Carpet Group International v. Oriental Rug Importers Ass'n, Inc. ( 2000 )

Opinions of the United
2000 Decisions States Court of Appeals
for the Third Circuit
9-8-2000
Carpet Grp Int'l Corp v. Oriental Rug
Precedential or Non-Precedential:
Docket 99-5931
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Filed September 8, 2000
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 99-5931
CARPET GROUP INTERNATIONAL; EMMERT ELSEA
v.
ORIENTAL RUG IMPORTERS ASSOCIATION, INC.;
BASHIAN BROS., INC.; ALFANDARI AND ETESSAMI
ORIENTAL RUG CO., INC.; MOUSSA ETESSAMI & SONS
CORP.; NOONOO RUG CO.; PANDE CAMERON & CO. OF
NEW YORK; KELATY RUGS INTERNATIONAL; DANIEL
HODGES; GEORGE NEWMAN; ISAAC ETESSAMI
Carpet Group International Corporation
and Emmert Elsea,
Appellants
Appeal from the United States District Court
For the District of New Jersey
D.C. No.: 95-cv-05574
District Judge: Honorable Joseph A. Greenaway, Jr.
Argued: July 21, 2000
Coram: RENDELL, ROSENN, Circuit Judges, and
O'NEILL,* District Judge.
(Filed: September 8, 2000)
_________________________________________________________________
* Honorable Thomas N. O'Neill, Jr., United States Senior District Court
Judge for the Eastern District of Pennsylvania, sitting by designation.
David U. Fierst (Argued)
Stein, Mitchell & Mezines
1100 Connecticut Avenue, N.W.
Suite 1100
Washington, DC 20036
Counsel for Appellants
Christopher Sprigman (Argued)
Robert B. Nicholson
United States Department of Justice
Antitrust Division
601 D Street, N.W.
Patrick Henry Building
Washington, DC 20530
Counsel for Amicus-Appellant
William J. O'Shaughnessy (Argued)
McCarter & English
100 Mulberry Street
Four Gateway Center
Newark, NJ 07101-0652
Howard M. Nashel
Nashel, Kates, Nussman, Rapone,
Ellis & Traum
190 Moore Street, Suite 306
Hackensack, NJ 07102
Arthur M. Lieberman
Lieberman & Nowak
350 Fifth Avenue
Suite 7412
New York, NY 10118
Stuart Reiser
Shapiro & Croland
411 Hackensack Avenue
Hackensack, NJ 07601
Counsel for Appellees
2
OPINION OF THE COURT
ROSENN, Circuit Judge.
This appeal arises out of an action under the Sherman
Act alleging a conspiracy to restrain trade and monopolize
the thriving United States market for oriental rugs. 1 It
requires us to determine, among other things, whether the
Foreign Trade Antitrust Improvements Act ("FTAIA" or "the
Act"), 15 U.S.C. S 6, divested the District Court of subject
matter jurisdiction over this action. The plaintiffs are
Carpet Group International ("CGI"), a Virginia corporation,
and Emmert Elsea, a citizen of Virginia who is CGI's
founder and sole shareholder. Elsea founded CGI with the
objective of making imported oriental rugs available to
retailers directly from manufacturers, bypassing importers
at the wholesale level and thereby reducing rug prices to
United States consumers. The defendants charged
with antitrust violations are an association of
importer/wholesalers of oriental rugs called the Oriental
Rug Importers Association, Inc. ("ORIA"), several companies
who are members of ORIA, and three individuals who are
past or present officers and directors of ORIA.
In the District Court and on appeal, the defendants
object to the Court's subject matter jurisdiction primarily
on the ground that the plaintiffs' claims were barred by the
FTAIA. They assert that the plaintiffs failed to establish
jurisdiction under the Act because they have not proven
that the defendants' actions did not involve or otherwise
substantially affect United States commerce.2 The United
_________________________________________________________________
1. Figures recently released by the Oriental Rug Importers Association of
the summary of United States Department of Commerce import figures
for 1998 disclose that the United States imported a total of 106,929,000
square feet of rugs -- a sharp increase from the 1997 total of 87,300,000
square feet. The increase in dollar value of imports was similarly
dramatic -- climbing to $422,549,000 in 1998 from $335,505,000 in
1997. See .
2. The plaintiffs contend that the District Court had subject matter
jurisdiction over its antitrust claims pursuant to 28 U.S.C. S 1337 and
over its state law claims pursuant to 28 U.S.C.S 1367. This Court has
appellate jurisdiction pursuant to 28 U.S.C. S 1291.
3
States District Court for the District of New Jersey, acting
on the report and recommendation of a Magistrate Judge,
granted the motion of the defendants for dismissal of the
action, and the plaintiffs timely appealed. We reverse.
I.
Firms involved in the oriental rug trade in the United
States have traditionally utilized a narrow chain of
distribution. In this carefully constricted chain, foreign rug
manufacturers sell their goods to wholesalers in the United
States, who import the rugs and then sell them to U.S.
retailers. The retailers in turn resell the rugs to consumers.
In the early 1990s, plaintiff Emmert Elsea conceived a plan
by which retailers and consumers in this country could
purchase oriental rugs more cheaply. He theorized that if
U.S. retailers were to purchase rugs directly from foreign
manufacturers, bypassing the wholesaler link in the chain
of distribution, they could reduce the costs to themselves
and, consequently, to consumers. Elsea founded CGI in
order to facilitate his vision of a new chain of rug
distribution.
In 1993 and 1994, CGI sponsored two trade shows in the
United States at which foreign rug manufacturers were
invited to display rugs and sell directly to American
retailers. CGI expected to earn fees paid by the
manufacturers for space at the trade show. In addition,
Elsea, and later CGI, took U.S. retailers on buying trips to
rug-producing countries in exchange for fees. On these
trips, the plaintiffs arranged for the retailers to purchase
rugs directly from foreign rug manufacturers. CGI's trade
shows and buying trips were the mechanisms through
which the plaintiffs attempted to effectuate their plan to
assist American retailers in purchasing oriental rugs
directly from the foreign manufacturer.
The plaintiffs claim that the defendants conspired to
sabotage their efforts to facilitate direct sales between
foreign manufacturers and United States retailers and,
more specifically, conspired to wreck plaintiffs' trade shows.
Plaintiffs' amended complaint alleges that the defendants
used the following tactics:
4
(a) threatening not to purchase rugs from any
manufacturer who participated in the trade shows;
(b) threatening not to purchase rugs from any
manufacturer who sells rugs to any retailer on a
buying trip;
(c) threatening and retaliating, including expulsion
from the association, against any ORIA member
that participated in the plaintiffs' trade shows;
(d) inducing the Carpet Export Promotion Council of
India, the Export Promotion Board of Pakistan,
and the Pakistan Carpet Manufacturers and
Exporters Association not to subsidize the
participation of manufacturers from those
countries in the plaintiffs' trade shows;
(e) threatening not to sell rugs to retailers who
participate in the buying trips sponsored by
plaintiffs.
