November 28, 2016

Third Circuit Considering Federal Court Damages Immunity for Ocean Shipping Companies

Holland & Knight Alert
David C. Kully


  • The U.S. Court of Appeals for the Third Circuit heard oral arguments on Nov. 17, 2016, on an appeal of the dismissal of private actions brought to recover damages for an antitrust conspiracy among ocean common carriers discovered and prosecuted by the U.S. Department of Justice (DOJ) beginning in 2014.
  • Although it is not certain how the Third Circuit will ultimately rule, its three-judge panel appeared inclined to affirm the district court's dismissal. If so, plaintiffs would be required to pursue damages claims for antitrust violations only through Federal Maritime Commission administrative proceedings.

The Shipping Act of 1984 grants limited immunity under the antitrust laws to vessel-operating common carriers that enter certain agreements, including price-fixing agreements, so long as the agreements are filed in advance with the Federal Maritime Commission (FMC). See 46 U.S.C. §§40301, 40307(a). Unfiled (or "secret") price-fixing agreements among vessel-operating common carriers, however, are not immune, and the U.S. Department of Justice (DOJ), beginning in February 2014, prosecuted under Section 1 of the Sherman Act a number of ocean common carriers for such a secret, unfiled agreement – a conspiracy to eliminate competition in the provision of shipping services for roll-on, roll-off cargo, such as cars and trucks.

The disclosure of the DOJ's criminal antitrust investigation in September 2012 precipitated the filing of a number of private civil antitrust cases, which were coordinated and consolidated for pretrial proceedings on Oct. 18, 2013, in the U.S. District Court for the District of New Jersey. On Aug. 28, 2015, the district court granted the defendant shipping companies' motion to dismiss, finding the Shipping Act barred private damages actions alleging antitrust violations. In re Vehicle Carrier Servs. Antitrust Litig., MDL No. 2471 (D.N.J. Aug. 28, 2015). Plaintiffs appealed to the U.S. Court of Appeals for the Third Circuit, which heard oral arguments on Nov. 17, 2016. The Third Circuit judges expressed obvious and significant skepticism of the plaintiffs' arguments during the oral argument. While it is impossible to know for certain how the Third Circuit will ultimately rule, its affirmance of the district court's decision would leave plaintiffs interested in continuing to pursue damages with the FMC's administrative process as their only forum. This is significant for all parties because plaintiffs in FMC actions can recover only double damages for harm from anticompetitive conduct – instead of the treble damages they can obtain under antitrust cases in federal court.

The district court based its finding that the defendants were immune from federal court damages actions on its interpretation of the Shipping Act. Section 40307(d) of the Shipping Act bars private actions brought under Section 4 of the Clayton Act to recover damages "for conduct prohibited" by the Shipping Act. The district court found that the antitrust conspiracy for which defendants were prosecuted by the DOJ constituted an agreement that, under Section 40301(a), defendants should have filed with the FMC. When defendants pursued their secret conspiracy, the district court found that the carriers impermissibly operated pursuant to an unfiled agreement in violation of the Shipping Act – in other words, that they engaged in "conduct prohibited" by the Shipping Act – and Section 40307(d) blocked plaintiffs' attempt to recover damages caused by that unfiled agreement. The district court also found that the immunity granted to antitrust defendants under the Shipping Act extended to actions brought under state antitrust laws.

It is impossible to say how the Third Circuit will rule but, to the extent any insights can be drawn from the judges' questions, they appear to be at least contemplating affirming the district court's decision. One of the judges on the three-judge panel implied in a question that plaintiffs' current pursuit of actions at the FMC for violations of the Shipping Act effectively conceded that the Shipping Act required plaintiffs to follow the FMC's processes. Another observed that the purpose of the Shipping Act was to expand antitrust immunity for ocean common carriers to put them on equal footing with foreign counterparts. That judge also suggested the extensive federal regulation in the maritime area implied federal pre-emption of inconsistent state laws.

The ultimate decision in this case will have important implications for the shipping industry. Affirmance by the Third Circuit would confirm that the Shipping Act shields vessel-operating common carriers from court-imposed damages liability for nearly any agreements they reach – prohibited or otherwise. A contrary ruling that exposes vessel-operating common carriers to treble damages liability in federal court would change the landscape and introduce uncertainty where the Shipping Act was thought to provide clarity.

Ocean shipping and other maritime industry participants should monitor this case. As the case continues and further rulings are issued, we will provide updates.

In the meantime, Holland & Knight can help navigate regulatory and antitrust compliance in the context of your particular business and industry sector. Our team is highly experienced in designing, auditing, and developing top-down compliance and dawn-raid solutions for multinational companies.

For more information or further explanation of the issues covered, contact a member of our Maritime Antitrust Team: Michael Cavanaugh, Jim Hohenstein, David Kully, Vincent Foley, Chris Nolan (@ChrisShiplaw) or Eric Lee (@MaritimeEric).

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.

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