Timberlane Lumber Co., Danli Industrial, S.A., Maya Lumber Co., S. De R.L. v. Bank of America, N.T. & S.A., Pedro Casanova E. Hijos, S.A., Bank of America Corp., Importadore Mayorista, S. De R.L., Michael Casanova, Nasser Bonheur, Manuel Ruis, Louis Pasmino, Henry Malatesta, Jose Gonzales, Patrick Byrne, Gordon Sloan Smith v. Bank of America National Trust and Savings Association, Miguel Ardon v. Bank of America, N.T. & S.A., Jorge Lima v. Bank of America National Trust & Savings Assn. And Bank of America Corp.

Four separate actions, arising from the same series of events, were dismissed by the same district court and are consolidated here on appeal. The principal action is Timberlane Lumber Co. v. Bank of America (Timberlane action), an antitrust suit alleging violations of sections 1 and 2 of the Sherman Act (15 U.S.C. §§ 1, 2) and the Wilson Tariff Act (15 U.S.C. § 8).1 This action raises important questions concerning the application of American antitrust laws to activities in another country, including actions of foreign government officials. The district court dismissed the Timberlane action under the act of state doctrine and for lack of subject matter jurisdiction. The other three are diversity tort suits brought by employees of one of the Timberlane plaintiffs for individual injuries allegedly suffered in the course of the extended anti-Timberlane drama. Having dismissed the Timberlane action, the district court dismissed these three suits on the ground of forum non conveniens. We vacate the dismissals of all four actions and remand.

The basic allegation of the Timberlane plaintiffs is that officials of the Bank of America and others located in both the United States and Honduras conspired to prevent Timberlane, through its Honduras subsidiaries, from milling lumber in Honduras and exporting it to the United States, thus maintaining control of the Honduran lumber export business in the hands of a few select individuals financed and controlled by the Bank. The intent and result of the conspiracy, they contend, was to interfere with the exportation to the United States, including Puerto Rico, of Honduran lumber for sale or use there by the plaintiffs, thus directly and substantially affecting the foreign commerce of the United States.

Some of the defendants moved to dismiss the Timberlane action.2 After a hearing and the submission of memoranda, affidavits, and depositions by both sides, the district court granted the motion in a brief judgment entered on March 20, 1974. The court gave as its reason "that it is prohibited under the act of state doctrine from examining the acts of a foreign sovereign state; and in any event, that there is no direct and substantial effect on United States foreign commerce," the latter apparently being deemed a prerequisite for jurisdiction. No specific findings of fact were announced, nor were any more extensive conclusions of law stated.3

It is unclear whether the decision was a dismissal for lack of subject matter jurisdiction or for failure to state a claim, F.R.Civ.P. 12(b)(1) & (6), or a summary judgment under F.R.Civ.P. 56. It appears from the transcript of the hearing that the district court and the defendants believed they were acting under Rule 12.4 Plaintiffs here argue, however, that the defense motion was, in any event, based upon and incorporated affidavits which the court did not exclude, and as such it was a "speaking motion" which must be treated as a motion for summary judgment under the tests of Rule 56. Under Rule 56(e), they contend, they should have been allowed discovery.

Affidavits were submitted and cited by the defendants to the district court and again to us. These submissions were not explicitly excluded by the district court. Plaintiffs are correct in their assertion that Rule 12(b) requires Rule 56 treatment when a motion to dismiss for failure to state a claim (Rule 12(b)(6)) is made and "matters outside the pleading are presented to and not excluded by the court." Erlich v. Glasner, 374 F.2d 681 (9th Cir. 1967). A motion to dismiss based on the act of state doctrine raises such a Rule 12(b)(6) objection, not a jurisdictional defect. Occidental Petroleum Corp. v. Buttes Gas & Oil Co., 331 F.Supp. 92, 113 (C.D.Cal.1971), aff'd, 461 F.2d 1261 (9th Cir.), cert. denied, 409 U.S. 950, 93 S.Ct. 272, 34 L.Ed.2d 221 (1972).

