Petition — Mitsui & Co. v. Industrial Investment Development Corp.

Z Supreme Court, U.& 7

{ FILED

OCT 4 1979

, JR., CLERK

In THE

Supreme Court of the United States

Octoser TERM, 1979

Mirsur & Co., Lrp., ET AL.,

Petitioners,

INDUSTRIAL INVESTMENT DEVELOPMENT CORPORATION, ET AL.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

Buren Jackson BrapsHAW

*~ Rurus WALLINGFORD

JERRY EK. SmituH

FULBRIGHT & JAWORSKI

800 Bank of the Southwest

Building

Houston, Texas 77002

Keiru A. JongEs

FULBRIGHT & JAWORSKI

1150 Connecticut Avenue,

N.W.

Washington, D.C. 20036

TABLE OF CONTENTS

PaGe

wo, setae os ese ee | NN oinibaaiaslasts 1

NINE inistintabinciesntensisissethsantstecsnsscieiseseraxotessuaraitibnncassaa...: 2

pnt oo. th, toca pps ESO TIER 2

Ia aa eas sasnsedsndeens cesncsnsscasebtiniansamcaniniessorscce, 2

Reasons for Granting Review ..........cccc.cssssssssscesssssssssssseseososeecccg, 7

ON a aha iii aici snstascdcennsenacces,..., 14

Appendix A, Opinion of the United States Court of Appeals

for the Fifth Circuit, April 25, 1979 ooocccccccccscccssecooscssccs...., la

Appendix B, Opinion of the United States District Court for

the Southern District of Texas, February 28, 1978 ............ 18a

Appendix C, Judgment of the United States Court of Ap-

peals for the Fifth Circuit, April 25, 1979 voecccccccccocsessseeos..... 25a

Appendix D, Notice of Order Denying Petition for Rehear-

ing and Rehearing En Bane, J Seen OO Ae 27a

TABLE OF CASES

Alfred Dunhill of London, Inc. v. Republic of Cuba, 425 U.S.

RP I SN rec DA seceetase lansssavenhin dt caleciesssraiceesesersc.c.ac:...... 12

American Banana Co. v. United Fruit Co., 213 U.S. 347

I ie Miia iach iss ceetdassstsonscbeccesussicics.. 7,10

Banco Nacional de Cuba vy. Sabbatino, 376 U.S. 398 (1964) .. 11,12

I 11

First National City Bank v. Banco Nacional de Cuba, 406

eI dn lesineer deb hidionkiescsshshce\eve!.odcanacn.ca,...co3,.. 11

Hunt v. Mobil Oil Co., 550 F.2d 68 (2d Cir.), cert. denied,

ete ince oy ah. gt TNT SIE TEI passim

Occidental of Umm al Qaywayn, Inc. v. A Certain Cargo, 577

F.2d 1196 (5th Cir. 1978), cert. denied, ...... is Se

(9th Cir.), cert. denied, 409 U.S. 950 EE passim

Ricaud v. American Metal Co., 246 U.S. 304 SEINE seshivhinensiiaies 13

Story Parchment Co. v. Paterson Parchment Paper Co., 282

IE iste nieincsinschiseisbsiocswsnsecalemsidecescisssucse 8

Timberlane Lumber Co. v. Bank of America, 549 F.2d 597

cg otc bos! So a 13

Underhill v. Hernandez, 168 U.S. 250 STD SotasddiGlaesbinietichiadans 12, 14

In THe

Aupreme Court of the United States

OctoBEr TERM, 1979

No.

Mitsui & Co., Lrp., er AL,

Petitioners,

We

InpustriaL INvEstMEN?T DEVELOPMENT CORPORATION, ET AL.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

Mitsui & Co. Ltd., and Mitsui & Co. (U.S.A.), Ine.,

hereby petition for a writ of certiorari to review the judg-

ment of the United States Court of Appeals for the Fifth

Circuit in this case.

OPINIONS BELOW

The opinion of the court of appeals (App. A, infra, at 1a)

is reported at 594 F.2d 48. The opinion of the district court

(App. B, infra, at 18a) is reported only at 1978-1 Trade

Cas. {1 62,130.

2

JURISDICTION

The judgment of the court of appeals was entered on

April 25, 1979 (App. C, infra, at 25a). A timely petition

for rehearing, with suggestion of rehearing en banc, was

denied on July 6, 1979 (App. D, infra, at 27a). The juris-

diction of this Court is invoked under 28 U.S.C. § 1254(1).

QUESTION PRESENTED

Whether the Act of State Doctrine permits a court of

the United States to inquire into conduct of the Indonesian

government for the purpose of determining the actual

reasons and motives for official acts that precluded respon-

dents, as a matter of law, from entering into a logging busi-

ness on state-owned forests of Indonesia.

STATEMENT

This lawsuit has its origin in the unsuccessful efforts by

respondents, an American corporation and its two Hong

Kong corporate subsidiaries, to obtain permission from

the government of Indonesia to conduct a logging business

in the province of Kalimantan.?

Indonesia’s Foreign Capital Investment Act of 1967

makes ownership or co-ownership by an Indonesian entity

a prerequisite to the conduct of a forestry operation on

state-owned land. Foreign corporations that desire to op-

erate in Indonesia can do so only by participating with a

local firm in a joint venture approved by the government.

' If the Court concludes that the Act of State Doctrine prohibits

such judicial inquiry and determination, the Court therefore

should dismiss respondents’ antitrust claim in its entirety. See

n. 8, infra.

* The case arises on motion for summary judgment. Except where

otherwise noted, the statement of facts is taken from the

opinions of the district court and the court of appeals.

3

4

In addition, since the state owns the nation’s forest re-

sources, no company can conduct a logging business on

State-owned land until the government has issued it both

a logging concession and a cutting license.

In 1970, P. T. Telaga Mas Kalimantan Co. (“Telaga

Mas”), an Indonesian corporation, and Forest Products

Corporation (“Forest Products”), the predecessor of re-

spondent Industrial Investment Development Corporation,

signed a joint venture agreement for the establishment of

a logging business on certain designated state-owned land

in Kalimantan. The Indonesian government approved the

joint venture by entering into a three-party forestry agree-

ment with Telaga Mas and Forest Products on July 1, 1971.

The forestry agreement required the formation of a new

Indonesian corporation (never formed in fact) to conduct

the business of the joint venture, and the agreement further

prescribed that such business could not begin unless and

until a logging concession and cutting license were issued

by the government.

Telaga Mas and Forest Products jointly applied for a

concession and license, but while the application was pend-

ing a dispute arose among the shareholders of Telaga Mas.

One group of shareholders opposed, and another supported,

the joint venture with Forest Products. The group oppos-

ing the joint venture obtained judicial decrees from In-

donesian courts affirming that group’s right to control

Telaga Mas and holding that the joint venture agreement

was void. The Indonesian government then withdrew its

approval of the joint venture by cancelling the forestry

agreement. Respondents subsequently obtained a judgment

invalidating the earlier decree that had voided the joint

venture agreement, but the Indonesian government never-

theless refused to reinstate its approval of the joint venture

4

and also decided not to issue a logging concession or cutting

license to the joint venture, but issued them instead to

Telaga Mas alone.

After the Indonesian government had withdrawn its

approval of the joint venture, respondents instituted this

action in the United States District Court for the Southern

District of Texas, charging that Telaga Mas and peti-

tioners, a Japanese corporation and its American corpo-

rate subsidiary, had conspired in violation of American

antitrust laws to prevent respondents from establishing the

logging business pursuant to the joint venture agreement.®

Respondents allege that petitioners fomented and en-

couraged the dispute among the shareholders of Telaga

Mas, with the ultimate consequence that Forest Products

lost the ability to enter and compete in the Indonesian

lumber market. Respondents seek treble damages of ap-

proximately $195 million for the loss of profits that they

allegedly would have derived from the operation of the

logging business.‘

The district court dismissed respondents’ complaint on

the ground that adjudication of their antitrust claim was

barred by the Act of State Doctrine.’ The district court

determined that the direct cause of respondents’ alleged

injury was the Indonesian government’s withdrawal of

° The jurisdiction of the district court was invoked under the

general federal question statute, 28 U.S.C. § 1331. In particular,

respondents seek damages as provided by §4 of the Clayton

Act, 15 U.S.C. § 15, for alleged violations of §§ 1 and 2 of the

Sherman Act, 15 U.S.C. §§ 1, 2, and § 73 of the Wilson Tariff

Act, 15 U.S.C. § 8. Respondents also allege diversity of citizen-

ship jurisdiction under 28 U.S.C. § 1332 and assert pendent

claims based upon state law.

* Second Amended Complaint, J] 59 and 60. Respondents seek an

additional $130 million in damages pursuant to their nonfederal

claims. Jd., [§ 61 and 63.

