O.N.E. Shipping Ltd. v. Flota Mercante Grancolombiana, S.A., Andino Chemical Shipping, Inc., and Maritima Transligra, S.A.

830 F.2d 449, 9 Fed. R. Serv. 3d 498, 1988 A.M.C. 191, 1987 U.S. App. LEXIS 13265

• Court: Court of Appeals for the Second Circuit
• Decided: October 1, 1987
• Docket: 866, Docket 86-7988
• Status: Published

Opinions

MILTON POLLACK, Senior District Judge:

This appeal invokes the judicially created act of state doctrine on the anti-competitive effect of a foreign sovereign’s cargo reservation laws — the laws of the Republic of Colombia — which require that 50% of licensed imports of liquid bulk cargo (“LBC”) be transported on Colombian owned vessels, or on vessels chartered by a Colombian company.

The district court dismissed this suit brought under the Sherman Antitrust Act, 15 U.S.C. Sections 1, 2 (1982), on the ground that a federal court should not exercise jurisdiction hereof because “Colombian interests outweigh whatever antitrust enforcement interests the United States may have in this case as a matter of law.” We affirm the dismissal.

Following the dismissal, appellant filed a motion under Rules 59 and 60 of the Federal Rules of Civil Procedure for reconsideration of the court’s findings in light of allegedly new evidence and for an amendment of the judgment to reflect the disposition of its motion for a partial summary judgment. The court rejected the motions and sanctioned the appellant $500 under Rule 11. We reverse the order for sanctions.

BACKGROUND

In the late 1960s, Colombia passed a series of “Cargo Reservation Laws.” The purpose of these laws was to favor Colombian shipping companies and the Colombian economy by requiring that imports and exports of certain types of cargo be transported exclusively by Colombian carriers. After 1969, those laws required that the first 50% of each licensed shipment imported into Colombia on trade routes served by Colombian carriers be transported on Colombian-owned vessels or on vessels chartered by a Colombian company. As the result of a delicate compromise between the United States and Colombia, U.S. flag lines were not subject to the protection laws.

Appellant O.N.E. Shipping Ltd. (“O.N. E.”), a Bermuda corporation, and its predecessor in interest, Overseas Liquid Gas, Inc., a U.S. corporation, had offered regular liquid bulk cargo tanker service from U.S. gulf ports to Central and South America. Before 1973 there were no Colombian vessels capable of carrying LBC, so shipping to Colombia of this product was unaffected by the Colombia cargo reservation' laws. This situation changed in 1973 and thereafter.

Appellee Flota Mercante Grancolombiana, S.A. (“Flota”), a Colombia shipping line substantially owned by the National Federation of Coffee Growers of Colombia, is a public organization and is “an agency or instrumentality” of the Colombian Government within the meaning of the Foreign Sovereign Immunities Act of 1976, 28 U.S. C. Section 1603(b).¹ Flota is Colombia’s national line. Flota had no specially equipped LBC tankers of its own.

In 1973, to accommodate the needs of Colombian importers, Flota entered into a chartering agreement (revised in 1976) with appellee Andino Chemical Shipping, Inc., a Panamanian corporation and carrier of LBC, to handle Colombia’s Atlantic coast trade.

In 1976, Flota entered into a similar chartering agreement with appellee Marítima Transligra, S.A. (“Transligra”), an Ecuadoran corporation, to charter the latter’s tankers for use in Colombia’s Pacific coast trade.

As required by Colombian law, Flota’s chartering agreements were filed with and approved by the Colombian Government, enabling the non-Colombian tankers to receive the preferences accorded to Colombian flag vessels under the cargo reservation laws.² Together, the three appellees have captured up to 89% of the shipping imports of LBC into Colombia and O.N.E. has been virtually shut out therefrom.

As mentioned above, following a bilateral negotiation, no restrictions were placed by Colombia on the carriage of products imported from the United States if carried on United States flag vessels.

In April 1977, Flota, Andino and Transligra sought approval of their chartering agreements from the United States Federal Maritime Commission (“FMC”) which would provide an exemption from U.S. antitrust laws. The FMC conditionally disapproved the agreements and subsequently conducted an investigation and a hearing. On May 23, 1983, the Administrative Law Judge (“AU”) also disapproved the agreements. The AU found that Flota had attained near monopoly control over the LBC service to Colombia and that the agreements were prospectively unlawful. On appeal, the FMC affirmed the AU’s order of disapproval and ruled that the agreements were anticompetitive, detrimental to United States commerce, contrary to the public interest and artificially increased transportation rates. The FMC ordered appellees to cease and desist. With these rulings in hand O.N.E. brought this antitrust action in the district court below.

