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CARIBE TRAILER SYS. v. PUERTO RICO MARITIME SHIPPI

April 19, 1979

Caribe Trailer Systems, Inc. and John R. Immer
v.
Puerto Rico Maritime Shipping Authority, et al.



The opinion of the court was delivered by: GASCH

MEMORANDUM

This is an action to recover treble damages for alleged violations of sections 1, 2, and 3 of the Sherman Antitrust Act. *fn1" The basis of the complaint is an alleged conspiracy by twelve private and governmental entities to create a monopoly in ocean transportation between the East Coast and Gulf ports of the United States and the ports of Puerto Rico. Presently before the Court are the motions of ten defendants to dismiss the complaint on grounds of improper venue and lack of personal jurisdiction, and the motions of nine defendants for summary judgment on the ground that their conduct is immunized from antitrust liability under the state action doctrine recognized in Parker v. Brown, 317 U.S. 341, 63 S. Ct. 307, 87 L. Ed. 315 (1943). For the reasons discussed below, the Court concludes that defendants' motions should be granted.

 FACTUAL BACKGROUND

 Plaintiff Caribe Trailer Systems, Inc. ("Caribe") is a Puerto Rico corporation with its principal place of business in Washington, D.C. Plaintiff John R. Immer is the principal owner and chairman of the board of Caribe. Caribe was organized for the purpose of engaging in ocean transportation between East Coast and Gulf ports of the continental United States and the ports of Puerto Rico, but its activities never became operational. Plaintiffs contend that because of defendants' alleged antitrust violations, plaintiffs were unable to obtain financing to commence their operations and therefore were prevented from competing in the Puerto Rico trade. They seek a permanent injunction against defendants' activities as well as treble damages, costs, and attorneys fees.

 Each defendant named in this lawsuit had some involvement in the creation or operation of the Puerto Rico Maritime Shipping Authority ("PRMSA"), a government agency organized by the Commonwealth of Puerto Rico in 1974 to operate Puerto Rico's maritime transportation system. Because of its small size, insular position, and limited natural resources, Puerto Rico has difficulty in maintaining a self-sufficient economy and is dependent on external trade for economic and social development. Ocean transportation carries more than ninety-eight percent of its external trade and as a result, ocean freight costs exert a potentially disruptive influence of all aspects of Puerto Rico's economy. Trade between East Coast and Gulf ports represents the major avenue of traffic between Puerto Rico and the mainland United States and accounts for approximately eighty-five percent of all dry cargo transported and over seventy percent of Puerto Rico's total external trade.

 Because of the island's dependence on ocean transport, the Governor of Puerto Rico in 1973 established a commission to determine whether the Commonwealth should take steps to acquire the vessels then employed by commercial steamship companies in the Puerto Rico trade. This acquisition was intended to assure the availability of vessels and to maintain price stability with respect to transportation costs. Following negotiations with the three major carriers, the commission proposed legislation that would establish a nonstock public corporation to own or lease the vessels and equipment necessary to conduct the Mainland-Puerto Rico trade. On June 10, 1974, the Commonwealth legislature enacted this proposal as Act 62 and created the Puerto Rico Maritime Shipping Authority as a governmental instrumentality to operate Puerto Rico's maritime transportation system. *fn2"

 PRMSA, which is incorporated in Puerto Rico, consists of a governing board of seven members, all of whom are residents of Puerto Rico, appointed by the Governor with the advice and consent of the Puerto Rico Senate. Its operations are exempt from taxation and from all fees required for the prosecution of judicial proceedings. The Statement of Motives contained in Act 62 expresses the intent of the Puerto Rico legislature that PRMSA acquire and operate shipping lines and terminal facilities as a public service and, in doing so, that it not be subject to the antitrust laws or any other limitations that would hinder its legislative goal. *fn3"

 Following its organization, PRMSA acquired the rights to eleven ships and to various marine transportation facilities from the three major carriers that served the Puerto Rico trade: Seatrain, Inc., *fn4" and defendants Sea-Land Service, Inc. ("Sea-Land"), and Transamerican Trailer Transport, Inc. ("TTT"). The acquisition of these assets occurred in the following manner. Defendant American Union Transport, Inc. ("AUT"), a 63.3% Shareholder in TTT, and defendant Sun Shipbuilding & Dry Dock Co. ("Sun Ship"), a 30% Shareholder, directly conveyed their interests in TTT to PRMSA. TTT has since become a dormant corporation because PRMSA operates its assets under PRMSA's own name and its officers and directors are the same as PRMSA's.

 The vessels owned by Sea-Land were transferred through a similar transaction. Sea-Land and Gulf-Puerto Rico Lines ("GPRL") are both wholly owned subsidiaries of defendant McLean Industries, Inc. ("McLean"). McLean is a holding company which in turn is wholly owned by defendant R. J. Reynolds Industries ("Reynolds"). McLean and Reynolds conveyed their interests in Sea-Land to PRMSA.