The defendants moved to dismiss the action for lack of
subject matter jurisdiction. The defendants argued that the
Foreign Trade Antitrust Improvements Act ("FTAIA"), 15
U.S.C. S 6a, deprived the District Court of subject matter
jurisdiction under the antitrust laws by excluding the
plaintiffs' claims from the coverage of those laws. The FTAIA
provides, in relevant part,
Sections 1 to 7 of this title[, which include the
Sherman Act,] shall not apply to conduct involving
trade or commerce (other than import trade or import
commerce) with foreign nations unless--
(1) such conduct has a direct, substantial, and
reasonably foreseeable effect--
(A) on trade or commerce which is not trade or
commerce with foreign nations, or on import trade or
import commerce with foreign nations . . . .
15 U.S.C. S 6a.3 The District Court referred the motion to a
Magistrate Judge. In accordance with circuit precedent, the
_________________________________________________________________
3. The FTAIA was enacted as Title IV of the Export Trading Company Act
of 1982, Pub. L. No. 97-290, 1982 U.S.C.C.A.N. (96 Stat.) 1233, 1246.
5
plaintiffs introduced evidence to support their contention
that the FTAIA did not apply to their claims and therefore
did not deprive the District Court of jurisdiction.
A. The Jurisdictional Evidence.
The plaintiffs offered documentary evidence before the
Magistrate Judge dealing with activity by ORIA and its
members to convince foreign governments, foreign rug trade
associations, and one domestic rug retailers' association
not to provide financial assistance to the CGI trade shows.
For example, ORIA wrote to the secretary of the Carpet
Export Promotion Council of India ("CEPC") that in deciding
whether or not to co-sponsor CGI's November 1993 Chicago
trade show, the CEPC should consider that doing so would
"possibly jeopardize a very friendly and prosperous
relationship" between Indian rug manufacturers and
American importers. (JA.92). In addition, defendant Hodges
(the president of defendant Pande Cameron & Co. of New
York, an importer/wholesaler) wrote to the chairman of the
CEPC, expressing his opinion that the CGI 1993 show was
"destined for failure," asking for the chairman's "comments
and observations in lending CEPC support to this show,"
and requesting "the names of those exporters from India
who plan on exhibiting." With respect to this last request,
Hodges wrote: "These would be exporters, I can assure you
we would avoid in any future business discussions."
(JA.93). There is no evidence in this record that CEPC
furnished Hodges with these names.
CGI planned another trade show in Washington, DC in
August 1994. In March of that year, defendant Newman
(the president of defendant Noonoo Rug Co.) wrote to the
vice-chairman of the Export Promotion Bureau of Pakistan
("EPB") and the Pakistan Carpet Manufacturers and
Exporters Association ("PCMEA") regarding this trade show,
urging the PCMEA and the EPB "not to encourage nor
support the ``renegade' activities and selfish motives of a few
Pakistani trader/exporters and their American retail
counterparts." Newman also noted that "[t]o do so would be
to continue on the road leading to ill will and chaos."
(JA.94-95). The PCMEA subsequently made efforts toward
conciliation with ORIA. Its vice chairman wrote to ORIA
6
informing it of PCMEA's decision not to officially participate
in the Washington Fair being held in August that year, and
of its request that the EPB not "give any facility to" the
participants. He reiterated that "no manner of
encouragement or patronage" would be provided by the
Association to any firm desiring to participate in the fair.
(JA.96).
On March 23, 1994, Hodges, acting in his capacity as
ORIA president, wrote to the president of the Oriental Rug
Retailers Association ("ORRA"), a United States trade
association, regarding the August 1994 CGI trade show. He
stated:
Rumor has it that the ORRA has been approached by
CGI to cosponsor this function. I think you are well
aware of our sentiments regarding the purpose of this
trade fair in undermining existing channels of
distribution which have proven to be successful to all
of us over the years. We would naturally hope that the
ORRA would not entertain any thoughts whatsoever in
being involved and therefore lending credence to[CGI].
(JA.106). Hodges further noted his belief that politicians
directly involved with a child labor bill sponsored by
Senator Harkin, a subject high on ORIA's lobbying agenda,
would be invited to attend the CGI trade show. Hodges
expressed fear that "all of our efforts in dealing with the
Harkin Bill and responsibly trying to address child labor
could be undone by any ``loose cannons' developing their
own game plan." He concluded with the request that
"through your leadership, . . . the ORRA take a long and
very close look at the negative ramifications in lending your
name to this very damaging endeavor." Apparently after
interim contact with ORRA, Hodges again wrote ORRA's
president on March 28, 1995, expressing his sentiments
"that Emmert Elsea's attitudes toward wholesalers[are] . . .
both incorrect and unhealthy," and of his concern with
Elsea's approach toward eradicating child labor.
Significantly, the minutes of an April 1994 ORIA
membership meeting show that "Dan and Gene,"
presumably a reference to Dan Hodges and Eugene
Newman, had contacted the ORRA and obtained its promise
7
not to endorse the August trade show as a group. The
minutes also reflect that "Gene" "urged the [ORIA] members
who import from Pakistan, India and other countries to
write the proper Export Promotion authorities in those
countries and advise them not to participate in this show."
The minutes of an August 1994 ORIA meeting reflect that
this statement was amended to read "Gene Newman
suggested that the individual members and not the
organization" engage in this letter writing campaign.
In addition, the plaintiffs also offered one piece of
documentary evidence intended to show that the
defendants were boycotting domestic retailers and foreign
manufacturers who supported the trade shows. These were
handwritten notes dated May 25, 1994, taken by an
unidentified rug retailer in Virginia, of a telephone
conversation between the retailer and a representative of
defendant Kelaty Rugs International. The notes describe the
importer's representative as "irate," and record the retailers'
fear that because of his cooperation with Elsea,"we will not
be able to get rugs from anyone." Most significantly, the
unidentified retailer stated "We are being dealt with from
both ends. i.e., cannot get supplied in U.S.[,] also those
who supply us from overseas will be boycotted by
importers." The Magistrate Judge did not credit this
evidence because it was unclear who wrote these notes.
When the plaintiffs later objected to the Magistrate Judge's
R&R before the District Court, they offered the declaration
of someone named William Hirsch, in which Hirsch
purported to authenticate these notes as his own. Although
the defendants contend that this declaration was not
submitted before the magistrate, plaintiffs claim it was
submitted and the magistrate simply disregarded it.
