Petition — Hunt v. Mobil Oil Corp.

Supreme Court brief1977

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Text

Neveaow Runen Hows, W. Hear Howe

and Laman Huw,

Petstroners,

8 76-1408

Moan, Ou, Conronation, Texaco, Iden, Stawpann On, Con

pany or Caron, Toe arten Pereoteaum Company,

Lap, unt, Pernotaum Company, Lao, Exxon Oonpona-

tron, and Guir On, Conponation,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Punar Hiscuxor

108 N. Columbus Street

P.O, Box 1226

Alexandria, Virginia 22313

(708) 886-6596

Dawe, F. Launer

919 Third Avenue

New York, New York 10022

(212) 688-1100

Attorneys for Petitioners

Of Counsel:

Munton N. Nessew

Han R. NA

Kewvern Buntan

Nickerson, Kramer,

Lowenstein, Nessen,

Kamin & Soll

919 Third Avenue

New York, New York 10022

(212) 688-1100

TABLE OF CONTENTS

rar

Opinions Below

Jurisdiction

Questions Presented

Statutes Involved

Statement of the Case

1. The Facts Alleged

2. The Proceedings Below 12

Reasons for Granting the Writ 15

I—The Majority Decision Below Misread, Misap-

plied, and Unduly Expanded the Scope of This

8 „

Court's ‘Act of State“ Cases 15

A. The majority misread this Court's act of

state cases 15

1. Sisal Sales and Continental Ore 16

2. American Banana and Buttes 18

B. The majority also misread the complaint 21

1. The private conduct complained of 22

2. The irrelevance of Libya's motivation 23

Il—The Majority Decision Below Failed to Apply

the Teaching of This Court's Decision in Cantor

v. Detroit Edison 25

III This Court Should Review the Decision Below to

Resolve the Conflict Between the Ninth Cireuit

and the Second Circuit 30

IV- The Decision Below Has Unacceptable Policy

Implications for Antitrust Enforcement

—

Appendices:

A Opinion of the United States Court of Appeals la

B. Opinion of the United States District Court Jka

C— Judgment of the United States Court of Ap-

peals 56a

D-—Opinion of the United States District Court

Directing the Entry of Judgement Pursuant to

Rule 54(b)

„

K—Amended Complaint 60a

Exhibit A to Amended Complaint—Libyan

Producers Agreement of January 15, 1971 87a

Exhibit B to Amended Complaint—Memoran-

dum of Intent Wn

Exhibit C to Amended Complaint—Memoran-

dum of Confirmation 00

Exhibit D to Amended Complaint—Further

Memorandum of Confirmation 100a

Exhibit E to Amended Complaint—Supplement

to Libyan Producers Agreement of Janu-

ary 15, 1971 108a

F. Opinion of the Court of Appeals for the Ninth

Cireuit in Timberlane Lumber Co. v. Bank of

Amerwa 107a

TABLE OF AUTHORITIES

Cases:

Alfred Dunhill of London, Ine. v. Republic of Cuba,

425 U.S, 682 (1976) 14, 15, 31, 32

American Banana Company v United Fruit Company,

213 U.S, 347 (1909) J, 12, 13, 18, 19, 21, 31

Asheville Tobacco Bd. of Trade, Inc. v. Federal Trade

Commission, 268 F.2d 502 (4th Cir, 1959) 29

Banco Nacional de Cuba v. Sabbatine, 376 U.S, 308

(1064) 15

California Motor Transport Co, v. Trucking Unlim-

ited, 404 U.S, 508 (1972) 17, 29, 38

Cantor v. Detroit Rdison Co., 96 8, Ct. 3110 (July 6,

1976) 4, 14, 17, 25, 26, 27, 28, 29, 33, 37

Conley v. Gibson, 955 U.S, 41 (1957) 4, 22, 23

Continental Ore Co, v, Union Carbide & Carbon Corp.,

370 U.S, 690 (1962) 4, 13, 17, 18, 19, 21, 24, 31, 32, 38

First National City Bank v. Banco Nacional de vant

406 U.S. 759 (1972) 15

George R. Whitten, Jr., Inc. v, Paddock Pool Builders,

Ine, 424 F.2d 20 (let (Ar,), cert, denied, 400 US,

850 (1970) 17, 29

Hecht v. Pro-Football, In, 44 F.2d 931 (D.C. Gir.

1971), cert, denied, 404 U.. 1047 (1972) 30

Norfolk Monument Co., Inc. v. Woodlawn Memorial

Gardens, Inc., 394 U.S. 700 (1969) 23

Occidental Petroleum Corp, v. Buttes Gas & Oil Co.,

381 F. Supp. 92 (C.D, Cal. 1971), aff'd per curiam,

461 F.2d 1261 (9th Cir.), cert. denied, 409 U.S.

950 (1972) 12, 13, 19, 20, 21, 30, 31

PAGE

Parker v. Brown, 317 U.S, 341 (1948) 26

Poller v. Columbia Broadcasting System, Inc, 368

U.S, 464 (1962) 4, 23

Rangen, Inc, v. Sterling Nelson d Sons, Inc, 91 F.2d

851 (9th Cir, 1965), cert, denied, 383 U.S, 0396

(1066) 29

Scheuer v. Rhodes, 416 U.S, 292 (1974) 4, 22, 23

Stonehill v. United States, 400 F.2d 738 (9th Cir.

1968), cert, denied, 395 U.S, 960 (1969) 14

Timberlane Lumber Co. v. Bank of America (9th (Ar,,

Deo, 27, 1976, No, 74-2142) 4, 30, 31, 32

Underhill v, Hernandez, 168 U.S, 250 (1897) 14, 15, 20

United States v. Aluminum Co. of America, 148 F.2d

416 (2d Cir, 1945) 19

United States v. AMAX, Inc., Crim, No, 76 CR 783 and

Civ, No, 76 C 23938 (N. D. III.), reported at Anti-

trust & Trade Reg. Rep, (BNA) No, 771, A6,

July 6, 1976 37

United States v. Bechtel Corp, Civ No, C 76 99 (N. D.

Cal.), reported at Antitrust & Trade Reg. Rep.

