Minn-Chem, Inc. v. Agrium Inc.

In the

United States Court of Appeals

For the Seventh Circuit

No. 10-1712

M INN-C HEM , INCORPORATED , et al.,

Plaintiffs-Appellees,

v.

A GRIUM INCORPORATED , et al.,

Defendants-Appellants.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 08 C 6910—Ruben Castillo, Judge.

A RGUED JUNE 3, 2010—D ECIDED S EPTEMBER 23, 2011

Before M ANION, E VANSΠ, and S YKES, Circuit Judges.

S YKES, Circuit Judge. This multi-district antitrust class

action alleges a global conspiracy to raise the price of

potash, a mineral used primarily in agricultural fertilizer.

Œ

Circuit Judge Terence T. Evans died on August 10, 2011, and

did not participate in the decision of this case, which is being

resolved by a quorum of the panel under 28 U.S.C. § 46(d).

2 No. 10-1712

Most of the world’s potash reserves are concentrated

in three countries—Canada, Russia, and Belarus—and

the defendants are leading producers whose mining

operations are located in those countries. The plaintiffs

are direct and indirect potash purchasers in the United

States. They allege that the Canadian, Russian, and

Belarusian producers operated a cartel through which

they fixed potash prices in Brazil, China, and India, and

the inflated prices in these overseas markets in turn

influenced the price of potash sold in the United States.

The defendants moved to dismiss under Rules 12(b)(1)

and 12(b)(6) of the Federal Rules of Civil Procedure,

arguing first that the district court lacked subject-

matter jurisdiction under the Foreign Trade Antitrust

Improvements Act (“FTAIA”), 15 U.S.C. § 6a, and alter-

natively, that the complaint did not satisfy the pleading

requirements of Bell Atlantic Corp. v. Twombly, 550 U.S.

544 (2007), and Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009).

The district court denied the motion but certified its

order for immediate review. See 28 U.S.C. § 1292(b).

We accepted review and now reverse.

As relevant here, the FTAIA limits the extrater-

ritorial reach of the Sherman Antitrust Act to foreign

anticompetitive conduct that either involves U.S. import

commerce or has a “direct, substantial, and reasonably

foreseeable effect” on U.S. import or domestic com-

merce. 15 U.S.C. § 6a. In United Phosphorus, Ltd. v. Angus

Chemical Co., 322 F.3d 942 (7th Cir. 2003), we sat en banc

to address whether the FTAIA’s limitations are juris-

dictional or instead are elements of a Sherman Act claim

that implicates offshore anticompetitive conduct. We

No. 10-1712 3

held that the FTAIA’s requirements are jurisdictional.

Id. at 950-52. A substantial minority of the court

disagreed, see id. at 953-54 (Wood, J., dissenting), and

the dissent’s approach has since prevailed in the

Supreme Court, although in decisions involving other

statutes. See Morrison v. Nat’l Austl. Bank, 130 S. Ct. 2869,

2876-77 (2010); Arbaugh v. Y & H Corp., 546 U.S. 500, 515-

16 (2006). These intervening developments suggest

that United Phosphorus may be ripe for reconsideration,

but we need not undertake that task here. Whether it

blocks jurisdiction or establishes an element of a

Sherman Act claim, the FTAIA applies here to bar this

antitrust suit. The defendants are entitled to dismissal

under either Rule 12(b)(1) or 12(b)(6).

I. Background

Two separate groups of plaintiffs filed nearly identical

antitrust class actions against the world’s leading potash

producers. The first group—Minn-Chem, Inc.; Gage’s

Fertilizer and Grain, Inc.; Kraft Chemical Company;

Shannon D. Flinn; Westside Forestry Services; and

Thomasville Feed & Seed, Inc.—sued on behalf of them-

selves and all others who purchased potash products in

the United States directly from the defendants. The

second group—Kevin Gillespie, Gordon Tillman, Feyh

Farms Company, William H. Coaker, Jr., and David

Baier—sued on behalf of themselves and all others

who purchased potash products in the United States

indirectly from the defendants.

4 No. 10-1712

The defendants are seven companies whose principal

mining operations are located in Canada, Russia, and

Belarus, where most of the world’s potash reserves are

found: Agrium Inc., Potash Corporation of Saskatchewan

Inc. (“PCS”), The Mosaic Company, JSC Uralkali, JSC

Silvinit, JSC Belarusian Potash Company (“BPC”), and

JSC International Potash Company (“IPC”). Agrium,

PCS, and Mosaic operate potash mines in the Canadian

province of Saskatchewan. These three companies own

Canpotex Ltd., a Canadian corporation that is named as

a coconspirator but not as a defendant. Canpotex is a

joint export marketing and distribution company

tasked with coordinating the offshore sales of the potash

supply of each of its three stakeholders. Canpotex is

specifically structured to exclude the U.S. and Canadian

markets. Export marketing through Canpotex is explicitly

authorized and encouraged by Canadian law. In other

words, Canpotex’s coordination of Canadian potash

exports is lawful under the domestic law of that country.

