Prologue Part 3: The Antitrust Law of Foreign-Based Transactions Before Passage of the Foreign Trade Antitrust Improvement Act

Today, we’re resuming our series on the antitrust law of transactions taking place on foreign soil.  This post completes our review of the antitrust law of foreign transactions prior to the passage of the Foreign Trade Antitrust Improvement Act.  First, a ground rule that I should have clarified earlier – our purpose here is a historical survey of the law – so readers should of course thoroughly check the background (and subsequent treatment) of the cases we discuss before relying on them.  With the seven cases below, we’re carrying our survey up to the enactment of the FTAIA.

Industria Siciliana Asfalti, Bitumi v. Exxon Research and Engineering Co., 1977 WL 1353 (S.D.N.Y. 1977) – The plaintiff in Industria was an Italian corporation organized to erect and operate a petroleum refinery in Siracusa, Italy.  The plaintiff alleged that it received a bid from the defendant for the engineering and technical licensing work on the refinery, but another bid was $845,000 lower.  According to the contract, Exxon then offered a sweetener, coupling their bid for the engineering work with a favorable refining contract with a second-level subsidiary, Italiana.  The refining contract included a right of first refusal at the prevailing market price on put-through and processing of Italiana crude oil.  *2.  The plaintiff alleged that it was coerced into accepting the reciprocal arrangement because of Exxon’s market power.  *2.  The plaintiff and defendant entered into a licensing agreement whereby the defendant Exxon Research granted the plaintiff a license for certain patented refining processes.  *2.  Italiana ultimately repudiated its agreement with the plaintiff.  Three weeks after the defendant completed its obligations under the engineering agreement, the plaintiff filed suit, alleging that the “joint agreement” coupling offers from multiple Exxon subsidiaries was reciprocal dealing in violation of Section 1 of the Sherman Act, using Exxon’s purchasing power to restrain competition for the refinery design and engineering market.  *3.  Plaintiff further alleged that Italiana never intended to perform under its contract, and that Exxon and its engineering sub knew or should have known that.  The defendants moved to dismiss, arguing that because there was no U.S. commerce involved, there was no jurisdiction.  The trial court found that plaintiff had failed to show market power in the refining market and dismissed and the Court of Appeals affirmed, but the Supreme Court reversed and remanded. *7.  On remand, the defendants once again argued that the plaintiff had failed to allege any impact on U.S. commerce, but the district court held that the allegation of harm to the market for export of design and engineering services was sufficient.  The court dismissed, but granted leave to the plaintiff to replead. *19-20.

Dominicus Americana Bohio v. Gulf & Western Industries, Inc., 473 F. Supp. 680 (S.D.N.Y. 1979) – The complaint in Dominicus alleged monopolization of tourist facilities in the La Romana section of the Dominican Republic.  The defendant moved to dismiss for lack of jurisdiction, since all of the challenged conduct occurred in the Dominican Republic.  The district court found that American Banana’s holding on jurisdiction was “obsolete” and had been superseded by the “effects test.”  687.  The court noted that it was not necessary that an impact on U.S. commerce be substantial and direct, so long as it wasn’t de minimis.  687.  The court ultimately denied the motion to dismiss as premature, noting that discovery was necessary before it could decide the various factors relating to comity.  688.

Mannington Mills, Inc. v. Congoleum Corporation, 595 F.2d 1287 (3rd Cir. 1979) – The plaintiff in Mannington Mills filed suit, alleging that the defendant’s licensing practices in foreign countries violated Section 2 of the Sherman Act.  1290.  Citing the effects test, the Court of Appeal held that acts overseas by an American citizen which have a substantial effect on US foreign commerce are within US antitrust jurisdiction.  1292.  Citing Timberlane, the court cited various factors as relevant to the issue of comity: (1) the degree of conflict with foreign law or policy; (2) the nationality of the parties; (3) the relative importance to the alleged violation of conduct in the U.S. compared to conduct abroad; (4) the availability of a remedy abroad and the pendency of litigation there; (5) whether the plaintiff alleges an intent to affect American commerce, and the foreseeability of such an effect; (6) the possible effect upon foreign relations if the court exercises jurisdiction and grants relief; (7) whether the court can make its order effective; (8) whether this country would accept a judgment from the other country involved in the case; and (9) whether there’s an applicable treaty.  1287-1288.

Zenith Radio Corporation v. Matsushita Corporation, 494 F Supp. 1161 (ED Pa. 1980) – In this case (which ultimately reached the U.S. Supreme Court), the plaintiffs alleged that home electronics manufacturers from Asia had artificially lowered prices on exported products in order to destroy domestic manufacturers and reap monopoly profits.  The court found that a nexus with domestic or international commerce was both a jurisdictional and substantive element of a Sherman Act claim.  1171.  Five principles governed exterritorial jurisdiction, according to the court: (1) the jurisdiction where the offense was committed; (2) the nationality of the offender; (3) conduct threatening national security or operation of government functions; (4) whether the crime involved universal interest, such as piracy; and (5) the nationality of the victim.  1179.  The court wrote that courts have universally rejected American Banana, commenting that it had been “effectively limited to its specific factual pattern.”  1181, 1185.

Montreal Trading Ltd. v. Amax Inc., 661 F. 2d 864 (10th Cir. 1981) – The plaintiff in Montreal Trading, a Canadian corporation, traded commodities.  The defendants were involved in potash mining and production in New Mexico and Canada.  The plaintiff sued, claiming that the defendants’ refusal to sell to them was a concerted refusal to deal intended to limit production and drive up prices.  865-66.  The court wrote that although it had jurisdiction over acts which affect domestic trade or commerce or foreign commerce, even if jurisdiction was present, a court must heed comity.  869.  Citing Timberlane, the Court balanced five factors with respect to comity: (1) the vital national interests of each state; (b) the extent and the nature of the hardship that inconsistent enforcement actions would impose upon the defendant; (c) the extent to which the required conduct is to take place in the territory of the other state; (d) the nationality of the person; and (e) the extent to which enforcement by action of either state can reasonably be expected to achieve compliance with the rule prescribed by that state.  869.  The court ultimately held that plaintiffs had not shown more than a speculative and insubstantial effect on U.S. commerce.  870.  However, American courts should not take jurisdiction over foreign activities “which have no direct or intended effect on US consumers or export opportunities” since this would encroach on the jurisdiction of a foreign state without any overriding justification based on legitimate U.S. interests.  870.

National Bank of Canada v. Interbank Card Association, 666 F.2d 6 (2nd Cir. 1981) – The court in National Bank criticized Timberlane, arguing that acts of minimal but not zero effect on U.S. commerce might trigger jurisdiction although the anticompetitive effect was entirely felt abroad.  *8.  The test for jurisdiction was whether the restraint had, or was intended to have, any anticompetitive effect on U.S. commerce.  *8.

Restatement of the Foreign Relations Law of the United States, Section 403 – The Restatement listed eight conditions which should be weighed to determine whether jurisdiction over foreign conduct or a foreign actor is reasonable: (1) the link between the activity and the territory of the regulating state – whether because the conduct occurred there or it has a substantial, direct and foreseeable effect upon or in the state; (2) the connections between the regulating state and the person principally responsible for the conduct; (3) the character of the activity to be regulated and the importance of regulation to the regulating state; (4) the existence of justified expectations that might be either protected or hurt by the regulation; (5) the importance of the regulation to the international political, legal or economic system; (6) the extent to which the regulation is consistent with the traditions of the international system; (7) the extent to which another state may have an interest in regulating the activity; and (8) the likelihood of conflict with regulations of another state.

Image courtesy of Flickr by Gord Webster (no changes).

The Restatement of the Law of Liability Insurance: Chapter 1, Sections 1-3

Today, let’s begin our section by section tour through the American Law Institute’s new Insurance Restatement.