®° The claims based upon state law were dismissed on jurisdictional

grounds.

5

its approval of the joint venture and refusal to issue a

logging concession or cutting license. The court rea-

soned that to prove the fact of antitrust damage, essential

under section 4 of the Clayton Act, respondents would

be required to show that those acts of the Indonesian

government had been induced by the alleged concerted acts

of petitioners and Telaga Mas. Citing Hunt v. Mobil Oil

Corp., 550 F.2d 68 (2d Cir.), cert. denied, 434 U.S. 984

(1977), and Occidental Petroleum Corp. v. Buttes Gas &

Oil Co., 331 F. Supp. 92 (C.D. Cal. 1971), aff’d, 461 F.2d

1261 (9th Cir.), cert. denied, 409 U.S. 950 (1972), the court

ruled that the Act of State Doctrine does not permit such

inquiry into the reasons or motives that may have induced

the Indonesian government to act:

[Respondents] contend that the poisoning of the

[Forest Products]-Telaga Mas joint venture caused

the cancellation of the Three Way Agreement which in

turn caused the government to deny [Forest Products]

a concession. It is this two step inquiry which is pro-

hibited by the act of state doctrine. Once it is estab-

lished that the harm complained of was ultimately

caused by a governmental act, the motivation behind

that act, no matter how unscrupulous, is beyond judicial

review. ...

[Respondents] had cleared a major hurdle in the

forming of the three part agreement. However, this

was only the beginning and despite any great expecta-

tions of the parties involved, the delivery of the con-

cession was still vulnerable to the whim of a foreign

government. No guarantees were made. The forming of

the three party agreement created no privileges in the

land. In fact the continuity of the three party agree-

ment was conditional on the granting of a concession.

The government was at liberty at all times to grant or

deny such a privilege. The motivation for their [sic]

ultimate denial cannot be the basis of an antitrust suit

pursuant to American laws.

App. B, infra, at 21a, 24a.

The United States Court of Appeals for the Fifth Cireuit

reversed, with one judge dissenting. Recognizing that under

Hunt v. Mobil Oil Corp. proof of substantial damages

would require a showing that the Indonesian government

would have issued the necessary logging concession and

cutting license but for the alleged conspiracy, the court

acknowledged that such a showing could not have been made

if the case had been brought in the Second Circuit. The

court, however, explicitly rejected the Hunt decision and

held that inquiry could be made into the reasons and mo-

tives underlying the Indonesian government’s decisions to

withdraw approval of the joint venture, to refuse to rein-

state such approval, and to withhold issuance of the neces-

sary logging concession and cutting license:

. (T]he Hunt opinion broadly states that in order to

prove damages an antitrust plaintiff must show that

but for the conspiracy the foreign government would

not have acted as it did. This, the court continues,

requires an inquiry into the motivation of the foreign

state and ‘that inevitably involves its validity.’ 550

F.2d at 77.

. . . [W]e disagree that motivation and validity are

equally protected by the act of state rubric. . .. Pre-

cluding all inquiry into the motivation behind or cir-

cumstances surrounding the sovereign act would use-

lessiy thwart legitimate American goals where adjudi-

cation would result in no embarrassment to executive

department action.

App. A, infra, at 15a-17a (emphasis in original).

Judge Jones, dissenting, stated:

The district court’s decision as succinctly and accu-

rately stated in the majority opinion, is ‘that the dam-

7

age complained of stems directly from the denial of

the government concession to cut timber, I am like

minded. If the statement be true then the Act of State

doctrine requires a dismissal of the action.

App. A, infra, at 17a.

REASONS FOR GRANTING REVIEW

1. The holding below, that courts of the United States

may inquire into and determine the extent to which a

foreign government’s official acts may have been induced or

caused by alleged antitrust violations, is in conflict with

the recent decisions of the Second and Ninth Cireuits in

Hunt v, Mobil Oil Corp. and Occidental Petroleum Corp. v.

Buttes Gas & Oil Co. and is inconsistent with the princi-

ples that this Court enunciated in American Banana Co. v.

United Fruit Co., 213 U.S. 347 (1909). By departing from

established precedent, the court of appeals has created

substantial confusion and uncertainty concerning an impor-

tant question of federal law that previously had been re-

garded as settled. This Court should grant review in order

to resolve the conflict among the circuits and to clarify the

scope and proper application of the Act of State Doctrine

in cases where, as here, the basis for a foreign government’s

official acts has been called into question.®

Whether American courts may inquire into and deter-

mine the reasons and motives underlying a foreign govern-

ment’s official acts is a question of substantial importance

* When Hunt was pending on petition for a writ of certiorari.

this Court invited the Solicitor General to file a brief amicus

curiae stating the views of the United States. 432 1.S. 904

(1977). The Solicitor General advised the Court that it should

take the case to decide “the important issue whether the act

of state doctrine bars judicial examination of the motives behind

a foreign government’s official acts.” Brief for the United

States as Amicus Curiae, at 7 (No. 76-1403).

8

both to the conduct of this nation’s foreign policy and to

the administration of the antitrust laws. American corpo-

rations engage in widespread business activities through-

out the world, and foreign governments have assumed an

ever-expanding role as regulators of and participants in

such activities. It is apparent and inevitable that private

antitrust actions arising from international business activi-

ties will increasingly implicate the official acts of foreign

states. In view of the decision below, the lower courts

stand in need of this Court’s guidance concerning whether

they are free to scrutinize the wisdom, integrity, motivation,

or propriety of such official acts,

2. In this case, respondents seek almost $200 million

for the loss of profits that they allegedly would have

derived from the joint operation of a logging business with

Telaga Mas in Indonesia. As the court of appeals itself

observed, respondents cannot recover damages for such

lost profits without first showing that the Indonesian gOv-

ernment would have allowed them to conduct the proposed

logging business but for petitioners’ alleged wrongdoing:

“Plaintiffs must show a causal relationship between de-

fendants’ anticompetitive actions and the harm suffered.”

App. A, infra, at 16a.’ Accordingly, in order to establish

their case, respondents must prove that petitioners’ actions,

and not respondents’ lack of business acumen or political,

economic, or any other factors, were the cause of or reason

for the government’s withdrawal of approval of the joint

venture, its refusal to reinstate that approval, and its fail-

ure to issue the necessary logging concession and cutting

7 See also, e.g., Story Parchment Co. v. Paterson Parchment Paper

Co., 282 U.S. 555, 562 (1931) (recoveries may be had only for

injuries that are “the certain result of the wrong”); M.C.

Manufacturing Co., Ine. v. Texas Foundries, Ine., 517 F.2d 1059,

1064 (5th Cir. 1975), cert. denied, 424 U.S. 968 (1976) (“dam-

ages are recoverable only upon a showing that absent the anti-

competitive practice plaintiff would not have suffered the loss”’).

CC OS’'SCDSSS 5

9

license.’ As the court of appeals recognized, adjudication

of this factual issue of causation would require a thorough

inquiry into the reasons or motives underlying the Indo-

nesian government’s aforementioned acts of state.

It is precisely this type of judicial inquiry that the

courts in Hunt and Occidental Petroleum held to be barred

by the Act of State Doctrine. The factual issue in Hunt

was whether the defendants’ alleged wrongdoing had in-

duced or caused the government of Libya to nationalize

the plaintiffs’ petroleum properties in that country. 550

F.2d at 72.° The Second Circuit, in a carefully reasoned

opinion, determined that the Act of State Doctrine pre-

cluded the examination into the motives of the Libyan gov-

ernment that would be required to resolve that issue. Simi-

larly, in Occidental Petroleum the Ninth Circuit concluded

® The court of appeals apparently believed that respondents may

be able to prove they suffered injury upon the collapse of

the joint venture between Forest Products and Telaga Mas,

even apart from the alleged loss of profits. App. A, infra, at

13a-14a. But since the joint venture had no business purpose

other than the establishment of the proposed logging operations

in the particular concession area in question (see, eg., R.

Doc. No. 28), the joint venture had no value apart from

the profits to be derived from those particular proposed opera-

tions. Proof that petitioners’ alleged wrongdoing was the

proximate cause of the failure to reap profits therefore is not

merely necessary to the recovery of substantial damages, it is

a prerequisite to the recovery of any damages at all.

® The plaintiffs in Hunt, like respondents here, asserted that their

injury was independent, and in advance, of any act of state:

The complaint alleges only that private companies conspired

against Hunt. They caused Hunt to take actions based upon

assurances and promises that were made to be broken. They

damaged Hunt wholly apart from the nationalization, and if

the final coup de grace was administered by Libya, it was

because of the manner in which respondents manipulated

the conduct — not of the Libyan government — but of their

fellow signatories. . . .

Petition for a Writ of Certiorari in Hunt, at 24-25 (No.

76-1403).

