Petition — Caribe Trailer Systems, Inc. v. Puerto Rico Maritime Shipping Authority
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Sue
‘rome Court, U.S.
© iLe py
80-843 NOV 25 1980
baci RODAK, JR., CLERK
No.
NS
IN THE
SUPREME COURT OF THE UNITED STATES
OCTOBER TERM, 1980
CARIBE TRAILER SYSTEMS, INC. and JOHN R. IMMER,
Petitioners,
Vv.
PUERTO RICO MARITIME SHIPPING AUTHORITY, ef al.,
Respondents.
PETITION FOR WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
CLAIRE O. DUCKER, SR.
416 - 10th Street, N.W.
Washington, D.C. 20004
(202) 347-0200
Attorney for Petitioners.
Washington, 0.C. © THIEL PRESS © (202) 636-462!
(2)
QUESTIONS PRESENTED
1. Whether Puerto Rico Public Law No. 62 (1974) is
immune from the Sherman Antitrust Act under Parker v.
Brown so as to permit it to maintain a monopoly beyond
its territorial boundaries.
2. Whether Puerto Rico Public Law No. 62 (1974)
exceeds the authority granted to the legislature by Con-
gress.
3. Whether Puerto Rico Public Law No. 62 (1974) vio-
lates the Commerce Clause of the Constitution.
4. Whether a State or Territory retains its sovereign
immunity or any immunity beyond its boundaries.
5. Whether a lower court decision declaring Puerto
Rico to be a “‘state’’ when such decision is in direct con-
tradiction to a recent decision of the Supreme Court
should be allowed to stand.
6. Whether a state or territorial government retains
immunity from federal laws when it engages in a com-
mercial shipping operation.
7. Whether corporations owned by the Government of
Puerto Rico (PRMSA and PRPA) but not arms of that
government can maintain the sovereign immunity of the
Commonwealth of Puerto Rico from federal law.
8. Whether Petitioners have had proper appellate
review and whether there have been irregularities in pro-
cedure where an appellate judge, who was involved in the
case before appointment to the bench, refused to recuse
herself and where the appellate court refused to write an
independent opinion even though, sua sponte, it brought
the Attorney General into a private lawsuit.
(11)
9. Whether the conspirators can escape the venue of
the forum district when a substantial part of the work of
the conspiracy and monopoly was performed within that
district.
10. Whether the lower courts can ignore the mandate
of 28 U.S.C. §1391(b) and refuse to allow venue at the
place of injury.
11. Whether the trial court can disturb the forum sel-
ected by plaintiffs pursuant to federal statute where sub-
stantial acts occurred within the forum district.
12. Whether the trial court can ignore the ““Long Arm”
provision of the District of Columbia Code §13-423,
which holds Respondents for venue.
13. Whether a decision of the lower court, which is
unsupported by case law and in conflict with decisions
within its own circuit and with decisions of other cir-
cuits as well as the Supreme Court, should be allowed to
stand as a precedent when it abruptly violates far-reach-
ing constitutional guarantees and vitally affects the entire
Puerto Rican economy as well as all American shipping.
(111)
LISTING OF PARTIES
™espondents in this case are:
Puerto Rico Maritime Shipping Authority
(“PRMSA’’),
Puerto Rico Ports Authority (“PRPA’’),
| R.J. Reynolds Industries, Inc. (“Reynolds”),
McLean Industries, Inc. (“‘McLean’’),
Sea-Land Service, Inc. (‘‘Sea-Land”’),
T.K.M. Corporation (‘““TKM”’),
Gulf Puerto Rico Lines, Inc. (““GPRL’’),
Sun Shipbuilding and Dry Dock Co. (“‘Sun Ship”’),
Transamerican Trailer Transport, Inc. (“TTT”’),
American Union Transport, Inc. (“AUT”’), and
Trans Ocean Transportation Executive Management,
Inc. (“TOTEM”’).
(tv)
TABLE OF CONTENTS Page
GCRIRGTINNG FREMENIGD ccc cece cere vsscere eee i
eer Gee PIUREME 6 6 be 6 es heh ow ceed nee se aes iti
pe Be Be el) eer eee ee eee er ere iv
pe RS eee ee ee ee eee v
Roh sys ee ee eee a ee ee ee 1
STATUTORY AND CONSTITUTIONAL
ig 8 Pe er eee ee ee oe ee ae ee ee 2
SEA PON a ee BON SE 66 oN eee e stews wes 6
REASONS FOR GRANTING THE WRIT ...........-. 8
I. Extraterritorial Immunity of State Governments
Under Parker v. Brown Invades Commercial Area. ... 10
II. The Lower Court Presumes to Grant Powers to |
the Puerto Rico Legislature Which Have Not
Been Granted to it by Congress ............+25. 12
III. Control of Interstate Commerce. and Restraint
of Trade by a State Violates the Commerce
GE eee a kct Oa ew bab 8 0 0b eee e 60-0 ees 13
IV. Extension of Immunity Beyond the Boundaries
of a State Is In Conflict With Court Decisions...... 14
V. The Ruling of the Court Below That Puerto
Rico is a State Is Contrary to Rulings of
ee a ge a eS a hee eh ek ok 15
VI. The Court Has Consistently Rejected Immun-
ity From Federal Law When a State Engages
LN a8 ago ne koe 0s ok ok Wace 988 16
VII. That Puerto Rico Maritime Shipping Authority
and Puerto Rico Ports Authority Have Immun-
ity Is Contrary to All Case Law..............6. 17
VIII. Serious Departures From the Usual Course of
Proceedings in the Federal Courts Require
the Attention of the Supreme Court ............ 18
IX. Court Decisions Supporting Conspiracy Theory
Were Ignored and Disregarded ............006. 20
(v)
X. Petitioners Were Denied Benefit of Section Page
1391(b) In Establishing Venue Where Claim
Si ns 66 aM Rb ak DEES OS OPER ON 21
XI. Petitioners Were Denied Their Choice of
Forum District in a Diversity Case .......+++++5: 21
XII. Petitioners Were Denied Benefit of “Long
Arm”’ Provision of District of Columbia
Code §13-423 As Holding Respondents
i ene Ce ieee a ee a ee eee ae 22
CSAS coc acéuvetcusersevecsecaenneneos 23
APPENDICES:
Appendix A — Order and Memorandum of Judge
Oliver Gasch, United States District Court for
tee Eiswsict of Columbia 2. cw ccc ccc ce secececes la
Appendix B — Per Curiam Decision of the United
States Court of Appeals, July 3, 1980 ........655-, 32a
Appendix C — Decision of Panel and Court Reject-
ing Petitioners’ Application for Rehearing, or
in the Altermative Rehearing En Banc, August
ee. ew ereeer era ee eee ee 34a
Appendix D — Memorandum of February 14,
1974, on Meetings of February 11 and 12,
1974. Prepared by Mr. Kesterman for Dis-
tribution to Puerto Rican Representatives
Teodoro Moscoso and Others. Court of
Appeals Joint Appendix pp. 874-879... eee eeeee 36a
Appendix E — Replies to Interrogatories, Mr. Kester-
man, Court of Appeals Joint Appendix pp. 657-
OE Siva se sa oie ee cee oes 42a
TABLE OF AUTHORITIES
Cases:
Alfred Dunhill of London, Inc. v. Cuba, 425
U.S. 682, 696 (1976), 96 S.Ct. 1854, 48
L.Ed.2d 301 (1976)... 2... ce eee eee e reer er eeee 11, 16
(vt)
Cases, continued:
Allis-Chalmers Corp. v. Friedkin, 481 F.Supp.
1256, 1265 f.n. (M.D. Pa. 1980) ........ pyicne <
American Mail Lines, Ltd. v. F.M.C., 164 U.S.
App. D.C. 66, 503 F.2d 157, 166, C.A.D.C.
E974, cert. dem. 419 U.S. 1070... ow cc ccccce
Berlin Demo. Club v. Rumsfeld, 410 F. Supp.
WOE CI FOTN ak ok hn kk 6 noc vb awbcncw nn
Caceres v. San Juan Barge Co., 387 F. Supp.
221 (D.C.P.R. 1974, aff'd. 520 F.2d 305) ........
California Clippers, Inc. v. U.S.S.F. Associates,
Woe We OU BOOT, BOE on kk ae Ok ceccseccven
Can. Transport Co. v. PRPA, 333 F. Supp. 1295
IP ic a a eS
Cancel v. San Juan Construction Co., 387 F.
eS
City of Lafayette v. Louisiana Power & Light
Co., 435 U.S. 389, 422 (1978), 98 S.Ct.
BESS, OD L.Ba.3d 9664 (1978)... cect ees
Cocherl v. State of Alaska, 246 F. Supp. 328
I tlds ggg ee a
Conley v. Gibson, 355 U.S, 41-46, 78 S.Ct. 99,
ee |, eae a
Florida Nursing Home Ass’n. v. Page, 616 F.2d
RODS (OU Gir. 190G) ww ccc ccccces
Gemini Enterprises, Inc. v. WFMY Tel. Corp.,
470 F. Supp. 559, 564 (M.D.N.C. 1979)..........
Gold Eagle Co. v. Li, 486 F. Supp. 201 (N.D.
ed weak 6 ye bo noo ee ale es oseee
Harris v. Rosario, Supreme Court No. 79-1294.
Decided May 27, 1980. __. U.S. ___. , ___
ee Se,
Huckins v. Board of Regents, 263 F. Supp. 622,
NG I at eae Senin bts
(vit)
Cases, continued: Page
Hughes v. Oklahoma, 441 U.S. 322, 99 S.Ct.
1727, 60 L.Ed.2d 250 (1979)... ..cccecccuuceces 13
Hyde v. U.S., 225 U.S. 347, 32 S.Ct. 793, 56
L.Ed. 1114 co re ey es Ieee 20
International Tel. & Tel. Corp. v. General Tel.
& Elec. Corp., 351 F. Supp. 1153, 1229
(D. Hawaii 1972), mod. on other grounds,
Dae Fuge ae (eee Ge. EDTO) oc ccc cc cee reccers 15
Knisel v, Duran, 258 F. Supp. 845, 853
peer IN 6 5 \5-6 kon bd on 8d hoe 6 en ko We ws 17
Ladner v. U.S., 168 F.2d 771 (5th Cir. 1948) .......... 20
Lamont v. Haig, 192 U.S. App. D.C. 8, 590
Foame Bbae, 8306 (TAC, Cir. 1978) 2. ccc eee evece 21, 22
Mandelkorn v, Patrick, 359 F. Supp. 692
et ee ee 20
McLaughlin v. Copeland, 435 F. Supp. 513
I ae en 20
Nevada v. Hall, 141 Cal. R. 441 (1977), 440
U.S. 410, 99 S.Ct. 1182, reh. den. 99 S.Ct.
PN Se ee eee eee ee ee 14
Ohio v. Helvering, 292 U.S. 360, 54 S.Ct.
Tae, CO Rules BOOT COMER) coc eee cue ce teccecs 11,15
Parden v. Terminal Railway of Alabama State
Docks Dept., 377 U.S. 184, 84 S.Ct. 1207,
ee Re SY OE a dc aw bab eaane baa was 16
Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307,
OF Rams BOM CUPOED vk eben ser eedes 10, 11, 12, 14, 15
Petty v. Tenn. Mo. Bridge Commission, 359
U.S. 275, 79 S.Ct. 785, 3 L.Ed.2d 804
Re re he re 16
PRMMI v. Int'l. L. Ass’n., AFL-CIO, 398
FP. Game. 290 4DGPR. UOTE)... coca ci ccc cccuss 17
PRPA v. F.M.C. & U.S.A., C.A.D.C. No. 78-
1950, June 10, 1980, ___ F.2d __
a ae eek be nT 14
(viit)
Cases, continued: Page
Redmond v. Atlantic Coast Football League,
359 F. Supp. 666, 672, S.D. Ind., aff'd.
mem., 478 F.2d 1405 (7th Cir. 1973)... 2.2.22 ee wees 21
Reeves, Inc. v. Stake, —— U.S. —~— . 100
S.Ct. _. , 65 L.Ed.2d 244, 252 (1980).........--- 13
Reeves v. Kelly, ___ U.S. —— , 99 S.Ct. 2155,
tp ene 255 seek KPO Rs 06 SORE OO OOS 13
Santiago v. Hermanos, 255 F. Supp. 932 (D.C.
| eee eee ee ce ee 13
Star Lines, Ltd. v. PRMSA, 442 F. Supp. 1201,
1207 (S.D.N.Y. 1978) 2... eee eee cere ee eees 9 Bae ae
Star Lines, Ltd. v. PRMSA, 451 F. Supp. 157
(S.D.N.Y. 1978) 2... cece eccerecccerveeecves 17, 22
Thornwell v. U.S., 471 F. Supp. 344 (D.C. D.C.
(l,i ee ee ee ee ee 22
Williams v. McAllister Bros, Inc., 534 F.2d 19
(2nd Cir. 1976) 2... cece ee eee eee eee eeeereees 13
U.S. v. Snead, 527 F.2d 590 (4th Cir. 1975). ......-24-: 20
Constitutional and Other References:
Business Review Letter, 28 C.F.R. §50.6, 94 ........-- 19
Clayton Act, Section 4, 15 U.S.C. §1-3 ..... Lee eeees 1,4
Constitution, Commerce Clause, Art. 1, §8,
. Peewee ee er. eee ee 3,8, 11, 12, 13, 14, 23
District of Columbia “Long Arm’’ Provision
wil Balk, Coit RUN in bn PG eke odes 5, 22, 23
Public Law No. 62 (June 10, 1974), 23 P.R.
Laws Ann., §§3051 et seq. (1978) ..... eee eres 4,6, 13
2nd Organic Act of 1950, 48 U.S.C. ae a ees 12
Sherman Antitrust Act, 15 U.S.C. §§1-3 ....... 1, 2, 3, 8,9
Solicitor General, 28 C.F.R. §0.40 .......22 2 eee ees 9,19
Supreme Court Procedures, 28 U.S.C. §1254(1) ...-.-++-- 2
Venue Provisions, 28 U.S.C. §1991 ........0 ee eens 5, 21
IN THE
SUPREME COURT OF THE UNITED STATES
OCTOBER TERM, 1980
No.