Chapter 1, Section 1 of the Restatement includes definitions of common terms found in the law of liability insurance, including such commonplace concepts as a condition, the insuring clause, a mandatory (versus non-mandatory) rule, a policy limit and a standard-form term.  Although most of the definitions in the Restatement are non-controversial, a couple of points bear mentioning.  In Section 1(2), the Restatement states that “Unless otherwise stated in the insurance policy, none of the insurer’s duties with respect to defense or indemnification are contingent upon the insured’s payment of the deductible.”  In fact, according to the Rutter Guide, “Most E[rrors] & O[missions] policies” provide that the insured’s obligations with respect to the deductible “must be satisfied before the insurer is obligated to make any payments under the policy.”  Hon. H. Walter Croskey (Ret.), Hon. Rex Heeseman (Ret.), Jeffrey I. Ehrlich and Peter H. Klee, California Practice Guide: Insurance Litigation, Chapter 7K-D, Section 7-2489.  In the second sentence of the definition for a “Self-insured retention,” the Restatement says that “Unless otherwise stated in the insurance policy, an insurer has no duty to defend or indemnify the insured until the insured has paid any applicable self-insured retention.”  Restatement, Section 1(12).  In California, there is law for the opposite proposition – that the duty to defend is only excused until the self-insured retention is paid where the policy expressly (and clearly) says so.  American Safety Indem. Co. v. Admiral Ins. Co. (2013) 220 Cal. App. 4th 1, 4.

Section 2 of the Restatement defines “insurance policy interpretation,” and provides that a court’s construction of policy language involves the resolution of a question of law.  Restatement, Ch. 2, Sec. 2(2).  This is the general rule under California law as well, although a number of courts have added the slight qualifier “Absent a factual dispute as to the meaning of policy language . . . “ E.g., Jordan v. Allstate Ins. Co. (2004) 116 Cal. App. 4th 1206, 1212.  The importance of this rule, of course, is that the interpretation of an insurance term or clause will receive de novo review by each appellate court.  In Section 2(3), the Restatement provides that the ordinary rules of contract construction are equally applicable to construing insurance policies “Except as this Restatement or applicable law otherwise provides.”  California law has repeatedly recognized that although “insurance contracts have special features,” ordinary contract construction rules apply.  E.g., State of Calif. v. Continental Ins. Co. (2012) 55 Cal. 4th 186, 194.

Section 3 of the Restatement is the earliest clause in the treatise which caused considerable controversy among the members of ALI and outside observers.  As written in the Proposed Final Draft No. 2 (Sept. 7, 2018), subsection 1 provides that where a term has a plain meaning “when applied to the facts of the claim at issue,” that plain meaning applies.  According to subsection 2, “plain meaning” is “the single meaning to which the language of the term is reasonably susceptible when applied to facts of the claim at issue in the context of the entire insurance policy.”

Although there’s no shortage of case law, as we’ll discuss in a moment, the basic rules of policy construction are largely a matter of statute in California.  Section 1636 of the Civil Code provides that contracts must be interpreted “to give effect to the mutual intention of the parties as it existed at the time of contracting.”  Section 1638 states that “The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity.”  Section 1641 provides that the entire contract must be construed as a whole, “so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.”  Finally, Section 1644 says “The words of a contract are to be understood in their ordinary and popular sense, rather than according to their strict legal meaning” absent proof that the parties intended to use the language in a technical sense, or a special meaning is given to them by usage.

Likewise, California courts hold that the mutual intent of the parties is to be inferred, if possible, solely from the written provisions of the contract.  E.g., AIU Ins. Co. v. Superior Ct. (1990) 51 Cal. 3d 807, 822.  If the plain meaning of a policy term is clear and express, “it governs.”  Palmer v. Truck Ins. Exch. (1999) 21 Cal. 4th 1109, 1115; Bank of the West v. Superior Ct. (1992) 2 Cal. 4th 1254, 1115.  The plain meaning rule applies equally to negotiation and standard-form insurance policies.  Powerine Oil Co. v. Superior Ct. (2005) 37 Cal. 4th 377, 391.  It can’t be overridden by claims about the insured’s “reasonable expectations,” since if the language of the policy is clear and explicit, an insured can have a “reasonable expectation” of what the policy gives him or her, no more.  Sarchett v. Blue Shield of Cal. (1987) 43 Cal. 3rd 1, 15.

As recently as the Proposed Final Draft of the Restatement, which was published about a year and a half before the Proposed Final Draft No. 2, Restatement Section 3 had a substantial loophole in its statement of the plain meaning rule: “An insurance-policy term is interpreted according to its plain meaning, if any, unless extrinsic evidence shows that a reasonable person in the policyholder’s position would give the term a different meaning.  That different meaning must be more reasonable than the plain meaning in light of the extrinsic evidence, and it must be a meaning to which the language of the term is reasonably susceptible.”  Although some remnants of this extrinsic evidence loophole appear to remain in Final Draft No. 2’s endorsement in Comment c of admitting evidence of “custom, practice, and usage,” in considering plain meaning – a step which would be contrary to California law, as summarized above, at least some of the uncertainty and unnecessary litigation which would have been triggered by the First Final Draft’s open-ended endorsement of extrinsic evidence appears to have been dispelled in the latest version of Section 3.

Join us back here in two weeks as we analyze the Restatement’s approach to ambiguity.

Image courtesy of Flickr by Dennis Jarvis (no changes).


Join Me Tomorrow for “What to Expect from the Brown Court” at the Bar Association of San Francisco

On Wednesday, May 8, I’ll be joining a pair of California Supreme Court experts for a panel discussion, “What to Expect from the Brown Court” at the Bar Association of San Francisco’s Conference Center, 301 Battery Street, 3rd Floor in San Francisco (the discussion will also be available through a webcast).

Justice Joshua P. Groban, the newest Justice appointed by former Governor Brown, will speak.  He will be followed by a panel discussion, with Benjamin G. Shatz of Manatt, Phelps & Phillips and David A. Carrillo of the California Constitution Center, UC Berkeley joining me.  The Honorable Danny Y. Chou of the San Mateo Superior Court will moderate our discussion.

From the BASF Release:

The California Supreme Court – now with seven justices! Justice Groban has joined the program. The program’s first half features a conversation with the justice. In the second half the experts and court watchers will analyze the California Supreme Court’s recent track record, examining the six veteran justices’ three-year opinion and vote records. We will attempt to predict how the new seven-member court might operate.

– What do we think about the new justice?
– How did the court cope with fifteen months of pro tem justices?
– What data conclusions are plausible about the court’s recent history?
– Can we predict how the new justice will align?

We hope everyone will join us!

 Image courtesy of Flickr by Ed Bierman (no changes). 

Prologue Part 2: The Antitrust Law of Foreign-Based Transactions Before Passage of the FTAIA

Today, we’re continuing the prologue of our tour through the law of the Foreign Trade Antitrust Improvement Act, surveying the antitrust law of foreign-based transactions in the years leading up to enactment of the FTAIA.  In our first installment, we reviewed the Supreme Court’s decision in American Banana Co. v. United Fruit Company, 213 U.S. 347 (1909), where the Court held that an antitrust conspiracy to take actions overseas was not within the reach of the Sherman Act, even when the conspiratorial agreement was reached within the U.S.  The cases following American Banana showed both the Supreme Court and lower courts backing away from that hardline position, gradually rendering American Banana largely a dead letter.  Today, we review the rest of the major cases involved in that evolution.

United States v. Aluminum Co. of America, 148 F.2d 416 (2nd Cir. 1945) Alcoa involved allegations by the Justice Department that Alcoa and many of its international subsidiaries had monopolized both interstate and foreign commerce in the manufacture and sale of “virgin” aluminum ingot, and had joined in a conspiracy in restraint of such commerce with another defendant, Aluminum Limited.