10

that the Doctrine barred inquiry into the question whether

allegedly unlawful actions of the defendants had caused the

ruler of Umm al Qaywayn to cancel or suspend a petroleum

drilling concession that he had earlier granted to the plain-

tiffs.’° These decisions plainly are at odds with the holding

below. Indeed, although the court of appeals in this case

sought to distinguish Occidental Petroleum," it openly

disagreed with and rejected Hunt. App. A, infra, at 16a-

17a.??

In deciding Hunt and Occidental Petroleum, the Second

and Ninth Cireuits correctly drew substantial support from

this Court’s decision in American Banana Co. v. United

Fruit Co. In that ease, the plaintiff alleged that its property

had been seized and sold by the government of Costa Rica

as a result of the defendant’s unlawful actions. This Court

held that the courts of the United States lack power to deter-

mine that a foreign act of state was improperly or unlaw-

fully induced:

1° The relevant facts in Occidental Petroleum are set forth in that

district court’s opinion. 331 F. Supp. at 99-101,

1 The court attempted to distinguish Occidental Petroleum as a

case “where plaintiffs’ asserted claim arose through rights

granted by a foreign government.” App. A, infra, at 13a.

But the fact that Occidental Petroleum involved the suspension

or cancellation of a privilege, whereas this case involves the

refusal to extend or perfect a privilege in the first place,

affords no basis for treating the two cases differently under the

Act of State Doctrine, \

12 Although Hunt involved an expropriation of property that had

been the occasion for official comment by the Department of

State, the court of appeals below correctly recognized that the

cases are basically the same “[d]espite these distinctions.”

App. A, infra, at 15a. The Second Circuit itself stated

that its holding in Hunt would have been the same “fe]yven

if the Department of State had not spoken.” 550 F.2d at 78.

And for purposes of the Act of State Doctrine, there can be

no significant difference between foreign state’s expropriation y

of a firm’s property and its refusal to permit a firm to engage

in business: Both the taking of property and the exclusion

from the marketplace constitute official acts of the foreign state.

1]

[I]t is a contradiction in terms to say that within its

jurisdiction it is unlawful to persuade a sovereign

power to bring about a result that it declares by its

conduct to be desirable and proper. It does not, and

foreign courts cannot, admit that the influences were

improper or the results bad. It makes the persuasion

lawful by its own act. The very meaning of sovereignty

is that the decree of the sovereign makes law.

213 U.S. at 358.1° It follows that there is no room for

judicial inquiry into the question of inducement at all.

3. Even apart from American Banana, Hunt, and Occi-

dental Petroleum, it is clear that the court of appeals below

erred in its application of the Act of State Doctrine."

That doctrine is grounded in the concern that judicial

examination of foreign acts of state may affront or embar-

rass the foreign sovereign and thereby frustrate or interfere

with this nation’s conduct of foreign policy. See, e.g., First

National City Bank v. Banco Nacional de Cuba, 406 U.S.

8 The Court further held that this nation’s antitrust laws do not

reach private acts committed outside the United States, a hold-

ing that has not withstood the test of time. See Continental

Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 704

(1962). But “the holding of American Banana that has endured

is that the act of state doctrine bars a claim for antitrust injury

flowing from foreign sovereign acts allegedly induced and

procured by the defendant.” Occidental Petroleum, 331 F. Supp.

at 110. See also Banco Nacional de Cuba v. Sabbatino, 376 U.S,

398, 416 (1964) (citing American Banana with approval as a

case involving the Act of State Doctrine).

‘*The Indonesian government’s withdrawal of approval of the

joint venture, its refusal to reinstate that approval, and its

failure to issue a logging concession and a cutting license were

discretionary official acts implicating that nation’s public in-

terests. As the Chairman of the Indonesian Foreign Investment

Board has explained, the dispute in this case “directly concerns

the interest of the State in the form of a forest area which is

strictly necessary to be protected.” R. Doc. No. 68. It therefore

is clear that the acts at issue were acts of state.

12

799, 765-68 (1972) (plurality opinion). The rationale of the

Act of State Doctrine therefore is not confined merely to

judicial determinations of the validity of the foreign act

of state. Judicial inquiry into the actual reasons or motives

underlying an act of state carries with it an equal if not

greater potential for affronting or embarrassing the foreign

sovereign. Such an inquiry, which calls into question the

wisdom, judgment, probity, and consistency of foreign offi-

cials, may be considerably more disturbing to the foreign

sovereign, and considerably more disruptive of foreign

policy, than a simple declaration that, for example, the

foreign act of state does not comport with western con-

cepts of international law. Cf. Banco Nacional de Cuba v.

Sabbatino, 376 U.S. at 428-30,15

Moreover, it is apparent that the distinction drawn by

the court of appeals between validity and motivation is

wholly artificial.'® Since official acts that have been pro-

cured by fraud or that have no basis in reason, for example,

may be unenforceable under local or international law, the

15 Since the inquiry into motivation itself creates a serious risk of

affront or embarrassment, it makes no difference under the Act

of State Doctrine why the inquiry is undertaken, In particular,

_ the considerations underlying the Act of State Doctrine operate

with equal force irrespective of whether the judicial examina-

tion of a foreign act of state be made to establish the fact, or

only the amount, of a defendant’s liability. The court of appeals’

unexplained suggestion to the contrary, App. A, infra, at

13a, 17a, appears plainly incorrect.

16 Even the seminal Act of State ease, Underhill v. Hernandez,

168 U.S. 250, 252 (1897), speaks not of “validity” but against

our courts’ “sit[ting] in judgment” on the acts of a foreign

state. The most recent Act of State opinion by this Court,

Alfred Dunhill of London, Ine. v. Republic of Cuba, 425 U.S.

682, 694 n. 10 (1976), interprets Underhill as speaking to the

“propriety” of foreign governmental acts, not their “validity.”

13

motivation of an act of state obviously bears upon its va-

lidity.17

For all these reasons, the court of appeals was wrong

to restrict the operation of the Act of State Doctrine solely

to cases where the validity of a foreign official act is in

question. The Doctrine operates more broadly to prevent

American courts from “challeng[ing] the sovereignty ot

another nation, the wisdom of its policy, or the integrity

and motivation of its action.” Timberlane Lumber Co. v.

Bank of America, 549 F.2d 597, 607 (9th Cir. 1977)

(emphasis added).

The real issue in any case involving a foreign act of

state is not whether the act is valid but, rather, whether

the act is to be accepted as a postulate for resolution of

the dispute between the parties. On that point, this Court

has spoken plainly and forcefully: “When it is made to

appear that the foreign government has acted in a given

way on the subject-matter of the litigation, the details of

such action or the merit of the result cannot be questioned

but must be accepted by our courts as a rule for their

decision.” Ricaud v. American Metal Co., 246 U.S. 304,

The Second Circuit in Hunt reached the same conclusion:

However, while the skilled pleader here has meticulously

attempted to avoid the issue of validity, its claim is ad-

mittedly not viable unless the judicial branch examines

the motivation of the Libyan action and that inevitably in-

volves its validity.

. . . [W]e cannot logically separate Libya’s motivation

from the validity of its seizure. The American judiciary is

being asked to make inquiry into the subtle and delicate

issue of the policy of a foreign sovereign, a Serbonian Bog,

precluded by the act of state doctrine as well as the realities

of the fact finding competence of the court in an issue of far

reaching national concern.

550 F.2d at 77.

14

309 (1918).!8 It follows that, in this case, the denial of a

logging concession and a cutting license and other related

acts by the government of Indonesia, and respondents’

consequent legal disability, must be taken as a predicate

for decision. The government of Indonesia by its acts fore-

closed any legal interest that respondents might otherwise

have had in conducting a logging business in that country.

Under the Act of State Doctrine, therefore, as a matter of

law respondents cannot recover directly or indirectly for

the loss of profits that they allegedly would have derived

from such a business.

CONCLUSION

The petition for a writ of certiorari should be granted.

Respectfully submitted,

Buren Jackson BrapsHaw

Rurus Wa.uincrorp

JERRY FE. Smita

FuLsBRicHt & JAworskK1

800 Bank of the Southwest

Building

Houston, Texas 77002

(713) 651-5151

Keitru A. Jonrs

FULBRIGHT & JAWORSKI

1150 Connecticut Avenue,

N.W.

Washington, D.C. 20036

(202) 452-6800

18 See also Underhill v. Hernandez, 168 U.S. at 252; Occidental of

Umm al Qaywayn v. A Certain Cargo, 577 F.2d 1196, 1202

n. 10 (5th Cir. 1978), cert. denied ..... US. ......, 99 S.Ct. 2857

(1979).

la

APPENDIX A

OPINION

Of the

United States Court of Appeals

For the Fifth Circuit

April 25, 1979

InpustriaL INVEstmMENT DEVELOPMENT CORPORATION,

InponeEsta INpusTRIAL INVESTMENT CoRPORATION,

Lrp., anD Forrest Propvucts Corporation, Lip.,

Plaintiffs-A ppellants,

V.