(BNA) No, 796, 6-4 Jan, 11, 1977 35, 36

United States v. Cotten, 471 F.2d 744 (9th Cir.), cert.

denied, 411 U.S, 936 (1973) 14

United States v. Lira, 615 F.2d 68 (2d Cir.), cert. de-

nied, 423 U.. 847 (1975) 14

United States v. Sisal Sales Corp., 274 U.S, 268

(1927) 4, 13, 16, 18, 19, 21, 24, 31, 32, 38

United States v. The Watchmakers of Switeerland In-

formation Center, Inc., 1968 Trade Cas, 170,600

(S. D. N. V. 1962), order modified, 1965 Trade Cas.

970,352 (8. DN. v. 1965) 32

PAGE

Walker Process Equipment, Inc. v. Food Machinery

4 Chemical Corp., 382 U.S. 172 (1965) 29

Westinghouse Electric Corp. v. Rio Algom Ltd., No.

76 C 3830 (N. D. III.), reported at Antitrust &

Trade Reg. Rep. (BNA) No. 800, A- 13, February

8, 1977 37

Woods Exploration & Producing Co., Inc. v. Alumi-

num Co. of America, 438 F.2d 1286 (5th Cir.

1971), cert. denied, 404 U.S. 1047 (1972) 29

Zenith Radio Corp. v. Hazeltine Research, Inc., 375

U.S. 100 (1969) 5,18

Statutes:

Sherman Act, §1 (15 U.S.C. 61) 5

Wilson Tariff Act, §73 (15 U.S.C. §8) 5

Other Materials:

Department of Justice Guide to Antitrust and Inter-

national Operations, CCH Trade Reg. Rep. No.

266, Feb. 1, 1977 | 36

1 J. von Kalinowski, Antitrust and Trade Regula-

tion, §5.02[3](b) 23

Prosser, Torts, §44 (1971 ed.) 24

Restatement (Second) of Torts, 6644042 24

Supreme Court of the Anited States

October Term, 1976

No. 76-

— — tn —ñß7ĩ;7Vbñ.bfqñ

Netson Buwxer Hust, W. Hersert Hor

and Lamar Hvuwrt,

Petitioners,

Mos On. Corporation, Texaco, Inc., Stawpanp Ou. Com-

pany or Catironnia, Tue Barrisn Perroteum Company,

Lib, Suet Perroreum Company, Leb., Exxon Corpora-

rox, and Guiry On Corporation,

Respondents.

— > Ge ͤ iWwTm Ä—

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Petitioners Nelson Bunker Hunt, W. Herbert Hunt, and

Lamar Hunt (hereinafter ‘‘Hunt’’) ask that a writ of cer-

tiorari issue to review the judgment of the United States

Court of Appeals for the Second Cireuit entered in this

case on January 12, 1977.

Opinions Below

The majority and dissenting opinions of the Court of

Appeals for the Second Circuit have not yet been officially

reported, but are annexed to this Petition as Appendix A.

The opinion of the United States District Court for the

Southern District of New York appears at 410 F. Supp. 10

(1975) and is annexed as Appendix B.

Jurisdiction

The Court of Appeals entered judgment (Appendix C)

on January 12, 1977. The jurisdiction of this Court is in-

voked under 28 U.S.C. §1254(1). A final judgment of the

District Court dismissing Count 3 of the complaint was

entered on February 5, 1976, under Rule 54(b) of the Fed-

eral Rules of Civil Procedure.* Jurisdiction in the District

Court was asserted under 15 U.S.C. 689, 15, 22 and 26 and

under 28 U.S.C. §§1332 and 1337.

Questions Presented

Count 3 of the complaint, the dismissal of which is at

issue here, alleges that from at least 1971 through 1974

respondents, the seven largest multinational oil companies,

conspired among themselves, in violation of the antitrust

laws, to manipulate the conduct of the companies producing

crude oil in Libya so as to impose competitive disadvantages

upon Libyan oil production for the benefit of their own

much larger Persian Gulf production. A second purpose

was to induce the independent Libyan producers—partic-

ularly Hunt—to adopt a negotiating posture in that country

not only greatly advantageous to the respondents’ own

contemporzneous negotioations in the Persian Gulf but also

highly likely to result in nationalization of one or more

The District Court's opinion on the Rule 54(b) motion j

nexed as Appendix D. ( ==

of the independents, and which in fact led to Hunt’s na-

tionalization in June 1973. The vehicle for this multi-

faceted conspiracy was the Libyan Producers Agreement, a

secret written agreement among all the Libyan producers

(plus respondent Gulf) which the seven respondents,

through repeated secret caucuses from which the independ-

ents were excluded, twisted into a wickedly anticompetitive

weapon against the independent signatories. The Libyan

government was not a party to the Agreement, which was

kept secret from it, nor was Libya admitted to the secret

caucuses of the seven. Indeed, Libya was as much an in-

tended victim of the conspiracy as was Hunt. For pur-

poses of this suit, Hunt does not challenge the validity of

any action by the Libyan government, and it did not name

Libya as a party or as a conspirator.

Nonetheless, the majority below, on a pre-discovery mo-

tion to dismiss for failure to state a claim, and relying

principally upon the moribund jurisdictional decision in

American Banana Company v. United Fruit Company, 213

U.S. 347 (1909), held that this Court’s act of state“ doc-

trine barred Hunt from seeking antitrust redress against

respondents. Their theory was that, whenever the public

acts or ‘‘motivation’’ of a foreign government might con-

ceivably require exploration in an antitrust suit, the ‘‘act of

state’’ doctrine confers complete immunity on private con-

spirators named as the sole defendants.

The following questions are presented :

1. Did the majority below err in construing this Court’s

„act of state“ cases to insulate private parties from anti-

trust claims that in any way involve possible proof of pub-

lic acts of a foreign government, even though the validity of

no government act is questioned, the conduct only of private

parties is challenged, and neither the sovereign nor any

government agent is named as a party or as a conspirator?

2. Should not this Court protect the integrity of its

decisions in United States v. Sisal Sales Corp., 274 U.S. 268

(1927) and Continental Ore Co. v. Union Carbide & Carbon

Corp., 370 U.S. 690 (1962), which the majority below

declined to follow but which subject private conspirators to

judicial scrutiny even though a foreign state’s public act

was one of the instruments chosen by the conspirators to

inflict harm upon an unwanted competitor?