CARIBE TRAILER SYSTEMS, INC. and JOHN R. IMMER,
Petitioners,
VU.
‘ PUERTO RICO MARITIME SHIPPING AUTHORITY, et ai.,
Respondents.
PETITION FOR WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
JURISDICTION
This case was originally brought before the Federal
Court of the District of Columbia on March 13, 1978
under the Sherman Antitrust Act, 15 U.S.C. §§1-3 and
under Section 4 of the Clayton Act, 15 U.S.C. §15. No
discovery or evidentiary proceedings were allowed by the
trial court which entered a summary judgment in favor of
defendants on April 23, 1979.
The per curiam order of the United States Court of
Appeals, District of Columbia Circuit, supporting the
lower court decision and dismissing the case, was issued
]
2
on July 3, 1980 with no opinion or memorandum. Peti-
tioners’ Application for Rehearing, or in the Alternative
Rehearing En Banc was denied on August 29, 1980. The
jurisdiction of this Court is invoked under 28 U.S.C,
§1254(1). The Petition was filed within ninety days of
the order of the District of Columbia Circuit denying a
rehearing.
STATUTORY AND CONSTITUTIONAL
PROVISIONS INVOLVED
1. Sherman Antitrust Act, Section 1, 15 U.S.C, §1.
§1. Trusts, etc. in restraint of trade illegal; penalty.
Every contract, combination in the form of trust or oth-
erwise, Or conspiracy, in restraint of trade or commerce
among the several States, or with foreign nations, is
declared illegal. Every person who shall make any con-
tract or engage in any combination or conspiracy hereby
declared to be illegal shall be deemed guilty of a felony,
and, on conviction thereof, shall be punished by fine not
exceeding one million dollars if a corporation, or, if any
other person, one hundred fifty thousand dollars or by
imprisonment not exceeding three years, or by both said
punishments in the discretion of the court.
- as amended Dec. 21, 1974, Pub. L. 93-528, 3, Stat.
1708; Dec. 12, 1975, Pub. L. 94-145, 2, 89 Stat. 801.
2. Sherman Antitrust Act, Section 2, 15 U.S.C. § 2.
§ 2. Monopolizing trade a felony; penalty.
Every person who shall monopolize, or attempt to mon-
opolize, or combine or conspire with any other persons,
to monopolize any part of the trade or commerce among
the several States, or with foreign nations, shall be
deemed guilty of a felony, and on conviction thereof,
3
shall be punished by a fine not exceeding one million
dollars if a corporation, or, if any other person, one hun-
dred fifty thousand dollars or by imprisonment not
exceeding three years, or by both said punishments, in
the discretion of the court.
- as amended Dec. 21, 1974, Pub. L. 93-528, 3, Stat.
1708.
3. Sherman Antitrust Act, Section 3, 15 U.S.C. §3.
§ 3. Trusts in Territories or District of Columbia illegal;
combination a felony.
Every contract, combination in form of a trust or oth-
erwise, or conspiracy, in restraint of trade or commerce
in any Territory of the United States or of the District
of Columbia, or in restraint of trade or commerce bet-
ween any such Territory and another, or between any
such Territory or Territories and any State or States or
the District of Columbia, or with foreign nations, is
declared illegal. Every person who shall make any such
contract or engage in any such combination or conspiracy
shall be deemed guilty of a felony, and, on conviction
thereof, shall be punished by fine not exceeding one mil-
lion dollars if a corporation, or, if any other person, one
hundred fifty thousand dollars or by imprisonment not
exceeding three years, or by both said punishments, in
the discretion of the court.
- As amended Dec. 21, 1974, Pub. L. 93-528, 3, Stat.
1708.
4. Commerce Clause of the Constitution, Article 1,
Section 8, Clause 3.
To regulate Commerce with foreign nations, and
among the several States, and with the Indian Tribes;
4+
5. The Constitution, Congressional Authority, Article
4, Section 3, Clause 1.
The Congress shall have Power to dispose of and make
all needful Rules and Regulations respecting the Territory
or other Property belonging to the United States; and
nothing in this Constitution shall be so construed as to
Prejudice any Claims of the United States, or of any par-
ticular State.
6. 2nd Puerto Rico Organic Act, 48 U.S.C. §821.
The legislative authority shall extend to all matters of
a legislative character not locally inapplicable, including
power to create, consolidate, and reorganize municipal-
ities so far as may be necessary, and to provide and repeal
laws and ordinances therefor; also the power to alter,
amend or modify any and all laws and ordinances of
every character in force in Puerto Rico or municipality or
district thereof on March 2, 1917 c. 145 37, 39 Stat.
964; May 17, 1932, c. 190, 47 Stat. 158.
7. Clavton Act of 1910, §4, 15 U.S.C. §15.
Any person who shall be injured in his business or
property by reason of anything forbidden in the antitrust
laws may sue therefor in any district court of the United
States in the district in which the defendant resides or is
found or has an agent, without respect to the amount in
controversy, and shall recover threefold the damages by
him sustained, and the cost of suit, including a reasonable
attorney’s fee.
8. Clayton Act of 1910, §12, 15 U.S.C. §22.
Any suit, action, or proceeding under the antitrust
laws against a corporation may be brought not only in
the judicial district whereof it is an inhabitant, but also in
5
any district wherein it may be found or transacts busi-
ness; and all process in such cases may be served in the
district of which it is an inhabitant, or wherever it may be
found.
9. General Federal Venue Provision, 28 U.S.C. §1391.
(a) A civil action wherein jurisdiction is founded only
on diversity of citizenship may, except as otherwise
provided by law, be brought only in the judicial district
where all plaintiffs or all defendants reside, or in which
the claim arose. (b) A civil action wherein jurisdiction is
not founded solely on diversity of citizenship may be
brought only in the judicial district where all the defend-
ants reside, or in which the claim arose, except as other-
wise provided by law. (c) A corporation may be sued in
any judicial district in which it is incorporated or licensed
to do business, and such judicial district shall be regarded
as the residene of such corporation for venur purposes.
10. D.C. ‘Long Arm” Provision, D.C. Code, § 13-423.
§ 13-423. Personal jurisdiction based upon conduct
(a) A District of Columbia court may exercise personal
jurisdiction over a person, who acts directly or by an
agent, as to a claim for relief arising from the person’s —
(1) transacting any business in the District of Col-
umbia;
(2) causing tortious injury in the District of Colum-
bia by an act or omission in the District of Columbia;
(4) causing tortious injury in the District of Colum-
bia by an act or omission outside the District of Colum-
bia if he regularly does or solicits business, engages in any
other persistent course of conduct, or derives substantial
revenue from goods used or consumed, or services ren-
dered, in the District of Columbia.
6
STATEMENT OF THE CASE
In Brief Outline the Undisputed Facts are as Follows:
1. A special Commission to study shipping to Puerto
Rico was set up by the Puerto Rican Senate on March 8,
1973. Shortly after that Mr. Teodoro Moscoso, a direc-
tor of PRPA and later a director of PRMSA, hired Mr.
Francis Kesterman, a shipping consultant in Washington,
D.C., to evaluate shipping proposals. He was assisted in
this selection by Mr. Mario Escudero, an attorney for
PRPA and later PRMSA, whose offices are located in
Washington, D.C. By December of 1973 the Governor
decided to create a shipping monopoly which would con-
trol all shipping to and from Puerto Rico. This decision
was kept secret and not revealed to the public until after
March, 1974.
2. On June 10, 1974, the Puerto Rico legislature pas-
sed Public Law 62 which authorized the formation of
PRMSA to exclusively operate shipping services to and
from the island as a commercial operation, domestic and
foreign. Most of these operations were to be outside the
territorial limits of the island and were to involve inter-
state commerce. During October, 1974, PRMSA ac-
quired the Puerto Rican services and equipment of Sea-
Land, Seatrain and TTT, comprising approximately 90%
of all the liner capacity of the Puerto Rico-mainland
trade, and has since operated these services as a shipping
monopoly. The new service of PRMSA eliminated all
direct liner service and restrained the trade to the ports of
Boston, Philadelphia and Mobile which ports still in
1980 have no direct liner service.
3. On January 4, 1973, Petitioners filed an application
before the U.S. Maritime Administration (Marad) for a
mortgage loan guarantee for a 500-unit trailer ship to be
7
used on a service to Puerto Rico. The application was
processed at first with complete cooperation of Marad
officials but sometime in April or May of 1973 the cli-
mate changed to that of an adversary action and there-
after Petitioners were beset with nurrerous conflicts and
demands. Finally, on March 13, 1974, Petitioners were
told by Marad that the application was denied.
4. Petitioners claim that a major reason for this denial
was the knowledge of Marad of the planned shipping
monopoly and that it has since been unable to raise cap-
ital because of the existence of a government-owned ship-
ping monopoly on this service.
5. On February 11 and 12, 1974, various representa-
tives of the Puerto Rico government, including Mr. Mos-
coso, met with representatives of Sea-Land, Seatrain and
TTT to discuss plans for a conspiracy by which the
Puerto Rican government would acquire these services
and operate them as a single unit with a management
company to be supplied by Sea-Land. It was noted that
Marad was aware of the proposal. Mr. Escudero was to
take action to forestall any legal threat to the monopoly
(Appendix D, p. 40a). At this meeting and in later
negotiations Mr. Malcolm McLean represented and acted
for Sea-Land, McLean Industries, Inc. and R.J. Reynolds
Industries, Inc. Later, other Respondents became in-
volved through agreements and other actions taken in
regard to the conspiracy and the acquisition of the Puerto
Rico services of the three private shipping lines.
6. Thereafter, various memoranda of agreement, con-
tracts for sale and transfer of equipment and facilities and
management contracts were prepared (most of this work
being done in offices within the District of Columbia).
8
These documents were signed in New York City, Philadel-
phia, the Bahamas, San Juan and other places. Most of
Mr. Kesterman’s work directed by Mr. Moscoso in 1973
and 1974 was done within the District of Columbia
where he lived and had his office. See Appendix E, p.
43a.
7. Respondents admit to the facts presented by Peti-
tioners and admit to the conspiracy and to the setting up
and operation of a shipping monopoly. The standing of
Petitioners to sue has not been challenged. The damage
to Petitioners has not been contested. The only defense
of Respondents is the alleged immunity of the Puerto
Rico legislature from antitrust laws in extraterritorial
actions and the immunity of PRMSA and PRPA and the
others who rely on that immunity. Venue has been chal-
lenged for McLean, Reynolds and GPRL and the choice
of forum selected by Petitioners for these parties has
been rejected. Petitioners have had no discovery or evi-
dentiary proceedings in the case but were forced to rely
on the pleadings including certain documents and testi-
mony obtained in an earlier action before the Federal
Maritime Commission.
REASONS FOR GRANTING THE WRIT
The issue here is a one-judge decision of a lower court
which says that Puerto Rico is a state, is immune from
the Sherman Antitrust Act and has the power to estab-
lish a shipping monopoly and engage in commercial activ-
ities beyond its territorial limits and to restrain and con-
trol trade between Puerto Rico and the states and foreign
countries. Both the lower court and the appellate court
ignored pleas of Petitioners that the Commerce Clause of
the Constitution applied and that the Puerto Rican legis-
lature did not have the authority to pass legislation in
9
interstate commerce or to restrain trade with the states
on the mainland.
The decision rests upon legal points unsupported by
case law and is in direct conflict with previous decisions
within the circuit, decisions of other circuits and with
decisions of the Supreme Court.
Petitioners were denied the benefits of appellate
review. The three-judge panel included a recently
appointed judge who was formerly an Assistant Attorney
General of the United States who had participated in the
pre-trial efforts below. Thereafter, the appellate court
felt this case of sufficient importance to solicit, sua
sponte, an amicus curtae brief from the United States.
The Attorney General (not the Solicitor General as
required by 28 C.F.R. §0.40) obliged by submitting a
brief supporting Respondents’ position and containing,
inter alia, fifty-five pages of entirely new material after
oral argument, which material was obtained only in col-
lusion with Respondents. This amicus curtae brief was
delayed nearly two months until this new material could
be supplied. Despite all this, the appellate court refused
to write an opinion on these important matters but
simply gave a ten-line per curiam decision sustaining the
trial court.
The decision being appealed from says that state and
territorial governments have immunity from the Sherman
Antitrust Act and presumably from other federal laws
when they set up monopolistic commercial operations.
Specifically, it says that the entire ocean-borne trade
from the mainland to Puerto Rico shall be carried by a
government owned monopoly to the exclusion of private
enterprise. As the government acting through PRPA con-
trols all the port facilities of the island it can and has pre-
10
vented competition in this service. Puerto Rico is the
largest off-shore maritime customer of the United States
mainland. The Maritime Administration projected in
1973 that the total cargo on the U.S./Puerto Rico trade
would reach 16 million tons in 1980 and 28 million tons
in 1990. Outgoing shipments to Puerto Rico from the
U.S. alone amounted to $4.3 billion in 1979 for nearly
six million short tons. The impact of efficient shipping
on the economy of Puerto Rico must be measured in
billions of dollars and thousands of jobs for the islands.
These jobs depend on efficient and dependable ocean
transport,
The decision below would permit any state to set up
its own shipping or transport monopoly. As most of the
states already control their ports the decision below can
be expected to lead to the formation of state-owned
trucking, railroad or even airline companies in order to
siphon more trade into their own ports. Such control
over transport by the state will bring back all the evils of
monopoly power to transport.
I.
EXTRATERRITORIAL IMMUNITY Of
STATE GOVERNMENTS UNDER PARKER v. BROWN
INVADES COMMERCIAL AREA.
That a state or territorial government can set up a ship-
ping monopoly beyond its boundaries and enter inter-
state and foreign trade to the detriment of other states is
contrary to the American system and up to now has
never been sustained by the courts or the law.
The decision of the lower court that PRMSA and
PRPA ‘‘are exempt from antitrust liability under the Par-
ker doctrine” is not supported by Parker and, in fact, is
specifically excluded from such support by the wording
1]
of the decision. Parker v. Brown, 317 U.S. 341, 63 S.Ct.