However, it is also true that summary judgment treatment under Rule 56 is not required for a Rule 12(b)(1) "speaking motion." 2A Moore's Federal Practice P 12.09(3), at 2297-2300, 2313 (2d ed. 1975). Therefore, because " speaking motions" to dismiss for want of subject matter jurisdiction are permitted, id. P 12.09(2), at 2288, a dismissal based on affidavits alone without Rule 56 treatment might conceivably be sustainable on this ground.

On the other hand, if the district court did hold as its basis for dismissing for lack of subject matter jurisdiction that the alleged facts bore an insufficient relation to the foreign commerce of the United States, that same deficiency could also be considered a ground on which the suit could be dismissed for failure to state a claim under the antitrust laws. See Hospital Building Co. v. Trustees of the Rex Hospital, 425 U.S. 738 742 n.1, 96 S.Ct. 1848, 48 L.Ed.2d 338 (1976). Although the Supreme Court in Hospital Building did not elaborate, it seems settled that, when a statute provides the basis for both the subject matter jurisdiction of the federal court and the plaintiffs' substantive claim for relief, a motion to dismiss for lack of subject matter jurisdiction rather than for failure to state a claim is proper only when the allegations of the complaint are frivolous. O'Neill v. Maytag, 339 F.2d 764, 766 & n.3 (2d Cir. 1964). See Bell v. Hood, 327 U.S. 678, 682-83, 66 S.Ct. 773, 90 L.Ed. 939 (1946). Such is clearly not the case here.5

Thus, if the district court dismissed under either Rule 56 itself or Rule 12(b)(6) (the proper motion for a defense pleading either the act of state doctrine or the lack of a sufficient nexus between the alleged violation and our foreign commerce), Rule 56 treatment would seem to have been indicated for the instant case. See also Rule 12(c).

Having secured Rule 56 treatment, it does not, however, necessarily follow that plaintiffs were entitled under Rule 56(e) to full discovery. That section provides only that the "court may permit affidavits to be supplemented or opposed by depositions, answers to interrogatories, or further affidavits." (Emphasis added.) Accordingly, plaintiffs had no general right to discovery under the provisions of Rule 56(e).

Nevertheless, we note that the Supreme Court has expressed disapproval of summary disposition in this type of case:

We believe that summary procedures should be used sparingly in complex antitrust litigation where motives and intent play leading roles, the proof is largely in the hands of the alleged conspirators, and hostile witnesses thicken the plot. It is only when the witnesses are present and subject to cross-examination that their credibility and the weight to be given their testimony can be appraised. Trial by affidavit is no substitute for trial by jury which so long has been the hallmark of "even handed justice."

Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 473, 82 S.Ct. 486, 491, 7 L.Ed.2d 458 (1962). Putting plaintiffs to the test in such cases without ample opportunity for discovery is particularly disfavored. Hospital Building, supra 425 U.S. at 746, 96 S.Ct. 1848. From our review of the allegations and affidavits of both sides, it is clear to us that the factual circumstances here involved are indeed complicated. Therefore, in spite of the nonmandatory nature of Rule 56(e), we do not feel that it was proper to dismiss the instant complaint without affording plaintiffs an opportunity for full discovery.6

Moreover, the affidavits and depositions which were offered to the district court indicate clearly that, at least as to the act of state defense, there remained issues of material fact to be resolved. Thus, summary judgment treatment of that issue would seem to have been inappropriate. As the above-quoted passage from Poller indicates, in-court testimony of witnesses and trial by jury generally are the preferred mode of disposing of cases such as this.

The only other possible basis on which the district court could properly have dismissed this suit would have been a ruling that plaintiffs, even with the aid of discovery and the benefit of all doubts on disputed points, could under no circumstances have established a claim for relief. We will, therefore, review the judgment on that basis, treating it as a Rule 12(b)(6) dismissal. Accordingly, we assume the allegations of the Timberlane plaintiffs to be true. Under the circumstances of the instant case, we find pertinent the recent observation of the Supreme Court in Hospital Building :

We have held that "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 78 S.Ct. 99, 102, 2 L.Ed.2d 80, 84 (1957) (footnote omitted). And in antitrust cases, where "the proof is largely in the hands of the alleged conspirators," Poller v. Columbia Broadcasting, 368 U.S. 464, 473 [82 S.Ct. 486, 491, 7 L.Ed.2d 458, 464] (1962), dismissals prior to giving the plaintiff ample opportunity for discovery should be granted very sparingly. Applying this concededly rigorous standard, we conclude that the instant case is not one in which dismissal should have been granted.