O.N.E. charges appellees with unlawful concerted refusal to deal, conspiracy to exclude competitors, unlawful exclusive dealing, conspiracy to fix prices, conspiracy to divide markets and allocate customers, and attempt and conspiracy to monopolize.

DISCUSSION

O.N.E.’s antitrust suit represents a direct challenge to Colombia’s cargo reservation laws and to the legality of appellees’ space chartering agreements under those laws. The laws were designed to promote the development of a strong Colombian merchant marine and to assist Colombia’s economic development.

Among other purposes, the cargo reservation laws enable the Colombian Government to monitor the allocation of the resources of Colombian shipping companies, to determine whether particular trade routes could prove harmful to the country’s economy and to consider whether an applicant would provide effective, regular and continuous service.

The Colombian Government has repeatedly made known to the United States Department of State, as well as to the Federal Maritime Commission, its strong support for the cargo reservation laws and the chartering agreements thereunder among the appellees.

Applying the balancing tests of Timberlane Lumber Co. v. Bank of America, N.T. & S.A., 549 F.2d 597 (9th Cir.1976) and Mannington Mills, Inc. v. Congoleum Corp., 595 F.2d 1287 (3d Cir.1979) the district court concluded that because of Colombia’s strong interest in its protectionist legislation and because of the Colombian government’s ownership interest in Flota through the National Federation of Coffee Growers, there would be probable adverse effects upon our foreign relations were it to assert jurisdiction over this suit. The comity balancing test has been explicitly used in this Court. See Joseph Muller Corp. Zurich v. Societe Anonyme de Gerance et D’Armament, 451 F.2d 727 (2d Cir.1971) (per curiam), cert. denied, 406 U.S. 906, 92 S.Ct. 1609, 31 L.Ed.2d 816 (1972).³

In an effort to provide a single standard to determine whether American antitrust laws apply to a given extraterritorial transaction, Congress enacted the Foreign Trade Antitrust Improvements Act of 1982, Pub. L. No. 97-290, 96 Stat. 1246 (codified at 15 U.S.C. Section 6a) [hereinafter referred to as the “Act”].

Given the dismissal on comity grounds, the district judge did not decide whether the complaint should be dismissed under the “Act”, although he did state that the Act “would not appear to provide a basis for refusing to exercise jurisdiction over this action.”

Congress left it to the courts to decide when to employ notions of abstention from exercising jurisdiction in extraterritorial antitrust cases. Ninety years ago, the United States Supreme Court enunciated the American version of the act of state doctrine as follows:

Every sovereign State is bound to respect the independence of every other sovereign State, and the courts of one country will not sit in judgment on the acts of government of another done within its own territory. Redress of grievances by reason of such acts must be obtained through the means open to be availed of by sovereign powers as between themselves.

Underhill v. Hernandez, 168 U.S. 250, 252, 18 S.Ct. 83, 84, 42 L.Ed. 456 (1897).

In the landmark case of Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 84 S.Ct. 923, 11 L.Ed.2d 804 (1964), the Supreme Court analyzed the significant policy considerations and “constitutional underpinnings” of the doctrine, noting that no case subsequent to Underhill had manifested any retreat therefrom. 376 U.S. at 416, 421-23, 84 S.Ct. at 934, 936-37. In addition to Sabbatino and Underhill, see Oetjen v. Central Leather Co., 246 U.S. 297, 38 S.Ct. 309, 62 L.Ed. 726 (1918), and Ricaud v. American Metal Co., 246 U.S. 304, 38 S.Ct. 312, 62 L.Ed. 733 (1918).

