & Export Co.
Ltd.

4

INTRODUCTION

Plaintiffs seek to represent a putative class of U.S. purchasers of
magnesite. They allege that sixteen Chinese corporations have conspired to fix
prices and control the supply of magnesite and magnesite products exported to
the United States. As a result, they say, magnesite prices have remained above
market levels since at least April 2000. Defendants’ cartel is alleged to
constitute a per se violation of § 1 of the Sherman Act. Plaintiff Resco Products,
Inc., contends that it and similarly situated direct purchasers suffered
damages amounting to $58.9 million, trebled pursuant to § 4 of the Clayton
Act. Plaintiff Animal Science Products, Inc., on behalf of indirect purchasers,
seeks injunctive relief pursuant to § 16 of the Clayton Act.
This matter had a protracted history in this Court, interrupted by a
reversal and remand by the Court of Appeals, before it was reassigned to me in
August 2012. Currently before me are (1) two motions to dismiss the amended
complaint for failure to state a claim, and (2) a motion to compel arbitration. I
here find that Plaintiff Resco has not plausibly pleaded facts sufficient to
establish its antitrust standing as a direct purchaser. Consequently, I will
grant the motions to dismiss the Amended Complaint, without prejudice.
In light of that dismissal, I will not now determine whether the US
antitrust laws apply to Defendants’ alleged foreign anti-competitive activity
under the Foreign Trade Antitrust Improvements Act. I do briefly discuss that
issue to provide guidance in the event that Plaintiffs file a Second Amended
Complaint. Likewise, on the current state of the record, I cannot find that
Plaintiffs must arbitrate their claims against Defendants, but again I discuss
the issue briefly, in anticipation of a possible amended pleading.
Many of the defects in the Amended Complaint trace back to the
antitrust standing requirement that the plaintiff (or the entity from which
plaintiff obtained its claims by assignment) be a direct purchaser. The
Complaint alleges direct purchases by an assignor, Possehl (US), but it does so
in self-contradictory terms, and without supporting facts (such as, for example,
the identification of even a single concrete purchase). It should be possible in a
subsequent amended pleading to identify such purchase! sale transactions,
and the agreements under which they were made. If that is done, the Court
may determine whether Possehi (US) was a direct purchaser. The Court may
also then ascertain whether such agreements contained arbitration clauses.
(Defendants have made a suggestive demonstration that certain related
agreements did contain such clauses.) Any subsequent pleading should also
furnish a specific factual basis to assess the applicability of the “import
exception” or the “effects exception” of the FTAIA. The relevant facts are, or
should be, available to Plaintiffs, and they must be pleaded before I will permit
this complex and expensive litigation to proceed.

5

I.

Procedural History

The original complaint, filed on September 7, 2005, see ECF No. 1,
named as Defendants sixteen Chinese entities. It also named one U.S.
subsidiary, Minmetals, Inc. (“Minmetals USA”), alleged to be a New Jersey
corporation with its principal place of business in Bergen County. Id. ¶ 10.
After Defendants failed to answer the complaint or move to dismiss, in May
2007 the Clerk of Court began making entries of default for failure to appear
against the Chinese Defendants. On December 14, 2007, Plaintiffs moved for
Default Judgment. See Motion for Default Judgment as to Defaulting
Defendants, Dec. 14, 2007, ECF No. 28 (MDJ, 28). Also on December 14, 2007,
Defendant Minmetals USA moved to dismiss the Complaint. See ECF No. 27.
Several of the defaulting Chinese Defendants responded to Plaintiffs’ Motion for
Default Judgment. Relying on facts presented in Plaintiffs’ moving papers,
seven of the Chinese Defendants (collectively, the “Seven Defendants”) filed a
Motion to Compel Arbitration. See Motion of Seven Defendants to Compel
Arbitration, Feb. 5, 2008, ECF No. 37 (“MTCA, 37”). Those Seven Defendants
comprise the following: China Minmetals Corp., China Nat’l Minerals Co.,
(together the “Minmetals Defendants”),’ Sinosteel Corp., China Metallurgical
Import & Export Corp. (subsequently renamed Sinosteel Trading Company),
Liaoning Jiayi Metals & Minerals Co., Ltd, (together, the “Sinosteel
Defendants”), Haicheng Houying Corp., Ltd., and Haicheng Huayu Group
Import & Export Co. Ltd. (Huaziyu), (together, the “Haicheng Defendants”).
In September 2008, the case was reassigned to Chief Judge Garrett E.
Brown, Jr. In October 2008, Judge Brown heard oral argument on the three
pending motions (Minmetals’ Motion to Dismiss, Plaintiffs’ Motion for Default
Judgment and the Seven Defendants’ Motion to Compel Arbitration). See ECF
No. 72; docket entry dated October 6, 2008. In December 2008, Judge Brown
terminated without prejudice the three pending motions and dismissed the
original complaint. ECF No. 74. The grounds for dismissal, raised sua sponte
by the Court, were that the Court lacked subject matter jurisdiction to
adjudicate the dispute pursuant to the Foreign Trade Antitrust Improvements
Act. See Animal Science Prods., Inc. v. China Nat’l Metals & Minerals Imp. & Exp.
Coip., 596 F. Supp. 2d 842 (D.N.J. 2008).
On March 30, 2009, Plaintiffs filed an Amended Complaint, ECF No. 77
(cited as “AC.” Herein, “Amended Complaint” and “Complaint,” unless specified
otherwise, are used interchangeably to refer to the amended complaint.) That
Amended Complaint included more specific allegations and proofs to support
the antitrust allegations, as instructed by the District Court. See Animal
Science Prods., Inc., 596 F. Supp. 2d at 881. A motion to dismiss the Amended
These two Defendants were erroneously named in the Complaint as China
National Metals & Minerals Import & Export Corp., and China National Minerals
Import & Export Corporation, respectively.
1

6

Complaint was then filed by two groups of Defendants, the Minmetals
Defendants and the Sinosteel Defendants. See Motion to Dismiss by Sinosteel
Defendants, June 26, 2009, ECF No. 98 (“Sinosteel MTD, 98”); Motion to
Dismiss by Minmetals Defendants, June 26, 2009, ECF No. 99 (“Minmetals
MTD, 99”).
In a 220-page opinion issued in April 2010, the district court engaged in
comprehensive fact-finding, determined that the FTAIA deprived it of subject
matter jurisdiction, and dismissed the Amended Complaint. See Animal Science
Prods. Inc., v. China Nat’l Metals & Minerals Imp. & Exp. Corp., 702 F. Supp. 2d
320 (D.N.J. 2010); ECF Nos. 112, 113. Plaintiffs appealed.
Noting that it was overturning existing precedent, the United States
Court of Appeals for the Third Circuit held that the FTAIA imposed substantive
limits on antitrust claims, but did not raise a jurisdictional bar. It vacated
Judge Brown’s decision and remanded the case. See Animal Science Prods, Inc.
v. China Minmetals Corp., 654 F.3d 462, 467-68 (3d Cir. 2011); ECF Nos. 118119. In December 2011 the case was reinstated and assigned to Judge Salas.
In January 2012, Judge Salas administratively terminated the case pending
the outcome of Defendants’ petitions to the Supreme Court for a writ of
certiorari. ECF No. 127. The cert petitions of the Minmetals Defendants and the
Sinosteel Defendants were denied in 2012. See China Minmetals Corp. v. Animal
Sci. Products, Inc., 132 S. Ct. 1744 and Sinosteel Corp. v. Animal Sci. Products,
Inc., 132 5. Ct. 174.
In April 2012, Judge Salas reopened the case. She stated that she would
consider first the Seven Defendants’ Motion to Compel Arbitration. ECF No.
131. On that Motion Judge Salas permitted supplemental briefing, which
proceeded through the summer. See ECF Nos. 133 142.
—

Meanwhile, on August 1, 2012, the case was reassigned to me. ECF No.
144. Currently before me are the Motions of the Sinosteel Defendants and the
Minmetals Defendants to Dismiss the Amended Complaint, on remand from
the Court of Appeals, as well as the 2008 Motion of Seven Defendants to
2
Compel Arbitration, as supplemented on remand. Because it is inextricably
As to Plaintiffs’ Motion for Default Judgment and Defendant Minmetals USA’s
Motion to Dismiss, Judge Brown’s Order of December 30, 2008, ECF No. 74, granted
the Motion of Minmetals USA to Dismiss Plaintiffs’ Complaint and denied Plaintiffs’
Motion for Default Judgment. See id. Minmetals USA was not named as a Defendant
in the Amended Complaint and was terminated as a party on April 1, 2009. Plaintiffs
have not sought default judgment against the Defendants who have failed to move or
respond to the Amended Complaint. As to any future motions for default judgment, “it
remains for the court to consider whether the unchallenged facts constitute a
legitimate cause of action, since a party in default does not admit mere conclusions of
law.” DirecTV, Inc. v. Decroce, 332 F. Supp. 2d 715 (D.N.J. 2004) (reversed and
remanded on other grounds). Accord Basara v. CBRL Group, Inc., 2012 U.S. Dist.
2

7

intertwined with the merits of those motions, I am raising and considering sua
sponte the issue of Plaintiffs’ statutory standing to bring this antitrust action.
Plaintiffs’ antitrust standing was raised and addressed in the Parties’ briefs in
connection with the Motion to Compel Arbitration.
In fairness to the parties, who may have limited the scope of their
briefing in response to Judge Salas’s limitation of the issues, I sua sponte
invited supplemental briefing on that antitrust standing issue. On September
9, 2013, both sides filed supplemental briefs on antitrust standing. ECF Nos.
155, 156.
II.

Factual Background
A. Plaintiffs

Plaintiffs’ pleadings provide little information about the putative class
representatives. Plaintiff Animal Science Products (“ASP”), said to represent
“indirect purchasers,” is a “Texas corporation with its principal place of
business in Nacogdoches, Texas.” AC ¶ 10. The Declaration of Animal Science
Products submitted in Support of its Motion for Default Judgment, December
14, 2007, ECF No. 28-3 (“ASP Deci. MDJ, 28-3”) states that “Animal Science
Products manufactures and distributes feed additives and packaged goods. We
serve all facets of the feed industry with feed additives, micro ingredients, and
premixes, as well as the poultry and swine packaged goods markets. Since
2000, we have purchased magnesite in the form of magnesium oxide produced
and sold by defendants, which we use in several of our products.” Id. ¶J 5-6.
Plaintiff Resco Products, Inc. (“Resco”), the putative class representative
for “direct purchasers,” is a “Pennsylvania corporation with its principal place
of business in Pittsburgh, Pennsylvania.” AC ¶ 11. In a certification, Resco
provides the only description of its business: “In March 2006, Resco purchased
[which] manufactures refractory materials. It
Worldwide Refractories, Inc.
offers basic products for the steel and cement industries. The company
manufactures both dolomite and magnesite-enriched dolomitic bricks, rams,
and mixes.” Certification of Resco Products, Inc. in Support of its Motion for
Default Judgment, Class Damages, and Injunctive Relief, December 14, 2007,
ECF No. 28-4 (“Resco Cert. MDJ, 28-4”).
.

.

.

Resco’s Certification also explains that it “purchases magnesite from
China principally through brokers,” and names one such broker as Possehi,
Inc. (“Possehi (US)”) Id. ¶J 7-8. The Complaint, too, refers to Possehi, Inc.,
which allegedly “has assigned to Resco its rights, title, and interest in and to all
causes of action it may have relating to magnesite products brokered by
LEXIS 92376 (D.N.J. July 2, 2012). Accordingly, any potential issues of default will be
set aside until the viability of Plaintiffs’ claim for relief is established.

8

Possehi, Inc. and subsequently delivered to Resco during the relevant period.
Possehi, Inc. purchased magnesite and magnesite products directly from
defendants during the class period and shipped those products to Resco.” AC ¶
11. Thus, Resco’s rights apparently are alleged to arise by virtue of an
assignment from Possehi (US). Possehi (US), however, is not a party to the
action and Plaintiffs’ pleadings provide no further information about Possehi
(US).

B. Defendants
As noted above, the Amended Complaint names sixteen Chinese entities
as Defendants, but only the “Seven Defendants” (comprising the Minmetals
Defendants, the Sinosteel Defendants, and the Haicheng Defendants), have
responded to the Complaint. I therefore focus on them.
Plaintiffs allege that the Minmetals Defendants are Chinese state-owned
trading companies based in Bejing. AC ¶ 12. China Minmetals is alleged to be
“a conglomerate that includes the trading of metals and minerals” and
“conducts business with and through its wholly owned subsidiary and North
American Headquarters, China Minmetals U.S.A., Inc., which maintains its
3
principal place of business in Leonia, Bergen County, New Jersey.” China
National Minerals Import and Export Co. is alleged to be “a subsidiary and
affiliate of China Minmetals.” Id. ¶ 13. The Minmetals Defendants are movants
in the Motion to Compel Arbitration, see MTCA, 37, and have moved to dismiss
the Amended Complaint, see Minmetals MTD, 99.
Plaintiffs allege that Sinosteel Corp. “is a direct or indirectly state-owned
multinational conglomerate that includes metals and minerals production and
trading.” AC ¶ 18. Sinosteel Trading Company (“Sinosteel Trading”) (f/k/a
China Metallurgical Import & Export Corp.), is alleged to be a “wholly-owned
subsidiary of Sinosteel Corp,” id. ¶ 19, while Liaoning Jiayi Metals & Minerals
Co., Ltd, (“Liaoning Jiayi”) is alleged to be “not state-owned.” Id. ¶ 20. The
Sinosteel Defendants are movants in the Motion to Compel Arbitration, see
MTCA, 37, and have moved to dismiss Plaintiffs’ Complaint, see Sinosteel MTD,
98.
The Complaint alleges that both of the Haicheng Defendants, Haicheng
Houying Corp., Ltd., (“Haicheng Houying”) and Haicheng Huayu Group Import
& Export Co. Ltd. (Huaziyu) (“Haicheng Huayu”) are “not state-owned” and are
producers and exporters of magnesite. See AC ¶J 24-25. The Haicheng
Defendants are movants in the Motion to Compel Arbitration. See MTCA, 37.
The Defendants who have not answered or moved are (1) Xiyang Group,
However, allegations against Minmetals USA were dismissed in 2008 and it has
not been named as a defendant in the Amended Complaint. See n.2 supra.
3

9

(2) Xiyang (Pacific) Import & Export Ltd. Company (“Xiyang Pacific”), (3) Xiyang
Refractory Materials Ltd. Company (“Xiyang Refractory”), (4) Xiyang Fireproof
Material Co. Ltd. (“Xiyang Fireproof”), (5) Liaoning Foreign Trade General
Corporation (“Liaoning Trade”), (6) Liaoning Jinding Magnesite Group
(“Liaoning Jinding”), (7) Dalian Golden Sun Import & Export Corp. (“Dalian
Golden Sun”), (8) Haicheng Pailou Magnesite Ore Co. Ltd. (“Haicheng Pailou”),
and (9) Yingkou Huachen (Group) Co. Ltd. (“Yingkou Huachen”). (Collectively,
they are referred to as the “Inactive Defendants”).
The Complaint alleges that Defendants’ “co-conspirators include [1]
Rongyuan Magnesite Corporation of China, subsequently renamed Shangawa
Rongyuan Refractories Co., Ltd., [2] Yingkou Sanhua Refractory Materials Co.,
Ltd., subsequently renamed Yingkou Wonjin Refractory Material Co., Ltd., [3]
Shenyang Metals and Minerals, and [41 CITIC Trading.” Id. ¶ 28. The “co
conspirators,” however, are not named as defendants, and there are no specific
allegations as to their acts.
C. Summary of the Claims
Plaintiffs allege that “[e]ach of these Defendants and its co-conspirators
has colluded with each other to restrain competition by, among other things,
setting artificial prices pursuant to illegal agreements among these
competitors. These horizontal practices were designed to, and in fact did, have
a substantial and adverse impact in the United States.” AC ¶ 29. Specifically,
according to Plaintiffs, Defendants conspired to form two Chinese Magnesite
4
price-fixing groups in 2000. The first, “Jiayun Magnesite Export Group”
(“Jiayun EG”) allegedly included inactive defendants Xiyang Refractory
Material, Yingkou Hachen, Dalian Golden Sun and Liaoning Foreign Trade. Id.
¶ 52. The second group, “Huaxia Magnesia Products Export Group (“Huaxia
EG”) included active Defendants Liaoning Jiayi (“Jiayi”) and Haicheng Huayu
(“Huayu”) and “co-conspirators” Shenyang Metals & Minerals (“Shenyang”) and
CITIC Trading (“CITIC”). According to Plaintiffs, Jiayun EG and Huaxia EG
“collectively represented more than 70% of the export volume of magnesite in
China.” Id. ¶ 54. In 2001, these two Export Groups formed “a single, unified
group under the name ‘Chinese Magnesite Export Association”’ (“CMEA”). Id. ¶
57. Plaintiffs’ allege that CMEA “aimed to provide strict management control of
all sales, production schedules of individual producers and export prices for
Chinese magnesite, including exports to the United States.” Id.
The Amended Complaint then alleges that in 2003 the original CMEA
Cartel conducted several meetings with the Defendants and other exporters
According to the Complaint, magnesite is the naturally occurring carbonate
form of magnesium. One variety (dead-burned magnesite, or “DBM”) is used to line
metallurgical or refractory furnaces. Other varieties have a variety of other
applications. AC ¶11 4 1-45.
10

during which the Cartel agreed that it should be established “under the name
‘China Magnesite Forum’ and established goals of restraining competition and
establishing limits on export supply in order to maintain and increase prices.”
Id. ¶ 59. Thereafter, between 2003 and 2007, various members of the Cartel
held meetings to discuss and determine price increases “including [on] exports
to the United States.” See AC ¶J 58-64. Specifically, Plaintiffs allege that
During the period of the charged combination and
conspiracy, Defendants and their co-conspirators have
in
participated in meetings and conversations
which the export prices, production, and foreign
markets for magnesite and magnesite products were
discussed and agreed upon. At their meetings,
Defendants and others agreed to and did eliminate,
suppress, and limit competition by, among other
things:
.

.

.

(a) discussing the production schedules and export
prices of magnesite and magnesite products
including for the U.S.;
(b) agreeing to control the supply of magnesite and
magnesite products for export to the U.S. and
elsewhere;
(c) agreeing to increase and maintain export prices
of magnesite and magnesite products to the U.S.
and elsewhere[.]
AC ¶ 67. As a result of Defendants’ conspiratorial activities, Plaintiffs allege,
“(a) [t]he price of magnesite and magnesite products purchased by Plaintiffs
(and the plaintiff classes) has been fixed, raised, maintained and stabilized at
artificial and non-competitive levels;” and “(b) Competition in the sale of
magnesite and magnesite products has been restrained.” Id. ¶ 75.
Plaintiffs maintain that the Defendants have been able to achieve these
price increases despite the fact that they do not control 100 percent of the
magnesite market “because the Defendant producers have the competitive
advantage of lower costs than their competitors” and “because China has
employed a fixed currency exchange rate which undervalues the Yuan, making
Chinese exports of magnesite and magnesite products to the United States
relatively less expensive” than other nations’ magnesite exports. Id. ¶ 69.

11

III.

Legal Standards
A. Sherman Act

The Sherman Anti-Trust Act declares “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
to be illegal.” 15 U.S.C. §
1.
.

.

.

The Sherman Act was designed to be a comprehensive
charter of economic liberty aimed at preserving free
and unfettered competition as the rule of trade. It rests
on the premise that the unrestrained interaction of
competitive forces will yield the best allocation of our
economic resources, the lowest prices, the highest
quality and the greatest material progress, while at the
same time providing an environment conductive to the
preservation of our democratic political and social
institutions. But even were that premise open to
question, the policy unequivocally laid down by the Act
is competition. And to this end it prohibits ‘Every
contract, combination or conspiracy, in restraint of
trade or commerce among the several States.’
Although this prohibition is literally all-encompassing,
the courts have construed it as precluding only those
contracts or combinations which ‘unreasonably’
restrain competition.
Northern Pacific. Ry. Co. v. United States, 356 U.S. 1, 4-5 (1958) (citations
omitted).

