May.01.2018
In re: Cathode Ray Tube (CRT) Antitrust Litigation, US District Court for the Northern District of California, February 1, 2018
The present opinion in this long-running and multi-defendant antitrust case concerns a motion brought by Chinese corporations to set aside a default judgment against them. The companies declined to participate in the case for ten years, believing they were immune from suit under the FSIA.
The Court began its analysis by noting that a defendant must first make a prima facie showing that it is a “sovereign state” to take advantage of the FSIA, at which time the burden shifts to the plaintiff to show that the case is subject to one or more of the statute’s exceptions.
FSIA issues must be addressed using the facts that existed at the time a complaint was filed (2007, in this instance). At that time, defendant Irico Group Corp. was 100 percent owned directly by the State Council of China and therefore qualified for protection under the FSIA as a “sovereign state”; that term includes an “agency or instrumentality” of a “foreign state,” which is defined to include entities more than half of whose stock is directly owned by a non-US sovereign (as is the case with Irico Group Corp.). Defendant Irico Display Devices Co., Ltd., on the other hand, was less than 50 percent majority-owned by a foreign state. It was 43 percent owned by Irico Elecronics, which in turn was 75 percent owned by the State Council of China.
Alternatively, an entity can qualify for protection under the FSIA if it is an “organ” of a non-US state, a broadly-read term that includes an entity that “engages in a public activity on behalf of the foreign government.” The Court observed that whether an entity qualifies as an “organ” is a fact-dependent inquiry that may involve the circumstances surrounding the entity’s creation, its purposes and independence, as well as governmental support and its “obligations and privileges” under state law.
Irico Electronics sought to satisfy this standard through a declaration submitted by of one of its lawyers. The Court noted that the declaration had to meet certain evidentiary requirements to be considered, and that the one before it did not by its own terms explain the basis for the lawyer’s knowledge of the supposed facts he was reciting. Specifically, although claiming to have been made on the basis of “personal knowledge,” the lawyer made statements about operative facts in 2007 while he had only been employed by Irico Electronics since 2017. For this reason the Court found the FSIA inapplicable to Irico Display.
The plaintiffs then argued that the “commercial activity” exception to the FSIA applied to Irico Group because the conduct on which the claim was based was commercial in nature and, although occurring in China, “had a direct effect” in the US. The Court easily concluded that the alleged action of fixing process was “commercial,” observing that the test looks to the nature of the conduct, not its purpose. The Court considered a “closer question” whether the alleged price fixing had a “direct” effect in the US, and on this score drew heavily on antitrust precedent under the FTAIA to conclude that it did because the alleged conspiracy “had a direct effect on prices of CRTs” in the US. We addressed this aspect of the opinion in more detail in a note in Orrick’s AntitrustWatch blog, which may be found here.
Although the Court concluded that neither Irico defendant was entitled to protection under the FSIA, it set aside the default judgment based on a balancing of prejudice to the parties.