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TRUGMAN-NASH, INC. v. NEW ZEALAND DAIRY BD.

October 8, 1996

TRUGMAN-NASH, INC. and TRIO CHEESE IMPORTS, INC., Plaintiff, against NEW ZEALAND DAIRY BOARD, MIL PRODUCTS HOLDINGS (NORTH AMERICA) INC. and WESTERN DAIRY PRODUCTS, INC., Defendants. WESTERN DAIRY PRODUCTS, INC., Plaintiffs, -against- TRUGMAN-NASH, INC. and TRIO CHEESE, INC., Defendants.


The opinion of the court was delivered by: HAIGHT

 HAIGHT, Senior District Judge :

 These consolidated cases arise out of the importation of New Zealand cheese into the United States. The factual background and the nature of certain pending motions are described in the Court's opinion dated February 21, 1996. Subsequently the Court heard oral argument. This opinion resolves the pending motions.

 Familiarity with the prior opinion is presumed. For present purposes, it is sufficient to say that plaintiffs in 93 Civ. 8321 are domestic importers of New Zealand cheese under licenses issued by the United States Department of Agriculture ("USDA"). Defendants in that action consist of the New Zealand Dairy Board ("the NZDB" or "the Board") and two Delaware corporations closely related to NZDB and each other. Plaintiffs complain of defendants' failure to deliver a contracted-for quantity of cheese. Their claims sound in breach of contract, quantum meruit, common law fraud, and antitrust. Defendants move to dismiss the fraud and antitrust claims. In 93 Civ. 8329, Western Dairy Products, Inc. ("Western Dairy"), a defendant in the other case with whom plaintiffs dealt directly, moves for partial summary judgment to recover an allegedly undisputed amount due.

 I

 In 93 Civ. 8321, defendants move to dismiss plaintiffs' fourth and fifth claims. Those claims, as set forth in an amended complaint, allege that defendants violated the antitrust laws of the United States. The fourth claim alleges that defendants entered into a conspiracy in restraint of trade, in violation of section 1 of the Sherman Act, 15 U.S.C. § 1. The fifth claim alleges that defendants monopolized the importation, distribution and sale in the United States of New Zealand cheese, in violation of section 2 of the Sherman Act, 15 U.S.C. § 2.

 Defendants make two arguments in support of their motion. First, they contend that this Court lacks jurisdiction to adjudicate plaintiffs' antitrust claims, or that it should refrain from exercising any jurisdiction that might exist. Second, defendants contend that the fourth and fifth claims fail to state claims upon which relief can be granted.

 A

 Defendants' jurisdictional arguments are founded primarily upon the manner in which the New Zealand Dairy Board Act of 1961, as amended, created and governs the conduct of the NZDB. On that aspect of the case, defendants invoke the doctrines of act of state, foreign sovereign compulsion, and international comity. These doctrines, while separately briefed and argued, overlap to a large degree. I think that the applicability of all three doctrines to the case at bar depends upon the answer to the same question: whether New Zealand law compels defendants to conduct their affairs in the manner described in the amended complaint, which plaintiffs say violate American antitrust law. *fn1" If that question be answered in the negative, then there is no apparent impediment to defendants' compliance with the laws of both countries, and no basis for immunizing defendants from the consequences of American antitrust violations.

 These conclusions follow from the Supreme Court's decision in Hartford Fire Insurance Co. v. California, 509 U.S. 764, 125 L. Ed. 2d 612, 113 S. Ct. 2891 (1993). Plaintiffs alleged that domestic primary insurers and reinsurers, brokers, and trade associations, together with British reinsurers based in London, violated the Sherman Act by engaging in various conspiracies aimed at forcing American primary insurers to change the terms of their liability policies to conform with policies the defendants wished to sell. I am concerned in the case at bar only with the Court's holding with respect to the British reinsurers.