3. Did the majority below err in declining to follow the

teachings of this Court’s decision in Cantor v. Detroit

Edison Co., 96 S. Ot. 3110 (July 6, 1976), and of other

state action“ cases, that private parties do not escape

responsibility for their own private wrongdoing merely be-

cause they implicate a government in their conduct?

4. In jumping to the unwarranted conclusion that

Count 3 defines a conspiracy involving only an act of na-

tionalization and nothing more, did the Court of Appeals

read the complaint in a too narrow and begrudging manner,

one prohibited by this Court’s decisions in Conley v. Gib.

son, 355 U.S. 41 (1957), Poller v. Columbia Broadcasting

System, Inc., 368 U.S. 464 (1962) and Scheuer v. Rhodes,

416 U.S. 232 (1974)?

5. Is the decision below so inconsistent with the nearly

simultaneous but contrary decision of the Court of Appeals

for the Ninth Circuit in Timberlane Lumber Co. v. Bank

of America (9th Cir., Dec. 27, 1976, No. 74-2142), as to make

appropriate a resolution of the conflict by this Court?

6. Should private conspirators, on a pre-trial motion

to dismiss, be permitted to evade the antitrust causation

test defined in such cases as Zenith Radio Corp. v. Hazeltine

Research, Inc., 375 U.S. 100 (1969), merely because they

used government action to inflict injury upon an unwanted

competitor?

7. Should this Court tolerate creation of a gaping loop-

hole in antitrust enforcement, as it pertains to foreign

commerce, which cloaks private conspirators with absolute

immunity from judicial challenge so long as they implicate

a foreign government in their wrongdoing, or use a foreign

government to damage or destroy a competitor? And

should it do so at a time when disclosures of bribery and

other unlawful payments by multinational companies (in-

cluding a number of the respondents here) demonstrate

just how easy such immunity baths“ are to procure?

Statutes Involved

1. Section 1 of the Sherman Act, 15 U.S.C. §1:

„Every contract, combination in the form of trust

or otherwise, or conspiracy, in restraint of trade or

commerce among the several States, or with foreign

nations, is declared to be illegal“

2. Section 73 of the Wilson Tariff Act, 15 U.S.C. §8:

„Every combination, conspiracy, trust, agreement,

or contract is declared to be contrary to public policy,

illegal, and void when the same is made by or between

two or more persons or corporations, either of whom,

as agent or principel, is engaged in importing any

article from any foreign country into the United States,

and when such combination, conspiracy, trust, agree-

ment, or contract is intended tc operate in restraint

of lawful trade, or free competition in lawful trade or

commerce, or to increase the market price in any part

of the United States of any article or articles imported

or intended to be imported into the United States, or

of any manufacture into which such imported article

enters or is intended to enter. * * *’’

Statement of the Case

1. The facts alleged’

Hunt is a non-integrated independent oil producer. In

1957, it receiv d concessions from the then Libyan govern-

ment to search for, develop and produce crude oil. Shortly

thereafter, Hunt geologists discovered the Sarir Field, one

of the half-dozen largest oil fields in the world with re-

serves in excess of 11 billion barrels, In 1960, Hunt as-

signed an undivided one-half interest in the feld to re-

spondent British Petroleum. Production began in 1967,

and reached a level of 450,000 barrels a day. Hunt sold his

share of this production in the ‘‘third-party’’ market;

much of it entered the United States.

Respondents, seven of ten named defendants in this

action, are the world’s largest vertically integrated oil

companies—the so-called seven majors or ‘‘Seven Sisters““!

* Since Count 3 was dismissed under Rule 12(b)(1) for failure

to state a claim, and the motion directed at the of the com-

was

and filed before discovery had begun, the facts for r

poses are thon thet appear in the amended complaint, annexed as

Mobil, Texaco, SoCal, British Petroleum, Shell, Exxon and

Gulf. Nach of the majors explores for, produces, refines,

transports and markets crude and refined oil on an inter-

national basis. All except Gulf had erude production in

Libya. But even as to the six majors with Libyan inter-

ests, the crude production controlled by them in the Per-

sian Gulf (Saudi Arabia, Iran, Iraq, Kuwait, Abu Dabai,

Qatar, Dubai and Oman) exceeded by a factor of ten their

Libyan production.

In September of 1970 Libya’s new radical government,

led by Colonel Qaddafi, extracted from the Libyan pro-

ducers an agreement dramatically increasing the govern-

ments take“ from crude oil production, Its successful

tactic was to single out one independent producer, Occiden-

tal, and bring it to terms by a shrewd combination of harsh

threats and tempting inducements, thereafter imposing the

same terms upon the other companies.

In December of 1970, seeking to match the unprece-

dented terms won by Libya, the heretofore quiescent OPEC

nations themselves formulated comparable demands for

various parts of the world, including the Persian Gulf.

Not to be outdone, Libya responded by declaring the neces-

sity for still another round of increases in its own govern-

ment take This time Libya singled out Hunt, as well

as Occidental, to respond by January 16, 1971. The Seven

Sisters, already unhappy with the stiff competition posed

in European and North American markets by the Libyan

independents with their low-sulphur crude and nearness

to markets, now saw the weak negotiating stance of these

independents leading to what they called a ‘‘leapfrogging’’

of producing-country demands. Libya's demands would

stimulate Persian Gulf demands, only to lead to further

escalated demands from Libya. The situation threatened

to get out of control. /

The Seven Sisters responded by meeting secretly in

New York City in early January 1971. They agreed

jointly to confront all the oil producing countries as a

group; “‘leapfrogging’’ would, they thought, no longer be

possible. They invited the Libyan independents to join

them, beginning on or about January 11, 1971.

In the next few days at meetings in New York City,

all the Libyan producers, in addition to Gulf which had no

Libyan production, agreed to form a world-wide united

front for negotiating purposes. And to meet the majors’

concern that a vulnerable independent producer like Hunt,

with no non-Libyan source of crude, might be forced by

threat of nationalization or cutback to accept terms in

Libya that the Seven Sisters would not want to confront

in the Persian Gulf, the Seven drafted a so-called written

‘sharing agreement“. The central provision was that any

Libyan producer shut down or cut back because it resisted

Libyan demands would be entitled to obtain substitute

erude from the other signatories—first, from Libyan pro-

duction of all the other parties, and if that were not avail-

able, from the majors’ own Persian Gulf crude.