Aluminum is never found in a pure state – it is always chemically bonded with oxygen.  Until the late 1880s, it was never commercially practicable to separate the aluminum from the oxygen.  An inventor identified a method of doing so in the late 1880s and assigned the patent to Alcoa.  A few years later, a different inventor discovered a process by which aluminum smelting could be done without external heat.  In October 1903, Alcoa became the exclusive licensee of that second process in return for a promise to sell a stated amount of aluminum to the patent assignee for a 10% discount.  Meanwhile, according to the complaint, Alcoa entered into contracts with various power companies to supply the power needed to complete the manufacturing process.  The contracts allegedly included in several cases covenants that the power company would not sell power to any third party for the manufacture of aluminum.  Finally, Alcoa allegedly entered into four successive cartels with foreign manufacturers agreeing to limit its imports into their non-U.S. markets in return for a promise that the foreign manufacturers would not import into the United States or would do so under restrictions.  The Justice Department first sued Alcoa in 1912, and the lawsuit ended with a decree finding various covenants entered into by the company unlawful and enjoining their performance.  In 1937, the Justice Department sued Alcoa again, alleging that essentially the same kinds of conduct had continued even after the 1912 decree.  Following a nearly two-year long trial involving more that 40,000 pages of testimony, the district court found for defendants and dismissed the complaint.  The government’s petition for an appeal from the judgment was granted (only a day after it was filed), but nearly two years later, the Supreme Court entered an order noting that sufficient Justices had recused themselves that the Court was unable to produce the necessary quorum of six to hear the case.  So the case was assigned to the Second Circuit, functioning as the court of last resort under 15 U.S.C. 29.

Defendant Aluminum Limited was formed in 1928 to take over the properties of Alcoa outside the United States.  All common shares in Limited were issued to the common shareholders of Alcoa.  Effectively controlling interests in both companies were owned by a very small number of people.  In 1931, Limited jointed five other non-U.S. companies to form a Swiss corporation they called the “Alliance.”  The 1931 agreement provided that the Alliance would from time to time fix a quota of production for each share in the company, and each shareholder would be limited to that quota in sales.  All shareholders were barred from buying or selling aluminum to anyone not in the group without the consent of the directors.  The agreement also provided that members could exceed their quota to the extent that the member converted ores delivered to him in the U.S. or Canada by persons situated in either country into aluminum.  In 1936, the members of the Alliance entered into a new agreement providing that each member who exceeded production quotas for the year should pay a graduated royalty which would be divided among the shareholders.

The question for the Court was whether the agreements of 1931 or 1936 among the Alliance members violated the Sherman Act, notwithstanding the fact that they were entered into overseas by (for the most part) foreign nationals.  Under American Banana, the answer would have been simple – no.  But by 1945, it was “settled law” that “any state may impose liabilities, even upon persons not within its allegiance, for conduct outside its borders that has consequences within its borders which the state reprehends.”  The court concluded that since the agreements “would clearly have been unlawful” if they had been made within the United States, they were likewise illegal in this case if they were intended to affect imports and did affect them.  Since the 1936 agreement was expressly intended to affect U.S. imports, the first half of that two-prong test was satisfied.  The second half – an actual effect on imports – was satisfied too, since any restraint reducing supply was presumed to affect prices.

United States v. Timken Roller Bearing Co., 83 F.Supp. 284 (N.D. Ohio 1949) & Timken Roller Bearing Co. v. United States, 341 U.S. 593 (1951) Timken involved allegations three companies – an American, a British and a French company – had entered into various agreements intended to eliminate all competition between themselves and with others in the market for anti-friction bearings worldwide.  These agreements had purportedly been made as early as 1909 and been modified and extended repeatedly since.  The agreements purportedly divided up the market, barring parties from selling into the territory of another participant and fixing the price which the party must sell at if he did so.  The district court found that the agreements to divide up the worldwide markets and eradicate competition among the parties plainly violated the Sherman Act.  The court summarily rejected the claim that the Sherman Act could not reach the agreements because they were made overseas.  The agreements “had a direct and influencing effect on trade in tapered bearings between the United States and foreign countries,” and that was that.

The defendant appealed directly to the Supreme Court.  On appeal, the defendants insisted that the cartel agreements were the only way they could compete successfully in foreign markets.  The Supreme Court made short shrift of the argument, holding that the Sherman Act was based on the proposition that both export and import trade were possible and desirable – a proposition that was “wholly inconsistent” with the view that free foreign commerce in goods must be sacrificed to promote the export of American capital for investment in foreign factories to sell abroad.

Steele v. Bulova Watch Co., 344 U.S. 280 (1952) – Although Steele was not an antitrust case, it illustrates how far the Supreme Court had come in demolishing American Banana.  According to the complaint, the petitioner was a long-time resident of San Antonio, Texas who first entered the watch business in 1922.  Four years later, he learned of the defendant’s trademark on its nationally-distributed watches.  The petitioner picked up and moved his business to Mexico City, where he discovered that the defendant had not registered its trademark in Mexico.  The petitioner obtained the Mexican registration and began manufacturing watches using parts imported from Switzerland and the United States.  When the defendant began receiving numerous complaints about spurious watches with their trademark, they sued him under the Lanham Act.

It made no difference for jurisdictional purposes that most of the petitioner’s actions had taken place on foreign soil – the petitioner was an American citizen, and his alleged conduct had an effect on U.S. commerce, both in the form of his watches filtering across the border and his purchases of components in the U.S.

Although the Court purported to distinguish American Banana in Steele, it all but abandoned the earlier holding.  The rule of American Banana was never intended to confer blanket immunity on conduct on foreign soil which radiated effects into the United States, according to the Supreme Court.  “Unlawful effects in this country . . . are often decisive.”

Continental Ore Co. v. Union Carbide and Carbon Corp., 370 U.S. 690 (1962) Continental Ore involved allegations that the defendants had attempted to monopolize the market in ferrovanadium and vanadium oxide.  Vanadium oxide is produced by mills near the mines where vanadium ore is produced, and through a further process, vanadium oxide is converted into ferrovanadium.  According to the complaint, the defendants had either bought or acquired control over virtually all the vanadium deposits in the U.S. and virtually all the vanadium oxide produced by others here.  They had then refused to sell vanadium oxide to other producers of ferrovanadium, as well as dividing up the market among themselves and fixing prices for the purchase and sale of ore, vanadium oxide and ferrovanadium.  According to the plaintiff, by 1949, the defendants were producing over 99% of the ferrovanadium in the U.S. and over 90% of the vanadium oxide and were accounting for more than 99% of the nationwide sales of both.  As a result, other producers were allegedly driven out of business.  The plaintiff’s fundamental claim was that as a result of the defendants’ control over the market, they were unable to find sufficient supplies of vanadium oxide to compete.

Our interest in Continental, however, flows from their claim that the defendants conduct had effectively destroyed their business selling ferrovanadium in the Canadian market.  The plaintiff introduced evidence that it had sold products to a Canadian customer throughout 1942.  However, in January 1943, it learned that a new allocation system in Canada had eliminated the plaintiff from the Canadian market.  The complaint alleged that a wholly owned subsidiary of the defendant had been named exclusive purchasing agent for the Metals Controller for the Canadian government – the sole party authorized to import ferrovanadium into Canada – and at the defendant’s behest, eliminated the plaintiff from the market.

The defendant argued that American Banana shielded them from liability, but that argument went nowhere: “A conspiracy to monopolize or restrain the domestic or foreign commerce of the United Stats is not outside the reach of the Sherman Act just because part of the conduct complained of occurs in foreign countries.”  Further, citing Sisal Sales Corp. (see our previous post in this series), it made no difference that the alleged conspiracy involved some acts by an agent of a foreign government.

