activity of a similar nature that might bring defendants within the transacting business standard.
Some courts have held that a corporation may be found to be transacting business for venue purposes in the district in which coconspirators were found and where the conspiracy had its impact.
In Giusti v. Pyrotechnic Industries, Inc.,
the United States Court of Appeals for the Ninth Circuit held that because all conspirators are agents for each other, the presence of one defendant in a district can subject his coconspirators to suit in that district as their agent. This theory, however, has been rejected by other courts
and this Court concludes that its application here would be contrary to the principle that venue must be established for each defendant separately. See 15 Wright, Miller & Cooper, Federal Practice and Procedure § 3818.
With respect to defendants Reynolds, McLean, and GPRL, plaintiffs do not contend that these entities directly transact business in this district but instead argue that venue is properly laid against them here because of their relationship with defendant Sea-Land. There is no dispute that venue exists in the District of Columbia for Sea-Land because it is licensed to do business here. Sea-Land and GPRL are wholly owned subsidiaries of McLean, a holding company, which in turn is wholly owned by Reynolds. Plaintiffs allege that the management and business operations of these four defendants are so commingled and integrated that venue laid against Sea-Land lies against the moving defendants. In support of this argument, plaintiffs have attempted to detail the various degrees of participation by Reynolds, Sea-Land, McLean, and GPRL in the sale of Sea-Land's assets to PRMSA.
When a parent and its subsidiary are joined as defendants in an antitrust action, venue over the parent may be based on the local activities of its subsidiary "if the relationship between the parent and the subsidiary is such that the subsidiary may be considered the agent or the alter ego of the parent." Audio Warehouse Sales, Inc. v. U.S. Pioneer Electronics Corp., 1975-1 Trade Cas. P 60,213 (D.D.C.1975). Generally when the subsidiary maintains a separate legal identity, its presence in the district will not be sufficient to bring the foreign parent corporation within the ambit of section 12. Phillip Gall & Son v. Garcia Corp., 340 F. Supp. 1255, 1259 (E.D.Ky.1972).
It is also generally accepted that mere ownership of stock in a subsidiary corporation transacting business in a district does not establish venue against the parent corporation. See, e.g., O. S. C. Corp. v. Toshiba America, Inc., 491 F.2d 1064, 1066 (9th Cir. 1974). In order for the parent corporation to be amenable to suit, it must exercise a control relationship over its subsidiary. See Tiger Trash v. Browning-Ferris Indus., Inc., 560 F.2d 818, 822 (7th Cir. 1977), Cert. denied, 434 U.S. 1034, 98 S. Ct. 768, 54 L. Ed. 2d 782 (1978). This concept of control is a method of determining whether the ownership of the subsidiary is a mere investment or is an alternative means of transacting business by the parent corporation.
Plaintiffs here have alleged that Reynolds, McLean, Sea-Land and GPRL represent an integrated and interlocked management scheme so that the three moving defendants were transacting business in this jurisdiction through their relationship with Sea-Land. Applying the principles discussed above to the facts of this case makes it clear that the transacting business requirement is not satisfied. The essential element required before a court can find that one corporate entity was transacting business through an alter ego is control over the conduct that allegedly violated the antitrust laws. Call Carl, Inc. v. B. P. Oil Corp., 391 F. Supp. 367, 371 (D.Md.1975); See Grappone, Inc. v. Subaru of America, Inc., 403 F. Supp. 123, 131 (S.D.N.Y.1975). With respect to GPRL, which along with Sea-Land is a cosubsidiary of McLean, there has been not even a suggestion of how GPRL could exercise the required control relationship.
Even though Sea-Land is a wholly owned subsidiary of McLean, which is owned by Reynolds, the separate identities of the subsidiaries are maintained and the evidence indicates that each carries on its activities without having daily business affairs controlled by the parent. See In re Chicken Antitrust Litigation, 407 F. Supp. 1285 (N.D.Ga.1975). There has been no evidence that the parent exerted the required degree of control over its subsidiary or was involved directly in its operations and policy decisions. See Dobbins v. Kawasaki Motors Corp., 1974-1 Trade Cas. P 75,100 (D.Or.1974). Although there is some interlocking management between the three entities,
the Court concludes that the control relationship is absent and venue over GPRL, McLean, and Reynolds cannot be predicated on the existence of venue in this jurisdiction over Sea-Land.