(Appellants' Reply Br. at 3-4).
Finally, CGI offered a declaration of Emmert Elsea dated
July 17, 1997. Elsea made the following pertinent
representations:
4. Joseph Zarnigin of Zarnigin Rugs, an ORIA
member located in New York, informed me and Anne
Williams that he would participate in the 1993 trade
show except that doing so would jeopardize his
membership in and benefits from ORIA.
8
5. DCC, Inc., an ORIA member located in New York,
said he would purchase space in the 1993 trade show,
but later refused to do so because ORIA strongly
opposed the trade show.
6. Rug News[, a trade magazine intended for retail
readership,] refused to accept advertising for the 1993
trade show.
7. Decorative Rug[, a similar magazine,] withdrew its
acceptance of CGI's advertising on the grounds that it
would lose its ORIA customers if it allowed CGI to
advertise. The publisher of Decorative Rug also stated
that he was being pressured by ORIA to run
unfavorable editorials concerning CGI.
8. Anadol Rugs, an ORIA member located in New
York, executed a contract and paid a deposit for space
in the 1994 trade show. The contract was not forged.
Anadol cancelled [sic] its contract after its anticipated
participation was revealed to ORIA, and, according to
the president of Anadol, ORIA pressured it.
The Magistrate Judge recommended that the defendants'
motion to dismiss for lack of subject matter jurisdiction be
granted. He concluded that FTAIA governed the Court's
subject matter jurisdiction and that the plaintiffs failed to
establish jurisdiction under the Act because they failed to
prove that the defendants' conduct had a direct and
substantial effect on United States domestic commerce.
(R&R 10-11.)
B. Additional Jurisdictional Evidence
Offered To the District Court.
The plaintiffs subsequently filed objections to the
Magistrate Judge's report and recommendation with the
District Court. In so doing, both they and the defendants
submitted additional evidence to that Court for its
consideration. For example the plaintiffs offered additional
evidence intended to show that ORIA and the individual rug
importers had pressured independent trade publications to
reject advertising for the trade show. They offered Elsea's
contemporaneously written notes of a September 1993
9
telephone conversation with Ron O'Callaghan of Decorative
Rugs magazine, an independent trade publication, in which
he recorded that O'Callaghan "rejected his acceptance of "
CGI's advertisements for the 1993 trade show. Elsea
reported that O'Callaghan stated that if he printed the ads,
ORIA and other importers would quit advertising, and that
ORIA opposed the show and had pressured Decorative Rug
magazine to run editorials against it. In response, the
defendants offered a certification from O'Callaghan in which
he denied that he made such statements, and specifically
stated that none of the importers ever contacted him and
threatened to quit advertising in his magazine if it accepted
advertisements from Elsea for his Chicago trade show.
The plaintiffs also offered a letter from an advertising
consultant reporting that when the consultant tried to
place an advertisement in Rug News, another independent
trade publication, she was told by Rug News official Les
Stroh that the advertisement would not be accepted
because the trade show would "damage the oriental rug
importers." (JA.127). In response, the defendants offered
excerpts from a deposition of Stroh, in which he testified
that he never received any recommendation from ORIA not
to accept ads from manufacturers. Stroh also denied ever
having any conversations with anyone from ORIA
pertaining to the acceptance or rejection of advertisements
from manufacturers. (JA. 178-81).
The plaintiffs also offered the minutes of a December
1993 ORIA executive board meeting, at which the board
discussed CGI's November 1993 Chicago trade show. The
minutes report a discussion concerning a memorandum
that would be sent to all members about the operations of
CGI, "which held a trade fair in Chicago last November
where they had cut out the role of the importer in the chain
of distribution." Lee Harounian, an ORIA board member,
suggested that ORIA members "boycott" the manufacturers
participating in the show. The executive board ultimately
decided that this memorandum should not go to all
members but to the board members only.
In addition, Elsea submitted a supplemental declaration
in which he recounted that the owner of Istanbul Grand
Bazaar ("IGB"), a company that both manufactures rugs in
10
Turkey and imports them into the U.S. (and therefore is a
member of ORIA), expressed interest in participating in
CGI's 1994 trade show, but said he would not be the only
ORIA member to do so. Elsea asserted that he informed
IGB's owner that another Turkish importer/manufacturer
and ORIA member, Anadol Rugs, also was participating.
Subsequently, Elsea claimed, he received a fax from Anadol
Rugs informing him that Anadol "had received a fax from
ORIA concerning [its] participation in the trade fair." As a
consequence, Anadol was "canceling" its participation in
the trade fair. The fax, also offered as evidence, stated that
Anadol "ha[s] no intentions whatsoever to attend this
exhibit[ion]." The fax further admonished CGI to "please
rectify this matter immediately, writing to [ORIA] that it was
a mistake on your part." Neither Anadol nor IGB
participated in the trade show.
The plaintiffs also offered evidence of ORIA's historical
efforts to prevent foreign manufacturers from selling
directly to U.S. retailers. In 1992, Pakistani rug
manufacturers sold some rugs directly to Bloomingdale's
department store, an American retailer. In September of
that year, following this sale, then-ORIA president (and
defendant) Isaac Etessami wrote to the Pakistani Minister
of Commerce complaining of this practice, with emphasis
on EPB's subsidization of Bloomingdales' promotion. The
letter reminded the Pakistani minister of the "traditional,
established and respected chain of distribution" in the
United States, to wit, "MANUFACTURER/EXPORTER--
IMPORTER/WHOLESALER -- RETAILER -- CONSUMER."
The letter also admonished Pakistani exporters to
concentrate their promotion sales efforts on American
importers "and not attempt to involve themselves with
retailers, who are the importers' customers." (Emphasis in
original). The lengthy letter concluded with the exhortation:
"Work with the American importer in promoting your rugs
and not around him."
Finally, the plaintiffs offered a memorandum from the
president of ORRA addressed to the ORRA board, written
shortly after the president received the March 23, 1994
letter from then-ORIA president Hodges regarding potential
ORRA sponsorship of CGI's 1994 trade fair. The memo read
in part:
11
Over the past year ORRA has made significant progress
in mending fences with its sister organization ORIA.
. . . Last year a letter went out under my signature that
effectively distanced ORRA from [CGI]. . . . The building
process is slow . . . . . and it will come to a grinding
halt, in my opinion, if we even entertain the notion of
joining forces with [CGI].
Both Dan Hodges and Gene Newman have gone on
record requesting that ORRA continue to disassociate
itself from Mr. Elsea's efforts.