In essence, the act of state doctrine is a principle of law designed primarily to avoid judicial inquiry into the acts and conduct of the officials of the foreign state, its affairs and its policies and the underlying reasons and motivations for the actions of the foreign government. Such an inquiry is foreclosed under the act of state doctrine, Hunt v. Mobil Oil Corp., 550 F.2d 68, 73 (2d Cir.1977), cert. denied, 434 U.S. 984, 98 S.Ct. 608, 54 L.Ed.2d 477 (1977); and this is true regardless of whether the foreign government is named as a party to the suit or whether the validity of its actions are directly challenged in the pleadings. International Ass’n of Machinists v. OPEC, 649 F.2d 1354, 1359 (9th Cir.1981), cert. denied, 454 U.S. 1163, 102 S.Ct. 1036, 71 L.Ed.2d 319 (1982).

Although the district court engaged in the broader analysis of the possible adverse effects upon foreign relations were jurisdiction to be asserted, the long established act of state doctrine calls upon courts to make a preliminary assessment, on the record before it, of “the likely impact on international relations that would result from judicial consideration of the sovereign’s act.” Allied Bank Int’l v. Banco Credito Agricola de Cartago, 757 F.2d 516, 520-21 (2d Cir.), cert. dismissed, 473 U.S. 934, 106 S.Ct. 30, 87 L.Ed.2d 706 (1985). This Court has made it clear that this is a legitimate exercise of an Article III court, not to be controlled by the expressed view of the executive branch in a given case. As we stated in Allied Bank:

This estimation may be guided but not controlled by the position, if any, articulated by the executive as to the applicability vel non of the doctrine to a particular set of facts. Whether to invoke the act of state doctrine is ultimately and always a judicial question.

Id. at 521 n. 2. Cf. Republic of the Philippines v. Marcos, 806 F.2d 344, 357-60 (2d Cir.1986).

O.N.E. contends that the cargo reservation laws were “implemented [by Colombia] under the manipulative guidance of Flota”; that “commercially determined carrier relationships” should not be replaced by “Colombian-government dictated relationships”; that its “challenge in this proceeding does not so much address Colombia’s cargo reservation laws per se as it does appellees’ manipulation of these laws”; and that Flota has “manipulate[d] the cargo reservation laws so as to carve out a monopoly for itself and exclude all competition.”

O.N.E.’s allegations make clear that its antitrust suit is premised on contentions that it was harmed by acts and motivations of a foreign sovereign which the district court would be called on to examine and pass judgment on. See International Ass’n of Machinists v. OPEC, 649 F.2d 1354, 1358-59 (9th Cir.1981), cert. denied, 454 U.S. 1163, 102 S.Ct. 1036, 71 L.Ed.2d 319 (1982).

When the causal chain between a defendant’s alleged conduct and plaintiff’s injury cannot be determined without an inquiry into the motives of the foreign government, claims made under the antitrust laws are dismissed. Hunt, supra; Occidental Petroleum Corp. v. Buttes Gas & Oil Co., 331 F.Supp. 92, 108-12 (C.D.Cal.1971), aff'd, 461 F.2d 1261 (9th Cir.), cert. denied, 409 U.S. 950, 93 S.Ct. 272, 34 L.Ed.2d 221 (1972); Clayco Petroleum Corp. v. Occidental Petroleum Corp., 712 F.2d 404, 406-08 (9th Cir.1983), cert. denied, 464 U.S. 1040, 104 S.Ct. 703, 79 L.Ed.2d 168 (1984). Furthermore, where as here the conduct of the appellees has been compelled by the foreign government they are entitled to assert the defense of foreign government compulsion and the act of state doctrine is applicable.⁴

Colombia’s interest in this action has not been confined to Flota itself; the liquid bulk cargo service of Flota, Andino and Transligra has been important to Colombia’s economy, and the Colombian government has so represented.

O.N.E.'s “antitrust” claims reflect dissatisfaction with Colombia’s cargo reservation laws, not with appellees’ space chartering agreements. Congress, however, recognizing the particular sensitivity of such challenges to a foreign sovereign’s shipping regulations, has provided a separate proceeding before the Federal Maritime Commission (“FMC”) to resolve such disputes. O.N.E. itself recently instituted such a proceeding.

On May 29, 1986, O.N.E. filed a petition before the FMC under Section 19(l)(b) of the Merchant Marine Act of 1920, 46 U.S.C. Section 876(l)(b). In that proceeding, O.N. E. sought to have the FMC issue regulations under 46 CFR Part 585 to meet conditions allegedly unfavorable to shipping in the foreign trade of the United States.⁵

O.N.E.’s petition stated as follows:

The cargo preference laws of Colombia have severely damaged O.N.E.’s financial position to the point of desperation. O.N.E. hereby asks the Commission to act immediately under Section 19 of the Merchant Marine Act of 1920, without further delay and to avoid further irreparable harm to petitioner, to suspend the tariffs of and preferential agreements by and between all Colombian carriers in this trade and/or prohibit transport of any import/export of liquid bulk products to/from Colombia/United States of America.

