The following is the body of a memorandum prepared by William Baxter at the request of Tom Suckling, Executive Director of Apple-Fields Limited, Christchurch, New Zealand.

Potential Application of U.S. Antitrust Laws to the
New Zealand Apple & Pear Marketing Board
New Zealand Fruit Growers Federation
and David Oppenheimer & Company

You have asked us to state our preliminary view on the potential application of the United States antitrust laws to the anticompetitive activities of the New Zealand Apple & Pear Marketing Board (the "Board"), New Zealand Fruitgrowers Federation (the "Fruitgrowers Federation:), and David Oppenheimer & Company ("Oppenheimer").

The United States antitrust laws prohibit restraints and monopolies in "trade or commerce ... with foreign nations." See 15 U.S.C. §§ 1-2. The jurisdictional phrase ("trade or commerce ... with foreign nations") has been interpreted to mean that the antitrust laws apply against foreign defendants whose foreign activity has an effect on United States commerce. In a world wide market, where the withdrawal of any source of supply from any point on the globe will be felt, to some extent, throughout the world, the reach of U.S. regulation on "trade or commerce ... with foreign nations," if not further refined, would be potentially limitless. The potential reach of the U.S. antitrust laws has been restricted, however, to reflect the relative limited interest of the United States and the significant interest of foreign nations in certain economic activity. Accordingly, an analysis of the application of the U.S. antitrust laws to foreign defendants engaged in foreign activity with an effect within the United States requires consideration not only of the potential to state a claim but also of the many defenses and immunities that could be asserted in the face of that claim. Such an analysis must also reflect the presence of domestic defendants and domestic activity, if any, as either or both of these will increase the likelihood of an assertion of U.S. jurisdiction over the challenged activity.

In an antitrust action brought against the Board, Fruitgrowers Federation and Oppenheimer, we believe that an United States court would likely consider the following:

1. Does the Court have personal jurisdiction over the Board, Fruit Growers Federation and Oppenheimer?
2. Has the Board, Fruitgrowers Federation or Oppenheimer violated the United States antitrust laws?
1. Has the Board, Fruitgrowers Federation or Oppenheimer engaged in anticompetitive activity with an effect on United States commerce?
2. Are the anticompetitive activities of the Board, Fruitgrowers Federation or Oppenheimer unlawful under United States law?
3. Are the anticompetitive activities of the Board, Fruitgrowers Federation or Oppenheimer immunized through state action?
4. Are the anticompetitive activities of the Board, Fruitgrowers Federation or Oppenheimer immunized as privileged political action?
5. Should the Court moderate its exercise of jurisdiction in deference to the interests of the government of New Zealand?
3. Is the Board a foreign state entitled to foreign sovereign immunity?
4. Would a disposition of the action require the Court to declare invalid a privileged act of a foreign state?

This memorandum will discuss these considerations in light of the following facts and factual assumptions.

Factual Background

Apples are grown, shipped and consumed throughout the world. Apples are sold in a single worldwide market, though there exists a number of imperfectly isolated domestic markets. The worldwide market is supplied by two producer groups, "Southern Hemisphere" producers and "Northern Hemisphere" producers, each group with its own growing season. It is either technologically impossible or prohibitively expensive to keep an apple in top condition through prolonged periods of controlled atmosphere storage, so there is limited substitution of Northern Hemisphere apples during the Southern Hemisphere season, and vice versa. Accordingly, the cross-elasticity of demand between these two seasonal submarkets is very limited, especially at the top end of the market, where the premium on quality and freshness is greatest.

The major Southern Hemisphere producers are Brazil, Argentina, New Zealand, South Africa and Chile. Of these major Southern Hemisphere producers, only the last three export a significant quantity of apples to the Northern Hemisphere. Of these three, New Zealand is the primary source of preferred varieties such as Braeburn and Royal Gala. In the past New Zealand's annual export volume to North America has been approximately 1.5 to 2 million bushels. There are presently plans to increase that annual volume to 4 million cartons within two years and plans for further increases thereafter.

All apples exported from New Zealand are sold through a statutory marketing agent known as the New Zealand Apple & Pear Marketing Board, whose function and powers are defined by the Apple and Pear Marketing Act of 1971 (as amended) ("Fruit Marketing Act"). The Fruit Marketing Act authorizes the Board to purchase apples tendered to it by domestic growers wishing to sell their produce abroad. § 18A. (The Fruit Marketing Act addresses both apples and pears, but this description will ignore the second of these pipfruit as irrelevant to a consideration of the legal issues on which our advice has been sought.) The Board is required to accept all export-quality fruit (the standards for which are set by the Board) tendered to it by domestic growers. § 18a. The Board takes title to the produce upon acceptance. § 18B(4). The Board is authorized then to export and market the fruit outside of New Zealand. § 3A(3).

Nearly all of the most important functions of the Board require consultation or approval of the New Zealand Fruitgrowers Federation, a private incorporated association of growers of all types of fruit. For example, the Board is required to "consult the Fruitgrowers Federation on pricing policies for the season and, in light of the consultation, fix prices for apples...that become its property under section 18B." § 27AB(1). The Board is prohibited from making a retroactive price decrease without the approval of the Fruitgrowers Federation. § 27AB(4). The Board may impose a levy on all apples that become its property under § 18B(4), but only with the approval of the Fruitgrowers Federation. § 31(1)(a). The money earned by the Board by the imposition of such a levy can only be spent on capital projects and only then with the approval of the Fruitgrowers Federation. § 31(4). The seasonal profits of the Board may be distributed to the growers tendering fruit under § 18B(4), but only after consultation with the Fruitgrowers Federation § 33(2).