Hospital Building, supra, 425 U.S. at 746-47, 96 S.Ct. at 1853.

There are three affiliated plaintiffs in the Timberlane action. Timberlane Lumber Company is an Oregon partnership principally involved in the purchase and distribution of lumber at wholesale in the United States and the importation of lumber into the United States for sale and use. Danli Industrial, S.A., and Maya Lumber Company, S. de R.L., are both Honduras corporations, incorporated and principally owned by the general partners of Timberlane. Danli held contracts to purchase timber in Honduras, and Maya was to conduct the milling operations to produce the lumber for export. (Timberlane, Danli, and Maya will be collectively referred to as "Timberlane.")

The primary defendants are Bank of America Corporation (Bank), a California corporation, and its wholly-owned subsidiary, Bank of America National Trust and Savings Association, which operates a branch in Tegucigalpa, Honduras. Several employees of the Bank have also been named and served as defendants: Nasser Bonheur, manager of the Tegucigalpa branch from 1970 through January 1972; Jose Gonzales, Bonheur's successor as manager of the Tegucigalpa branch; Luis Pazmino,7 Regional Vice President for Central America, based in Guatemala City, with authority over the Tegucigalpa branch; and Henry Malatesta, Vice President and Senior Credit Administrator for Central America and the Caribbean, based in San Francisco. Bonheur, Gonzales, Pazmino, and Malatesta are all citizens of the United States.

Other defendants have been named, but have not been served. Included in this group are two more Bank employees in Central America: Manuel Ruiz,8 a citizen of the United States, and Patrick Byrne, a citizen of Canada. Also unserved are two Honduras corporations, Pedro Casanova e Hijos, S.A., and Importadore Mayorista, S. de R.L., and Michael Casanova, a citizen of Honduras (together referred to as "Casanova"), who together represent one of the two main competitors to Timberlane and its predecessor in the Honduran lumber business.

Timberlane also cited defendants "Does I to X." Named and served as Doe I, but entering only a special appearance before the district court, was Laureano Gutierrez Falla, a citizen of Honduras and Honduran counsel for both the Bank and Danli during the time of the alleged conspiracy.

The Timberlane complaint identified two co-conspirators not named as defendants. Jose Lamas, S. de R.L. (Lamas), a Honduran corporation, is the second major competitor in the lumber business. Jose Caminals Gallego (Caminals), a citizen of Spain, is described as an agent or employee of the Bank in Tegucigalpa.

The conspiracy sketched by Timberlane actually started before the plaintiffs entered the scene. The Lima family operated a lumber mill in Honduras, competing with Lamas and Casanova, in both of which the Bank had significant financial interests. The Lima enterprise was also indebted to the Bank. By 1971, however, the Lima business was in financial trouble. Timberlane alleges that driving Lima under was the first step in the conspiracy which eventually crippled Timberlane's efforts, but the particulars do not matter for this appeal. What does matter is that various interests in the Lima assets, including its milling plant, passed to Lima's creditors: Casanova, the Bank, and the group of Lima employees who had not been paid the wages and severance pay due them. Under Honduran law, the employees' claim had priority.

Enter Timberlane, with a long history in the lumber business, in search of alternative sources of lumber for delivery to its distribution system on the East Coast of the United States. After study, it decided to try Honduras. In 1971, Danli was formed, tracts of forest land were acquired, plans for a modern log-processing plant were prepared, and equipment was purchased and assembled for shipment from the United States to Danli in Honduras. Timberlane became aware that the Lima plant might be available and began negotiating for its acquisition. Maya was formed, purchased the Lima employees' interest in the machinery and equipment in January 1972, despite opposition from the conspirators, and re-activated the Lima mill.