Mitsur & Co., Lrp., aNp Mirsur « Qo.

(U.S.A.), Ine.

Defendants-A ppellees.

No. 78-1775

UNITED STATES COURT OF APPEALS,

FIFTH CIRCUIT

Aprit 25, 1979

Fitzhugh H. Pannill, Jr., R. Hayden Burns, Houston,

Tex., for plaintiffs-appellants.

Fulbright & Jaworski, B. J. Bradshaw, Rufus Walling-

ford, Jerry E. Smith, Houston, Tex., for defendants-

appellees.

Appeal from the United States District Court for the

Southern District of Texas.

Before JONES, CLARK and INGRAHAM, Circuit

Judges.

2a

CHARLES CLARK, Circuit Judge:

The sole issue in this appeal is whether the act of state

doctrine precludes a trial of plantiffs’ antitrust action.

Plaintiffs claim damages from Mitsui & Co., Ltd., a Japanese

corporation, and its American subsidiary, Mitsui & Co.

(U.S.A.), Ine., for violations of Sections 1 and 2 of the

Sherman Act, 15 U.S.C.A. §§ 1 & 2, and Section 73 of the

Wilson Tariff Act, 15 U.S.C.A. § 8. The complaint appended

state law claims of tortious interference with contractual

relations against these defendants and a breach of contract

charge against the Indonesian defendant, P. T. Telaga

Mas Kalimantan Co. Following extensive discovery, the

district court granted defendants’ motion for summary

judgment. Defendants urged their motion on five grounds:

(1) plaintiffs lack standing since they have incurred only

derivative damage as shareholders ; (2) the extraterritorial

reach of American antitrust laws cannot grasp this case;

(3) plaintiffs are not within the “target area” of antitrust

law protection; (4) forum non conveniens; (5) act of state

doctrine. The district court’s decision was based solely on

the ground that the act of state doctrine prevented judicial

review of the federal claims.? Because of its ruling on fed-

eral claims, the district court exercised its discretion to

dismiss the pendent state claims.

The district court’s invocation of the act of state doctrine

‘The named plaintiffs in this action are Industrial Investment

Development Corporation (an American Corporation) and its

two Hong Kong corporate subsidiaries, Indonesia Industrial

Investment Corporation, Ltd., and Forest Products Corporation,

Ltd. They are collectively referred to as Industrial Investment

or plaintiffs throughout this opinion.

2 We express no opinion on the merits of assertions(1)-(4).

3 Plaintiffs argue that independent diversity jurisdiction exists

for the state claims. Because we find the federal claims justici-

able, we need not resolve the dispute over the proper interpre-

tation of the federal diversity statute, 28 U.S.C.A. § 1332.

3a

in this case was in error. Although the regulations of a

foreign state, Indonesia, formed part of the background

to the activities alleged, neither the validity of those regu-

lations nor the legality of the behavior of the Indonesian

government is in question here. The mere fact that members

of the Indonesian government were to play a part in the

alleged scheme does not insulate defendants’ accountability

for conduct which might prove to be prohibited by our

antitrust laws.

The present dispute evolves from plaintiffs’ desire to

enter the logging and lumber products business in East

Kalimantan (Borneo), Indonesia. Late in the 1960’s, the

government of Indonesia began developing a plan for

encouraging and regulating foreign private capital invest-

ment. The consequent Foreign Capital Investment Act

provided for restrictions of private investment in certain

fields, required the development of Indonesian manpower,

and required opportunities for Indonesian co-ownership.

Thus a foreign company could not conduct business within

that country until it joined with a local company, and they

together organized an independent limited liability com-

pany under Indonesian law. Known as P.T.’s (Perseroan

Terbatas), these companies, which are closely analogous

to American corporations, must have their organization

approved by the government before they become effective.

Land use is also subject to regulation under the Act.

A properly organized P.T. cannot harvest timber from the

state-controlled land until it has been granted a concession

and cutting license by the Department of Forestry pursuant

to an application for forestry exploitation rights. The pro-

cedure contemplates preliminary surveys and negotiations

between the applicant and the Director General of Forestry

resulting in tentative concession rights embodied in a

Forestry Agreement. The Agreement, accompanied by an

ta

Application Letter drafted by the P.T., is then to be sub-

mitted to the Minister of Agriculture within one month.

Delay in submitting the Application Letter is considered

grounds for revoking the Forestry Agreement. The Agree-

ment and Letter must be channeled through the Depart-

ment. Following approval and payment of a concession

fee, the Director General of Forestry issues a formal con-

cession decree and a license which establishes the new

company and authorizes its logging operations, subject to

revocation for failure to carry out its obligations under

the Forestry Agreement, Harvesting cannot begin until

the license has been issued.4

In 1970 Industrial Investment signed a joint venture

agreement with Telaga Mas to harvest logs from a timber

concession which had been granted to Telaga Mas in a

government forest in Borneo. Under the agreement, Indus-

trial Investment was to provide equipment, capital require-

ments and management, and supervisory and technical per-

sonnel. In exchange, Telaga Mas expressly agreed to

cooperate in obtaining the necessary approvals for estab-

lishing the P.T. and securing the formal concession decree

and cutting license.

Throughout the first six months of 1971 plaintiffs and

Telaga Mas jointly negotiated with the Indonesian gov-

ernment for its approval of the proposed business. As a

result, a Forestry Agreement was signed by the two com-

panies and the Director General of Forestry on July 1, 1971.

The Agreement set forth the capital, organization, and

* See generally, Republic of Indonesia, Invest in Indonesia ( Jan-

uary 1972).

5 Forest Products Corporation of Delaware, a predecessor com-

pany of Industrial Investment, conducted the initia] negotia-

tions. For clarity we refer to the American company as Indus-

trial Investment throughout.

va

administrative requirements to be completed by the two

firms before payment of the concession fee to the govern-

ment and issuance of the cutting license to the newly formed

P.T. The Agreement also contained provisions relating to

the operation of the joint concession. More importantly, it

reserved to the Department of Forestry the right to cancel

for failure of the joint venture partners to cooperate or

carry out their duties, and provided that cancellation of

the joint venture agreement prior to the issuance of the

license certificate would automatically terminate any rights

of the parties to conduct lumbering operations. No license

ever issued.

The district court refused to consider plaintiffs’ allega-

tions of a Sherman Act conspiracy since in its opinion the

absence of an authorizing license governed the disposition

of the case. Plaintiffs allege that the Mitsui defendants in-

filtrated and usurped control of the Telaga Mas manage-

ment for the purpose of destroying plaintiffs’ interest in

the proposed logging concession. The complaint intricately

details a plot, spawned from a 1972 increase in the price

of timber, in which the Mitsui companies, past purchasers

and creditors of Telaga Mas, decided first to eliminate Indus-

trial Investment and then to protect its competitive edge

by secretly taking direct supervision and control of the

Telaga Mas operations for its own profit. Implementation

of the scheme began when a shareholder group led by

Harianto, a Telaga Mas official who was secretly backed by

Mitsui, challenged the authority of Telaga Mas official [sic],

Sadjarwo, to execute the Forestry Agreement on behalf of

Telaga Mas. Separate competing shareholder meetings were

held by Harianto and Sadjarwo, each affirming the corpo-

rate authority of the leader of its respective faction. Even-

tually an Indonesian court declared Harianto’s group to

6a

be properly in power and nullified the joint venture agree-

ment,

When the news reached the Director General of Forestry,

he sent a letter to plaintiffs and to Telaga Mas in which he

“cancelled and affirmed invalid” the Forestry Agreement,

In the same letter, he invited plaintiffs and Telaga Mas

under its newly declared leadership to execute a new agree-

ment. The cancellation, plaintiffs argue, was the natural

operation of the Agreement’s automatic termination pro-

visions.

In a separate action, a second Indonesian court subse-

quently held that Industrial Investment was not bound by

the nullification order since it was not a party to that action.

Harianto continued to rule Telaga Mas, however, and re-

fused to honor or participate in the joint venture with

plaintiff.

Industrial Investment contends that defendants’ poison-

ing of the joint venture caused the cancellation of the

Forestry Agreement which in turn caused the govern-

ment to deny the concession. The district court found that

the act of state doctrine prohibited such a “two-step in-

quiry.” It concluded: “Once it is established that the harm

complained of was ultimately caused by a governmental act,

the motivation behind the act, no matter how unscrupulous,

is beyond judicial review.”

The act of state doctrine has arisen as a means of deter-

mining the appropriateness of adjudicating in a United

States court a dispute which in some manner involves a

foreign government. As classically stated:

Every sovereign state is bound to respect the inde-

pendence of every other sovereign state, and the courts

of one country will not sit in judgment on the acts of the

government of another, done within its own territory.

