Dee-K Enterprises, Inc., v. Heveafil Sdn. Bhd.

T. S. Ellis, III.

In this antitrust action, two American purchasers of extruded rubber thread sue various foreign manufacturers and distributors of the thread, alleging an international conspiracy to restrain trade in, and fix prices of, the thread in the United States. Defendants' several motions to dismiss raise the following threshold issues:
(1) whether there is personal jurisdiction over an Indonesian manufacturer-defendant that consummates its sales of thread in Indonesia;
(2) whether venue is proper in the Eastern District of Virginia;
(3) whether, pursuant to Estate Construction Co. v. Miller & Smith Holding Co., the complaint contains sufficient facts to support an allegation of antitrust conspiracy among the distributor-defendants;
(4) whether Illinois Brick Co. v. Illinois bars plaintiffs from suing defendants for a price-fixing conspiracy; and
(5) whether plaintiffs have suffered any antitrust injury as a result of defendants' alleged conduct, given the Department of Commerce's determination that defendants' U.S. price for extruded rubber thread is "below fair value."

According to the second amended complaint, plaintiff Dee-K Enterprises, Inc. ("Dee-K") is a Virginia corporation, and plaintiff Asheboro Elastics Corporation ("Asheboro") is a North Carolina corporation. Both companies are "end users" of extruded rubber thread; that is, they purchase extruded rubber thread for use in products they manufacture, rather than for resale. More specifically, plaintiffs and other end users, at the times relevant to the complaint, purchased extruded rubber thread from some of the defendants to manufacture various elasticized textiles such as hosiery and active wear, as well as other products, including children's toys and Bungee cords.

The named defendants fall into two groups. The first group consists of Malaysian, Indonesian, and Thai companies that produce extruded rubber thread. Specifically, defendants Heveafil Sdn. Bhd. ("Heveafil"), Filmax Sdn. Bhd. ("Filmax"), Rubfil Sdn. Bhd. ("Rubfil"), Rubberflex Sdn. Bhd. ("Rubberflex"), and Filati Lastex Sdn. Bhd. ("Filati Lastex") produce extruded rubber thread in Malaysia and are collectively referred to as the "Malaysian producers." Defendants PT. Bakrie Rubber Industry ("Bakrie") and PT. Perkebunan III ("Perkebunan") are the "Indonesian producers" of rubber thread; and defendants Natural Rubber Thread Co., Ltd. ("Natural Rubber Thread") and Longtex Rubber Industries Co., Ltd. ("Longtex") are the "Thai producers." Collectively, defendants and other unnamed co-conspirators supply approximately eighty percent (80%) of the extruded rubber thread sold in the United States.

The foreign producers employ a variety of methods of distributing and selling their thread in the United States. One such method includes the use of separate entities that act as domestic distributors for the foreign producers; it is these entities that comprise the second group of defendants. Not all thread, however, is sold through separate distributors. Thus, Heveafil sells its product directly to end users in this country through Heveafil Sdn. Bhd. USA, Branch Inc., a division of Heveafil registered to do business in North Carolina. Filmax, a subsidiary of Heveafil and also a Malaysian producer, sells its product in the United States through Heveafil. Rubber thread from Malaysian producers Rubfil, Rubberflex, and Filati Lastex finds its way to American end users via two routes. First, the producers sell directly to their larger American customers without using an intermediary. Second, smaller customers are served via wholly owned and fully controlled American subsidiaries, namely defendants Rubfil USA, Inc. ("Rubfil USA"), Flexfil Corporation of Rhode Island ("Flexfil (RI)"), Flexfil Corporation, a North Carolina Corporation ("Flexfil (NC)"), and Filati Lastex Elastofibre USA, Inc. ("FLE-USA").

Indonesian producer Bakrie sells its product through an exclusive distributor, Globe Manufacturing Company ("Globe"), which advertises Bakrie's name and product in the United States. Globe, which is not named as a defendant, owns 25% of Bakrie, and the two companies share some common officers and directors. It also appears that Bakrie executives travel to the United States at least once a year to meet with Globe officials. Perkebunan, the second Indonesian producer, uses an exclusive distributor, defendant Consortium International Corporation ("Consortium"), to sell to American end users. ...

The class action complaint alleges a conspiracy among the producers, distributors, and other entities not named as defendants to fix prices and to restrain competition in the sale of extruded rubber thread throughout the world, including the United States, in violation of § 1 of the Sherman Act.... Plaintiffs seek damages and injunctive relief pursuant to § 4 and 16 of the Clayton Act...