The final method of establishing venue in antitrust actions is under section 1391 of the general federal venue statutes. Section 1391(b) is an important section for private antitrust plaintiffs because it allows them to establish venue in the judicial district in which the claim arose, a choice of venue not afforded under the venue provisions of the Clayton Act.
In determining whether a particular jurisdiction is actually the district in which the claim arose, it is necessary to consider whether the parties had a significant relationship to the district. This depends upon the occurrence in the district of events such as "sales, injury, conspiratorial meetings, (or) overt acts pursuant to such meetings." Philadelphia Housing Authority v. American Radiator & Standard Sanitary Corp., 309 F. Supp. 1053, 1056 (E.D.Pa.1969).
In making this determination, a "weight of contacts" test should be used. 14 Von Kalinowski, Antitrust Laws & Trade Reg. § 104.04(2) (1978). This requirement can be satisfied, for example, if significant sales causing substantial injury to plaintiffs occurred in the district or if some other overt act took place that was a "significant and substantial" element of the offense. Philadelphia Housing Authority v. American Radiator & Standard Sanitary Corp., 291 F. Supp. 252, 261 (E.D.Pa.1968).
Plaintiffs attempt to satisfy the weight of contacts test by alleging that a number of conspiratorial meetings took place in the District of Columbia and that certain legal documents relating to the sale of assets to PRMSA were drafted here.
Some courts have held that conspiratorial meetings may be sufficient to establish venue under section 1391 as to each defendant who was present there. See Ohio-Sealy Mattress Mfg. Co. v. Kaplan, 429 F. Supp. 139 (N.D.Ill.1977). Before such a rule can be applied, however, it is necessary to find that such meetings took place, that they involved a violation or an attempted violation of the antitrust laws, and that each of the moving defendants participated in them. ABC Great States, Inc. v. Globe Ticket Co., 310 F. Supp. 739, 743 (N.D.Ill.1970).
Such findings cannot be made here. Although some defendants met with counsel in this jurisdiction and had other contacts here, the Court concludes that such meetings, even if viewed in the light most favorable to plaintiffs, did not represent a violation or attempted violation of the antitrust laws. To the extent that such meetings sought to achieve the passage of Act 62, they were exempted from antitrust liability under the Noerr-Pennington doctrine.
To the extent they were related to the sale of assets to PRMSA, the state action exemption discussed below would preclude liability.
As a final argument, plaintiffs urge that their claim arose within the meaning of section 1391 because they suffered financial injury in this jurisdiction. At least one court has rejected the weight of the contacts test and held that venue can be established under section 1391 in the judicial district in which the injured plaintiff operated. Iranian Shipping Lines, S. A. v. Moraites, 377 F. Supp. 644 (S.D.N.Y.1974); Albert Levine Assoc. v. Bertoni & Cotti, S.P.A., 314 F. Supp. 169 (S.D.N.Y.1970).
To hold that a cause of action necessarily arose in the district in which the plaintiff was injured is a "simplistic rationale to which antitrust actions are not susceptible." Redmond v. Atlantic Coast Football League, 359 F. Supp. 666, 669 (S.D.Ind.), Aff'd mem., 478 F.2d 1405 (7th Cir. 1973). The Court agrees with this conclusion and holds that plaintiff's allegations of injury in this district will not support a finding of venue here. To hold otherwise would be tantamount to extending venue under section 1391 to any district in which the plaintiff resides, a result clearly not contemplated by the rules. Philadelphia Housing Authority v. American Radiator & Standard Sanitary Corp., 291 F. Supp. 252, 260 (E.D.Pa.1968).
After careful review of the facts of this case, the Court concludes that, despite their vigorous efforts, plaintiffs have failed to establish that venue exists in this jurisdiction over defendants Reynolds, McLean, and GPRL. Although venue is also probably deficient with respect to the other moving defendants, in the interests of judicial economy and achieving a resolution on the merits, the Court will not address these motions but will instead consider the alternative motions for summary judgment based on the state action exemption to the antitrust laws.
STATE ACTION EXEMPTION
The governmental and remaining private defendants have moved for summary judgment
on the ground that the conduct at issue in this lawsuit is immune from liability under the state action exemption to the antitrust laws. Because the immunity of private parties derives from a determination that the conduct of the state entities is so immunized, it is first necessary to consider the applicability of the state action exemption to Puerto Rico defendants.