Realizing that they were faced with better-financed and more vigorous competition from Timberlane and its Honduran subsidiaries, the defendants and others extended the anti-Lima conspiracy to disrupt Timberlane's efforts. The primary weapons employed by the conspirators were the claim still held by the Bank in the remaining assets of the Lima enterprise under the all-inclusive mortgage Lima had been forced to sign and another claim held by Casanova. Maya made a substantial cash offer for the Bank's interest in an effort to clear its title, but the Bank refused to sell. Instead, the Bank surreptitiously conveyed the mortgage to Casanova for questionable consideration, Casanova paying nothing and agreeing only to pay the Bank a portion of what it collected. Casanova immediately assigned the Bank's claim and its own on similar terms to Caminals, who promptly set out to disrupt the Timberlane operation.

Caminals is characterized as the "front man" in the campaign to drive Timberlane out of Honduras, with the Bank and other defendants intending and carrying responsibility for his actions. Having acquired the claims of Casanova and the Bank, Caminals went to court to enforce them, ignoring throughout Timberlane's offers to purchase or settle them. Under the laws of Honduras, an "embargo" on property is a court-ordered attachment, registered with the Public Registry, which precludes the sale of that property without a court order. Honduran law provides, upon embargo, that the court appoint a judicial officer, called an "interventor" to ensure against any diminution in the value of the property. In order to paralyze the Timberlane operation, Caminals obtained embargoes against Maya and Danli. Acting through the interventor, since accused of being on the payroll of the Bank, guards and troops were used to cripple and, for a time, completely shut down Timberlane's milling operation. The harassment took other forms as well: the conspirators caused the manager of Timberlane's Honduras operations, Gordon Sloan Smith, to be falsely arrested and imprisoned and were responsible for the publication of several defamatory articles about Timberlane in the Honduran press.

As a result of the conspiracy, Timberlane's complaint claimed damages then estimated in excess of $5,000,000. Plaintiffs also allege that there has been a direct and substantial effect on United States foreign commerce, and that defendants intended the results of the conspiracy, including the impact on United States commerce.9

The classic enunciation of the act of state doctrine is found in Underhill v. Hernandez, 168 U.S. 250, 252, 18 S.Ct. 83, 84, 42 L.Ed. 456 (1897):

Every sovereign State is bound to respect the independence of every other sovereign State, and the courts of one county will not sit in judgment on the acts of the government of another done within its own territory.

From the beginning, this principle has been applied in foreign trade antitrust cases. In American Banana Co. v. United Fruit Co., 213 U.S. 347, 29 S.Ct. 511, 53 L.Ed. 826 (1909), the first such case of significance, the American owner of a banana plantation caught in a border dispute between Panama and Costa Rica claimed that a competitor violated the Sherman Act by persuading the Costa Rican government to seize his lands. The act complained of would have required an adjudication of the legality of the Costa Rican seizure, an action which the Supreme Court said our courts could not challenge. More recently, see Occidental Petroleum Corp. v. Buttes Gas & Oil Co., 331 F.Supp. 92 (C.D.Cal.1971), affirmed 461 F.2d 1261 (9th Cir.), cert. denied, 409 U.S. 950, 93 S.Ct. 272, 34 L.Ed.2d 221 (1972), the case mentioned from the bench by the district court here in ruling in favor of the defense motion to dismiss.

The defendants argue as the district court apparently held that the injuries allegedly suffered by Timberlane resulted from acts of the Honduran government, principally in connection with the enforcement of the security interests in the Maya plant, which American courts cannot review. Such an application of the act of state doctrine seems to us to be erroneous. Even if the coup de grace to Timberlane's enterprise in Honduras was applied by official authorities, we do not agree that the doctrine necessarily shelters these defendants or requires dismissal of the Timberlane action.

The leading modern statement of the act of state doctrine appears in Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 84 S.Ct. 923, 11 L.Ed.2d 804 (1964). Despite contrary implications in Underhill and American Banana, the Court concluded that the doctrine was not compelled by the nature of sovereignty, by international law, or by the text of the Constitution. 376 U.S. at 421-23, 84 S.Ct. 923. Rather, it derives from the judiciary's concern for its possible interference with the conduct of foreign affairs by the political branches of the government:

The doctrine as formulated in past decisions expresses 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 rather than further this country's pursuit of goals both for itself and for the community of nations as a whole in the international sphere.