These allegations and claims of harm are in essence the same as those pleaded in this action. Clearly, Colombia’s cargo reservation laws are alleged to be at the core of that harm. O.N.E. brought a proceeding before the FMC to remedy this alleged injury, and the mechanism invoked is one intended to preserve harmonious relations among nations while giving the injured party a possible remedy. The relevant FMC regulations stress the resolution of disputes through diplomatic channels. In these circumstances, the district court was clearly correct in concluding that courts should avoid the unnecessary irritant of a private antitrust action.⁶

The dismissal of the complaint is affirmed.

Rule 11 Sanctions

The district court imposed sanctions of $500 against appellant for bringing motions to set aside the judgment on the basis of “newly discovered evidence” and for an amendment of the judgment entered to reflect the disposition of its motion for a partial summary judgment. The district judge ruled:

“Plaintiff O.N.E. Shipping has requested reargument and reconsideration of my previous Memorandum and Order, dated May 22, 1986, dismissing its complaint. Reconsideration is granted, but upon reconsideration plaintiffs requests to set aside the judgment and to amend it to reflect the fact that plaintiff made a motion for partial summary judgment, and to decide that motion are denied.”

Having entertained plaintiffs application for reargument on and reconsideration of the Order dismissing the complaint, there is no basis in this record for having imposed sanctions under Rule 11 on the notion that the application was frivolous, as contemplated for the imposition of sanctions.

In the circumstances, the grant of the applications made by the plaintiff was equivalent to a tacit acknowledgment that a basis existed for consideration by the court of the relief sought. Sanctions are not to be imposed for unsuccessful litigation of a cognizable claim. The failure of the court to delineate specific facts demonstrating improper use of the motion alone undermines the imposition of sanctions herein. See Dow Chemical Pacific, Ltd. v. Rascator Maritime S.A., 782 F.2d 329, 344 (2d Cir.1986).

The award of sanctions is reversed.

1 . By law, profits from Flota’s operations are used to promote industrial development and to build warehouses, roads, schools, hospitals, and power and telephone facilities.

2 . Authorization of the agreements was granted by the Director General of Maritime and Port Matters — a rear admiral in the Colombian Navy and an official within the Ministry of National Defense.

3 . A well-known definition of comity was enunciated by the Supreme Court:

"Comity," in the legal sense, is neither a matter of absolute obligation on the one hand, nor of mere courtesy and good will upon the other. But it is the recognition which one nation allows within its territory to the legislative, executive, or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws.

Hilton v. Guyot, 159 U.S. 113, 163-64, 16 S.Ct. 139, 143, 40 L.Ed. 95 (1895).

4 . The agreements in question were entered into by foreign parties, approved by the government of Colombia, and relate to commerce into Colombia.

The two Supreme Court cases relied on by Judge Cardamone in his dissent, on the other hand, both related to alleged conspiracies entered into in the United States by United States citizens which sought to monopolize trade in the United States. See United States v. Sisal Sales Corp., 274 U.S. 268, 276, 47 S.Ct. 592, 593, 71 L.Ed. 1042 (1927); Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 698-99, 704, 82 S.Ct. 1404, 1409-10, 1413, 8 L.Ed.2d 777 (1962).

Furthermore, the Court noted in Continental Ore that there was no indication of foreign government approval of the actions in question. 370 U.S. at 706, 82 S.Ct. at 1414.

5 . 46 CFR 585.8 provides that:

Upon the filing of a petition, or on its motion when there are indications that conditions unfavorable to shipping in the foreign trade of the United States may exist, the Commission will notify the Secretary of State that such conditions apparently exist, and may request [that the Secretary] seek resolution of the matter through diplomatic channels.

6 . On July 17, 1987, O.N.E. withdrew its petition for relief under Section 19 of the Merchant Marine Act, 1920, then pending before the Federal Maritime Commission (FMC) and requested that the Commission proceeding be discontinued. The FMC discontinued the proceeding without prejudice.