Specifically, plaintiffs allege that the Malaysian producer-defendants first met in August 1992, along with RTI and Worldflex, and agreed (i) to raise rubber thread prices worldwide, (ii) to restrict rivalry for customers, and (iii) to discipline employees and distributors who discounted prices or otherwise violated the terms of the cartel. After 1993, the conspiracy was extended to include the Indonesian and Thai producer-defendants, plus other unnamed Indonesian and Thai producers. The Malaysian producers then induced the Thai and Indonesian producers to coerce their own American distributors into abiding by the terms of the cartel.

On December 9-11, 1994, all the producer-defendants, plus other unnamed co-conspirators, met in Bali, Indonesia at the ASEAN Rubber Thread Manufacturers Meeting, where they again agreed to the terms of the cartel. Then, in the spring of 1995, the producers met in Panang, Malaysia to confirm the details of the conspiracy and to raise prices charged to American end users further. A copy of the meeting minutes includes references to statements by the producers that they had met in Bali the prior year to set a uniform price for rubber thread; that they should endeavor to keep prices high and uniform; but that prices should not be so high as to provide non-cartel members with sufficient incentive to enter the market.

The second amended complaint also describes the distributors' role and conduct in furtherance of the conspiracy. During 1992 and 1993, various distributors, wholly owned by Malaysian producers, reported to their parents that distributors of Thai and Indonesian thread were deviating from cartel prices. The Malaysian producers conveyed this information to the Thai and Indonesian producers, who, in turn, reined in their respective distributors and induced them to raise their prices to the cartel level. Specifically, Perkebunan transmitted such complaints to its distributor, Consortium, in 1993 and 1995, and Consortium thereafter agreed to -- and in fact did -- maintain its prices in line with the cartel price. Consortium also reported below-cartel pricing in the American market to Perkebunan and attended meetings with Perkebunan in 1995 to discuss the producers' earlier meeting in Panang. Moreover, Consortium concealed from its customers the true reason for the price increase, blaming it instead on the rise in prices for the latex used in the process of manufacturing extruded rubber thread.

FLE-USA was another of the distributors that reported price cutting by its American "competitors" to its parent. In addition, FLE-USA furthered the goals of the conspiracy by coordinating its price increases with other distributors in 1992, 1993, and 1995, and by refusing to offer discounts to end users when so instructed by other members of the conspiracy. FLE-USA knew of the existence of the cartel through its parent, Filati-Lastex, a participant in the Bali and Panang meetings.

Flexfil (RI) and Flexfil (NC), like their fellow distributor-conspirators, also implemented significant price increases in 1992, 1993, and 1995 to keep pace with the cartel price. Again, as did the other distributors, Flexfil (RI) and Flexfil (NC) reported instances of price cutting by other distributors to their Malaysian parent. Also in furtherance of the conspiracy, these entities refused requests for discounts from end users. And, like other distributor defendants, it is alleged that these distributors, too, knew they were acting on behalf and as part of a conspiracy because their corporate officers included officers of their parent Rubberflex, which had participated in the Bali and Panang meetings.

Finally, Rubfil-USA, another distributor-defendant, similarly followed the cartel's several price increases, reported price cutting to its Malaysian parent, refused requests for discounts, and knew of the conspiracy through an officer it shared with its parent and who attended the meetings in Asia.

This factual background, drawn from allegations in the second amended complaint, provides the context for disposition of the pending motions to dismiss.

Defendant Bakrie contends that plaintiffs have not made a prima facie showing that the Court may maintain in personam jurisdiction over it. Bakrie therefore seeks dismissal pursuant to Rule 12(b)(2).

The pertinent facts may be succinctly stated. Bakrie sells its extruded rubber thread to Globe, its exclusive distributor, in Indonesia. Title and risk of loss pass to Globe in Indonesia. Globe then advertises and seeks purchasers for Bakrie products in the United States. As a 25% owner of Bakrie, Globe has appointed two directors to Bakrie's board, and Bakrie officials visit the United States at least once a year for meetings with Globe officials. Bakrie argues that these facts are insufficient to support a finding of personal jurisdiction.

The prerequisites for obtaining personal jurisdiction are well established in this circuit. First, the plaintiff must point to a statute (usually a state's long-arm statute) or rule that authorizes service of process over the defendant. Second, the service of process pursuant to the specified statute or rule must comport with due process. ... That is, the defendant must have sufficient minimum contacts with the forum such that haling it into court there would not offend "traditional notions of fair play and substantial justice." International Shoe Co. v. Washington...