7a

Underhill v. Hernandez, 168 U.S. 290, 18 S.Ct. 8&3, 42

L.Ed. 456 (1897),

Karly application of this doctrine was often muddled

, with the doctrine of sovereign immunity or principles of

conflicts of law.® Since Banco National de Cuba v. Sabbatino,

| 376 U.S. 398, 84 8.Ct. 923, 11 L.Ed.2d 804 (1964), however,

the doctrine has emerged as independently based on con-

cerns of separation of powers. The Sabbatino Court, cau-

tious of judicial interference in executive affairs, refused

to adjudicate the validity of expropriation by the Cuban

government of property within its own territory owned by

American nationals.? Its decision was based on several

factors which pointed to the executive branch as the more

appropriate tribunal to deal with the sensitive political

issues. All related [sic] to the possible adverse conse-

quences of an American court [sic] attempting to resolve

the validity of title to property not within its jurisdiction

6 In Underhill, for instance, the defendant Hernandez was acting

as an agent for the sovereign [sic] in which the alleged torts oc-

curred. Thus the result could be said to rest on the personal im-

munity of foreign sovereigns. Note, The Act of State Doctrine:

Antitrust Conspiracies to Induce Foreign Sovereign Acts, 10

Int’] Law and Politics 495 (1978). See Oetjen v. Central Leather

Co., 246 U.S. 297, 38 S.Ct. 309, 62 L.Ed. 726 (1918) ; American

Banana Co. v. United Fruit Co., 213 U.S. 347, 29 S.Ct. d11, 53

L.Ed. 826 (1909). See also, Alfred Dunhill of London v. Repub-

lic of Cuba, 425 U.S. 682, 705 n. 18, 96 S.Ct. 1854, 1866-67 n. 18.

48 L.Ed.2d 301 (1976). There is some authority that the doctrine

still reflects conflicts of laws principles. This position assumes

the validity of a foreign state’s acts under the laws of that state.

Applying the foreign laws to those acts, therefore, precludes

an inquiry by American courts into their validity. See Note.

Sherman Act Jurisdiction and the Acts of Foreign Sovereigns,

77 Colum.L.Rev, 1247 (1977),

Although Sabbatino’s bar against claims based on the asserted

invalidity of Cuban confiscations has been legislatively overruled

by the “Hickenlooper Amendment,” Foreign Assistance Act

§ 301(d) (4), 22 U.S.C.A. § 2370(e) (2) (1976), the case is still

the leading authority on the act of state doctrine.

~"

Sa

or to judge a foreign state’s power to expropriate the

property of aliens. Of significance is the Court’s express

refusal to lay down “an inflexible and all-encompassing

rule’? of judicial abstention in every case not totally isolated

to this country. 376 U.S. at 428, 84 S.Ct. at 940. Instead, it

declared a less brittle doctrine, one with the “capacity to

reflect the proper distribution of functions between the

judicial and political branches of the Government on mat-

ters bearing upon foreign affairs.” 376 U.S. at 427-28, 84

S.Ct. at 940. Relying on traditional political question rea-

soning, it found that the doctrine was not constitutionally

compelled but that it rested on ‘ ‘constitutional? underpin-

nings. It arises out of the basic relationships between

branches of government in a system of separation of

powers.’’ 376 U.S. at 423, 84 S.Ct. at 938.8 Sabbatino’s

“proper distribution” depended on several factors, which

concerned the ramifications of judicial intervention on ex-

ecutive conduct of international! relations or of inconsistent

judicial and executive behavior.

The Supreme Court has recently reaffirmed this policy of

balancing executive and judicial concerns in Alfred Dunhill

of London v, Republic of Cuba, 425 U.S. 682, 96 S.Ct. 1854,

48 L.Id.2d 301 (1976). Beeause the Court ‘‘decline[d]

to extend the act of state doctrine to acts committed by for-

eign sovereigns in the course of their purely commercial op-

erations,’? Dunhill has become known as the ‘‘commercial

* Recently this circuit refused to rule on an act of state defense

in a suit presenting conflicting claims to oil extracted from the

Persian Gulf. Occ. of Umm al Qaywayn v. A Certain Cargo,

d77 F.2d 1196 (5th Cir. 1978). Because the action required a

determination of sovereignty over the well area, the case was

dismissed as a non-justiciable political question. In a brief

discussion of the source of the act of state doctrine, we noted

that the “better view would be that the doctrine is constitutional-

ly compelled by the concept of separation of powers and place-

tent of plenary foreign relations powers in the executive.”’

977 F.2d at 1200-01 n. 4,

9a

exception’’ to the act of state doctrine. Dunhill had mis-

takenly made an overpayment to Cuba for cigars purchased

from expropriated cigar businesses. The Court permitted

adjudication of his claim of debt against Cuba:

[S]ubjecting foreign governments to the rule of law

in their commercial dealings presents a much smaller

risk of affronting their sovereignty than would an at-

tempt to pass on the legality of their governmental acts.

In their commercial capacities, foreign governments do

not exercise powers peculiar to sovereigns. . .. Subject-

ing them in connection with such acts to the same rules

of law that apply to private citizens is unlikely to touch

very sharply on ‘‘national nerves.’’

425 U.S. at 703-04, 96 S.Ct. at 1866 (footnote omitted). In-

dustrial Investment has urged application of this ‘‘com-

mercial exception’’ to the Indonesian licensing structure.

We need not reach the merits of this contention.®

Situations have arisen in which the Supreme Court has

found the involvement of a foreign state to be too insig-

nificant to invoke the act of state doctrine. For instance,

the instigation of foreign governmental involvement does

not mechanically protect conduct otherwise illegal in this

country from scrutiny by the American courts. In United

States v. Sisal Sales Corp., 274 U.S. 268, 47 S.Ct. 592, 71

L.Ed, 1042 (1926), a conspiracy which affected United States

commerce was held not to be immune from judicial review

A majority of the Court never supported a broad “commercial

act” exception to the act of state doctrine. Justice Stevens

specifically omitted this part in his concurrence to Justice

White’s majority opinion, and it was rejected by the four

dissenters. However, the Second Circuit, at least in dictum.

has treated a commercial exception as firmly established. Hunt

v. Mobil Oil Co., 550 F.2d 68 (2d Cir.), cert. denied, 434 U.S.

984, 98 S.Ct. 608, 54 L.Ed. 2d 477 (1977). See Rationalizing

the Federal Act of State Doctrine and Evolving Judicial

Exceptions, 46 Fordham L.Rey. 295 (1977).

10a

of Sherman Act claims even though its suecess was due in

part to procurement of discriminatory foreign legislation.

The Court distinguished an earlier antitrust case, American

Banana Ca, vy. United Fruit Co., 213 U.S. 347, 29 S.Ct. 511,

03 L.Ed. 826 (1909), in which the act of state doctrine was

held to bar adjudication of claims that defendants had in-

fluenced Costa Rica to seize plaintiff’s property. American

Banana also held that the Sherman Act could not be applied

against conspiracies occurring outside this country. That

latter rule of law has been repudiated. Sherman Act juris-

diction now depends upon a showing of anticompetitive ef-

fects within the United States. Continental Ore Co. v. Union

Carbide & Carbon Corp., 370 US. 690, 82 S.Ct. 1404, 8

L.Ed.2d 777 (1962); United States y. Sisal Sales Corp.,

supra, 274 U.S. 268, 47 S.Ct. 592, 71 L.Ed. 1042; United

States v, Aluminum Co. of America, 148 F.2d 416 (2d Cir.

1945).

The conspiracy in American Banana took place outside

the United States and resulted in Costa Rica’s seizure of

plaintiffs property there. The seizure was valid in costa

[sic] Rica and the Court held that its validity could not be

challenged in American courts. The Sisal conspiracy, by

comparison, allegedly destroyed plaintiff's sisal exporta-

tion business, not by government expropriation, but by

the American corporate defendants’ takeover aided by

foreign legislation. The Sisal Court was not interested in

the validity of the legislation but was concerned with re-

dressing the anticompetitive effects on American commerce

caused by the conspiracy.

Similarly, a stage fortuitously set by existing foreign

legislation cannot automatically be invoked to shield con-

spiracies to restrain United States trade. In Continental

Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 82

S.Ct. 1404, 8 L.Ed.2d 777 (1962), defendants were charged

lla

with conspiring to monopolize the American vanadium

industry by currying the favor of a private Canadian

corporation designated as exclusive purchasing agent of

vanadium by the Canadian government. Drawing from the

authority of Sisal, the Court rejected the defense that the

Canadian law permitted discriminatory purchasing by the

authority having power to designate purchasing agents. It

was enough that plaintiff claimed that the loss of its busi-

ness was caused by defendants’ actions. The Court was

careful to note that the Canadian government itself was

not a defendant in the action and that the validity of its

legislation was not in issue.