Id. at 423, 84 S.Ct. at 938. The Court recognized that not every case is identical in its potential impact on our relations with other nations. For instance:

(S)ome aspects of international law touch much more sharply on national nerves than do others; the less important the implications of an issue are for our foreign relations, the weaker the justification for exclusivity in the political branches.

Id. at 428, 84 S.Ct. at 940. Thus the Court explicitly rejected "laying down or reaffirming an inflexible and all-encompassing rule." Id. Whether forbearance by an American court in a given situation is advisable or appropriate depends upon the "balance of relevant considerations." Id.

It is apparent that the doctrine does not bestow a blank-check immunity upon all conduct blessed with some imprimatur of a foreign government. In Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 82 S.Ct. 1404, 8 L.Ed.2d 777 (1962), the Canadian government had made a private corporation its exclusive agent for the purchase of vanadium, a material used in steel production. The Canadian corporation, acting in concert with an affiliated American company, used its position to exclude a competitor of the American affiliate from the Canadian market. The Court held that the Canadian corporation's activity was not entitled to immunity, carefully noting that the plaintiff did not question the validity of any action taken by the Canadian government and that there was no indication that any Canadian government official "approved or would have approved" of the monopolizing efforts. Id. at 706, 82 S.Ct. 1404.

In Alfred Dunhill of London, Inc. v. The Republic of Cuba, 425 U.S. 682, 96 S.Ct. 1854, 48 L.Ed.2d 301 (1976), interventors appointed by the Cuban government to take possession of and operate nationalized Cuban cigar manufacturers had been paid large sums by importers in the United States and elsewhere for pre-nationalization shipments. These payments were found to have been made in error, since they should have been made to the prior owners of the cigar firms. The importers sought to recover the money. Counsel for the Cuban government and the interventors argued that the interventors' refusal to repay the pre-intervention sums represented a sovereign repudiation of any obligation to refund the amounts and as such an act of state not subject to challenge in American courts. The Court disagreed, refusing to conclude that "the conduct in question was the public act of those with authority to exercise sovereign authority and was entitled to respect in our courts." Id. at 694, 96 S.Ct. at 1861. There was no proof that the failure of the interventors to repay the money reached the level of an "act of state," a sovereign assertion of the Cuban government:

No statute, decree, order or resolution of the Cuban government itself was offered in evidence indicating that Cuba had repudiated her obligations in general or any class thereof or that she had as a sovereign matter determined to confiscate the amounts due three foreign importers.

Id.

A corollary to the act of state doctrine in the foreign trade antitrust field is the often-recognized principle that corporate conduct which is compelled by a foreign sovereign is also protected from antitrust liability, as if it were an act of the state itself. Thus, in Interamerican Refining Corp. v. Texaco Maracaibo, Inc., 307 F.Supp. 1291 (D.Del.1970), a refusal by defendants to sell Venezuelan crude oil to plaintiff was held not to be an illegal restraint of trade because it was a complete defense that the Venezuelan government had imposed a boycott forbidding such sales. The court there observed that "(w) hen a nation compels a trade practice, firms there have no choice but to obey. Acts of business become effectively acts of the sovereign." Id. at 1298.

On the other hand, mere governmental approval or foreign governmental involvement which the defendants had arranged does not necessarily provide a defense. In United States v. Sisal Sales Corp., 274 U.S. 268, 47 S.Ct. 592, 71 L.Ed. 1042 (1927), the defendants were accused of conspiring to monopolize sales of sisal, a material used in making rope, from Mexico to the United States by inducing Mexican officials to recognize the conspirators as the exclusive traders and to impose discriminatory taxes on rival sellers. The Court rejected the defendants' claim to act of state protection, ruling that a conspiracy formed in the United States for the purpose of monopolizing sales to the United States was not protected simply because one element of the conspiracy involved securing favorable action by foreign officials. In Continental Ore, the Court indicated that it continued to accept the Sisal reasoning. See 370 U.S. at 705, 82 S.Ct. 1404.