In the past the Board has used its authority under the Fruit Marketing Act to effectively restrict the quantity of exports from New Zealand and to restrict the quantity of apples available for domestic consumption as apples. In addition the Board has imposed unequal levies and mad unequal distributions of earnings. The net effect of these activities has been to raise the prices for apples consumed domestically as apples, to lower the prices for apples processed into juice, to impose barriers to new entrants and to cross-subsidize the different varieties of apples grown in New Zealand. These activities have been challenged in the New Zealand Courts. In 1993 the Board obtained an exemption of its pricing decisions from the New Zealand Commerce Act.

It is not clear what effect the Board's pricing policies have had on the price of apples for export from New Zealand. The Board's ability to affect prices in a worldwide apple market will depend on the availability of alternative sources of supply responsive to a restriction of apple exports from New Zealand. We would expect such availability to depend on the Board's share of the Southern Hemisphere market; the pace and ease with which other Southern Hemisphere producers could increase their own apple production in response to the Board's export restriction; and the extent to which consumers would be willing to purchase Northern Hemisphere apples whose quality would be poorer during the Southern Hemisphere season.

The Fruit Marketing Act was amended in September of 1993 so as to eliminate the Board's statutory domestic apple monopoly and to allow for the export of apples from New Zealand by persons other than the Board. The amendment has had but a limited effect. The Board retains significant market power in the domestic apple market, and the Board must consent to any application for Export on the basis of standards it may promulgate in its discretion.

The Board may give its consent unconditionally, or subject to any condition it thinks fit; and if any condition subject to which its consent was given is not complied with, the Board may, by written notice to the person to whom it was give, revoke it.

§ 44(3). In addition the Board may "refuse to decide whether to give its consent" until it has received all the information requested by it. § 44(5). Only this last provision requires that the Board's determination be "held on reasonable grounds." § 44(5). The Board has responded to the legislation by promulgating standards prohibiting export unless such export would be complementary to the Board's own export activities. The Board's guidelines state that it will not find complementariness unless the product intended for export is differentiated from the Board's own product line.

A majority of the Board is nominated directly by the Fruitgrowers Federation, with its remaining members nominated by the Board so constituted. § 3(2). The appointment of Board members is officially made by the Minister of Agriculture, who has technical statutory authority over the Board, including the authority to give "general or specific directions...to the Board." §§ 3(2), 10. In fact, the Minister has only a limited role in the supervision of the activities of the Board.

The Board imports its apples into North America through David Oppenheimer and Company General Partnership, a general partnership organized and existing under the laws of the State of Washington. The Board and Oppenheimer are parties to an exclusive master agent arrangement for the marketing and distribution of apples throughout North America. The Board is the owner of a 15% interest in Oppenheimer. Another 15% of Oppenheimer is owned by the New Zealand Kiwifruit Marketing Board. The remaining 70% is owned by Garry Hammonds and John Anderson, who are citizens of the United States. Oppenheimer has its principal place of business at 3462 Cornett Road, Vancouver, British Columbia, VTM 2H1. It also has offices in Seattle, Washington; Los Angeles, California; Houston, Texas; Wilmington Delaware; and Connecticut. It operates with the assistance of certain related entities including David Oppenheimer and Associates, a British Columbia limited partnership; Oppenheimer California, Inc., a California corporation; and Enza Fresh, Inc., a marketing subsidiary which markets the Board's apples under the brand name "Enza."

Oppenheimer has been the exclusive sales agent for Chilean fruit packed under the Zeus label by Exportadora Hortofruticola Zeus S.A. since October 1, 1992. The Board has been a shareholder in Zeus for some time, and in the past year it has consolidated its position in Zeus by buying out the other shareholders.

Apple-Fields Limited ("Apple-Fields") is a New Zealand grower of high quality apples suitable for export to the United States. Apple-Fields is not required to be, no is it, a member of the Fruitgrowers Federation. Apple-Fields has twice applied with the Board under § 44 to export apples to the United States. The first of these applications, for 500,000 bushels, was denied by the Board, and that denial is presently the subject of litigation in the New Zealand courts. The Board has refused to take action on a second application, for 300-400 bushels, on the ground that necessary information has not been provided it. In the meantime, Apple-Fields has been prohibited from exporting its apples to the United States except through the Board.

Discussion

I. Does the Court Have Personal Jurisdiction over the Board, Fruitgrowers Federation and Oppenheimer

Personal jurisdiction over a defendant in an United States court requires certain "minimum contacts" by the defendant with the state or United States such that an exercise of jurisdiction does not offend "traditional notions of fair play and substantial justice." International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). In the case of a foreign supplier to U.S. markets, federal courts may "assert personal jurisdiction over a corporation that delivers its products into the stream of commerce with the expectation that they will be purchased by consumers in the [United States]." World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297-98 (1980). The extensive import activities of the Board and Fruitgrowers Federation undoubtedly meet this test. See Taubler v. Giraud, 655 F.2d 991 (9th Cir. 1981) (personal jurisdiction over French wine producers who traveled to California, contracted to sell wines exclusively to the plaintiff, and actually shipped one parcel to him). Jurisdiction over Oppenheimer is established by its organization under the laws of the States of Washington and California, its extensive marketing and distribution activities throughout the country, and its maintaining offices in various states within the United States.

Service on a domestic corporation such as Oppenheimer may be made in the manner provided by Rule 4(h) of the Federal Rules of Civil Procedure. Service on a private foreign defendant such as the Fruitgrowers Federation may be made in the manner provided by Rule 4(f), (h). See also Fed. R. Civ. Proc. 4(k)(2) (personal jurisdiction over foreign defendants meeting the "minimum contacts" test).