 The British reinsurers argued that the principle of international comity precluded District Court jurisdiction over the foreign conduct alleged, a contention that the District Court accepted. The Ninth Circuit reversed. In re Insurance Antitrust Litigation, 938 F.2d 919, 932-34 (9th Cir. 1991). *fn2" The Court of Appeals applied the six factors enumerated in its prior decisions in Timberlane Lumber Co. v. Bank of America, 549 F.2d 597 (9th Cir. 1976) (Timberlane I), and 749 F.2d 1378 (9th Cir. 1984) (Timberlane II). The balancing of those factors, the Ninth Circuit concluded in Hartford, militated in favor of District Court jurisdiction over plaintiffs' antitrust claims against the British reinsurers. The Timberlane case reached the opposite conclusion, which defendants at bar understandably stress; but the Court of Appeals explained the different result in Hartford by saying at 938 F.2d at 933:

 
The comparison led to the ultimate dismissal of the Timberlane suit in Timberlane II : the effects of the conduct charged were substantial in Honduras and minimal in the United States. Timberlane II, 749 F.2d at 1385. The case here is just the reverse. The effects are minimal, or at any rate not large in England, and they are, as implicitly found by the district court, "direct, substantial, and reasonably foreseeable" in the United States, as to which Lloyds does at least half of its casualty underwriting. Accepting as true the plaintiffs' allegations, the actions of the foreign defendants have had the kind of "real economic consequences" for the American economy that strongly weigh in favor of the exercise of jurisdiction.

 The Supreme Court affirmed the Ninth Circuit, but I think it fair to say that its analysis was more sharply focused. In deciding whether "certain claims against the London reinsurers should have been dismissed as improper applications of the Sherman Act to foreign conduct," 509 U.S. at 794-95, the Court identified as "the only substantial question in this litigation . . . whether there is in fact a true conflict between domestic and foreign law." Id. at 798 (citations and internal quotation marks omitted). Answering that question in the negative, the Court accepted the British reinsurers' assertion "that Parliament has established a comprehensive regulatory regime over the London reinsurance market and that the conduct alleged here was perfectly consistent with British law and policy." Id. at 798-99. "But," the Court continued, "this is not to state a conflict." The lawfulness of a foreign defendant's conduct under foreign law is not dispositive on the issue of conflict vel non with American law; and that is so, "even where the foreign state has a strong policy to permit or encourage such conduct." Id. at 799. No conflict exists "where a person subject to regulation by two states can comply with the laws of both"; and that circumstance obtained in Hartford, "since the London reinsurers do not argue that British law requires them to act in some fashion prohibited by the law of the United States, or claim that their compliance with the law of both countries is otherwise impossible." Id. (citations and interior quotation marks omitted). In the absence of any demonstrated conflict between American antitrust law and British law, the foreign conduct of the British reinsurers was subject to District Court antitrust scrutiny.

 Accordingly, I conceive the threshold question in the case at bar to be whether New Zealand law requires defendants to engage in the conduct which plaintiffs allege violates the Sherman Act.

 B

 On August 30, 1961, the New Zealand Parliament enacted the Dairy Board Act of 1961 (hereinafter "the Act"), which came into force on September 1 of that year. *fn3" Act, § 1. The Act established "a Board, to be called the New Zealand Dairy Board," § 3(1), which "is a body corporate, with perpetual succession and a common seal." § 3(4).

 The Board is comprised of two directors appointed by the Minister, a government official, and eleven directors appointed or elected by 15 cooperative companies in the dairy industry. Act, § 3AA. The Board elects its Chairman. § 5(1).

 § 14 of the Act is captioned "General functions of the Board." That section provides in part:

 
(1) The general functions of the Board shall be--
 
(a) Repealed
 
(b) To acquire, pay for, and market such export produce as the Board may from time to time determine:
 
(c) To control the export of dairy produce other than dairy produce acquired and marketed by the Board. . ."

 § 15 is captioned "Board to comply with general trade policy of Government." That section provides:

 
In the exercise of its functions and powers under this Act the Board shall comply with the general trade policy of the Government of New Zealand, and shall comply with any general or special directions given by the Minister pursuant to the policy of the Government in relation thereto.

 Part II of the Act is captioned generally "Marketing of Export Produce." § 17 of the Act falls within Part II. § 17 provides in part:

 
17. Powers of Board as to acquisition and marketing of export produce
 
(1) Without limiting any of the powers conferred on the Board by this Act or otherwise howsoever, the Board shall have full authority to make and carry out such arrangements as it thinks proper for any of the following purposes:
 
(a) For the acquisition and marketing by the Board of export produce:
 
(b) For the handling, pooling, transport, and storage of export produce:
 
(c) For the consignment of export produce on such terms and in such quantities as it thinks fit:
 
(d) For the insurance against loss of export produce:
 
(e) For the establishment of a fund for the purpose of meeting any loss of or damage to export produce acquired by the Board or for the taking of such other steps as the Board thinks fit for that purpose:
 
(f) For the further treatment, processing, or packing of export produce:
 
(g) For furthering the sale or export of diary produce:
 
(h) Subject to subsections (1A) to (1F) of this section, for prohibiting, restricting, and controlling the export of any export produce other than by the Board:
 
(i) Generally for all such matters as are necessary for the exercise of the functions and powers of the Board under this Part of this Act.
 
