Suing Over the Price of Gas
December 11, 2024
The Organization of Petroleum Exporting Countries (OPEC) was established in 1960 “to ensure the stabilization of prices by, among other means, the regulation of production.” On one level, OPEC is simply a cartel engaged in anticompetitive behavior. On another level, it is an organization of nation-states that plays a significant role in world politics.
Since the 1970s, plaintiffs have repeatedly tried to bring antitrust claims in U.S. courts against OPEC, its member states, and affiliated companies. In International Association of Machinists and Aerospace Workers v. OPEC (1981), the Ninth Circuit held that the act of state doctrine barred antitrust claims against OPEC countries. In Spectrum Stores, Inc. v. Citgo Petroleum Corp. (2011), the Fifth Circuit dismissed antitrust claims against state-owned oil production companies under the political question and act of state doctrines. In Freedom Watch, Inc. v. OPEC (2014), the D.C. Circuit held that the organization OPEC had not been validly served with process under the laws of Austria, where it is headquartered.
The Ninth Circuit rejected the most recent attempt in this line of cases on September 16, 2024, in D’Augusta v. American Petroleum Institute. The plaintiffs were individual consumer of gasoline. The defendants were U.S. oil companies and a trade association, which allegedly lobbied President Trump to negotiate the end to an oil price war between Russia and Saudi Arabia in 2020, raising the price of gasoline. Writing for the court, Judge Ryan Nelson held that the political question and act of state doctrines barred claims based on lobbying the President and that plaintiffs had not adequately alleged that the defendants conspired among themselves to raise gas prices. Although the claims in this case appear to be ill-founded, the Ninth Circuit’s analysis has problems of its own.
The 2020 Price War
From 2016 to 2020, Russia and Saudi Arabia, the world’s two largest oil producing nations, agreed to cooperate in managing the price of oil. In March 2020, as the Covid pandemic depressed demand for oil, OPEC proposed production cuts and asked Russia to go along. When Russia refused, Saudi Arabia responded with discounts and production increases, driving the price of oil down sharply. Prices fell to a point where it was no longer profitable to operate many oilfields in North America.
At this point, U.S. oil companies lobbied President Trump to pressure Saudi Arabia and Russia to reach a deal. In April, OPEC and Russia agreed to production cuts, and oil prices recovered, leading in turn to increases in the price of gasoline.
Plaintiffs alleged that defendants conspired among themselves to limit production and take surplus oil off the market, allegations the Ninth Circuit found insufficient to state a claim. But the heart of plaintiffs’ claims was that defendants lobbied the President to negotiate an end to the price war.
Political Question Doctrine
“Political questions” are non-justiciable. Under the Supreme Court’s decision in Zivotofsky v. Clinton (2012), such questions arise when the Constitution commits issues to a coordinate branch of government or when courts lack judicially manageable standards for deciding them.
In D’Augusta, the Ninth Circuit reasoned, “regardless of any alleged meddling by Defendants, President Trump’s decision to negotiate with other countries was a fundamental foreign relations decision. If we subjected it to judicial review, it would amount to second-guessing the Executive Branch’s foreign policy.” This is clearly correct. The Constitution commits the conduct of U.S. diplomacy to the executive branch, and courts lack standards to evaluate such diplomacy. One wishes that the court’s political question analysis had stopped here.
But the Ninth Circuit went on:
The pleadings show that Plaintiffs seek to disrupt the power of OPEC and decouple our country’s oil markets from the decisions of foreign nations, some of which have national interests adverse to our own. But these Acts do not provide judicially manageable standards that do not intricately implicate monumental foreign policy questions. By recasting the conduct of foreign relations and national security interests into antitrust terms, we are still being asked to evaluate foreign relations decisions of sovereign nations, including our own.
Seeking to disrupt the power of a cartel and reshape internal markets, however, does not turn a claim into a political question. Indeed, this is precisely what antitrust laws are made for. That a claim implicates foreign policy questions—monumental or not—also does not turn a claim into a political question. Certainly, plaintiffs should not be allowed to recast foreign relations questions in antitrust terms. But, by the same token, courts should take care not to recast antitrust questions in foreign relations terms just because they involve foreign governments.