Todhunter-Mitchell & Co., Ltd. v. Anheuser-Busch, Inc., 383 F.Supp. 586 (E.D. Pa. 1974) – The defendant in Todhunter-Mitchell tried yet again to resuscitate American Banana, with no luck.  The plaintiff there was a Bahamian corporation which engaged in wholesale distribution of liquor and beer in the Bahamas.  One of Todhunter’s principal competitors was Bahama Blenders, which was the exclusive authorized distributor for the defendant’s beer in the Bahamas.  The plaintiff allegedly tried to buy the defendant’s beer from its wholesalers in Miami and New Orleans for importation and resale in competition with Bahama Blenders, but was prevented from doing so by resale restrictions imposed by the defendant, the purpose of which was to prevent any price competition in the sale of defendant’s beers in the Bahamas.  The defendant cited American Banana, but the court commented that “subsequent cases” had made it clear that the 1909 decision didn’t apply to situations where the conduct of the defendant had “an impact within the United States and its foreign trade.”  Since the defendant’s alleged resale restrictions had made sales from Miami and New Orleans to the plaintiff impossible, it was a direct restraint on commerce between the United States and the Bahamas, and the Sherman Act applied.

Timberlane Lumber Co. v. Bank of America, 549 F.2d 597 (9th Cir. 1976) – In one of the last major foreign-commerce decisions before the FTAIA was enacted, the plaintiffs here alleged that the defendant and others, located both in the U.S. and Honduras, had conspired to prevent the plaintiff from milling lumber in Honduras for export to the United States, thus supposedly keeping control of the Honduran lumber export business in the hands of parties allegedly financed and controlled by the defendant.  The plaintiffs were an U.S. based partnership engaged in the importation and domestic distribution of foreign lumber and two Honduran corporations principally owned by general partners of the U.S. based party.  The district court dismissed on the grounds that the activities complained of had happened in Honduras and based on the act of state doctrine (since crucial steps in the alleged conspiracy had occurred in the context of court actions in Honduras).

The story of Timberlane begins with the bankruptcy of a Honduran lumber mill owned by a third party.  Not long after, the plaintiffs were seeking alternative sources of lumber for delivery to its U.S. distribution system and settled on Honduras.  The plaintiffs formed a Honduran subsidiary, acquired forest land and started buying log-processing equipment.  The plaintiffs learned that the third-party’s former mill might be available, so they formed a second Honduran subsidiary and managed to buy a share of the mill from former employees who had acquired it in the bankruptcy.

The problem was that the employees’ share wasn’t all of the mill.  Yet another third party (who plaintiffs alleged was the “front man” for the defendants’ scheme) acquired the remaining interests in the mill, which were owned by the defendant and a competing mill.  The “front man” then went to court in Honduras to enforce those interests through attachment.  In Honduran law, what U.S. lawyers would call an attachment is known as an “embargo,” which precludes sale of the property without a court order.  In addition, a judicial officer known as an “interventor” is appointed to ensure that the value of the property won’t decrease.  The “front man” got embargoes on both of the plaintiffs’ Honduran subsidiaries.  The interventor – who was supposedly on the defendant’s payroll – allegedly used guards and troops to cripple the plaintiffs’ Honduran operation.

After rejecting the defendants’ “act of state” doctrine defense, the Ninth Circuit turned to the question of applying the Sherman Act to the almost exclusively Honduran conduct at issue.  The court immediately recognized that American Banana was a dead letter.  If U.S. antitrust law could reach some but not all foreign activity, what was the test for determining jurisdiction?  The district court in Timberlane had required a “direct and substantial effect” on U.S. foreign commerce.  An important commentator suggested a “direct or substantial effect” test.  Another commentator advocated a test of whether the conduct “substantially affects” either foreign or interstate commerce.  The Ninth Circuit commented that nobody seemed to really know how “substantial” an effect had to be or what the “direct-indirect” distinction meant.  Ultimately, the Ninth Circuit settled on a three-part test: “Does the alleged restraint affect, or was it intended to affect, the foreign commerce of the United States? Is it of such a type and magnitude as to be cognizable as a violation of the Sherman Act?  As a matter of international comity and fairness, should the extraterritorial jurisdiction of the United States be asserted to cover it?”  Since the district court had addressed only the impact on U.S. commerce, the Ninth Circuit vacated and remanded.

Join us back here in two weeks as we review the legislative history of the Foreign Trade Antitrust Improvement Act.

Image courtesy of Flickr by Chad Sparkes (no changes).

The Response So Far to the Restatement of the Law of Liability Insurance

Two weeks ago, we announced a new biweekly series analyzing, section by section, the new Restatement of the Law of Liability Insurance.  Before we begin talking about specific sections, let’s review the response so far to the Restatement from courts and other authorities outside the ALI.

Pushback against the Restatement began even before final approval by the ALI membership.  On May 5, 2017, a full year before the Restatement was approved, the leaders of the National Council of Insurance Legislators sent ALI leadership a letter arguing that “several of the proposed Restatement’s provisions go beyond established insurance law and thus are of immediate concern because they appear to address matters which are properly within the legislative prerogative.”  Ultimately, in response to criticism both from a coalition of a long list of ALI members (I was proud to join that coalition) and outside authorities, the ALI postponed for a year the scheduled May 2017 vote to give the Restatement final approval.

On November 28, 2017, following a general session at the annual meeting of NCOIL during which the Restatement reporters spoke, NCOIL leadership wrote the ALI again, arguing that the Restatement remained a misstatement of majority law in several key respects, citing specifically to Sections 3, 8, 12, 13(3), 18, 19, 27, 36, 48, 49(3), and 51(1).  NCOIL leaders warned that “Should there not be meaningful change in the proposed Restatement, NCOIL will be forced to oppose the proposed Restatement project as a misrepresentation of the law of liability insurance, and as a usurpation of lawmaking authority from State insurance legislators.”  NCOIL noted that it would soon be deciding the role the organization “would take in alerting state Chief Justices, state legislative leaders and members of the committees with jurisdiction over insurance public policy [and] state insurance regulators” that the Restatement was “in numerous places, a misstatement of the law . . . and should not be afforded recognition as an authoritative reference.”

My home state of Kentucky was first out of the box.  The Kentucky House of Representatives passed House Resolution No. 222 even before the Restatement won final approval from the ALI membership:

Section 1.  This honorable body respectfully urges ALI leadership, members, and Reporters to abide by ALI’s own acknowledgement that “[a]n unelected body like The American Law Institute has limited competence and no special authority to make major innovations in matters of public policy’ and instead afford proper respect to the legislative prerogative, and the expertise and the jurisdiction of NCOIL members.

Section 2.  This honorable body respectfully urges ALI to effect meaningful change to the proposed Restatement so that it is consistent with well-established insurance law and respectful of the rule of state legislatures in establishing insurance legal standards and practice.

Section 3.  This honorable body respectfully urges that, if meaningful change to the proposed Restatement does not occur prior to its final approval, the Restatement of the Law of Liability Insurance should not be afforded recognition by courts as an authoritative reference regarding established rules and principles of insurance law, as Restatements have traditionally been afforded.

Following final approval of the Insurance Restatement in May 2018, the Ohio legislature passed S.B. 239, amending Ohio law as follows: “The ‘Restatement of the Law of Liability Insurance’ that was approved at the 2018 annual meeting of the American Law Institute does not constitute the public policy of this state and is not an appropriate subject of notice.”

In February 2019, the Texas legislature followed suit:

WHEREAS, the Restatement contains several areas that . . . are inconsistent with established law . . . and accordingly, courts cannot properly rely on the new Restatement . . . therefore, be it

RESOLVED, that the 86th Legislature of the State of Texas hereby condemn the American Law Institute’s 2018 Restatement of the Law of Liability Insurance and discourage courts from relying on the Restatement as an authoritative reference regarding established rules and principles of law.

Nor does the Restatement seem to be making much progress in the courts.  Our research has not located a single case in which any of the Restatement sections highlighted by the Restatement’s many opponents has been adopted by a court.