Personal jurisdiction over a foreign state, including its agencies and instrumentalities, is further subject to the Foreign Service Immunities Act (the 'FSIA" or "Act"), which provides immunity from suit in Unites States courts for the sovereign acts of foreign states. 28 U.S.C. § 1330(b). The Board may be an agency or instrumentality of the government of New Zealand. If so, then personal jurisdiction over the Board will depend on whether its anticompetitive activities are sovereign or commercial within the meaning of the FSIA. These points will be taken up in Section III. infra. Service on an agency or instrumentality of a foreign state may be made in the manner provided by 28 U.S.C. § 1608.

II. Has the Board, Fruitgrowers Federation or Oppenheimer Violated the United States Antitrust Laws?

As previously mentioned, the United States antitrust laws apply to foreign activity with an effect on U.S. commerce. But not all such conduct is held to be within their scope. In determining whether challenged foreign activity is within the purview of the U.S. antitrust laws, an United States court will consider: the effect on the activity on U.S. commerce; the unlawfulness of the activity under U.S. law; whether active supervision by a foreign state pursuant to a clearly articulated policy should displace U.S. antitrust scrutiny; whether political action is the source of the anticompetitive activity; whether foreign law required that activity, and if so, then whose law should prevail. The following sections will discuss the application of each of these considerations to the anticompetitive activities of the Board, Fruitgrowers Federation and Oppenheimer.

A. Has the Board, Fruitgrowers Federation or Oppenheimer Engaged in Anticompetitive Activity with an Effect on United States Commerce?

In United States v. Aluminum Co. of America, 148 F.2d 416, 444 (2d Cir. 1945), the court held that the United States antitrust laws apply only to foreign activity that "significantly" or "directly" affects U.S. commerce, or is intended to have an effect on U.S. commerce, or is both intended to have and does have such an effect. The effects test has traditionally imposed only the most minimal burden on antitrust plaintiffs, excluding only wholly foreign conduct whose effect on U.S. commerce is both unintended and insubstantial. For example, in Timberlane v. Bank of America, the court found sufficient effects from plaintiffs' stated ability and willingness to supply lumber to U.S. markets, although the country from which it would be exporting (Honduras) accounted for less than 0.1 percent of the supply of lumber in U.S. markets. Timberlane v. Bank of America, 1981-1 Trade Cas. (CCH) ¶ 65,998 (N.D. Cal. 1982); Timberlane v. Bank of America, 574 F. Supp. 1453, 1466 (N.D. Cal. 1983), aff'd, 749 F.2d 1378 (9th Cir. 1984), cert. denied, 472 U.S. 1032 (1985).

More recent formulations of the effects test suggest the existence of a higher threshold requirement. See Hartford Fire Ins. Co. v. California, 113 S. ct. 2891, 2909 (1993) (the U.S. antitrust laws apply to foreign activity "that was meant to produce and did in fact produce some substantial effect in the United States"). Cf. 15 U.S.C. § 6a (the "Foreign Trade Antitrust Improvement Act of 1981") (the Sherman Act "shall not apply to conduct involving trade or commerce (other than import trade or commerce) with foreign nations unless ... such conduct has a direct, substantial, and reasonably foreseeable effect .. on trade or commerce which is not trade or commerce with foreign nations"). It is not yet clear what difference, if any, these formulations will have on plaintiffs' initial burden.

in an antitrust action brought against the Board, Fruitgrowers Federation and Oppenheimer, an United States court would likely consider the Board's stated intent to maximize the financial returns to New Zealand apple producers through uniform pricing policies:

Maximization of financial returns of this growing trade throughout the US is a primary objective, hence concerns have been expressed ... over alternative marketing and its impact on North American wide pricing policies and stable development, and close involvement at retail point of sale.

Letter from W.G.G.A. Young O.C. to Ann Veneman, June 27, 1994, ¶ 10 (quoting the Board). The court would also likely consider the extent to which the Board's intention is achievable in fact, and the extent to which the activities of the Board and Oppenheimer have occurred within the United States. The court might also consider the Board's recent acquisition of Zeus. These considerations would likely lead an United States court to conclude that the effects test has been met here.

B. Are the Anticompetitive Activities of the Board, Fruitgrowers Federation or Oppenheimer Unlawful under United States Law:

An action brought against the Board, Fruitgrowers Federation and Oppenheimer on the basis of the U.S. antitrust laws could rely on Sherman Act § 1, 15 U.S.C. § 1, which prohibits contracts, combinations and conspiracies in restraint of trade or commerce. This action could be brought on three theories under § 1. First, the complaint could allege that the Board, Fruitgrowers Federation and Oppenheimer have conspired to fix prices for New Zealand apples to be imported to the United States. A conspiracy among competitors, e.g., multiple growers, to fix the prices charged for their products is a per se violation of § 1. Second, the complaint could allege that the Board, Fruitgrowers Federation and Oppenheimer have conducted a concerted boycott of Apple-Fields by causing its United States import application to be effectively refused by the Board. Economic boycotts have been held a per se violation of § 1. Third, the complaint could allege that the Board, Fruitgrowers Federation and Oppenheimer have entered into an unreasonable (in light of its duration, scope and economic necessity) long-term exclusive-dealing arrangement for the import of apples to the United States. Exclusive-dealing arrangements have also been held in violation of § 1.

The ultimate success of all three legal theories, and in particular the first two, will depend to some extent on the court's willingness to find that the Board and Oppenheimer have provided a mechanism by which New Zealand's apple growers have suppressed price competition among themselves. An agreement on price between a purchaser and its suppliers does not generally violate the U.S. antitrust laws. Likewise, a purchaser's choice of one supplier over another does not generally constitute an U.S. antitrust violation. Essential to all three causes of action is a finding that the essence of the arrangement between the Board, Fruitgrowers Federation and Oppenheimer is a horizontal agreement among New Zealand's apple growers to establish an uniform price level for their products and to boycott suppliers who do not go along.

