Antitrust Law Daily Wrap Up, ANTITRUST—9th Cir.: Court affirms political question, act of state doctrines barred questions about Trump energy diplomacy, (Sep 17, 2024)

By Justin Marcus Smith, J.D.

The court reasoned it could not interfere with the Executive Branch on foreign policy questions much less the decisions of foreign states like Saudi Arabia and Russia.

The political question doctrine barred a consumer antitrust action against various domestic oil companies that allegedly participated in an international political agreement to restrict oil production, affirmed the United States Court of Appeals for the Ninth Circuit. Judicial review of this case would have intruded on the prerogatives of the Executive Branch and erected an “unworkable judicial framework.” Likewise, the court said the courts could not make judgments about the conduct of foreign countries because doing so would likely disrupt U.S. diplomacy under the act of state doctrine. Last, the consumers failed to state an antitrust claim with respect to the oil companies’ private conduct; the consumers’ allegations were conclusory. As for parallel conduct, the consumers did not sufficiently state the who, what, and when of the purported conspiracy. The circumstances of the COVID-19 pandemic presented an alternative explanation for substantial oil production cuts. The court affirmed dismissal. It also affirmed denial of amendment because even successful negotiations would not have changed the disposition. The matter presented non-justiciable issues about foreign policy and the acts of foreign states (D'Augusta v. American Petroleum Institute, No. 23-15878 (9th Cir. Sept. 16, 2024)).

Background. A group of consumers alleged that then- President Trump spearheaded an agreement between various American oil companies and OPEC members Saudi Arabia and Russia to cut oil production by around two million barrels per day as a quid pro quo to end a price war.

The consumers sued the American Petroleum Institute; Exxon Mobil Corp.; ChevronTexaco Capital Corp.; Phillips 66 Co.; Occidental Petroleum Corp.; Devon Energy Corp.; Energy Transfer LP; Hilcorp Energy; and Continental Resources, Inc. (collectively, the defendants). The consumers alleged the purported agreement amounted to a conspiracy to: 1) fix gas prices in violation of Section 1 of the Sherman Act; and, 2) suppress oil production competition in violation of Section 2 of the Sherman Act. The consumers also alleged that the defendants violated Section 7 of the Clayton Act by engaging in anticompetitive mergers and acquisitions. The consumers sought declaratory relief, damages, disgorgement of profits, and injunctive relief. They asked the district court to enjoin any future agreements among the defendants, Russia, and Saudi Arabia. They also requested an order requiring the breakup of the Exxon, Chevron, and Phillips, the largest defendants.

The district court granted the defendants’ motion to dismiss. The district court ruled it did not have subject-matter jurisdiction because the political question, act of state, and Noerr-Pennington doctrines barred the action. As to the defendants’ purely private conduct, the district court said the consumers failed to plead an antitrust agreement. The court separately granted Energy Transfer’s motion to dismiss for lack of personal jurisdiction.

After the district court denied the consumers’ motion for leave to amend as futile, the consumers appealed with an extension of time. Applying de novo review, the United States Court of Appeals for the Ninth Circuit affirmed dismissal. And, applying abuse of discretion review, the court likewise affirmed the district court’s denial of leave to amend and denial of discovery.

No jurisdiction. The Ninth Circuit affirmed it did not have subject matter jurisdiction to adjudicate the consumers’ allegations of a global oil conspiracy involving the United States, Russia, and Saudi Arabia. The court reasoned that the political question and act of state doctrines were “insurmountable bars” to the consumers’ claims. The court said the Judicial Branch could not “second-guess” the foreign policy decisions of the Executive Branch, never mind the decisions of foreign states like Russia and Saudi Arabia. As for the defendants’ private actions, the consumers did not and could not plausibly allege any type of antitrust conspiracy.