The remaining defendants conduct their mining opera-

tions in Russia and Belarus. Silvinit is a Russian

company, and IPC is the exclusive international dis-

tributor of Silvinit’s potash product. BPC is the exclusive

international distributor for Uralkali (a Russian

company headquartered in Moscow) and RUE PA

Belaruskali. Uralkali and Belaruskali jointly own BPC.

Belaruskali was initially named as a defendant, but

because it is owned by the Republic of Belarus, it was

dismissed from the suit under the Foreign Sovereign

Immunities Act. See 28 U.S.C. §§ 1604 et seq.

No. 10-1712 5

We take the facts from the amended consolidated class-

action complaint. The class period covered by the com-

plaint is July 1, 2003, to the present. As of 2008 the

named defendants accounted for roughly 71% of the

world’s potash supply. The complaint generally alleges

a conspiracy to restrict output and fix prices of potash at

artificially high levels in violation of Section 1 of the

Sherman Act, 15 U.S.C. § 1.1 From 2003 to 2008, potash

prices in the United States increased by a staggering

amount—roughly 600%. This dramatic increase came

after years of relatively stable pricing. The plaintiffs

contend that the spike in prices cannot be explained by

rising production costs or increased demand; indeed,

they claim that demand was falling for much of this

period. They also contend that the sharp increase in

prices cannot be attributed to production shortages;

the defendants are alleged to have plenty of excess capac-

ity. The plaintiffs allege that the surge in prices was

instead the result of an agreement by the defendants

to jointly restrict output and increase prices as exem-

plified by parallel business conduct in three foreign

markets—Brazil, China, and India.

The factual section of the complaint begins with a

general description of the characteristics of the potash

market, which the plaintiffs allege are conducive to

1

As we have noted, the direct and indirect purchasers asserted

substantially identical claims under the Sherman Antitrust

Act, 15 U.S.C. § 1. The indirect purchasers also asserted a host

of state-law claims against the defendants; these claims are

not before us on this interlocutory appeal.

6 No. 10-1712

forming a stable cartel. Potash is an element mined from

naturally occurring ore deposits and used primarily as

an ingredient in agricultural fertilizer. It is (for the most

part) a homogeneous product, but only a handful of

countries possess significant quantities of this valuable

resource. Accordingly, the potash industry is an

oligopoly characterized by high market concentration.

The Canadian province of Saskatchewan is the leading

producer, accounting for roughly one-third of global

production. Russia and Belarus are the next biggest

exporters. Since potash accounts for a relatively small

percentage of total crop-production costs and has no

obvious substitutes, demand for the product is relatively

inelastic, although not entirely so because farmers can

opt to reduce the amount of fertilizer they use in a

given season. Also, the majority of production costs

for potash are variable rather than fixed; there-

fore, producers face less pressure in a given year to hit

any particular output target in order to recoup their

expenses. Finally, there are high barriers to entry into

the potash business. In addition to first finding a

promising source of potash deposits, any potential

entrant would incur approximately $2.5 billion in start-up

costs over a five-to-seven-year development period

before production could commence.

With these background allegations in place, the com-

plaint proceeds to explain that “the potash industry is

marked by a high degree of cooperation” providing

“opportunities to conspire and share information.” In

this regard, the complaint notes that PCS, Agrium, and

Mosaic have access to one another’s sensitive informa-

No. 10-1712 7

tion about production capacity through their joint owner-

ship of Canpotex. Canpotex also offers these three de-

fendants a convenient forum to discuss matters of

pricing and output. Moreover, Canpotex previously had

a joint marketing agreement with Uralkali. The

complaint also alleges that the interests of Uralkali and

Silvinit are aligned because they share a common, in-

fluential shareholder, Dmitry Rybolovlev, who is alleged

to own 66% of Uralkali and 20% of Silvinit’s voting

stock. The plaintiffs also allege that the defendants par-

ticipate in an “exchange program of mutual visits”

and “these visits have provided opportunities to

conspire and exchange highly sensitive competitive

information.” Finally, the defendants meet together at

the annual conference of the International Fertilizer

Industry Association. The complaint alleges that the

“major potash manufacturers” announced price

increases during the Association’s 2007 conference.