An action could also be brought against the Fruitgrowers Federation and Oppenheimer, under § 1 or 2, alleging the existence of a conspiracy to cause the Board to engage in its anticompetitive course of conduct. See, e.g., W.S. Kirkpatrick & Co. v. Environmental Tectronics Corp., Int'l, 493 U.S. 400 (900) (conspiracy to bribe Nigerian officials to obtain military procurement contracts in violation of the Robinson-Patman Act); United States v. Sisal Sales Corp., 274 U.S. 268 (1927) (conspiracy to monopolize sisal market in part by obtaining discriminatory Mexican legislation).

As to any of these causes of action, individual officers of each of the named entities, as well as individual New Zealand apple growers, could also be named as defendants.

C. Are the Anticompetitive Activities of the Board, Fruitgrowers Federation or Oppenheimer Immunized Through State Action?

Antitrust liability extends only to "persons," a term defined by Sherman Act § 7, 15 U.S.C. § 7, to include corporation and associations as well as natural persons. Several lower courts have held that foreign states are not persons within the meaning of § 7. Hunt v. Mobil Oil Corp., 550 F.2d 68, 78 n.14 (2d Cir.), cert. denied, 434 U.S. 984 (1977); Rios v. Marshall, 530 F. Supp. 351, 372 n.22 (S.D.N.Y. 1981); International Ass'n of Machinists v. OPEC, 477 F. Supp. 553, 570-72 (C.C. Cal. 1979), aff'd on other grounds 649 F.2d 1354 (9th Cir. 1981), cert. denied, 454 U.S. 1163 (1982); Interamerican Refining Corp. v. Texaco Maracaibo, Inc., 307 F. Supp. 1291, 1298 (D. Del. 1970). There exists a not insubstantial likelihood that this line of cases would be applied against an antitrust action brought against the Board. Although not binding in all circuits, these decisions draw support in part from decisions holding that the United States and the states within the United States are likewise not "persons" subject to antitrust liability. See, e.g., Parker v. Brown, 317 U.S. 341 (1943) (state immunity); Rex Systems, Inc. v. Holiday, 814 F.2d 994, 997 (4th Cir. 1987) (federal); Department of Water &Power v. Bonneville Power Admin., 759 F.2d 684, 693 n.12 (9th Cir. 1985) (federal).

An argument could be made that while foreign states are immune from antitrust scrutiny, certain of their subsidiary agencies are not. See Outboard Marine Corp. v. Pezetel, 461 F. Supp. 384 396 (D. Del. 1978) ("[A]rguments based on cases ... dealing with governments per se as 'persons' under the antitrust laws are not particularly helpful in establishing whether a government-sponsored entity engaged in commerce is necessarily immune from the antitrust laws."); cf. Continental Ore Co. v. Union Carbide & Carbon Corp. 370 U.S. 690 (1962) (no immunity for private agent of the government of Canada acting outside the scope of its agency). This argument would distinguish Hunt, though not Rios, Opec or Interamerican. Such an argument would draw support from a well-developed body of case law. Although agencies of the United States have been held generally immune from the antitrust laws, e.g., Bonneville Power Administration, 759 F.2d at 693 n.12 (federal agency within the Department of Energy); Jet Courier Servs., Inc. v. Federal Reserve Bank, 713 F.2d 1221, 1228 (6th Cir. 1983) (Federal Reserve System, an agency within the federal government), state agencies are not immune unless acting pursuant to a policy clearly articulated by the state, California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980) (following Parker v. Brown). Such state agencies do not possess an independent entitlement to state-action immunity; instead, their immunity is derivative of the authority granted to them by the state legislature, executive or judiciary, City of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389, 413 (1978). If a court were to apply the line of cases beginning with Parker v. Brown to the anticompetitive activities of the Board, Fruitgrowers Federation and Oppenheimer, it could hold they are not entitled to antitrust state-action immunity.

There are two traditional requirements for antitrust state-action immunity: (1) a clearly articulated policy by the state to allow the anticompetitive conduct, and (2) active supervision by state officials of the anticompetitive conduct by private actors. Midcal, 445 U.S. at 105. These elements are intended to assure that a public objective is being served by the conduct. General commands will not normally fulfill the first of these elements; there must be a clear and affirmative decision by the state itself (as distinguished from its agency) to displace free-market competition with state regulation. Southern Motor Carriers Rate Conf. v. United States, 471 U.S. 48, 62-63 (1985). Here, the Board has been authorized by the government of New Zealand to purchase apples for export from New Zealand at uniform price levels. Fruit Marketing Act § 9(1)(b) ("The Board's principle functions are-- ... (b) To fix ... the prices it is to pay for those apples"), 27AB(1) ("the Board shall consult the Fruitgrowers Federation on pricing policies for the season and, in light of the consultation, fix prices for the apples ... that become its property"). The Board has not been authorized to boycott Apple-Fields apples, nor to enter into a long-term exclusive dealing arrangement with Oppenheimer. The Board's own concept of complementariness, on which it may rely to deny Apple-Fields' application for export to the United States, will not fulfill the requirement of a clearly articulated policy, as it has not been established by the state. See id. § 44(2) ("the Board shall grant or refuse its consent to the export of apples ... from New Zealand after having had regard to relevant guidelines for the time being established by the Board")