 Before these transfers were effected, the Commonwealth of Puerto Rico sought a business review letter from the Antitrust Division of the Department of Justice with respect to PRMSA and the proposed acquisition. *fn5" Although the acquisition would give PRMSA control over ninety percent of then-existing ocean shipping services, the Antitrust Division granted favorable clearance on July 22, 1974. *fn6"

 PRMSA has an ongoing contractual relationship with defendant Puerto Rico Marine Management, Inc. ("PRMMI"), a Delaware corporation that provides operational direction for PRMSA's vessels and is responsible for manning, husbanding, docking, loading and unloading, and booking and soliciting cargo. PRMMI is paid a management fee for these services. PRMMI was organized in 1974 as a wholly owned subsidiary of McLean. On January 15, 1976, McLean entered into a stock purchase agreement with defendant TKM Corporation (TKM) under which TKM acquired all the stock of PRMMI. Defendant Trans Ocean Transportation Executive Management, Inc. ("TOTEM") also has managed cargo vessels on behalf of PRMSA.

 The final defendant named in this action is the Puerto Rico Ports Authority ("PRPA"), an agency of the Puerto Rico government with broad responsibility for maritime matters. *fn7" One of the major functions of the PRPA is to supervise the port of San Juan, the second largest containership port in the world, by assigning vessels to suitable berths, entering into terminal leases with steamship operators, and managing dock facilities. A director of PRPA headed the commission that recommended creation of PRMSA.

 On March 13, 1978, plaintiffs instituted the present lawsuit, charging each of the twelve defendants with conspiracy, monopoly, and restraint of trade in violation of sections 1, 2, and 3 of the Sherman Antitrust Act, 15 U.S.C. §§ 1-3. Specifically, plaintiffs allege that defendants secretly discussed and determined that maritime transportation between Puerto Rico and the mainland should be operated as a monopoly and devised a plan for achieving this goal, which included formation of PRMSA. *fn8"

 Presently before the Court are motions to dismiss for improper venue and lack of personal jurisdiction filed by defendants, Reynolds, McLean, GPRL, PRMSA, PRPA, TTT, PRMMI, TKM, AUT, and TOTEM. All defendants with the exception of Reynolds, McLean, and GPRL have joined in a motion to dismiss, or in the alternative for summary judgment *fn9" originally filed by PRMSA, PRPA, and TTT (the "Puerto Rico defendants"). The governmental entities seek dismissal on the ground that their actions were immune from liability for antitrust violations under the Parker doctrine. The private defendants have moved to dismiss on the ground that their actions were compelled by the Commonwealth of Puerto Rico and therefore also exempt from liability under Parker.

 VENUE

 Although this complaint alleges that the defendants have engaged in a "combination and conspiracy" in violation of the Sherman Act, plaintiffs must establish venue as to each defendant separately. 15 Wright, Miller & Cooper, Federal Practice & Procedure § 3818, at 116 (1969); See Philadelphia Housing Authority v. American Radiator & Standard Sanitary Corp., 291 F. Supp. 252, 262 (C.D.Pa.1968). In the present case, plaintiffs attempt to establish venue in the District of Columbia on the alternative grounds that defendants transacted business in this district and that the cause of action arose in this district.

 Venue over corporate defendants in antitrust actions may be established under the special antitrust venue provisions contained in sections 4 and 12 of the Clayton Act *fn10" or under the general federal venue provisions. *fn11" Each of the moving defendants claims that none of the bases for venue contained in these statutes are satisfied in the present case.

 Section 4 provides for venue in any district in which the defendant resides, is found, or has an agent. A corporation resides in a district only if it is incorporated or licensed to do business in the state in which the district lies, is actually doing business in that state, or has its principal place of business there. 14 Von Kalinowski, Antitrust Laws and Trade Reg. § 104.04(4) (1978). The affidavits submitted by the moving defendants in support of their motions to dismiss establish that none of these defendants are incorporated or licensed to do business in the District of Columbia, nor do they directly conduct business or have their principal place of business here.

 Section 12 permits venue in any district in which a corporation is an inhabitant, may be found, or transacts business. A corporation is said to be an inhabitant of the state of its incorporation. Aro Mfg. Co. v. Automobile Body Research Corp., 352 F.2d 400, 404 (1st Cir. 1965), Cert. denied, 383 U.S. 947, 86 S. Ct. 1199, 16 L. Ed. 2d 210 (1966). A corporation is found where it has "presence and "continuous local activities' within the district." Fox-Keller, Inc. v. Toyota Motor Sales, U.S.A., Inc., 338 F. Supp. 812, 815 (E.D.Pa.1972). The moving defendants do not satisfy either of these requirements.

 Section 12 also permits a corporation to be sued in any district in which it "transacts business." This standard was enacted to enlarge the jurisdiction of the federal courts with respect to venue by substituting "practical, business conceptions for the previous hair-splitting legal technicalities encrusted on the "found' "present' "carrying-on-business' sequence . . .." United States v. Scophony Corp., 333 U.S. 795, 808, 68 S. Ct. 855, 862, 92 L. Ed. 1091 (1948). "Transacting business" for the purpose of section 12 has a meaning independent of definitions which courts have given the same phrase in construing other statutes. The test is whether the corporation is doing business in the district of any substantial character, even if its business is entirely interstate in character and ...


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