(1A) Any person who wishes to export dairy produce of any kind or description may apply to the Board for permission to do so, specifying the markets where the produce is intended to be sold; and, having had regard to --
 
(a) The extent to which the markets are in states that do not impose quantitative restrictions on the importation of dairy produce; and
 
(b) The extent to which the export of the produce to the markets might result in a direct or indirect reduction of the overall returns to the New Zealand dairy industry; and
 
(c) Any other relevant guidelines for the time being established by the Board for the purposes of this section and published by the Board, -- the Board shall grant or refuse permission.

 The manner in which the NZDB has structured the exportation of New Zealand cheese to the United States is described in the amended complaint and the motion papers. There appears to be no dispute on that subject.

 As noted, New Zealand's thousands of dairy farmers were formed into 15 cooperatives. The Board formed defendant Milk Products Holdings (North America) Inc. ("MP Holdings"), a Delaware corporation, as its wholly owned subsidiary, for the purpose of holding the stock of other United States corporations. Amended Complaint, P 4. The Board also caused the creation of defendant Western Dairy, a Delaware corporation and a wholly owned subsidiary of MP Holdings, to act as the Board's agent in the distribution and sale of New Zealand dairy products in the United States. Id., P 5. Western Dairy, like the plaintiffs, holds licenses from the USDA to import New Zealand cheese into the United States. Pursuant to USDA regulations, Western Dairy has been designated as the "preferred" importer of New Zealand cheese, which entitles it to receive a specific portion of the quota amount of cheeses allotted to New Zealand for importation, together with any other amounts to which Western Dairy might be entitled by other licenses it holds. Honeyfield Affidavit, P 7.

 Plaintiffs say, and defendants do not appear to question, that the NZDB has exercised the powers conferred upon it by the Act to become "the de facto exclusive purchaser and exporter of New Zealand dairy produce, including cheese." Amended Complaint, P 13. And American importers such as plaintiffs may purchase New Zealand cheese only from Western Dairy. In defendants' phrasing, the NZDB utilizes Western Dairy "as its conduit for all New Zealand cheeses sold to import licensees in the United States." Honeyfield Affidavit, P 9. Plaintiffs state the proposition in less genteel terms. "United States importers, such as the plaintiffs, have no alternative but to procure New Zealand dairy produce, including cheese, from the monolithic export cartel created by the Board, its Directors, and co-conspirators." Amended Complaint, P 13.

 The market price of cheese in the United States is set at weekly intervals by the National Cheese Exchange, also known as the Green Bay Cheese Exchange ("the Exchange"). Plaintiffs purchase New Zealand cheese from Western Dairy at prices slightly discounted from the most recent Exchange quotes. Thus, the two purchase orders giving rise to this litigation were based upon prices quoted by Western Dairy at, respectively, 6 cents and 8 cents below the Exchange quotes in effect on the Friday before the preparation of entry documents for the cheese covered by the purchase orders. Amended Complaint, P 17.

 Plaintiffs do not suggest that defendants control or influence in any way the price quotations on the Green Bay Cheese Exchange. The gravamen of plaintiffs' antitrust charges is that they cannot deal directly and individually with New Zealand dairy farmers or cooperatives, in an effort to obtain a greater discount from the Exchange rate, which is to say, to pay a lower price for the cheese plaintiffs then resell in the American market. Counsel for plaintiffs put it this way at the oral argument:

 
The point is that if this were a free market, if these 15 combines weren't cooperating through the dairy board in this price cartel and we could go to one or the other, we wouldn't be getting a rate 6 cents off of the floating market rate, we would be getting 10, 20, 30 cents cheaper.

 Tr. 35.

 Moreover, plaintiffs argue, defendants are practicing a form of price control that is not mandated by the ...


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