The requirement of active supervision is typically fulfilled by the agency, not the state, but "[w]here prices or rates are set as an initial matter by private parties, subject only to a veto if the State chooses to exercise it, the party claiming the immunity must show that state officials have undertaken the necessary steps to determine the specifics of the price fixing or rate setting scheme." FTC v. Ticor Title Ins. Co., 112 S. Ct. 2169, 2179 (1992). Thus, the second element of antitrust state-action immunity depends on the level of involvement in fact of state officials in the rate setting process. The presence or absence of this element is not definitively resolved by the Fruit Marketing Act. Although the Board, not the Fruitgrowers Federation, sets the prices, this pricing is undertaken upon consultation with the Federation, suggesting that the Federation may control the process in fact. Moreover, if the Board is sufficiently lacking in independence, it may be held to be in essence a private actor, meaning that the requirement of active supervision would have to be met by the Ministry of Agriculture. See Asheville Tobacco Bd. of Trade v. FTC, 263 F.2d 502, 509 (4th Cir. 1959); cf. Gibson v. Berryhill, 411 U.S. 564 (1973) (discipline of optometrists by Alabama Board of Optometry, wholly composed of competing optometrists, held a violation of due process). As the Ministry plays no apparent part of the price-setting process, it would not likely meet the requirement of active supervision.

D. Are the Anticompetitive Activities of the Board, Fruitgrowers Federation or Oppenheimer Immunized as Privileged Political Action?

A claim alleging the existence of a conspiracy between the Fruitgrowers Federation and Oppenheimer to obtain the imprimatur of the Board over essentially private price-fixing arrangements might also be subject to an immunity conferred on certain of such political action. See United Mine Workers v. Pennington, 381 U.S. 657 (1965); Eastern Railroad Presidents Conf. v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961). The lower courts have divided over the application of Noerr-Pennington to foreign political action. Compare Costal States Marketing v. Hunt, 694 F.2d 1358, 1365 (5th Cir. 1983) (Noerr-Pennington applies), with Occidental Petroleum Corp. v. Buttes Gas & Oil Co., 331 F. Supp. 92 (C.D. Cal. 1971) (Noerr-Pennington does not), aff'd, 461 F.2d 1261 (9th Cir.) (per curiam), cert. denied, 409 U.S. 590 (1972). The lower courts are also divided over the application of Noerr-Pennington to rate filings even where the doctrine would otherwise apply. Compare Litton Sys. v. AT&T, 700 F. 2d 785, 807 (2d Cir. 1983) (Noerr-Pennington does not apply), cert. denied, 464 U.S. 1073 (1984), with MCI Communications v. AT&T, 703 F.2d 1081, 1160 (7th Cir.), cert. denied, 464 U.S. 891 (1983) (Noerr-Pennington applies). In the face of this divided precedent, a lower court could conclude that a claim against the Fruitgrowers Federation and Oppenheimer to cause the Board to undertake its anticompetitive course of conduct is not immunized by Noerr-Pennington.

E. Should the Court Moderate Its Exercise of Jurisdiction in Deference to the Interests of the Government of New Zealand

If a court were to hold that an antitrust claim had been stated against the Board, it would then likely inquire whether the Board's anticompetitive activities are nonetheless entitled to deference because of the greater interest of the government of New Zealand in the regulation of its apple industry. The first step in this analysis would be to determine whether the anticompetitive conduct of the Board, Fruitgrowers Federation and Oppenheimer is required by New Zealand law. Unless there is a conflict between New Zealand and U.S. law, no deference will be due. "No conflict exists, for these purposes, 'where a person subject to regulation by two states can comply with the laws of both." Hartford Fire Ins. Co. v. California, 113 S. Ct. 2891, 2910 (1993) (quoting Restatement (Third) of Foreign Relations § 403 cmt. e (1987)).

The anticompetitive activities of the Fruitgrowers Federation and Oppenheimer of the Fruitgrowers Federation in the pricing activities of the Board is expressly authorized, but not required, by the Board's enabling legislation. Fruit Marketing Act § 27AM(1) ("the Board shall consult the Fruitgrowers Federation on pricing policies for the season and, in light of the consultation, fix prices for the apples ... that become its property"), (2) ("If the Board does not fix any prices under subsection (1) of this section before the 1st day of March in any season, there shall be deemed to have been fixed under that subsection the prices finally fixed for the previous season."). It is clear that compulsion, not mere lawfulness, is necessary to state a conflict. "The fact that conduct is lawful in the state in which it took place will not, of itself, bar application of the United States antitrust laws, even where the foreign state has a strong policy to permit or encourage such conduct." Hartford Fire Ins., 113 S. Ct. at 2910 (internal quotations and alterations omitted).

The anticompetitive activities of the Board may be similarly characterized in part. The Board's boycott of Apple-Fields is not required by New Zealand law, because the Board may approve as well as deny or hold Apple-Fields' export application. See Fruit Marketing Act § 44. Likewise, while the Board possesses the statutory authority to enter into its long-term exclusive-dealing arrangement with Oppenheimer and to acquire Zeus, it is not required to take either step. Id. § 11 (the Board may make whatever arrangements are necessary to the shipment and advertising of apples, including investment in an overseas partner). But the Board's pricing activities stand on different ground, because these are required of the Board by its enabling legislation. Fruit Marketing Act §§ 9(1)(b) ("The Board's principle functions are -- ... (b) To fix ... the prices it is to pay for those apples"), 27 AB(1) ('the Board shall consult the Fruitgrowers Federation on pricing policies for the season and, in light of the consultation, fix prices for apples ... that become its property"). As to the Board's pricing activities, there may be a conflict between New Zealand law, which requires it, and U.S. law, which may prohibit it.

Where two sovereigns, each acting within its own authority, prescribe inconsistent conduct of the same person, they are required by international law "to consider, in good faith, moderating the exercise of [their] enforcement jurisdiction." Timberlane Lumber Co. v. Bank of America, 549 F.2d 597, 613 (9th Cir. 1976). The U.S. courts have identified seven factors upon which this discretionary determination will be based.