“In order to sustain a cause of action under § 1 of the Sherman Act, the
plaintiff must prove: (1) that the defendants contracted, combined, or conspired
among each other; (2) that the combination or conspiracy produced adverse,
anti-competitive effects within relevant product and geographic markets; (3)
that the objects of and the conduct pursuant to that contract or conspiracy
were illegal; and (4) that the plaintiff was injured as a proximate result of that
conspiracy.” Martin B. Glauser Dodge Co. v. Chrysler Corp., 570 F.2d 72, 8 1-82
(3d Cir. 1977). Accord Howard Hess Dental Laboratories Inc. v. Derttsply Int’l,
Inc., 602 F.3d 237, 253 (3d Cir. 2010) (“A plaintiff asserting a Section 1 claim.
must allege four elements: “(1) concerted action by the defendants; that
produced anti-competitive effects within the relevant product and geographic
markets; (3) that the concerted actions were illegal; and (4) that it was injured
as a proximate result of the concerted action.”) (citing Gordon v. Lewistown
Hosp., 423 F.3d 184, 207 (3d Cir. 2005)); cfFranco v. Connecticut Gen. Life Ins.
12

Co., 818 F. Supp. 2d 792, 829 (D.N.J. 2011) (“Pleading a colorable Sherman
Act section 1 claim requires a plaintiff to allege (1) an agreement (2) imposing
an unreasonable restraint of trade within a relevant product market and (3)
resulting in antitrust injury, that is “injury of the type the antitrust laws were
intended to prevent and
that flows from that which make defendants’ acts
unlawful.”).
...

“The existence of an agreement is the hallmark of a Section 1 claim.
The
Liability is necessarily based on some form of concerted action.
agreement, of course, must pertain to some unlawful conduct within the
meaning of the antitrust laws. To establish liability under section 1, a plaintiff
must demonstrate that the challenged practice imposed an unreasonable
restraint on trade. The illegality of the restraint may be demonstrated in one of
two ways: under the per se standard or under a rule of reason analysis.”
Franco, 818 F. Supp. 2d at 829-30 (D.N.J. 2011) (internal citations and
quotations omitted). “While the rule of reason typically mandates an elaborate
inquiry into the reasonableness of a challenged business practice, there are
certain agreements or practices which because of their pernicious effect on
competition and lack of any redeeming virtue are conclusively presumed to be
unreasonable. Such plainly anticompetitive agreements or practices are
deemed to be illegal per Se.” United States v. Brown Univ. in Providence in State
of R.I., 5 F.3d 658, 669 (3d Cir. 1993) (internal quotations and citations
omitted). Accord In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 316 (3d Cir.
2010) (“Judicial experience has shown that some classes of restraints have
redeeming competitive benefits so rarely that their condemnation does not
require application of the full-fledged rule of reason.
Once a practice has
been found to fall into one of these classes, it is subject to a ‘per se’ standard.”)
The types of “agreements or practices which because of their pernicious effect
on competition and lack of any redeeming virtue are conclusively presumed to
be unreasonable and therefore illegal without elaborate inquiry as to the
precise harm they have caused or the business excuse for their use
are
price fixing, division of markets, group boycotts, and tying arrangements.” N.
Pac. Ry. Co., 356 U.S. at 5 (1958). Accord Arizona v. Maricopa County Med. Soc.,
457 U.S. 332, 345 (1982); Deutscher Tennis Bund v. ATP Tour, Inc., 610 F.3d
820, 830 (3d Cir. 2010) (“Some categories of restraints, such as horizontal
price-fixing and market allocation agreements among competitors, ‘because of
their pernicious effect on competition and lack of any redeeming virtue are
conclusively presumed to be unreasonable.”’) (quoting Brown Univ. in
Providence in State of R.I., 5 F.3d at 669)); In re Ins. Brokerage, 618 F.3d at 316
(“Paradigmatic examples [of per se illegal restraints] are ‘horizontal agreements
among competitors to fix prices or to divide markets.”) (quoting Leegin Creative
Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877, 886 (2007)).
.

.

.

.

.

.

.

.

.

B. Clayton Act
Section 4 of the Clayton Act, 15 U.S.C. § 15, provides “any person who
13

shall be injured in his business or property by reason of anything forbidden in
the antitrust laws may sue therefor in any district court of the United States in
the district in which the defendant resides or is found or has an agent, without
respect to the amount in controversy, and shall recover threefold the damages
by him sustained, and the cost of suit, including a reasonable attorney’s fee.”
Thus, § 4 broadly defines “the class of persons who may maintain a private
damage action under the antitrust laws,” and “a literal reading of the statute is
broad enough to encompass every harm that can be attributed directly or
indirectly to the consequences of an antitrust violation.” Associated General
Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S.
519, 529 (1983) (“AGC”). Accord Warren Gen. Hosp. v. Amgen Inc., 643 F. 3d 77,
provides a private right of
80 (3d Cir. 2011) (“Section 4 of the Clayton Act.
action for ‘any person who shall be injured in his business or property by
reason of anything forbidden in the antitrust laws.”) (quoting 15 U.S.C § 15(a)).
.

.

Federal courts have long recognized that, despite its expansive language,
the Clayton Act’s damages remedy is not limitless. As the Supreme Court
observed:
the lower federal courts have been virtually
unanimous in concluding that Congress did not intend
the antitrust laws to provide a remedy in damages for
all injuries that might conceivably be traced to an
antitrust violation.
An antitrust violation may be
expected to cause ripples of harm to flow through the
Nation’s economy; but despite the broad wording of § 4
there is a point beyond which the wrongdoer should
not be held liable. It is reasonable to assume that
Congress did not intend to allow every person
tangentially affected by an antitrust violation to
maintain an action to recover threefold damages for
the injury to his business or property.
.

.

.

AGC, 459 U.S. at 534-535 (internal quotations and citations omitted). Cf Blue
Shield of Virginia v. McCready, 457 U.S. 465, 477 (1982) (“the unrestrictive
language of the section, and the avowed breadth of the congressional purpose,
cautions us not to cabin § 4 in ways that will defeat its broad remedial
objective. But the potency of the remedy implies the need for some care in its
application.”).

As discussed in detail below, see infra § IV.A, there is no precise formula
for triggering the Clayton Act’s treble damages remedy. In general, however, an
antitrust plaintiff must establish that its injuries are not “too remote from the
violation and the purposes of the antitrust laws to form the predicate for a suit
under § 4.” McCready, 457 U.S. at 477. See also Alberta Gas Chemicals Ltd. v.
E.I. Du Pont De nemours & Co., 826 F.2d 1235, 1240 (3d Cir. 1987) (“Clayton

14

Act deterrence through compensatory provisions is aimed toward the directly
harmful effects of an antitrust transgression. The statutory sanctions do not
constitute a broad restitutionary scheme for injuries not closely related to the
violation but caused by other effects, desirable or not, of the illegal conduct.”).
The Clayton Act also grants private plaintiffs a cause of action for
injunctive relief against anti-competitive activity. “Under § 16 of the Clayton
Act, 38 Stat. 737, as amended, 15 U.S.C. § 26, private parties ‘threatened
[with] loss or damage by a violation of the antitrust laws’ may seek injunctive
relief.” Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 105 (1986).
Plaintiffs seeking injunctive relief face a lower burden than those seeking treble
damages pursuant to § 4.
[Section] 4 requires a plaintiff to show actual injury,
but § 16 requires a showing only of “threatened” loss
or damage; similarly, § 4 requires a showing of injury
while § 16 contains no
to “business or property,”
such limitation. Although these differences do affect
the nature of the injury cognizable under each section,
the lower courts, including the courts below, have
found that under both § 16 and § 4 the plaintiff must
still allege an injury of the type the antitrust laws were
designed to prevent.
.

.

.

Id. at 111 (internal citation omitted).

5

Any person, firm, corporation, or association shall be entitled to sue for
and have injunctive relief, in any court of the United States having
jurisdiction over the parties, against threatened loss or damage by a
violation of the antitrust laws, including sections 13, 14, 18, and 19 of
this title, when and under the same conditions and principles as
injunctive relief against threatened conduct that will cause loss or
damage is granted by courts of equity, under the rules governing such
proceedings, and upon the execution of proper bond against damages for
an injunction improvidently granted and a showing that the danger of
irreparable loss or damage is immediate, a preliminary injunction may
issue: Provided, That nothing herein contained shall be construed to
entitle any person, firm, corporation, or association, except the United
States, to bring suit for injunctive relief against any common carrier
subject to the jurisdiction of the Surface Transportation Board under
subtitle IV of Title 49. In any action under this section in which the
plaintiff substantially prevails, the court shall award the cost of suit,
including a reasonable attorney’s fee, to such plaintiff.

Clayton Act § 16, 15 U.S.C. § 26.

15

C. Motion to Dismiss

1. Rule 12(b)(6) standards in general
On a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), the court is
required to accept as true all allegations in the complaint and all reasonable
inferences that can be drawn therefrom, and to view them in the light most
favorable to the nonmoving party. See Oshiver v. Levin, Fishbein, Sedran &
Berman, 38 F.3d 1380, 1384 (3d Cir. 1994). The question is whether the
claimant can prove any set of facts consistent with his or her allegations that
will entitle him or her to relief, not whether that person will ultimately prevail.
Hishon v. King & Spalding, 467 U.S. 69, 73 (1984).
“While a complaint attacked by a Rule 12(b)(6) motion to dismiss does
not need detailed factual allegations, a plaintiffs obligation to provide the
grounds of his entitlement to relief requires more than labels and conclusions,
and a formulaic recitation of the elements of a cause of action will not do.
Factual allegations must be enough to raise a right to relief above the
speculative level.” Bell Ati. Corp. V. Twombly, 550 U.S. 544, 555 (2007)
(internal citations and quotations omitted). Accord In re K-Dur Antitrust Litig.,
338 F. Supp. 2d 517, 528-29 (D.N.J. 2004) (“While a court will accept wellpleaded allegations as true for the purposes of the motion, it will not accept
unsupported conclusions, unwarranted inferences, or sweeping legal
conclusions cast in the form of factual allegations.”) (citing Miree v. DeKalb
County. Ga., 433 U.S. 25, 27 n. 2, (1977)). In order to raise a right to relief
above a speculative level, “a complaint must contain sufficient factual matter,
accepted as true, to state a claim to relief that is plausible on its face. The
plausibility standard is not akin to a ‘probability requirement,’ but it asks for
more than a sheer possibility that a defendant has acted unlawfully. Where a
complaint pleads facts that are merely consistent with a defendant’s liability, it
stops short of the line between possibility and plausibility of entitlement to
relief.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Accord Phillips v. County of
Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (internal citations and quotations
a claim requires a complaint with enough factual matter
omitted) (“stating
(taken as true) to suggest the required element. This does not impose a
probability requirement at the pleading stage, but instead simply calls for
enough facts to raise a reasonable expectation that discovery will reveal
evidence of the necessary element.”).
...

This now familiar standard, enunciated in Twombly (itself an antitrust
case) and developed by Iqbal, has long been required of antitrust pleadings.
While “there is no heightened pleading standard in antitrust cases, and the
general principles governing Rule 12(b)(6) motions apply,” an antitrust plaintiff
must “plead his complaint with particularity; a complaint, or counterclaim
containing only conclusory recitations of law is insufficient to survive a motion
16

to dismiss.” In re K-Dur Antitrust Litig., 338 F. Supp. 2d 517, 529 (D.N.J. 2004)
(emphasis, internal quotations, and citations omitted). Accord AGC, 459 U.S. at
526 (“As the case comes to us, we must assume that the [plaintiff] can prove
the facts alleged in its amended complaint. It is not, however, proper to assume
that the [plaintiff] can prove facts that it has not alleged or that the defendants
have violated the antitrust laws in ways that have not been alleged.”).
The Third Circuit has given full scope to the Twombly standard:
We must accept all factual allegations in the complaint
as true, construe the complaint in the light favorable
to the plaintiff, and ultimately determine whether
plaintiff may be entitled to relief under any reasonable
reading of the complaint. In order to withstand a
motion to dismiss, a complaints factual allegations
must be enough to raise a right to relief above the
speculative level. This requires more than labels and
conclusions, and a formulaic recitation of the elements
of a cause of action will not do. On the contrary, a
court is not required to accept legal conclusions
alleged in the complaint. The pleading must contain
sufficient factual allegations so as to state a facially
plausible claim for relief. A claim possesses such
plausibility when the plaintiff pleads factual content
that allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged.
In deciding a Rule 12(b)(6) motion, a court must
consider only the complaint, exhibits attached to the
complaint, matters of public record, as well as
undisputedly
authentic
documents
if
the
complainant’s
claims
are
based
upon
these
documents.
Mayer v. Belichick, 605 F.3d 223, 229-30 (3d Cir. 2010) (internal citations,
quotations, and punctuation omitted).

The Third Circuit has usefully distilled the Rule 12(b)(6) analysis to three
steps:
To determine whether a complaint meets the pleading standard,
our analysis unfolds in three steps. First, we outline the elements
a plaintiff must plead to a state a claim for relief. See [Iqbal, 556
U.S.] at 675; Argueta [v U.S. Immigration and Customs
Enforcement], 643 F.3d [60,] 73 [3d Cir. 2011]. Next, we peel
away those allegations that are no more than conclusions and thus
17

not entitled to the assumption of truth. See Iqbal, 556 U.s. at 679;
Argueta, 643 F.3d at 73. Finally, we look for well-pled factual
allegations, assume their veracity, and then “determine whether
they plausibly give rise to an entitlement to relief.” Iqbal, 556 U.s.
at 679; Argueta, 643 F.3d at 73. This last step is “a context-specific
task that requires the reviewing court to draw on its judicial
experience and common sense.” Iqbal, 556 U.S. at 679.
Bistrian v. Levi, 696 F.3d 352, 365 (3d Cir. 2012).

2. Dismissal based on lack of antitrust standing
“Statutory [antitrust] standing is distinct from jurisdictional standing in
that Article III standing is required to establish a justiciable case or controversy
within the jurisdiction of the federal courts, whereas lack of antitrust standing
affects a plaintiffs ability to recover, but does not implicate the subject matter
jurisdiction of the court. Accordingly, statutory standing is simply another
element of proof for an antitrust claim, rather than a predicate for asserting a
claim in the first place.” Sullivan v. DB Investments, Inc., 667 F.3d 273, 307 (3d
Cir. 2011) (internal citations and quotations omitted). Accord Ethypharm S.A.
France v. Abbott Laboratories, 707 F.3d 223, 232 n.15 (3d Cir. 2013) (“failure to
establish antitrust standing is a merits issue”). Still, statutory standing is a
threshold issue:
[Blecause the remoteness doctrine is not jurisdictional in the sense
that Article III standing is-if there is no Article 111 standing, the
court is obliged to dismiss the suit even if the standing issue has
not been raised-it may seem that it can be waived or forfeited just
like any other nonjurisdictional defense to a suit. But
nonconstitutional lack of standing belongs to an intermediate class
of cases in which a court can notice an error and reverse on the
basis of it even though no party has noticed it and the error is not
jurisdictional, at least in the conventional sense.
MainStreet Org. of Realtors v. Calumet City, ill., 505 F.3d 742, 747 (7th Cir.
2007)

“Because the court (and not a jury) decides standing, the district court
must decide issues of fact necessary to make the standing determination.” In re
ATM Fee Antitrust Litig., 686 F.3d 741, 747 (9th Cir. 2012) (citing Duke Power
Co. v. Carolina Envtl. Study Group, Inc., 438 U.S. 59, 72 (1978)). We are,
however, at the pleading stage. At this stage, questions of statutory standing,
like other factual issues, are considered under the same pleading requirements
as a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6). See Baldwin v. Univ.
of Pittsburgh Med. Ctr., 636 F.3d 69, 73 (3d Cir. 2011) (“A dismissal for lack of
statutory standing is effectively the same as a dismissal for failure to state a
18

claim.”); NicSand, Inc. v. 3M Co., 507 F.3d 442, 449 (6th Cir. 2007) (“antitrust
standing and Article III standing are not one and the same, and we not only
may—but we must—reject claims under Rule 12(b)(6) when antitrust standing
is missing.”).
Foreign
on
based
3. Dismissal
Improvements Act (“F’TAIA”)

Trade

Antitrust

The Foreign Trade Antitrust Improvements Act, 15 U.S.C. § 6(a),
addresses “conduct involving trade or commerce with foreign nations” by
limiting the applicability of the Sherman Act (sections 1-7) only to alleged
foreign antitrust conduct involving (1) import trade or import commerce, or (2)
conduct having a “direct, substantial, and reasonably foreseeable effect” on
domestic commerce. Animal Sci. Products, Inc. v. China Minmetals Corp., 654
F.3d 462, 467-68 (3d Cir. 2011) (as amended Oct. 7, 2011), cert. denied, 132 S.
Ct. 1744 (2012) (“ASP v. CMC’).
The pertinent portion of the FTAIA provides:
Sections 1 to 7 of this title 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 sections 1 to 7 of this title, other than
this section.
If sections 1 to 7 of this title apply to such
conduct only because of the operation of paragraph
(1)(B), then sections 1 to 7 of this title shall apply to
such conduct only for injury to export business in the
United States.

19

15 U.S.C.

§ 6a.

The Third Circuit has described the statute as “inelegantly phrased,” and
referred to its “convoluted language.” ASP v. CMC, 654 F.3d at 465 (quoting
Turicentro, S.A. v. Am. Airlines Inc., 303 F.3d 293, 300 (3d Cir. 2002)). Be that
as it may, ASP v. CMC has now provided clear guidance as to the FTAIA’s
character, scope, and applicable standard of review.
Parsing the statutory language, the Court of Appeals first explained the
mechanics and scope of FTAIA:
The FTAIA first limits the reach of the U.S. antitrust
laws by articulating a general rule that the Sherman
Act “shall not apply to conduct involving trade or
commerce
with foreign nations.” The FTAIA then
creates two distinct exceptions that restore the
authority of the Sherman Act. First, the FTAIA
provides that it does not apply (and thus that the
Sherman Act does apply) if the defendants were
involved in “import trade or import commerce” (the
“import trade or commerce” exception). Second, the
FTAIA’s bar is inapplicable if the defendants “conduct
has a direct, substantial, and reasonably foreseeable
effect” on domestic commerce, import commerce, or
certain export commerce and that conduct “gives rise”
to a Sherman Act claim (the “effects” exception).
...

Id. at 466 (citing Turicentro, 303 F.3d at 298—306 (discussing the FTAIA, the
import trade or commerce exception, and the effects exception); Carpet Group
Int’l v. Oriental Rug Importers Ass’n., 227 F.3d 62, 7 1—73 (3d Cir.2000)
(discussing the FTAIA and the import trade or commerce exception)).
Second, the Court held that the FTAIA is a substantive component of
antitrust claims; it is not a jurisdictional bar. See id. at 466-469. Accord Minn
Chem, Inc. v. Agrium, Inc., 683 F.3d 845, 853 (7th Cir. 2012) (“the FTAIA relates
to the merits of a claim, rather than the subject-matter jurisdiction of the
court”); cf In re Vitamin C Antitrust Litig., 2012 WL 5839303, *2...3 (E.D.N.Y.
Nov. 16, 2012) (noting that “[a] line of recent Supreme Court cases has
emphasized that questions about a statute’s reach are merits issues, not issues
of subject matter jurisdiction,” citing Morrison v. Nat’l Australia Bank Ltd., 130
S. Ct. 2869, 2877 (2010) and Arbaugh v. Y&H Corp., 546 U.S. 500, 514, 126 S.
Ct. 1235, 1244 (2006), and observing that “[s]ince Morrison,
the Second
Circuit has not opined on whether the FTAIA is jurisdictional.”).
.

.

.

Third, the FTAIA’s substantive nature implies that motions to dismiss

20

pursuant to the FTAIA “must be decided pursuant to the procedural framework
that governs a motion to dismiss for failure to state a claim pursuant to Rule
12(b)(6) of the Federal Rules of Civil Procedure, rather than a motion to dismiss
for lack of subject matter jurisdiction pursuant to Rule 12(b) (1).” ASP v. CMC,
654 F.3d at 469. The Court pointed out “just two of the significant differences”
between these two standards and suggested how they might play out on
remand:
First, the burden in a Rule 12(b)(1) motion rests with
the plaintiff, who must establish that there is subject
matter jurisdiction; by contrast, the defendant carries
the burden in a Rule 12(b)(6) motion. Accordingly, the
burden on remand would no longer rest with the
plaintiffs, but with the defendants. Second, while a
court generally looks only to the face of the plaintiffs
complaint, must accept all alleged facts to be true, and
is not permitted to make independent findings of fact
when deciding a Rule 12(b)(6) motion, a court may
examine evidence and resolve factual disputes on a
Rule 12(b)(1) motion.
It would therefore be
inappropriate for the District Court, on remand, to
assess independently the credibility of allegations
asserted by plaintiffs expert witness.
.