Also, a PCS executive is alleged to have publicly compli-

mented BPC (the Belarusian exporter) for showing “tre-

mendous discipline . . . in terms of managing supply in

the marketplace.”

From these allegations about general “opportunities

to conspire” the complaint moves on to allege specific

parallel business conduct consisting of reductions in

output designed to keep prices artificially high and

parallel increases in prices. Some of these allegations

are general and others specific to certain foreign mar-

kets. For example, the complaint alleges that as

global demand for potash declined in the second half of

2005, the defendants “jointly restricted” the output of

8 No. 10-1712

potash for the purpose of maintaining an artificially

high price. In the last two months of 2005, PCS, the

world’s leading potash producer, announced the shut-

down of three of its mines. These shutdowns resulted

in the removal of 1.34 million tons of potash from the

market. At the same time, Mosaic also announced a

temporary, 200,000-ton reduction in potash production.

Uralkali, Belaruskali, and Silvinit followed suit with

reductions of their own in the first half of 2006. These

production cuts continued through 2008 despite

the fact that the defendants maintained sizeable excess

capacity.

The complaint also points to an event in October of

2007, when Silvinit announced that a sinkhole at one of

its mines might cause a long-term disruption in

production at that location. Within a day of the announce-

ment, PCS, Uralkali, Agrium, and BPC (but apparently

not Mosaic) announced that they would suspend new

sales in the wake of Silvinit’s disclosure. Roughly two

weeks later, Silvinit announced that the sinkhole was

not as severe as initially feared and that the mine in

question would return to business as usual. At this

point the other companies ended their self-imposed

moratorium on new sales. The complaint alleges that

[t]he joint suspension of sales by PCS, Uralkali,

Agrium and BPC during the shutdown by Silvinit, a

supposed competitor, makes no economic sense

absent a cartel. Had the market truly been competi-

tive, defendants would have the incentive to increase,

not suspend, production to take advantage of their

No. 10-1712 9

competitor’s reduced output and thus gain market

share.

The complaint’s other factual allegations of parallel

conduct focus exclusively on three foreign markets—Brazil,

China, and India—giving examples of supply and

pricing activity by the defendants beginning in 2003.

For example, the complaint alleges that in “early 2003,

IPC announced that it would increase its potash prices

by eight dollars per ton. Within a month Canpotex an-

nounced that it would seek a nearly identical price

increase for its sales in Brazil.” Then, “[b]y mid-2003 all

suppliers to Brazil were announcing that they had

achieved an increase of eight dollars per ton.” Later, in

2004, “IPC announced a price increase to buyers in In-

dia,” and “[s]hortly after these announcements, PCS

announced two five dollar per ton increases within a

five week period.” Other allegations focus on claimed

coordination of supply restrictions in these countries. For

example, the complaint alleges that potash demand

dropped by 20.9% in Brazil during 2005 and the

Russian and Belarusian defendants reduced their com-

bined exports to that country by the same percentage;

Canpotex followed suit and cut its Brazilian exports

“by almost exactly the same percentage.” Plaintiffs also

allege that Canpotex and BPC jointly restricted exports

to China in an effort to boost the price of potash in

that country.

Notably, all of the anticompetitive conduct identified

in the complaint is alleged to have occurred outside

the United States. The only link between the activities

10 No. 10-1712

of this wholly foreign conspiracy and the U.S. potash

market are general allegations that potash prices in

the United States were adversely affected by the coordi-

nated price hikes in Brazil, China, and India. That is, the

complaint alleges that the cartelized prices in these foreign

markets served as a “benchmark” for potash sales in this

country.

The defendants moved to dismiss the Sherman Act

claim pursuant to Rule 12(b)(1) and Rule 12(b)(6) of the

Federal Rules of Civil Procedure for lack of subject-

matter jurisdiction under the FTAIA and alternatively

for failure to state a claim upon which relief can be

granted. In a thorough opinion, the district court denied

the motion but certified its order for immediate

appeal under 28 U.S.C. § 1292(b).

II. Discussion

As they did in the district court, the defendants make

two arguments on appeal, one narrower and the other

more broadly based. First, because the plaintiffs have

alleged an offshore price-fixing conspiracy, the defendants

argue that the FTAIA, 15 U.S.C. § 6a, deprives the court

of subject-matter jurisdiction over this suit, requiring

dismissal under Rule 12(b)(1). Alternatively, they

argue that the complaint does not plausibly state an

antitrust claim under the pleading standards announced

in Twombly and Iqbal and must be dismissed under

Rule 12(b)(6). The plaintiffs’ complaint, they maintain,

alleges at most only innocent parallel business conduct:

“Even ‘conscious parallelism,’ a common reaction of

No. 10-1712 11

‘firms in a concentrated market [that] recogniz[e] their

shared economic interests and their interdependence

with respect to price and output decisions,’ is ‘not in

itself unlawful.’ ” Twombly, 550 U.S. at 553-54 (quoting

Brooke Group Ltd. v. Brown & Williamson Tobacco Corp.,

509 U.S. 209, 227 (1993) (alterations in Twombly)).

There may well be reason to doubt the complaint’s

sufficiency under Twombly.2 The “crucial question” in a

Sherman Act § 1 claim “is whether the challenged

anticompetitive conduct stem[s] from independent deci-

sion or from an agreement, tacit or expresss.” Id. at 553

(quotation marks omitted). “Without more, parallel

conduct does not suggest conspiracy, and a conclusory

allegation of agreement at some unidentified point does

not supply facts adequate to show illegality.” Id. at 556-57.

The plaintiffs’ complaint focuses mostly on allegations

of parallel output and pricing conduct in the Brazilian,

Chinese, and Indian potash markets; “when allegations

of parallel conduct are set out in order to make a § 1

2

Indeed, the Eighth Circuit, sitting en banc, rejected a very

similar Sherman Act claim brought against the members of

Canpotex, then comprised of a slightly different mix of princi-

pals, alleging a conspiracy to fix potash prices between 1987

and 1994. See Blomkest Fertilizer, Inc. v. Potash Corp., 203 F.3d

1028, 1033-38 (8th Cir. 2000). Although Blomkest was before the

Eighth Circuit in a different procedural posture (the district

court had entered summary judgment in favor of the defen-

dants), the court’s analysis of the adequacy of the plaintiffs’

evidence of parallel conduct and interfirm communications in

the potash industry supports the defendants’ arguments here.

12 No. 10-1712

claim, they must be placed in a context that raises a

suggestion of a preceding agreement, not merely

parallel conduct that could just as well be independent

action.” Id. at 557; see also In re Text Messaging Antitrust

Litig., 630 F.3d 622, 628-29 (7th Cir. 2010) (describing the

“kind of ‘parallel plus’ behavior” an antitrust plaintiff

must allege to survive dismissal post-Twombly).

But the threshold issue in this case concerns applica-

tion of the FTAIA’s limits on the Sherman Act’s reach.

On this point we agree with the defendants that the

FTAIA requires dismissal; therefore, we need not decide

the question of the broader sufficiency of the complaint

under Twombly and Iqbal.

A. The FTAIA and the Effect of Arbaugh and Morrison

on United Phosphorus

It is well-understood that “American antitrust laws do

not regulate the competitive conditions of other nations’

economies.” Matsushita Elec. Indus. Co. v. Zenith Radio

Corp., 475 U.S. 574, 582 (1986). “The Sherman Act does

reach conduct outside our borders, but only when the

conduct has an effect on American commerce.” Id. at 583

n.6. Before the FTAIA was enacted, this domestic-

effects limiting principle existed as a matter of caselaw.

See United Phosphorus, 322 F.3d at 946-47. The FTAIA,

adopted in 1982, incorporates the principle. More specifi-

cally, the FTAIA provides that the Sherman Act:

shall not apply to conduct involving trade or com-

merce (other than import trade or import commerce)

with foreign nations unless—

No. 10-1712 13

(1) such conduct has a direct, substantial, and rea-

sonably 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

Sherman Act].

15 U.S.C. § 6a.

Though awkwardly phrased, “[t]he FTAIA seeks to

make clear to American exporters (and to firms doing

business abroad) that the Sherman Act does not

prevent them from entering into business arrangements

(say, joint-selling arrangements), however anticompetitive,

as long as those arrangements adversely affect only

foreign markets.” F. Hoffmann-La Roche Ltd. v. Empagran

S.A., 542 U.S. 155, 161 (2004). The Act first states a broad

general rule that the Sherman Act “shall not apply” to

conduct involving foreign trade or commerce. It then

carves out several exceptions. As relevant here, the

FTAIA restores the Sherman Act’s applicability to two

categories of foreign anticompetitive conduct: (1) foreign

anticompetitive conduct “involving . . . [U.S.] import

trade or import commerce”; and (2) foreign anticompeti-

tive conduct that “has a direct, substantial, and

reasonably foreseeable effect” on U.S. domestic or import

trade or commerce. 15 U.S.C. §§ 6a & 6a(1)(A).

