Ninth Circuit Affirms Dismissal of Antitrust Suit Against Mexican State-Owned Joint Venture Under Act of State Doctrine

Harrison (Buzz) Frahn
Andy Hasty
Eric Mills
Simpson Thacher & Bartlett LLP

On August 15, 2018, the Ninth Circuit issued a decision affirming the dismissal of an antitrust suit against Mitsubishi Corp. and a Mexican salt company jointly owned by Mitsubishi and the Mexican government. Sea Breeze Salt, Inc. v. Mitsubishi Corp., No. 16-56350, 2018 WL 3863842 (9th Cir. Aug. 15, 2018). The Ninth Circuit held that the “act of state doctrine”—which prohibits “the courts of one country” from sitting “in judgment on the acts of the government of another done within its own territory”—precluded a U.S. court from adjudicating plaintiffs’ claims regarding the Mexican salt company’s decision to sell its salt exclusively to Mitsubishi. Id. at *3, 9. According to the court, the decisions of the Mexican salt company regarding the disposition of the country’s salt was a sovereign act, and passing judgment on plaintiffs’ claims would require a U.S. court to declare that sovereign act invalid. Id. at *3-6. The court stressed, however, that the decision was limited to the particular facts of the case and that the act of state doctrine is “not a license for courts to dismiss cases . . . whenever a foreign state-owned enterprise is involved.” Id. at *9.


In April 2016, Sea Breeze Salt, Inc., a California-based company, and Innofood, S.A. de C.V., a Mexican company, filed suit in the Central District of California against Mitsubishi Corporation, Mitsubishi International Corporation (collectively “Mitsubishi”), and Exportadora de Sal, S.A. de C.V. (“ESSA”). Sea Breeze Salt, Inc. v. Mitsubishi Corp., CV 16-2345-DMG (AGRx), 2016 WL 8648638, at *1 (C.D. Cal. Aug. 18, 2016). ESSA is a joint venture between the government of Mexico and Mitsubishi that produces 90% of Mexico’s salt exports and nearly 17% of total global salt output. Id. The Mexican government owns 51% of ESSA, with the remaining 49% owned by Mitsubishi. Id.

Among other claims, plaintiffs alleged an illegal conspiracy between Mitsubishi and ESSA in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1 et seq., and sought injunctive relief. Id. at *1, 6. As alleged by plaintiffs, for decades ESSA sold its entire salt output exclusively to Mitsubishi. Id. at *1. But beginning with the appointment of reformist Jorge Lopez Portillo Basave as ESSA’s Director General in February 2014, ESSA entered into contracts to supply competing distributors—including Innofood—with solar sea salt. Id. After Mr. Portillo was terminated later that year, however, ESSA refused to honor the contract with Innofood, causing Innofood to breach its contract to supply salt to Sea Breeze. Id.According to plaintiffs, ESSA’s refusal to honor Innofood’s contract was part of a scheme to return to supplying its entire output of salt exclusively to Mitsubishi. Id.

Mitsubishi moved to dismiss the suit in its entirety pursuant, in part, to the act of state doctrine. Sea Breeze Salt, Inc., 2016 WL 8648638, at *1-2. On August 18, 2016, Judge Dolly M. Gee dismissed the claims against Mitsubishi, agreeing that the act of state doctrine applied to bar the court from intervening. Id. at *3-6. Judge Gee also subsequently dismissed the claims against ESSA both for failure to serve ESSA and because the act of state doctrine would apply “with equal (if not greater) force to ESSA.” Sea Breeze Salt, Inc., 2018 WL 3863842, at *2.

The Ninth Circuit Affirms Dismissal Pursuant to the Act of State Doctrine

On appeal by Innofood and Sea Breeze, the Ninth Circuit reviewed the district court’s decision de novo and reached the same conclusion, affirming dismissal of the suit under the act of state doctrine. Id. at *2, 9.

As described by the Ninth Circuit, the act of state doctrine is “a consequence of the domestic separation of powers, reflecting the strong sense of the Judicial Branch that its engagement in the task of passing on the validity of foreign acts of state may hinder the conduct of foreign affairs.” Id. at *2 (citing W.S. Kirkpatrick & Co. v. Envtl. Tectonics Corp., Int’l, 493 U.S. 400, 404 (1990) (internal quotation marks omitted)). The doctrine “bars suit where ‘(1) there is an official act of a foreign sovereign performed within its own territory; and (2) the relief sought or the defense interposed [in the action would require] a court in the United States to declare invalid the [foreign sovereign’s] official act.’” Id. at *3 (quoting W.S. Kirkpatrick & Co., 493 U.S. at 405).

In determining whether ESSA’s actions were the official acts of a foreign sovereign, the Ninth Circuit first explained that ESSA’s corporate status did not render it incapable of performing an official act of the Mexican government because “[t]he critical question is not the identity of the actor, but rather the nature of the act itself.” Id.