.

.

fri. at n.9 (internal citation omitted).

Accordingly, the framework for my consideration of the motions to
dismiss will be a Rule 12(b)(6) standard.
D. Motion to Compel Arbitration

This Circuit’s case law has meandered somewhat in defining the proper
standard of review of a motion to compel arbitration. The upshot, however, is
fairly clear. Where the issue can be decided without evidence, it will be, based
on an application of the familiar Rule 12(b)(6) standard to the face of the
pleadings. Failing that, however, the Court will permit discovery and decide the
issue on a summary judgment standard, pursuant to Rule 56. If there is a
genuine issue of fact, summary judgment will be denied and the issues will be
tried.
Because arbitration is a “matter of contract” between two parties, “a
judicial mandate to arbitrate must be predicated upon the parties’ consent.”
Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764, 771 (3d Cir.
2013) (quoting Par—Knit Mills, Inc. v. Stockbridge Fabrics Co., Ltd., 636 F.2d 51,
54 (3d Cir. 1980)). Pursuant to the Federal Arbitration Act (“FAA”), a court may
enforce a contract to arbitrate, but only if the court is satisfied that the
21

“making of the agreement” to arbitrate is not “in issue.” Id.
In Guidotti v. Legal Helpers Debt Resolution, the Third Circuit stated the
approach a court must take on a motion to compel arbitration. The judiciary
must balance the competing goals of the FAA: the speedy and efficient
resolution of disputes, and the enforcement of private agreements. Id. at 773.
Reconciling sometimes murky precedent in light of those competing interests,
the Guidotti court reasoned that where “the affirmative defense of arbitrability
documents relied upon in
of claims is apparent on the face of a complaint (or
the FAA would favor resolving a motion to compel
the complaint),
arbitration under a motion to dismiss standard without the inherent delay of
discovery.” Id. at 773-74. Such an approach “appropriately fosters the FAA’s
interest in speedy dispute resolution. In those circumstances, ‘[t]he question to
becomes whether the assertions of the complaint, given the
be answered
required broad sweep, would permit adduction of proofs that would provide a
recognized legal basis’ for rejecting the affirmative defense.” Id. at 774 (quoting
Leone v. Aetna Cas. & Sur. Co., 599 F.2d 566, 567 (3d Cir. 1979)).
...

.

.

.

.

.

.

“In many cases, however, a more deliberate pace is required, in light of
both the FAA’s insistence that private agreements be honored and the judicial
responsibility to interpret the parties’ agreement, if any, to arbitrate.” Id.
[The Rule 12(b) (6) standard will not be appropriate] when either the
motion to compel arbitration does not have as its predicate a
complaint with the requisite clarity to establish on its face that the
parties agreed to arbitrate or the opposing party has come forth
that
with reliable evidence that is more than a naked assertion
it did not intend to be bound by the arbitration agreement, even
though on the face of the pleadings it appears that it did. Under
the first scenario, arbitrability not being apparent on the face of
the complaint, the motion to compel arbitration must be denied
pending further development of the factual record. The second
scenario will come into play when the complaint and incorporated
documents facially establish arbitrability but the non-movant has
come forward with enough evidence in response to the motion to
compel arbitration to place the question in issue. At that point, the
Rule 12(b)(6) standard is no longer appropriate, and the issue
should be judged under the Rule 56 standard.
.

.

.

Under either of those scenarios, a restricted inquiry into factual
issues will be necessary to properly evaluate whether there was a
meeting of the minds on the agreement to arbitrate and the non
movant must be given the opportunity to conduct limited discovery
on the narrow issue concerning the validity of the arbitration
agreement. In such circumstances, Rule 56 furnishes the correct
22

standard for ensuring that arbitration is awarded only if there is
an express, unequivocal agreement to that effect.
Id. (internal citations and quotations and external citation omitted).

Thus, where the complaint and supporting documents are unclear as to
an agreement to arbitrate or where a plaintiff responds to a motion to compel
with additional facts sufficient to place the issue of arbitrability “in issue,” then
the parties should be entitled to discovery. After limited discovery, a court may
then “entertain a renewed motion to compel arbitration” and should review
such a motion under the summary judgment standard.
If summary judgment is unwarranted in light of material factual disputes
regarding an agreement’s enforceability, a court should then proceed to trial
“regarding ‘the making of the arbitration agreement or the failure, neglect, or
refusal to perform the same,’ as Section 4 of the FAA envisions.” Id. (quoting
Somerset Consulting, LLC v. United Capital Lenders, LLC, 832 F. Supp. 2d 474,
482 (E.D. Pa. 2011)). In every instance, “[b]efore a party to a lawsuit can be
ordered to arbitrate and thus be deprived of a day in court, there should be an
express, unequivocal agreement to that effect.” Id. (quoting Par—Knit Mills, 636
F’.2d at 54).

IV.

Discussion

There is a logical nexus between the question whether Plaintiff has
standing to bring a Sherman Act claim and the question whether Defendants
are amenable to Sherman Act lawsuits under the Foreign Trade Antitrust
Improvements Act. Added to the mix is Defendants’ Motion to Compel
Arbitration, which turns on the question whether Plaintiff stepped into the
shoes of its brokers, and whether the brokers contracted to arbitrate disputes
with Defendants. In one way or another, all three of these questions are
affected by the degree of attenuation between Defendants’ alleged antitrust
activity and Plaintiffs alleged injury. And all depend to some degree on
plaintiffs’ describing the purchases they made, and the terms of the contracts
under which they made them, which they have not done in this Complaint.
I first discuss the standing questions. They provide valuable context and
also make it easier to see what is required to poise the Motion to Compel
Arbitration for decision.

A. Failure to State a Claim
Direct Purchaser Rule

-

Injury, Antitrust Standing and the

I analyze standing in the context of Defendants’ Motion to Dismiss
23

pursuant to Rule 12(b)(6). As to the motions to dismiss, I technically raise the
issue of “antitrust standing” sua sponte. It was in connection with the motion
to compel arbitration that Defendants first challenged the adequacy of
6
Plaintiffs’ allegations of direct-purchaser status. See, e.g., Seven Defendants’
Brief in Support of Motion to Compel Arbitration, Feb. 5, 2008, ECF No. 37-1
(“Def. Brief MTCA, 37-1”), and Defendants’ Supplemental Brief in Further
Support of its Motion to Compel Arbitration, July 6, 2012, ECF No. 137 (“Def.
Supp. Brief MTCA, 137”). But when my analysis persuaded me that standing
was central to many of the issues raised in the motions, I gave the parties fair
warning that I was considering it, and invited supplemental briefing on the
standing issue. ECF No. 153. Both sides submitted supplemental briefs on
antitrust standing. ECF Nos. 155, 156. The Defendants also filed a letter in
reply to Plaintiffs’ supplemental brief. ECF No. 157.
Of course, the issue of standing does not even arise unless Plaintiff has
pleaded the minimum prerequisites of a potential Sherman Act violation. That
threshold has been met here. The Complaint alleges that a cartel fixed prices,
the quintessential antitrust violation. See Arizona v. Maricopa County Med.
Soc., 457 U.S. 332, 345 (1982) (recognizing that the Court, “has consistently
and without deviation adhered to the principle that price-fixing agreements are
unlawful per se under the Sherman Act” and that “any combination which
tampers with price structures is engaged in an unlawful activity”) (quoting
United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 218 (1940)); accord
Deutscher Tennis Bund v. ATP Tour, Inc., 610 F.3d 820, 830 (3d Cir. 2010)
(“Some categories of restraints, such as horizontal price-fixing and market
allocation agreements among competitors, ‘because of their pernicious effect on
competition and lack of any redeeming virtue are conclusively presumed to be
unreasonable.”) (quoting N. Pac. Ry. Co., 356 U.S. at 5)); Cordes & Co. Fin.
Services, Inc. v. A.G. Edwards & Sons, Inc., 502 F.3d 91, 105 (2d Cir. 2007)
(“Horizontal price-fixing agreements are per se violations of the Sherman Act.”)
While antitrust standing (as opposed to Article III Constitutional standing) is
not jurisdictional and therefore may be waived, I find that Defendants have preserved
the issue by raising it, among other places, in their Motion to Compel Arbitration
(“MTCA”). Plaintiffs challenged the timeliness of the MTCA, see P1. Brief Opp. MTCA,
53 § I, but Defendants maintain that they filed “as early as practicable” upon learning
that Resco was relying on an assignment of antitrust claims from a third party, which
in turn called into question Resco’s direct purchaser status and led Defendants to
uncover arbitration agreements with the third-party assignor or a related entity. See
Defendants’ Reply Brief on Motion to Compel Arbitration, May 22, 2008, ECF No. 59
(“Def. Reply MTCA, 59”) § l.A. (“it was not until Resco revealed the identity of its
assignor (i.e. Possehi) in its default papers that Defendants were in a position to
that Plaintiffs were bound to arbitrate based on the agreement of the
demonstrate
Defendants moved to compel Plaintiffs to arbitrate as soon as they
their assignor.
became aware of the source of Plaintiffs’ professed standing to assert [an antitrust]
claim.

6

.

.

.

.

.

.

.

.

24

(citing Socony-Vacuum Oil Co., 310 U.S. at 2 10-28)).
Act:

Plaintiffs’ theory is that this is a per se violation of § 1 of the Sherman
Defendants have directly sold and delivered magnesite
and magne site products to customers in the United
States at prices inflated, fixed, and maintained by the
conspirators pursuant to horizontal agreements to
restrain trade. The allegations of this Complaint of a
conspiracy are not inferred from evidence of parallel
pricing; instead, Defendants have expressly agreed and
conspired to fix prices and limit competition.
Defendants also engaged in communications and
meetings. This is confirmed by documentary evidence
from a nongovernmental association of which
Defendants are members. These acts constitute per se
violations of Section 1 of the Sherman Act, 15 U.S.C. §
1.

ACJ2.
The Complaint sufficiently alleges meetings among the Defendants in
which the export price of magnesite was discussed and agreed upon. See § II.C,
supra. Such facts plausibly set forth the existence of “horizontal price-fixing”
agreements which “because of their pernicious effect on competition and lack
of any redeeming virtue are conclusively presumed to be unreasonable.”
Deutscher Tennis Bund, 610 F.3d at 830 (quoting N. Pac. Ry. Co., 356 U.S. at
5). At least for purposes of a motion to dismiss, then, Plaintiffs have adequately
alleged conduct that would constitute a per se violation of § 1 of the Sherman
Act.
Whether the Plaintiffs have alleged antitrust injury arising from such a
violation, and whether Plaintiffs possess standing to bring such claims,
however, are questions that require closer analysis.

1. Antitrust standing in general
The Clayton Act creates a private antitrust right of action, but this
“additional avenue of enforcement
is not open to all who might be
interested in punishing the wrongdoer or who might have suffered some
peripheral loss. In an effort to keep private enforcement within reasonable
bounds, the courts have imposed limitations designed to discourage plaintiffs
other than those most apt to carry out the purposes of the statutes.” Alberta
Gas Chemicals Ltd., 826 F.2d at 1239. Accord Warren Gen. Hosp., 643 F. 3d at
.

.

25

.

80; see also Blue Shield of Virginia v. McCready, 457 U.S. 465, 476-77 (1982)
(“An antitrust violation may be expected to cause ripples of harm to flow
through the Nation’s economy; but ‘despite the broad wording of § 4 there is a
point beyond which the wrongdoer should not be held liable.”’) (quoting illinois
Brick Co. v. illinois, 431 U.S. 720, 760 (1977)).
It is well settled that a private party seeking treble damages pursuant to
§ 4 of the Clayton Act must establish that it is the proper private enforcer.
First, an antitrust plaintiff must show that it has suffered injury of the type the
antitrust laws intended to prohibit. See Brunswick Corp. v. Pueblo Bowl-O-Mat,
Inc., 429 U.S. 477 (1977). Second, an antitrust plaintiff must establish that it
has “antitrust standing,” meaning that it is the proper plaintiff to enforce § 4’s
private right of action. See AGC, 459 U.S. at 535 n.3 1 (“Harm to the antitrust
plaintiff is sufficient to satisir the constitutional standing requirement of injury
in fact, but the court must make a further determination whether the plaintiff
is a proper party to bring a private antitrust action”).
In cases like this one involving alleged overcharges by a cartel, the
concept of “standing” is often loosely used to encompass the distinct but
related doctrines of antitrust injury, antitrust standing, and the “direct
purchaser rule.” Those doctrines all attempt to limit the scope of antitrust
liability at an early pleading stage to reduce the burden of antitrust litigation.
One commentator explains it thus:
These doctrines have at least two common features.
First, they all bear on the larger question of the scope
of antitrust liability. They are the tools by which courts
identify which victims of an antitrust violation may
recover damages, given the nature of the relationship
between the victim’s harm and the violation. Second,
the three doctrines are all commonly applied at an
early stage of litigation, in either a motion to dismiss
or for summary judgment. These common elements
turn out to be related. To be most effective as a means
of rationally limiting the costs of antitrust litigation, a
doctrine should be suited to summary disposition,
since unjustified suits can then be weeded out before
their costs become unnecessarily burdensome.
Limitations on the scope of liability are particularly
well-suited to this task, since they often involve few
issues of fact. While relatively permissive pleading and
summary judgment standards may allow a plaintiff to
survive on general allegations of a substantive
violation, it is particularly difficult to conceal the
plaintiffs relationship to the alleged violation. The

26

characteristics of that relationship are the focus of
inquiry in defining the scope of liability.
William H. Page, The Scope of Liability for Antitrust Violations, 37 Stan. L. Rev.
1445, 1447-48 (1985).

Antitrust standing—”a malleable concept not easily defined”—is a
requirement challenging to identify and enforce. See Alberta Gas, 826 F.2d at
1239 (“A malleable concept not easily defined, antitrust standing has been
construed in a variety of ways and settings. The struggle to articulate a precise
formulation is a continuing one because success has proved elusive.”). In this
case, where Plaintiff Resco alleges antitrust injury arising from its purchases of
magnesite at prices inflated by a horizontal price-fixing conspiracy, the
standing analysis is delimited by the “direct purchaser rule,” first announced
in Hanover Shoe, Inc. v. United Shoe Mach. Corp., 392 U.S. 481, 88 (1968), and
further developed in illinois Brick Co. v. illinois, 431 U.S. 720, 760 (1977). See
Warren Gen. Hosp., 643 F.3d at 85-87 (discussing the origins and development
of the direct purchaser rule). The illinois Brick rule “limits antitrust actions to
suits brought by parties that are the direct purchasers of the product.” Id. at
84 (citing illinois Brick). Although illinois Brick did not explicitly frame its
analysis in terms of standing, it has been understood as such in subsequent
cases. See McCarthy v. Recordex Service, Inc., 80 F. 3d 842, 847-48 (1996) (“the
Supreme Court articulated the so-called ‘direct purchaser’ rule, an antitrust
standing doctrine that barred downstream indirect purchasers from bringing an
antitrust claim.”) (emphasis added); Page, Scope of Liability at 1447 (“A second,
closely related doctrine that has been used to limit the scope of antitrust
liability is the illinois Brick rule, under which indirect purchasers of price-fixed
goods are denied the right to recover for overcharges under Section 4, except in
rare circumstances.”). The illinois Brick direct purchaser rule limits the scope of
liability by choosing the most suitable plaintiff from among the purchasers
potentially harmed by cartel pricing.
The courts sometimes combine the related requirements of antitrust
injury and antitrust standing. Thus the Third Circuit has articulated a multipronged test for “antitrust standing” that includes antitrust injury as one
prong. Most recently, in Ethypharm S.A. France, 707 F.3d at 232-33, the Court
of Appeals explained its development of a “multifactor test” extracted from the
Supreme Court’s decision in AGC:
The Supreme Court, in Associated General Contractors
of California, Inc. v. Calfomia State Council of
Carpenters, 459 U.S. 519, 103 S.Ct. 897, 74 L.Ed.2d
723 (1983), articulated several factors to be considered
when deciding whether a complainant has antitrust

27

standing. We have organized those factors (the “AGC
factors”) into the following multifactor test:
(1) the causal connection between the antitrust
violation and the harm to the plaintiff and the intent
by the defendant to cause that harm, with neither
factor alone conferring standing; (2) whether the
plaintiffs alleged injury is of the type for which the
antitrust laws were intended to provide redress; (3) the
directness of the injury, which addresses the concerns
that liberal application of standing principles might
produce speculative claims; (4) the existence of more
direct victims of the alleged antitrust violations; and
(5) the potential for duplicative recovery or complex
apportionment of damages.
Id. (citing In re Lower Lake Erie Iron Ore Antitrust Litig., 998 F.2d 1144, 1165—
66 (3d Cir. 1993)). Accord McCarthy, 80 F. 3d at 850 (noting that the “AGC fivefactor framework was an attempt by the Court to synthesize and clarify the
confusing collection of the then-extant antitrust standing rules”). That is not to
say that injury and standing are equivalent; the Third Circuit itself recognizes
that they are not. But they are interdependent: “Antitrust injury is a necessary
but insufficient condition of antitrust standing.” Barton & Pittinos, Inc. v.
SmithKline Beecham Corp., 118 F.3d 178, 182 (3d Cir. 1997) (citation omitted).
Accord Ethypharm, 707 F.3d at 233 (explaining that if antitrust injury is
lacking, “we need not address the remaining AGC factors”); Franco v.
Connecticut Gen. Life Ins. Co., 818 F. Supp. 2d 792, 831 (D.N.J. 2011) (“injury
within the meaning of an antitrust claim represents more than an element of
the merits of a claim; it is a condition of standing to pursue the claim”).
In some cases, then, the lack of antitrust injury will imply that antitrust
standing, too, is lacking. That reality, however, should not obscure the
necessity of establishing both injury and standing if a case is to go forward.
7
Conflating the two can confuse the analysis and skew the outcome. The Third
Circuit has explained:
Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977), the seminal
case on antitrust injury, articulated a two-part test for establishing antitrust injury:
[1] “injury of the type the antitrust laws were intended to prevent” and [2] “that flows
from that which makes defendants’ acts unlawful.” Some courts in this Circuit have
conflated this test, in whole or in part, with the doctrine of antitrust standing. See,
e.g., Gulfstream HI Associates, Inc. v. Gulfstream Aerospace Corp., 995 F.2d 425, 429
(3d Cir. 1993) (“In Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 97 S.Ct.
690, 50 L.Ed.2d 701 (1977), the Supreme Court set forth a two-part test for antitrust
standing that has recently been applied by our court. See International Raw Materials,
Ltd. v. Stauffer Chem. Co., 978 F.2d 1318, 1327-28 (3d Cir. 1992). To establish
antitrust standing a plaintiff must show both: 1) harm of the type the antitrust laws
were intended to prevent; and 2) an injury to the plaintiff which flows from that which

7

28

A showing of antitrust injury is necessary but not
always sufficient to establish antitrust standing. A
party may have suffered antitrust injury yet not be
considered a proper plaintiff for other reasons. It has
been suggested that although standing is closely
related to antitrust injury, the two concepts are
distinct. Once antitrust injury has been demonstrated
by a causal relationship between the harm and the
challenged aspect of the alleged violation, standing
analysis is employed to search for the most effective
plaintiff from among those who have suffered loss.
However, in the sense that plaintiffs who sustain no
antitrust injury may not recover, they may be loosely
said to lack standing.
Alberta Gas, 826 at 1240 (internal citations omitted) (discussing Brunswick
Corp., 429 U.S. 477 and suggesting that while some courts and commentators
have treated Brunswick as a standing case, it is actually concerned with
makes defendant’s acts unlawful. Id.”); In Re Hypodermic Products Antitrust Litig., MDL
NO. 1730, 2007 WL 1959224, *78 (D.N.J. June 29, 2007) (discussing cases in which
plaintiffs were found to lack “standing” where their loss could not be causally
connected to defendants antitrust activities). Although formulations of the Brunswick
rule may differ, the Third Circuit, other Circuits, and commentators have recognized
that Brunswick’s concern is “centered on antitrust injury,” see Alberta Gas, 826 F.2d
at 1240, and is “analytically distinct” from the doctrine of antitrust standing. See
illinois Brick, 431 U.S. at 728 n.7 (“the question of which persons have been injured by
an illegal overcharge for purposes of s 4 is analytically distinct from the question of
which persons have sustained injuries too remote to give them standing to sue for
damages under § 4”); see also Cordes & Co. Fin. Services, Inc. v. A. G. Edwards & Sons,
Inc., 502 F.3d 91, 95 (2d dr. 2007) (“The antitrust injury element raises both factual
questions related to whether the plaintiff has suffered harm and legal questions
related to whether that harm is ‘of the type the antitrust laws were intended to prevent
and that flows from that which makes defendants’ acts unlawful.”’) (citing Brunswick,
429 U.S. at 489)); Glen Holly Entm’t, Inc. v. Tektronix Inc., 343 F.3d 1000, 1008,
opinion amended on denial of reh’g sub nom., Glen Holly Entm’t, Inc. v. Tektronix, Inc.,
352 F.3d 367 (9th Cir. 2003) (“Antitrust injury is made up of four elements: ‘(1)
unlawful conduct, (2) causing an injury to the plaintiff, (3) that flows from that which
makes the conduct unlawful, and (4) that is of the type the antitrust laws were
intended to prevent.”’); Page, Scope of Liability at 1459-60 (“most courts have
recognized that Brunswick announced a general principle that requires every treble
damages plaintiff to show that his harm is related to the anticompetitive aspect of the
defendant’s conduct. Among these decisions, there are dubious and incorrect
applications of the principle, but the principle remains.”). In practical terms, this
means that even if a plaintiff can show both that it has suffered antitrust injury and
that its damages flow from that injury, as Brunswick requires, it still must prove it is
the most proper party to enforce § 4’s private right of action.

