April 26, 2019 Practice Points

Federal Preemption Upheld in Dismissal of Lawsuit Filed against Car Carriers in New Jersey State Court

It remains to be seen if MBUSA will appeal this decision, but federal preemption will be a difficult hurdle to overcome.

By David Y. Loh

On March 29, 2019, the Superior Court of New Jersey dismissed Mercedes-Benz USA LLC’s (MBUSA) lawsuit against various car carriers December 7, 2018.

MBUSA is in the business of selling vehicles in the United States and, in support of that business, regularly purchased roll-on, roll-off ocean carriage services from the following companies: (1) Nippon Yusen Kabushiki Kaisha and NYK Line (North America), Inc. (collectively “NYK”); (2) Wallenius Wilhelmsen Logistics, AS, also known as Wallenius Wilhelmsen Ocean AS, and Wallenius Wilhelmsen Logistics Americas, LLC (collectively, “WWL”); (3) Mitsui O.S.K. Lines, Ltd. and Mitsui O.S.K. Bulk Shipping (USA), LLC (collectively, “MOL”), and (4) Kawasaki Kisen Kaisha, Ltd. and “K” Line Americas, Inc. (collectively, “K Line”) (in this article, NYK, WWL, MOL and K Line are collectively referred to as “the defendants”).

To place this state court decision in context, a little history is necessary.

On September 6, 2012, antitrust investigators from the United States, European Union, and Japan raided the defendants’ corporate offices and uncovered evidence that the defendants mutually agreed not to compete for MBUSA’s business or agreed to fix their respective prices for roll-on, roll-off services. The defendants eventually pleaded guilty and admitted to their unlawful conduct.

Subsequently, direct and indirect purchasers of roll-on, roll-off ocean carriage services commenced a class action against the defendants in federal court in New Jersey alleging federal antitrust claims. The putative class in this lawsuit included any persons or entities that purchased vehicle carrier services to or from the United States from the defendants from 2000 to 2012.  MBUSA was included within the class definition but no class notice was sent, no class was certified, and no class settlement was sent, and MBUSA did not have any opportunity to opt out of the class.

On August 28, 2015, the U.S. District Court for the District of New Jersey dismissed the class action. That dismissal was affirmed by the Third Circuit on January 18, 2017, and the Supreme Court denied certiorari on October 2, 2017.

On August 30, 2018, MBUSA filed its own case in the Superior Court of New Jersey asserting claims against the defendants under the New Jersey Antitrust Act. MBUSA also asserted various breach of contract, breach of implied duty of good faith and fair dealing, and tortious interference causes of action. These contract-related claims were allegedly based on different law and different facts from the federal antitrust claims asserted in the federal class action lawsuit.

Defendants removed MBUSA’s case to federal court on September 18, 2018, and MBUSA moved to remand the case on October 11, 2018, which was granted on December 12, 2018.

The defendants move to dismiss on the basis that New Jersey state court lacked jurisdiction because the Federal Maritime Commission was the exclusive forum for any claims relating to pricing and services offered by Defendants.

In granting the defendants’ motion, the Superior Court of New Jersey relied on two legal principles. First, the Supremacy Clause of the U.S. Constitution precluded MBUSA’s state law causes of action against the defendants. In this case, Congress created an exclusive cause of action before a specialized administrative body known as the Federal Maritime Commission, and, as such, any state law or regulation cannot be applied in any way which would conflict with existing federal law.

Indeed, the Shipping Act of 1984 was instituted to provide broad antitrust immunity for the benefit of entities like the defendants. The Shipping Act expressly provides the defendants with complete federal antitrust immunity, including immunity from criminal prosecution and civil suits by private individuals, provided it relates to those agreements or contracts which are on file with the Federal Maritime Commission. Agreements that are covered by this grant of immunity specifically include agreements to  “(1) “discuss, fix, or regulate transportation rates, including through rates, cargo space accommodations, and other conditions of service;” (2) “engage in an exclusive, preferential, or cooperative working arrangement between themselves or with a marine terminal operator,” (3) “control, regulate, or prevent competition in international ocean transportation,” and (4) “discuss and agree on any matter related to a service contract.” 46 U.S.C. Sec. 40301(a)(1)–(7).

Even when an agreement is not filed and effective with the FMC, the Shipping Act expressly provides immunity from private antitrust suits for any alleged damages resulting from an unfiled agreement. Id. at  40307(d).

In sum, the Shipping Act provides an exclusive remedy for violations of the Shipping Act through an administrative proceeding before the FMC. Under the circumstances, the defendants successfully dismissed MBUSA’s complaint in its entirety.

It remains to be seen if MBUSA will appeal this decision, but in our view, federal preemption will be a difficult hurdle to overcome.

We will continue to report on any and all significant developments in this matter.

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David Y. Loh is a member with Cozen O'Connor in New York City, New York.

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