807, 87 L.Ed. 315, (issued in 1943) was very mindful of
Ohio v. Helvering, 292 U.S. 360, 54 S.Ct. 725, 78 L.Ed.
1307 (1934) which said at page 369: ‘When a state
enters the market place seeking customers it divests itself
of its guast sovereignty pro tanto, and takes on the char-
acter of a trader.’’ This statement was also cited as con-
trolling in Alfred Dunhill of London, Inc. v. Cuba, 425
U.S. 682, 696 (1976). Parker v. Brown, supra, at p. 352
specifically rejected any question of involvement of the
state with private interests or the operation by the state
of any activity which restrained trade. That Parker speci-
fically excluded immunity for a commercial operation
of the state was cited by Chief Justice Burger in his dis-
senting opinion in City of Lafayette v. Louisiana Power
& Light Co., 435 U.S. 389, 422 (1978) where he referred
to “a sovereign’s decision - as in Parker - to replace com-
petition with regulation.”
Respondents and the courts below base their entire
defense on a misconstrual of Parker v. Brown, supra, as
permitting a state government to displace competition
and set up a monopoly of its own commercial activities
including “extraterritorial coverage’’ involving interstate
commerce,
This is a misstatement of what Parker said. Parker said
that the Sherman Act was not intended to apply to a
state where no instrumentality of the state was involved
in a monopolistic action, where there was no element of
interstate commerce and where there was not the slight-
est suspicion that there was any violation of the Com-
merce Clause of the Constitution. One half of the entire
decision was taken up with this last point.
12
The normal assignment of sovereignty matters within
the state of California as delineated in Parker was dis-
torted and misconstrued by the lower court decision in
order to support the creation of a Commonwealth-owned
shipping monopoly which has restrained trade with the
U.S. mainland. This is the very type of rapacious action
of one state by another which the Commerce Clause was
designed to prevent. That the immunity of a state or ter-
ritory extends beyond its territorial boundaries even
when engaged in a shipping monopoly which restrains
interstate commerce between certain ports is a novel and
unique concept offered without any case support and in
direct conflict with a solid array of Supreme Court deci-
sions. Such a decision should be reviewed by this Court.
II.
THE LOWER COURT PRESUMES TO GRANT POWERS
TO THE PUERTO RICO LEGISLATURE WHICH HAVE
NOT BEEN GRANTED TO IT BY CONGRESS.
The decision of the lower court grants to the Puerto
Rico legislature the power to legislate in other than local
matters and to legislate in interstate commerce and to
interfere with trade between the states. These things are
beyond the powers granted by Congress to the legislature
of Puerto Rico and constitute a usurpation by the court
of powers reserved by the Constitution to Congress.
The Legislature of Puerto Rico has the authority only
to pass those laws authorized by Congress in the 2nd
Organic Act of 1950, specifically as set forth in 48 U.S.C,
§821. Caceres v. San Juan Barge Co., 387 F.Supp. 221
(D.C.P.R. 1974), aff'd. 520 F.2d 305. The authority is
limited to the territorial boundaries of the island and its
adjacent waters. Huckins v. Board of Regents, supra.
That the territorial limits of the island were the limits of
power of the Puerto Rican legislature was stated by the
13
2nd Circuit in Williams v. McAllister Bros, Inc., 534 F.2d
19 (1976). Even within Puerto Rico the courts have
maintained that Puerto Rico is not authorized to sup-
plant maritime law. Santiago v. Hermanos, 255 F.Supp.
932 (D.C.P.R. 1966).
The lower court decision would grant to Puerto Rico
greater powers than those enjoyed by any state in the
Union. It is in direct conflict with the decisions of other
circuits as well as the powers granted to the legislature of
Puerto Rico which only Congress can grant.
III,
CONTROL OF INTERSTATE COMMERCE AND
RESTRAINT OF TRADE BY A STATE
VIOLATES THE COMMERCE CLAUSE.
When a state or territory invades the area of interstate
commerce or restrains trade it violates the inherent rights
of other states to engage freely in interstate commerce as
guaranteed by the Commerce Clause of the Constitution.
In Reeves, Inc. v. Stake, __ U.S. —__, 100 S.Ct. __, 65
L.Ed.2d 244, 252 (1980), the Court said:
“We granted Reeves’ petition for certiorari to con-
sider once again the impact of the Commerce Clause
on state proprietary activity.”
The same issue and the same danger is involved here.
Reeves v. Kelly, 99 S.Ct. 2155, was remanded on the
basis of Hughes v. Oklahoma, 441 U.S. 322, 99 S.Ct.
1727, 60 L.Ed.2d 250 (1979) where the Court at 99
S.Ct. 1731 pointed out the danger of any “Balkaniza-
tion” of the Union.
Puerto Rico Public Law No. 62 (1974) established a
Puerto Rican government-owned shipping company to
handle trade exclusively between Puerto Rico and the
other states. The first thing done was to eliminate direct
service for liner cargo to Boston, Philadelphia and Mobile.
14
It then reduced the container capacity on the other
routes. By collusion of PRPA and PRMSA Seatrain was
prevented from re-entering the Puerto Rico’ trade in
1976. PRPA v. F.M.C., C.A.D.C. No. 78-1950, June 19,
LOGO, encase Ue AQ. TD Abe ceccce 4 mame WE meta’
Parker said specifically that a state could violate the
Sherman Act if it became ‘“‘a participant in a private
agreement or combination by others in the restraint of
trade.”” 317 U.S. at 352. The acts of the respondents
of this case constitute such a violation, regardless of
whether or not PRMSA and PRPA are “arms of the gov-
ernment”’ or mere instrumentalities without immunity.
Parker v. Brown itself said that states remained under
the stricture of the Commerce Clause and emphasized
that the State of California had acted in a matter which
did not involve interstate commerce and was not viola-
tive in any way of the Commerce Clause of the Constitu-
tion. Petitioners properly raised the issue before the
lower court but were ignored. The issue was also ignored
by the appellate court. Does the Commerce Clause per-
mit the operation of a state-owned monopoly in inter-
state commerce in violation of federal law? Now only
the Supreme Court can prevent that.
IV.
EXTENSION OF IMMUNITY BEYOND THE
BOUNDARIES OF A STATE IS IN CONFLICT
WITH COURT DECISIONS.
The decision of the lower court brushes off any limi-
(ation to the sovereign immunity of a state simply
because the action and operation is ‘extraterritorial.’
Petitioners aver that the lower court decision is directly
in opposition to Nevada v. Hall, 440 U.S. 410, 99 S.Ct,
1182, affirming a California decision (141 Cal. R. 441
15
(1977)) which said that “‘state sovereignty ends at the
state boundary.’’ Puerto Rico has no sovereignty and no
immunity from any federal law beyond its territorial
limits.
V.
THE RULING OF THE COURT BELOW THAT
PUERTO RICO IS A STATE IS CONTRARY TO
RULINGS OF THE SUPREME COURT.
Much legal confusion will result from the decision
which says that Puerto Rico is a state. The decision of
the lower court says that Puerto Rico is a state “for pur-
poses of applying the Parker doctrine.’’ The only case
cited in support of this new concept was /nternational
Tel. & Tel. Corp. v. General Tel. & Elec. Corp., 351
F.Supp. 1153, 1229 (D. Hawaii 1972), mod. on other
grounds, 518 F.2d 913 (9th Cir. 1975), which said only
that “It is properly inferrable . . . that the Common-
wealth of Puerto Rico is entitled to as much respect for
its soversignty as was the state of California in Parker v.
Brown.”’ In order to clarify this statement the ITT Court
said further at p. 1230: “‘There is no question that, as a
general proposition, the federal antitrust laws are applica-
ble in Puerto Rico. . .”
In any case, the Supreme Court ruled on May 27,
1980, that Puerto Rico is a territory and that Congress
“may treat Puerto Rico differently from States so long as
there is a rational basis for its actions.”” Harris v. Rosarto,
Se PN cee OIDs cee 9 eee Sts , ——— LB. 20
___.. Therefore, the decision of the lower court, based as
it is on the ruling that Puerto Rico is a state, should be
struck down.
16
Vi.
THE COURT HAS CONSISTENTLY REJECTED
IMMUNITY FROM FEDERAL LAW
WHEN A STATE ENGAGES IN COMMERCE,
The lower court was clearly wrong when it granted
immunity to a territorial government in a strictly com-
mercial operation. The decision cannot stand in the face
of Ohio v. Helvering, supra., which was restated in 1976
in Alfred Dunhill of London v. Cuba, supra. To permit a
monopoly of the Commonwealth government in a com-
mercial shipping enterprise is not only a serious blow to
American shipping but could be the genesis of the Bal-
kanization of the States of the Union.
Even where a recognized instrumentality of the state,
ordinarily retaining the immunity of the state, engages in
interstate commerce or navigable waters, it loses its
immunity from federal law. Huckins v. Board of Reg-
ents, 263 F.Supp. 622, 623 (Mich. 1967) which relied on
Parden v. Terminal Railway of Alabama State Docks
Dept., 377 U.S. 184, 84 S.Ct. 1207, 12 L.Ed.2d 233
(1964). In Cocherl v. State of Alaska, 246 F.Supp. 328
(D. Alaska 1965) the operation by the State of Alaska of
a vessel as a common carrier in interstate commerce on
navigable waters of the United States was ruled to con-
stitute a waiver of its sovereign immunity and to subject
it to federal laws. This decision was controlled by Par-
den, supra and Petty v. Tenn.-Mo. Bridge Commission,
359 U.S. 275, 79 S.Ct. 785, 3 L.Ed.2d 804 (1958).
How can a lower court decision be allowed to stand
without any case support whatsoever in such blatant con-
flict with decisions from other circuits, all of which are
based upon decisions of the Supreme Court?
17
VII.
THAT PUERTO RICO MARITIME SHIPPING
AUTHORITY AND PUERTO RICO PORTS AUTHORITY
HAVE IMMUNITY IS CONTRARY TO ALL CASE LAW.
The lower court decision says that the Puerto Rico
Maritime Shipping Authority (PRMSA) and the Puerto
Rico Ports Authority (PRPA) are agencies of the Com-
monwealth of Puerto Rico and are not subject to anti-
trust laws. Such an opinion is not supported by any
case law and is contrary to what all previous decisions,
most of them in federal courts in Puerto Rico, have said.
The decision is contrary to the criteria set forth in Cancel
v. San Juan Construction Co., 387 F.Supp. 916 (D.P.R.
1974). These two government-owned corporations have
their own sources of income from fees and rates charged
for services and the Puerto Rican government is properly
insulated from their losses.
Federal courts of Puerto Rico and the 2nd Circuit
have ruled that PRPA is a public corporation, is subject
to suit and federal laws and has no sovereign immunity.
Can. Transport Co. v. PRPA, 333 F.Supp. 1295 (D.C.P.R.
1971); Krisel v. Duran, 258 F.Supp. 845, 853 (S.D.N.Y.
1966); PRMMI v. Int'l L. Ass'n., AFL-CIO, 398 F.Supp.
118 (D.C.P.R. 1975). In the 2nd Circuit, the Court
ruled in Star Lines, Ltd. v. PRMSA, 442 F.Supp. 1201,
1207 (S.D.N.Y. 1978) that PRMSA is subject to an anti-
trust suit in the State of New York. Later, in a confirm-
ing action in the same matter, Star Lines, Ltd. v. PRMSA,
451 F.Supp. 157 (S.D.N.Y. 1978) said that PRMSA has
no immunity from liability under the federal antitrust
laws.
Other case law should be respected and the decision
should be reversed to bring it into line with the other
decisions. Assuming, arguendo, that the Puerto Rico
18
legislature had the power to impose a shipping monopoly
on other states, the instruments used for this purpose
would have to have immunity, otherwise the immunity
of the sovereign could not be claimed. The government
of Puerto Rico is not a party to this suit. Immunity is
claimed through two government-owned corporations
whose immunity has already been denied in all cases
where this has been considered.
Vill,
SERIOUS DEPARTURES FROM THE USUAL COURSE
OF PROCEEDINGS IN THE FEDERAL COURTS
REQUIRE THE ATTENTION OF THE SUPREME COURT.
Petitioners aver that there have been improper influ-
ences of the Department of Justice exerted on this case
in the lower court and in the Court of Appeals which
have prevented an objective application of the law and
court decisions to the issues of this case.
Petitioners are prepared to show in brief that there has
been a cohesion of interest between the Respondents and
the Department of Justice with a consistent pattern of
support for this monopoly since 1974 over and beyond
the limits permitted by the Code of Federal Regulations.
Petitioners can show that the judge in the lower court
gave serious weight in his decision (at p. 4) to the fact
that ‘“‘the Antitrust Division granted favorable clearance
on July 22, 1974.” Having thus been assured that
approval had been given to the project by the United
States government even though it was identified as giving
“PRMSA control over ninety percent of the then-existing
ocean shipping services,”’ the judge then proceeded to jus-
itify this decision by assertions which were not supported
by any case law and, in fact, were violative or contradic-
tory of all court decisions pertinent to this area.
19
The error of the judge was compounded by the fact
that the Business Review Letter on which he relied was
issued to the Commonwealth of Puerto Rico which,
according to 28 C.F.R. 50.6, 44, cannot apply to any
party not on the original application. The Common-
wealth government is not a party to this suit. Therefore,
there is no legal basis for basing the lower court decision
on this Letter which does not apply to any of the respon-
dents of this case. Petitioners are justified in asking for a
reversal of the entire decision on this one point alone.
Petitioners can show that a judge of their appellate
panel was an immediate past Assistant Attorney General
and in that capacity had been involved with a previous
complaint of Petitioners and did not recuse herself from
the case. That complaint was directed against the U.S.
Maritime Administration which is under the Secretary of
Commerce who was at that time a director of one of the
Respondents. Shortly after her appointment to the panel
the Court issued, sua sponte, an order bringing in the
United States Government as an amicus curiae. The
Attorney General, not the Solicitor General as required
by 28 C.F.R. §0.40, did not defend federal law but pre-
sented legal conclusions diametrically opposed to ear-
lier briefs of the Solicitor General, i.e. the Attorney Gen-
eral maintained that Puerto Rico is a territory. See Soli-
citor General’s brief in Harris v. Rosario, supra. Two
days after the filing of a reply by Petitioners the Court
issued a per curiam decision with no opinion and no
memorandum.