The distinction was recognized and relied upon in United States v. The Watchmakers of Switzerland Information Center, Inc., 1963 Trade Cases P 70,60 0 (S.D.N.Y.1962), order modified, 1965 Trade Cases P 70,352 (S.D.N.Y.1965), the "Swiss Watch" case:

If, of course, the defendants' activities had been required by Swiss law, this court could indeed do nothing. An American court would have under such circumstances no right to condemn the governmental activity of another sovereign nation. In the present case, however, the defendants' activities were not required by the laws of Switzerland. They were agreements formulated privately without compulsion on the part of the Swiss Government. It is clear that these private agreements were then recognized as facts of economic and industrial life by that nation's government. Nonetheless, the fact that the Swiss Government may, as a practical matter, approve of the effects of this private activity cannot convert what is essentially a vulnerable private conspiracy into an unassailable system resulting from foreign governmental mandate.

See Davidow, Antitrust, Foreign Policy, and International Buying Cooperation, 84 Yale L.J. 268, 282-83 (1974); W. Fugate, Foreign Commerce and the Antitrust Laws 75-82 (2d ed. 1973); Kintner & Hallgarten, Application of United States Antitrust Laws to Foreign Trade and Commerce, 15 B.C. Ind. & Com.L.Rev. 343, 356-58 (1973).10

The touchstone of Sabbatino the potential for interference with our foreign relations is the crucial element in determining whether deference should be accorded in any given case. We wish to avoid "passing on the validity" of foreign acts. Sabbatino, 376 U.S. at 423, 84 S.Ct. 923. Similarly, we do not wish to challenge the sovereignty of another nation, the wisdom of its policy, or the integrity and motivation of its action. On the other hand, repeating the terms of Sabbatino, at 428, 84 S.Ct. at 940, "the less important the implications of an issue are for our foreign relations, the weaker the justification for exclusivity in the political branches."

While we do not wish to impugn or question the nobility of a foreign nation's motivation, we are necessarily interested in the depth and nature of its interest. The Restatement (Second) of Foreign Relations Law of the United States § 41 (1965) makes an important distinction on this basis in limiting the deference of American courts:

(A) court in the United States . . . will refrain from examining the validity of an act of a foreign state by which that state has exercised its jurisdiction to give effect to its public interests. (Emphasis added.)

The "public interest" qualification is intentional and significant in the context of Timberlane's action, as a comment to § 41 makes plain:

Comment d. Nature of act of state. An "act of state" as the term is used in this Title involves the public interests of a state as a state, as distinct from its interest in providing the means of adjudicating disputes or claims that arise within its territory. . . . A judgment of a court may be an act of state. Usually it is not, because it involves the interests of private litigants or because court adjudication is not the usual way in which the state exercises its jurisdiction to give effect to public interests.

On the basis of the foregoing analysis, we conclude that the court below erred in dismissing the instant suit on the authority of Occidental Petroleum Corp. v. Buttes Gas & Oil Co., 331 F.Supp. 92, 108-13 (C.D.Cal. 1971), aff'd, 461 F.2d 1261 (9th Cir.), cert. denied, 409 U.S. 950, 93 S.Ct. 272, 34 L.Ed.2d 221 (1972). The actions of the Honduran government that are involved here including the application by its courts and their agents of the Honduran laws concerning security interests and the protection of the underlying property against diminution are clearly distinguishable from the sovereign decrees laying claim to off-shore waters that were at issue in Occidental Petroleum, see 331 F.Supp. at 99-101 & n.11. Here, the allegedly "sovereign" acts of Honduras consisted of judicial proceedings which were initiated by Caminals, a private party and one of the alleged co-conspirators, not by the Honduran government itself. Unlike the Occidental Petroleum plaintiffs, see id. at 110, Timberlane does not seek to name Honduras or any Honduran officer as a defendant or co-conspirator, nor does it challenge Honduran policy or sovereignty in any fashion that appears on its face to hold any threat to relations between Honduras and the United States. In fact, there is no indication that the actions of the Honduran court and authorities reflected a sovereign decision that Timberlane's