14 No. 10-1712

In United Phosphorus, this court sat en banc to consider

whether the FTAIA is properly understood to create

a jurisdictional requirement or, rather, an extra element

of a Sherman Act claim when the plaintiff alleges a

foreign antitrust conspiracy. 322 F.3d at 944. The court

was closely divided on the question. Relying primarily

on earlier opinions treating the statute’s requirements

as jurisdictional, the en banc majority held that the

FTAIA has the status of a jurisdictional provision. Id. at

946-48. Judge Wood dissented, joined by three col-

leagues; her dissent focused on the text of the statute,

which contained no “hint that the Congress was attempt-

ing to strip federal courts of their competence to hear

and decide antitrust cases with a foreign element.” Id.

at 954 (Wood, J., dissenting). The dissent argued that

the plain statutory language, which does not speak in

jurisdictional terms, “supports the position that this is

an element of the [Sherman Act] claim, especially when

it is contrasted to true jurisdiction-stripping statutes.” Id.

Subsequent Supreme Court decisions—notably Arbaugh

and Morrison—have taken the dissent’s approach to the

question, although in different statutory contexts.

Arbaugh addressed whether the “numerical qualification

contained in Title VII’s definition of ‘employer’ affects

federal-court subject-matter jurisdiction or, instead,

delineates a substantive ingredient of a Title VII claim

for relief.” 546 U.S. at 503. The Supreme Court con-

cluded that this numerical threshold was not a require-

ment for subject-matter jurisdiction but, rather, was an

element of a Title VII claim. Id. at 516. The Court ex-

plained that a statutory provision prescribing a

No. 10-1712 15

“threshold limitation on a statute’s scope” establishes a

jurisdictional limitation only if the statutory text clearly

says so:

If the Legislature clearly states that a threshold limita-

tion on a statute’s scope shall count as jurisdictional,

then courts and litigants will be duly instructed and

will not be left to wrestle with the issue. But when

Congress does not rank a statutory limitation on

coverage as jurisdictional, courts should treat the

restriction as nonjurisdictional in character.

Applying that readily administrable bright line to

this case, we hold that the threshold number of em-

ployees for application of Title VII is an element of a

plaintiff’s claim for relief, not a jurisdictional issue.

Id. at 515-16 (citation omitted).

In Morrison the Court considered the question of the

extraterritorial reach of § 10(b) of the Securities and

Exchange Act of 1934. 130 S. Ct. at 2875. The Second

Circuit had treated this as a dispute over subject-matter

jurisdiction to be decided under Rule 12(b)(1), but the

Court made it clear it was a merits question. Id. at 2877.

Noting that the Second Circuit was “hardly alone” in

mischaracterizing the issue, the Court restated the ques-

tion: “[T]o ask what conduct § 10(b) reaches is to ask what

conduct § 10(b) prohibits, which is a merits question.

Subject-matter jurisdiction, by contrast, refers to a tribu-

nal’s power to hear a case.” Id. (quotation marks omit-

ted). Even so, because “nothing in the analysis of the

courts below turned on the mistake,” the Court said that

remand was unnecessary; “a remand would only re-

16 No. 10-1712

quire a new Rule 12(b)(6) label for the same Rule 12(b)(1)

conclusion,” so the Court proceeded to the merits

question of whether the plaintiffs’ allegations stated

a claim. Id.

We have recently applied Arbaugh’s “clear statement”

rule outside the Title VII context, see Miller v. Herman,

600 F.3d 726, 732 (7th Cir. 2010), and the plaintiffs

contend that the FTAIA should be subject to the same

analysis. This calls United Phosphorus into question. The

defendants’ response is twofold. They first argue that

United Phosphorus can be distinguished from Arbaugh

based on the FTAIA’s concern for international comity;

this argument is in tension with the Court’s approach

in Morrison, which also concerned a question of the extra-

territorial reach of a federal statute. In the alternative,

they argue that because the result is the same either

way, we need not attempt to reconcile United Phosphorus

with Arbaugh and Morrison; dismissal is required whether

the FTAIA states a jurisdictional requirement, as United

Phosphorus held, or an element of the Sherman Act claim.

We agree with the second of these arguments. As we

have noted, in Morrison the Court found it unnecessary

to order a remand to apply “a new Rule 12(b)(6) label [to]

the same Rule 12(b)(1) conclusion.” 130 S. Ct. at 2877.

Here, the defendants moved to dismiss for lack of juris-

diction and failure to state a claim; our substantive

review of the FTAIA is no different whether viewed

through the lens of Rule 12(b)(1) or Rule 12(b)(6). For

reasons we will explain, we conclude that the FTAIA

bars this suit and therefore dismissal is required

No. 10-1712 17

whether the statute is properly construed to state a juris-

dictional requirement or an element of the plaintiffs’

Sherman Act claim. Accordingly, we need not decide

whether United Phosphorus survives Arbaugh and Morrison.3

We note the issue and reserve it for another day.