Where constitutional issues have been raised and there
is such a conflict with previous court decisions the per
curiam decision becomes a mechanism which permits the
Court to conceal any departure from the usual course
20
of proceedings and Petitioners submit that there have
been such departures.
IX.
COURT DECISIONS SUPPORTING CONSPIRACY
THEORY WERE IGNORED AND DISREGARDED.
The lower court decision ignored and rejected the
established rule of its own circuit that all members of a
conspiracy are bound for venue where a substantial part
of the work of the conspiracy took place within the
forum district. Mandelkorn v. Patrick, 359 F.Supp. 692
(D.C. 1973) and Berlin Demo. Club v. Rumsfeld, 410
F.Supp. 144 (D.C.D.C. 1976).
Since then, this conspiracy theory has become the
accepted rule for venue in other circuits. See California
Clippers, Inc. v. U.S.S.F. Associates, 314 F.Supp. 1057,
1067. In the 4th Circuit the Court said: ‘“‘When indivi-
duals join in a conspiracy the acts of one conspirator are
attributable to each co-conspirator.” McLaughlin v.
Copeland, 435 F.Supp. 513 (D. Md. 1977). See also
Gemini Enterprises, Inc. v. WFMY, Tel. Corp., 470
F.Supp. 559, 564 (M.D.N.C. 1979).
Ladner v. U.S., 168 F.2d 771 (5th Cir. 1948) stated
that “venue in the prosecution may be laid in any dis-
trict in which any act in furtherance thereof was com-
mitted by any of the conspirators,” and relied on Hyde
v. U.S., 225 U.S. 347, 32 S.Ct. 793, 56 L.Ed. 1114
(1912). U.S. v. Snead, 527 F.2d 590 (1975) of the 4th
Circuit also said the same thing and also relied on Hyde,
supra.
Where a not insubstantial part of the work of the con-
spiracy was performed in the forum district the decision
not to grant venue on this basis was without support of
21
other cases and contrary to case law as observed in this
and other circuits.
X.
PETITIONERS WERE DENIED BENEFIT OF
SECTION 1391(b) IN ESTABLISHING
VENUE WHERE CLAIM AROSE.
The lower court decision cites Redmond v. Atlantic
Coast Football League, 359 F.Supp. 666, 672, S.D. Ind.,
aff'd. mem., 478 F.2d 1405 (7th Cir. 1973) but ignores
the part of Redmond, supra, at p. 672 which says that
venue will lie in any district where there are overt acts
constituting a significant and substantial element of the
offenses charged.
The lower court decision is contrary to the provisions
of Section 1391(b) which allow venue in the district
where the claim arose.
XI.
PETITIONERS WERE DENIED THEIR CHOICE OF
_ FORUM DISTRICT IN A DIVERSITY CASE.
The lower court decision denies venue for Reynolds,
McLean and GPRL, admits unquestioned venue for Sea-
Land and leaves the question of venue for the others
undisturbed. This is the sort of situation which Section
1391(b) sought to prevent.
This rule on venue in the District of Columbia Circuit
was set by Lamont v. Haig, 192 U.S. App. D.C. 8, 590
F.2d 1124, 1134 (D.C. Cir. 1978) which assured the
existence of at least one forum where multiparty litiga-
tion was involved. The decision (App. A, p. 16a) admit-
ted that some acts and contacts took place within the
forum district and said only that state action exemption
would preclude liability for the other defendants.
22
This denial of venue was contrary to the two court
decisions in Star Lines, Ltd. v. PRMSA, supra. In those
decisions the court refused to disturb the forum selected
by the plaintiff. The matter of venue is not a discretion-
ary decision of the trial court but is based on federal
statutes and substantive law.
That the lower court’s decision is a legal aberration
and should be eradicated is shown by the later decision
of Thornwell v. U.S., 471 F.Supp. 344 (1979) in the Dis-
trict of Columbia Circuit which upheld venue in similar
circumstances. Where events having “operative signifi-
cance in the case’’ occur within the forum district venue
will be allowed. Thornwell, supra, also relied on Conley
v. Gibson, 355 U.S. 41-46, 78 S.Ct. 99, 2 L.Ed.2d 80
(1957). This view has also been supported in Allis-
Chalmers Corp. v. Friedkin, 481 F.Supp. 1256, 1265
fn. (M.D. Pa. 1980); Gold Eagle Co. v. Li, 486 F.Supp.
201 (N.D. Ill. 1980); and Florida Nursing Home Ass'n.
v. Page, 616 F.2d 1355 (5th Cir. 1980).
That the forum district selected by plaintiffs should
not be disturbed was stated in Lamont v. Haig, supra,
by Chief Judge Bazelon who was also one of the three
judges on Petitioners’ Appellate Panel. It is thus all the
more inexplicable why the appellate court would reverse
itself on a major issue by indirection in refusing to render
a written opinion either vindicating or supporting its pre-
vious decision in Lamont.
XII.
PETITIONERS WERE DENIED BENEFIT OF “LONG ARM”
PROVISIONS OF DISTRICT OF COLUMBIA CODE
§ 13-423 AS HOLDING RESPONDENTS FOR VENUE.
The lower court decision denies venue for Reynolds,
McLean and GPRL on the basis that no control is shown
over Sea-Land (where venue is unquestioned), says that
23
overt action within the forum district was not shown and
denied that this district was the place of injury for plain-
tiffs. To reach this decision the Court had to reject the
allegations of plaintiffs before any discovery had been
allowed which denied plaintiffs the safeguards in this
respect assured to them by Conley v. Gibson, supra.
The decision also conflicted with American Mail Lines,
Ltd. v. F.M.C., 164 U.S. App. D.C. 66, 503 F.2d 157,
166 (C.A.D.C. 1974), cert. den. 419 U.S. 1070, which
said that R.J. Reynolds ‘possessed . . . extensive power
to control USL and Sea-Land .. .’’.. Tortious injury was
caused Petitioners by Reynolds and McLean both by Sea-
Land as agents and directly by Mr. Malcolm McLean in
his direction of the work of the conspiracy done in Wash-
ington, D.C.,, i.e., the preparation of the agreements and
legal documents. The injury caused by the rejection of
their loan application by the Maritime Administration
also occurred within the District of Columbia thus estab-
lishing venue for all Respondents under § 13-423.
CONCLUSION
The issues of this case are far more important than the
case itself. Is there no legal protection against a state or
territorial government that decides to monopolize trans-
port between it and other states on a unilateral basis and
deprive those states of direct ocean services? Does the
Commerce Clause of the Constitution protect other states
from such rapacious acts? Can a state government oper-
ate in commerce completely immune to federal law?
Does Puerto Rico have powers to legislate other than
those granted by Congress under the Constitution?
24
Specifically it is the people of the Commonwealth
of Puerto Rico who need protection from the evils of a
monopolistic shipping operation which needs $500 mil-
lion worth of new ships to be provided by the public
debt of the Commonwealth. No private shipping com-
pany can enter the service in competition with the gov-
ernment and thus provide the capital for these ships that
is needed. Thus, one of the United States’ largest off-
shore customers is denied the benefits of private shipping
and new enterprise. The impact on the Puerto Rico
economy is obvious.
Petitioners have been denied access to the Puerto Rico
trade since 1973. Failure to reverse this decision will per-
manently stop Petitioners — and all other potential com-
petitors — from entering the service. It will be another
blow to efforts to strengthen private shipping in the face
of local governmental policy to invade the commercial
area.
The effects will not be limited to shipping alone. Per-
haps the greatest immediate danger of this decision will
be to truck lines, railroads and even air lines as these
areas offer the greatest temptation especially to the states
already having state-controlled port areas.
Because of the critical importance of the constitutional
issues involved, to say nothing of the multi-billion dollar
transportation industry which is so vitally affected, the
decision of the court below should not be allowed to
stand.
25
For the reasons set forth above, it is respectfully sub-
mitted that this Petition for Writ of Certiorari should be
granted and that summary reversal should issue.
Respectfully submitted,
CLAIRE O, DUCKER, SR.
416 - 10th Street, N.W.
Washington, D.C. 20004
(202) 347-0200
Attorney for Petitioners.
November 25, 1980
APPENDIX
la
APPENDIX A
ORDER AND MEMORANDUM OF
THE DISTRICT COURT
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
Civil Action No. 78-1435
CARIBE TRAILER SYSTEMS, INC.
and JOHN R. IMMER,
Plaintiffs,
Vv.
PUERTO RICO MARITIME SHIPPING
AUTHORITY, et al.,
Defendants.
ORDER
Upon consideration of defendant’s motion to dismiss
and for summary judgment, the memorandum in support
thereof, the opposition thereto, the arguments of counsel,
and the entire record in this case, it is by the Court this
19th day of April, 1979,
ORDERED that the motion of defendants R. J.
Reynolds Industries, Inc., McLean Industries, Inc., and G
Gulf-Puerto Rico Lines, Inc., to dismiss the complaint
for lack of subject matter jurisdiction be, and hereby, is
granted; and it is further
ORDERED that the motions of defendants Puerto
Rico Maritime Shipping Authority, Puerto Rico Ports
Authority, Transamerica Trailer Transport, Inc., Puerto
Rico Marine Managaement, Inc., T.K.M. Corporation,
2a
Sea-Land Services, Inc., American Union Transport, Inc.,
Trans Ocean Transportation Executive Management, Inc.,
and Sun Shipbuilding & Dry Dock Co. for summary
judgment be and hereby are granted.
/s/ Oliver Gasch
Judge
3a
MEMORANDUM
This is an action to recover treble damages for alleged
violations of sections 1, 2, and 3, of the Sherman Anti-
trust Act.’ The basis of the complaint is an alleged con-
spiracy by twelve private and governmental entities to
create a monopoly in ocean transportation between the
East Coast and Gulf ports of the United States and the
ports of Puerto Rico, Presently before the Court are the
motions of ten defendants to dismiss the complaint on
grounds of improper venue and lack of personal jurisdic-
tion, and the motions of nine defendants for summary
judgment on the ground that their conduct is immunized
from antitrust liability under the state action doctrine
recognized in Parker v. Brown, 317 U.S. 341 (1943). For
For the reasons discussed below, the Court concludes
that defendants’ motions should be granted.
FACTUAL BACKGROUND
Plaintiff Caribe Trailer Systems, Inc., (“‘Caribe’’) is a
Puerto Rico corporation with its principal place of
business in Washington, D.C. John R. Immer is the prin-
cipal owner and chairman of the board of Caribe. Caribe
was organized for the purpose of engaging in ocean trans-
portation between East Coast and Gulf ports of the
continental United States and the ports of Puerto Rico,
but its activities never became operational. Plaintiffs
contend that because of defendant’s alleged antitrust
violations, plaintiffs were unable to obtain financing to
commence their operations and therefore were prevented
from competing in the Puerto Rico trade. They seck a
'15 U.S.C. §§ 1-3 (1976).
4a
permanent injunction against defendants’ activities as
well as treble damages, costs, and attorneys fees.
Each defendant named in this lawsuit had some
involvement in the creation or operation of the Puerto
Rico Maritime Shipping Authority (‘SPRMSA”’), a
government agency organized by the Commonwealth of
Puerto Rico in 1974 to operate Puerto Rico’s maritime
transportation system. Because of its small size, insular
postion, and limited natural resources, Puerto Rico has
difficulty in maintaining a self-sufficient economy and
is dependent on external trade for economic and social
development, Ocean transportation carries more than
ninety-eight percent of its external trade and as a result,
ocean freight costs exert a potentially disruptive influ-
ence over all aspects of Puerto Rico’s economy. Trade
between East Coast and Gulf ports represents the major
avenue of traffic between Puerto Rico and the mainland
United States and accounts for approximately eighty-five
percent of all dry cargo transported and over seventy
percent of Puerto Rico’s total external trade.
Because of the island’s dependence on ocean trans-
port, the Governor of Puerto Rico in 1973 established a
commission to determine whether the Commonwealth
should take steps to acquire the vessels then employed by
commercial steamship companies in the Puerto Rico
trade, This acquisition was intended to assure the availi-
bility of vessels and to maintain price stability with
respect ot transportation costs. Following negotiations
with the three major carriers, the commission proposed
legislation that would establish a nonstock public corpor-
ation to own or lease the vessels and equipment necessary
to conduct the Mainland-Puerto Rico tade. On June 10,
1974, the Commonwealth legislation enacted this pro-
posal as Act 62 and created the Puerto Rico Maritime
5a
Shipping Authority as a governmental instrumentality to
operate Puerto Rico’s maritime transportation system?
PRMSA, which is incorporated in Puerto Rico,
consists of a governing board of seven members, all of
whom are residents of Puerto Rico, appointed by the
Governor with the advice and consent of the Puerto Rico
Senate. Its operations are exempt from taxation and from
all fees required for the prosecution of judicial proceedings.
The Statement of Motives contained in Act 62 expresses
the intent of the Puerto Rico legislature that PRMSA
acquire and operate shipping lines and terminal facilities
as a public service, and, in doing so, that it not be subject
to the antitrust laws or any other limitations that would
hinder its legislative goal.
Following its organization, PRMSA acquired the rights
to eleven ships and to various maritime transportation
facilities from the three major carriers that served the
Puerto Rico trade: Seatrain, Inc. and defendants
Sea-Land Service, Inc. (‘‘Sea-Land”’), and Transamerican
Trailer Transport, Inc. (“TTT’’). The acquisition of these
assets occurred in the following manner. Defendant
American Union Transport, Inc., (“AUT’’), a 63.3%
shareholder in TTT, and defendant Sun Shipbuilding &
Dry Dock Co. (“Sun Ship”), a 30% shareholder, directly
conveyed their interests in TTT to PRMSA. TTT has
since become a dormant corporation because PRMSA
2Act of Puerto Rico Maritime Shipping Authority, Act No.
62 (June 10, 1974), see Exh. A in Appendix to Puerto Rico
Defendants’ Motion to Dismiss the Complaint.