The participation of the Indonesian government in the

context of the present analysis cannot prevent Industrial

Investment from having its claims adjudicated by the

district court. There are no special political factors which

outbalance this country’s legitimate interest in regulating

anticompetitive activity both here and abroad.’ As in

Sisal and Continental Ore, the complaint charges parties

subject to the court’s jurisdiction with conduct occurring

within this country and elsewhere which violates United

States law. To determine whether there has been a violation

of American antitrust law it is not necessary to resolve the

propriety of Indonesia’s failure to issue a cutting license.

To protect American antitrust policies, an American court

1°JTn cases dealing with the enforcement of antitust laws in the

face of state action, we note that the approach of the courts

has been to weigh the relative interests of the state and federal

governments to determine whether the anticompetitive harm

of the activity outweighs the benefits of state regulation. Bates

v. State Bar of Ariz., 483 U.S. 350, 97 S.Ct. 2691, 53 L.Ed.2d

810 (1977); Cantor v. Detroit Edison Co., 428 U. S. 579, 96

S.Ct. 3110, 49 L.Ed.2d 1141 (1976) ; Goldfarb v. Virginia State

Bar, 421 U.S. 773, 95 S.Ct. 2004, 44 L.Ed.2d 572 (1975) ; Parker

v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943).

lla

need not embark on an adjudication of the validity of that

government’s behavior. The Ninth Circuit recently stated:

The touchstone of Sabbatino — the potential for

interference with our foreign relations — is the erucial

element in determining whether deference should be

accorded in any given case. We wish to avoid “passing

on the validity” of foreign acts. Sabbatino, 376 U.S. at

425, 84 S.Ct. 923. Similarly, we do not wish to chal-

lenge the sovereignty of another nation, the wisdom

of its policy, or the integrity and motivation of its

action. On the other hand, repeating the terms of

Sabbatino, id. at 428, 84 S.Ct. at 940, “the less im-

portant the implications of an issue are for our foreign

relations, the weaker the justification for exclusivity

in the political branches.”

Timberlane Lumber Co. v. Bank of America, 549 F.2d 597,

607 (9th Cir. 1976).

The government of Indonesia is not a named co-conspira-

tor here. Its right to withhold a cutting license is not

questioned. This is the major factor distinguishing this

case from right-to-ownership cases such as American

Banana and Sabbatino. For instanee, in Occidental Petro-

leum Corp. v. Buttes Gas & Oil Co., 331 F.Supp. 92 (D.C.

Cal.1971), aff'd, 461 F.2d 1261 (9th Cir. 1972), the plaintiffs,

holders of a Middle East oil concession from one of the

Trucial States, charged the defendants with inducing an

adjacent sheikdom in the Persian Gulf, Sharjah, to grant

them a conflicting concession covering the same area. The

court invoked the act of state doctrine to avoid having to

adjudicate which of the two competing sheikdoms had

superior authority to grant the concession. It was found

that, to establish their claim as pleaded, plaintiffs had to

prove that Sharja’s [sic] concession was fraudulently is-

sued. Passing upon such foreign governmental acts was

considered more appropriate for the executive branch in

13a

its handling of foreign relations. By comparison, resolution

of the charges made by Industrial Investment does not

require a determination of plaintiffs’ right to receive a

cutting license from the Indonesian government. Unlike

Occidental where plaintiffs’ asserted claim arose through

rights granted by a foreign government, Industrial Invest-

ment’s interest in its business venture with Telaga Mas may

be protected from disruptive conduct of competitors by

United States antitrust laws.

The only connection which the government of Indonesia

has with this action is through application of its Foreign

Investment Act, the validity of which is not questioned.

The challenge is that a commercial endeavor failed by

virtue of external disruptive forces acting on the contrac-

tual relationship between private citizens. We need not

decide whether, had Telaga Mas not refused to cooperate,

the license would have issued as a certainty. It is enough

that plaintiffs have offered proof to show that defendants

conspired to cause its potential to exploit the Borneo

concession to die aborning. Story Parchment Co. v. Paterson

Parchment Paper Co., 282 U.S. 555, 51 S.Ct. 248, 75 L.Ed.

044 (1931); H&B Equipment Co., Inc. vy. International

Harvester, 577 F.2d 239 (5th Cir. 1978) ; Heatransfer Corp.

v. Volkswagenwerk, A.G., 553 F.2d 964 (5th Cir. 1977),

cert. denied, 434 U.S. 1087, 98 S.Ct. 1282, 55 L.Ed.2d 792

(1978). Whether the Indonesian government would have

issued a cutting license is relevant only to the value of

the destroyed joint venture, not to liability for its destrue-

tion.

But the Mitsui defendants argue (and the district court

agreed) that the damage complained of stems directly from

the denial of the government concession to cut timber.

In order to establish therefore that defendants’ behavior

l4a

caused the injury, it would be necessary for the court to

investigate the Director of Forestry’s motivation in cancel-

ing the agreement. This they say amounts to a prohibited

inquiry into the validity of governmental activity. However,

plaintiffs’ complaint does not limit their allegation of injury

from the antitrust cause of action to the inability to har-

vest Indonesian timber. They assert: “The wrongful acts

of Defendants and their co-conspirators have deprived it

of its contract and concession rights, of its ability to enter

and compete in the market, and of the profits it would have

derived from such operations.” They insist here that even

before it was known whether a license would issue, these

rights had a substantial value which they could have

proven. Plaintiffs are entitled to recover damages for in-

jury to these “business or property” interests if they are

caused by antitrust violations. 15 U.S.C.A. § 15. All the

injuries contended for may potentially satisfy that descrip-

tion. North Texas Producers Association v. Young, 308

F.2d 235 (1962), cert. denied, 372 U.S. 929, 83 S.Ct. 874, 9

L.Ed.2d 733 (1963). See Hunt v. Mobil Oil Corp., 410

F.Supp. 10 (S.D.N.Y.1976), rev’d on other grounds, 550

F.2d 68 (2d Cir.), cert. denied, 434 U.S. 984, 98 S.Ct. 608,

04 L.Ed.2d 477 (1977).

The authority asserted to support Mitsui’s position is

Hunt v. Mobil Oil Corp., 550 F.2d 68 (2d Cir.), cert. denied.

434+ U.S. 984, 98 S.Ct. 608, 54 L.Ed.2d 477 (1977), and

Occidental Petroleum Corp. v. Buttes Gas ¢ Oil Co., 331

F.Supp. 92 (C.D.Cal.1971), aff'd, 461 F.2d 1261 (9th Cir.

1972). Both cases involved expropriation by a foreign

state of plaintiffs’ properties. This distinction alone is of

major significance. The Hunt court itself, refusing to apply

the precedent of Sisal, stated:

[Sisal] considered the assistance of the sovereign

through the mechanism of favorable legislation engi-

loa

neered by the defendants to be of considerably less

moment than the expropriation by the state of the

plaintiffs’ properties in [ American Banana}.

990 F.2d at 75. Furthermore, separation of powers con-

sideration in Hunt strongly counselled against the court’s

interference."! Despite these distinctions, the Hunt opinion

broadly states that in order to prove damages an antitrust

plaintiff must show that but for the conspiracy the foreign

government would not have acted as it did. This, the court

continues, requires an inquiry into the motivation of the

11 The complaint by Hunt, an independent oil producer holding

oil concessions in Libya, charged defendants, the seven major

oil companies, with fraudulently inducing Hunt to be un-

cooperative in pricing negotiations with Libya. Hunt did so,

and Libya retaliated by nationalizing Hunt’s properties thus

totally eliminating Hunt from the field of competition. Lib-

ya was incensed. It loudly proclaimed its purpose to give the

United States “a big hard blow in the Arab area on its cold,

insolent face.” 550 F.2d at 73 quoting Statement of the State

Department, Hearings before the Subcomm. on Multinational

Corporations of the Senate Comm. on Foreign Relations, 93d

Cong., 2d Sess., pt. 6, at 316-17 (1974). In response, the United

States governmeut wrote the Libyan government and charac-

terized the expropriation as “political reprisal against the

United States Government and coercion against the economic

interests of certain other U.S. nationals in Libya.” 550 F.2d at

73, quoting, A. Rovine, Digest of United States Practice in

International Law 1973 at 335. The Second Circuit refused to

upset the executive’s identification of Libya’s motivation by

another inquiry which “could only be fissiparous, hindering or

embarrassing the conduct of foreign relations which is the

very reason underlying the policy of judicial abstention ex-

pressed in the doctrine in issue.” 550 F.2d at 77-78.