In late 2016, the United States District Court for the Southern District of Alabama “see also” cited a discussion draft in a footnote for regarding the consequences of an unreasonable breach of the duty to defend.  Nationwide Mutual Fire Insurance Co. v. D.R. Horton, Inc., 2016 WL 6828206, n. 6 (S.D. Ala. 2016).  Later that year, the Southern District of Texas cited a Tentative Draft of the Restatement for an unremarkable point about the insured’s duty to cooperate.  2016 WL 7733054, *4, n.28 (S.D. Tex. 2016).  In May 2017, the Southern District of Indiana cited a section of a Discussion Draft of the Restatement stating that the right to recoupment of defense costs must be included in policy language.  Selective Insurance Co. of Am. V. Smiley Body Shop, Inc., 260 F.Supp.3d 1023, 1033 (S.D. Ind. 2017).  In October 2017, the Missouri Court of Appeals included a “see also” cite to a Tentative Draft defining the “all-sums” approach to exhaustion.  Nooter Corp. v. Allianz Underwriters Ins. Co., 536 S.W. 3d 251, 272 (2017).

In February 2018, two litigants in Catlin Specialty Insurance Co. v. J.J. White, Inc., 309 F.Supp.3d 345,  362 (E.D. Pa. 2018), cited one of the more controversial sections of the Restatement describing the consequences of an unreasonable refusal to defend in support of their argument.  The court wasn’t impressed, briefly noting that New York law was to the contrary.  The defendants in Catlin Specialty Insurance Co. v. CBL & Associates Property, Inc., 2018 WL 3805868 (Sup. Del. 2018) cited the Restatement in support of a similar argument.  The court wasn’t persuaded: “the Restatements are mere persuasive authority until adopted by a court; they never, by mere issuance, override controlling case law.  And this Restatement itself acknowledges that ‘[s]ome courts follow the contrary rule.’”  *3.  The counterclaim plaintiff in Progressive Northwestern Insurance Co. v. Gant, 2018 WL 4600716 (D. Kan. 2018) cited another controversial section of the Restatement regarding the consequences of an insurer hiring an incompetent attorney to represent the insured.  The court rejected the argument for two reasons: first, at the time, the Restatement hadn’t been given final approval, and second, Kansas courts hadn’t addressed the issue: “this Court is not inclined to use a nonbinding Restatement as a means to overturn or expand Kansas law.”  Id. at *7.  The Eastern District of Kentucky rejected the Restatement provision addressing the scope of the duty to defend in Outdoor Venture Corp. v. Philadelphia Indemnity Insurance Co., 2018 WL 4656400 (E.D. Ky. 2018), briefly noting the relevant Restatement section and then following the (very different) Kentucky law.  Id. at *18-19.  The Delaware Court of Chancery briefly cited the Restatement in a lengthy footnote in Akorn, Inc. v. Fresenius Kabi AG, 2018 WL 4719347, *59, n. 619 (Del. Ch. Ct. 2018) regarding the burden of proving that a claim falls within an exclusion.  The Western District of Oklahoma briefly cited to the Restatement in National Casualty Co. v. Western Express, 356 F. Supp. 3d 1288, 1299 in connection with determining the number of claims created by an event.

Next week, we’ll be back with a new installment of our series on the law of the Foreign Trade Antitrust Improvement Act.  The week after, we’ll begin our tour through the Insurance Restatement.

Image courtesy of Flickr by GotCredit (no changes).

Prologue Part 1: The Antitrust Law of Foreign-Based Transactions Before Passage of the FTAIA

Two weeks ago, we announced a new biweekly series on the law of the Foreign Trade Antitrust Improvement Act.  Before we embark on our survey of the cases since passage of the FTAIA, let’s spend a few weeks reviewing the slate upon which Congress was writing when they passed the FTAIA – what was the US law of foreign-based transactions when the FTAIA was passed?

American Banana Co. v. United Fruit Company, 213 U.S. 347 (1909).  Probably the earliest major decision on the application of antitrust law to foreign transactions was American Banana Co. v. United Fruit Company, 213 U.S. 347 (1909).  American Banana was an Alabama corporation organized in 1904; United Fruit was a New Jersey corporation which had been organized five years earlier.  According to the complaint, United Fruit had occupied itself between 1899 and 1904 by buying up its competitors, including a non-compete agreement in the purchase contracts.  The companies United Fruit couldn’t buy, it did one of two things – either entered into a contract with the competitor regulating the quantity and price of fruit each competitor could buy, or it acquired a controlling interest in the competitor.  The defendant also supposedly organized a separate wholly owned selling company which by agreement sold all the bananas of all these companies.

In 1903, McConnell started a banana plantation in Panama – at the time, still part of Columbia – and began building a roadway to get the product to the market.  Defendant allegedly advised the plaintiff to either join his group or prepare to hold a going-out-of-business sale.  Two months later, the governor of Panama recommended to the Columbian government that Costa Rica be allowed to administer the part of Panama where McConnell was – even though an arbitration panel had decided it was part of Panama, and therefore part of Columbia.  Over the few months that followed (we’re still in 1903), both the defendant and the Costa Rican government supposedly did what they could to slow McConnell down.  In November 1903, Panama revolted against Columbian rule.  Eight months later, the plaintiff – American Banana Company – bought McConnell out.

And after that, things got even more tangled.  In July 1904, Costa Rican soldiers allegedly seized part of the plantation and a cargo of supplies and stopped the operation of the plantation and construction of the railway.  One month later, enter Astua, who got an ex parte judgment from a Costa Rican court saying the plantation was his.  The defendant then bought the plantation, lock, stock and barrel from the mysterious Astua.  The plaintiff asked the Costa Rican government to please go away and asked the United States to come help – no luck.

So as the lawsuit opens, the plaintiff has no plantation, no railway, and no supplies.  The defendant has shut the plaintiff down and either bought or hog-tied all his competitors in various anticompetitive contracts.  And for good measure, the defendant supposedly offered positions to the plaintiff’s employees and fired its own employees who owned stock in the plaintiff.

The plaintiff filed suit under the Sherman Act.  The Circuit Court for the Southern District of New York tossed the complaint and the Second Circuit affirmed.  The Supreme Court heard argument on April 12, 1909 and handed down its opinion only two weeks later, in an opinion by Justice Oliver Wendell Holmes.

The Court affirmed, noting that “the general and almost universal rule is that the character of an act as lawful or unlawful must be determined wholly by the law of the country where the act is done . . . For another jurisdiction, if it should happen to lay hold of the actor, to treat him according to its own notions rather than those of the place where he did the acts, not only would be unjust, but would be an interference with the authority of another sovereign, contrary to the comity of nations, which the other state concerned justly might resent.”  When the Congress enacted the Sherman Act, Justice Holmes wrote, it was regulating all persons within American jurisdiction, not anybody the police or courts could subsequently catch.  So the Sherman Act didn’t apply to the defendant’s conduct . . . and since they weren’t torts according to Panama or Costa Rica, none of it was tortious at all.  “A conspiracy in this country,” the opinion concludes, “to do acts in another jurisdiction does not draw to itself those acts and make them unlawful, if they are permitted by the local law.”

United States v. American Tobacco Co., 221 U.S. 106 (1911).  Before January 1890, the cigarette industry in the United States consisted of five oligopolists who together controlled 95% of cigarette sales in the United States and 8% of the foreign market.  After a number of years of fierce competition, the companies met and agreed to form the American Tobacco Company.  All the assets of the five companies were conveyed to the new entity.  The new consolidated company accounted for 96-97% of the total domestic market in its first year of operation.

Just over a year after its formation, the American Tobacco Company increased its capital stock from $25 million to $35 million.  In the months that followed, the American Tobacco Company entered into monthly transactions buying up competitors: a successful manufacturer of plug tobacco, one of cheroots and cigars, one of snuff, one of smoking tobacco.  Between 1892 and 1897, the company acquired fifteen additional tobacco companies doing business throughout the southeast.  In every case, the former owners of the target company entered into a non-compete agreement with ATC.  As early as 1893, the president of the ATC allegedly approached several leading manufacturers of plug tobacco and told them they had a choice: either combine with ATC, or ATC would lower its price on the product below its cost.  By 1898, ATC had acquired many of the major players in the plug tobacco sector, assigning the assets and intellectual property of the targets to a new subsidiary, the Continental Tobacco Company.  In the years that followed, American and Continental bought another thirty competitors.  In nearly every case, the target’s manufacturing plants were immediately closed down.  In September 1901, ATC bought a major producer of tobacco products in England, and a trade war ensued, ultimately resulting in the British manufacturers combining to create the Imperial Tobacco Company.  About a year later, American and Imperial entered into contracts in England dividing up the worldwide tobacco market.