The principle that state action is beyond the scope of federal antitrust laws stems from the decision of the Supreme Court in Parker v. Brown, 317 U.S. 341, 63 S. Ct. 307, 87 L. Ed. 315 (1943). In Parker the Court rejected a producer's claim that a state agricultural marketing program established pursuant to statute violated the Sherman Act. Noting that the state had adopted the program to restrict competition and maintain prices, the Court held that Congress intended the Sherman Act to restrain private anticompetitive conduct and not actions taken by a state or its agencies in furtherance of a legislative mandate. There is no dispute that Puerto Rico is a state for purposes of applying the Parker doctrine. International Tel. & Tel. Corp. v. General Tel. & Elec. Corp., 351 F. Supp. 1153, 1229 (D.Hawaii 1972), Mod. on other grounds, 518 F.2d 913 (9th Cir. 1975).
Defendants argue that the actions of a state instrumentality mandated by clear legislative authority are immune from antitrust liability under Parker.
They note that in this case the Puerto Rico legislature specifically mandated its instrumentality, PRMSA, to take over and operate the shipping trade between the East Coast and Gulf ports of the United States and Puerto Rico. PRMSA carried out the mandate by acquiring and operating ships in this trade, and defendants argue that as a result, the PRMSA acquisition and operation of the steamships are immune from antitrust liability.
A. State Instrumentalities.
After a long period of silence, the Supreme Court in recent years has given renewed attention to the scope of the Parker doctrine
and its decisions have been the subject of extensive legal commentary.
The most recent case involving the doctrine is City of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389, 98 S. Ct. 1123, 55 L. Ed. 2d 364 (1978), in which the Court held municipalities could not invoke the Parker doctrine in a suit for antitrust violations allegedly committed by them in connection with ownership of public utilities.
In refusing to find antitrust immunity, a plurality of the Court held that municipalities, like other state instrumentalities, are not exempt from application of the antitrust laws simply by virtue of their status as governmental entities. Id. at 413, 98 S. Ct. 1123, 1137. The plurality stated: "We therefore conclude that the Parker doctrine exempts only anticompetitive conduct engaged in as an act of government by the State as sovereign, or, by its subdivisions, pursuant to state policy to displace competition with regulation or monopoly public service." Id.
City of Lafayette thus establishes a two-fold inquiry that must guide the Court in applying the Parker doctrine. The first consideration is whether the state, acting as sovereign, has required its agency or instrumentality to engage in the particular form of anticompetitive conduct. This is not to suggest that the Parker doctrine permits each state legislature to determine the extent to which a particular government agency under its control should be exempt from the antitrust laws. As the Court in Parker indicated, "a state does not give immunity to those who violate the Sherman Act by authorizing them to violate it, or by declaring that their action is lawful." 317 U.S. at 351, 63 S. Ct. at 314. The decision did recognize, however, the overriding policy of federalism, namely, that "(i)n a dual system of government in which, under the Constitution, the states are sovereign, save only as Congress may constitutionally subtract from their authority, an unexpressed purpose to nullify a state's control over its officers and agents is not lightly to be attributed to Congress." Id.
In order for Parker to apply, it is not necessary for a state legislature to direct its instrumentality to perform a specific anticompetitive act. The threshold requirement for Parker immunity is satisfied if the legislature directs its instrumentality to engage in a particular type of activity. As the plurality opinion in City of Lafayette stated:
While a subordinate governmental unit's claim to Parker Immunity is not as readily established as the same claim by a state government sued as such, we agree with the Court of Appeals that an adequate state mandate for anticompetitive activities of cities and other subordinate governmental units exists when it is found "from the authority given a governmental entity to operate in a particular area, that the legislature contemplated the kind of action complained of."
435 U.S. at 415, 98 S. Ct. at 1138.
In this case, there is no dispute that PRPA and PRMSA are agencies of the Commonwealth of Puerto Rico.
The Statement of Motives of Act 62, which established PRMSA, contains a clear expression of legislative intent:
The Legislature of Puerto Rico intends that this instrumentality acquires and operates shipping lines and terminal facilities as a public service, and that in doing so, it shall not be subject to the antitrust laws nor any other limitation that could hinder the effective discharge of the endeavor that this act has imposed on the public instrumentality hereby established.