The elements to be weighed include [1] the degree of conflict with foreign law or policy, [2] the nationality or allegiance of the parties and the locations or principal places of business of corporations, [3] the extent to which enforcement by either state can be expected to achieve compliance, [4] the relative significance of effects on the United States as compared with those elsewhere, [5] the extent to which there is explicit purpose to harm o affect American commerce, [6] the foresee ability of such effect, and [7] the relative importance to the violations charged of conduct within the United States as compared to conduct abroad.

Id. at 614. A determination of each of the Timberlane factors, as well as an assessment of their cumulative effect, is highly discretionary. A U.S. court applying these factors to the pricing activities of the Board could conclude that those activities are properly subject to U.S. antitrust scrutiny. As to the first factor, the Fruit Marketing Act requires the Board to establish uniform price levels, while the U.S. antitrust laws may prohibit this same conduct. However, as Timberlane no longer applies in the absence of a conflict between U.S. an foreign law, Hartford Fire Ins., 113 S. Ct. at 2910, the first factor should not weigh against the enforcement of U.S. law. As to the second factor, the Board is a New Zealand agency with its principal place of business in New Zealand, but the presence of a related domestic entity in Oppenheimer weighs in favor of the enforcement of U.S. law. The third factor weighs in favor of U.S. antitrust scrutiny if we assume that a U.S. money judgment (subject to execution against, inter alia, the North American assets of Oppenheimer) would modify the conduct of the Board and assume that the Board would not be penalized in New Zealand for an abdication of its principal statutory function. As to the fourth factor, the Board's pricing activities, to the extent they allow New Zealand growers to raise prices on apples for export, affect a wealth transfer from U.S. consumers to New Zealand producers and, thus, have a reciprocal effect (less only amounts expending in marketing and distribution) in the two countries. Such an effect has been held to weigh in favor of U.S. antitrust scrutiny. See In re Insurance Antitrust Litig., 938 F.2d 919, 933 (9th Cir. 1991), aff'd in part rev'd in part on other grounds, Hartford Fire Ins., 113 S. Ct. at 2911. Here, the effect on U.S. markets may also be shown by the Board's acquisition of Zeus, whose profits may be shared with Chilean producers or others outside of New Zealand. If we assume the existence of a price-fixing conspiracy, see Section II.B., supra, the fifth and sixth factors weigh in favor of U.S. antitrust scrutiny, because it would be the purpose of that conspiracy to fix the prices for New Zealand apples, many of which are imported into the United States. The seventh factor does not weigh significantly either way. While the Board's pricing decisions are made each season in New Zealand, they are implemented throughout the United States, likely based at lease in part on market information obtained in the United States.

III. Is the Board a Foreign State Entitled to Foreign Immunity?

As previously mentioned in Section I., supra, the jurisdiction of United States courts over a foreign state is conditional upon a finding that the foreign state is not immune from suit under the Foreign Sovereign Immunities Act. A foreign state is defined by the Act to include any agency or instrumentality that is 91) "a separate legal person, corporate or otherwise," (2) "an organ of a foreign state or political subdivision thereof, or a majority whose shares or other ownership interest is owned by a foreign state or political subdivision thereof," and 93) "neither a citizen of a State of the United States ... nor created under the laws of any third country." 28 U.S.C. § 1603(b).

It is clear that Oppenheimer does not meet the statutory definition and, accordingly, is not entitled to immunity as the agency or instrumentality of a foreign state. Although a separate legal person, it is not majority-owned by the New Zealand government and is created under the laws of United States. Likewise, the Fruitgrowers Federation, although a separate legal person created under the laws of New Zealand, is not an organ or political subdivision of New Zealand, but rather, a private incorporated association.

The Board, however, may be an agency or instrumentality of the New Zealand government and, if so, is presumptively immune from suit in the united States. State trading corporations and export associations were specifically identified by Congress as exemplars within the statutory definition of immune agencies and instrumentalities. H.R. No. 1487, 9rth Cong., 2d Sess. 15-16 (1976), reprinted in 1976 U.S.C.C.A.N. 6604, 6614. Most U.S. courts to consider the question have concluded such entities are foreign states. See, e.g., S&S Machinery Co. v. Masinexportimport, 706 F.2d 411, 414-15 (2d Cir. 1983) (Romanian foreign trade company a foreign state in a breach of contract action for the sale of lathes, drills and machine parts to a U.S. corporation), cert. denied, 464 U.S. 850 (1983); Gemini Shipping, Inc. v. Foreign Trade Organization for Chemicals and Foodstuffs, 647 F.2d 314 (2d Cir. 1981) (Cyrian foreign trade company unchallenged as a foreign state). A U.S. court would likely look to the Board's enabling legislation to determine whether it is an agency or instrumentality within the meaning of § 1603(b). That legislation suggests that the statutory definition is met. The Board is a "body corporate, with perpetual succession and a common seal," "with the rights, powers, and privileges of a natural person," Fruit Marketing Act §§ 3(5), 3A(1)(a), thus satisfying the first element of § 1603(b). The Board has many indicia of being an organ of a foreign state: Its Board is appointed by the Minister of Agriculture, id. § 3(2); it must comply with the general trade policy of the Government of New Zealand and with any general or specific directions given by the Minister of Agriculture, id. § 3(2); it must comply with the general trade policy of the Government of New Zealand with any general or specific directions given by the Minister of Agriculture, id. § 10; and it must provide the Minister of Agriculture with an annual financial and operational report, id. § 38A(1). The Board is created by the laws of New Zealand and is not a citizen of the United States.