3Id. See also Affidavit of Roberto Jugo D’Acosta in support
of Puerto Rico Defendants’ Motion to Dismiss the Complaint, at
q2.
4Seatrain is not named as a defendant to this action.
6a
operates its assets under PRMSA’s own name and its
officers and directors are the same as PRMSA’s.
The vessels owned by Sea-Land were transferred
through a similar transaction. Sea-Land and Gulf-Puerto
Rico Lines (““GPRL’’) are both wholly owned subsidiaries
of defendant McLean Industries, Inc. (‘McLean”’).
McLean is a holding company which in turn is wholly
owned by defendant R.J. Reynolds Industries (“‘Rey-
nolds”). McLean and Reynolds conveyed their interests
in Sea-Land to PRMSA.
Before these transfers were effected, the Common-
wealth of Puerto Rico sought a business review letter
from the Antitrust Division of the Department of Justice
with respect to PRMSA and the proposed acquisition.®
Although the acquisition would give PRMSA control over
ninety percent of then-existing ocean shipping services,
the Antitrust Division granted favorable clearance on July
22, 1974.°
PRMSA has an ongoing contactual relationship with
defendant Puerto Rico Marine Management, Inc.
(““PRMMI’’), a Delaware corporation that provides opera-
tional direction for PRMSA’s vessels and is responsible for
manning, husbanding, docking, loading and unloading,
and booking and soliciting cargo. PRMMI is paid a
management fee for these services. PRMMI was organized
in 1974 as a wholly owned subsidiary of McLean. On
January 15, 1976, McLean entered into a stock purchase
SMotion of Defendant Sun Shipbuilding & Dry Dock Co. to
Dismiss Complaint, Exh. B.
S7., Exh. C, Letter of Thomas E. Kauper, Assistant Attor-
ney General, Antitrust Division, Department of Justice.
7a
agreement with defendant TKM Corporation (TKM)
under which TKM acquired all the sotck of PRMMI.
Defendant Trans Ocean Transportation Executive Manage-
ment, Inc. (““TOTEM”’’) also has managed cargo vessels on
behalf of PRMSA.
The final defendant named in this action is the Puerto
Rico Ports Authority (“PRPA”’), an agency of the Puerto
Rico government with broad responsibility for maritime
matters.’ One of the major functions of the PRPA is to
supervise the port of San Juan, the second largest con-
tainership port in the world, by assigning vessels to
suitable berths, entering into terminal leases with steam-
ship operators, and.managing dock facilities. A director
of PRPA headed the commission that recommended
creation of PRMSA.
On March 13, 1978, plaintiffs instituted the present
lawsuit, charging each of the twelve defendants with
conspiracy, monopoly, and restraint of trade in violation
of sections 1, 2, and 3 of the Sherman Antitrust Act, 15
U.S.C. §1-3. Specifically, plaintiffs allege that defen-
dants secretly discussed and determined that maritime
transportation between Puerto Rico and the mainland
should be operated as a monopoly and devised a plan for
achieving this goal, which included formation of PRMSA.°
7PRPA was created by an act of the Puerto Rico Legislature
on May 7, 1942. P.R. Laws Ann. tit. 23, §§331 et seq. (1955).
Its purpose, as set out in its enabling statute, is “. . . to develop
and improve, own, operate, and manage any and all types of
transportation facilities and air and maritime services in, to, and
from the Commonwealth of Puerto Rico....”’ Jd. §336.
8see More Definite Statement of Paragraph 22 of Plain-
tiffs’ Complaint.
8a
Presently before the Court are motions to dismiss for
improper venue and lack of personal jurisdiction filed by
defendants, Reynolds, McLean, GPRL, PRMSA, PRPA,
TTT, PRMMI, TKM, AUT, and TOTEM. All defendants
with exception of Reynolds, McLean, and GPRL have
joined in a motion to dismiss, or in the alternative for
summary judgment?” originally filed by PRMSA, PRPA,
and TTT (the ‘Puerto Rico defendants’’). The govern-
mental entities seek dismissal on the ground that their
actions were immune from liability for antitrust viola-
tions under the Parker doctrine. The private defendants
have moved to dismiss on the ground that their actions
were compelled by the Commonwealth of Puerto Rico
and therefore also exempt from liability under Parker.
VENUE
Although this complaint alleges that the defendants
have engaged in a “combination and conspiracy” in viola-
tion of the Sherman Act, plaintiffs must establish venue
as to each defendant separately. 15 Wright, Miller &
Cooper, Federal Practice & Procedure § 3818, at 116
(1969); see Philadelphia Housing Authority v. American
Radiator & Standard Sanitary Corp., 291 F. Supp. 252,
262, (C.D. Pa. 1968). In the present case, plaintiffs
attempt to establish venue in the District of Columbia on
the alternative grounds that defendants transacted
business in this district and that the cause of action arose
in this district.
* Because the motions to dismiss are supported by affidavits
and other exhibits, the Court will treat them as motions for sum-
mary judgment under Fed. R. Civ. P. 56.
9a
Venue over corporate defendants in antitrust actions
may be established under the special antitrust venue
provisions contained in sections 4 and 12 of the Clayton
Act!® or under the general federal venue provisions."!
Each of the moving defendants claims that none of the
bases for venue contained in these statutes are satisfied in
the present case.
Section 4 provides for venue in any district in which
the defendant resides, is found, or has an agent. A
corporation resides in a district only if it is incorporated
or licensed to do business in that state, or has its principal
place of business there. 14 Von Kalinowski, Antitrust
Laws and Trade Reg. § 104.04[4] (1978). The affadavits
submitted by the moving defendants in support of their
motions to dismiss establish that none of these defen-
dants are incorporated or licensed to do business in the
District of Columbia, nor do they directly conduct busi-
ness or have their principal place of business here.
Section 12 permits venue in any district in which a
corporation is an inhabitant, may be found, or transacts
business. A corporation is said to be an inhabitant of the
state of its incorporation. Aro Mfg. Co. v. Automobile
Body Research Corp., 352 F.2d 400, 404 (ist Cir. 1965),
cert denied, 383 U.S. 947 (1966). A corporation is found
where it has “presence and continuous local activities
within the district.’”’ Fox-Keller, Inc. v. Toyota Motor
Sales, U.S.A., Inc., 338 F. Supp. 812, 815 (E.D. Pa. 1972).
The moving defendants do not satisfy either of these
requirements.
1015 U.S.C. §§ 15, 22 (1976).
1198 U.S.C. §1391 (1976).
10a
Section 12 also permits a corporation to be sued in any
district in which it “‘tranacts business.”’ This standard was
enacted to enlarge the jurisdiction of the federal courts
with respect to venue by substituting "practical business
considerations for the previous hair-splitting legal tech-
nicalities encrusted on the ‘found - ‘present’ - carrying-
on-business’ sequence . . . ”’ United States v. Scophony
Corp., 333 U.S. 795, 808 (1948). “‘Transacting business”
for the purpose of section 12 has a meaning independent
of definitions which courts have given the same phrase in
construing other statutes. The test is whether the corpor-
ation is doing business in the district of any substantial
character, even if its business is entirely interstate in
character and is transacted by agents who do not reside
within the district. Jd. at 807; Eastman Kodak Co. v.
Southern Photo Materials Co., 273 U.S. 359, 372-73
(1927).
Whether a defendant had transacted business is largely
a factual question to be determined in each case. In
making this determination, courts look for tangible
manifestations of doing business.'? Such manifestations
are absent here. None of the moving parties has officers,
employees, or agents within the district.!> None has
12g. Brandt v. Renfield Importers, Ltd., 278 F.2d 904,
909-11 (8th Cir.), cert. denied, 364 U.S. 911 (1960) (being sub-
ject to state regulation, licensing, or taxes constitutes doing busi-
ness); Frey & Son v. Cudahy Packing Co., 228 F. 209, 212-13
(D. Md. 1915) (maintaining tangible property within the state,
such as real estate, inventory, bank accounts, or corporate records
constitutes doing business); Magnetic Eng’r & Mfg. Co. v. Dings
Magnetic Separator Co., 86 F. Supp. 13, 16 (S.D.N.Y. 1949),
modified, 178 F.2d 866 (2d Cir. 1950) (employing persons within
the district constitutes doing business).
13 Plaintiffs argue that various defendants retained economic
and marine consultants, attorneys, and law firms in Washington,
[footnote continued]
lla
offices or owns property here, nor do they maintain
corporate records, telephones, telephone listings, or bank
accounts, Plaintiffs’ complaint does not suggest any other
activity of a similar nature that might bring defendants
within the transacting business standard.
Some courts have held that a corporation may be
found to be transacting business for venue purposes in
the district in which coconspirators were found and
where the conspiracy had its impact.'* In Giusti v.
Pyrotechnic Industries, Inc.,!*° the United States Court of
Appeals for the Ninth Circuit held that because all
conspirators are agents for each other, the presence of
one defendant in a district can subject his coconspirators
to suit in that district as their agent. This theory, however,
has been rejected by other courts'® and this Court
who assisted in the creation of PRMSA. The Court concludes that
these independent contractors were not employees or agents for
venue purposes and contracting for legal and economic consulta-
tion services does not constitute ‘‘transacting business” in a juris-
diction. Control Data Corp. v. Carolina Power & Light Co., 274
F. Supp. 336 (S.D.N.Y. 1967) (North Carolina corporation’s
engaging engineering and technical consultants in New York, nego-
tiating with investment houses, and retaining legal counsel did not
constitute ‘‘doing business”’).
*Zz., Ross-Bart Port Theatre v. Eagle Lion Films, Inc., 140
F. Supp. 401, 402 (E.D. Va. 1954); DeGolia v. Twentiety Century-
Fox Film Corp., 140 F. Supp. 316, 318 (N.D. Cal. 1953); Don
George Inc. v. Paramount Pictures, Inc., 111 F. Supp. 458, 462
(W.D. La. 1951), mod. on other grounds, 145 F. Supp. 523 (W.D.
La. 1956).
15156 F.2d 351, 354 (9th Cir.), cert. denied, 356 U.S. 936
(1958).
1Or g., Bertha Bldg. Corp. v. National Theatres Corp., 248
F.2d 833, 836 (2d Cir. 1957), cert. denied, 356 U.S. 936 (1958);
Redmond v. Atlantic Coast Football League, 359 F. Supp. 666,
672 (S.D. Ind.), aff'd mem., 478 F.2d 1405 (7th Cir. 1973);
[footnote continued]
12a
concludes that its application here would be contrary to
the principle that venue must be established for each
defendant separately. See 15 Wright, Miller & Cooper,
Federal Practice and Procedure § 3818.
With respect to defendants Reynolds, McLean, and
GPRL, plaintiffs do not contend that these entities
directly transact business in this district but instead argue
that venue is properly laid against them here because of
their relationship with defendant Sea-Land. There is no
dispute that venue exists in the District of Columbia for
Sea-Land because it is licensed to do business here.
Sea-Land and GPRL are wholly owned subsidiaries of
McLean, a holding company, which in turn is wholly
owned by Reynolds. Plaintiffs allege that the manage-
ment and business operation of these four defendants are
so commingled and integrated that venue laid against
Sea-Land lies against the moving defendants. In support
of this argument, plaintiffs have attempted to detatil the
various degrees of participation by Reynolds, Sea-Land,
McLean, and GPRL in the sale of Sea-Land’s assets to
PRMSA.!”
When a parent and its subsidiary are joined as defen-
dants in an antitrust action, venue over the parent may
be based on the local activities of its subsidiary ‘“‘if the
relationship between that parent and the subsidiary is
such that the subsidiary may be considered the agent
Occidental Petroleum Corp. v. Buttes Gas & Oil Corp., 331 F.
Supp. 92, 96-97 (C.D. Cal. 1971), aff'd per curiam, 461 F.2d
1261 (9th Cir.), cert. denied, 409 U.S. 950 (1972). See also
Bankers Life & Cas. Co. v. Holland, 346 U.S. 379, 384 (1953).
17 See Plaintiffs’ Opposition to Motion to Dismiss Complaint
filed by R.J. Reynolds Indus., Inc., McLean Indus., Inc., and Gulf
Puerto Rico Lines, Inc., at 4-7 and Exh. A-B.
l3a
or the alter ego of the parent.”’ Audio Warehouse Sales,
Inc. v. U.S. Pioneer Electronics Corp., 1975-1 Trade Cas.
4 60,213 (D.D.C. 1975). Generally when the subsidiary
maintains a separate legal identity, its presence in the
district will not be sufficient to bring the foreign parent
corporation within the ambit of section 12. Phillip Gall &
Son v. Garcia Corp., 340 F. Supp. 1255, 1259 (E.D. Ky.
1972).
It is also generally accepted that mere ownership of
stock in a subsidiary corporation transacting business in
a district does not establish venue against the parent
corporation, See, e.g., O.S.C. Corp. v. Tobshiba America,
Inc., 491 F.2d 1064, 1066 (9th Cir. 1974). In order for
the parent corporation to be amenable to suit, it must
exercise a control relationship over its subsidiary. See
Tiger Trash v. Browning-Ferris Indus., Inc., 560 F.2d 818,
822 (7th Cir. 1977), cert. denied, 434 U.S. 1034 (1978).
This concept of control is a method of determining
whether the ownership of the subsidiary is a mere invest-
ment or is an alternative means of transacting business by
the parent corporation.!®
Plaintiffs here have alleged that Reynolds, McLean,
Sea-Land and GPRL represent an integrated and _inter-
locking management scheme so that the three moving
defendants were transacting business in this jurisdiction
through their relationship with Sea-Land. Applying the
principles discussed above to the facts of this case makes
it clear that the transacting business requirement is not
18 See Hitt v. Nissan Motor Co., 399 F. Supp. 838, 841 (S.D.
Fla. 1975) (100% ownership by parent, exchange of officers and
employees, and common directors supported finding that parent
controlled subsidiary for venue purposes).
l4a
satisfied. The essential element required before a court
can find that one corporate entity was transacting busi-
ness through an alter ego is control over the conduct that
allegedly violated the antitrust laws. Call Carl, Inc. v. B.P.
Oil Corp., 391 F. Supp. 367, 371 (D. Md. 1975); see
Grappone, Inc. v. Subaru of America, Inc., 403 F. Supp.