In 1908, the Justice Department filed suit against the American Tobacco Company, arguing that the companies’ business practices over the previous eighteen years violated sections 1 and 2 of the Sherman Act.  A total of sixty-five companies and twenty-nine individuals as defendants.  The trial court sided with the government and ordered the defendant to dissolve.

The Supreme Court decided American Tobacco on the same day Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911) came down. The court pointed out the problem with the plain language of the Sherman Act which we noted two weeks ago in the first post in this series: read overly literally, the Sherman Act appears to ban all contracts relating to commerce.  In response to the problem, the Supreme Court adopted a rule first applied by then-Judge William Howard Taft in Addyston Pipe & Steel Co. v. United States: the Sherman Act actually bars contracts which, either by evidence of the defendants’ purpose and its consequences or by the inherent nature of the acts in question, unreasonably restrain trade – usually by increasing prices or reducing output or quality.  The wrongful purpose of the defendants’ conduct in American Tobacco was shown, the Court found, by several factors: (1) ATC was originally organized to end a trade war; (2) ATC’s subsequent conduct tended to increase its control over worldwide production by either buying up competitors or driving them out of business, ultimately resulting in division of the worldwide market through two contracts executed in England; (3) the constantly evolving structure of the various transactions, which the Court suggested was evidence of an unlawful purpose; (4) the acquisition of control over the elements necessary to production of tobacco products, keeping those companies nominally independent while erecting major barriers to entry; (5) consistently shutting down the manufacturing plans of target companies after acquiring them; and (6) the lengthy non-compete agreements which were included in acquisition contracts.

The Supreme Court held that the entire arrangement – not just a subset of transactions, but the original formation of the American Tobacco Company and pretty much everything that followed – violated Sections 1 and 2.  The court stayed that determination for six months, remanding back to the Southern District for an evidentiary hearing to decide what should be done to fully effectuate the underlying purposes of the Sherman Act.  If the matter couldn’t be resolved within the stay, the entities’ assets should be turned over to a receiver to disentangle.  In the meantime, everyone involved was enjoined from any act whose purpose or effect was anticompetitive.

So why are we discussing American Tobacco in a post about the FTAIA?  Well, nobody disputed in American Tobacco that the two worldwide market division agreements had been signed in England.  Yet, no one involved appears to have questioned the federal courts’ power to order the whole arrangement unraveled.  So already there are indications that it might not take long for the Court to edge away from the view that its antitrust jurisdiction depended entirely on where conduct took place.

And a bit of American Tobacco trivia: the oral argument in January 1910 took four days.  Three months later, the Court decided it hadn’t heard enough and ordered another argument.  And in January 2011, the reargument took four more days.  Different times indeed.

United States v. Hamburg-Amerikanische Packet-Fahrtachtien-Gesellschaft, 200 F. 806 (S.D.N.Y. 1911).  Our next case comes from the Circuit Court for the Southern District of New York, which had also handled American Banana and American Tobacco.  Various steamship companies agreed to form the Atlantic Conference.  The agreement divided up the market for carrying steerage passengers across the Atlantic, assigning each company a stated percentage and providing for the pooling of receipts.  Prices weren’t directly fixed, but if anyone reaching 75% or more of traffic had the right to direct anyone to raise or lower their prices.  Following the formation of the Atlantic Conference, the participants allegedly forced many of their competitors out of business.

The defendants argued that the Sherman Act had to be construed as limiting only acts entirely performed in the United States and/or by American actors.  The court wasn’t having it: “it is immaterial where [the contract] was entered into or by what vessels it was to be, or has been, performed.  Citizens of foreign countries are not free to restrain or monopolize the foreign commerce of this country by entering into combinations abroad nor by employing foreign vessels to effect their purpose.  Such combinations are to be tested by the same standards as similar combinations entered into here by citizens of this country.”

United States v. Pacific & Arctic Railway & Navigation Company, 226 U.S. 87 (1913).  This case involved a series of agreements between various steamship, railroad and wharf companies relating to trade in freight and passengers from American and Canadian ports in the Pacific northwest to American and British ports in the Yukon.  According to the complaint, the defendants refused to enter into joint or through rates with independent steamship lines, refused to bill freight or passengers from the United States to Yukon river points except by ships belonging to one of the defendants, fixed railroad local rates between Skagway and the Yukon River points and fixed wharfage rates for freight carried by one of the defendants.

The defendants argued that some of the route alleged to be monopolized was outside United States territory, so the Sherman Act didn’t apply at all.  The Supreme Court dismissed this notion, commenting that if antitrust jurisdiction was limited to conduct occurring entirely in a single country, then neither the U.S. or Canada could reach the defendants.  The indictment alleged a purpose to interfere with United States commerce, and that was illegal – whether the defendants were U.S. companies or citizens or foreign ones.

One last note about Pacific & Arctic.  If one is planning to enter into an agreement to monopolize rail trade in a certain market, it’s probably best not to call the four still nominally independent railroads – collectively – “the railroad.”  226 U.S. 87, 90.

Thomsen v. Cayser, 243 U.S. 66 (1917).  Calling themselves “The South African Steam Lines,” the defendants in Thomsen allegedly indulged in price discrimination and commissions in freight charges to coerce other shippers and merchants to use their services.  The defendants also agreed that they would not dispatch steamers to African ports at stated and regular dates, but rather would send out shipments “as they deemed best for their private gain and profit.”  Beginning in the spring of 1902, two steamship companies began competing with the combination, offering a rate lower than the defendants’ rate.  The defendants responded by announcing lower prices – but only on lines competing with the rebel lines’ ships, and only where the shipper disclosed the name of his consignee.  Refunds of part of the charge were allegedly passed out only to shippers which shipped exclusively by the shippers included in the “South African Steam Lines” combination.  Subsequently, the defendants allegedly threatened to withhold rebate payments from shippers who declined to promise to remain “loyal.”  The trial court in Thomsen dismissed the complaint, but the circuit court of appeals reversed.  The retrial resulted in a jury trial and a verdict for the plaintiffs.

Before the Supreme Court, the defendants argued that the conspiracy took place in a foreign country, and was therefore beyond the jurisdiction of the Sherman Act.  The Supreme Court summarily rejected the notion, citing Pacific & Arctic Railway for the proposition that a combination to affect the foreign commerce of the United States and partially put into action here was within the jurisdiction of the federal courts.

United States v. Sisal Sales Corp., 274 U.S. 268 (1927) – The drift away from the hardline view of American Banana continued in United States v. Sisal Sales Corp.  The bank defendants had lost quite a bit of money only years before when the sisal market collapsed.  By the time the markets in the Yucatan reopened, the banks found themselves holding 400,000 bales of fiber as a result of foreclosures.  The banks allegedly undertook the scheme in order to increase the value of their holdings, thereby recouping their losses plus whatever profits they could manage.  The banks allegedly began the scheme in early 1919 by organizing the Erie Corporation and transferring not only its sisal, but another 250,000 bales acquired in the Yucatan to Erie.  Erie managed to get laws favorable to it enacted by the Yucatacan and Mexican governments.  As a result, most of the competitors in the market were forced out of business.  The defendants then organized the Sisal Sales Company, transferred Erie’s sisal stocks to it, and by the use of more discriminatory legislation wound up as the preeminent force in the market.