B. Applying the FTAIA’s Requirements to the Plaintiffs’

Complaint

As we have explained, the FTAIA limits the Sherman

Act’s extraterritorial reach by making it generally inap-

plicable to foreign anticompetitive conduct, subject to

certain enumerated exceptions. 15 U.S.C. § 6a. That is,

the FTAIA “initially lays down a general rule placing

all (nonimport) activity involving foreign commerce

outside the Sherman Act’s reach.” Empagran, 542 U.S.

at 162. “It then brings such conduct back within the

Sherman Act’s reach,” id., if the foreign anticompetitive

conduct is “conduct involving . . . import commerce” or

has “a direct, substantial, and reasonably foreseeable

effect” on domestic or import commerce, 15 U.S.C. § 6a.

To determine whether the plaintiffs have done enough at

the pleadings stage to bring their claim within either of

3

We noted that the Third Circuit has recently applied the

Arbaugh clear-statement rule, overruled circuit precedent, and

held that the FTAIA does not impose a jurisdictional limit but

instead establishes an element of a Sherman Act claim, citing

with approval the United Phosphorus dissent. Animal Sci.

Prods., Inc. v. China Minmetals Corp., No. 10-2288, 2011 WL

3606995 (3d Cir. Aug. 17, 2011).

18 No. 10-1712

these exceptions, we are required to evaluate their com-

plaint in light of the “plausibility” pleading standard

announced in Twombly and further explained in Iqbal:

To survive a motion to dismiss, a complaint must

contain sufficient factual matter, accepted as true, to

state a claim to relief that is plausible on its face. A

claim has facial 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. 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.

Iqbal, 129 S. Ct. at 1949 (quotation marks and citations

omitted).

Twombly explained that “a plaintiff’s obligation to

provide the ‘grounds’ of his ‘entitlement to relief’ requires

more than labels and conclusions, and a formulaic recita-

tion of the elements of a cause of action will not do.” 550

U.S. at 555. Iqbal reiterated this point: “Threadbare

recitals of the elements of a cause of action, supported

by mere conclusory statements, do not suffice.” 129 S. Ct.

at 1949. Rather, “[w]hile legal conclusions can provide

the framework of a complaint, they must be supported

by factual allegations.” Id. at 1950. Accordingly, to

avoid dismissal, the complaint must include sufficient

factual content to support a plausible inference that the

No. 10-1712 19

defendants’ alleged anticompetitive activity—all of

which occurred overseas—either “involv[ed] . . . [U.S.]

import trade or import commerce” or had a “direct,

substantial, and reasonably foreseeable effect” on U.S.

domestic or import commerce.

The district court held that the plaintiffs had alleged

enough to proceed on the basis of the “import com-

merce” exception and therefore did not address the “direct

effects” exception. The court reasoned that because the

defendants import potash into the United States and

were generally accused of conspiring to fix the price of

potash globally, there was a sufficiently “tight nexus

between the alleged illegal conduct and [d]efendants’

import activities . . . to conclude that the former ‘in-

volved’ the latter.” This was error. “The FTAIA differenti-

ates between conduct that ‘involves’ . . . [import] com-

merce, 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.” Carpet Group Int’l v. Oriental

Rug Imps. Ass’n, 227 F.3d 62, 72 (3d Cir. 2000) overruled on

other grounds in Animal Sci. Prods., Inc. v. China Minmetals

Corp., No. 10-2288, 2011 WL 3606995 (3d Cir. Aug. 17,

2011).

The flaw in the district court’s reasoning is that it essen-

tially conflates the “import commerce” exception and the

“direct effects” exception. If foreign anticompetitive

conduct can “involve” U.S. import commerce even if it is

directed entirely at markets overseas, then the “direct

effects” exception is effectively rendered meaningless.

Under the district court’s reading of the statute, a foreign

20 No. 10-1712

company that does any import business in the United

States would violate the Sherman Act whenever it

entered into a joint-selling arrangement overseas

regardless of its impact on the American market. This

would produce the very interference with foreign eco-

nomic activity that the FTAIA seeks to prevent. See

Empagran, 542 U.S. at 161.

As the Third Circuit has noted, the FTAIA’s “import

commerce” and “direct effects” exceptions are distinct

and capture different kinds of foreign anticompetitive

conduct. See Turicentro, S.A. v. Am. Airlines Inc., 303 F.3d

293, 301-02 (3d Cir. 2002) overruled on other grounds in

Animal Science, 2011 WL 3606995. The import-commerce

exception captures foreign anticompetitive conduct

(thus bringing it back within the Sherman Act’s reach)

if the overseas anticompetitive conduct actually “in-

volves” the U.S. import market. The direct-effects excep-

tion captures foreign anticompetitive conduct that has a

“direct, substantial, and reasonably foreseeable effect” on

U.S. domestic or import commerce regardless of whether

the overseas anticompetitive conduct actually “in-

volves” the U.S. import market. Id.