A U.S. court might look beyond the Board's official status under New Zealand law to determine whether it is an agency or instrumentality within the meaning of § 1603(b). Such an approach was applied in Edlow Int'l Co. v. Nuklearna Electrarna Krsko 441 F. Supp. 827 (D.D.C. 1977). The Plaintiff in Edlow brought suit to recover broker's fees allegedly due in connection with the sale of uranium fuel to a Yugoslavian "workers' organization." The court rejected arguments that the workers' organization was a public utility whose assets were "social property." Id. at 832. A U.S. court applying the Edlow approach could conclude that the Board is no an agency or instrumentality of New Zealand. The Board operates in fact without significant direct governmental supervision, primarily for the benefit of private fruit growers and the Fruitgrowers Federation. Its assets "belong ultimately to the growers, and are for the time being held and administered for the benefit of the New Zealand apple and pear growing industry." Letter from W.G.G.A. Young O.C. to Ann Veneman, June 27, 1994, ¶ 2. Its seasonal profit is distributed to private fruit growers. Fruit Marketing Act § 33.

But the problems with Edlow are many. The most significant of these is that Edlow is an early decision whose "control test has not been widely followed. See Intercontinental Dictionary Series v. De Gruyter, 822 F. Supp. 662, 673 (C.C. Cal. 1993) (questioning Edlow and holding that the Australian National University, while largely free of governmental supervision, is an agency of the Australian government). Edlow might also be distinguished on its facts, as it did not involve a trading corporation or export association, entities specifically identified by Congress as foreign states within the meaning of the FSIA. In addition Edlow considered a socialist government, not a democratic one, making its control and property analysis distinguishable on that basis as well. See O'Connell Machinery Co. v. M.V. "Americana", 566 F. Supp. 1381, 1385 n.10 (S.D.N.Y. 1983) (Italian shipper indirectly owned by government of Italy immune from suit in rem), aff'd, 734 F.2d 115 (2d Cir.), cert. denied, 469 U.S. 1086 (1984).

If the Board is an agency or instrumentality as defined in § 1603(b), then it will be entitled to immunity for sovereign but not certain commercial activity. The FSIA provides:

A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case ... in which the action is based upon a commercial activity carried on in the United States by the foreign state; or upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States

28 U.S.C. § 1605(2). "Commercial activity" is further defined by the FSIA as follows:

A "commercial activity' means either a regular course of commercial conduct or a particular commercial transaction or act. The commercial character of an activity shall be determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose.

Id. § 1603(d).

The Supreme Court has interpreted this language to mean that a foreign state will be liable to suit in United States courts for any activity that could be undertaken by a private person engaged in commerce. Republic of Argentina v. Weltover, Inc., 112 S. Ct. 2160, 2166 (1992); see also Texas Trading & Milling Corp. v. Federal Republic of Nigeria, 647 F2d 300 (2d Cir. 1981), cert. denied, 454 U.S. 1148 (1982). Weltover itself involved dollar-denominated bonds issued by the government of Argentina to maintain the stability of its currency. When Argentina unilaterally rescheduled the bonds' payment terms, its creditors brought suit. As required by § 1603(d), the Court distinguished the nature of the activity (issuing and rescheduling bonds) from its purpose (controlling the country's foreign currency exchange). The Court characterized Argentina's conduct as the issuance of debt, an activity undertaken by private persons, and held Argentina liable to suit.

[W]e conclude that when a foreign government acts, not as regulator of a market, but in the manner of a private player within its, the foreign sovereign's actions are 'commercial' within the meaning of the FSIA.

Weltover, 112 S. Ct. at 2166.

Here, the Board acts as both a "regulatory of a market" and a "private player within it," so that its activity in not amenable of easy characterization under the FSIA. Several lower U.S. courts have held that the supervision by a foreign state of its own natural resources is a sovereign activity immune from suit in the United States. See MOL. Inc. v. Peoples Republic of Bangladesh, 736 F.2d 1326 (9 Cir.) (Bangladesh immune from suite following the denial of an export license to a party with whom it had contracted to sell Rhesus monkeys), cert. denied, 469 U.S. 1037 (1984); Jones v. Petty Ray Geophysical Geosource, Inc., 722 F. Supp. 343 (S.D. Tex 1989) ("Sudan's granting of mineral concessions was essentially governmental and non-commercial in nature ..."); International Ass'n of Machinists v. OPEC, 477 F. Supp. 533 (C.D. Cal. 1979) (OPEC entitled to FSIA immunity from U.S. antitrust claims for crude oil price fixing alleged to have affected U.S. gasoline markets), aff'd on other grounds, 649 F.2d 1354 (9th Cir. 1981), cert. denied, 454 U.S. 1163 (1982). Jones and OPEC might be distinguished on the ground that those cases involved a depletable natural resource over which the sovereign's interest was necessarily greater. MOL likely cannot be distinguished on this bases, as Rhesus monkeys are apparently a quickly renewable resource. But MOL has been often criticized as turning on the purpose, not nature, of the activity involved, in violation § 1603(d). See e.g., Joseph W. Dellapenna, Suing Foreign Governments and Their Corporations § 6.6 at 156 (1988); Feldman, The United States Foreign Sovereign Immunities Act of 1976 in Perspective: a Founder's View, 35 Int'l Comp. L.Q. 302, 208-09 (1986). Accordingly, MOL might not be followed outside the circuit that decided it. It is not certain, moreover, whether any of these cases remain good law following Weltover, since each of them the foreign state had entered the market by controlling a sale of goods. A good argument can be made for the proposition that when a government agency uses its authority as a "regulator of a market" to advance its position as a "private player within it," it is engaged in commercial activity for which it is not immune from suit in the United States.