29

antitrust injury). See generally Page, Scope of Liability at 1484 (1985) (“In its
broadest sense, standing subsumes the entire question of the scope of
antitrust liability. Courts sometimes use the term this way, treating antitrust
For reasons of clarity, standing
as issues of ‘standing’.
injury issues
be defined to consist of requirements that are distinct from antitrust
should
injury. Allowing a vague standing inquiry to subsume the question of antitrust
injury confuses the larger question of the scope of antitrust liability.”).
.

.

.

.

.

.

I will therefore attempt to clarify this analytical framework before
determining where the facts fall within that framework.
2.

Antitrust injury and causation

To recover treble damages pursuant to § 4, plaintiffs “must prove more
than injury causally linked to an illegal presence in the market. Plaintiffs must
prove antitrust injury, which is to say injury of the type the antitrust laws were
intended to prevent and that flows from that which makes defendants acts
unlawful. The injury should reflect the anticompetitive effect either of the
violation or of anticompetitive acts made possible by the violation. It should, in
would be likely to
short, be “the type of loss that the claimed violations
cause.”’ Brunswick Corp., 429 U.S. at 489 (quoting Zenith Radio Corp. v.
Hazeltine Research, 395 U.S. 100, 125 (1969)). Accord Ati. Richfield Co. v. USA
Petroleum Co., 495 U.S. 328, 334 (1990) (“A private plaintiff may not recover
damages under § 4 of the Clayton Act merely by showing injury causally linked
to an illegal presence in the market. Instead, a plaintiff must prove the
existence of “antitrust injury, which is to say injury of the type the antitrust
laws were intended to prevent and that flows from that which makes
[I]injury, although causally related to an
defendants’ acts unlawful.
antitrust violation, nevertheless will not qualify as “antitrust injury” unless it is
attributable to an anti-competitive aspect of the practice under scrutiny.”
(internal citations and quotations omitted); W. Penn Allegheny Health Sys., Inc.
v. UPMC, 627 F.3d 85, 101 (3d Cir. 2010) (“The antitrust-injury requirement
helps ensure “that the harm claimed by the plaintiff corresponds to the
rationale for finding a violation of the antitrust laws in the first place, and it
prevents losses that stem from competition from supporting suits by private
damages.”); Cordes & Co. Fin. Services, Inc. v. A.G. Edwards &
plaintiffs for
Sons, Inc., 502 F.3d 91, 105 (2d Cir. 2007) (“Section 4 of the Clayton Act
provides that “any person who shall be injured in his business or property by
reason of anything forbidden in the antitrust laws may sue therefor....” 15
U.S.C. § 15(a). This has been read to require that to prevail in an antitrust suit,
a plaintiff “must prove [that it has sufferedj antitrust injury, which is to say
injury of the type the antitrust laws were intended to prevent and that flows
from that which makes defendants’ acts unlawful.”) (citing Brunswick Corp.,
429 U.S. at 489.
.

.

.

.

.

.

...

Animal Science, the putative class representative of indirect purchasers,
30

seeks only injunctive relief pursuant to § 16 of the Clayton Act. As such, it
faces lower hurdles than does Resco, its direct-purchaser counterpart, which
seeks damages pursuant to § 4. An antitrust plaintiff proceeding under section
16 must, however, still demonstrate that the injury in question is “injury of the
type the antitrust laws were intended to prevent....”’ Brz.rnswick Corp., 429 U.s.
at 489. The Third Circuit has held that an indirect purchaser class must “make
a showing of entitlement to injunctive relief requiring the demonstration of: (1)
threatened loss or injury cognizable in equity; (2) proximately resulting from
the alleged antitrust injury.” In re Warfarin Sodium Antitrust Litig., 214 F.3d
395, 400 (3d Cir. 2000) (citing McCarthy, 80 F.3d at 856.
I focus on Resco (although I note that the Complaint says almost nothing
about the antitrust injury allegedly suffered by Animal Science). The Amended
Complaint provides few specific allegations of the harm suffered by Resco.
Rather, Plaintiffs’ theory of injury causation goes something like this: The
Chinese Defendants dominate the magnesite export market; the U.S. imports
25% of China’s magnesite production; the Defendants’ anticompetitive activity
is responsible for overcharges paid by U.S. purchasers ranging from 4% to
21%; ergo the overcharges paid by U.S. purchasers (i.e. “injury of the type the
antitrust laws were intended to prevent”) were caused by Defendants’
conspiracy. More specifically, the Complaint alleges: (1) “China is a leading
producer of magnesite.” AC ¶ 46. (2) “During the period described in the
Complaint, the international market for magnesite and magnesite products was
dominated by Defendants and their co-conspirators.” Id. ¶ 47. (3) “Hundreds of
thousands of metric tons of magnesite are imported into the United States each
year from China.” Id. ¶ 48. (4) “The value of U.S. imports of magnesite and
magnesite products from China exceeded $50 million in 2000 and exceeded
$160 million in 2008.” Ici. ¶ 49. (5) “The United States consumes about 25
percent of China’s magnesite exports.” Id. ¶ 50. As a result of Defendants’
significant presence in the global magnesite market, their conspiracy to
increase export prices resulted in “significant price increases in the U.S.,
stabilized U.S. prices, and avoided major price cutting despite low levels of
demand.” Id. ¶ 65. The most specific allegation is that, according to Plaintiffs’
expert, “between 2000 and 2003, the Cartel overcharged U.S. buyers of
magnesite by an average of 4 percent, while between 2004 and 2008, as a
direct result of the Cartel’s activities, U.S. magnesite purchasers were
overcharged more than 21 percent.” Id. ¶ 65.
A plaintiff’s injury must “flow from that which makes defendants’ acts
unlawful” under the antitrust laws. See Brunswick Corp., Inc., 429 U.S. at 489.
Standing alone, Plaintiffs’ allegations establish no “more than injury causally
linked to an illegal presence in the market.” Id. Plaintiffs here attempt to supply
the necessary antitrust connection by contending that they are “consumers”
within the market affected by Defendants’ illegal conduct. See W. Penn
Allegheny Health Sys., Inc. v. UPMC, 627 F.3d 85, 102 (3d Cir. 2010) (“As a
31

general matter, the class of plaintiffs capable of satisfying the antitrust-injury
requirement is limited to consumers and competitors in the restrained
market”); AC ¶ 75 (“The price of magnesite and magnesite products purchased
by Plaintiffs (and the plaintiff classes) has been fixed, raised, maintained and
stabilized at artificial and non-competitive levels.”).
Plaintiffs claim that they are consumers of Defendants’ magnesite and
magnesite products, albeit in a slippery, “and/or” manner:
Plaintiffs have purchased magnesite and magnesite
products from Defendants and their coconspirators
and/or are purchasers of magnesite and magnesite
products requiring injunctive relief. By reason of the
alleged violations of the antitrust laws, Plaintiffs paid
more for magnesite and magnesite products and
substitute products than they would have paid in the
absence of the illegal combination and conspiracy, and
as a result, they have been irreparably injured.
AC ¶ 76. Therefore, the reasoning goes, Plaintiffs’ injuries logically must flow
from Defendants’ anti-competitive activity.
While those allegations border on “conclusory,” they have some
plausibility. I will accept for Rule 12(b)(6) purposes the Plaintiffs’ contention
that, as consumers of magnesite products that ultimately originated with
Defendants, they have paid the overcharges allegedly caused by Defendants’
horizontal price-fixing conspiracy. See Oshiver v. Levin, Fishbein, Sedran &
Berman, 38 F.3d 1380, 1384 (3d Cir. 1994) (explaining that on”a motion to
dismiss pursuant to Fed. R. Civ. P. 12(b)(6),” the court is required to “accept all
allegations of fact as true and draw all reasonable inferences” in favor of the
nonmoving party); Bell Ati. Corp. V. Twombly, 550 U.S. 544, 555 (2007) (“a
plaintiffs obligation to provide the grounds of his entitlement to relief requires
more than labels and conclusions, and a formulaic recitation of the elements of
a cause of action will not do.”). On that assumption, the Complaint sufficiently
alleges injury causation.
3.

Antitrust purchaser standing
a. Statutory standing and the appropriate plaint ff

Injury causation-in-fact, however, is only the beginning. Resco, which
seeks treble damages under Section 4 of the Clayton Act, has a particular
8
burden to plead antitrust standing.

8

I focus on Resco’s damages claims. ASP’s claims for injunctive relief under
32

“In essence the question of standing is whether the litigant is entitled to
have the court decide the merits of the dispute or of particular issues. This
inquiry involves both constitutional limitations on federal-court jurisdiction
and prudential limitations on its exercise. In both dimensions it is founded in
concern about the proper-and properly limited-role of the courts in a
democratic society.” Warth v. Seldin, 422 U.S. 490, 498 (1975) (internal
citations omitted). Accord D.R. Ward Const. Co. v. Rohm & Haas Co., 470 F.
Supp. 2d 485, 492 (E.D. Pa. 2006) (“the question of whether a plaintiff has
standing to bring a cause of action in federal court is a jurisdictional issue, a
‘threshold question in every federal case.”’) (quoting Warth). It is important to
draw a clear distinction between Constitutional standing requirements arising
under Article III and statutory standing requirements arising under legislative
enactments.’° “Article III standing is required to establish a justiciable case or
Section 16 of the Clayton Act raise lesser standing concerns:
Section 16 has been applied more expansively, both because its language
is less restrictive than that of § 4
and because the injunctive remedy is
a more flexible and adaptable tool for enforcing the antitrust laws than
the damage remedy....” Schoenkopf v. Brown & Williamson Tobacco Corp.,
637 F.2d 205, 210 (3d Cir.1980). Most importantly, “because standing
under § 16 raises no threat of multiple lawsuits or duplicative recoveries
[i.e. the concerns voiced in Illinois Brick], some of the factors other than
antitrust injury that are appropriate to a determination of standing
under § 4 are not relevant under § 16. Cargill, 479 U.S. at 111 n. 6, 107
S.Ct. at 490 n. 6.
...

McCarthy, 80 F.3d at 856.

“The irreducible constitutional minimum of standing contains three
requirements. First and foremost, there must be alleged (and ultimately proved) an
‘injury in fact’—a harm suffered by the plaintiff that is concrete and actual or
imminent, not ‘conjectural’ or ‘hypothetical.’ Second, there must be causation—a
fairly traceable connection between the plaintiffs injury and the complained-of
conduct of the defendant. And third, there must be redressabiity—a likelihood that
the requested relief will redress the alleged injury. This triad of injury in fact,
causation, and redressability constitutes the core of Article III’s case-or-controversy
requirement, and the party invoking federal jurisdiction bears the burden of
establishing its existence.” Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 102-04
(1998) (internal citations and quotations omitted).
9

“In addition to the immutable requirements of Article III, the federal judiciary
has also adhered to a set of prudential principles that bear on the question of
standing. Like their constitutional counterparts, these judicially self-imposed limits on
the exercise of federal jurisdiction are founded in concern about the proper-and
properly limited-role of the courts in a democratic society, but unlike their
constitutional counterparts, they can be modified or abrogated by Congress.”
Bennett v. Spear, 520 U.S. 154, 162 (1997) (internal citations and quotations omitted).
10

33

controversy within the jurisdiction of the federal courts, whereas lack of
antitrust standing affects a plaintiffs ability to recover, but does not implicate
the subject matter jurisdiction of the court. Accordingly, statutory standing is
simply another element of proof for an antitrust claim, rather than a predicate
for asserting a claim in the first place.” Sullivan v. DB Investments, Inc., 667
F.3d 273, 307 (3d Cir. 2011) cert. denied, 132 S. Ct. 1876 (U.S. 2012), reh’g
denied, 132 S. Ct. 2451 (2012) (internal citations and quotations omitted).
Accord Ethypharm S.A. France, 707 F.3d at 232 (internal citations and
quotations omitted) (“Constitutional standing is augmented by consideration of
prudential limitations. For plaintiffs suing under federal antitrust laws, one of
the prudential limitations is the requirement of antitrust standing.’ It does not
affect the subject matter jurisdiction of the court, as Article III standing does,
but prevents a plaintiff from recovering under the antitrust laws.”).
As the Supreme Court explained in Associated Gen. Contractors of
California, Inc. v. Calfomia State Council of Carpenters, “the focus of the
doctrine of ‘antitrust standing’ is somewhat different from that of standing as a
constitutional doctrine. Harm to the antitrust plaintiff is sufficient to satisfy the
constitutional standing requirement of injury in fact, but the court must make
a further determination whether the plaintiff is a proper party to bring a private
antitrust action.” 459 U.S. at 535 n.3 1. In the antitrust context, standing takes
on an even more critical “gatekeeper” role. “Far from being a mere technicality,
antitrust standing is the glue that cements each suit with the purposes of the
NicSand, Inc., 507
antitrust laws, and prevents abuses of those laws
F.3d at 449-50 (“[A]ntitrust standing is a threshold, pleading-stage inquiry and
when a complaint by its terms fails to establish this requirement we must
dismiss it as a matter of law—lest the antitrust laws become a treble-damages
sword rather than the shield against competition-destroying conduct that
Congress meant them to be.”)
.

.

.

.“

As discussed above, see § IV.A. 1, the Third Circuit has developed a
“multi-factor test” for antitrust standing that encompasses considerations of
injury, remoteness and efficiency. See Ethypharm, 707 F.3d at 232-33
(articulating the multi-factored test as “(1) the causal connection between the
antitrust violation and the harm to the plaintiff and the intent by the defendant
to cause that harm, with neither factor alone conferring standing; (2) whether
the plaintiffs alleged injury is of the type for which the antitrust laws were
intended to provide redress; (3) the directness of the injury, which addresses
the concerns that liberal application of standing principles might produce
speculative claims; (4) the existence of more direct victims of the alleged
antitrust violations; and (5) the potential for duplicative recovery or complex
apportionment of damages.”).
11
Other Circuits have developed substantially similar tests. Cf NicSand, Inc., 507
F.3d at 449-50 (“An antitrust claimant must do more than make ‘allegations of
consequential harm resulting from a violation of the antitrust laws,’ and that is true
11

34

The determination of standing can be a nebulous and complex task. In
certain circumstances, however, the Supreme Court has laid down bright line
rules that determine which plaintiffs qualify as the most efficient and effective
enforcer of § 4’s private right of action. The illinois Brick direct purchaser rule,
applicable here, is one such bright line rule. See McCarthy, 80 F.3d at 847-48
(“Recognizing that allowing an indirect purchaser to assert an antitrust claim
for the portion of an overcharge “passed on” to the indirect purchaser would
create an intractable problem of tracing and apportioning damages between
different purchasers in the chain of distribution, the [illinois Brick] Court chose
to avoid this morass by enunciating a bright-line rule that only the purchaser
immediately downstream from the alleged monopolist may bring an antitrust
action”); In re ATM Fee, 686 F.3d at 748 (“a bright line rule emerged from
illinois Brick: only direct purchasers have standing under § 4 of the Clayton Act
to seek damages for antitrust violations”).
I pause for a moment to discuss the development of the direct purchaser
antitrust standing rule. A “direct purchaser rule” was first considered by the
Supreme Court in Hanover Shoe, Inc. u. United Shoe Mach. Corp., 392 U.S. 481
(1968), where it took the form of an affirmative defense. The defendant made
the argument—now, but not then, counterintuitive—that the plaintiff lacked
standing because it had effectively “passed on” any overcharge to its
customers. Id. at 488 n.6. The Supreme Court rejected that defense, finding
that only the direct purchaser of an illegally overcharged good, and not others
in the chain of manufacturing or distribution, will be regarded as the “injured”
party for purposes of Section 4. Id. at 489—9 1. The Court reasoned that (1) if
indirect purchasers were permitted to bring antitrust suits, the proof of the fact
and extent of injury would become extremely complicated, id. at 491—93, and
even when the complaint is ‘buttressed by an allegation of intent to harm the
[claimant].’ Even when a complaint makes these allegations, it may not proceed when
‘[o]ther relevant factors—the nature of the [claimant’s] injury, the tenuous and
speculative character of the relationship between the alleged antitrust violation and
the [claimant’s] alleged injury, the potential for duplicative recovery or complex
apportionment of damages, and the existence of more direct victims of the alleged
conspiracy—weigh heavily against judicial enforcement.”’ (quoting ACG, 459 U.S. at
545, internal citation omitted); Laumann v. Nat’l Hockey League, 12 CIV. 1817 SAS,
2012 WL 6043225 (S.D.N.Y. Dec. 5, 2012) (“The Second Circuit analyzes antitrust
standing under a two part test. First, a” ‘plaintiff must show
injury of the type the
antitrust laws were intended to prevent and that flows from that which makes
defendants’ acts unlawful.’ Second, a plaintiff must show that he is a proper plaintiff
in light of four ‘efficient enforcer’ factors: (1) the directness or indirectness of the
asserted injury; (2) the existence of an identifiable class of persons whose self-interest
would normally motivate them to vindicate the public interest in antitrust
enforcement; (3) the speculativeness of the alleged injury; and (4) the difficulty of
identifying damages and apportioning them among direct and indirect victims so as to
avoid duplicative recoveries.”) (citing In re DDAVP Direct Purchaser Antitrust Litig., 585
F.3d 677, 688 (2d Cir. 2009)).
...

“

35

(2) because indirect purchasers would have “only a tiny stake in a lawsuit” and
therefore would possess less incentive to sue, a doctrine that allowed only
indirect purchasers to bring suit on their diluted injuries would tend to enable
antitrust violators to “retain the fruits of their illegality.” Id. at 493—94. See also
Warren Gen. Hosp., 643 F.3d at 85.
A decade later, in illinois Brick Co. v. illinois, 431 U.S. 720 (1977), the
Court seemingly conceded that a chain of consumers could all theoretically
claim to have suffered the “antitrust injury” of paying inflated prices arising
from a price-fixing conspiracy. Nevertheless, it held that only the “direct
purchasers” would be recognized as the injured party. As a group, the direct
purchasers were best situated to pursue a § 4 treble-damages claim. See id. at
735 (“antitrust laws will be more effectively enforced by concentrating the full
recovery for the overcharge in the direct purchasers rather than by allowing
every plaintiff potentially affected by the overcharge to sue only for the amount
it could show was absorbed by it”). The Court reasoned: “Permitting the use of
pass-on theories under § 4 essentially would transform treble-damages actions
into massive efforts to apportion the recovery among all potential plaintiffs that
could have absorbed part of the overcharge—from direct purchasers to
middlemen to ultimate consumers. However appealing this attempt to allocate
the overcharge might seem in theory, it would add whole new dimensions of
complexity to treble-damages suits and seriously undermine their
effectiveness.” Id. at 737.. The Court based its decision on three policy
considerations:
The first policy rationale that the Court drew on was
the “serious risk of multiple liability for defendants”
Next, the Court drew attention to the “evidentiary
involved
in
uncertainties”
complexities
and
ascertaining how much of the overcharge was “passed
The calculations
on” to the indirect purchasers.
of the overcharge
necessary to determine how much
had been “passed on” would be “long and complicated”
and would have to be “repeated at each point at which
the price-fixed goods changed hands before they
Finally, the Court also
reached the plaintiff.”.
examined the third policy rationale: the need for
the Court
effective enforcement of antitrust law.
explained that “the antitrust laws will be more
effectively enforced by concentrating the full recovery
for the overcharge in the direct purchasers rather than
by allowing every plaintiff potentially affected by the
overcharge to sue only for the amount it could show
was absorbed by it.”
•

.