In the instant circumstances, the first prerequisite is met both by § 12 of the Clayton Act, and by Rule 4(k)(2). Section 12 of the Clayton Act provides for nationwide -- indeed worldwide -- service of process when the antitrust defendant is a corporation. ... Further, under Rule 4(k)(2), a defendant not subject to the jurisdiction of any state court that is served with process is subject to personal jurisdiction in the federal courts as long as the assertion of jurisdiction (i) is consistent with federal law, and (ii) does not offend the Constitution.

In this case, Bakrie was properly served in Indonesia pursuant to Rule 4(f)(2)(C)(ii). ... Because the Clayton Act provides for worldwide service, service in Indonesia was consistent with federal law. Thus, plaintiffs need only show under Rule 4 that the service effected did not offend the Constitution. That same showing is required under the Clayton Act. Thus, under either the Clayton Act or Rule 4, any challenge to personal jurisdiction is governed by the familiar constitutional test of "fair play and substantial justice." International Shoe... In essence, the statutory analysis regarding service of process collapses into the constitutional inquiry.

The constitutional "fair play and substantial justice" test, as it has developed through the Supreme Court's jurisprudence, has two prongs. First, the defendant must "purposely avail" itself of the benefits and laws of the forum. See Hanson v. Denckla. ... Second, the assertion of in personam jurisdiction over the defendant must be fair and reasonable; that is, the defendant should reasonably expect to be "haled into court" to defend the lawfulness of its conduct. ...

Regarding the first prong, it is not enough that Bakrie sold the product with reason to expect that it would end up in the United States, for "the placement of a product into the stream of commerce, without more, is not an act of the defendant purposefully directed toward the forum State." Asahi Metal Indus. Co. v. Superior Court of Calif. ... The Fourth Circuit expressly adopted this position in Lesnick v. Hollingsworth & Vose Co.,... in which it stated that the "touchstone of the minimum contacts analysis remains that an out-of-state person have engaged in some activity purposefully directed toward the forum state." The Fourth Circuit went on to say that it would offend due process to "permit a state to assert jurisdiction over any person in the country whose product is sold in the state simply because a person must expect that to happen." In sum, then, in addition to placing the object in the stream of commerce, a plaintiff must show "additional conduct of the defendant [that] indicate[s] an intent or purpose to serve the market in the forum State." Asahi...; ... Such additional, intentional conduct may consist of "designing the product for the market in the forum . . . advertising in the forum . . . establishing channels for providing regular advice to customers in the forum . . . or marketing the product through a distributor who has agreed to serve as the sales agent in the forum . . . ." Asahi...

As for the second prong, which requires that the assertion of jurisdiction be fair and reasonable, a court must weigh "(a) the burden on the defendant, (b) the interests of the forum . . . (c) plaintiff[s'] interest in obtaining relief, (d) the efficient resolution of controversies as between [the potential fora involved], and (e) the . . . interests . . . in furthering fundamental substantive social policies." Lesnick... These principles, applied here, compel the conclusion that Bakrie is subject to personal jurisdiction in the United States.

Bakrie alleges that it is a company organized under the laws of Indonesia, has no offices or agents in the United States, holds no assets in this country, has never entered into any contracts for the sale of rubber thread in the United States, and sells its products and delivers title to them to Globe in Indonesia. Moreover, according to Bakrie, it is Globe, not Bakrie, that sets the prices for extruded rubber thread sold to end users in the United States. Bakrie's only direct contact with the United States appears to be through its executives who travel to the United States at least once a year for meetings with Globe. That contact is minimal indeed -- and arguably insufficient to clear even the low threshold established by International Shoe and its progeny. Furthermore, the mere presence of Bakrie's product in the United States is not a contact that subjects it to in personam jurisdiction. ... Globe, not Bakrie, imports the thread into this country; and Bakrie's introduction of its product into the stream of commerce, by itself, is an insufficient basis for personal jurisdiction under Asahi and Lesnick.