Comparing Mexico’s decisions regarding salt output to decisions by other sovereign actors regarding the disposition of oil, uranium, and even Bangladeshi rhesus monkeys, the Ninth Circuit noted that Mexico’s Constitution explicitly states that “all minerals or substances . . . such as . . . rock-salt and the deposits of salt formed by sea water” are owned by the state. Id. at *3–4 (quoting CONSTITUCIÓN POLITICA DE LOS ESTADOS UNIDOS MEXICANOS, Art. 27). Explaining that “a nation’s decisions about the exploitation of its own natural resources are quintessentially sovereign in nature,” the court held that “Mexico’s salt is a sovereign natural resource” and that its “exploitation is therefore a sovereign act.” Id. at *3.

Addressing the second prong of the act of state doctrine, the court noted that adjudicating plaintiffs’ claims would require the court to decide the lawfulness of ESSA’s decision to refuse to honor all of its distribution contracts with parties other than Mitsubishi. Id. at *5–6. Accordingly, as the court found, granting injunctive relief “would amount to a quite literal instruction to Mexico to alter the way it profits from its salt” and therefore require the court to invalidate Mexico’s official act. Id. at *6.

The Act of State Doctrine is Not an Absolute Bar to Suit Against a Foreign Government-Owned Company

Although the act of state doctrine prohibited suit against Mitsubishi and ESSA in this case, the Ninth Circuit took care to “emphasize the narrow nature” of its decision. Id. at *9 (clarifying that the doctrine is not a blanket bar to an antitrust suit every time the facts involve “a foreign state-owned enterprise” or even “a government-owned company that operates in an industry related to natural resources”). Indeed, the court specifically addressed two possible exceptions to the act of state doctrine: (1) where the policies underlying the doctrine do not justify its application; and (2) where governments “exercise only those powers that can also be exercised by private citizens” and engage in “purely commercial acts.”

To determine whether the policies underlying the doctrine justify its application, the court evaluated the “Sabbatino Factors”, i.e., (a) “the degree of codification or consensus concerning a particular area of international law,” (b) “the implications of an issue . . . for our foreign relations,” and (c) whether “the government which perpetuated the challenged act of state is no longer in existence.” Id. at *6 (quoting W.S. Kirkpatrick & Co., 493 U.S. at 409). In this case, however, the Ninth Circuit found that application of the doctrine was justified because (i) there are “no international norms against exclusive arrangements in the extraction and export of a country’s resources,” which would weigh in favor of court intervention, (ii) a court order in the case enjoining ESSA’s actions “would be inherently offensive to the principle of co-equality among international sovereigns and would therefore be likely to impinge the executive’s ability to conduct foreign relations in a coordinated manner,” (internal citation omitted) and (iii) the government of Mexico continues to exist. Id. at *6-7.

The court also entertained the possibility of an exception for “purely commercial acts” based on the 1976 opinion of a four-Justice plurality of the Supreme Court in Alfred Dunhill of London, Inc. v. Republic of Cuba, 425 U.S. 682, 695–706 (1976). Sea Breeze Salt, Inc., 2018 WL 3863842, at *7–8. After observing that the Fifth and Eleventh Circuits have rejected the commercial exception altogether, while the D.C. Circuit has “arguably” accepted it, the Ninth Circuit joined the Second, Third, and Sixth Circuits by acknowledging the Dunhill plurality’s view, but declining to decide whether such an exception exists. Id. at *8. Rather than take a definitive position, the court suggested that “any commercial exception” may actually be “subsumed within the prima facie requirement that the challenged conduct constitute an ‘official act of a foreign sovereign.’” *8 n.4 (quoting Credit Suisse v. U.S. Dist. Court, 130 F.3d 1342, 1346 (9th Cir. 1997)). According to the Ninth Circuit, however, even decisions regarding the disposition of natural resources might be commercial acts (rather than official acts) under the prima facie requirement in the right circumstances.See id. at *9. Moreover, the court signaled that its analysis in this case might have differed if the decisions at issue had involved “individual lots of already-produced salt,” but explained that ESSA’s decision to sell its entire salt output to Mitsubishi was not meaningfully different from the Mexican government “granting a foreign company an exclusive concession to extract salt,” which plaintiffs acknowledged would be an official sovereign act. Id. at *4.


The Ninth Circuit’s opinion in Sea Breeze Salt, Inc. affirmed that the act of state doctrine may bar suit against a government-owned company or joint venture when the actions subject to suit are the official acts of a foreign sovereign. In this case, decisions regarding the disposition of 90% of Mexico’s salt output, made by a Mexican salt company that was majority-owned by the government of Mexico, were the official acts of the Mexican government and could not form the basis for an antitrust suit. The Ninth Circuit, however, expressly left open the possibility for future suits against state-owned companies or joint ventures alleging different facts to survive the act of state doctrine analysis, even where decisions regarding the disposition of a foreign country’s natural resources are involved.


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