Thursday, February 10, 2011

OPEC Price Fixing Allegations Barred by Political Question, Act of State Doctrines

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Gasoline retailers' price fixing claims against oil production companies—most of which were owned in whole or in part by the member nations of the Organization of Petroleum Exporting Countries (OPEC)—were properly dismissed, the U.S. Court of Appeals in New Orleans has ruled.

The allegations posed a nonjusticiable political question and had to be dismissed. Alternatively, judgment dismissing the class action complaints was appropriate because the complaints sought a remedy that was barred by the act of state doctrine.

The case involved two class actions brought by U.S. gasoline retailers. One action accused Citgo Petroleum Corporation, which is wholly-owned by Venezuela through its national oil company, of conspiring with OPEC member nations “to raise, fix, and stabilize the price of gasoline and other oil-based products in the United States.”

Conspiracy to Fix Prices

A consolidated class action complaint sued Citgo and other oil production companies for conspiring to fix prices. The consolidated complaint did not directly name OPEC or its members as coconspirators but described the formation and function of OPEC as background for its allegations.

Both complaints alleged an overarching conspiracy between OPEC member nations to fix the price of crude oil and refined petroleum products in the United States, according to the court. As a result, they were barred by the political question doctrine.

Political Question

The political question doctrine excluded from judicial review controversies that revolved around policy choices and value determinations constitutionally committed for resolution to the legislative and judicial branches.

The U.S. Supreme Court’s 1962 decision in Baker v. Carr, 369 U.S. 186, outlined factors indicating the presence of a nonjusticiable political question, according to the appellate court. Each one of the Baker factors counseled declining to adjudicate the merits of the complaints.

The dominant consideration in any political question inquiry was whether there was a constitutional commitment of the issue to one of the political branches of the government. In this case, the core of the alleged conspiracy consisted of agreements entered into by foreign sovereign states to limit production of crude oil.

A pronouncement on the legality of other sovereigns’ actions fell within the realm of delicate foreign policy questions committed to the political branches, in the court’s view.

The appellate court noted that the federal government had emphasized in a non-binding statement of interest that the case would result in the frustration of various objectives “vital interest to the United States’ national security.”

The government’s brief underscored that the damaging consequences of the litigation were likely to include immediate disruption of oil imports into the United States, the undermining of relationships with OPEC nations on issues such as counterterrorism and nuclear non-proliferation, the undermining of relationships with non-OPEC nations that have a stake in the questions presented, and the frustration of other national priorities, including foreign investment.

Moreover, there were no judicially manageable standards for resolving the antitrust claims—another factor in the political question inquiry. The Sherman and Clayton Acts were inadequate to provide judicially manageable standards for resolving such momentous foreign policy questions, the court explained.

Lastly, other Baker considerations weighed against an adjudication of the case on the merits: the impossibility of deciding without an initial policy determination of a kind clearly for nonjudicial discretion; the impossibility of a court’s undertaking independent resolution without expressing lack of the respect owing to the coordinate branches of government; an unusual need for unquestioning adherence to a political decision already made; and the potential of embarrassment from multifarious pronouncements by various departments on one question.

Act of State Doctrine

The appellate court alternatively held that, under the act of state doctrine, the retailers failed to state a claim on which relief can be granted. The act of state doctrine is rooted in constitutional separation-of-powers concerns, the court explained. It prohibits judicial review of the acts of state of a foreign government.

Adjudication of the suit necessarily would have called into question the acts of foreign governments with respect to exploitation of their natural resources—an inherently sovereign function—the court ruled. The granting of any relief to the retailers effectively would have ordered foreign governments to dismantle their chosen means of exploiting the valuable natural resources within their sovereign territories.

The February 8, 2011, decision, In Re: Refined Petroleum Products Antitrust Litigation, No. 09-20084, will appear at 2011-1 Trade Cases ¶77,328.

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