Plaintiffs, however, contend that Bakrie customizes its product for the U.S. market, and that it is therefore subject to in personam jurisdiction. ... In support of the "customizing" argument, plaintiffs rely specifically on statements by Globe, Bakrie's distributor in the United States, in which Globe assures its customers that it can furnish them with rubber thread produced by Bakrie in various sizes -- measured in different gauges -- and in various colors. This argument is unpersuasive. Merely providing standard sizes and colors according to a customer's request is insufficient to create an inference that the product is custom-made or designed for a specific market. Were this not so, then any time a foreign manufacturer produced goods in more than one size or color, a plaintiff could invoke the customization argument in support of personal jurisdiction. Neither Asahi nor Lesnick calls for such a result.

To be sure, a defendant is not normally subject to personal jurisdiction when its sole contacts with the forum are through a third party, as appears the case with Bakrie. Bakrie has chosen to employ an exclusive distributor in the forum, and in so doing, according to Asahi, it has purposefully availed itself of that forum. ...

It appears, then, that the Rule 4 or § 12 service on Bakrie satisfies that portion of the constitutional test that focuses on purposeful availment. But this is not the end of the due process inquiry. As noted above, the constitutional test for personal jurisdiction has two elements, both of which must be satisfied. Even if Bakrie, in some sense, purposefully availed itself of this forum, plaintiffs still must show, using Lesnick's multifactor analysis, that it would be fair and reasonable to require Bakrie to defend against this case in the United States. Underlying the Lesnick analysis is the theory that the "unique burdens placed upon one who must defend oneself in a foreign legal system should have significant weight in assessing the reasonableness of stretching the long arm of personal jurisdiction over national borders." …

An evaluation of these factors in the context of this case points persuasively to the conclusion that it would be reasonable to require Bakrie to defend this case in the United States. Both the forum (the United States) and the plaintiffs have a strong interest in bringing Bakrie to court here, for doing so furthers enforcement of the federal antitrust laws, surely an important national policy. …

It is true that federal policy cannot supplant consideration of the burden the defendant would incur in defending an action in a foreign forum. That burden weighs heavily in the "fair play and substantial justice" analysis. Thus, defendant Bakrie's motion pursuant to Rule 12(b)(2), must be denied.

Next, there is the matter of venue. Defendants contend that even if in personam jurisdiction is established on the basis of aggregated, national contacts, venue in the Eastern District of Virginia is improper.

Section 12 of the Clayton Act lays venue in any district where the defendant is "found" or where it "transacts business." At first blush this would seem to be an insurmountable obstacle to suit in this district, as the foreign defendants here apparently cannot be found in any judicial district in the United States because they conduct their business abroad. Yet, this is not fatal to venue, for the Supreme Court has held that 28 U.S.C. § 1391(d), which provides that aliens may be sued in any district, overrides any special venue statute (such as the one contained in § 12 of the Clayton Act). Thus, § 1391(d) eliminates any venue impediment to suit in this district with respect to the foreign defendants because they, as aliens, may be sued in any federal judicial district.

As to the American defendants, venue is proper in (1) a judicial district where any defendant resides, if all defendants reside in the same State, (2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred . . . or (3) a judicial district in which any defendant may be found, if there is no district in which the action may otherwise be brought.

28 U.S.C. § 1391(b) (stating the venue rules for federal-question cases). In the case at bar, neither (1) nor (2) applies; thus, venue is proper as to all the American defendants in any district where one of them may be found.

Plaintiffs have alleged some Virginia-related contacts of defendants, but the allegations are quite sparse. In addition to the boilerplate statement that defendants "are found or do business in the district or the state," plaintiffs assert that Heveafil sold its rubber thread in Virginia; that Rubfil had customers in Virginia and sold to them with the aid of its subsidiary, Rubfil-USA; that Rubberflex sold its thread in Virginia with the aid of its subsidiaries Flexfil (RI) and Flexfil (NC); and that Consortium sold Perkebunan's product in this state. ... Several defendants contend -- and plaintiffs have yet to dispute -- that these Virginia contacts were located in the Western District of Virginia, not the Eastern District, and thus that venue here is improper. Not all defendants, however, have objected to venue being laid in this district. That fact might suggest that there are indeed sufficient contacts with this district such that at least one of the American distributors can be "found" here, thus satisfying § 1391(b)(3). Yet no specific allegation to that effect is found in the second amended complaint. At this time, therefore, it is unclear whether venue is proper in the Eastern District of Virginia. Accordingly, plaintiffs must show that venue in this district is proper, or the action may be transferred to the Western District of Virginia. A separate order will be issued providing plaintiffs with an opportunity to remedy this deficiency.

Based on the principles and conclusions set forth here, the motions to dismiss must be denied.

Appropriate orders have issued.