The defendants argued that the court had no jurisdiction under the rule of American Banana.  The Supreme Court dispatched that argument in a single paragraph: the allegations stated a claim for violation of American law by parties subject to federal jurisdiction within American territory, not of something done by a foreign government at the instigation of private parties.  The fact that the scheme was substantially based on discriminatory legislation by foreign actors didn’t make any difference – the defendants had taken action both within the United States and elsewhere in order to affect U.S. commerce, and that meant game over.

United States v. National Lead Co., 63 F. Supp. 513 (S.D.N.Y. 1945).  This case involved a 1920 agreement between two producers of titanium pigments, the Titanium Pigment Company and Titan Company, to divide the lucrative worldwide market for titanium pigments.  According to the agreement, Titan was granted a license exclusive of all others from Titanium Pigment Company to manufacture and sell its products anywhere in the world outside of North America, Central America and Panama.  Titanium Pigment Company was granted an exclusive license to manufacture and sell Titan’s products in North America, Central America and Panama.  (Curiously, the defendants proposed to continue competing with each other in South America.)  At the same time, National Lead (which owned Titan Pigment Company), agreed to respect the contract and assign all its patents and improvements in titanium pigments to Titanium Pigment Company.  Judging from the opinion, the parties were quite open about what they were up to: the “explicitly stated objects were: 1) the elimination of competition and 2) the advancement of the art through the exchange of technology” – but of course, the second object would only really kick in once the competition was eliminated.

In 1927, National Lead acquired an 87% interest in Titan.  Two years later, National Lead organized a new subsidiary called Tinc, which acquired all of Titan’s rights and liabilities under the 1920 contract.  By 1936, National Lead had managed to acquire all of Titanium Pigment Company too.  Not long after, National Lead created additional subsidiaries to control distribution in France and central Europe.  Around that same time, Tinc allegedly joined with several other companies to form TK to control the Japanese market.

Once again, the defendants argued before the Supreme Court that jurisdiction under the Sherman Act couldn’t extend to conduct overseas on behalf of foreign corporations, relating to the commerce of foreign nations.  The argument didn’t get very far: “{I]t has been alleged and proved that a conspiracy was entered into, in the United States, to restrain and control the commerce of the world, including the foreign commerce of the United States.”  Since the agreement involved material acts in the United States and was intended to affect U.S. foreign commerce, the court held that the case fell under the rule of Sisal Sales Corp. rather than American Banana.

Join us back here in two weeks as we continue our review of the pre-FTAIA cases involving foreign actors, corporations and contacts.

Image courtesy of Flickr by Luke Jones (no changes).


Announcing a Biweekly Series Analyzing the Restatement of the Law of Liability Insurance

Ever wonder how the Restatements of the Law which we all read in law school (and have seen in even some modest law libraries throughout our careers) are written – and exactly who the American Law Institute – the credited authority behind the Restatements – is?  As a prelude to our new biweekly series of posts analyzing the Restatement of the Law of Liability Insurance, today we’re taking a brief look at the ALI’s history and structure, how ALI defines the purpose of its two primary classifications of treatises – the “Restatements” and the “Principles” – and how the Restatement of the Law of Liability Insurance, which was given the ALI membership’s final approval in the spring of 2017, came to be.

According to the ALI’s website, the Institute was founded in 1923 following a report from a group of well-known judges, lawyers and teachers calling themselves “The Committee on the Establishment of a Permanent Organization for the Improvement of the Law.”  The ALI’s incorporators included Chief Justice (and former President) William Howard Taft, future Chief Justice Charles Evans Hughes, and former Secretary of State Elihu Root.  Justice Benjamin Cardozo and Second Circuit Judge Learned Hand were early leaders of the group.

Membership in the ALI is by election of the ALI Council following nominations by members.  The membership is limited to 3,000, not including life, honorary and ex-officio members, and the group is more-or-less evenly divided between practicing attorneys, judges and academics.  All members are expected to participate actively in the Institute’s work, generally by serving as Advisors or Member Consultants to new Restatements and Principles.  The ALI is governed by its officers, its directors, and its Council, whose members are elected by the general membership from among its ranks and includes members in all three categories (judges, attorneys and academics).

I was elected to the ALI in October 2006.  Since that time, I have served as a Member Consultant for many projects, including the Insurance Restatement.

The most well-known writings of the ALI are Restatements, which are now in their third cycle, and for a few subjects, their fourth.  According to the ALI reporters’ manual, “Restatements are primarily addressed to courts.  They aim at clear formulations of common law and its statutory elements or variations and reflect the law as it presently stands or might appropriately be stated by a court.”  By dealing with an entire area of the law in one document, the Restatements aspire to “discern the underlying principles that gave it coherence and thus restore the unity of the common law as properly apprehended.”  Although a Restatement is supposed to be “attentive to and respectful of precedent,” when facing a question where one view merely preponderates, the treatise is permitted to “propose the better rule and provide the rationale for it.”  The “Principles” treatises, on the other hand, are permitted to be more aspirational.  According to the reporters’ manual: “Principles are primarily addressed to legislatures, administrative agencies, or private actors.  They can, however, be addressed to courts when an area is so new that there is little established law.  Principles may suggest best practices for these institutions.”  All ALI projects go through multiple drafts and are debated by various groups within the Institute: the Preliminary Draft, the Council Draft, the Tentative Draft, the Discussion Draft and the Proposed Final Draft.  Projects routinely take seven years from start to finish, and sometimes even more.

In recent years, several commentators have suggested that ALI projects might be straying from those guidelines.  As Justice Antonin Scalia wrote in his partial dissent in State of Kansas v. States of Nebraska and Colorado, 574 US —, (2015):

I write separately to note that modern Restatements – such as the Restatement (Third) of Restitution and Unjust Enrichment (2010) . . . are of questionable value, and must be used with caution.  The object of the original Restatements was “to present an orderly statement of the general common law.”  [citing the Restatement of Conflict of Laws Introduction].  Over time, the Restatements’ authors have abandoned the mission of describing the law, and have chosen instead to set forth their aspirations for what the law ought to be . . . Section 39 of the Restatement of Restitution and Unjust Enrichment is illustrative . . . Restatement sections such as that should be given no weight whatever as to the current state of the law, and no more weight regarding what the law ought to be than the recommendations of any respected lawyer or scholar.”

The Insurance Restatement began in 2010 as the Principles of the Law, Liability Insurance.  The draft Principles caused controversy almost from its earliest drafts, both in debates during Annual Meetings of the entire membership and increasingly among outside commentators.  In 2014, the ALI Council reclassified the treatise as a Restatement.  Although the draft was revised after that point, controversy continued to spread.  I should note in the interests of full disclosure that I voted against every draft of the Insurance Principles and Restatement which came before the Annual Meeting for discussion and approval.

As Justice Scalia said in concluding his dissent in Kansas v. Nebraska: “[I]t cannot safely be assumed, without further inquiry, that a Restatement provision describes rather than revises current law.”  And that will be our project, in biweekly installments, over the coming months: to ascertain how well the Restatement conforms with state law – concentrating on California law, both because of the importance of the state and the location of my firm, but with occasionally forays into other states.

Join us back here next week for the second installment of our series on the law of the Foreign Trade Antitrust Improvement Act, and in two weeks, we’ll return to the Insurance Restatement.

Image courtesy of Flickr by Tony Webster (no changes).

Announcing a Biweekly Series on the Law of the Foreign Trade Antitrust Improvement Act

Section One of the Sherman Act is written in simple, straightforward language: “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.”

Okay, maybe a little too simple, since, as the courts quickly realized, interpreted according to its plain language, the Sherman Act outlaws all contracts, since contracts by definition are a restraint of trade (albeit, in nearly all cases, a minor one).

Nevertheless, most antitrust and international law scholars agree that the United States has one of the most stringent systems of antitrust law in the world.  This was not a tremendous problem in the early decades of the twentieth century, since in that era, companies large enough to conduct business, either directly or through a subsidiary, in a foreign country were not commonplace.  Besides, to the extent the courts had considered many entirely foreign transactions in antitrust, most had concluded that the question was simply one of extraterritorial jurisdiction, and the United States had no business reaching out to regulate entirely foreign transactions.

