Full Circuit Revives Potash Price-Fixing Suit

CHICAGO (CN) - International producers of potash, a common agricultural fertilizer, must face claims that they are involved in a monopoly, the full 7th Circuit ruled.

Potash purchasers based in the United States say that Canadian, Russian and Belarusian miners have fixed prices in Brazil, China and India. They claim that the producers inflate prices abroad as a benchmark to drive costs up in the United States far above competitive levels.

Because the world's potash reserves are confined to only a handful of areas, the industry is dominated by seven companies that produce approximately 71 percent of the world supply. The United States is a major potash consumer, importing 85 percent of its supply from overseas.

The complaint points to the 600 percent price increase from 2003 to 2008, despite unchanged global demand. When global demand dropped in 2005, potash producers allegedly conspired to remove millions of tons from the market, shutting down production plants.

"The plaintiffs describe a tight-knit global cartel, similar to OPEC in its heyday, that restrained global output of potash so that prices throughout this homogeneous world market would remain artificially high," according to the 7th Circuit's summary of the case last week.

"Importantly for our later antitrust analysis, potash is a homogeneous commodity: One manufacturer's supply is interchangeable with another's," Judge Diane Wood wrote for an eight-judge panel. "As a result, buyers choose among suppliers based largely on price. Markets for this type of product are especially vulnerable to price-fixing."

The complaint says joint ventures, senior executive exchange programs and International Fertilizer Industry Association, and Fertilizer Institute conferences have facilitated collusion.

U.S. District Judge Ruben Castillo refused to dismiss the case, finding that the Foreign Trade Antitrust Improvements Act (FTAIA) did not limit the court's jurisdiction.

But a three-judge panel of the 7th Circuit found otherwise in September, saying the act precluded federal court jurisdiction and that no exceptions applied because the alleged anticompetitive conduct did not "involve" imports to the United States or "directly affect" their price.

The original panel cited 3rd Circuit precedent that said the FTAIA provided a method for judging the merits of a claim, rather than acting as a jurisdictional bar.

After agreeing to rehear the case in December 2011, the court unanimously reached a new decision.

"The Supreme Court's decision in Morrison, we believe, provides all the guidance we need to conclude that, like § 10(b) of the Exchange Act, the FTAIA sets forth an element of an antitrust claim, not a jurisdictional limit on the power of the federal courts," Wood wrote, citing the 2010 decision in Morrison v. National Australia Bank.

"When Congress decides to strip the courts of subject-matter jurisdiction in a particular area, it speaks clearly," Wood wrote. "The FTAIA, however, never comes close to using the word 'jurisdiction' or any commonly accepted synonym."

The court said the purchasers have clearly met both the sustainability and feasibility requirements of an antitrust suit.

"Foreign cartels, especially those over natural resources that are scarce in the United States and that are traded in a unified international market, have often been the target of either governmental or private litigation. The host country for the cartel will often have no incentive to prosecute it," Wood wrote.

"We stress, however, that our evaluation throughout has proceeded exclusively on the face of the complaint," she added. "Nothing we have said should be understood as a prediction of the facts that may turn up in discovery, nor are we opining about the likely fate of any possible defenses."

The court declined to address whether the court has personal jurisdiction over all of the proposed defendants, remanding the case for further proceedings.

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