But the Seven Sisters well knew how to turn necessity

into advantage. They did not let slip this unique historical

opportunity to gain control over the too-often uppity

Libyan independents—and sharply to diminish their ability

to compete. Under the Agreement they drafted, and which

was executed on January 15, 1971,“ no participant was to

be permitted to agree with Libya over the terms of ‘‘govern-

ment take without the assent of all the others. Any pro-

ducer who left the fold might lose its entitlements to sub-

stitute crude, while retaining its obligations to supply crude

to the other signatories—a frightening prospect for an in-

dependent with production confined to Libya. Moreover,

the majors insisted on imposing stringent restrictions upon

the right of any party to resell Persian Gulf oil obtained

from the majors under the Agreement. Such oil could not

be resold except to ‘‘ pre-existing customers’’ in Europe and

the Western Hemisphere. Since Hunt's only pre-existing

customers were Exxon, Shell and Hess—themselves parties

to the Agreement—Hunt would be forced to resell Persian

Gulf crude to them at whatever price they chose to pay,

or lose the oil.**

The benefits for which Libyan independents like Hunt

sacrificed their freedom of action soon proved illusory.

Armed with the promises contained in the Agreement and

assured of his fellow signatories’ good faith, Hunt on

January 16 rejected Libya's new demands. But the oil

companies’ world-wide united front disintegrated by the

end of the month. The Seven Sisters concluded that their

negotiations in the Persian Gulf should be split off from

everyone's negotiations in Libya. Negotiations did proceed

separately during the spring of 1971, and the Seven Sisters

took that opportunity to negotiate terms in the Persian

Gulf which gave them substantial competitive advantages

over the Libyan operators, and which cost them little or

nothing because production ceilings could be raised in the

Persian Gulf to make up for increased costs. That could

not be done in Libya.

When Libya nationalized BP's half of the Sarir Field on

December 7, 1971, ostensibly for political reasons, the safety

net provisions of the Agreement first came into play, Pur-

suant to its terms, Hunt supplied millions of barrels of

crude to BP to make up for the production it lost in Libya.

When Hunt complied with the request of BP and the other

signatories that it decline Libya's urgent demand that it

market for the government's account the erude which had

previously belonged to BP, Hunt's production was cut back,

Hunt then began to receive both Libyan and Persian Gulf

crude from some, but not all, of the parties to the Agree-

ment.

By mid-1972 events in Libya had taken a more ominous

turn. Libya now wanted not simply an increased govern-

ment ‘‘take’’, but also a 51 per cent ownership interest in

all Libyan operations. Singled out to respond first to this

new demand was Hunt. Because they were themselves

secretly negotieting terms of equity participation in the

Persian Gulf, ou a 25 per cent government ownership basis,

the Seven Sisters were acutely anxious to prevent Hunt

from acquiescing in the Libyan demand that it surrender

an interest twice that size—at least until conclusion of the

Persian Gulf negotiations. And Hunt was now particularly

vulnerable to pressure because, since BP's nationalization,

the government was itself operating the Sarir Field, half

of whose oil belonged to Hunt.

Aware of its vulnerability, Hunt asked, as a condition

for standing firm against Libya, that the Libyan Producers

Agreement with its safety net be amended, e. g., to lift the

resale restriction on Persian Gulf crude which was enabling

Exxon and Shell to squeeze oil from Hunt at below-market

prices, Because Hunt 's continued resistance to Libya's

demands was seen by the Seven Sisters as essential to their

ability to avoid harsh participation terms in the Persian

Gulf, they blithely, and only after secret discussions among

themselves in New York and Chicago, gave Hunt assurances

sufficient to induce him to stand fast, although less than he

had sought. The Libyan Producers Agreement was renewed

on November 20, 1972, through the end of 1974.

Hunt faithfully performed its side of the bargain; it re-

jected Libya’s demands—despite Libya's tempting offer

of special considerations were Hunt the first to agree to

51 per cent participation. And Hunt paid the price of

fidelity; in the spring of 1973 it was first shut in and later

nationalized. The other operators then proceeded to aban-

don Hunt. One after another they declined to meet their

contractual obligations. They neither supplied the oil due

Hunt under the Agreement, nor did they attempt to nego-

tiate for Hunt 's reinstatement when many of them ac

cepted the same Libyan terms they had earlier induced

Hunt to reject. As was their practice, the Seven Sisters’

decisions whether to honor their commitments to Hunt

were made, not company by company, but in concert at a

series of secret meetings and discussions.“

concerted boycott of Hunt by the Seven Sisters and three

2. The proceedings below

In April of 1974, Hunt commenced an action against

Mobil in the United States District Court for the Northern

District of Virginia. That action was subsequently with-

drawn and refiled in its present form against ten defend-

ants in the Southern District of New York on March 7,

1975, Count 1 challenged the resale restriction; Count 2,

the concerted boycott. Count 3 charged a conspiracy by

the majors to disadvantage Libyan crude vis a vis their

own Persian Gulf crude, to sacrifice Hunt in order to pro-

tect their own Persian Gulf interests, and to eliminate

Hunt from the industry, Count 4 complained of breach

of the defendants’ contractual obligations to Hunt.