In response, the defendants offered excerpts from the
deposition of the ORRA president, in which she testified
that nobody "at ORIA [told her] . . . that moving away from
an affiliation with another trade fair would improve
relations."
C. Subsequent Proceedings.
The District Court, "having conducted de novo review of "
the Magistrate Judge's recommended disposition, the
parties' subsequent submissions, and the underlying
record, but not of the additional evidence submitted to the
District Court after the issuance of the Magistrate Judge's
initial report and recommendation, remanded the matter to
the Magistrate Judge, so that the arguments raised in
plaintiffs' objections could be adequately evaluated.
On remand, the Magistrate Judge considered CGI's
"additional legal arguments," but did not consider the
additional evidence submitted to the District Court. After
consideration of the arguments, the Magistrate Judge
issued a supplemental report and recommendation
affirming his original report. The District Court
subsequently adopted both reports and dismissed the
complaint for lack of subject matter jurisdiction.
II.
Subject matter jurisdiction in this case rests, if at all, on
28 U.S.C. S 1337(a), which states that "[t]he District Courts
shall have original jurisdiction of any civil action or
proceeding arising under any Act of Congress regulating
12
commerce or protecting trade and commerce against
restraints and monopolies." On appeal to this Court, the
primary question presented is whether the District Court
possessed subject matter jurisdiction over the plaintiffs'
antitrust claims in light of the FTAIA, which limits the
applicability of the Sherman Act in certain circumstances.
In addition to fervently disputing the plaintiffs' arguments,
the defendants offer two additional arguments as
alternative bases on which this Court might affirm the
District Court's dismissal of this action. First, they argue
even assuming the FTAIA does not apply, the plaintiffs have
not established subject matter jurisdiction under the
Sherman Act. Second, they argue that the plaintiffs do not
have the "antitrust standing" needed to pursue their
claims.
A.
We first turn to the relevant provisions of the"inelegantly
phrased" FTAIA.4 This statute, when parsed, states two
requirements about when the Sherman Act, which falls
within the jurisdictional ambit of 28 U.S.C. S 1337, applies.
First, the initial sentence of Section 6a, along with its
"import trade or commerce" parenthetical, provides that the
antitrust law shall apply to conduct "involving" import trade
or commerce with foreign nations (provided, of course, that
jurisdiction is found to exist under the Sherman Act itself).
15 U.S.C. S 6a. Second, Section 6a(1)(A) states that the
antitrust laws shall not apply to all other conduct involving
trade or commerce with foreign nations unless such
conduct has a direct, substantial, and reasonably
foreseeable effect on (a) domestic trade or commerce, or (b)
import trade or commerce with foreign nations. 15 U.S.C.
S 6a(1)(A).
Here, the defendants attack subject matter jurisdiction
"in fact," meaning they dispute the existence of certain
jurisdictional facts alleged by the plaintiffs. When a
defendant attacks subject matter jurisdiction "in fact," as
opposed to an attack on the allegations on the face of the
_________________________________________________________________
4. See United States v. Nippon Paper Indus. Co., Ltd., 109 F.3d 1, 4 (1st
Cir. 1997).
13
complaint, the Court is free to weigh the evidence and
satisfy itself whether it has power to hear the case.
Mortensen v. First Fed. Sav. & Loan Ass'n, 549 F.2d 884,
891 (3d Cir. 1977). In such a situation, "no presumptive
truthfulness attaches to plaintiff 's allegations, and the
existence of disputed material facts will not preclude the
trial court from evaluating for itself the merits of
jurisdictional claims." Id. In addition, the burden of proving
the existence of subject matter jurisdiction lies with the
plaintiff. Id. The parties appear to agree that under the
Mortensen framework for analyzing factual challenges to
subject matter jurisdiction, this Court reviews the District
Court's and Magistrate Judge's findings of jurisdictional
facts for clear error.
In their complaint, the plaintiffs in this case allege a
broad horizontal conspiracy among United States rug
importer/wholesalers to restrain the domestic rug trade
between foreign manufacturers and United States domestic
retailers at plaintiffs' trade shows, and to restrain sales
between foreign manufacturers and such retailers on
buying trips abroad. They charge that the defendants'
conduct restrained United States commerce, alleging
threats not to purchase rugs from any manufacturer that
participates in the plaintiffs' trade shows; threats not to
purchase rugs from any manufacturer that sells rugs to
any retailer on a buying trip; reducing or ceasing purchases
of rugs from manufacturers that participate in plaintiffs'
trade fairs or sell to retailers on buying trips; threats to
retaliate, including expulsion from the association, against
any ORIA member that participates in the plaintiffs' trade
shows; and inducing the Carpet Export Promotion Council
of India, the Export Promotion Board of Pakistan, and the
Pakistan Carpet Manufacturers and Exporters Association
not to subsidize the participation of manufacturers from
those countries in the plaintiffs' trade shows.
Addressing the impact of the FTAIA to this case, the
Magistrate Judge first determined that the plaintiffs were
themselves not importers and, therefore, were not eligible
for the "import trade" exception. The Magistrate Judge then
addressed whether the evidence in the record supported a
finding of subject matter jurisdiction under the statute.
14
The Magistrate Judge apparently found that the evidence
plaintiffs introduced to back up their allegations was
credible only with respect to the charge that they
"attempt[ed] to induce or induc[ed] the Carpet Export
Promotion Council of India, the Export Promotion Board of
Pakistan, and the Pakistan Carpet Manufacturers and
Exporters Association not to subsidize the participation of
manufacturers from those countries in the plaintiffs' trade
fairs." The Magistrate Judge held that this did not describe
conduct having a "direct" and "substantial" effect on import
trade or commerce.5 Accordingly, the Magistrate Judge and,
subsequently, the District Court, held that this case fell
under the FTAIA's exemption from the antitrust laws, and
that subject matter jurisdiction was therefore lacking.
The District Court and Magistrate Judge both ignored
significant additional evidence offered by the plaintiffs to
back up their other allegations. Under 28 U.S.C.S 636 and
Federal Rule of Civil Procedure 72(b), where a District
Court reviews a Magistrate Judge's report and
recommendation regarding a dispositive motion, the Court
has discretion whether to consider additional evidence not
presented to the Magistrate Judge.6 See United States v.
_________________________________________________________________
5. The parties did not place in contention the issue of whether the
challenged conduct had a "reasonably foreseeable" effect on import or
domestic commerce. See 15 U.S.C. S 6a(1)(A).
6. Title 28 United States Code, section 636(b) states, in relevant part,
that after a District Court receives objections to a Magistrate Judge's
report, the District Court:
shall make a de novo determination of those portions of the report
or specified proposed findings or recommendations to which
objection is made. A judge of the court may accept, reject, or
modify,
in whole or in part, the findings or recommendations made by the
magistrate. The judge may also receive further evidence or recommit
the matter to the magistrate with instructions.