.

.

.

.

.

.

36

•

.

Warren Gen. Hosp., 643 F.3d at 85-86 (quoting illinois Brick). See also In re
ATM Fee, 686 F.3d at 748 (“The underlying purposes for the rule are (1) ‘to
eliminate the complications of apportioning overcharges between direct and
indirect purchasers,’ (2) ‘to eliminate multiple recoveries,’ and (3) to ‘promote
the vigorous enforcement of the antitrust laws”’) (quoting Kansas v. UtiliCorp
United, Inc., 497 U.S. 199, 208-14) (1990);, internal citations omitted).
illinois Brick therefore held that “the overcharged direct purchaser, and
not others in the chain of manufacture or distribution, is the party ‘injured in
his business or property’ within the meaning of” § 4 of the Clayton Act. 431
U.S. at 729.
The antitrust standing inquiry seeks to determine “whether the plaintiff
is a proper party to bring a private antitrust action.” AGC, 459 U.S. at 535
n.3 1. Numerous cases following illinois Brick, whether they draw an analytical
line between the direct purchaser rule and the concept of standing or meld the
two, have all cited the same practical need for some restriction on private
2
enforcement.’ Thus the Third Circuit has repeatedly considered the direct
purchaser rule within the conceptual framework of “antitrust standing,”
recognizing the overarching goal of selecting the most appropriate plaintiff from
a pooi of injured parties. See, e.g. McCarthy 80 F.3d at 847-48 (describing the
“direct purchaser” rule as “an antitrust standing doctrine that barred
downstream indirect purchasers from bringing an antitrust claim”); Warren
Gen. Hosp., 643 F.3d at 79 (“In illinois Brick, the Supreme Court held that only
direct purchasers have standing under Section 4 of the Clayton Act.”); Franco,
818 F. Supp. 2d at 835 (“It is well-established that only direct purchasers have
standing to pursue federal antitrust claims for damages.”).
Accordingly, because Resco asserts that it is a purchaser, I will consider
its standing within the confines of the bright-line direct purchaser rule.
b. The direct purchaser requirement as
standing rule

a

bright-line

The Supreme Court’s early efforts to rein in § 4 of the Clayton Act
focused on restricting the pool of proper plaintiffs. The Court’s goal was to
guard against double recovery on the one hand, and against overly complex
apportionment problems on the other. The “direct purchaser” rule, however,
12
That practical need is served by both the direct purchaser rule and the doctrine
of standing generally. For example, AGC, decided shortly after illinois Brick, articulated
a concern about “the indirectness of alleged injury” which “implicates the strong
interest
in keeping the scope of complex antitrust trials within judicially
manageable limits [and] the importance of avoiding either the risk of duplicate
recoveries on the one hand, or the danger of complex apportionment of damages on
the other.” AGC, 459 U.S. at 543-44.
.

.

.

37

will be applied irrespective of the extent to which it advances those underlying
policies in an individual case; it is a “bright line” rule.
Thus, after Illinois Brick, plaintiffs have argued for various exceptions to
the direct purchaser rule, but without much success. For example, in Kansas
v. UtiliCorp United, Inc., 497 U.S. 199 (1990), the Supreme Court rejected the
argument that the Illinois Brick rule was coterminous with the underlying
policies. It reaffirmed that this was a bright-line rule, and that “even assuming
that any economic assumptions underlying the illinois Brick rule might be
disproved in a specific case, we think it an unwarranted and counterproductive
exercise to litigate a series of exceptions.” Id. at 217. Fifteen years later, in
Howard Hess Dental Laboratories Inc. v. Dentsply Int’l, Inc., 424 F.3d 363 (3d
Cir. 2005), the Third Circuit surveyed the intervening case law and found that
the courts had consistently declined to consider case-by-case exceptions to the
“bright line rule” of illinois Brick. Id. at 371. The scope of illinois Brick is not
unlimited, see discussion at § IV.A.3.a, infra, but the essential elements and
“bright line” quality of the rule remain unchanged.
When determining whether a plaintiff and defendant are involved in a
direct purchaser! seller relationship, courts look to the “economic substance of
the transaction,” rather than the physical attributes of the transaction or the
geographical movement of goods and services. See Howard Hess Dental
Laboratories Inc. V. Dentsply Int’l, Inc. (Hess I”), 424 F.3d at 373. Hess I, for
example, considered an alleged direct purchasing relationship among a
manufacturer (Dentsply), a dealer, and a purchaser (Hess). That Court found
that, although the defendant manufacturer shipped goods directly to the
plaintiff, the purchase was nevertheless “indirect”; the direct purchaser was the
intermediate dealer, not plaintiff, who received the goods. The direct shipment
of goods did “not affect the economic substance of the transaction. That is, the
dealers still make the sale to Plaintiffs and Dentsply makes the sale to the
dealers. Plaintiffs pay the dealers their usual price, the dealers take their profit,
and then the dealers pay Dentsply. While it is true that the dealers do not take
physical possession of the [goods], this is nothing but a formal difference from
the typical transactions.” Id. (internal citation omitted).
Elaborating, the Hess I Court explained why it rejected any argument
that the manufacturer and dealer together constituted (in effect) a unitary
seller:
[E]ven assuming that Dentsply does exert some degree
of control over its dealers, illinois Brick’s policy reasons
for denying standing remain. Nothing about Dentsply’s
“control” over its dealers would prevent the dealers
from suing Dentsply, thus creating a risk of
duplicative liability for Dentsply and potentially
38

inconsistent judgments. Also, if Plaintiffs wanted to
recover overcharge damages, they would still have to
demonstrate the portion of the overcharge dealers had
passed on to them, leaving intact the evidentiary
complexities and uncertainties of concern in illinois
Brick. Moreover, permitting Plaintiffs to sue for
damages
could
potentially lead
to
inefficient
enforcement of the antitrust laws, because the
ultimate recovery for the dealers would be diluted
(assuming that, rather than the dealers being
permitted to recover the entire overcharge, it was
apportioned among the dealers and the labs), thereby
decreasing the dealers’ incentive to sue.
Id. at 372.
Recently, in Warren Gen. Hospital V. Amgen, the Third Circuit reaffirmed
that the “economic substance” of the sales transaction controls the direct
purchaser analysis. 643 F.3d at 89. In that case, Warren General Hospital
sought to represent a class of entities that purchased pharmaceutical drugs
manufactured and sold by Amgen. Warran alleged that Amgen “violated
antitrust law by ‘tying’ the purchase” of its White Blood Cell Growth Factor
(“WBCGF”) drugs to the purchase of its Red Blood Cell Growth Factor
(“RBCGF”) drugs. Id. at 80. While “[tihe Complaint did not set forth the
mechanics of the hospital’s WBCGF and RBCGF purchases.
at the motion
to dismiss stage, it became clear that Warren General Hospital in practice
purchases Amgen’s drugs through an independent middleman wholesaler
known as AmerisourceBergen.” Id. at 82. The Court found that even though the
plaintiff purchaser (Warren General) had direct interactions and negotiations
with the defendant manufacturer (Amgen), the transactions necessary to
execute the drug purchases were conducted through the intermediary dealer
(AmerisourceBergen). The plaintiff, Warren, was therefore an indirect
purchaser in relationship to the defendant manufacturer, Amgen. Id. at 88-91.
.

.

To characterize the purchasing relationship, Amgen looked to the
following factors:
First, when Warren General wants to purchase
Amgen’s WBCGF and RBCGF drugs it places its order
through
AmerisourceBergen.
Accordingly,
AmerisourceBergen charges Warren General for its
order. Second, AmerisourceBergen maintains the right
to set the price of the drugs it sells, and thus
AmerisourceBergen’s price is not necessarily the price
it paid Amgen. Third, Warren General physically takes

39

delivery of the shipment from AmerisourceBergen.
Fourth, Warren General pays AmerisourceBergen
directly; it transmits no funds to Amgen.
We agree that the hospital is “the immediate buyer”
from AmerisourceBergen, and does not purchase
directly from the “alleged antitrust violators.” UtiliCorp,
497 U.S. at 207, 110 S.Ct. 2807. The purchases go
through at least one other stage in the chain of
distribution before reaching Warren General, and
therefore the situation before us is akin to the facts in
UtiliCorp and illinois Brick. There are no allegations
that AmerisourceBergen is controlled or owned by
conspiracy;
the
thus
part
of
Amgen
and
AmerisourceBergen is a publicly traded company.
(Appellee Br. 12). In light of this record, there is no
way of getting around the conclusion that Warren
General is the second purchaser in the chain of
distribution.
Id. at 88.
In short, then, the requirement that a plaintiff be a “direct purchaser” is
a bright-line rule of antitrust standing. And to determine whether plaintiff is a
direct purchaser, the court must look to the “economic substance” of the
transaction.
Analysis of Resco’s direct purchaser standing

4.
a.

Class members’ standing not attributable to Resco

I deal briefly with a threshold issue. Resco, as a putative class
representative, cannot rely on the direct purchases of other class members to
establish its own standing. “To have standing to sue as a class representative it
is essential that a plaintiff must be a part of that class, that is, he must
possess the same interest and suffer the same injury shared by all members of
13
the class he represents.” Schlesinger v. Reservists Comm. to Stop the War, 418
U.S. 208, 216 (1974) (citation omitted). Accord Cordes & Co. Fin. Services, 502
F.3d at 101. As the Second Circuit Court of Appeals noted in Cordes & Co.
Financial Services, Inc., “The rule that “a class representative must be part of
must meet the
“An individual litigant seeking to maintain a class action
prerequisites of numerosity, commonality, typicality, and adequacy of representation
specified in Rule 23(a). These requirements effectively limit the class claims to those
fairly encompassed by the named plaintiffs claims.” (len. Tel. Co. of Sw. v. Falcon, 457
U.S. 147, 156 (1982) (internal quotation and citation omitted).
13

.

40

.

.

the class,” is one of prudential standing, related to the broader principle that
“the plaintiff generally must assert his own legal rights and interests, and
cannot rest his claim to relief on the legal rights or interests of third parties.”
Id. at 100 (quoting Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. at 156; Warth v.
Seldin, 422 U.S. at 499).
Cordes & Co. is particularly instructive because it involved claims of
antitrust injury arising from a horizontal price-fixing scheme—claims which,
like Resco’s claims here, were subsequently assigned to two class
representatives who had no prior interest or involvement in them. The Second
Circuit—while noting some potential ethical pitfalls—held that the assignees
had standing to pursue the antitrust claims:

The assignment of a claim from a person who suffered an injury to
someone who did not does not make the claim any less a “case or
controversy” which the courts have the constitutional capacity to
resolve. It is indeed commonplace for an assignee to institute or
continue an action of his or her assignor on an assigned claim
even though he or she, apart from the assignment, is without
standing, and the court, apart from the assignment, would be
without power to decide the case. See, e.g., Fed. R. Civ. P. 25(c)
(providing that in the case of “any transfer of interest, the action
may be continued by or against the original party” or, upon
motion, by or against the transferee).
502 F.3d at 102
There is, however, one critical fact that distinguishes Cordes & Co. from
the case now before me. There, the class action was initiated by two putative
class representatives who were “indisputably members of the class they sought
to represent.” Id. at 99. That is, the class representatives had themselves
suffered the same injury that gave rise to the assigned antitrust claims they
asserted. Here, the facts are not so clear, or at least, have yet to be established,
as discussed below.
Suffice it to say that, at this stage, Resco must establish its own
standing, either through its own direct purchases or through the direct
purchases of some entity that validly assigned its claims to Resco.
b.

Direct purchases from Defendants

Plaintiff Resco has pleaded very few facts regarding its own “direct
purchases” of magnesite from Defendants. The original complaint, ECF No. 1,
filed September 7, 2005, contains no statements regarding Resco’s direct
purchases of magnesite, or Animal Science’s indirect purchases of magnesite.
41

However, in the 2008 Motion for Default Judgment as to Defaulting Defendants
(ECF No. 28-1), Plaintiffs submitted the following facts regarding their
magnesite acquisitions.
purchased Worldwide
March
Resco
2006,
In
In 2004,
Refractories, Inc. (“Worldwide”).
Worldwide purchased magnesite directly from a co
conspirator in this case, Yingkou Sanhua Refractory of
China. Resco purchases magnesite from China
principally through brokers. Resco, however, made one
direct purchase from a co-conspirator in this case,
Rongyuan Magnesite Corp. of China, in 2004. With
respect to other purchases, Possehl Inc., one of
Resco’s brokers, has assigned to Resco its “rights, title,
and interest in and to all causes of action it may have
relating to magnesite or magnesite products
brokered by Possehi and subsequently delivered it
Resco during the period from 2000 to the present.”
Possehi purchased magnesite and magnesite products
directly from defendants during the class period and
shipped those products to Resco.
.

.

.

ECF No. 28-1 at 8 (internal citations omitted). See also Certification of Resco
Products, Inc. in Support of its Motion for Default Judgment, Class Damages
and Injunctive Relief, December 14, 2007, ECF No. 28-4 (“Resco Cert.”) at ¶J 58.
Later in the same brief, Plaintiffs asserted standing to bring their claims
based on these facts alone:
Resco and Animal Science each have standing to
assert their claims under the Sherman Act. As an
indirect purchaser threatened with continuing losses
caused by Defendants’ conspiracy, Animal Science has
standing to seek injunctive relief under § 16 of the
Clayton Act.
Resco has standing as a direct purchaser and through
its acquisition of Worldwide Refractories, which is also
a direct purchaser. In addition, Resco has standing as
an assignee of another direct purchaser.
ECF No. 28-1 at 17 (internal citations omitted).
After Judge Brown dismissed Plaintiffs’ original complaint and denied
their Motion for Default Judgment in December 2008 (ECF No. 73), Plaintiffs
filed the Amended Complaint, which included the following allegations:

42

Resco purchased magnesite directly from co
conspirators
Rongyuan
Magnesite
Corporation
[(“Rongyuan”)] and Yingkou Sanhua Refractory
Material Co., Ltd [(“Yingkou”)]. Possehi, Inc. has
assigned to Resco its rights, title, and interest in and
to all causes of action it may have relating to
magnesite or magnesite products brokered by Possehi,
Inc. and subsequently delivered to Resco during the
relevant period. Possehi, Inc. purchased magnesite
and magnesite products directly from defendants
during the class period and shipped those products to
Resco.
AC ¶ 11.
Throughout the Amended Complaint, Plaintiffs allege that Defendants
have sold magnesite products directly “to U.S. companies” and “shipped
magnesite products to the United States.” The Complaint does not specifically
allege that Resco was one such “U.S. company,” or that Resco was a direct
recipient of magnesite that Defendants “shipped
to the United States.” See,
e.g., AC ¶J 2, 12, 51. And in any event the physical shipment route of
magnesite, while informative, would not establish a “direct purchase”; rather,
as discussed above, it is the economic substance of the transaction that
controls. See discussion at § IV.A.3.b, supra.
...

The Amended Complaint does not allege in so many words that Resco
conducted any direct sales transactions with any of the named Defendants. To
the contrary, Resco acknowledges that it purchases magnesite through
intermediaries. Again, in an excess of caution, I have reviewed other motion
papers filed by Resco, but I find nothing helpful. For example, in its 2007
Motion for Default Judgment, quoted above, and more recently in its
Opposition to Defendants’ Motion to Compel Arbitration, Resco explains that it
“primarily purchases magnesite through brokers.” Supp. Resco Deci., 133-2 ¶
5 (emphasis added).
In short, Plaintiffs allege no direct purchases by Resco from any named
Defendants. Nothing in the Amended Complaint constitutes a plausible factual
allegation in support of the most direct and obvious form of standing: plaintiff’s
direct purchases from one or more of the defendants.

Resco’s standing as a direct purchaser, then, must depend on two thinly
pleaded alternative allegations: (1) direct purchases from “co-conspirators” by
itself or its subsidiary, Worldwide; and (2) Resco’s acquisition by assignment of
claims belonging to Possehi, Inc. I will address each.

43

c. Direct purchases from Chinese “co-conspirators”
Resco does allege direct purchases from “co-conspirators.” These number
two: one made by Resco itself and one made by Worldwide prior to its
just
acquisition by Resco. Rongyuan and Yingkou, the “co-conspirators” from whom
Resco allegedly made purchases, are not named as defendants. Nor are they
4
included in the list of alleged participants in the Cartel.’ See AC at ¶{ 52-53,
even if they were, it is unlikely that purchases from such a co
57. And
conspirator would secure Resco’s standing as a direct purchaser.
First some legal background. Resco here attempts to take advantage of
the so-called “co-conspirator exception” to the direct purchaser rule. In illinois
Brick, the Court alluded to an “exception,” or rather a factual scenario that
would fall outside the purview of its bright-line rule: An indirect purchaser may
sue if it can establish that the actual direct purchaser, the middleman, has
entered into a price-fixing conspiracy with the manufacturer, thus rendering
the direct purchaser a “co-conspirator.” See 2A Phillip E. Areeda et al.,
Antitrust Law ¶ 346h (3d ed. 2007). The possibility of a “co-conspirator
exception” was recognized, but not applied, by the Third Circuit in McCarthy,
80 F.3d at 854. There, the plaintiffs argued, in the alternative, that “indirect
buyers have standing to bring an antitrust claim against defendants who are
co-conspirators in a vertical antitrust conspiracy.” The McCarthy plaintiffs
relied on Link v. Mercedes-Benz of N. Am., Inc., 788 F.2d 918 (3d Cir. 1986). In
Link, however, the Court declined to “carve out a narrow exception to illinois
Brick in vertical conspiracies where the intervening parties in the distribution
process are named as co-conspirators (a so-called “co-conspirator exception”)”
where “the alleged co-conspirators are not also joined as co-defendants.” Id. at
931. The McCarthy plaintiffs also cited In re Brand Name Prescription Drugs
Antitrust Litigation, 867 F. Supp. 1338 (N.D. Ill. 1994), wherein “the district
court did allow the plaintiff retailers of pharmaceutical drugs to sue both the
manufacturers and the wholesalers, [but] did so on the basis that the plaintiffs
had alleged that the parties immediately upstream (i.e. the wholesalers) had
colluded with the manufacturers to fix prices. The plaintiffs had not alleged
that overcharges were passed on but rather that the wholesalers, as part of a
price-fixing conspiracy, had directly imposed an overcharge on the plaintiff
retailers.” McCarthy, 80 F.3d at 854 (discussing Brand Name, 867 F.Supp. at
1344).
In McCarthy, however, the Third Circuit ultimately declined to apply the
Plaintiffs allege that the Huaxia EQ included “co-conspirators” Shenyang Metals
& Minerals and CITIC Trading. They do not allege that Rongyuan Magnesite
Corporation and Yingkou Sanhua Refractory Material Co., Ltd. were members of either
Huaxia EQ or Jiyuan EQ. See AC ¶f 52-53.
14

44

co-conspirator exception: “[I]n order to fall within the exception, plaintiffs here
would have to allege that the intermediaries immediately upstream.
colluded
with the defendants to overcharge plaintiffs [and] plaintiffs would be obliged to
join the [co-conspirators] as defendants, which they have not done.” Id. at 855.
McCarthy ‘s formulation of the “co-conspirator exception”—requiring (1)
collusion between defendants and intermediaries immediately upstream and (2)
joining the intermediaries as defendants—was recognized and expanded
slightly in two related cases: Howard Hess Dental Laboratories Inc. v. Dentsply
Int’l, Inc., 424 F.3d 363 (3d Cir. 2005) (“Hess 1’) and Howard Hess Dental
Laboratories Inc. v. Dentsply Int’l, Inc., 602 F.3d 237 (3d Cir. 2010) (“Hess II’).
.

.