The defendants filed motions to dismiss each of the

counts on a wide variety of grounds, only one of which

succeeded—the challenge to Count 3 on the basis of the

‘tact of state’’ doctrine, The District Court ruled, on No-

vember 5, 1975, that although recent disclosures concerning

the propensity of multinational corporations to bribe for-

eign government officials gave it grave concern regarding

the policy implications of a broad ‘‘act of state’’ doctrine

(App. B at 51a), it was compelled to dismiss Count 3 by

this Court's decision in the American Banana case in 1909

and the lower court decision in Occidental Petroleum Corp.

v. Buttes Gas & Oil Co,, 331 F. Supp. 92 (C.D. Cal, 1971),

aff'd per curiam, 461 F.2d 1261 (9th Cir.), cert. denied,

409 U.S. 950 (1972). The court reasoned that the nation-

alization caused the injury complained of, that Hunt would

have to prove that ‘‘but for defendants’ conspiratorial

manipulative activities“ Hunt would not have been nation-

alized, and that the court could not adjudicate the claim

—

— «ae wee — — &

without exploring the motivation behind the Libyan govern-

ment’s decision. (App. B at 49a) But in light of the fear-

some policy implications for law enforcement of the ‘‘act of

state’’ doctrine so construed and its belief that the appel-

late courts should have an opportunity to reconsider the

decisions which it felt constrained to apply, the District

Court on February 5, 1976 granted Hunt’s request that

final judgment be entered under. Rule 54(b) of the Federal

Rules of Civil Procedure, thereby enabling Hunt to take

the issue to the Court of Appeals. (Appendix D)

The Court of Appeals affirmed, over the dissent of

Judge Van Graafeiland. The two-judge majority (Judge

Mulligan and District Judge Gagliardi) held that the

„traditional definition of act of state’’ doctrine com-

pelled dismissal. It expressed the view that the trial court

would not be able to determine how Hunt would have fared

in Libya absent the conspiracy without a ‘‘wholesale ex-

amination of Libyan policy—how did it treat other com-

panies, what provoked its ‘displeasure,’ how far could con-

cessions by Hunt appease President al-Qadhafi.’’ (App.

A at Wa) The majority purported to find support for

this approach in this Court’s 1909 decision in American

Banana and in the lower court decision in Occidental

Petroleum Corp. v. Buttes Gas d Oil Co. It purported to

see nothing in this Court’s decisions in United States v.

Sisal Sales Co., 274 U.S. 268 (1927), or in Continental Ore

Co. v. Union Carbide d Carbon Corp., 370 U.S. 690 (1962),

to support the proposition, advanced by Hunt, that private

parties who conspire against a competitor do not escape

judicial scrutiny of their wrongdoing merely because they

use a governmental act or agency to advance their conspir-

acy. And the majority concluded that this Court’s recent

decision in Alfred Dunhill of London, Inc. v. Republic of

Cuba, 425 U.S. 682 (1976), left that traditional view of

Judge Van Graafeiland, dissenting, observed that the

traditional view of the act of state doctrine as enun-

ciated in cases from Underhill v. Hernandez, 168 US.

250 (1897) to Dunhill insulated from judicial scrutiny

only those claims which necessarily require the courts

to pass upon the ‘‘validity’’ of foreign governmental

acts. That would not be necessary here. He noted

that there are many cases in which our courts, while

adjudicating claims against private persons, receive

evidence concerning the acts of foreign officials and

the role played by American citizens in motivating such

acts. (App. A at 24a) Moreover, he found the major-

ity’s more expansive approach to immunity wholly at odds

with this Court’s recent decision in the light bulb pro-

gram case, Cantor v. Detroit Edison Co., 96 8.Ct. 3110

(July 6, 1976), a case not discussed by the majority. In

Cantor, he noted, this Court made clear that state au-

thorization, approval, encouragement, or participation in

restrictive private conduct confers no antitrust immunity.

(App. A at 25a-26a) And unlike the majority, he expressed

concern that the act of state“ doctrine ‘‘not be permitted

to screen [individual defendants] from accountability for

their illegal acts. (App. A at Fa)

* He cited United States v. Lira, 515 F.2d 68 (2d Cir.),

denied, 423 U.S. 847 (1975) ; United States v. Cotten, 471 F 944,

746 n. 4 (Sth Cir.) cert, denied, 411 U.S. 996 (1973) and Stonehill

v. United States, 405 F 2d 738 (9h Cir. 1968), cert _ denied, 395 U.

960 (1969). A at He might have added the line of

rr safe

—— —

Reasons for Granting the Writ-

I. The Majority Decision Below Misread, Misapplied,

and Unduly Expanded the Scope of This Court's

“Act of State” Cases.

The decision below erred in allowing the presence of an

‘act of state in Libya to create an immunity bath for

the private parties whose own wrongdoing in the United

States and London is the sole subject of Count 3.

A. The majority misread this Court's

“act of state” cases.

Both the majority and the dissenting judge in the Court

of Appeals purported to rely upon what th y believed to be

the traditional view of the ‘‘act of state’’ doctrine as enun-

ciated by this Court. And there is not much room for dis-

puting what that view is. As this Court recognized as

recently as Alfred Dunhill of London, Inc. v. Republic of

Cuba, 425 U.S. 682, 691 (1976), the classic formulation of

the doctrine is found in Underhill v. Hernandez, 168 US.

250, 252 (1897), where Chief Justice Fuller wrote:

Every sovereign state is bound to respect the in-

dependence of every other sovereign state, and the

courts of one country will not sit in judgment on the

acts of the government of another done within its own

territory.“

In Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398

(1964); First National City Bank v. Banco Nacional de

Cuba, 406 U.S. 759 (1972); and in Dunhill, this Court re-

iterated that the essence of the doctrine lies in avoiding a

situation in which an American court will be required to

pass upon the legality or validity of a sovereign act by an-

other nation, or to provide a remedy if invalidity were

found.

Sisal Sales and Continental Ore

But how broad is the immunity which flows from that

principle? As the dissenting judge below noted, the desire

to avoid passing judgment upon the public acts of a foreign

government has not been construed to bar federal judicial

scrutiny of claims asserted against private parties whose

own alleged acts of wrongdoing could not be said to have

been compelled by a foreign government. Thus, in United

States v. Sisal Sales Corp., 274 U.S. 268 (1927), plaintiffs

challenged a monopoly allegedly achieved by defendants

through the aid of discriminatory legislation in Mexico and

Yueatan which they had procured to disadvantage their

competitors. The fact that the defendants had implicated

the governments of Mexico and Yucatan in their misdoings,

and that the court might have to explore how that legisla-

tion was procured and what would have happened but

for’’ that legislation—the same questions which lie at the

heart of the majority’s decision in the present case—was

held by this Court not to insulate them from judicial

scrutiny. Nor were the defendants in Sisal Sales helped

by the fact that the legislation they had procured was the

stick with which plaintiff was beaten. This Court said, in

language applicable here,

True, the conspirators were aided by discriminating

settee bbs teres Adie on ee

elsewhere, they brought about forbidden results within

the United States. They are within the jurisdiction of

our courts and may be punished for offenses against

our laws.’’ 274 U.S. at 276.