123, 131 (S.D.N.Y. 1975). With respect to GPRL, which
along with Sea-Land is a cosubsidiary of McLean, there
has been not even a suggestion of how GPRL could exer-
cise the required control relationship.
Even though Sea-Land is a wholly owned subsidiary of
McLean, which is owned by Reynolds, the separate
identities of the subsidiaries are maintained and the
evidence indicates that each carries on its activities
without having daily business affairs controlled by the
parent. See In re Chicken Antitrust Litigation, 407 F.
Supp. 1285 (N.D. Ga. 1975). There has been no evidence
that the parent exerted the required degree of control
over its subsidiary or was involved directly in its oper-
ations and policy decisions. See Dobbins v. Kawasaki
Motors Corp., 1974-1 Trade Cas. § 75,000 (D. Ore.
1974). Although there is some interlocking management
between the three entities,'? the Court concludes that
the control relationship is absent and venue over GPRL,
McLean, and Reynolds cannot be predicated on the
existence of venue in this jurisdiction over Sea-Land.
19 For example, Malcolm McLean, the president of McLean,
also serves as Chairman of the Board of Sea-Land and as a mem-
ber of the Board of Directors of Sea-Land. Stock ownership and
interlocking directorates, however, have been found insufficient
to establish venue under the transacting business standard when
control over daily business activities is lacking. See Hayashi v.
Sunshine Garden Prod., Inc., 285 F. Supp. 632 (D. Wash.
1967).
l5a
The final method of establishing venue in antitrust
actions is under section 1391 of the general federal venue
statutes. Section 1391(b) is an important section for
private antitrust plaintiffs because it allows them to
establish venue in the judicial district in which the claim
arose, a choice of venue not afforded under the venue
provisions of the Clayton Act.” In determining whether
a particualr jurisdiction is actually the district in which
the claim arose, it is necessary to consider whether the
parties had a significant relationship to the district. This
depends upon the occurence in the district of events such
as “sales, injury, conspiratorial meetings, or overt acts
pursuant to such meetings.” Philadelphia Housing Author-
ity v. American Radiator & Standard Sanitary Corp., 309
F, Supp. 1053, 1056 (E.D. Pa. 1969).
In making this determination, a “weight of contacts”
test should be used. 14 Von Kalinowski, Antitrust Laws
& Trade Reg. § 104.04[2] (1978). This requirement can
be satisfied, for example, if significant sales causing
substantial injury to plaintiffs occurred in the district or
if some other overt act took place that was a “‘significant
and substantial’? element of the offense. Philadelphia
Housing Authority v. American Radiator & Standard
Sanitary Corp., 291 F. Supp. 252, 261 (E.D. Pa. 1968).
Plaintiffs attempt to satisfy the weight of contacts test
by alleging that a number of conspiratorial meetings took
place in the District of Columbia and that certain legal
20 Although there has been some judicial uncertainty whether
the general federal venue statute expands special venue provisions,
it is now generally recognized that these provisions are available
absent contrary statutory restrictions. See Pure Oil Co. v. Juarez,
384 U.S. 202, 207 (1966) (Jones Act venue provision expanded by
later general venue statute 28 U.S.C. §1391 so that corporation
may also be sued in district where it does business).
l6a
documents relating to the sale of assets to PRMSA were
drafted here.*! Some courts have held that conspiratorial
meetings may be sufficient to establish venue under
section 1391 as to each defendant who was present there.
See Ohto-Sealy Mattress Mfg. Co. v. Kaplan, 429 F. Supp.
139 (N.D. Ill. 1977). Before such a rule can be applied,
however, it is necessary to find that such meetings took
place, that they involved a violation or an attempted vio-
lation of the antitrust laws, and that each of the moving
defendants participated in them. ABC Great States, Inc.
v. Globe Ticket Co., 310 F. Supp. 739, 743 (N.D. IIl.
1970).
Such findings cannot be made here. Although some
defendants met with counsel in this jurisdiction and had
other contacts here, the Court concludes that such meet-
ings, even if viewed in the light most favorable to plain-
tiffs, did not represent a violation or attempted violation
of the antitrust laws. To the extent that such meetings
sought to achieve the passage of Act 62, they were
exempted from antitrust liability under the Noerr-Pen-
nington doctrine.** To the extent they were related to
the sale of assets to PRMSA, the state action exemption
discussed below would preclude liability.
2 See affidavit of John R. Immer, Exh. C to Plaintiffs’
Opposition to Defendant’s Motion to Dismiss, or, in the Alterna-
tive, for Summary Judgment. Plaintiffs also describe meeting and
other contacts between various defendants and the Federal Mari-
time Commission but such governmental contacts by federally reg-
ulated industries do not constitute “transacting business” in the
District of Columbia. Fandel v. Arabian American Oil Co., 345
F.2d 87 (D.C. Cir. 1965).
22 astern R.R. Presidents Conference v. Noerr Motor
Freight, 365 U.S. 127 (1961); United Mine Workers v. Pennington,
381 U.S. 657 (1965); see pages 30-31 infra.
17a
As a final argument, plaintiffs urge that their claim
arose within the meaning of section 1391 because they
suffered financial injury in this jurisdiction. At least one
court has rejected the weight of the contacts test and
held that venue can be established under section 1391 in
the judicial district in which the injured plaintiff oper-
ated. Iranian Shipping Lines, S.A. v. Moraties, 377 F.
Supp. 644 (S.D.N.Y. 1974); Albert Levine Assoc. v.
Bertont & Cotti, S.P.A., 314 F. Supp. 169 (S.D.N.Y.
1970).
To hold that a cause of action necessarily arose in
the district in which the plaintiff was injured is a ‘“‘sim-
plistic rationale to ‘which antitrust actions are not sus-
ceptible.” Redmond v. Atlantic Coast Football League,
359 F. Supp. 666, 669 (S.D. Ind.), aff'd mem., 478
F.2d 1405 (7th Cir. 1973). The Court agrees with this
conclusion and holds that plaintiff’s allegations of injury
in this district will not support a finding of venue here.
To hold otherwise would be tantamount to extending
venue under section 1391 to any district in which the
plaintiff resides, a result clearly not contemplated by
the rules. Philadelphia Housing Authority v. American
Radiator & Standard Sanitary Corp., 291 F. Supp. 252,
260 (E.D. Pa. 1968).
After careful review of the facts of this case, the
Court concludes that, despite their vigorous efforts,
plaintiffs have failed to establish that venue exists in
this jurisdiction over defendants Reynolds, McLean,
and GPRL. Although venue is also probably deficient
with respect to the other moving defendants, in the
interests of judicial economy and achieving a resolution
on the merits, the Court will not address these motions
but will instead consider the alternative motions for sum-
18a
mary judgment based on the state action exemption to
the antitrust laws.
STATE ACTION EXEMPTION
The governmental and remaining private defendants
have moved for summary judgment” on the ground that
the conduct at issue in this lawsuit is immune from lia-
bility under the state action exemption to the antitrust
laws. Because the immunity of private parties derives
from a determination that the conduct of the state entit-
ies is so immunized, it is first necessary to consider the
applicability of the state action exemption to Puerto
Rico defendants.
The principle that state action is beyond the scope of
federal antitrust laws stems from the decision of the
Supreme Court in Parker v. Brown, 317 U.S. 341 (1943).
In Parker the Court rejected a producer’s claim that a
state agricultural marketing program established pursuant
to statute violated the Sherman Act. Noting that the
state had adopted the program to restrict competition
and maintain prices, the Court held that Congress in-
tended the Sherman Act to restrain private anti-competi-
tive conduct and not actions taken by a state or its agen-
cies in furtherance of a legislative mandate. There is no
dispute that Puerto Rico is a state for purposes of apply-
ing the Parker doctrine. International Tel. & Tel. Corp.
v. General Tel. & Elec. Corp., 351 F. Supp. 1153, 1229
(D. Hawaii 1972), mod. on other grounds, 518 F.2d 913
(9th Cir. 1975).
23Defendant Sea-Land has moved for partial summary judg-
ment on any issues of antitrust liability arising out of its sale of
certain operational assets to PRMSA.
19a
Defendants argue that the actions of a state instru-
mentality mandated by clear legislative authority are
immune from antitrust liability under Parker.24 They
note that in this case the Puerto Rico legislature specifi-
cally mandated its instrumentality, PRMSA, to take over
and operate the shipping trade between the East Coast
and Gulf ports of the United States and Puerto Rico.
PRMSA carried out the mandate by acquiring and oper-
ating ships in this trade, and defendants argue that as a
result, the PRMSA acquisition and operation of the
steamships are immune from antitrust liability.
A. State Instrumentaltties.
After a long period of silence, the Supreme Court in
recent years has given renewed attention to the scope of
the Parker doctrine?* and its decisions have been the sub-
247he terms “state action exemption’ and “antitrust
immunity” are frequently used to refer to the Parker doctrine, but
these terms are less than accurate in view of the Supreme Court’s
statement that “[t]he Sherman Act makes no mention of the state
as such and gives no hint that it was intended to restrain state
action.” 317 U.S. at 351; see Kurek v. Pleasure Driveway & Park
Dist., 557 F.2d 580, 587 n.5 (7th Cir. 1977) (Sherman Act was not
intended to apply to state-mandated activities but courts nonethe-
less utilize single-word shorthand references of ‘“‘exemption”’ or
“immunity”’).
25 See City of Lafayette v. Louisiana Power & Light Co., 435
U.S. 389 (1978); Bates v. State Bar of Arizona, 433 U.S. 350
(1977); Cantor v. Detroit Edison Co., 428 U.S. 579 (1976); Gold-
farb v. Virginia State Bar, 421 U.S. 773 (1975). Prior to these
decisions there had been a 32-year period in which the Supreme
Court consistently declined to review cases involving the Parker
doctrine. See, e.g., George R. Whitten, Jr., Inc. v. Paddock Pool
Builders, Inc., 424 F.2d 25 (1st Cir.), cert. denied, 400 U.S. 850
(1970); E.W. Wiggins Airways, Inc. v. Massachusetts Port Auth.,
362 F.2d 52 (1st Cir.), cert. denied, 385 U.S. 947 (1966).
20a
ject of extensive legal commentary.” The most recent
case involving the doctrine is City of Lafayette v. Louis-
tana Power & Light Co., 435 U.S. 389 (1978), in which
the Court held municipalities could not invoke the Parker
doctrine in a suit for antitrust violations allegedly com-
mitted by them in connection with ownership of public
utilities.
In refusing to find antitrust immunity, a plurality of
the Court held that municipalities, like other state instru-
mentalities, are not exempt from application of the anti-
trust laws simply by virtue of their status as governmental
entities. Jd. at 413. The plurality stated: “We therefore
conclude that the Parker doctrine exempts only anticom-
petitive conduct engaged in as an act of government by
the State as sovereign, or, by its subdivisions, pursuant to
state policy to displace competition with regulation or
monopoly public service.” Jd.?’
26F.¢g., Handler, The Current Attach on the Parker v. Brown
State Action Doctrine, 76 Colum. L. Rev. 1 (1976); Kennedy, Of
Lawyers, Lightbulbs, and Raisins: An Analysis of the State Doc-
trine under the Antitrust Laws, 74 Nw. U. L. Rev. 31 (1979);
Verkuil, State Action Doctrine, Due Process and Antitrust: Reflec-
tions on Parker v. Brown, 75 Colum. L. Rev. 328 (1975); Note,
Anti-Trust Law and Municipal Corporations, 65 Geo. LJ. 1547
(1977).
27Chief Justice Burger, who provided the fifth vote for affir-
mance of the Fifth Circuit’s decision in City of Lafayette, did not
join in this portion of the opinion but his concurrence indicates
that he regarded the plurality’s approach as the minimum to be
required of a state instrumentality, which he felt should demon-
strate that it is acting in a proprietary capacity before it is allowed
the protection of Parker. 435 U.S. at 418 (Burger, C.J., concur-
ring); see Star Lines Ltd. v. Puerto Rico Maritime Shipping Author-
ity, 451 F. Supp. 157, 165 (S.D.N.Y. 1978).
2la
City of Lafayette thus establishes a two-fold inquiry
that must guide the Court in applying the Parker doc-
trine. The first consideration is whether the state, acting
as sovereign, has required its agency or instrumentality to
engage in the particular form of anticompetitive conduct.
This is not to suggest that the Parker doctrine permits
each state legislature to determine the extent to which a
particular government agency under its control should be
exempt from the antitrust laws. As the Court in Parker
indicated, ‘‘a state does not give immunity to those who
violate the Sherman Act by authorizing them to violate
it, or by declaring that their action is lawful.” 317 U.S.
at 351. The decision did recognize, however, the over-
riding policy of federalism, namely, that “[i]n a dual
system of government in which, under the Constitution,
the states are sovereign, save only as Congress may con-
stitutionally subtract from their authority, an unex-
pressed purpose to nullify a state’s control over its offi-
cers and agents is not lightly to be attributed to Con-
gress.” Id.
In order for Parker to apply, it is not necessary for a
state legislature to direct its instrumentality to perform
a specific anticompetitive act. The threshold requirement
for Parker immunity is satisfied if the legislature directs
its instrumentality to engage in a particular type of activ-
ity. As the plurality opinion in City of Lafayette stated:
While a subordinate governmental unit’s claim to
Parker immunity is not as readily established as the
same claim by a state government sued as such, we
agree with the Court of Appeals that an adequate
state mandate for anticompetitive activities of cities
and other subordinate governmental units exists
when it is found ‘from the authority given a govern-
22a
mental entity to operate in a particular area, that
the legislature contemplated the kind of action com-
plained of.’
433 US. at 415.
In this case, there is no dispute that PRPA and PRMSA
are agencies of the Commonwealth of Puerto Rico.”* The
Statement of Motives of Act 62, which established
PRMSA, contains a clear expression of legislative intent:
The Legislature of Puerto Rico intends that this
instrumentality acquires and operates shipping lines
and terminal facilities as a public service, and that
in doing so, it shall not be subject to the antitrust
laws nor any other limitation that could hinder the
effective discharge of the endeavor that this act has
imposed on the public instrumentality hereby estab-
lished.