In Hess I, the Third Circuit considered the consolidated appeals of
Howard Hess Dental Laboratories (“Hess”) and Jersey Dental Laboratories
(“Jersey”) alleging antitrust class actions against Dentsply International, a
manufacturer of artificial teeth, and its designated dealers. Plaintiffs alleged
“an exclusive-dealing conspiracy and a retail price-fixing conspiracy among
Dentsply and its dealer-middlemen.” Hess I at 366. Plaintiffs, asserting direct
purchaser standing, purchased artificial teeth indirectly though Defendant’s
dealers or directly through “drop-shipping,” meaning that the dealer arranged
the order, sale, payments and delivery, but never took physical possession of
the teeth. See id. at 367. The district court denied both plaintiffs standing to
recover under the illinois Brick rule. See id. at 366. On appeal, Hess and Jersey
asserted that they should be able to recover damages under the “co
conspirator” exception to Illinois Brick. Id.
Hess I’s adoption of the co-conspirator exception was somewhat
equivocal:
Our Court has not explicitly adopted a co-conspirator exception to
illinois Brick. In McCarthy, we neither adopted nor rejected the
exception because it was inapplicable to the case, but we did
explain its “nature”: “In order to fall within the exception, plaintiffs
here would have to allege that the intermediaries immediately
upstream
colluded with the defendants to overcharge
plaintiffs.... Moreover, plaintiffs would be obliged to join the
[intermediaries] as defendants....” 80 F.3d at 855 (emphasis
omitted).).
...

Hess I, 424 F.3d at 376. Hess I ultimately found the co-conspirator exception
to be inapplicable to the facts of the case.
Although Hess alleged that the exclusive dealing arrangement between
Dentsply and its dealers qualified as a conspiracy, “Plaintiffs did not name any
of the dealers as co-defendants,” id. at 370, as McCarthy required. The Court
explained, “[w]e have rejected attempts to invoke the co-conspirator exception
to illinois Brick’s bar on indirect purchaser standing when plaintiffs have not
45

named the co-conspirators immediately upstream as defendants.” Id. However,
the Court found that the co-conspirator exception could apply in Jersey’s case
because Jersey did allege “that they made purchases from Dentsply’s dealers
(the intermediaries immediately upstream from Plaintiffs) and that Dentsply
and its dealers are co-conspirators. In addition, the Jersey Dental Plaintiffs
sued not only Dentsply, but also joined as defendants twenty-six of Dentsply’s
then twenty eight authorized dealers. Thus, under McCarthy, Plaintiff’s
potentially qualify for the co-conspirator exception.” Id. 376-77. The Court
noted that Jersey would not be able to recover from the two dealers it had not
joined as defendants because the “Court has expressly refused to adopt a co
conspirator exception when the alleged co-conspirators immediately upstream
have not been joined.” Id. at n.8.
On remand, the District Court dismissed Jersey’s co-conspirator claims
against the Dealers, finding that the Dealers were not coequal participants in
the conspiracy. Jersey again appealed. The Third Circuit, considering the co
conspirator exception for a second time in Hess H, agreed with the district
court that Jersey had failed to allege a conspiracy among the Dealers. See Hess
H at 255 (“we conclude that the amended complaint lacks any allegation of an
agreement among the Dealers themselves. The amended complaint states only
in a conclusory manner that all of the defendants—Dentsply and all the
Dealers included—conspired and knew about the alleged plan to maintain
Dentsply’s market position.”). The Court characterized the alleged conspiracy
as a “hybrid of both vertical and horizontal conspiracies.” It accepted that a
valid conspiracy allegation was not confined to a simple vertical or chain
conspiracy, noting that a so-called “hub-and-spoke’ conspiracy, has a long
history in antitrust jurisprudence.” See id. at 254-55; see also In re ATM Fee,
686 F.3d at 750 (noting that the Ninth Circuit applies the exception “when the
direct purchaser conspires horizontally or vertically to fix the price paid by the
plaintiffs”). Nonetheless, the Court concluded that Jersey’s allegation that the
Dealers had knowledge of the same exclusive dealing arrangement among one
another was not enough to survive a motion to dismiss. Citing Twombly, the
Court held, “to survive dismissal it does not suffice to simply say that the
defendants had knowledge; there must be factual allegations to plausibly
suggest as much.” Id. Considering this conclusion in the context of Illinois
Brick and the co-conspirator exception, the Court explained:
[T]he Plaintiffs could come within Illinois Brick’s
coconspirator exception only if the Dealers were
precluded from asserting claims against Dentsply
because their participation in the conspiracy was
“truly complete.” Hess I, 424 F.3d at 383. As we have
already concluded, however, the amended complaint
does not give rise to a plausible inference that the
Dealers’ involvement in the conspiracy was truly
complete. Therefore, to state a viable claim against the
46

Dealers, the Plaintiffs must come within the
coconspirator exception—or some other exception—to
Illinois Brick. Because they have failed to do so, the
Plaintiffs in essence are asserting their claims against
the Dealers as mere middlemen. This they cannot do
Id. at 259.

The “co-conspirator exception,” then, is a limited one, and is not quite
secure as a matter of Third Circuit law. But let that pass. Like the Hess courts,
I will assume the exception exists. For the reasons expressed by those courts, I
hold that the Complaint contains no allegations sufficient to invoke the
exception.
Resco included general allegations of purchases from Rongyuan and
Yingkou, but it failed to name these “co-conspirators” as defendants. It seems
that Resco believed it would be sufficient simply to attach the epithet “co
conspirator” to Rongyuan and Yingkou. Clearly, under Rule 12(b)(6) standards,
that is not enough. The Complaint contains no facts sufficient to plausibly
suggest that these two entities were co-conspirators.
Resco has not characterized the alleged “co-conspirators” as
intermediaries at all, let alone intermediaries immediately upstream in a
vertical conspiracy. Resco has not alleged a “hub-and-spoke” conspiracy
wherein the co-conspirators conspire with the named defendants (the hub) and
amongst each other (the spokes). Rather, Resco alleges only that each
Defendant and each of “its co-conspirators [have] colluded with each other to
restrain competition by, among other things, setting artificial prices pursuant
to illegal horizontal agreements among these competitors.” AC ¶ 29. This
conclusory legal language lacks any supporting factual allegations. Resco
makes no attempt to distinguish the roles of the named Defendants from the
roles of the named co-conspirators, other than to label them as such. Nor does
it explain what the “co-conspirators” allegedly did to merit that label. Tellingly,
the allegations of cartel meetings and agreements, detailed enough in other
respects, do not include any reference to the co-conspirators. See AC ¶J 57-64.
In short, I have rearranged the facts before me, but I see no configuration
that would come close to placing Resco’s allegations within the co-conspirator
exception. It follows that Resco has failed to plead direct purchaser standing
based on purchases by, or from, Rongyuan and Yingkou.
d. Resco’s Acquisition of Worldwide Refractories

Closely related to Resco’s “co-conspirator” theory is its reliance on its
acquisition of Worldwide Refractories in March 2006. The notion seems to be
that, in purchasing Worldwide, Resco succeeded to some direct-purchaser

47

status that Worldwide possessed. For this theory to work, Worldwide
Refractories must be alleged, plausibly and factually, to have been a direct
purchaser in its own right. There is no such allegation.
Inspecting the Amended Complaint, I see no specific allegation of any
direct purchase by Worldwide Refractories, let alone a specific allegation of
dates, times and places. There is no allegation of Resco’s accession to standing
possessed by Worldwide that could withstand a Rule 12(b)(6) motion.
Giving Resco the benefit of the doubt, I have also inspected its Motion for
Default Judgment and a supporting declaration. There, Resco states that
Worldwide Refractories purchased magnesite directly from “co-conspirator”
Yingkou in 2004. See ECF No. 28 at 8; Resco Cert. ¶J 5-6. But for the reasons
given in § IV.A.4.c, supra, the Complaint does not adequately allege that
purchases from this “co-conspirator” would establish standing, even as to
Resco directly. Still less does it allege purchases by Worldwide Refractories that
could be attributed to Resco.
e. Assignment of Claims by Possehl (US) to Resco

As noted above, Plaintiffs argue in the alternative that they have standing
by virtue of an assignment of claims from Possehl (US). The theory is that
Possehi (US) possessed valid claims as a direct purchaser, which it assigned to
Resco. Unfortunately, the necessary facts are not forthrightly alleged in the
Complaint. Rather, they have tumbled out in a variety of pleadings. I recognize
the proper scope of a motion to dismiss, and I will therefore make a
determination based on the Complaint and other material properly considered
under Rule 12(b)(6). Thereafter, I will refer to certain facts extrinsic to the
Complaint to guide the case going forward and to suggest what the Complaint
is missing.
i. The face of the complaint and the assignment
Bell Atlantic v. Twombly, the seminal modern case on pleading
requirements, was an antitrust case. Its reasoning is therefore particularly
instructive. In Twombly, the Court instructed that “stating [an antitrust claim]
requires a complaint with enough factual matter (taken as true) to suggest that
an agreement was made. Asking for plausible grounds to infer an agreement
does not impose a probability requirement at the pleading stage; it simply calls
for enough facts to raise a reasonable expectation that discovery will reveal
evidence of illegal agreement.” Bell Ati. Corp. v. Twombly, 550 U.S. at 556.

Unlike the plaintiff in Twombly, Plaintiffs here have plausibly pleaded the
existence of an illegal agreement or combination. That is not in itself sufficient
to make out a cause of action. As held by the numerous cases cited above,

48

Plaintiffs must also plead facts sufficient to demonstrate standing: as relevant
here, that requires a plausible factual allegation that Possehi (US) possessed
claims based on direct purchases, and that it assigned those claims to Resco.
In deciding whether Plaintiffs have pleaded a claim upon which relief
may be granted, I “must consider only the complaint, exhibits attached to the
complaint, matters of public record, as well as undisputedly authentic
documents if the complainant’s claims are based upon these documents.”
Mayer, 605 F.3d at 230. Extrinsic evidence is not relevant to a motion to
dismiss. “However, an exception to the general rule is that a document integral
to or explicitly relied upon in the complaint may be considered without
converting the motion to dismiss into one for summary judgment.” In re
Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997) (internal
citations and quotations omitted). I will therefore consider, not only the
Amended Complaint, but the Assignment Contract. Resco’s direct-purchaser
claim rests on the Assignment, which is integral to the Amended Complaint
and which is explicitly and implicitly relied upon by Resco. AC ¶ 11.
I therefore consider the language of the Assignment and its legal effect on
a motion to dismiss an antitrust claim for lack of standing.
The assignment contract, included by Defendants as Exhibit A to the
Declaration of Leda Dunn Wettre (ECF No. 37-16) and by Plaintiffs as Exhibit 1
to the Supp. Resco Deci., 133-2 (the “Assignment Contract”), is just one-and-ahalf pages long. Its relevant language is as follows:
ASSIGNMENT
THIS ASSIGNMENT OF CLAIMS is entered into this
21st day of June, 2005, by and between Possehl, Inc.
(“Possehi”) and Resco Products, Inc. (“Resco”) in the
Commonwealth of Pennsylvania.
Possehi is a broker of raw materials, minerals,
1.
and alloys, including but not limited to, magnesite and
magnesite products.
Resco has purchased magnesite and magnesite
2.
products from various producers or suppliers from
China, utilizing Possehl as a broker.
Possehl has not brought suit and does not
3.
anticipate bringing suit to recover possible overcharges
on brokered purchases of magnesite or magnesite
products which may have resulted with respect to the
sale of those products.
Possehl does not represent that it is aware of
4.
any possible overcharges on brokered purchases of

49

magnesite or magnesite products, which may have
resulted with respect to Resco’s purchases of those
products.
AGREEMENT
NOW, THEREFORE, in recognition of good and
valuable consideration of $100 (One Hundred Dollars),
the receipt and sufficiency of which are hereby
acknowledged, intending to be legally bound hereby,
Possehi hereby conveys, assigns, and transfers to
Resco all rights, title, and interest in and to all causes
of action it may have under the laws of the United
States of America or any State thereof relating to
magnesite or magnesite products brokered by Possehi,
and subsequently delivered to Resco during the period
from 2000 through the present. Possehi, as Assignor,
will make available for copying at the sole expense of
Resco, as Assignee, records documenting the
producing seller to Resco of products covered by this
Assignment.
Id.
There is nothing wrong with the abstract legal basis of Resco’s theory of
standing. It is well settled in the Third Circuit that “express assignments of
antitrust claims from a direct purchaser to an indirect purchaser are
permissible and do not run afoul of Illinois Brick’s standing requirements.” In re
K-Dur Antitrust Litig., 338 F. Supp. 2d at 539 (citing Gulfstream III Associates,
Inc., 995 F.2d at 438—440 (holding that “any assignment of antitrust claims, as
a matter of federal common law, must be an express assignment
[because]
an express assignment
entirely eliminates any problems of split recoveries
or duplicative liability.”)); see also In re Weilbutrin Sr Direct Purchaser Antitrust
Litig., 70 Fed. R. Serv. 3d 664 (E.D. Pa. 2008) (“this circuit has long recognized
that antitrust claims can be assigned.
Indeed, numerous courts have
certified litigation classes in which the named plaintiffs were operating under
an assignment.”).
.

.

.

.

.

.

.

.

.

Equally well-settled, however, is the principle that a party can assign no
more than it has. “[A]ssignment requires an assignable right,” Restatement
(Second) of Contracts § 324 (1981), and “an assignee of a claim takes it with
whatever limitations it had in the hands of the assignor,” Caribbean S. S. Co., S.
A. v. Sonmez Denizcilik Ve Ticaret A. S., 598 F.2d 1264, 1266 (2d Cir. 1979).
See also Septembertide Pub., B. V. v. Stein & Day, Inc., 884 F.2d 675, 682 (2d
Cir. 1989) (an assignor cannot assign that which it no longer owns or controls)
(citing Int’l Ribbon Mills, Ltd. v. Arjan Ribbons, Inc., 36 N.Y.2d 121, 126, 325

50

N.E.2d 137, 139 (1975) (“It is elementary ancient law that an assignee never
stands in any better position than his assignor. He is subject to all the equities
and burdens which attach to the property assigned because he receives no
more and can do no more than his assignor”)). That adage—”that an assignee
never stands in any better position than his assignor”—has two direct
consequences here. First, it means that Possehi (US) must have possessed an
antitrust claim in its own right, as a direct purchaser, before it could assign
5
such a claim to Resco.’ Second, it means that, if Possehi (US) contractually
agreed to forgo litigation and arbitrate such claims, that agreement to arbitrate
was assigned to Resco along with Possehi’s claims.
The requirement that Possehl (US) have been a direct purchaser
distinguishes this case from the issue presented in In re K-Dur Antitrust
Litigation. In K-Dur, an antitrust class action involving pharmaceuticals, the
plaintiffs asserted “claims as assignees against Defendants on behalf of
assignors who have assigned their claims.” 338 F. Supp. 2d at 539. Defendants
objected on the grounds that the Plaintiffs, absent a valid assignment, lacked
the capacity to sue. Id. at 540.
Judge Greenaway declined to consider the validity of the assignment on a
Rule 12(b)6) motion: “Under Fed. R. Civ. P. 9(a), ‘[i]t is not necessary to aver the
capacity of a party to sue or be sued or the authority of a party to sue or be
sued in a representative capacity
except to the extent required to show the
jurisdiction of the court.” Id. (quoting Wright & Miller § 1292 (“Under [Rule
9(a)], the fact that a plaintiff, defendant, third-party litigant, or intervenor is
participating in the action as a corporation, partnership, administrator,
guardian, trustee, or other representative need not be pleaded.”)). The Court
concluded that “[a] complaint will not be dismissed for lack of pleading a
party’s capacity to sue except where lack of capacity affirmatively appears on
the face of the complaint, or where an opposing party has made a specific
negative averment in a responsive pleading.” Id.
...

Here, however, the issue is not the validity of an assignment, and the
assignee plaintiff’s resulting capacity to sue. The issue, as in Cordes & Co,
discussed at § IV.A.i.d., supra, is whether the assignors possessed a valid
6
cause of action prior to assignment.’
A similar distinction was recently drawn by the U.S. District Court for
15
Defendants argue that “Possehi (US) cannot assign, and could not have
assigned, an antitrust claim to Resco because as a broker Possehl (US) has no direct
purchaser antitrust standing of its own.” Def. Supp. Brief MTCA, 137 at 8.

I also note that K-Dur is a pre-Twombly decision. A more stringent pleading
standard might well have produced a different result.
16

51

the Northern District of California in In re TFT-LCD (Flat Panel) Antitrust Litig.,
787 F. Supp. 2d 1036 (N.D. Cal. 2011). There, contractors purchased the goods
and resold them to the States of Michigan and Wisconsin. The contractors later
assigned their antitrust claims to the States, who sued as assignees. See id. at
1040. Defendants moved to dismiss on the grounds that the States neither
identified the assignors nor “alleged sufficient facts to demonstrate that the
assignors would be entitled to relief.” Id. Necessary information, said the
defendants, would include “the identities of the assignors, information
regarding the purchase contracts that gave rise to the assignment, and
information regarding whether the relevant purchases were made in Michigan
and Wisconsin.”
7
The TFT-LCD Court agreed with the defendants.’ It explicitly
“defendants’ challenge to the complaint is not
distinguished K-Dur because
solely related to capacity to sue”:
This allegation speaks only to the States’ purchases,
not the original purchases that give rise to the
assigned claims. This Court has previously held that
in order to invoke the various state antitrust laws at
issue, plaintiffs must be able to allege that the
occurrence or transaction giving rise to the litigation—
plaintiffs’ purchases of allegedly price-fixed goods—
occurred in the various states. Consistent with this
Court’s prior decisions, the Court holds that in order
to bring the assigned claims under the state antitrust
laws, Michigan and Wisconsin must allege that the
purchases were made in Michigan and Wisconsin.
Id. at 1041 n.3. In other words, the complaint had to sufficiently allege a valid
cause of action arising prior to assignment—an issue separate and distinct
from the plaintiffs’ capacity to sue as assignee.
This case, too, falls outside the scope of K-Dur and within the scope of
TFT-LCD, for several reasons. I begin with what is not contested, but we very
quickly get into deep water. There is no objection to the facial validity of the
assignment itself—there is no dispute, for example, as to whether the
assignment of antitrust claims was express,’ or whether consideration was
8
While the Court granted Defendants’ motion to the extent that it sought
information regarding the identity of the assignors and facts alleging that the
purchases at issue occurred in the relevant States, the Court found that the “balance
of information sought by defendants, such as information about the contracts, is not
required as a pleading matter and can be explored in discovery.” Id. at 1041 and n.3.
‘7

18

In Gulfstream, the Third Circuit made clear that a general assignment, that is,
52

paid. The Assignment Contract recites that Resco paid $100 in consideration
for the assignment and that that assignment encompasses “all rights, title, and
interest in and to all causes of action [assignor Possehi] may have under the
laws of the United States of America or any State thereof.
.

.

The allegations of the Amended Complaint are nevertheless inadequate to
establish standing-by-assignment. Buried in the description of “parties” is an
allegation that “Possehl, Inc. has assigned to Resco its right, title, and interest
in and to all causes of action it may have relating to magnesite or magnesite
products brokered by Possehl, Inc. and subsequently delivered to Resco during
the relevant period. Possehl, Inc. purchased magnesite and magnesite products
directly from defendants during the class period and shipped those products to
Resco.” AC ¶ 11. Right at the outset, then, there is an ambiguity about whether
Possehl (US) “purchased” magnesite, “brokered” such purchases, or both. Not a
single relevant “direct purchase” by Possehl (US) is identified or alleged
factually. And such a direct purchase is a prerequisite to Possehl (US)’s
possession of an antitrust cause of action that it could assign.
This Complaint fails
If Possehl (US) is a direct
factual particulars of its
control, or could be made

to allege a single specific purchase by Possehl (US).
purchaser, then it should be possible to allege the
purchases. Those facts are either within Resco’s
so. That circumstance influences my consideration

one that does not specifically refer to rights arising under the antitrust laws, will not
be read to imply the assignment of antitrust claims. See Gulfstream III Associates, Inc.
v. Gulfstream Aerospace Corp., 995 F.2d 425, 431, 438—439 (3d Cir. 1993). The
all of
assignment agreement in Gulfstream “sold, assigned, transferred and set over.
the rights, title, and interest in and to” an aircraft and the related Purchase
Agreement. Id. The assignment did not mention the transfer of any rights in and to
legal claims, let alone claims specffically arising under the antitrust laws. See id.
Shortly after Gulfstream was decided, the Third Circuit clarified that for an assignment
to be express, it need not name the type of claims included in the assignment (e.g.
antitrust or RICO) but rather must be “unambiguous and all-inclusive.” See Lerman v.
Joyce Intern., Inc., 10 F.3d 106, 112 (3d Cir. 1993) (holding that an assignment of “all
claims, and demands of whatsoever nature” constituted an
causes of action
express assignment of RICO claims); accord In re Linerboard Antitrust Litigation, 443 F.
Supp. 2d 703, 712 (E.D.P.A. 2006) (“the Lerman Court held that an unambiguous and
all-inclusive assignment of claims, even without specifying the types of causes of
action assigned, satisfies the express assignment requirement.”).
.