In suggesting that significant foreign policy implications suffice to raise a political question, the Ninth Circuit seems to have erred by following the Fifth Circuit in Spectrum Stores. That case involved no act by the President of the United States. It was a straightforward antitrust case against oil production companies—albeit ones owned by OPEC countries—for limiting production. The Fifth Circuit concluded (wrongly in my view) that the case raised a political question because it would interfere with the executive’s policy of engaging OPEC through diplomacy not litigation. But, as the Supreme Court has repeatedly cautioned, the doctrine “is one of ‘political questions,’ not one of ‘political cases.’”
What makes D’Augusta non-justiciable is not its general foreign policy implications but rather the specific role that the President of the United States played in bringing about the agreement. Plaintiffs argue that the defendants acted anticompetitively by lobbying the President to pressure foreign governments to reduce production. The foreign governments’ agreement may be subject to antitrust scrutiny (it may qualify as a commercial activity under the Foreign Sovereign Immunities Act). But the President’s role in reaching that agreement is not subject to antitrust scrutiny and therefore neither are the defendants’ actions in persuading him.
One might think of this as the political question counterpart to the Noerr–Pennington doctrine that immunizes defendants from antitrust liability for seeking to influence the government. Indeed, the district court alternatively dismissed this very case on Noerr-Pennington grounds. One wonders why the Ninth Circuit did not simply affirm on that basis alone.
Act of State Doctrine
The act of state doctrine provides that courts in the United States will not question the validity of an official act of a foreign government fully performed within its own territory. The Ninth Circuit’s analysis got off on the wrong foot by stating that the act of state doctrine, like the political question doctrine, “deprives our court of subject matter jurisdiction.” That is flat out wrong. The Supreme Court has made clear that the act of state doctrine is not jurisdiction but rather “provides … a substantive defense on the merits.”
The Ninth Circuit continued down the wrong path by following its 1981 decision in International Association of Machinists and Aerospace Workers v. OPEC, which upheld dismissal of antitrust claims against OPEC countries on act of state grounds. As I have previously pointed out, the Supreme Court’s interpretation of the act of state doctrine has changed substantially since 1981. Specifically, the Court held in in W.S. Kirkpatrick & Co. v. Environmental Tectonics Corp. (1990) that “[t]he act of state doctrine does not establish an 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 jurisdictions shall be deemed valid.” The Court concluded in Kirkpatrick that a case alleging bribes to Nigerian officials to win a government contract was not barred by the act of state doctrine because the plaintiffs would only have to show that bribes were paid, not that the contract was invalid.
I have complained before that many lower courts (though not all) have ignored Kirkpatrick’s narrowing of the act of state doctrine in antitrust cases involving foreign governments. D’Augusta, however, should have been an easy case under Kirkpatrick. The plaintiffs were not suing Russia or Saudi Arabia, and they were not claiming that their production limits were invalid under Russian or Saudi law. The plaintiffs were instead suing U.S. oil companies for their actions in the United States. A court would not have to question the validity of the agreement between Russia and Saudi Arabia to limit production in order to decide this case but simply conclude that the defendants acted anticompetitively—just as in Kirkpatrick, a court would not have to decide the validity of the Nigerian contract but simply conclude that bribes were paid to win it. Oddly, the Ninth Circuit’s opinion never mentioned Kirkpatrick.
Conclusion
D’Augusta illustrates the disturbing tendency of some courts in the United States to treat political question and act of state as broad doctrines justifying abstention in cases involving foreign affairs. In fact, the Supreme Court has carefully circumscribed both doctrines, political question in Zivotofsky and act of state in Kirkpatrick.
The act of state doctrine should have been no bar to the plaintiffs’ antitrust claims against U.S. oil companies. The political question doctrine, on the other hand, should have barred the plaintiffs’ claims—not because of general foreign policy implications but rather because the claims turned on the diplomatic decisions of the President that the court has no authority to question.
The Noerr-Pennington doctrine, which immunizes defendants from antitrust liability based on their efforts to influence the government, should also have barred the claims here. It was the most narrowly tailored, and thus the best fit. But the Ninth Circuit chose to ignore the doctrine in favor of broader and less persuasive arguments.