— —— — 23

So, too, in Continental Ore Co. v. Union Carbide d

Carbon Corp., 370 U.S. 690 (1962), plaintiffs complained

that they had been excluded from the Canadian market

by the defendants who had achieved a monopoly in ferro-

vanadium and vanadium oxide. They alleged that their

business in Canada had been destroyed because the de-

fendants had caused agents of the Canadian government to

refuse to purchase from them. Despite these allegations

and despite the fact that the harm complained of was

‘‘eaused’’ by the buying decisions of government agents,

this Court held the defendants subject to suit under the

antitrust laws. It noted that, as in the present case, plain-

tiffs :

do not question the validity of any action taken

by the Canadian Government or by its Metals Control-

ler. * * * What the petitioners here contend is that the

respondents are liable for actions which they them-

selves jointly took, as part of their unlawful con-

spiracy, to influence or to direct the elimination of

Continental from the Canadian market. As in Sisal,

the conspiracy was laid in the United States, was ef-

fectuated both here and abroad, and respondents are

not insulated by the fact that their conspiracy involved

some acts by the agent of a foreign government.“

370 U.S. at 706.

This Court concluded, in language whose message the

majority below ee refused to tunel that

as much at Libya as at Hunt. this Court and others have not

Deron Fan Co; 96 S.C ST, a 38 See, e 1 2

res 3110, at 3118 and n.

Motor Trensport Co. Ry 4- Unlimited, 404 uss 513

~~ , Paddock Poot Buber, In.

400 U.S. 850 (1970).

lt jhe offer of proof at least presented an issue for

the jury’s resolution as to whether the loss of Con-

tinental’s Canadian business was occasioned by respon-

ents’ activities.’’ 370 U.S. at 706.*

2. American Banana and Buttes

Rather than follow Sisal Sales or Continental Ore, the

majority below chose to rely instead upon this Court’s

ancient decision in American Banana Company v. United

Fruit Company, 213 U.S. 347 (1909). There, plaintiff

complained both of private misconduct by the defendant in

Costa Rica and defendant’s having caused the government

of Costa Rica to use soldiers and officials to seize a portion

of plaintiff’s plantation and supplies, thereby preventing

it from carrying on its business. To Mr. Justice Holmes,

this case presented only a problem concerning the extra-

territorial reach of the antitrust laws. The Justice, who

had a special—and no longer valid—view of the limita-

tions of those laws, said that it was “surprising to hear it

argued that they [acts outside the jurisdiction of the

United States] were governed by the act of Congress.

213 U.S. at 355. He cited ‘‘the general and almost uni-

versal rule’’ that the legality of an act must be deter-

mined wholly by the law of the country where the act is

done. 213 U.S. at 356. The acts complained of, both

private and public, were outside the reach of the Sherman

Act because ‘‘they were not torts by the law of the place

and therefore were not torts at all, however contrary to

the ethical and economic postulates of that statute.“ 213

U.S. at 357. To Mr. Justice Holmes, the problem was not

»The same right to have the factfinder determine whether the

private parties’ misconduc: was a material cause of the injury com-

of flows from this Court's decision in Zenith Radi

aszeltine Research, Inc., 375 U.S. 100 (1969). odio Cor ay

that a governmental act was being challenged, but that an

American statute was being applied to measure the legality

of conduct in Costa Rica, whether public or private.

American Banana is not a viable guide to decision, but

only a museum piece in the evolution of the antitrust laws.

The Holmes approach to extraterritorial jurisdiction was

scrapped long ago. United States v. Sisal Sales Corp.,

274 U.S. 268 (1927); United States v. Aluminum Co. of

America, 148 F.2d 416 (2d Cir. 1945); and Continental

Ore Co. v. Union Carbide d Carbon Corp., 370 U.S. 690

(1962). Both in Sisal Sales and in Continental Ore, this

Court expressly refused to apply American Banana, im-

plying that it was to be relegated to its facts.*

Occidental Petroleum Corp. v. Buttes Gas d Oil Co.,

also relied upon by the majority below, is an equally in-

appropriate basis for decision. Like the present case, it

also involved the deprivation of plaintiffs’ oil concession

and was dismissed on the basis of American Banana.

But Buttes was not a dispute about private company mis-

behavior in the United States and London. Buttes arose

out of an international dispute involving division of the

waters of the Persian Gulf. The parties had offshore oil

* In contrast to this case, which inane Gas Liiva wae 0 eau 0

dupe of defendants’ conspiracy as was Hunt, the complaint in Ameri-

1 in effect, that the Costa Rican government was

Given that tion, the necessity of resolving the plaintiff's

concessions granted by two adjacent sheikdoms. Plaintiffs

alleged that the defendants had instigated a boundary dis-

pute which led to plaintiffs’ being denied access to their

offshore concession. The trial court emphasized in its

opinion that plaintiffs sought not only monetary damages

but also an injunction to protect their right to extract oil

from the disputed area. It concluded that the deter-

mination of foreign states’ boundaries is certainly not a

permissible function of this court.“ 331 F.Supp. at 103,

Plaintiffs’ monetary claims were also dismissed, the court

emphasizing that one of the sheikdoms had been named in

the complaint as a co-conspirator and that in order to re-

cover plaintiff would have to prove both that the con-

spiring sheikdom had issued a fraudulent territorial

waters decree’? and that defendants had induced the gov-

ernment of Iran to assert claims which interfered with

plaintiffs’ richts. 331 F. Supp. at 110. It is of no con-

cern now whether the court in Buttes properly construed

the plaintiffs’ contentions, or even whether it correctly de-

cided the damages claim. It is clear that the court rested

its decision on its belief that it was being asked to declare

the decree of a sovereign fraudulent and to determine

whether the defendants had improperly procured conduct

by the government of Iran—declarations which, in the

court's words, would be the very sources of diplomatic

friction and complication that the act of state doctrine aims

to avert.’ 331 F.Supp. at 110.