.

.

.

.

Here, while the Assignment Contract does not specifically refer to “antitrust
claims” it does refer to “all rights, title, and interest in and to all causes of action it
may have under the laws of the United States of America or any State thereof’—
language which is “unambiguous and all-inclusive” and presumably encompasses
potential antitrust claims. Moreover, Defendants have not asserted that this is a
general assignment as opposed to an express one. Thus, I will proceed on the
assumption that this is an express assignment.

53

under Twombly of whether the necessary facts would likely emerge through
discovery. Twombly’s pleading standard was influenced by its practical
consideration of whether to allow an unfounded antitrust complaint to proceed
at considerable cost to the courts and the parties. “[lit is one thing to be
cautious before dismissing an antitrust complaint in advance of discovery, but
quite another to forget that proceeding to antitrust discovery can be expensive.”
Twombly, 550 U.S. at 558 (citing Associated Gen. Contractors of Cal., Inc. v.
Carpenters, 459 U.S. 519, 528, n. 17 (1983) (“a district court must retain the
power to insist upon some specificity in pleading before allowing a potentially
massive factual controversy to proceed.”). The opinion also cautions that a
deficient complaint should “be exposed at the point of minimum expenditure of
time and money by the parties and the court.” Twombly, 550 U.S. at 558.
More clarity is needed before I will set this case on an expensive course of
discovery. The facts brought before the Court by both parties suggest that the
confusion, if not purposeful, is inexcusable, and should be remedied by Resco.
The Complaint simply fails to clarify whether Possehi (US) was in fact a direct
purchaser in its own right. The Assignment Contract does not really help. It
does not specify whether, where, or by whom any direct purchases were made.
Nor does it confirm that Possehi (US) was a direct purchaser; rather it assigns
whatever claims Possehi (US) may have had, begging the question of whether
Possehi (US) had any. It refers to Possehi’s “brokered purchases,” and “Resco’s
purchases,” further confusing the issue.’
9
“Possehl hereby conveys, assigns, and transfers to Resco all rights, title, and
interest in and to all causes of action it may have under the laws of the United States
of America or any State thereof . . . .“ Indeed, Possehi expressly disavows any
knowledge of potential antitrust claims arising from its own dealings: “Possehi does
not represent that it is aware of any possible overcharges on brokered purchases of
magnesite or magnesite products, which may have resulted with respect to Resco’s
purchases of those products.” Assignment Contract. See also Def. Brief MTCA, 37-1
at 4-5.
19

Defendants’ position on this issue is most clearly articulated in its
supplemental briefing on the Motion to Compel Arbitration. See ECF Nos. 133-142.
There, Defendants submit:
Resco simply asserts it “primarily purchases magnesite
through brokers” and relies on an assignment from Possehl
(US) to bring this action. This simple assertion fails,
however, as there is no evidence that Possehi (US) ever
purchased magnesite directly from any Defendant or
alleged co-conspirator on which to base an assignment of a
direct purchaser antitrust claim for damages. While another
entity, Possehi (HK), actually purchased magnesite from
Defendants (evidenced by contracts produced to Plaintiffs
by Defendants), including presumably on behalf of Resco as
brokered by Possehi (US), there is no allegation or evidence

54

Construing the Complaint and the Assignment Contract in the light most
favorable to Plaintiffs, I do not find that they are sufficient “to raise a right to
relief above the speculative level.” Mayer, 605 F.3d at 230; Twombly, 550 U.s.
at 555. Resco must do more than merely label Possehi (US), the alleged
assignor, a “direct purchaser,” while at the same time calling it a “broker.” That
is tantamount to stating a legal conclusion, which I am not required to accept
as true. See id. The underlying Assignment Contract, which asserts that
Possehl (US) is a broker, contains no factual allegations that Possehi (US) ever
made a purchase. If I were to assume that Possehl (US) brokered and
purchased magnesite directly from the Defendants and assigned rights arising
from those direct purchases to Resco, I would be speculating. Such a state of
°
2
facts perhaps is not definitively ruled out by the current allegations, but
neither is it actually alleged.
For these reasons, based on the face of the Complaint and the underlying
Assignment incorporated therein, I will grant the motion to dismiss for lack of
standing.
ii. Allegations in other pleadings
Defendants suggest that the smoking deficiencies in this Complaint
betoken fire. Defendants state that it was not Possehi (US), but a different
Possehi entity, Possehi Hong Kong, Ltd (“Possehl (HK)”), that made relevant
purchases. Citing sales contracts, Defendants assert that Possehl (HK) made
the magnesite purchases from at least two of the Defendants and that Possehl
21
(HK) took physical possession of the magnesite outside of the United States.
that Possehi (HK) assigned any U.S. antitrust claims
(assuming it has any) to Resco.
Def. Supp. Brief MTCA, 137 at 4 (internal citations omitted).
In their Supplemental Sur-Reply Memorandum in Support of the Motion to
Compel Arbitration and Stay Proceedings, July 30, 2012, ECF No. 142 (“Supp. Sur
Reply MTCA, 142”) Defendants argue that a broker, such as Possehi (US) cannot
maintain antitrust standing. See id. at 4 (“Direct purchasers have antitrust standing;
mere brokers do not.”). While I agree that a broker is not equivalent to a purchaser for
purposes of determining antitrust standing, Possehl (US) ‘s role as a broker does not
necessarily preclude it from also acting as a purchaser. Defendants are correct,
however, that Plaintiffs have failed to plausibly plead this critical factual link.
20

“Nonetheless, some Defendants were able to fmd in their own files magnesite
sales contracts with Possehl (HK) Ltd. that demonstrate that Possehl, and hence, its
assignee Resco, agreed to arbitrate and/or are estopped from refusing to arbitrate
claims.” Def. Brief MTCA, 37-1, at 5, n.4.

21

55

Further complicating matters, those contracts with Possehl (HK) contain the
arbitration clauses that are at issue in the motion to compel arbitration.
I do not suggest that Defendants’ contentions or evidence extrinsic to the
Complaint would directly bear on the motion to dismiss; I have granted that
motion because the allegations of the Complaint are insufficient. True, such
evidence might figure into Iqbal’s “plausibility” analysis, “a context-specific task
that requires the reviewing court to draw on its judicial experience and
common sense.” 556 U.S. at 679; see also Bistrian, 696 F.3d at 365. But it is
not necessary to stretch a point here.
Rather, I cite these extrinsic matters primarily because they point the
way to the allegations that any amended Complaint must contain. Moreover, if
it turns out to be the case that Possehl (HK) is the relevant entity—or,
alternatively, that any contracts with Possehl (US), like the Possehi (HK)
contracts, contain an arbitration clause—that will place the motion to compel
arbitration on a much different footing. In short, an amended pleading, any
subsequent motion to dismiss it, and the motion to compel arbitration may all
depend on allegations that identify the relevant purchases, contracts, and
assignments with reasonable specificity. Such facts, then, may bear on the
following issues: (a) whether this dismissal should be with prejudice; (b) the
principles of law that should govern any subsequent amended complaint; (c)
factual issues that must be addressed in any subsequent amended pleading;
and (d) the motion to compel arbitration, discussed below.
Other submissions by Resco tend to confirm one of the Complaint’s two
competing characterizations of Possehl (US): that it is a “broker.” Resco
acknowledges that it “primarily purchases magnesite through brokers”—first, in
its Motion for Default Judgment, see ECF No. 28-1 at 8 and Resco Cert. MDJ,
28-4 ¶ 7, and later, in a Declaration submitted in support of its Supplemental
Opposition to Defendants’ Motion to Compel Arbitration, May 25, 2012, Supp.
Resco Decl. 133-2 at ¶ 5. That second Declaration includes the following
details of the alleged assignment of claims by Possehl (US): “On June 21, 2005,
one of Resco’s brokers, Possehl, Inc., assigned to Resco its ‘rights, title, and
interest in and to all causes of action it may have under the laws of the United
States of America or any State thereof related to magnesite or magnesite
products brokered by Possehl and subsequently delivered to Resco during the
period from 2000 to present.”’ Id. (emphasis added). Resco provides no further
details about the assignment or Possehl (US)’s alleged purchases from
Defendants.
According to Defendants, “Possehi (through at least Possehl (HK) Ltd.)
agreed to arbitrate any and all disputes arising out of its magnesite purchases
in signed contracts with two Defendants.” Def. Brief MTCA, 37-1 at 2. I note,
however, that the relationship between Possehl (US) and Possehl (HK) is

56

unexplained, and I cannot simply assume that they are fungible entities, or
that one acted “through” the other.
Further obfuscating matters, Plaintiffs and Defendants, respectively,
refer to Possehi (HK) as “an affiliate of Resco’s assignor” and “a related Possehi
entity.” Neither party provides any information regarding the corporate
relationship between Possehi (US) and Possehi (HK). It is not disclosed, for
example, whether one is a subsidiary of the other or whether both are
subsidiaries of a third entity. That information may be critical to determining
22
whether purchases or assignments made by one entity affect the status of the
other.
Resco remains notably unspecific about the transactions on which its
claims depend. In supplemental briefing on the Motion to Compel Arbitration,
Resco merely denies that the purchases made by Possehl (HK) have any effect
on any assignment made by Possehi (US). See Plaintiffs’ Supplemental
Memorandum in Opposition to Defendants’ Motion to Compel Arbitration, May
25, 2012, ECF No. 133 (“P1. Supp. Opp. MTCA, 133”) at § 1. But Resco does not
directly deny factually that its direct purchaser claims rely, in whole or in part,
on purchases made by Possehi (HK). Nor does Resco, even in response to a
direct challenge, offer evidence or even a specific allegation regarding Possehi
(US)’s alleged direct purchases from Defendants. Nor does Resco clear up its
own competing characterizations of the role of Possehl (US) as purchaser or
broker.
Defendants point out that Resco has cited specific dollar amounts it paid
“for Chinese magnesite brokered by its assignor Possehi and delivered to Resco
in the United States,” bolstering the natural inference that Resco possesses
information about the transactions. Def. Supp. Brief MTCA, 137 at 3. But
Resco has not responded to requests for “underlying contracts between its
broker! assignor Possehi (US) and Defendants (or an alleged co-conspirator) “23
The following information, not submitted or confirmed by the Parties, is offered
solely to illustrate that Plaintiffs have failed to provide the most basic information
about the entities involved, and to highlight the necessity of bringing some clarity now.
An internet search using the name “Possehi” and “magnesite” returns results
indicating that Possehi (US) and Possehi (HK) may be affiliates or subsidiaries of the
German company, Possehi Erzkontor GmbH (“PE GmbH”), a member of the L. Possehl
& Co. mbH Group.
22

Resco’s President, Bill Brown, declares: “Between the beginning of the damages
period, September 1, 2001, and December 31, 2003, Resco paid approximately
$2,468,800 for Chinese magnesite brokered by its assignor Possehl and delivered to
Resco in the United States. Between January 1, 2004 and the date of the assignment,
June 21, 2005, Resco paid approximately $1,108,1000 for Chinese magnesite
brokered by its assignor Possehl and delivered to Resco in the United States.” Resco
Supp. Deci., 133-2 at ¶f 6-7. Defendants also maintain that they have sought from
23

57

Id. More to the point on this Rule 12(b)(6) motion, Resco has not alleged the
existence or contents of such contracts, on which its claims ultimately depend.

5. Dismissal with or without prejudice
As stated above, the Amended Complaint must be dismissed for lack of
standing. An issue that remains is whether that dismissal will be with
prejudice, or whether Plaintiffs should be permitted to file a Second Amended
Complaint in which they attempt to remedy the deficiencies of the first.
The Third Circuit has adopted a particularly liberal approach in favor of
permitting pleading amendments to ensure that “a particular claim will be
decided on the merits rather than on technicalities.” Dole v. Arco Chern. Co.,
921 F.2d 484, 487 (3d Cir. 1990). Indeed, where a complaint is dismissed on
Rule 12(b) (6) grounds “a District Court must permit a curative amendment,
unless an amendment would be inequitable or futile.” Alston v. Parker, 363
F.3d 229, 235 (3d Cir. 2004) (emphasis added).
The current complaint is technically an amended complaint. The
standing issue, however, came to light in stages, apparently in connection with
Resco’s disclosure of Possehi (US)’s assignment in its Motion for Default
24
Judgment and Defendants’ Motion to Compel Arbitration. At any rate, the
first amendment of the original complaint did not occur in response to any
court ruling with respect to standing, and standing has not been squarely
addressed by any prior motion to dismiss. In that limited sense, for purposes of
the standing issue and Alston, this Amended Complaint is comparable to an
initial pleading.
I also find that, unless and until the direct purchases upon which
Plaintiffs base their claims are clarified, I cannot meaningfully assess the
motion to compel arbitration. For this reason, too, I am inclined to give
Plaintiffs the opportunity to reframe their allegations.
On the other side of the ledger is the reality that the minimum facts
needed to plead a cause of action, relating to Plaintiffs’ direct purchases or the
assignment of claims arising therefrom, are within the control of Plaintiffs, or
25
could have been obtained long ago. Resco, as the putative direct purchaser,
Plaintiffs’ counsel but have been unable to obtain the “records documenting the
producing seller to Resco of products covered by this Assignment” referenced in the
Assignment Contract. See Def. Brief MTCA, 37-1 at 5, n.4.
24

See Def. Reply MTCA, 59 § l.A. and n.5 supra.

25

For example, the Assignment Contract provides that “Possehl, as Assignor, will

58

has the burden to plead the circumstances of its purchases of magnesite,
including the underlying agreements. I cannot accept the conclusory allegation
that Resco is a direct purchaser or simply assume that Resco will pull a
purchasing rabbit out of its hat after months or years of costly discovery. I will,
however, grant Plaintiffs leave to file a Second Amended Complaint. It may be
that Plaintiffs can plead facts sufficient to establish standing. Those facts may
or may not be supported by evidence produced in discovery (and I would
probably order that early discovery be targeted to the standing issue). I will,
however, insist that the standing issue being properly framed before I will
permit it to proceed to discovery, summary judgment, or trial.
The Amended Complaint is dismissed without prejudice. Plaintiffs may, if
they wish, file a proposed Second Amended Complaint. If they do not do so
within 70 days, this dismissal will become final.
B. Motion to Compel Arbitration
Plaintiffs’ Motion for Default Judgment first put in issue the Possehl (US)
Assignment Contract, later cited in the Amended Complaint. Defendants then
moved to compel arbitration, after (they say) discovering sales contracts with
Possehl (HK) (“an affiliated entity”) which contained arbitration clauses. See
Def. Brief MTCA, 37-1 at 5. The arbitration issue is thus in a kind of resonance
with the direct-purchaser issue. Defendants submit that if Resco seeks to rely
on purchases made by Possehi (HK) in order to secure its antitrust standing,
then it must also be bound to Possehi (HK)’s agreements to arbitrate claims
arising from its purchases of magnesite. See Def. Supp. Brief MTCA, 137 at 11
(“Plaintiffs, thus, face a critical dilemma and cannot have it both ways: they
either are bound to arbitrate based on the underlying magnesite contracts on
which they base their claims, or have no judicial standing to bring an antitrust
claim as an indirect purchaser (or an assignee) in which case arbitration is
their only forum.”). But there is a link missing from Defendants’ reasoning.
Resco has not really alleged that it does (or does not) rely on purchases made
by Possehl (HK); nor has Resco submitted that Possehi (HK) and Possehl (US)
are so interrelated that the purchases of one entity may be imputed to the
other. I have alluded to this uncertainty in connection with the motion to
dismiss. See § IV.A.4, supra. But I would be guilty of the very inconsistency
identified by Defendants if I were to turn around and assume that, when
Plaintiffs said Possehi (US), they meant Possehl (HK), or that the two are
functionally interchangeable for purposes of the Motion to Compel Arbitration.
If Resco decides to amend its Complaint to include plausible, specific
factual allegations of direct purchases by Possehl (US), that is one thing. If so,
make available for copying at the sole expense of Resco, as Assignee, records
documenting the producing seller to Resco of products covered by this Assignment.”

59

however, I will require that such allegations identify the relevant contracts and
state whether such contracts contain arbitration clauses. If, on the other hand,
Resco, in an amended pleading, relies on purchases made by Possehi (HK),
then it will have to confront the arbitration agreements already identified by
Defendants. I do not imply that I have found that there is a valid agreement to
arbitrate; I cannot decide that question unless and until the allegations are
26
clarified. I do say that, if Plaintiffs intend to rely upon purchases made
pursuant to sales contracts, they must identify those contracts and be
prepared to address the impact of any arbitration clauses contained therein.
Why, then, address the arbitration issue now? I do so because the
Plaintiff has raised, and the parties have extensively briefed, the issue of
whether, even if there is a valid agreement to arbitrate, the court should
nevertheless decline to enforce it. If I were to rule at the outset that an
agreement to arbitrate these claims is unenforceable, that would moot a set of
potential issues. I will therefore briefly address Plaintiffs’ arguments.
Plaintiffs submit that the China International Economic and Trade
Arbitration Commission (“CEITAC”), the arbitral body named in the Possehl
27
(HK) arbitration agreements, could not properly and fairly adjudicate their
“A motion to compel arbitration calls for a two-step inquiry into (1) whether a
valid agreement to arbitrate exists and (2) whether the particular dispute falls within
the scope of that agreement. When a dispute consists of several claims, the court must
determine on an issue-by-issue basis whether a party bears a duty to arbitrate. When
determining both the existence and the scope of an arbitration agreement, there is a
presumption in favor of arbitrability.” Trippe Mfg. Co. v. Niles Audio Corp., 401 F.3d
529, 532 (3d Cir. 2005) (internal citations and quotations omitted). Accord Mitsubishi
Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985) (quoting Mose’
H. Cone Mem’l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24 (1983)) (“the first task c.
a court asked to compel arbitration of a dispute is to determine whether the parties
agreed to arbitrate that dispute. The court is to make this determination by applying
the ‘federal substantive law of arbitrability, applicable to any arbitration agreement
within the coverage of the [Federal Arbitration] Act.”’). An inherent prerequisite in the
first step of this inquiry—”whether the parties agreed to arbitrate the dispute”—is
identifying the parties who allegedly agreed to arbitrate.
26

27
Defendants submit that a magnesite sales contract between Defendant Liaoning
Jiayi and Possehl (HK) contains the following arbitration clause which is
representative of the arbitration clauses the other Defendants include in their own
magnesium sales contracts:

Arbitration: Any dispute arising from or in connection with
this Sales Contract shall be submitted to China
International Economic and Trade Arbitration Commission
for arbitration which should be conducted in accordance
with the Commission’s arbitration rules in effect at the time
of applying for arbitration. The Decision of the Commission
60

claims. See Plaintiffs’ Memorandum in Opposition to Defendants’ Motion to
Compel Arbitration, April 16, 2008, ECF No. 53 (“P1. Opp. MTCA, 53”) § II, and
P1. Supp. Opp. MTCA, 133 § II (“The Arbitration Clauses are Unenforceable
Because Their Enforcement Would Cause Resco to Forgo its Rights Under the
Sherman Act”). Defendants, relying on several Supreme Court decisions,
respond that “mere speculation about how CIETAC will adjudicate this dispute
cannot serve as a basis to avoid arbitration.” Def. Brief MTCA, 37-1 at 17
(citing Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 30 (1991);
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985);
VimarSegurosyReaseguros, S.A. v. M/VSky Reefer, 515 U.S. 528, 537 (1995).
I will reserve final decision until the arbitration issues are fully crystallized.
Nevertheless, in the interest of narrowing the issues, I will state that I am
inclined to reject Plaintiffs’ position.
The Federal Arbitration Act, 9 U.S.C. § 1, et seq., was enacted “to reverse
the longstanding judicial hostility to arbitration agreements that had existed at
English common law and had been adopted by American courts, and to place
arbitration agreements upon the same footing as other contracts.” Gilmer, 500
U.S. at 24. Its enactment has engendered a strong and well established federal
policy in favor of arbitration that “applies with special force in the field of
international commerce.” See Mitsubishi Motors Corp., 473 U.S. at 631. This
policy applies with equal force “where a party bound by an arbitration
agreement raises claims founded on statutory rights,” including antitrust
claims. Id. at 629 (rejecting the argument that antitrust claims are
inappropriate for arbitration, concluding that “concerns of international comity,
respect for the capacities of foreign and transnational tribunals, and sensitivity
to the need of the international commercial system for predictability in the
resolution of disputes require that we enforce the parties’ agreement, even
assuming that a contrary result would be forthcoming in a domestic context.”);
see also Gilmer, 500 U.S. at 26 (“It is by now clear that statutory claims may be
the subject of an arbitration agreement, enforceable pursuant to the FAA.
Indeed, in recent years we have held enforceable arbitration agreements
relating to claims arising under the Sherman Act, 15 U.S.C. § 1-7; § 10(b) of
the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b); the civil provisions of
the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §
1961 et seq.; and § 12(2) of the Securities Act of 1933, 15 U.S.C. § 77/(2).”). In
Mitsubishi Motors, the Supreme Court expressly rejected the “proposition that
an arbitration panel will pose too great a danger of innate hostility to the
constraints on business conduct that antitrust law imposes” and declined to
“indulge the presumption that the parties and arbitral body conducting a
shall be accepted as final and binding upon both parties.
Exhibit B to Declaration of Sijie Zhao for Defendant Liaoning Jiayi Metals & Minerals
Co., Ltd., In Opposition to Plaintiffs’ Motion for Default Judgment, February 5, 2008,
ECF No. 35-4 (“Zhao Decl. Ex. B”). See also Def. Brief MTCA, 37-1 at 5-7.

