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From Antitrust Law Daily, August 16, 2018

Antitrust claims against producer and exporter of Mexican salt barred by act of state doctrine

By George Basharis, J.D.

The U.S. Court of Appeals for the Ninth Circuit upheld the dismissal of an antitrust action against Mitsubishi Corporation and a major producer and exporter of solar sea salt products co-owned by Mitsubishi and the Mexican government because the action was barred by the act of state doctrine. The case triggered the doctrine because it amounted to an impermissible attack on the Mexican government’s policy decision that substantially all of the country’s sea salt should be distributed through Mitsubishi (Sea Breeze Salt, Inc. v. Mitsubishi Corp., August 15, 2018, Wardlaw, K.).

Distributors of solar sea salt claimed that they were unable to obtain product as a result of the anticompetitive conduct of Mitsubishi and Exportadora de Sal, S.A. de C.V. (ESSA), a joint venture between Mitsubishi and the Mexican government. Mitsubishi held a 49 percent stake in ESSA, while the Mexican government held the remaining 51 percent stake. ESSA and Mitsubishi entered into an exclusive contract that gave Mitsubishi "100% of the distribution rights for ESSA produced salt."

ESSA, which is the world’s largest producer of solar sea salt and produces 90 percent of Mexico’s salt exports, allegedly refused to sell solar sea salt to plaintiff Innofood, S.A. de C.V., and as a result Innofood was unable to supply plaintiff Sea Breeze Salt, Inc. Innofood and Sea Breeze claimed that ESSA’s exclusive arrangement with Mitsubishi violated a number of state and federal laws, including the Sherman and Clayton Acts. However, the district court determined that resolution of the claims implicated serious foreign affairs concerns sufficient to trigger the act of state doctrine and dismissed the plaintiffs’ case.

Act of state doctrine. The doctrine prohibits an action if "(1) there is an official act of a foreign sovereign performed within its own territory; and (2) the relief sought or the defense interposed in the action would require a court in the United States to declare invalid the foreign sovereign’s official act." The district court determined that the plaintiffs’ claims challenged an official act of a foreign sovereign performed within its own territory.

Official act. The Ninth Circuit affirmed. ESSA, as a government owned corporation, was a "foreign sovereign" and its decision to grant exclusive distribution rights to Mitsubishi was an official act. Under Mexico’s constitution, the Mexican government was the only entity authorized to "own and exploit" the country’s natural resources, including sea salt. The plaintiffs argued that their complaint challenged nothing more than an "everyday commercial decision" regarding the distribution of salt already extracted. The court rejected the argument, noting that ESSA’s concession to sell of Mexico’s salt output to Mitsubishi was anything but an "everyday commercial decision."

Invalidation of official act. The Ninth Circuit also agreed with the district court’s conclusion with respect to the second prong of the analysis. Resolution of the plaintiffs’ claims would require the court to invalidate Mexico’s decision about the exploitation of a natural resource. Each count of the plaintiffs’ complaint challenged the validity of the exclusive distribution rights granted to Mitsubishi by ESSA. Resolution of the plaintiffs’ claims would require a court to pass judgment on the validity of ESSA’s chosen means of allocating and profiting from its natural resource.

Prudential concerns. The absence of international norms against exclusive arrangements in the extraction and exploitation of natural resources provided further justification for applying the act of state doctrine to bar the plaintiffs’ complaint. Foreign relations concerns also favored application of the doctrine, the court noted. Court intervention in the case could adversely affect U.S. foreign relations with Mexico and could be seen by Mexico as a "demeaning affront" to its control over its own institutions.

"Commercial exception." The Ninth Circuit avoided deciding whether to adopt a commercial exception to the act of state doctrine because even if such an exception exists it would not apply to the plaintiffs’ case. A commercial exception applies to acts that do not implicate the kind of powers that are "peculiar to sovereigns." This case involved a decision regarding the disposition of virtually all of Mexico’s sea salt. No private citizen could make that decision, the court observed, so consideration of an exception for purely commercial activity was not necessary.

The case is No. 16-56350.

Attorneys: Rory Stuart Miller (Glaser Weil LLP) for Sea Breeze Salt, Inc. and Innofood, S.A. de C.V. Craig A. Benson (Paul, Weiss, Rifkind, Wharton & Garrison LLP) and Laura W. Brill (Kendall Brill & Kelly LLP) for Mitsubishi Corp. and Mitsubishi International Corp.

Companies: Sea Breeze Salt, Inc.; Innofood, S.A. de C.V.; Mitsubishi Corp.; Mitsubishi International Corp.

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