But as the nation entered the sixties and seventies, US-based companies increasingly were entering into transactions wholly overseas.  At the same time, the bright line rule of no-foreign-application was becoming significantly muddier.  As a result, Congress began to hear complaints from companies arguing that they were unfairly handicapped in competing overseas by the possibility that the Sherman Act would apply in full force to their foreign transactions.  Plus – as you might imagine – our international neighbors were getting increasingly testy about the United States at times imposing its own antitrust laws on transactions occurring entirely on foreign soil.

So in 1982, Congress passed the Foreign Trade Antitrust Act — Title IV of the Export Trading Company Act.  The FTAIA reads like this:

Sections 1 to 7 of this title shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless –

(1)    Such conduct has a direct, substantial, and reasonably foreseeable effect –

(A)    On trade or commerce which is not trade or commerce with foreign nations, or on import trade or import commerce with foreign nations, or

(B)    On export trade or export commerce with foreign nations, of a person engaged in such trade or commerce in the United States, and

(2)    Such effect gives rise to a claim under the provisions of sections 1 to 7 of this title, other than this section.

If sections 1 to 7 of this title apply to such conduct only because of the operation of paragraph (1) (B), then sections 1 to 7 of this title shall apply to such conduct only for injury to export business in the United States.

If you’re thinking the statute is hardly a model of crystal-clear draftsmanship, the courts are way ahead of you.  The language abounds with terms which can reasonably be interpreted in different ways: what does “conduct involving trade or commerce” mean?  What is “import trade or import commerce” – what about a product your client sold overseas which was then imported into the US by a third party?  How “direct” must a “direct” effect be?  What is “substantial” or “reasonably foreseeable”?  And what is the test for whether an “effect” gave “rise to a claim”?  And can it be any claim – or does it have to be the specific claim of the plaintiffs sitting across the courtroom from you?  And there’s the most fundamental obscurity of all – is this statute a jurisdiction-stripping statute, meaning that foreign conduct is still an antitrust violation, but federal courts can’t hear those cases?  Or is it a substantive statute, describing the elements of an antitrust claim with significant foreign ties?

Today, we’re beginning a new biweekly series here on Appellate Strategist – the law of the Foreign Trade Antitrust Improvement Act.  In two weeks, we’ll be back to take a look at the legislative history of the FTAIA.  Two weeks after that, we’ll review the law on foreign transactions as it stood before the statute was passed, as a foundation for launching into the hundreds of FTAIA cases which have been published in the thirty-seven years since the statute was enacted.

Join us back here next Friday as we announce a separate biweekly series on a new topic.

Image courtesy of Flickr by Jay Buangan.  (No changes)


Welcoming Three New Appellate Experts to Our Growing San Francisco Office

I’m delighted to welcome three new experienced and talented appellate specialists to our growing San Francisco office!  Here’s the firm’s press release –

Horvitz & Levy Expands San Francisco Office with Three Experienced Appellate Hires

Bay Area Office for Nation’s Largest Appellate Boutique Offers Unmatched Expertise

Horvitz & Levy LLP, the country’s largest boutique law firm dedicated to civil appeals and trial  consulting, has expanded its San Francisco presence with three strategic hires. The firm operates on an experienced-hire model and in keeping with this strategy has added appellate experts Beth Jay, Christopher Hu, and Andrea Russi.

Beth Jay, former principal attorney to three California chief justices, brings 35 years of California Supreme Court experience and three years of federal appellate court insights to Horvitz & Levy’s clients. In addition to serving as a senior adviser to the Chief Justice,  Jay has served on numerous Supreme Court, Judicial Council, and State Bar committees with a focus on judicial ethics and multi-jurisdictional issues. She served former Chief Justices Malcolm M. Lucas and Ronald M. George for their entire tenure on the Supreme Court, and assisted Chief Justice Tani Cantil-Sakauye from the beginning of her term in January 2011 until Jay’s retirement in 2015.  Jay is a recipient of the Bernard E. Witkin Medal for her lifetime body of work and influence on the legal landscape.

Christopher (Chris) Hu brings to bear significant appellate expertise, having served as a judicial law clerk to Judge Kim McLane Wardlaw of the Ninth Circuit and Justice Goodwin Liu of the Supreme Court of California.  Hu is a graduate of Stanford Law School and won the Judge Thelton E. Henderson Prize for Outstanding Performance in Stanford’s Supreme Court Litigation Clinic.

Andrea Russi most recently served as a staff attorney to Presiding Justice Ignazio Ruvolo (retired) of the California Court of Appeal, First Appellate District, Division Four.  She also served as an Assistant United States Attorney in the Central District of California, worked as an associate at Latham & Watkins, and was a Lecturer in Residence for the UC Berkeley School of Law where she was the Managing Director and Director of Criminal Justice for The Chief Justice Earl Warren Institute on Law & Social Policy.     Horvitz & Levy’s Bay Area office opened in June of 2018 at 505 Sansome Street in the city’s iconic Transamerica Pyramid Center, and is led by Kirk C. Jenkins, the former Chair of Sedgwick LLP’s Appellate Task Force. “The business growth in the Bay Area and the need for deep and strategic insights into the appellate process before, during, and after trial, is the catalyst for our swift expansion. Each of these hires brings unique and highly sought-after skills to our already robust platform,” said Jenkins.  Horvitz & Levy has 40 attorneys focused on civil appeals in state and federal courts nationwide and is known throughout the legal community as the nation’s premier appellate boutique.

About Horvitz & Levy

Horvitz & Levy is the largest law firm in the nation specializing exclusively in civil appellate litigation and trial strategy consultation.  Clients turn to Horvitz & Levy for its demonstrated collaborative think-tank culture and its unmatched skill in preserving and developing issues for appellate review, helping to shape the law for the firm’s clients. For more information visit

Image courtesy of Flickr by Tiocfaidh ar la 1916 (no changes).


Join Me on Tuesday for a Strafford Data Analytics Webinar!

Tuesday, March 12, I’ll be a panelist for a Strafford webinar on Data Analytics and Litigation.  The other two panelists are Steve Embry, publisher of Tech Crossroads (and a former colleague of mine many years ago) and Evan Moses, a partner at Ogletree Deakins, Nash, Smoak and Stewart.  The time is 10:00 – 11:30 Pacific.  Here’s the link and the full description is below. 

This CLE webinar will guide litigators on how to use big data leading up to, and during, litigation. The panel will explore how data is being used to govern decisions as trial approaches, including settlement conditions, surveying potential jury member demographics, and use of psychographics for desired outcomes at trial.


The legal profession is entering its data-driven phase. With the advent of litigation analytics, attorneys can finally quantify the prospects of success or the scope of risk for almost every option during a case.

Analytics has a role to play in every phase of litigation, from evaluating the plaintiff and opposing counsel, to the consideration of appellate issues. Understanding how to obtain and use this data is critical for litigators.

Previously, big data was only available to jury consultants or large law firms with deep pockets and enough resources to wade through immense and confusing amounts of information. But investigative programs that provide easy access to data are emerging as powerful everyday tools for lawyers seeking the bests outcomes for their clients.

Listen as our distinguished panel guides litigators on how to harness big data analytics for use during litigation. The panel will also discuss how data governs business decisions for corporations and law firms alike leading up to trial.


I.      Overview of big data and what types of analytics it offers to litigators

II.      Discussion of pre-trial data analytics, including case budgets and business decisions

III.      Discussion of data analytics during litigation, including panel selection, AFAs and exposure calculations

IV.      Best practices for obtaining and using big data analytics before and during litigation all the way from pre-trial motions through the appeal


The panel will review these and other relevant topics:

·      What does big data include?

·      How can big data be used to govern business decisions leading up to trial?

·      How can big data analytics be leveraged both in the trial court and on appeal?

Image courtesy of Flickr by Luckey_Sun (no changes).