61

proceeding will be unable or unwilling to retain competent, conscientious, and
impartial arbitrators.” Id. at 634.
Plaintiffs have submitted an expert report opining on the inadequacies of
CIETAC and the Plaintiffs’ ability to fully and fairly vindicate their antitrust
class action claims there. They have not, however, cited a single case in which
a court preemptively, in advance of arbitration, set aside the strong
presumption in favor of enforcing arbitration agreements based on generalized
concerns about the impartiality of arbitration in a particular nation or forum,
or based on the predicted unfairness of a hypothetical outcome.
In support of their position, Plaintiffs cite the following statement made,
but not discussed, by the Supreme Court in Mitsubishi Motors. There, the
Court quoted its 1972 decision in M/S Bremen v. Zapata Off—Shore Co., 407
U.S. 1 (1972), regarding the validity of a forum selection clause: “a party may
attempt to make a showing that would warrant setting aside the forumselection clause-that the agreement was ‘[a]ffected by fraud, undue influence,
or overweening bargaining power’; that ‘enforcement would be unreasonable
and unjust’; or that proceedings ‘in the contractual forum will be so gravely
difficult and inconvenient that [the resisting party] will for all practical
purposes be deprived of its day in court.’” See Mitsubishi Motors Corp., 473 U.S.
at 632 (quoting M/S Bremen, 407 U.S. at 12, 15, 18). The M/S Bremen Court’s
statement refers to a scenario in which “a forum clause, even though it is freely
bargained for and contravenes no important public policy, may nevertheless be
‘unreasonable’ and unenforceable if the chosen forum is seriously inconvenient
for the trial of the action.” M/S Bremen, 407 U.S. at 16. In other words, a party
would effectively “be deprived of its day in court,” not because of the
inadequacy or bias of the forum but because one or both of the parties could
not physically appear, or because the “remoteness of the forum suggests that
the agreement was an adhesive one.” Id. at 17.
The claim of Plaintiffs here is very different; they fear that the procedures
will be unfair, or the outcome inequitable. Such concerns may be raised in,
e.g., a motion to confirm or vacate any award. At any rate, M/S Bremen left
little doubt that even the specific grounds it raised would rarely constitute
justifiable grounds for rendering a forum selection clause “unenforceable,”
reasoning, “where it can be said with reasonable assurance that at the time
they entered the contract, the parties to a freely negotiated private
international agreement contemplated the claimed inconvenience, it is difficult
to see why any such claim of inconvenience should be heard to render the
forum clause unenforceable.” Id. at 16. Ultimately, the M/S Bremen Court
concluded that “[a] contractual choice-of-forum clause should be held
unenforceable if enforcement would contravene a strong public policy of the
forum in which suit is brought, whether declared by statute or by judicial
decision.” Id. at 15. Mitsubishi and subsequent decisions leave no doubt that
62

the “strong public policy” in this instance is to enforce arbitration agreements.
See Mitsubishi Motors Corp., 473 U.S. at 626 (“questions of arbitrability must
be addressed with a healthy regard for the federal policy favoring arbitration....
The Arbitration Act establishes that, as a matter of federal law, any doubts
concerning the scope of arbitrable issues should be resolved in favor of
arbitration, whether the problem at hand is the construction of the contract
language itself or an allegation of waiver, delay, or a like defense to
arbitrability.”) (quoting Moses H. Cone Memorial Hospital, 460 U.S. 1, 24-25
(1983)).
Here, the only agreement to arbitrate currently in the record was
executed between Chinese Defendants and Possehi (HK), i.e. Possehi Hong
Kong, Ltd., another Chinese entity. It is unlikely that Possehi (HK) shares
Resco’s concerns regarding the adequacy or partiality of CIETAC. And Possehi
(US), considering the nature of its business, should have reasonably
anticipated and prepared for the alternative resolution of disputes in China (or
else should have negotiated for the settlement of disputes elsewhere). Resco,
too, perhaps would not have selected CIETAC as its arbitral forum of choice.
But if it was not the contracting party, and obtained its claims by assignment,
then it must take the bitter with the sweet. Recall that Resco took this
assignment of claims voluntarily from a party which explicitly warranted that it
knew of no antitrust claims—and which, by hypothesis, freely entered into the
contracts of sale that may or may not require arbitration of claims in a Chinese
forum.
I will forgo any lengthy discussion of the many “compelling reasons why
a freely negotiated private international agreement, unaffected by fraud, undue
influence, or overweening bargaining power
should be given full effect.”
M/S Bremen, 407 U.S. at 12. Suffice it to say that, for at least forty years, the
Supreme Court has proceeded on the premise that full enforcement of such
agreements, be they arbitration agreements, forum selection agreements, or
assignment agreements, “accords with ancient concepts of freedom of contract
and reflects an appreciation of the expanding horizons of American contractors
who seek business in all parts of the world.” Id. at 11-12.
.

.

.

Again, the existence and scope of arbitration agreements that may apply
to this case remain murky, a state of affairs for which Plaintiffs are primarily
responsible. But I cannot rule at the outset that the arbitration agreements
currently before me would be unenforceable as a matter of law.
Plaintiffs submit in the alternative that, even if CIETAC is generally a
legitimate forum, it is not a legitimate forum for arbitrating Plaintiffs’ specific
claims. Again, the cases Plaintiffs cites do not apply. In Blair v. Scott Specialty
Gases, 283 F.3d 595 (3d Cir. 2002), the United States Court of Appeals for the
Third Circuit overturned a district court’s rejection of an individual plaintiff’s
63

claim that she could not afford the costs associated with arbitration as
provided for in her employment contract. See icL at 605. The Third Circuit,
reasoning that “[a]rbitration costs are directly related to a litigant’s ability to
pursue the claim,” and that “the Supreme Court [has] acknowledged that the
from effectively
existence of large arbitration costs could preclude a litigant
vindicating her federal statutory rights in the arbitral forum,” id., remanded for
limited discovery and a determination as to whether “resort to arbitration
would deny [plaintiff] a forum to vindicate her statutory rights.” Id. at 610.
Similarly, in Bradford v. Rockwell Semiconductor Sys., Inc., the Fourth Circuit
found that “it is undisputed that fee splitting can render an arbitration
agreement unenforceable where the arbitration fees and costs are so prohibitive
as to effectively deny the employee access to the arbitral forum.” 238 F.3d 549,
554 (4th Cir. 2001). Plaintiffs have not suggested that arbitration would be
prohibitively expensive, but rather cite these cases for the proposition that the
inquiry must be whether “this particular plaintiff can effectively vindicate its
U.S. statutory rights in a CIETAC arbitration,” P1. Supp. Opp. MTCA, 133 at 9.
I find the analogy unconvincing.
...

In short, Plaintiffs have not directed the Court to any decision in which a
court preemptively refused to order arbitration at CIETAC (or a comparable
forum). Indeed, they have not cited a case in which a U.S. court has
retrospectively vacated a CIETAC award based on concerns like those raised by
Plaintiffs here.
International arbitration, like any dispute resolution mechanism, has
many strengths, but also has inherent disadvantages—the perceived bias of
certain countries’ forums and arbitrators, weak injunctive relief, and difficulties
in enforcing judgments, to name a few. Parties nevertheless enter into
contracts every day in which, after weighing the advantages and disadvantages,
they decide to arbitrate their disputes abroad rather than litigate in U.S.
courts. Our legislators, through enactment of the FAA, including the
Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 9
U.S.C. Ch. 2, have given the Government’s stamp of approval to such
agreements. They have also provided for the review and vacation of arbitral
awards by U.S. district courts where a party presents, expost, concerns similar
to those raised by Plaintiffs here. See 9 U.S.C. § 9-11 (providing for the
confirmation, vacation, rehearing, modification or correction of arbitral awards
by U.S. district courts); Mitsubishi Motors, 473 U.S. at 638 (“Having permitted
the arbitration to go forward, the national courts of the United States will have
the opportunity at the award-enforcement stage to ensure that the legitimate
interest in the enforcement of the antitrust laws has been addressed. The
Convention reserves to each signatory country the right to refuse enforcement
of an award where the “recognition or enforcement of the award would be
contrary to the public policy of that country.”). Such review, not the refusal to
honor arbitration agreements, is the primary check on unfairness.
64

C. Motions to Dismiss Under the F’TAIA
Also dependent on the direct-purchaser issue is Defendants’ motion to
dismiss the Complaint under the Foreign Trade Antitrust Improvements Act
(FTAIA). Unlike my predecessor, I have the benefit of the Third Circuit’s ruling,
which instructs the district court to review any subsequent complaint for
compliance with the FTAIA under the standards of Fed. R. Civ. P. 12(b)(6). See
ASP v. CMC, 654 F.3d at 469 (instructing that “[o]n remand, the District Court
may entertain renewed motions to dismiss pursuant to the FTAIA’s statutory
limitations
however, those motions must be decided pursuant to the
procedural framework that governs a motion to dismiss for failure to state a
claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, rather
than a motion to dismiss for lack of subject matter jurisdiction pursuant to
Rule 12(b)(l)”); see also discussion supra § III.C.2. Because I am already
dismissing the Complaint for failure to allege standing, I touch on the FTAIA
motion briefly here.
.

.

.

The FTAIA first limits the reach of the U.S.
antitrust laws by articulating a general rule that the
Sherman Act “shall not apply to conduct involving
trade or commerce
with foreign nations.” The FTAIA
then creates two distinct exceptions that restore the
authority of the Sherman Act. First, the F’I’AIA
provides that it does not apply (and thus that the
Sherman Act does apply) if the defendants were
involved in “import trade or import commerce” (the
“import trade or commerce” exception). Second, the
FTAIA’s bar is inapplicable if the defendants’ “conduct
has a direct, substantial, and reasonably foreseeable
effect” on domestic commerce, import commerce, or
certain export commerce and that conduct “gives rise”
to a Sherman Act claim (the “effects” exception).
...

ASP v. CMC, 654 F.3d at 466. Accord F. Hoffmann-La Roche Ltd. v. Empagran
S.A., 542 U.S. 155, 158 (2004) (“The Foreign Trade Antitrust Improvements Act
of 1982 (FTAIA) excludes from the Sherman Act’s reach much anticompetitive
conduct that causes only foreign injury. It does so by setting forth a general
rule stating that the Sherman Act “shall not apply to conduct involving trade or
commerce
with foreign nations.” 96 Stat. 1246, 15 U.S.C. § 6a. It then
creates exceptions to the general rule, applicable where (roughly speaking) that
conduct significantly harms imports, domestic commerce, or American
exporters.”)
...

There is no dispute that Plaintiffs’ claims involve “trade or commerce
with foreign nations” and therefore trigger the FTAIA. Accordingly, the question

65

before me will be whether Plaintiffs have pleaded facts that are sufficient to
28
trigger one of the two exceptions to the FTAIA, either the “import exception”
or the “effects exception.” See ASP v. CMC, 654 F.3d at 466.
29
In Minn-Chem, Inc. v. Agrium, Inc., 683 F.3d 845 (7th Cir. 2012), the Seventh
Circuit Court of Appeals takes issue with the label “import exception” reasoning that
the import trade or import commerce that is excluded from the purview of the FTAIA
by the parenthetical in the statute’s chapeau (prefatory language)—” Sections 1 to 7 of
shall not apply to conduct involving trade or commerce (other than
this title
“—is “pure import
import trade or import commerce) with foreign nations unless
commerce—that is the kind of commerce that is not subject to the special rules
created by the FTAIA,” whereas foreign conduct that has a “direct, substantial and
on import trade or import commerce with foreign
reasonably foreseeable effect
nations” does constitute an exception to the FTAIA. See id. at 853-55. According to the
Mm-Chem court,

28

.

.

.

.

.

.

.

.

.

Although some, including the Third Circuit in Animal
Science, have referred to [the parenthetical “other than
import trade or import commerce” in the chapeau] as the
“import exception,” that is not an accurate description.
Import trade and commerce are excluded at the outset from
the coverage of the F’TAIA in the same way that domestic
interstate commerce is excluded. This means only that
conduct in both domestic and import trade is subject to the
Sherman Act’s general requirements for effects on
commerce, not to the special requirements spelled out in
the FTAIA. Where the FTAIA does apply, it “remov[es] from
commercial activities taking
the Sherman Act’s reach
place abroad, unless those activities adversely affect
imports to the United States
...

Id. at 854 (internal quotations and citation omitted). See also In re Vitamin C Antitrust
Litig., 06-MD-1738 BMC Jo, 2012 WL 5839303 (E.D.N.Y. Nov. 16, 2012) (“there are
two types of Sherman Act claims that implicate import trade or import commerce
which fall outside the scope of the FT’AIA. The first is the ‘import trade or commerce’
parenthetical, which provides that the antitrust law shall apply to conduct ‘involving’
import trade or commerce with foreign nations. I shall refer to this exception as “the
import exception.” The second is that the Vl’AJA brings back within the reach of the
Sherman Act conduct involving nonimport trade or nonimport commerce when that
conduct (1) has a direct, substantial, and foreseeable effect on import trade or import
commerce, and (2) the Sherman Act claim arises out of that effect. I shall refer to this
exception as the “domestic effects exception.”) (internal citations, quotations and
punctuation omitted). Semantics aside, it is clear that the Sherman Act does apply to
both “conduct involving import trade or import commerce” (which I will continue to
refer to as the “import exception”) and foreign conduct that has a direct, substantial
and foreseeable effect on import trade or commerce (which falls into the “effects”
exception).
29

The “effects” exception encapsulates the following statutory language:

66

The Third Circuit’s opinion in ASP v. CMC discusses those two exceptions
as they may relate to this case. I will not repeat that analysis, but commend it
to the Plaintiffs in connection with the drafting of any amended complaint. To
defeat a motion to dismiss based on F’TAIA, the Court will require specific,
plausible allegations that are factual in nature, in accordance with Twombly,
supra.
For the parties’ guidance, I comment on one other aspect not fully
explored in ASP v. CMC. A plaintiff need not allege or prove that the
“defendants’ conduct was subjectively intended/consciously meant to produce
a consequence in the United States.” Id. at 471. It is not enough, however, that
such domestic consequences coexist with a viable Sherman Act claim. The
FTAIA requires that such domestic consequences of foreign conduct give rise to
the antitrust claim at issue. “That is to say, it is not sufficient that a theoretical
plaintiff injured in the United States by the conduct at issue might have a
Sherman Act claim. Rather, the foreign anticompetitive conduct must have
domestic effects that give rise to Plaintiffs’ Sherman Act claim in [the present
case].” Emerson Elec. Co. v. Le Carbone Lorraine, S.A., 500 F. Supp. 2d 437,
444 (D.N.J. 2007). So, while a plaintiff need not show that the defendants’ anticompetitive conduct was specifically intended to harm plaintiff, it must show
that the conduct was, in fact, the “proximate cause” of plaintiff’s antitrust
injury. See Empagran S.A. v. F. Hoffmann-LaRoche, Ltd., 417 F.3d 1267, 127071 (D.C. Cir. 2005) (“Empagran II’) (“‘but-for’ causation between the domestic
effects and the foreign injury claim is simply not sufficient to bring anticompetitive conduct within the FTAIA exception. The statutory language—’gives
rise to’—indicates a direct causal relationship, that is, proximate causation,
and is not satisfied by the mere but-for ‘nexus’ the appellants advanced in their
[The Sherman Act] shall not apply to conduct involving trade or 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 effects give rise to a claim under the provisions of sections 1 to 7 of [The
Sherman Act]....
15 U.S.C. § 6a. It thus provides for application of the Sherman Act if the defendants’
conduct has a “direct, substantial and reasonably foreseeable effect” on one of three
areas of U.S. commerce (1) domestic commerce (“on trade or commerce which is not
trade or commerce with foreign nations”); (2) import commerce (“on import trade or
import commerce with foreign nations”); or (3) American export commerce (“on export
trade or export commerce with foreign nations, of a person engaged in such trade or
commerce in the United States;”). See id. Neither party has suggested that the third
category, American export commerce, would be applicable here.
—

67

brief.”); accord In re Hydrogen Peroxide Antitrust Litig., 702 F. Supp. 2d 548,
552 (E.D. Pa. 2010) (noting that the Empagran H decision in which “the D.C.
Circuit concluded on remand that such but-for causation is not sufficient to
meet the Causation Prong [of the FTAIA],” “has been widely adopted by other
courts”); Emerson Elec. Co, 500 F. Supp. 2d. at 446 (rejecting as “but-for
causation” plaintiffs’ submission that price-fixing in one segment of the
international market was required to maintain a cartel’s stability and
profitability and therefore gave rise to antitrust injury in other markets); Latino
Quimica-Amtex S.A. V. Akzo Nobel Chemicals B.V., 2005-2 Trade Cas. (CCH) P
74974, 2005 WL 2207017 (S.D. N.Y. 2005) (“While these allegations plead, in
general terms, a causal relationship between Defendants’ conspiracy and
Plaintiffs’ injuries abroad, they support only a theory that Plaintiffs were
injured by Defendants’ global anticompetitive conduct. Nothing in these
allegations even suggests that Plaintiffs’ injuries were directly, or proximately,
caused by the domestic effect of Defendants’ alleged conspiracy.”). I add that, of
course, a foreign injury does not become a US injury merely because a foreign
injured party assigns its cause of action to a US plaintiff.
Thus, for example, conclusory allegations, like the ones in the Amended
Complaint, that Defendants made direct sales “to U.S. customers,” or general
allegations that the conspiracy must have been a “but-for” cause of price effects
in the US, will not do. Without a specific factual allegation of a connection
between Defendants’ foreign anticompetitive conduct and, e.g., a purchase by a
plaintiff, the complaint may well fall short of the Rule 12(b)(6) pleading
standard.
As I have said, I have dismissed the complaint for failure to allege
standing. If plaintiffs submit an amended pleading, however, they should do so
with the FTAIA standards, described above, in mind.

68

V.

CONCLUSION

Plaintiff Resco’s status as a direct purchaser, whether obtained through
its own direct purchases or by means of an assignment, is a critical and yet
unresolved question in this case. That uncertainty permeates not only the
Amended Complaint but the Motion to Compel Arbitration.
For the reasons discussed above, the Minmetals and Sinosteel
Defendants’ Motions to Dismiss Plaintiffs’ Amended Complaint are GRANTED
on standing grounds only. The Amended Complaint is DISMISSED WITHOUT
PREJUDICE to the filing of a Second Amended Complaint. The Seven
Defendants’ Motion to Compel Arbitration is DISMISSED AS MOOT, subject to
reinstatement if and as appropriate in light of the allegations of any
subsequent amended complaint.
Dated: July 24, 2014

/ /v

Kevin McNulty
United States District Judg

69