Thus, the relevant inquiry under the import-commerce

exception is “whether the defendants’ alleged anticom-

petitive behavior ‘was directed at an import market.’ ”

Animal Science, 2011 WL 3606995, at *5 (quoting Turicentro,

303 F.3d at 303). Contrary to what the district court

seemed to think, it is not enough that the defendants are

engaged in the U.S. import market, though that may be

relevant to the analysis. Id. Rather, “the import trade or

commerce exception requires that the defendants’ [foreign

No. 10-1712 21

anticompetitive] conduct target [U.S.] import goods

or services.” Id.

Here, the complaint contains no factual allegations to

support application of the import-commerce exception,

properly understood. It does not, for example, allege

any specific facts to support a plausible inference that the

offshore defendants agreed to an American price or

production quota for potash. Nor does it allege, for

that matter, that the defendants agreed to worldwide

production quotas for all members of the conspiracy or

that a global cartel price was ever set. The complaint’s

specific factual allegations describe anticompetitive

conduct aimed at the potash markets in Brazil, China,

and India—not the U.S. import market. True, the com-

plaint generally alleges that the “defendants conspired

to coordinate potash prices and price increases so as to

fix, raise, maintain, and stabilize the price at which

potash was sold in the United States at artificially

inflated and anticompetitive levels.” But this wholly

conclusory statement is akin to a recitation of the ele-

ments of the Sherman Act claim, which is insufficient

under Twombly and Iqbal. We conclude that the com-

plaint cannot survive dismissal based on the

FTAIA’s import-commerce exception and must stand or

fall based on the direct-effects exception alone.

We have not yet had occasion to consider the meaning

of the term “direct” in the FTAIA, 4 but the Ninth Circuit,

4

In Metallgesellschaft AG v. Sumitomo Corp. of America, 325 F.3d

836, 842 (7th Cir. 2003), we concluded that the plaintiffs had

(continued...)

22 No. 10-1712

relying on the Supreme Court’s interpretation of a

nearly identical term in the Foreign Sovereign Im-

munities Act, 28 U.S.C. § 1605(a)(2), has held that an

effect is “direct” if “it follows as an immediate con-

sequence of the defendant’s activity.” United States v. LSL

Biotechs., 379 F.3d 672, 680 (9th Cir. 2004) (citing Republic of

Argentina v. Weltover, Inc., 504 U.S. 607, 618 (1992)).

“An effect cannot be ‘direct’ where it depends on . . .

uncertain intervening developments.” Id. at 681. We find

this definition compelling.

Despite its length and many specific factual allega-

tions, the complaint offers very little of substance con-

cerning the relationship between the defendants’ alleged

overseas anticompetitive conduct and the American

domestic market for potash. Recall that the complaint

builds its case for conspiracy around the characteristics

of the potash industry that make it particularly

susceptible to collusion. The complaint alleges, moreover,

4

(...continued)

sufficiently alleged that the defendants’ anticompetitive

conduct had a “direct, substantial, and reasonably foreseeable

effect” on domestic commerce, but did not elaborate on the

meaning of the word “direct.” Metallgesellschaft involved

allegations that the defendants had illegally manipulated the

price of copper contracts traded on the London Metals Ex-

change. This conduct imm ediately and unavoidably

increased the price at which copper was exchanged in the

United States. Indeed, we pointedly observed that “[t]he

plaintiffs before us have alleged more than a global conspiracy

that has significant effects in the United States.” Id.

No. 10-1712 23

that the conspiracy was facilitated by the close working

relationship among the Canadian defendants (via

Canpotex) and among all the defendants through the

International Fertilizer Industry Association and an

“exchange program of mutual visits.” Although the

complaint describes in some detail certain parallel

output and pricing conduct in the Brazilian, Chinese, and

Indian markets, it does little to elaborate on how this

conduct actually impacts the American potash market.

As we have noted, the complaint does not allege that

the defendants agreed to worldwide production quotas

or a global cartel price, nor are there allegations that

the defendants ever imposed a price or supply quota on

the American potash market specifically. In the section

of the complaint entitled “Impact of Defendants’ Con-

duct on United States Prices,” the plaintiffs allege that

“[t]he vast majority of potash sales in the United States

are made by PCS, Mosaic, Agrium and BPC at prices

that are set according to benchmarks established by

defendants based on sales in India, China and elsewhere.”