The ‘‘act of state“ doctrine has not changed much since

its definition in Underhill almost a century ago. What is

proseribed is adjudication by an American court of the

legality or validity of a sovereign act by a foreign govern-

ment in cireumstances where our foreign relations would

be unduly embarrassed." Where a court is not called upon

to pass judgment upon the act of a foreign goverament in

these circumstances, private parties may not hide behind

such governmental acts to shield their own private mis-

conduct. That is the hard-core teaching of the net of

state’’ cases. The majority decision below failed to apply

that narrow teaching.

The differences which split the Court of Appeals panel

in part concern interpretation of the cases. In applying

the „get of state“ doctrine in an antitrust context, is it

the majority's interpretation of American Banana and of

Buttes that is to control? Or are courts to apply the prin-

ciples of Sisal Sales and Continental Ore, which permit

litigation of claims against private parties even when those

private parties have implicated foreign governments or

their agents in their conspiracies?

B. The majority also misread the complaint.

But the division among the judges below also concerns

the manner in which the doctrine is to be applied. All they

had before them were the complaint and a pretrial motion

to dismiss unencumbered by factual affidavits or any of

the fruits of discovery. The proper question was, under

Conley v. Gibson, 355 U.S. 41 (1957), and Scheuer v.

Rhodes, 416 U.S. 232 (1974), whether the respondents (not

Hunt) could establish ‘‘beyond doubt that [Hunt] will be

able to prove no set of facts in support of [its] claim which

would entitle [it] to relief.“ “

1. The private conduct complained of

Are there facts here that Hunt might be able to prove

at trial that would entitle it to relief despite the act of

state doctrine? The answer must surely be in the affirma-

tive. The amended complaint alleges a conspiracy by seven

large private companies to manipulate the conduct of all

the private companies doing business in Libya. One aim

of the conspiracy was to disadvantage Libyan oil produc-

tion vis a vis the Seven Sisters’ own Persian Gulf produc-

tion. That aim was achieved long before the Libyan gov-

ernment nationalized Hunt on June 11, 1973. Defendants

accomplished a substantial part of that purpose when they

prevented the Libyan independents from knuckling under

to Libyan demands for increased ‘‘government take

in January 1971; when they were able to postpone

settlements in Libya regarding increased government

take“ and later regarding equity participation until they

had themselves made more favorable arrangements in the

Persian Gulf; and when they were able to prevent the

Libyan independents from accepting the government's par-

ticipation demands until after Hunt had been nationalized.

Their aims, pursued in this country and to the detriment of

this country’s commerce, were largely achieved whether or

not the Libyan government ever nationalized Hunt—which

came as an added bonus. If these objectives were pursued

in an unlawful manner, as by secret meetings among the

conspirators, and if respondents thereby inflicted harm

upon Hunt, as by subjecting it to competitive disadvantages

prior to nationalization, petitioners have stated a claim

under Count 3 which has nothing to do with whether Hunt

was nationalized.*

Contrary to the teachings of Conley v. Gibson, 355 U.S.

41 (1957), and of the Chief Justice 's opinion for a unani-

mous Court in Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)

the majority below chose not to consider all“ the facts

that plaintiffs might be able to offer at trial when it passed

upon the sufficiency of the complaint.““

2. The irrelevance of Libya's motivation

That was not the majority's only error in applying the

doctrine. If Hunt is able to establish at trial, as it can out

of respondents’ own documents, that the respondents met

together and schemed to induce Hunt to take certain posi-

—

tet

195

11151

1815

tions vis a vis the Libyan government by giving Hunt false

assurances regarding what they intended to do under the

Libyan Producers Agreement, and if Hunt, relying upon

these assurances, did take positions which led to its na-

tionalization, it matters not what the motivation of the

Libyan government was or what the Libyan government

would have done in other circumstances. These same but

for“ questions were not, after all, insurmountable obstacles

in Sisal Sales or Continental Ore, where they were equally

applicable.

The majority's error may be illuminated by the follow-

ing analogy. Suppose defendants, conspiring against an

enemy, push him into the street in front of a United States

mail van. Or persuade him to lie down and sleep in the

street on their false assurances that the street has been

closed to traffic, although they know that a United States

mail van is about to pass through and is likely to inflict

injury upon the sleeping victim. Would anyone hold that

the liability of these private defendants for their own mis-

conduct should turn upon whether the ultimate injury is

inflicted by a private vehicle rather than by a governmental

one, or whether the government has consented to be sued!“

Surely, private defendants are answerable for their own

wrongs without regard to the nature of the instrument with

which they choose to inflict injury upon the plaintiff.

That is this case. The complaint alleges only that pri.

vate companies conspired against Hunt. They caused

Hunt to take actions based upon assurances and promises

aa r

2 cause” as to wrongdoers personal

Ra ally DF J See Prosser, Torts, §44

(1971 ed.), and Restatement (Second) of Torts, §§440-42.

that were made to be broken. They damaged Hunt wholly

apart from the nationalization, and if the final coup de grace

was administered by Libya, it was because of the manner

in which respondents manipulated the conduct—not of the

Libyan government- but of their fellow signatories to the

Libyan Producers Agreement.

Il. The Majority Decision Below Failed to Apply the

Teaching of This Court's Decision in Cantor v. Detroit

Edison.

Cantor v. Detroit Edison Co., 96 8, Ct. 3110 (July 6,

1976), was decided after briefing had been completed in

the Court of Appeals but prior to argument. Its signifi-

cance was pressed by the dissenting judge, who found it a

persuasive basis for reversing the District Court which had

not had the benefit of the decision at the time it dismissed

Count 3. But the majority neither applied the teachings of

Cantor nor discussed the case.

Cantor and the other ‘‘state action’’ cases are not tech-

nically ‘‘act of state’’ cases, for they do not involve actions

by foreign governments or the acts of foreign government

officials. But the operating principle underlying Cantor

is entirely applicable to the present case. Both Cantor

and the ‘‘act of state’’ cases face the same question: when

may a federal court enforce the antitrust laws when there

is implicated in the acts of private defendants one form or

another of governmental action? In the ‘‘act of state’’

cases, the object is to determine whether our nation’s rela-

tions with the foreign government in question would be

unduly embarrassed by the judicial determination sought,

and whether a determination of invalidity would be awk-

ward or impossible to enforce. In Cantor and the ‘‘state

action’’ cases, the question to be asked is whether it is ap-

propriate, in light of the legislative intent behind the anti-

trust laws and the principles of federalism, to enforce a

federal rule that might compromise or otherwise embarrass

some state regulatory program or legitimate conduct by a

state government official, The required balancing act is

similar. And the manner in which this Court resolved

Canéor has profound implications for the present case.