The court found that, even if the Department of State had

not openly expressed its position, the political and diplomatic

dimensions were too burdensome for resolution by the judiciary :

“The action taken here is obviously only an isolated act in a

continuing and broadened confrontation between the East and

West in an oil crisis which has implications and complications

far transcending those suggested by appellants.” 550 F.2d 78.

No such “implications and complications” hinder a resolution

of Industrial Investment’s antitrust claims here.

l6a

foreign state and “that inevitably involves its validity.”

990 F.2d at 77.

This broad language in Hunt has been criticized for

encouraging use of the act of state doctrine as a shield

by private conspirators who are able to include some for-

eign governmental act in their anticompetitive scheme.!2

We do not agree that, in establishing a causal relation

hetween the private violations alleged and the injuries

suffered, the plaintiffs must prove that defendant’s [sic]

acts were the sole cause of the injury. Of course, plaintiffs

must show a causal relationship between defendants’ anti-

competitive actions and the harm suffered. Radiant Burn-

ers, Inc. v. Peoples Gas, 364 U.S. 656, 81 S.Ct. 365, 5 L.Ed2d

398 (1961). However, inquiry beyond the fact of some

damage flowing from the unlawful conspiracy relates only

to the amount and not the fact of damage. Zenith Radio

Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 114 n. 9, 89

S.Ct. 1562, 1571, 23 L.Bd.2d 129 (1969); Story Parchment

Co. v. Paterson Parchment Paper Co., supra, 282 U.S. 500,

o1 S.Ct. 248, 75 L.Ed. 544: BE & B [sic] Equipment Co., Inc. v.

[uternational Harvester, supra, 577 F.2d 239; Heatransfer v.

Volkswagenwerk, A.G., supra, 553 F.2d 964. Furthermore,

we disagree that motivation and validity are equally pro-

tected by the aet of state rubric. See, e. g., Continental Ore

Co. v. Union Carbide & Carbon Corp., supra, 370 U.S. 705,

S2.S.Ct. 1404; Timberiane Lumber Co. v. Bank of America

supra, 549 F.2d 597. Precluding all inquiry into the moti-

vation behind or circumstances surrounding the sovereign

act would uselessly thwart legitimate American goals

where adjudication would result in no embarrassment to

‘Note. Sherman Act Jurisdiction and the Acts of Foreign

Sovereigns, 77 Colum.L.Rev. 1247 (1977) ; Note, the Act of

State Doctrine: Anti-Trust Conspiracies to Induce Foreign

Sovereign Acts, 10 Int’l Law and Politics 495 (1978).

l7a

executive department action. Industrial Investment must

only question that government’s motivation to the extent

of measuring its damage. No ethical standard is set by

which the propriety of its decision is tested. Surely the

limited nature and effect of determining the proportional

cause of plaintiffs’ damage allocable to defendants’ con-

duct does not trigger the type of special political consider-

ations protected by the act of state doctrine.

The objective sought by passage of the Sherman Act

is preservation and maintenance of effective competition

in this country. United States v. Aluminum Co. of America,

148 F.2d 416 (2d Cir. 1945). To provide an act of state

shield to business entities whose activities happen to reach

beyond United States soil would thwart this objective. The

courts are an important forum for protection against

competitive restraints, Although the act of state doctrine

is a vital rule of judicial abstention in the field of foreign

relations, it does not apply in this case.

REVERSED and REMANDED.

JONES, Circuit Judge, dissenting :

The district court’s decision as succinctly and accurately

Stated in the majority opinion, is “that the damage com-

plained of stems directly from the denial of the government

concession to cut timber.” I am like minded. If the statement

be true then the Act of State doctrine requires a dismissal

of the action.

18a

APPENDIX B

OPINION

Of the

United States District Court

For the

Southern District of Texas

February 28, 1979

In THe

UNITED STATES DISTRICT COURT

For THe SourHern District or Trxas

Hovuston Drtviston

InpustriaL INVESTMENT DEVELOPMENT Corp., ET AL

V.

Mirsur & Co., Lrp., er au

Crviz Action No, 75-H-1041

Butler, Binion, Rice, Cook & Knapp (Louis Paine), Hous-

ton, Texas, and Austin, Arnett, Northrop, Kirkpatrick &

Steber (Fitzhugh H. Pannill, Jr.), Houston, Texas, attor-

neys for Plaintiffs.

Fulbright & Jaworski (B. J. Bradshaw), Houston, Texas,

attorneys for Defendants Mitsui & Co., Ltd. and Mitsui

& Co. (U.S.A.), Ine.

Fepruary 28, 1978

MEMORANDUM AND ORDER:

This is an antitrust action brought in United States Dis-

trict Court to rectify alleged commercial mischief abroad.

Defendants have moved to dismiss this action on five

grounds:

19a

(1) Plaintiffs lack standing since they have in-

curred only derivative damage as shareholders;

(2) The extraterritorial effect of American anti-

trust laws does not extend so far as to reach this case ;

(3) Plaintiffs are not within the “‘target area’’ of

protection afforded by the antitrust laws ;

(4) Forum Non Conveniens ;

(5) Act of state doctrine.

From a study of the pleadings, and with the benefit of seven

volumes of exhibits accompanying the exhaustive briefs of

parties, it is the opinion of this court that the act of state

doctrine precludes judicial review of this case, therefore

the other prongs of Defendants’ motion need not be reached.

Plaintiffs have also alleged claims of conversion, misappro-

priation, interference with contractual and business rela-

tionships, and breach of contract seeking to invoke pendent

jurisdiction. There being no substantial federal claim, these

other causes of action will also be dismissed for lack of

jurisdiction.

The court has considered the mountainous stack of ex-

hibits in reaching its decision, therefore it will give Rule

06, Fed.R.Civ.P., treatment to the Rule 12(b)(6) motion

to dismiss. Although the granting of such motions in com-

plex antitrust litigation is not favored, Poller v. Columbia

Broadcasting System, Inc., 368 U.S. 464, 82 S.Ct. 486 (1962),

the complexity of such litigation is often unnecessarily de-

veloped, and the court is convinced that there are no factual

disputes in this case as to the few essential facts under-

pinning this decision. Those facts are as follows.

The American link on the Plaintiffs’ side is Industrial

Investment Development Corporation (IIDC), a Virginia

corporation. IIDC is the beneficiary of a trust held by

Lex LTD and Rex LTD. The corpus of the trust is the

20a

Indonesia Industrial Investment Corporation Ltd. (LLC),

a Hong Kong corporation. TIC wholly owns another Hong

Kong corporation, Forest Products Corp. Ltd. (FPC)

Which is the principal actor in this Indonesian affair. These

three corporations are the Plaintiffs in this suit.

Plaintiffs sought to enter the logging and lumber produets

business in East Kalimantan (Borneo), Indonesia. The for-

ests in Indonesia are owned by the Indonesian government.

That government requires any foreign enterprise to form

a joint venture with an Indonesian partner before it will

he allowed to do business in Indonesia. This joint venture

must then form an independent Indonesian corporation by

which business must be conducted. However, the formation

of these business alliances does not give anyone the right

to hegin the harvesting of the lumber, A concession or cut-

ting license must be granted from the government through

its Department of Forestry.

Pursuant to these governmental requirements, FPC en-

tered into a joint venture with an Indonesian corporation,

Telaga Mas Kalimantan (Co. (Telega Mas). On July 1,

1971, FPC, Telaga Mas and the Indonesian Director

General of Forestry entered into a Three Way Agree-

ment by which terms were agreed upon as to the operat-

ing of the enterprise, if a cutting license were issued by

the government. The Three Way Agreement provided for

its own termination if no license issued. Ultimately no

license was ever issued.

These facts are uncontroverted. Plaintiffs, however, would

have the court shift its view from these facts to the more

controversial allegations of conspiracy. Plaintiffs allege

that the defendants infiltrated Telaga Mas executive suite

[ste] and found a turncoat to poison the FPC-Telaga Mas

marriage. Two shareholders meetings of Telaga Mas were

2la

held. Regardless of their validity and fairness, it is undis-

puted that the first meeting ratified the Three Way Agree-

ment while the latter invalidated the agreement. The hat-

tleground then switched to the Indonesian courts. The

first two lawsuits upheld the validity of the second share-

holders meeting and declared the Three Way Agreement

unenforceable. The final lawsuit, however, resulted in a

judgment that reversed the prior decision concerning the

enforceability of the Three Way Agreement. In the mean-

time, the Director General of Forestry had cancelled the

Three Way Agreement. Regardless of this cancellation

and the ping-pong shareholders meetings and judgments,

it is undisputed that a cutting license had never been and

was never issued.