Similarly, Rule 72(b) states, in relevant part, that upon receiving
written objections to a Magistrate Judge's report, the District Court:
shall make a de novo determination on the record, or after
additional evidence, of any portion of the magistrate judge's
disposition. . . . The district judge may accept, reject, or modify
the
recommended decision, receive further evidence, or recommit the
matter to the magistrate judge with instructions.
15
Raddatz, 447 U.S. 667, 673-74 (1980). Moreover, it has, on
occasion, been held that it is within the discretion of a
district court reviewing a Magistrate Judge's report and
recommendation de novo to ignore newly proffered evidence
because the evidence is untimely, and the proponent of the
evidence has provided no reason why he did not present it
before the Magistrate Judge. See Callas v. Trane CAC, Inc.,
776 F. Supp. 1117, 1119 (W.D. Va. 1990), aff 'd, 940 F.2d
651 (4th Cir. 1991); see also Freeman v. County of Bexar,
142 F.3d 848, 852 (5th Cir. 1998) (District Court has
"obligation to review de novo the actual evidence on
objected-to findings, but the District Court should not be
compelled to ignore that the parties had a full and fair
opportunity to present their best evidence to the magistrate
judge").
The District Court's opinion remanding the matter back
to the Magistrate Judge, however, is troublesome. The
District Court noted that it had been presented with
"additional arguments, not additional evidence permissible
under Fed. R. Civ. P. 72(b)." It is not clear from this
statement that the District Court even realized that
plaintiffs had presented additional evidence. In any event,
the Court did not exercise its discretion under 18 U.S.C.
S 636 and Rule 72(b) not to consider that evidence.
Additional evidence, however, plainly was presented."At
least, the statute's authority for the court ``to receive further
evidence' in the course of de novo review of a magistrate
judge's decision requires that discretion must be exercised."
Freeman, 142 F.3d at 852. We believe that in the context of
a challenge to subject matter jurisdiction which can be
raised at any time during the course of the litigation, the
District Court should have considered the additional
evidence. The evidence was significant and was before the
Court when the Magistrate Judge sent up his first report
and recommendation. Yet without explanation, the District
Court ignored the additional evidence and remanded the
matter to the Magistrate Judge to consider only the
additional arguments of the parties.
The Magistrate Judge held that this case did not fall into
the FTAIA's parenthetical exclusion, i.e., did not"involve"
import trade or commerce, because the plaintiffs in this
16
case were not importers, but merely brokers. As plaintiffs
observe, this is plainly an inaccurate reading of the FTAIA.
It is an incorrect focus on the plaintiffs' function rather
than the defendants' conduct. The FTAIA's exemption from
the Sherman Act focuses on the latter's application to
"conduct involving trade or commerce (other than import
trade or import commerce) with foreign nations." 15 U.S.C.
S 6a (emphasis added). The implication that the Sherman
Act provisions "apply to import trade and import commerce
is unmistakable." Eskofot A/S v. E.I. DuPont de Nemours &
Co., 872 F. Supp. 81, 85 (S.D.N.Y. 1995). The proper
inquiry was therefore whether the alleged conduct by the
defendants "involved" import trade or commerce, not on
whether the plaintiff 's conduct, which is not being
challenged as violative of the Sherman Act, "involved"
import trade or commerce.
Congress enacted the FTAIA for the purpose of facilitating
the export of domestic goods by exempting export
transactions that did not injure the United States economy
from the Sherman Act and thereby relieving exporters from
a competitive disadvantage in foreign trade. See 1982
U.S.C.C.A.N. 2431, 2432; Hartford Fire Ins. Co. v.
California, 509 U.S. 764, 796 n.23 (1993). Thus, the Act's
declaration of purpose states "[i]t is the purpose of this act
to increase United States exports of products and services
by," inter alia, "modifying the application of the antitrust
laws to certain export trade." Pub. L. No. 97-290, 1982
U.S.C.C.A.N. (96 Stat.) 1234 (codified at 15 U.S.C.
S 4001(b)). The Act specifically excludes the importation of
goods and domestic commerce from its antitrust exemption.
"The Sherman Act does reach conduct outside our borders,
but only when the conduct has an effect on American
commerce." Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 582 n.2 (1986).
Since the FTAIA clearly states that the Sherman Act is
not applicable to trade or commerce other than import
trade or import commerce, the Sherman Act continues
to apply to import trade and import commerce, thereby
rendering the FTAIA's requirement of a direct,
substantial, and reasonably foreseeable effect
inapplicable to an action alleging an impact on import
trade and import commerce.
17
54 Am. Jur. 2d S 18, at 77 (footnote omitted). Here, the
plaintiffs' activities involved both buying trips abroad where
manufacturers sold rugs to American retailers for
importation into this country, and trade show sales in the
United States where manufacturers sold rugs to American
retailers. Therefore, the defendants intended their alleged
conduct to subvert commercial activities that solely
impacted domestic commerce. Plaintiffs charge that
defendants engaged in a course of activity designed to
ensure that only United States importers, and not United
States retailers, could bring oriental rugs manufactured
abroad into the stream of American commerce.
Even if this Court considered only the evidence presented
before the Magistrate Judge, the latter erred in ruling that
the defendants' conduct did not "involve import trade or
commerce." The defendant association identifies itself as an
organization of "rug importers"; the individual defendants
are its officers and directors. Admittedly, the FTAIA
differentiates between conduct that "involves" such
commerce, and conduct that "directly, substantially, and
foreseeably" affects such commerce. To give the latter
provision meaning, the former must be given a relatively
strict construction. The evidence before the Magistrate
Judge dealt largely with efforts to prevent Indian and
Pakistani export boards from giving financial assistance to
CGI or to manufacturers who wanted to participate in CGI's
trade shows. It also dealt with efforts to convince ORRA, the
trade association of United States rug retailers, from
sponsoring the shows. These are activities that arguably did
not, standing alone, "involve" import trade or commerce,
but that did relate directly to them.
Elsea's declaration, however, makes allegations that ORIA
pressured Zarnigan Rugs, DCC, Inc., and Anadol Rugs,
Inc., themselves ORIA members who were involved both in
importing and foreign manufacturing, to refrain from
participating in CGI's trade shows. This evidence was
uncontested before the Magistrate Judge. These allegations
directly involved both import and domestic commerce. 7
_________________________________________________________________
7. The Magistrate Judge noted that many of the allegations in Elsea's
declaration are based only on ``information and belief " rather than on
18
Significantly, Mortensen makes clear that because, in the
Sherman Act context, jurisdictional facts are often closely
intertwined with the merits of the claim, "it is incumbent
upon the trial judge to demand less in the way of
jurisdictional proof than would be appropriate at a trial
stage." 549 F.2d at 892. Under this standard, the
uncontested evidence in Elsea's declaration alone arguably
should have been sufficient to remove the FTAIA as an
obstacle to jurisdiction. Accordingly, the District Court
committed clear error in ordering a dismissal of the action
at this stage of the proceedings.