If the Board is engaged in commercial activity within the meaning of the FSIA, then the question become whether this commercial activity has a sufficient jurisdictional nexus to the United States. 28 U.S.C. § 1605(2) describes three types of commercial activity that will subject a foreign state to potential liability: (1) commercial activity carried on in the United States, (2) acts performed in the United States with a connection to commercial activity elsewhere, and (3) acts performed elsewhere with a connection to commercial activity elsewhere causing direct effects in the United States. The FSIA's definitional provisions further provide, on first of the three alternatives, as follows:

A "commercial activity carried on in the United States by a foreign state" means commercial activity carried on by such state and having substantial contact with the United States.

Id. § 1603(e). an action against the Board would likely qualify under at least the first two tests and perhaps also the third. The Board, in cooperation with Oppenheimer, engages in a regular course of marketing and distribution in the United States. These activities are undertaken in connection with a complementary course of commercial activity in New Zealand. The New Zealand activities, given the extent of the Board's fruit imports into the United States, likely have an effect on U.S. markets, as previously discussed in Section II.A., supra.

IV. Would a Disposition of the Action Require the Court to Declare Invalid a Privileged Act of a Foreign State?

The act of state doctrine prevents U.S. courts from reviewing the validity of certain acts undertaken by a foreign sovereign within its own jurisdiction. Underhill v. Hernandez, 168 U.S. 250, 252 (1897). The doctrine can be asserted by private defendants who have relied on an action of state, for example by purchasing property expropriated by the foreign state within its own borders. n an action against the Board, Fruitgrowers Federation and Oppenheimer, the act of state doctrine could be raised as a defense to antitrust scrutiny of the Board's anticompetitive activities on the ground that those activities are acts of a foreign state within its own jurisdiction. For at least three reasons, such a defense would not likely prevent a court from reaching the merits of the action.

First, the act of state doctrine, like foreign sovereign immunity, has been held inapplicable to the commercial activities of a foreign state. See, e.g., Alfred Dunhill of London, Inc. v. Republic of Cuba, 425 U.S. 682, 695-707 (1976) (plurality opinion); Philippines v. Marcos, 806 F.2d 344, 359 (2d Cir. 1986), cert. dismissed, 480 U.S. 942, and cert. denied, 481 U.S. 1048 (1987); Arango v. Guzman Travel Advisors Corp., 621 F2d 1371, 1380-81 (5th Cir. 1980). An application of the commercial activity exception to the anticompetitive activities of the Board, Fruitgrowers Federation and Oppenheimer would be informed by the same considerations discussed in Section III., supra, in the context of the Foreign Sovereign Immunities Act. See Ampac Group Inc. v. Republic of Honduras, 797 F. Supp. 973, 978 (s.D. Fla. 1992) (commercial activity exception to act of state doctrine and FSIA coextensive). In light of those considerations, a court could hold the act of state doctrine in applicable to this essentially commercial dispute.

Second, the act of state doctrine would not apply to any claim that did not challenge the validity of the Board's anticompetitive activities. In W.S. Kirkpatrick & Co. v. Environmental Tectonics Corp., Int'l, 493 U.S. 400 (1990), the Supreme Court refused to apply the act of state doctrine to allegations that a military procurement contract from the Republic of Nigeria had been obtained by bribing officials there. The action was brought on the basis of U.S. antitrust laws by a competitor of the successful bidder. The allegation that bribes had been made was necessary for plaintiff to state a claim. Because such bribes were unlawful under Nigerian law, a decision in favor of the U.S. plaintiff on his antitrust claim would undermine the lawfulness of the contract award. Nonetheless, the Court held the act of state doctrine did not apply, because the lawfulness of the contract award was not at issue in the case. The Court emphasized the obligation of U.S. courts to decide the cases before them:

Courts in the United States have the power, and ordinarily the obligation, to decide cases and controversies properly presented to them. The act of state doctrine does not establish and exception for cases and controversies that may embarrass foreign governments, but merely requires that, in the process of deciding, the acts of foreign sovereigns taken within their own jurisdiction shall be deemed valid.

Id. at 707. Kirkpatrick would likely prevent an application of the act of state doctrine to a claim that the Fruitgrowers Federation and Oppenheimer conspired to obtain the anticompetitive activities undertaken by the Board. Kirkpatrick might even prevent an application of the act of state doctrine to a claim brought directly against the anticompetitive activities of the Board. In either event, the lawfulness of the Board's activities under New Zealand law would not be placed at issue by an antitrust plaintiff in the United States.

Third, even within the general category of cases to which the act of state doctrine has been held to apply, the act of state doctrine does not require a court to refrain from an otherwise proper exercise of jurisdiction unless there exists no widely accepted standard for determining the merits of the action and the subject matter of the dispute is particularly important and sensitive to the conduct of U.S. foreign relations. See Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 427-28 (1964). Lower courts apply Sabbatino have divided over the question of whether the act of state doctrine precludes antitrust scrutiny of the anticompetitive acts of a foreign state. Compare International Ass'n of Machinists v. OPEC, 649 F.2d 1354 (9th Cir. 1981) (antitrust scrutiny of OPEC price cartel precluded by act of state doctrine), cert. denied, 454 U.S. 1163 (1982), with Outboard Marine Corp. v. Pezetel, 461 F. Supp. 384, 397 (D. Del. 1978) (act of state doctrine does not preclude antitrust scrutiny of state-owned enterprise formed for the purpose of trade and doing business in the United States). In an action against the Board, Fruitgrowers Federation and Oppenheimer, a court applying Sabbatino would consider whether there exists an international consensus about the harms attributable to price fixing and whether the issue of apple price fixing by New Zealand producers is a sensitive issue best left to resolution by political means. Such a court could conclude that the act of state doctrine does not preclude a determination of the merits of the action.

It is our preliminary view that an antitrust action could be brought against the anticompetitive activities of the Board, Fruitgrowers Federation and Oppenheimer. This action, subject to the potential defenses and immunities outlined herein, would likely state a claim under the antitrust laws of the United States.

William F. Baxter