Plaintiffs contend that the poisoning of the FPC-Telaga

Mas joint venture caused the cancellation of the Three

Way Agreement which in turn caused the government to

deny FPC a concession. It is this two step inquiry which

is prohibited by the act of state doctrine. Once it is estab-

lished that the harm complained of was ultimately caused

by a governmental act, the motivation behind that act, no

matter how unscrupulous, is beyond judicial review. This

is the precise reasoning behind Hunt v. Mobil Oil Corp.,

990 F.2d 68 (2d Cir. 1977), where it was stated:

“Hunt’s complaint does not name Libya as a de-

fendant or in any way suggest that it is a co-conspira-

tor of the named defendants. Nonetheless Judge

Weinfeld reasoned that the combination or conspiracy

charged did not of itself cause the damage complained

of but rather that the damage resulted from the action

of Libya in cutting back Hunt’s production, shutting

off its oil and finally nationalizing its properties. Thus

he found that Hunt would be required to establish that

but for the conspiracy Libya would not have com-

mitted any of these aggressive actions. This he decided

22a

would require judicial inquiry into ‘acts and conduct

of Libyan officials, Libyan affairs and Libyan policies

with respect to plaintiffs as well as other oil pro-

ducers’ properties and the underlying reasons for the

Libyan government’s actions.’ 410 F.Supp. at 24. He

concluded that this inquiry was foreclosed under the

act of state doctrine.”

Similarly, in Occidental Petroleum Corp v. Buttes Gas &

Ou Co., 331 F.Supp. 92 (C.D.Cal. 1971), aff'd 461 F.2d 1261

(9th Cir, 1972), the court concluded that the foreign states’

territorial aggressiveness which ousted the plaintiff from

a concession was the ultimate cause of the damage com-

plained of, and therefore was barred from judicial review

stating:

“There is, moreover, a further dimension to this

case’s implication of foreign acts of state. Because a

private antitrust claim requires proof of damage re-

sulting from forbidden conduct, e.g., Foster & Kleiser

Co. v. Special Site Sign Co., 85 F.2d 742, 750-751 (9th

Cir. 1936), cert. den. 299 U.S. 613, 57 S.Ct. 315, 81 L.Ed.

452 (1937); Winckler & Smith Citrus Products Co. v.

Sunkist Growers, Inc., 346 F.2d 1012, 1014 & n.1 (9th

Cir), cert.den., 382 U.S. 958 86 S.Ct. 433, 15 L.Ed.2d

362 (1965), plaintiffs necessarily ask this court to ‘sit

in judgment’ upon the sovereign acts pleaded, whether

or not the countries involved are considered co-con-

spirators, That is, to establish their claim as pleaded

plaintiffs must prove, inter alia, that Sharjah issued

a fraudulent territorial waters decree, and that Iran

laid claim to the island of Abu Musa at the behest of

the defendants. Plaintiffs say they stand ready to

prove the former allegation by use of ‘internal docu-

ments.’ But such inquiries by this court into the authen-

ticity and motivation of the acts of foreign sovereigns

would be the very sources of diplomatic friction and

complication that the act of state doctrine aims to

avert. See Sabbatino, supra, 376 U.S. at 423-424, 431-

433, 84 S.Ct. 923.”

23a

Therefore, regardless of the proof offered by the Plain-

tiffs as to a conspiracy to break up the FPC-Telaga Mas

joint venture, it is evident that the whole issue of such a

conspiracy is irrelevant since the damage complained of

stems directly from the denial of a governmental concession

to cut timber. Any inquiry into the reasons for such denial

is barred by the act of state doctrine. The recent U.S. Su-

preme Court case, Alfred Dunhill of London v. Republic

of Cuba, 425 U.S. 682, 96 S.Ct. 1854 (1976), does not help

Plaintiffs’ case. Dunhill merely excluded from the act of

state doctrine those acts of a sovereign which are purely

commercial in nature. The court reasoned:

“In their commercial capacities, foreign governments

do not exercise powers peculiar to sovereigns. Instead

they exercise only those powers that can also be exer-

cised by private citizens. Subjecting them in connection

with such acts to the same rules of law that apply to

private citizens is unlikely to touch very sharply on

national nerves.” 96 S.Ct. at 1866.

The act in question here is the government denial of a

concession to harvest logs which are owned by the govern-

ment. This is not the type of act which Dunhill seeks to

exclude as a purely commercial activity. Dunhill involved

a plaintiff who paid funds to a Cuban government con-

trolled corporation for the purchase of cigars. The cigar

business was subsequently nationalized and the plaintiffs

sued for the funds paid to the predecessor government

controlled corporation. It was the failure to pay a com-

mercial debt which the Dunhill court considered to be so

entrepreneurial that the act of state doctrine would not

apply. The same reasoning applies to Timberlane Lbr, Co.

v. Bank of America N.T. & §.A., 549 F.2d 597 (9th Cir.

1976), in which the act of state doctrine was not applied to

an enforcement by Hondurian officials of a judicial decree

by which commercial security interests held by defendants

24a

were given recognition. It is the degree to which an Amer-

ican court must inquire into matters that turn on national

political interests which triggers the act of state doctrine.

Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 84 S.Ct.

923 (1964). The denial of a concession to harvest govern-

ment owned forests is a political, peculiarly governmental

act of a sovereign. Perhaps the actions of the government

n entering and terminating the Three Way Agreement

may be considered commercial, proprietal acts, but the

ultimate question as to the granting of the concession is

purely a political issue barred from judicial review by the

act of state doctrine.

The Plaintiffs had cleared a major hurdle in the forming

of the three part agreement. However, this was only the

beginning and despite any great expectations of the parties

involved, the delivery of the concession was stil] vulnerable

to the whim of a foreign government. No guarantees were

made. The forming of the three party agreement created

no privileges in the land. In fact the continuity of the three

party agreement was conditional on the granting of a

concession. The government was at liberty at all times to

grant or deny such a privilege. The motivation for their

ultimate denial cannot be the basis of an antitrust suit

pursuant to American laws. Therefore, it is

ORDERED that Defendants’ motion to dismiss construed

as a motion for summary judgment is hereby GRANTED

and Plaintiffs’ complaint is in all things DISMISSED.

DONE at Houston, Texas, this 28th day of February,

1978.

/8/ Ross N. Sreruine

Unrrep States Distrior JUDGE

2Q5a

APPENDIX C

JUDGMENT

Of the

United States Court of Appeals

For the Fifth Circuit

April 25, 1979

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 78-1775

D. C. Docket No. CA-75-H-1041

InpustriaL INVESTMENT DEVELOPMENT

CORPORATION, ET AL.,

Plaintiff s-Appellants,

v.

Mitsu & Co., Lp. anp

Mitsu & Co., (U.S.A.),

Defendants-Appellees.

APPEAL FROM THE Unttep Sates Districr Courr FoR THE

SoutHern District or Texas

Before JONES, CLARK and IN GRAHAM, Circuit Judges

JUDGMENT

This cause came on to be heard on the transcript of the

record from the United States District Court for the South-

ern District of Texas, and was argued by counsel;

26a

ON CONSIDERATION WHEREOF, It is now here or-

dered and adjudged by this Court that the judgment of

the said District Court in this cause be, and the same is

hereby, reversed; and that this cause be and the same is

hereby remanded to the said District Court in accordance

with the opinion of this Court;

It is further ordered that defendants-appellees pay to

plaintiffs-appellants, the costs on appeal to be taxed by

the Clerk of this Court.

April 25, 1979

Jones, Cireuit Judge, dissenting.

ISSUED AS MANDATE:

27a

APPENDIX D

Notice of Order Denying Petition for

Rehearing and Rehearing En Banc

July 6, 1979

UNITED STATES COURT OF APPEALS

FIFTH CIRCUIT

Office of the Clerk

JULY 6, 1979

Edward W. Wadsworth, Clerk

Tel. 504-589-6514

600 Camp Street

New Orleans, La. 70130

TO ALL PARTIES LISTED BELOW:

No. 78-1775 — Inpusrria, INVESTMENT DEVELOPMENT

Corp., ET AL, vs. Mitsutr & Co., Lrp. anp

Mirsur & Co., (U.S.A.)

Dear Counsel:

This is to advise that an order has this day been entered

denying the petition( ) for rehearing, and the Court having

been polled at the request of one of the members of the

Court and a majority of the Circuit Judges who are in reg-

ular active service not having voted in favor of it, (Rule

28a

30, Federal Rules of Appellate Procedure ; Local Fifth Cir-

cuit Rule 16) the petition( ) for rehearing en banc has

also been denied.*

See Rule 41, Federal Rules of Appellate Procedure for

issuance and stay of the mandate,

Very truly yours,

Epwarp W, Wapswortn, Clerk

By /s/ Jutm Harrison

Deputy Clerk

ec: Mr. Fitzhugh H. Pannill, Jr.

Mr. B. J. Bradshaw

Mr. R. Hayden Burns

“Judge Jones dissents from the refusal of the panel to

grant rehearing, for the reasons shown in his prior dissent.