In addition, section 25 of the Act repeats the intention of
the legislature that PRMSA, in carrying out its mandate
to provide efficient, reliable, and economic maritime ser-
vices, not be subject to antitrust laws: :
Conflicting Laws Inapplicable. Insofar as the pro-
visions of this act are in conflict with the provisions
of any other law, or parts thereof, the provisions of
this act shall prevail. Specifically, and without
otherwise limiting the generality of the foregoing,
it is intended by this act that the Antitrust Laws
shall not be applicable to any action of the Author-
ity taken pursuant to the provisions hereof.
A recent case construed this statute under the criteria
set out by the Supreme Court in City of Lafayette. In
28 see P.R. Laws Ann., tit. 23, §333(b) (1955); Act, supra
note 2, §4.
23a
Star Lines, Ltd. v. Puerto Rico Maritime Shipping Auth-
ority, 451 F. Supp. 157 (S.D.N.Y. 1978), a Liberian cor-
poration sued PRMSA for alleged antitrust violations
arising from the short-term lease of a PRMSA vessel not
needed in the Puerto Rico trade to plaintifi’s competi-
tor in the Persian Gulf. In denying PRMSA’s motion to
dismiss the complairt for. failure to state a claim upon
which relief can be granted, the district court held that
the transaction in question — leasing a ship to others to
operate in foreign trade unrelated to Puerto Rico — was
not performed pursuant to any governmental policy to
displace competitive market forces in the area. Jd. at
166. It found that ‘the connection between the legis-
lative grant of power to PRMSA and its use of that power
under the facts of this case is simply ‘too tenuous to per-
mit the conclusion that the entity’s intended scope of
activity included such conduct.’ Jd. at 167 (quoting
City of Lafayette v. Louisiana Power & Light Co., 532
F.2d 431, 434 (5th Cir. 1976), aff'd 433 US. 389
(1978)).
The Court noted, however, that if the challenged con-
duct were such that it could reasonably have been con-
templated by the legislature as necessary to ensure com-
plete and reliable carrier service or proper maintenance
of port facilities, it could withstand attack under the anti-
trust laws. It stated:
Certainly if the conduct being challenged here were
that PRMSA had reduced competition in the Puerto
Rican-East Coast trade by acquiring a majority of
those vessels suitable for engaging in that trade, or
that PRMSA had contracted with a single private
company to control Puerto Rico’s port facilities,
PRMSA’s claim to antitrust immunity would be on
much stronger ground,
Id. (footnotes omitted).
24a
Plaintiffs do not deny that the Puerto Rico legislature
not only intended, but in fact authorized and mandated,
state control of all shipping lines operating ‘between
Puerto Rico and the Eastern and Gulf ports of the United
States. Neither do they dispute that the legislature
intended to immunize the acquisition and operation
of the shipping lines from federal antitrust laws.”
Instead they urge that the Parker doctrine is inapplicable
to this situatin because the immunized state conduct
consisted of acts outside the territory over which the
state had legislative jurisdiction.
In support of this argument, plaintiffs rely on one of
the few cases to raise this isue, Ladue Local Lines, Inc.
v. Bi-State Development Agency, 433 F.2d 131 (8th
Cir. 1970). Ladue involved a political entity created by
the legislatures of Illinois and Missouri to acquire and
operate a public transit system in eastern Missouri and
western Illinois. Plaintiff, a private company that en-
gaged in bus transportation in the same area, brought
an antitrust action alleging that defendant’s monopolis-
tic control of the public transportation market had des-
troyed its business by precluding it from bidding on and
servicing schools and school systems. /d. at 132.
Affirming the district court’s dismissal of the action,
the court of appeals held that when a political body
created by the legislatures of Illinois and Missouri was
acting under Congressionally-approved authorization™
29See Plaintiffs’ Opposition to the Motion to Dismiss the
Complaint by the Puerto Rican Defendants, at 2.
30Ri-State was organized pursuant to a compact entered into
by the states of Illinois and Missouri. The consent of Congress to
such compacts is required by Article I, Section 10, Clause 3 of the
[footnote continued]
25a
to operate bus transportation facilities and that authori-
zation was granted pursuant to a legislative policy that
public interest would best be served by a unified public
transportation sytem, the activity was not subject to the
antitrust laws even though a monopoly was created. Jd.
at 137. Plaintiffs urge that in the absence of such inter-
state agreement, any unilateral attempt by one sovereign
to displace competition in another jurisdiction will not
survive scrutiny under federal antitrust laws and seek to
apply this agreement to the situation here.
To the extent that plaintiff’s argument suggests that
a state’s immunity under the antitrust laws is limited to
its own territory, it- ignores a central truth of the Parker
doctrine. A necessary element of any violation of the
federal antitrust laws is an effect on interstate com-
merce.?!_ As commentators have noted, in a unitary eco-
nomic system such as ours, jurisdiction under the Sher-
man Act should be presumed on the ground that every
restraint ‘thas the inherent tendency to affect interstate
resource allocation and the interstate mavement of goods
and services in our national economy.”
Constitution, which states in part: “No state shall, without the
consent of Congress . . . enter into any agreement or compact with
another state... .’’ The Bi-State compact was approved by the
Act of August 31, 1950, Pub. L. No. 81-743, 64 Stat. 568.
31 Sections 1 and 2 of the Sherman Act are applicable only to
“trade or commerce among the several States.” 15 U.S.C. §§ 1,2.
Section 3 of the Sherman Act applies to contracts, combinations,
or conspiracies ‘‘in restraint of trade or commerce in any Territory
of the United States or of the District of Columbia, or in restraint
of trade or commerce between any such Territory and another, or
between any such Territory or Territories and any State or States
or the District of Columbia and any State or States or foreign
nations....”” 15 U.S.C. §3.
32p. Areeda and D. Turner, 1 Antitrust Law 4 232a, at 229-
30 (1978).
26a
The exemption created in Parker v. Brown for state
action must be coextensive with the scope of the Sher-
man Act, and thus is applicable to the interstate effects
of a particular form of state action. Parker v. Brown
itself supports this analysis, for that case involved action
by the State of California to raise and stabilize the price
of raising, ninety-five percent of which were sold outside
the state. 317 U.S. at 345. Plaintiffs’ ‘‘extraterritor-
iality’’ argument is in direct conflict with the fundament-
al message of Parker that the entire Sherman Act, includ-
ing its extraterritorial coverage, was never intended to
restrain state action undertaken pursuant to a proper leg-
islative mandate to displace competition.
In summary, the most recent judicial interpretations
of the state action doctrine require that the anticompet-
itive conduct engaged in by a state instrumentality be
undertaken pursuant to a governmental policy to displace
competition with regulation or monopoly public service.
Here the Puerto Rico legislature, in an attempt to ensure
adequate carrier and passenger service between Puerto
Rico and the mainland, specifically mandated its instru-
mentality PRMSA to take over and operate the shipping
trade. PRMSA carried out that mandate by acquiring
and operating the steamships in such trade. This con-
duct, which is the subject of plaintiffs’ complaint, is
immune from antitrust liability under the state action
doctrine.
PRPA acted under a similar legislative mandate to
operate the transport facilities of Puerto Rico and to
establish rules and regulations for their use. This conduct
was also undertaken in the exercise of a valid govern-
mental function and is similarly immune from antitrust
liability. See E.W. Wiggins Airways, Inc. v. Massachusetts
27a
Port Authority, 362 F.2d 52, 55 (1st Cir.), cert. dented,
385 U.S. 947 (1966).
B. Private Defendants.
The issue of the antitrust immunity of private parties
did not arise in Parker because that case involved an
equity suit against state officials. 317 U.S. at 344.
Although there has been some judicial uncertainty
regarding the reach of the Parker doctrine, it seems clear
that a majority of the present Supreme Court believes
that Parker is equally applicable to suits against private
parties whose actions are compelled or regulated by the
state.*?> The correctness of this interpretation becomes
apparent by considering the facts of the original Parker
case. In that instance, if the federal government or a pri-
vate litigant could have enforced the antitrust laws
against the raisin producers, effectuation of state policy
would have been thwarted just as if the state action
immunity were never granted. P. Areeda & D. Turner,
1 Antitrust Law, 9 212b, at 69 (1978); see Trans-World
Assoc. v. Denver, 1974-2 Trade Cas. 9 75,293 (D. Colo.
1975).
In the present action the nongovernmental defendants
maintain that their conduct is immune from antitrust lia-
bility because of the state action immunity applicable to
PRMSA. The Court agrees with this interpretation, for
it would be anomalous to hold that PRMSA, the state-
sanctioned mechanism for acquiring control of the
island’s ocean transportation, was immune as the buyer
33Cantor v. Detroit Edison Co., 428 U.S. 579, 603 (1976)
(Burger, C.J., concurring in part); id. at 605, 613 n.5 (Blackmun,
J., concurring in judgment); id. at 614-15 (Stewart, Powell and ,
Rehnquist, JJ., dissenting).
28a
of the assets of certain carriers and simultaneously to
withhold such immunity from the selling carriers. Sim-
ilarly defendants PRMMI, TKM, and TOTEM, whose
involvement in this lawsuit arises from their operation
and management of cargo vessels on behalf of PRMSA,
cannot be held liable under the antitrust laws if PRMSA’s
conduct in operating the ships was immunized.
A similar conclusion regarding the immunity of private
parties engaged in business enterprises with state instru-
mentalities has been reached by other courts. In Trans-
World Assoc., Inc. v. Denver, supra, plaintiff sought to
operate a rent-a-car concession at the city airport, but its
application was denied on the ground that it was city pol-
icy to permit only five concessionaires to operate at any
one time. The city and the existing concessionaires were
named as defendants in an action alleging conspiracy and
attempt to monopolize the airport car rental business.
The Court dismissed the causes of action involving the
city of Denver on the basis of the state action exemption
and further held that “‘since the city is privileged to enter
into negotiations and agreements, which might otherwise
violate the Sherman Act, those with whom the cities con-
tract are similarly entitled to anti-trust immunity.” Jd.
at 97,900.%4
Plaintiffs also appear to suggest that the actions of the
private defendants in lobbying and advising the Puerto
Rico government and legislature regarding the desirability
34 See also Padgett v. Louisville & Jefferson City Air Bd.,
492 F.2d 1258 (6th Cir, 1974) (per curiam); Saenz v, University
Interscholastic League, 487 F.2d 1026 (5th Cir. 1973); E.W. Wig-
gins Airways, Inc, v. Massachusetts Port Auth., 362 F.2d 52 (1st
Cir.), cert. denied, 385 U.S. 947 (1966); Metro Cable Co. v. CATV
of Rockford, 375 F. Supp. 350 (N.D. Ill. 1974).
29a
and organization of a state shipping authority precludes
any claim that their actions were compelled and that, in
the absence of such compulsion, defendants cannot claim
immunity under Parker. Two recent Supreme Court
cases have raised the possibility that a private party’s
right to antitrust immunity may depend upon whether
the challenged actions were compelled by a state, In
Goldfarb v. Virginia State Bar, the Court refused to
extend antitrust immunity to Bar Association minimum
fee schedules and offered as one of its reasons: “It is not
enough that... anticompetitive conduct is ‘prompted’
by state action; rather, anticompetitive activities must be
compelled by direction of the State acting as sovereign.”
421 U.S. 773, 792 (1975). Similar sentiments were
expressed in Cantor v. Detroit Edison Co., 428 U.S, 579
(1976). A program for providing light bulbs was orig-
inally proposed by the utility but was made mandatory
by the state utility commission. Concluding that the
option to have the program was the utility’s and was not
imposed by the commission, the Court determined that
the defendant “exercised sufficient freedom of choice”
for the Court to find that compulsion was absent. /d. at
5953.
The role that compulsion should play in determining
antitrust immunity is left unclear by these cases, which
involve different forms of state action than the ones
presented here. In Goldfarb and Cantor the Court recog-
nized that neither adequate supervision nor state intent
to displace antitrust enforcement could be demonstrated.
It has been suggested that the presence or absence of
compulsion is important because it provides evidence of
state intent.*> Compulsion establishes that the state
35p. Areeda & D. Turner, supra note 32, 9 215b, at 96,
30a
intends to displace the antitrust laws for otherwise the
compulsion would be without purpose and effect. Sim-
ilarly lack of compulsion suggests that intent to provide
immunity does not exist. In this case there is clear inde-
pendent evidence in Act 62 itself that antitrust immun-
ity is intended. It is therefore unnecessary to look to
the presence or absence of compulsion as evidence of
intent.
Earlier Supreme Court decisions also establish that a
court cannot require the absence of initiative or lobbying
by a defendant before granting him immunity. The
Parker case itself is proof to the contrary, for there, raisin
producers initiated the procedure leading to state restric-
tions. Their representatives formulated the plan reviewed
and approved by the California legislature and the plan
took effect only upon a favorable referendum among
raisin producers.
Plaintiffs’ argument that compulsion is required is
also refuted by the Supreme Court’s decision in Eastern
Railroad Presidents Conference v. Noerr Motor Freight,
Inc., 365 U.S. 127 (1961), in which the Court held that,
regardless of anticompetitive purpose or intent, a con-
certed effort by persons to influence lawmakers to enact
legislation beneficial to themselves or detrimental to
competitors was not within the scope of the antitrust
laws. This decision is based on two principles. The first
is that a contrary holding would impede the communi-
cation between citizens and their lawmakers, without
which a representative democracy could not function.
The second element is the threat to the constitutionally
protected right of petition that would result from a con-
3la
trary construction. Jd. at 137-38.°° Thus the actions of
some private defendants in lobbying the Puerto Rico gov-
ernment prior to the formation of PRMSA does not pre-
clude their claim to exemption from antitrust liability
under the state action exemption.
PRMSA and PRPA have established that they are gov-
ernmental agencies acting pursuant to a legislative man-
date to displace competition with a public monopoly.
As such, their actions in acquiring vessels and operating
them in the United States-Puerto Rico trade, which form
the basis of this complaint, are exempt from antitrust
liability under the Parker doctrine. The conduct of the
private defendants in selling vessels to PRMSA or in oper-
ating them on behalf of PRMSA is similarly immunized.