Furthermore, the foregoing conclusion finds even
stronger support when one considers all of the evidence
submitted before both the Magistrate Judge and the
District Court, especially in light of Mortensen 's less
stringent evidentiary standard. The plaintiffs have offered
evidence that defendants took steps to: (1) prevent foreign
manufacturers from selling to United States retailers, (2)
prevent at least one American retailer from purchasing rugs
directly from foreign manufacturers, (3) prevent foreign
governments and trade associations from sponsoring trade
fairs at which retailers could purchase directly from foreign
manufacturers, and (4) prevent an American rug retailers'
trade association from sponsoring the trade fairs. 8
Finally, the evidence offered by plaintiffs (including the
evidence offered after the Magistrate Judge's initial report
issued) reveals that the defendants' alleged conduct had its
intended negative effect on CGI's trade shows and,
_________________________________________________________________
personal knowledge, but did not specify what effect this had on the
weighing of the allegations. We believe that the lower evidentiary
standard applied to challenges to summary judgment under Mortensen
required the Court to credit undisputed evidentiary contentions even
when based on "information and belief." Moreover, the more relevant
contentions in Elsea's declaration do appear to have been based on his
personal contact with entities such as Zarnigan, DDC, and Anadol.
8. The plaintiffs also contend that the defendants tried to dissuade
independent rug trade publications from accepting advertising for CGI's
trade fairs. The evidence regarding these efforts is heavily disputed in
the
record, however, and therefore we do not conclude that the lower courts'
rejection of this evidence was clearly erroneous.
19
consequently, had the effect of protecting the defendants'
import and wholesale business. Accordingly, the evidence,
taken as a whole, is sufficient to support the plaintiffs'
allegations that the challenged conduct "involved" import
trade or commerce. The crux of their case involves conduct
in the United States, not conduct abroad. We hold that
these activities are not the type of conduct Congress
intended to remove from our antitrust jurisdiction when it
enacted the FTAIA. The FTAIA therefore does did not divest
the District Court of subject matter jurisdiction over the
plaintiffs' claims.
B.
The defendants next argue that even assuming the FTAIA
does not divest the federal courts of subject matter
jurisdiction over the plaintiffs' claims, the District Court
nevertheless lacked jurisdiction under the Sherman Act
itself. They contend that the plaintiffs have failed to
demonstrate that the defendants' alleged conduct had a
sufficient effect on United States interstate commerce.
Because the parties did not include the defendants' motion
to dismiss for lack of subject matter jurisdiction in the
record filed with this Court, it is not clear to us that this
argument was presented to the District Court or Magistrate
Judge. However, the defendants argue that the test for
Sherman Act jurisdiction is identical to the "substantial
and direct effects" test under the FTAIA, which the District
Court did consider. For this reason, and because an
appellate court is always free to review the existence of
subject matter jurisdiction, we will resolve the procedural
doubt in favor of the defendants and address this
argument.
The defendants contend that the plaintiffs must
demonstrate a "substantial" effect on our domestic
commerce to support the exercise of jurisdiction under the
Sherman Act. They place primary reliance for this
proposition on Hartford Fire Ins. Co. v. California, 509 U.S.
764, 796 n.23 (1993). By contrast, the Department of
Justice, as amicus curiae, focuses on language in other
cases that all the plaintiffs need show is that the restraint
either interfered with the sale of rugs in interstate
20
commerce or had a "not insubstantial" effect on interstate
commerce to invoke Sherman Act jurisdiction.
The plaintiffs pose a different argument in support of
Sherman Act jurisdiction. They contend that their
allegations of a horizontal group boycott are subject to a per
se analysis, rather than analysis under the rule of reason.
In adjudicating a per se claim on its merits, effects on
commerce should be presumed and a market power inquiry
is unnecessary. The plaintiffs extend this reasoning to
argue that where a per se claim is at issue, this
presumption of market impact holds equally true for
purposes of establishing subject matter jurisdiction.
Traditionally, horizontal group boycotts are generally
judged under a per se analysis. See Klor's Inc. v. Broadway-
Hale Stores, 359 U.S. 207 (1959). The Supreme Court,
however, has curtailed the application of the per se analysis
in cases alleging concerted refusals to deal in recent years.
Nevertheless, the plaintiffs claims appear to fall within that
class of cases that still enjoys per se analysis. They claim
that the conspiring importer/wholesaler firms (themselves
competitors, making this a horizontal boycott) engaged in a
"naked" restraint by agreeing not to deal with
manufacturers who sold to United States retailers directly,
or with such retailers who purchased directly from
manufacturers. See Eastern States Retail Lumber Dealers'
Ass'n v. United States, 234 U.S. 600 (1914); H ERBERT
HOVENKAMP, ANTITRUST LAW, P 2203 (1999). According to one
commentator, a truncated antitrust analysis remains
applicable to "concerted refusals that upon brief inspection
are unlikely to have any purpose other than the reduction
of market output and attendant price increases. In that
case, condemnation is in order without any inquiry into
[market] power." ANTITRUST L AW P 2203a.
Similarly, this Court has stated,
per se boycott cases usually contain three elements:
"denial of something a competitor needs to compete
effectively, defendants with a dominant position in the
relevant market, and the absence of any plausible
contention that the challenged behavior would
``enhance overall efficiency and make markets more
competitive.' "
21
Rossi v. Standard Roofing, Inc., 156 F.3d 452, 463 (3d Cir.
1998) (quoting P. AREEDA & H. HOVENKAMP, ANTITRUST LAW
P 1510 (Supp.1997) (quoting and interpreting Northwest
Wholesale Stationers, Inc. v. Pacific Stationery & Printing
Co., 472 U.S. 284, 294-95 (1985))). The defendants'
conduct complained of fits this description. It can be
characterized as having a "pernicious effect on competition"
and lacks any redeeming virtue. See Rossi, 156 F.3d at 461
(quoting Northern Pac. Ry. v. United States, 356 U.S. 1, 5
(1958)).
