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U.S. appeal court tosses potash “conspiracy” suit

A class action suit alleging price-fixing by Saskatchewan’s big three potash producers and their contemporaries in Eastern Europe has been dismissed in a U.S. federal appeals court.

The antitrust suit, filed in 2008, combined separate suits filed by a group of U.S. fertilizer dealers who had bought directly from various major potash firms, and by a group of U.S. fertilizer users who had “indirectly” bought their potash from those firms.

A U.S. District Court in Illinois had ruled in 2008 against the fertilizer producers’ motion to dismiss the class action suits, but the district judge also certified his order for “immediate review” at the U.S. Court of Appeals.

Two judges with the Seventh Circuit Court of Appeals on Friday vacated the District Court ruling and wrote that the suit’s claims don’t fall within reach of the Sherman Antitrust Act, which is meant to prevent to foreign anticompetitive conduct where it either involves U.S. import commerce or has a “direct, substantial, and reasonably foreseeable effect” on U.S. import or domestic commerce.

The defendants included Calgary-based Agrium, Saskatoon’s PotashCorp and Minneapolis’ Mosaic, along with Silvinit, IPC and Rue PA Belaruskali, who when the suit was filed accounted for about 71 per cent of the world’s potash supply combined.

Between 2003 and 2008, the suit claimed, potash prices in the U.S. rose by about 600 per cent, a spike the plaintiffs said “cannot be explained by rising production costs or increased demand,” nor by any production shortages.

Rather, the suit alleged, surging prices were “the result of an agreement by the defendants to jointly restrict output and increase prices as exemplified by parallel business conduct in three foreign markets — Brazil, China, and India.”

The suit also cites the development of a sinkhole near a Silvinit mine in October 2007, which the company feared could cause long-term disruptions to deliveries out of that mine. Four of the defendants then suspended new sales, a move which the suit alleges “makes no economic sense absent a cartel.”

“Not enough”

However, the appeals court noted, none of this activity took place within the U.S. and was linked to U.S. potash prices only by “general allegations” that prices in the U.S. were adversely affected by price hikes in Brazil, India and China.

“Contrary to what the district court seemed to think, it is not enough that the defendants are engaged in the U.S. import market,” the appeal court ruled Friday.

The defendants had argued on appeal, and the appeal court agreed, that the District Court ruling “lacked subject-matter jurisdiction” under the terms of related U.S. legislation, the Foreign Trade Antitrust Improvements Act, which specifically requires a direct effect on U.S. markets before an antitrust case can be brought in the U.S.

The complaint, the appeals court wrote, “offers very little of substance concerning the relationship between the defendants’ alleged overseas anticompetitive conduct and the American domestic market for potash” and “builds its case for conspiracy around the characteristics of the potash industry that make it particularly susceptible to collusion.”

The complaint “does not contain sufficient factual content to plead a plausible ‘direct, substantial, and reasonably foreseeable’ connection between the alleged foreign anticompetitive activity and the domestic potash market,” the appeal court said.

A lawyer for the plaintiffs has since quoted by Reuters as saying his clients are evaluating their options given Friday’s ruling.

COPA Medallion COPA finalist in 2012, 2014 and 2015.
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