Accordingly, the moving parties’ motions for summary
judgment are granted and this action is dismissed.
/s/ Oliver Gasch
Judge
Date: April 19, 1979
36See also United Mine Workers v. Pennington, 381 U.S.
657, 669-72 (1965). Pennington held that, regardless of the anti-
competitive purpose or effect on small competing mining compan-
ies, the joint action of certain large mining companies and labor
unions in lobbying the Secretary of Labor for legislation establish-
ing a minimum wage for employees of contractors selling coal to
the Tennessee Valley Authority and in lobbying the TVA to avoid
coal purchases exempted from the legislation was not subject to
antitrust attack. Cases subsequent to Pennington have emphasized
that any contrary construction would pose a serious threat to first
amendment freedoms. See Continental Ore Co. v. Union Carbide
& Carbon Corp., 370 U.S. 690, 707-08 (1962); California Motor
Transport Co. v. Trucking Unlimited, 404 U.S. 508, 516 (1972)
(Stewart, J., concurring in judgment).
32a
APPENDIX B
Per Curiam Decision of the United States Court of
Appeals, July 3, 1980.
UNITED STATES COURT OF APPEALS
For the District of Columbia Circuit
[Filed Apr 23, 1979]
September Term, 1979
No. 79-1658
Caribe Trailer Systems, Inc.
John R. Immer, Appellants
v.
Puerto Rico Maritime Shipping
Authority, et al.
Appeal from the United States District Court for the
District of Columbia.
Before: BAZELON, Senior Circuit Judge; WILKEY
and WALD, Circuit Judges
JUDGMENT
This cause came on to be heard on the record on
appeal from the United States District Court for the Dis-
trict of Columbia and was argued by counsel. While the
issues presented occasion no need for any opinion, they
have been accorded full consideration by the Court.
See Local Rule 13(c). We are satisfied that the district
court correctly identified the issues raised by the plaintiff
as involving only violations of the Sherman Act. On
those issues we are in agreement with the district court’s
disposition. On consideration of the foregoing, it is
33a
ORDERED AND ADJUDGED by this Court, that the
district court’s order filed April 23, 1979 is maserene
affirmed.
Per Curiam
*, For the Court
oe George A. Fisher
Clerk
34a
APPENDIX C
Decision of Panel and Court Rejecting Petitioners’
Application for Rehearing, or in the Alternative
Rehearing En Banc, August 29, 1980
UNITED STATES COURT OF APPEALS
For the District of Columbia Circuit
[Filed Aug. 29, 1980]
September Term, 1979
No. 79-1658
Caribe Trailer Systems, Inc.
John R. Immer, Appellants
Vv.
Puerto Rico Maritime Shipping
Authority, et al.
BEFORE: Bazelon, Senior Circuit Judge; Wilkey and
Wald, Circuit Judges
ORDER
Upon consideration of appellants’ (Caribe Trailer
Systems, Inc, et al.) petition for rehearing, it is
ORDERED, by the Court, that appellants’ aforesaid
petition for rehearing is denied.
Per Curtam
FOR THE COURT
GEORGE A. FISHER
By: /s/ Robert A. Bonner
Chief Deputy Clerk
35a
UNITED STATES COURT OF APPEALS
For the District of Columbia Circuit
[Filed Aug. 29, 1980]
September Term, 1979
No. 79-1658
Caribe Trailer Systems, Inc.
John R, Immer, Appellants
Ve
Puerto Rico Maritime Shipping
Authority, et al.
BEFORE: Wright, Chief Judge; McGowan, Tamm,
Robinson, MacKinnon, Robb, Wilkey, Wald, Mikva
Edwards, and Ginsburg, Circuit Judges
ORDER
The suggestion for rehearing en banc filed by appel-
lants (Caribe Trailer Systems, Inc., et al) having been
transmitted to the full Court and no judge in regular
active service having requested a vote with respect there-
to, it is
ORDERED, by the Court, en banc, that appellants’
aforesaid suggestion for rehearing en banc is denied.
Per Curiam
FOR THE COURT
GEORGE A. FISHER
Clerk
By: /s/ Robert A. Bonner
Chief Deputy Clerk
36a
APPENDIX D
Memorandum of February 14, 1974, on Meetings
of February 11 and 12, 1974, Prepared by Mr. Kes-
terman for Distribution to Puerto Rican Represen-
tatives Teodoro Moscoso and Others. Court of
Appeals Joint Appendix pp. 874-879
February 14, 1974
TO: Distribution
FROM: Kesterman
SUBJECT: RECENT MEETINGS WITH SEALAND,
SEATRAIN & TTT, February 11th and 12th —
ACTION ASSIGNMENTS
STRATEGY SESSION
At 8 A.M., Monday, February 11th, a strategy session
was held to acquaint all parties with the latest happenings
and information relevant to the meetings scheduled for
the next 2 days. Present were: Ted Moscoso, Juan
Albors, Francisco De Jesus Schuck, Judge Ramirez, Moe
Moses, Mario Escudero, Fred Smith and Frank Kester-
man.
SEALAND MEETING — 9:30 A.M., February 11, 1974.
The group met with Malcolm McLean and Allen Stev-
ens of SEALAND. McLean stated that SEALAND would
prepare a plan for Commonwealth takeover of the entire
trade, using SEALAND Management as the general agent
for the Commonwealth. McLean thought the plan could
be accomplished for 20-25 million of which 8 million
would be working capital and the remainder used for pur-
chase of TTT assets. The plan to be prepared by SEA-
LAND is to include:
a) rationalization of the Trade (consolidation of all
carriers, services and facilities)
b) Financial Plan
37a
c) Management Plan
d) Regulatory and Legal Plan
e) New Ship Construction Program
The plan is to be completed and circulated by March
6th for discussion at a meeting schedules for 10 A.M.,
March 11, 1974. This meeting will be held in McLean’s
office at 660 Madison Avenue, New York, New York.
Allen Stevens of McLean’s corporate planning staff
is to prepare the plan, meeting with Fred Smith as
required to factor in other known considerations. Fred
Smith, Frank Kesterman and Mario Escudero are then to
review the plan for adequacy in all areas before the plan
is sent to others in the negotiating group.
SEALAND EVENING MEETING — February 11th
At the evening meeting, February 11th, between Mc-
Lean, Stevens, Smith and Kesterman, the framework of
SEALAND’s plan was revealed to include:
a) ‘Removing all SEALAND ships from the East
Coast trade and placing in service, three of SEA-
LAND’s larger C-4J containerships (610-35’ con-
tainers).
b) Chartering three SEATRAIN ships (481-40’ con-
tainers).
c) Using 2 of TTT’s Ro-Ro ships and placing the
third ship some place else in the SEALAND fleet.
d) Elimination of TTT’s terminals in New York and
Baltimore and consolidation of SEALAND’s and
TTT’s terminals in San Juan.
e) Elimination of all SEATRAIN terminals,
f) Elimination of SEATRAIN and TTT manage-
ments.
g) A management contract with SEALAND service,
whereby, SEALAND shares 50-50 in savings
38a
below present total cost of service in the trade
plus non-controllable future escalations associated
with inflation and trade growth.
SEATRAIN MEETING — 3 P.M. February 11th
Representing SEATRAIN were Howard Pack, Chair-
man of the Board of Jim Connally, Vice President of Fin-
ance.
SEATRAIN was informed that the Commonwealth
was now negotiating with SEALAND and because of that
fact, a decision could not be made at this time with res-
pect to the SEATRAIN proposals.
Pack stressed that SEATRAIN was under severe pres-
sure from their bankers to liquidate or take other actions
to cut their losses. Further, they presently are in the pro-
cess of going to their banks for more working capital.
Pack asked if we could start trading on the charters now
in expectation that if we were in a position to make them
an offer in 3-4 weeks, then at least they would know the
terms of the offer. This was agreed to by the Common-
wealth with the condition that a commitment to nego-
tiate was not a commitment to make a firm offer. Kester-
man has the responsibility for developing charter rates
and equipment lease rates to form the baseline for nego-
tiation. An independent marine surveyor is to inspect
the vessels and equipment after negotiations appear head-
ing in a positive direction. The Commonwealth’s offer to
SEATRAIN will be presented to SEATRAIN around
February 25th. SEATRAIN will present their position
with respect to the offer at a meeting to be held at the
AFDA Club, Febuary 28th at 10 A.M.
39a
TTT MEETING — February 12th
Attending for TTT were Peter Holzer and Paul Atkin-
son,
TTT agreed to the purchase price of $17 million sub-
ject to resolution of:
a) contingent liabilities and assets
b) a management contract for TTT
c) legal questions set forth in the Pepper, Hamilton
& Scheetz letter dated February 6, 1974 attached.
Assignments were made to seek a resolution of the out-
standing questions in the Pepper, Hamilton & Scheetz
letter,
I,
II.
Il,
Anti-Trust Proceedings — Francisco de Jesus Schuck
‘with the assistance of counsel will seek a no action
ruling from the Justice Department of the intent to
purchase the assets of TTT.
Tax Position of GECC and Sun Oil Co.
Matt Zinn and Mario Escudero, representing the
Commonwealth and Allen Choate, representing
Sun Shipbuilding to resolve the future status of
TTT (P.R.) and FORTALEZA time charter with
respect to maintaining U.S. source income for
GECC, the ultimate owner of GECC.
Proposed Management Contract
Escudero to determine how to avoid another carrier
(TMT) or shipper seeking injunction in a Federal
District Court or via the FMC to block a monopoly
placed under a management company which was
also a carrier in the trade.
With respect to a management incentive formula,
TTT did not like the one prepared by Kesterman.
However, they did not offer: any ideas on what
40a
would be better. TTT was asked to submit an alter-
nate management incentive plan.
IV. Tax Consequences to TTT Shareholders
It appears that the capital gains tax rate on the sale
of stock (35%) will be considerably lower than the
tax rate on income derived from the sale of assets
(54-62%). Peter Holzer agreed to take the lead on
this question.
V. Necesstty of FMC Approval.
All attorneys agree that the FMC should not have
jurisdiction over the sale of assets. However, the
management Company could be considered a non-
vessel owning common carrier, subject to the juris-
diction of the FMC, It was suggested that the man-
agement people might become employees of the
Puerto Rico Maritime Shipping Authority to cir-
cumvent FMC jurisdiction. Escudero has the lead
on this item.
VI. Problems Under Long Term Financing Agreements
Paul Atkinson and Fred Smith will work on the res-
olution of the problems of substituting of the Com-
monwealth for Sun Shipbuilding and Sun Oil on
charter guarantees, working capital, maintenance
and Flow of Funds Agreements.
Note: Maritime Administration has approved the Com-
monwealth as meeting the U.S. Citizen require-
ments and as such can own, charter and operate
ships documented under the laws of the United
States.
4la
BRAZIL TRADE & TTT MANAGEMENT
Additional discussion was held on helping TTT develop
a Brazil-Puerto Rico-U.S. Northbound trade as a means to
find a way to constructively use TTT’s management and
Atkinson’s shipbuilding capability to the net benefit of
the Commonwealth. .
It may be advisable to keep a second management
organization somehow involved to keep SEALAND from
having a monopoly in the long term which the Common-
wealth would find overpowering and difficult to disen-
gage from if the relationship proved to be unsatisfactory.
NEW SHIPS
We need to begin developing a fleet “optimization”
study to determine new ship requirements and mix of
Ro-Ro vs. containerships. Separate meetings will be held
with ship designers, shipbuilders and operators to develop
basic input data. Kesterman has lead on this project.
DISTRIBUTION:
Moscoso Francis Albors Francisco de Jesus
Ramirez Moses Smith Zinn
Escudero
42a
APPENDIX E
Replies to Interrogatories, Mr. Kesterman. Court of
Appeals Joint Appendix, pp. 657-658.
BEFORE THE
FEDERAL MARITIME COMMISSION
Docket No. 74-44
AGREEMENT BETWEEN PUERTO RICO MARITIME
SHIPPING AUTHORITY AND PUERTO RICO
MARINE MANAGEMENT, INC./PUERTO RICO
MARINE OPERATING COMPANY, INC.
RESPONSE OF FRANCIS R. KESTERMAN
TO INTERROGATORIES PROPOUNDED BY CARIBE
TRAILER SYSTEMS, INC. ON MAY 28, 1975
1. I have never been an employee of the Economic
Development Administration or other agency of the
Development Administration or other agency of the
Commonwealth of Puerto Rico. However, commencing
April, 1973, I have been a consultant at various times
for the Economic Development Administration and the
Puerto Rico Maritime Shipping Authority.
2. My work assignments during 1973 and prior to
January 23, 1974 were to counsel the Economic Develop-
ment Administration and other government officials on
maritime developments, including shipping, ship building
and ports which affect the Commonwealth of Puerto
Rico. In addition I prepared evaluations of proposals
for the improvement of ocean transportation service
between Puerto Rico and the exterior and represented
the Economic Development Administration on inter-
agency committees.
43a
3. As I stated at page 20 of my deposition in this pro-
ceeding, I do not keep a calendar or diary, and it would
be impossible to try to reconstruct every one of the liter-
ally hundreds of meetings I attended during this period.
4, Please see pages 19, 20, 69 and 70 of my deposition.
5. None.
6. Never.
7. My travel records reflect that I attended meetings in
New York in 1973 up to January 23, 1974 as follows:
7/6, 7/11, 7/30, 8/6, 8/9, 8/14-15, 8/23, 8/30, 9/12,
9/19, 9/24, 10/1, 10/9-10, 10/15, 10/23, 11/12,
11/16-17, 11/19, 11/30 and 12/11.
I am a resident of the Washington area and maintain
my office in Washington, D.C., and therefore it would
be impossible for me to be more specific than to say that
I was in Washington, D.C. during most of the period in
question.
8. Please see answers to questions 3, 5, and 6 above.
I HEREBY CERTIFY that the above answers are true
and correct to the best of my knowledge and belief.
/s/ Francis R. Kesterman
Francis R. Kesterman
Subscribed and duly sworn to before me a Notary Pub-
lic this 11th day of June, 1975.
/s/ Ann E, Leasuskas
Ann E., Leasuskas
Notary Public
[SEAL] My Commission Expires: 3/4/80
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.