Although "[t]he mere allegation of a concerted refusal to
deal does not suffice because not all concerted refusals to
deal are intentionally anticompetitive," id. at 463 (quoting
Northwest Wholesale Stationers, 472 U.S. at 295, 298), it
appears that the refusal to deal here at issue is
predominantly anticompetitive. If the plaintiffs can prove at
trial that the alleged conspiracy actually exists, the
anticompetitive effect of such a conspiracy would be
"immediately obvious." FTC v. Indiana Federation of
Dentists, 476 U.S. 447, 458 (1986). There appears to be no
reason for the defendants' action other than to protect the
wholesaler/importer's role in the chain of distribution.
The defendants correctly observe that under Supreme
Court precedent, "the per se approach has generally been
limited to cases in which firms with market power boycott
suppliers or customers in order to discourage them from
doing business with a competitor." Indiana Federation of
Dentists, 476 U.S. at 458. Market power is the power to
control prices and exclude competition. See American
Tobacco Co. v. United States, 328 U.S. 781, 789 (1946).
However, "when the defendants are not engaged in any
significant integration of production or distribution, and the
only rationale for the restraint is the elimination of
additional, lower-cost, higher quality, or more innovative
output from the market," this rationale "implies the
existence of market power." ANTITRUST LAW P 2203a. Plaintiffs
have not offered specific evidence to show what portion of
the United States market for the importation and wholesale
distribution of oriental rugs was affected by defendants'
actions or the potential market impact of their lost trade
show sales. The District Court and Magistrate Judge relied
22
heavily on this absence of evidence in dismissing their
claims. Nevertheless, because the evidence offered by the
plaintiffs indicates that the defendants' conduct had its
intended effect of undermining the trade shows, and that
its only purpose was to eliminate competition in the United
States, this raises a strong inference that ORIA and its
member rug importer/wholesalers possessed some degree
of market power. Accordingly, per se treatment appears
appropriate here.9
Moreover, the Supreme Court noted the broad reach of
the Sherman Act and has made clear that a plaintiff 's
burden of establishing effects on commerce sufficient to
confer jurisdiction under the Sherman Act is not great. The
jurisdictional requirement of the Act "may be satisfied
under either the ``in commerce' or the ``effect on commerce'
theory." McLain v. Real Estate Bd. of New Orleans, 444 U.S.
233, 242 (1980). McLain controls when subject matter
jurisdiction over domestic conduct is at issue. We reject the
defendants' reliance on Hartford Fire, because it dealt
exclusively with the extraterritorial applicability of the
Sherman Act to wholly foreign conduct. The instant case
deals primarily with conduct in the United States, namely
concerted action by United States importer/wholesalers
directly to affect the domestic retail oriental rug market.
Accordingly, . . ." All the plaintiffs need demonstrate is
"either that the defendants' activity is itself in interstate
commerce or, if it is local in nature, that it has an effect on
some other activity demonstrably in interstate commerce."
Id.; see also Mortensen, 549 F.2d at 896.
No one claims that the conduct here at issue is"local in
nature," and therefore no "effects" test even comes into
play. Instead, we focus on whether the plaintiffs' have
proffered evidence that the defendants' anticompetitive
activity is itself in interstate commerce. It is clear from the
uncontradicted evidence presented that requisite nexus to
_________________________________________________________________
9. The District Court held that ORIA was a "professional organization,"
much like the Indiana Federation of Dentists, and for this reason
plaintiffs' claims were subject to a rule of reason analysis. This
conclusion was clearly erroneous, and the defendants do not even
attempt to defend it on appeal.
23
interstate commerce exists here. ORIA is headquartered in
New Jersey; several of the defendant wholesalers/importers
are located in New York; the defendants wrote to the Rhode
Island-based president of ORRA to dissuade that
organization from co-sponsoring the trade shows; at least
one retailer who was pressured not to associate with CGI is
based in Virginia; Elsea and CGI are based in Virginia; and
the trade shows took place in Chicago, Illinois and
Washington, DC. In these circumstances, the plaintiffs
therefore need not quantify the actual effect defendants'
conduct had on interstate commerce to support federal
jurisdiction. See McLain, 444 U.S. at 243; Fuentes v. South
Hill Cardiology, 946 F.2d 196, 199-200 (3d Cir. 1991); see
also Summit Health, Ltd. v. Pinhas, 500 U.S. 322, 331
(1991).
Thus, because the plaintiffs have introduced evidence
sufficient to show that the challenged conduct actually
occurred in interstate commerce, we conclude that subject
matter jurisdiction exists over plaintiffs' Sherman Act
claims.
C.
Finally, the defendants contend that even if subject
matter jurisdiction over the plaintiffs' claims exists, this
Court should nevertheless affirm the dismissal of those
claims because the plaintiffs lack antitrust standing to
bring an action under the Sherman Act. Specifically, they
contend that antitrust standing is lacking because the
plaintiffs are merely brokers, and are not themselves the
defendants' competitors or consumers in the relevant
market.10 Their argument relies on a recent decision of this
Court in Barton & Pittinos, Inc. v. SmithKline Beecham
Corp., 118 F.3d 178 (3d Cir. 1997).
Stated briefly, SmithKline Beecham ("SB") manufactured
_________________________________________________________________
10. The defendants first raised this argument before the District Court in
their memorandum opposing the plaintiffs' objection to the magistrate's
initial report. However, the Magistrate Judge did not rely on this
argument on remand, and the District Court did not rely on it in
adopting the Magistrate Judge's reports.
24
a hepatitis-B vaccine. Traditionally, it had sold the vaccine
to pharmacists, who in turn sold the vaccine to nursing
homes. SB, however, entered into a contract with Barton &
Pittinos ("B&P") under which B&P distributed marketing
materials about the vaccine to and solicited orders from
nursing homes. B&P would then pass the orders to a third
company, General Injectables and Vaccines, Inc. ("GIV"),
which would purchase the vaccine from SB, resell it to the
nursing homes, thus fulfilling the orders. The pharmacists
became upset that SB had chosen another manner of
vaccine distribution, and complained to SB. As a result, SB
terminated its arrangement with B&P and GIV. B&P sued
SB for conspiring with the pharmacists to restrain
competition in the nursing home market for vaccine.
The Court dismissed the case, holding that B&P lacked
antitrust standing to sue under the Sherman Act because
its injury was not of a type the antitrust laws were designed
to prevent.11 The parties apparently agreed, and the Court
acknowledged, that to have antitrust standing, B&P must
have been either a consumer or a competitor in the relevant
market. The Court focused its inquiry on whether B&P was
a "competitor." It held that, although the SB/B&P/GIV
arrangement, taken as a whole, competed directly with the
pharmacists, B&P was not by itself in competition with
them because B&P lacked the license required to resell the
vaccine which GIV had provided. See id. 182-83.