Political question. The court traced the political question doctrine to the founding era. The reasoning from the founding has been that certain government functions, like the negotiation of treaties, requires “perfect secrecy” and “immediate despatch” of the Presidency. The court noted the judiciary is generally ill-suited to questioning external political relations. This does not mean that every foreign relations case or controversy is beyond review, but even the case-by-case approach leaves “little for judicial review.” The court cited prior cases that found comparable foreign policy fact patterns beyond review.

Here, the allegations raised “exactly the non-justiciable” issue of political interaction between the President and foreign sovereigns. See Corrie v. Caterpillar, Inc., 503 F.3d 974, 983–84 (9th Cir. 2007). Corrie held that an American oil company could not be held liable for the use of its assets because the sale thereof occurred in connection with the distribution of foreign and military aid. Corrie presented a “political decision inherently entangled with the conduct of foreign relations” where such belong to the political departments of the federal government under the Constitution. Id. at 983.

Regardless of any alleged “meddling” by the defendants, the court held that the decision of President Trump to negotiate, if any, was a fundamental foreign relations decision. Any other approach would mean the President could not execute constitutional functions. It would also involve judicial disrespect for constitutionally delegated authority.

In any event, the antitrust laws were likewise unsuited to the control of foreign policy. The consumers sought to decouple the U.S. oil market from the decisions of foreign countries, but the court did not see any “judicially manageable standards” for evaluating foreign policy questions.

The court noted how the Fifth Circuit had already relied on the political question doctrine to reject more general allegations of collusion between American oil companies and OPEC, without any implication of Executive Branch involvement. See Spectrum Stores, Inc. v. Citgo Petroleum Corp., 632 F.3d 938, 952 (5th Cir. 2011). The court said the political question doctrine was even more clearly applicable to the instant matter.

Act of state doctrine. The court also affirmed on the basis that the act of state doctrine, a historical complement to the political question doctrine, meant the court did not have subject matter jurisdiction. Generally, a federal court will not judge the legality of the sovereign act of a foreign state. The Constitution does not mention this doctrine, but the court clarified it derives from the principle of separation of powers. In essence, the courts should not be involved in making decisions that could potentially disrupt foreign diplomacy. The court reasoned that the consumers sought to control how Russia and Saudi Arabia manage their own petroleum resources.

Private conduct. The court held that the consumers’ failed to state a claim in connection with the defendants’ private conduct. The court said this was so because the consumers’ “bare” allegations did not meet the requirement for an antitrust conspiracy. The court said the consumers only presented conclusory allegations without any evidence of an illegal agreement.

Similarly, they did not plead any circumstantial evidence of parallel conduct. The consumers did not mention which defendants reduced their production, the amount thereof, nor when or how they arrived at such decisions. An obvious alternative explanation for the production cuts was the outbreak of the COVID-19 global pandemic, and the court said it took judicial notice of that. For a brief period, the price of oil was negative.

No amendment. The Ninth Circuit held the district court’s decision to deny leave to amend was not an abuse of discretion. Here, the consumers wanted to add allegations that the CEO of Hess Corp. lobbied Jared Kushner to ask President Trump to resolve “ongoing issues with the global oil market.” Although President Trump allegedly instructed Mr. Kushner to work out a deal with the Saudis and Russians, and the consumers cited to Mr. Kushner’s memoirs for this, the court said even successful negotiations would not have affected the dismissal disposition of this matter. For the reasons already discussed, the consumers presented non-justiciable questions about foreign policy and the acts of foreign states. The court added it has repeatedly held that a denial of oral argument is not a denial of due process.

The Case is No. 23-15878.

Judge: Nelson, R.

Attorneys: Joseph M. Alioto, Sr. (Alioto Law Firm) for Rosemary D'Augusta, Deborah M. Pulfer and Bill Rubinsohn. Emily Johnson Henn (Covington & Burling, LLP) for American Petroleum Institute. Stephen McIntyre (O'Melveny & Myers, LLP) for Exxon Mobil Corp. Ginger Anders (Munger, Tolles & Olson, LLP) for Chevron Texaco Capital Corp.

Companies: American Petroleum Institute; Exxon Mobil Corp.; Chevron Texaco Capital Corp.

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