This is explained in slightly more detail elsewhere in

this section of the complaint:

Defendants negotiate term contracts for purchases

of potash throughout the world. Agreements with

buyers in Brazil, India and China typically are made

first, and the prices established in those markets

directly influence prices in other major markets. Once

defendants establish these prices, they use them to

determine potash prices in other major markets,

including the United States. The prices for cartelized

24 No. 10-1712

term contracts become benchmarks for spot market

sales [including those in the United States], which

typically are higher than those of term contracts.

The problem with these generalized allegations is the

absence of specific factual content to support the

asserted proposition that prices in China, India, and

Brazil serve as a “benchmark” for prices in the United

States and that this benchmark, if it exists, has a strong

enough relationship with the domestic potash market to

raise a plausible inference that the defendants’ foreign

anticompetitive conduct has a “direct, substantial, and

reasonably foreseeable effect” on domestic or import

commerce. That is, the complaint only generally alludes

to a link between the cartelized prices in these three

foreign markets and American potash prices. Elsewhere

in the complaint the plaintiffs do claim that:

Through much of 2006, price increases were muted

as purchasers awaited the outcome of negotiations

over a proposed increase to customers in China.

After potash producers reached an agreement on

a price increase to customers in China in late

July 2006, and Brazil later in 2006, potash prices in

the United States increased as well, as defendants

knew and intended.

But this general allegation does not add much. Prices of

potash were increasing around the world throughout

most of the class period. This allegation only hints at a

relationship between Chinese and American prices; it

does not suffice to raise a plausible inference that price

increases in China or Brazil “directly” and “substantially”

No. 10-1712 25

affected prices in the United States. Something more

specific is required in order to successfully plead a

“direct effects” case. To satisfy the requirements of

Twombly and the FTAIA, the plaintiffs needed to

provide enough factual content—that is, they needed

to provide some factual description of the way in which

prices in China, Brazil, and India serve as a “benchmark”

for American prices—to permit a plausible inference

that the defendants’ anticompetitive conduct in these

foreign markets has a direct, substantial, and reasonably

foreseeable effect on potash prices in the United States.

The “something more” is not supplied by the com-

plaint’s citation to a remark by one unnamed “analyst”

who is alleged to have stated that “the barriers that we

have seen in the past between domestic and interna-

tional prices have just fallen down. We’re now partici-

pating in a global fertilizer market.” The allegation of a

“global fertilizer market” is of course conclusory

and unhelpful, and the complaint provides no context

whatsoever for this statement that might make it

more meaningful. In the end, the most specific allega-

tion in the section of the complaint describing the impact

of the defendants’ overseas conduct on the American

potash market is this one:

Defendants knew and intended that their global

conspiracy would directly impact prices of potash

on world markets and within the United States. Repre-

sentatives of Uralkali, in a presentation to analysts

in December 2007, set forth each step in the chain

of events resulting in increased prices throughout

26 No. 10-1712

the world and in the United States: “[1] contract

settlement in the key markets immediately tied up

volumes of potash producers . . . [2] causing demand

competition on SPOT markets followed by increase

in prices . . . [3] conclusion of Indian contract on the

back of the SPOT markets’ growth—even less

volume is available . . . [4] boom on SPOT market

continues stimulating increased Chinese discount

and a stronger reason to bring it down in 2008.”

This chain-of-events allegation is cryptic and relies on too

many intervening variables to suffice as support for

application of the FTAIA’s direct-effects exception. Even

taking into account “the nature of a global market,” the

allegations here amount to “nothing more than what

courts have termed a ‘ripple effect’ on the United States

domestic market, and the FTAIA prevents the Sherman

Act from reaching such ‘ripple effects.’ ” In re Intel Corp.

Microprocessor Antitrust Litig., 452 F. Supp. 2d 555, 561

(D. Del. 2006). Ultimately, the connection asserted in

the complaint between the alleged cartelized prices of

potash overseas and the domestic price of potash is too

speculative and indirect to state an actionable claim

under the FTAIA’s direct-effects exception.

For all the foregoing reasons, we conclude that the

complaint does not contain sufficient factual content to

plead a plausible “direct, substantial, and reasonably

foreseeable” connection between the alleged foreign

anticompetitive activity and the domestic potash mar-

ket. Because the complaint fails to allege facts

sufficient to satisfy the direct-effects exception of the

No. 10-1712 27

FTAIA, dismissal is required. Accordingly, we vacate

the district court’s order denying the defendants’ motion

to dismiss and remand with instructions to dismiss

the plaintiffs’ Sherman Act claim.

V ACATED AND R EMANDED

WITH INSTRUCTIONS.

9-23-11