"Consequently, there was no cross-elasticity of demand
between the pharmacists' offering and B&P's offerings; no
_________________________________________________________________
11. The Court noted that the existence of "antitrust injury" was one of
several factors that go into a determination regarding antitrust standing.
The other factors are:
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; . . . the directness
of
the injury, which addresses the concerns that liberal application
of
standing principles might produce speculative claims; . . . the
existence of more direct victims of the alleged antitrust
violations;
and . . . the potential for duplicative recovery or complex
apportionment of damages.
Id. at 181.
25
matter how much the pharmacists raised the price of the
package of the goods and services that they offered, the
nursing homes could not have switched to B&P." Id. at 183.
Thus, the Court concluded, "advertisers and brokers of a
good or service are not competitors of companies that
actually supplied the good or service." Id. at 184.
The defendants claim that the plaintiffs' trade shows are
no different from B&P's role as a marketer and solicitor of
orders. We disagree. First, as the plaintiffs explain quite
thoroughly in their reply brief to this Court, Barton &
Pittinos arguably rests on an overstated premise. The
Court's conclusion in Barton that in order to suffer
antitrust injury, one must be either in competition with the
defendant or a consumer of its goods or services, if
construed as an absolute (which arguably it need not be),
may in some circumstances lead to results that conflict
with Supreme Court and other precedent.12 Indeed, this
Court recently acknowledged that although generally only
competitors and consumers will suffer antitrust injury (an
essential component of antitrust standing), such injury may
in some circumstances inhere where the harm is
" ``inextricably intertwined' with the defendant's
wrongdoing." Steamfitters Local Union No. 420 Welfare Fund
v. Philip Morris, Inc., 171 F.3d 912, 926 & n.8 (3d Cir.
1999) (quoting Gulfstream III Assoc., Inc. v. Gulfstream
_________________________________________________________________
12. In Associated General Contractors of California, Inc. v. California
State
Council of Carpenters, the Court articulatedfive factors that courts
should consider in analyzing the existence of antitrust standing. 459
U.S. 519, 545 (1983). This Court has summarized them as follows:
(1) the causal connection between the antitrust violation and the
harm to the plaintiff and the intent by the defendant to cause
harm,
with neither factor alone conferring standing; (2) whether the
plaintiff 's 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.
In re Lower Lake Erie Iron Ore Antitrust Litig., 998 F.2d 1144, 1163 n.9
(3d Cir. 1993).
26
Aerospace Corp., 995 F.2d 425, 429 (3d Cir. 1993)), cert.
denied, 120 S. Ct. 844 (2000).
Regardless, even assuming that the plaintiffs in this case
could have standing only if they compete with the
defendants, Barton & Pittinos is distinguishable. Their trade
shows and buying trips can most certainly be categorized
as in competition with the rug importer/wholesalers. Elsea
and CGI, by themselves, offered an alternative avenue of
distribution to that offered by the wholesaler/importers. If
the wholesaler/importers raised the prices at which they
sold oriental rugs to domestic retailers, those retailers
could go to CGI's trade shows and purchase rugs there
directly from manufacturers. In other words, there is a
cross-elasticity of demand13 between the plaintiffs' offering
and the defendants' offering. The plaintiffs' trade shows
offered retailers (and manufacturers) certain organizational
efficiencies that previously could be provided only by
distributing rugs through wholesaler/importers. They
allowed the rugs to be brought across the ocean and made
available to retailers. In so doing, the plaintiffs relieved
retailers of the burdensome task of locating and contacting
manufacturers abroad, dealing with a web of import and
customs regulations, and surmounting potential cultural
obstacles to doing business with Indian, Pakistani, Turkish,
and possibly other foreign rug manufacturers.
Indeed, as the plaintiffs explain, the instant case bears a
striking similarity to the facts in Crimpers Promotions Inc. v.
Home Box Office, 724 F.2d 290 (2d Cir. 1983), cert. denied,
467 U.S. 1252 (1994). In Crimpers, the plaintiff organized a
trade show at which television programming producers
could sell programs directly to television stations, instead of
having to sell through distributors first. The plaintiff
charged that then distributors conspired to sabotage the
trade show by boycotting potential participants. The Court
of Appeals for the Second Circuit, in an opinion written by
Judge Friendly, held that the plaintiff-trade show organizer
_________________________________________________________________
13. Cross-elasticity of demand is defined as a relationship between two
products, usually "substitutes for each other, in which a price change for
one product affects the price of the other." Black's Law Dictionary, 7th
ed.
27
had standing to bring a Sherman Act claim against the
distributors. Judge Friendly held that organizer's injury
was sufficiently direct to confer standing because"[i]t was
endeavoring to forge a link in a chain of the sale of
programming, to wit, direct contact between program
producers and cable television stations, that would compete
with defendants in their role as middlemen." Id. at 294.
We find Crimpers persuasive. Instead of facilitating the
sale of television programming between producers and
television stations, Elsea and CGI "endeavor[ed] to forge a
link in a chain of the sale" of oriental rugs between foreign
rug manufacturers and domestic rug retailers. That link
competed directly with the traditional middlemen-- the rug
importer/wholesalers. Moreover, the alleged injury to the
plaintiffs was not merely an indirect or remote consequence
of the defendants' actions, as might have been the case if
the defendants' actions had put a rug manufacturer out of
business, and someone who supplied materials to that
manufacturer sued under the antitrust laws. See id.
Rather, "injury to [the plaintiffs] was the precisely intended
consequence of defendants' boycott," id., and is
" ``inextricably intertwined' with the defendant's
wrongdoing," Steamfitters, 171 F.3d at 926 & n.8.
In addition, the defendants' contention that they did not
compete with Elsea and CGI is belied by their action to, at
the very least, dissuade foreign and domestic entities from
contributing financial support to the plaintiffs' trade shows.
There is no logical explanation for the defendants'
assiduous and persistent effort to preserve their role in the
chain of distribution other than their belief that they were
threatened by the plaintiffs' activities. Accordingly, we reject
the defendants' argument and hold that the plaintiffs have
antitrust standing.
III.
In summary, we conclude that the FTAIA is inapplicable
and that the District Court erred in dismissing this case.
Further, the plaintiffs have offered sufficient evidence to
demonstrate that the activities of the wholesale importers
were intended to and adversely did impact on domestic
28
commerce by engaging in a course of anticompetitive
conduct to ensure that only they, the importers, could
bring oriental rugs manufactured abroad into the United
States for distribution. We further hold that subject matter
jurisdiction exists under the Sherman Act, and that the
plaintiffs have antitrust standing. The order of dismissal of
the District Court will be reversed and the case remanded
to the District Court for further proceedings consistent with
this opinion. Costs will be taxed against the appellee.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
29