In Cantor, a retail seller of electric light bulbs com-

plained that Detroit Edison, a private utility company

engaged in the distribution of electricity, provided light

bulbs to its customers without any separate charge. The

cost was built into the electricity rates. The utility relied

upon the Michigan Public Utility Commission's regulations

and tariffs, saying it was doing only what the law permitted

it to do. Indeed, it argued persuasively that the existing

tariffs made unlawful the imposition of any separate charge.

It said, as do respondents here, that plaintiff was in effect

complaining of the regulation itself, and that such a com-

plaint was barred by the doctrine of Parker v. Brown, 317

U.S. 341 (1943). Both the trial court and the Court of

Appeals applied Parker v. Brown, and held defondant’s

conduct immune from challenge. But this Court reversed,

distinguishing Parker from Cantor on the ground that, in

the latter case, no public official or agency was named as a

party and plaintiff did not contend that any state action

violated the antitrust laws." 96 G. Ot. at 3117. The opinion

* In the case, on the other hand, these same circumstances

who was sued and what was were declared

12 “superficial and not — (App. A 2

by Mr. Justice Stevens for the Court noted that the question

was not simply whether defendant was acting solely in

obedience to state law, because ‘‘typically cases of this kind

involve a blend of private and public decisionmaking.

96 8. Ct. at 3118. And it went on to note that the Court

has already decided that the state authorization, approval,

encouragement, or participation in restrictive private con-

duct confers no antitrust immunity. 96 S. Ct. at 3118

(footnotes omitted). In summarizing the state action cases,

the Court observed that:

In each of these cases the 1

of the program under attack involved a mixture

4 public decisionmaking. In each case, not-

withstanding the state participation in the decision,

the private party exercised sufficient freedom of choice

to enable the Court to conclude that he should be held

responsible for the consequences of his decision. 96

S. Ct. at 3118.

In applying this principle to Cantor, the Court held

that even though the existing tariffs compelled the practice

complained of, such a program is primarily respondent's,

not the Commission s. 96 S. Ct. at 3118. And it added

that:

* re is nothing unjust in a conclusion that respon-

A participation in the decision is ert sig-

uifieant to require that its conduct implementing the

decision, like comparable conduct by unregulated busi-

nesses, conform to applicable federal law. Accordingly,

even though there may be cases in which the State’s

participation in a dvcision is so dominant that it would

be unfair to hold a private party responsible for his

conduct implementing it, this record discloses no such

unfairness.” 96 8. Ct. at 3119.

The complaint in the present case is much easier to

sustain than the one in Cantor.* Libya was not, after all,

a party to the Libyan Producers Agreement, the prin-

cipal vehicle of the conspiracy complained of in Count 3.

On the contrary, the Libyan Producers Agreement was

kept secret from the government. Libya was in fact an

intended victim of the Agreement. And Libya did not, of

course, require the defendants to hold secret caucuses in

New York, Chicago and London to coordinate what their

positions would be vis a vis Hunt or the other Libyan

independents. Libya did not require the Seven Sisters to

scheme so as to delay the completion of Libyan negotiations

until after more favorable terms had been arrived at in

the Persian Gulf. Libya did not compel the Seven Sisters

to plot to put Libyan crude oil at a competitive disadvan-

tage in comparison with their own Persian Gulf production.

Libya did not require the Seven Sisters falsely to induce

afi

it.

fendants so reported. The fact is that the Seven Sisters

set out, not to obey the Libyan government's wishes and

not to comply with them, but to frustrate them. And their

involving government action. is Court so m cases

ia Motor Transport Co. v. Trucking Unli , 4

), it ordered trial of allegations that dei.

＋ 1 ive and judicial

;

121

BER

‘

aiid

able for its own conduct unless it can show that what it

did was the product of compulsion by a government, and

that it had no role in procuring that compulsion. And it

is the defendants’ burden to make such a showing. The

majority below erred when it failed to apply that teaching.

Ill. This Court Should Review the Decision Below to

Resolve the Conflict Between the Ninth Circuit and

the Second Circuit.

The majority decision below and that of the almost

simultaneous decision of the Court of Appeals for the

Ninth Circuit in Timberlane Lumber Co. v. Bank of Ameri-

ca (9th Cir., December 27, 1976, No. 74-2142) (annexed

as Appendix F), may not technically be in conflict; one

bent on doing so may be able to distinguish the cases.

But the approach of the two courts to the act of state

doctrine in an antitrust context is in the most profound

conflict. Resolution of this conflict is particularly appro-

priate here, where a principal prop of the decision of the

Second Circuit is an earlier per curiam decision of the

Ninth Circuit (Buttes) which in effect is cast aside by the

Timberland court.

Timberlane involved an allegation by an American

lumber company with operations in Honduras that the

Bank of America conspired with affiliated companies and

other interests in Honduras to destroy plaintiff’s Hon-

eS = denied, 383 U.S. 936 (1966), i a

ee and Hecht v. Pro-Football, 2

ng the Bes 1971) per Ae age 404 U.S. 1 (1972), ‘chal-

In each of these — —

in order to accomplish these objectives, the bank engaged

in a number of questionable financial transactions leading

to a foreclosure on property essential to plaintiff’s Hon-

duras operations. Acting through a judicial officer termed

an interventor, the defendants obtained the use of the

government’s guards and troops to cripple and for a time

completely shut down plaintiff’s milling operation. Plain-

tiff’s manager was falsely arrested and imprisoned, and

was vilified in the press. Defendants argued that this

case was just like American Banana, where another private

company had also been accused of using judicial process

and police and troops to enforce judicial process in order

to eliminate a competitor. The District Court had dis-

missed the complaint from the bench on the basis of Oc-

cidental Petroleum Corp. v. Buttes Gas d Oil Co., conclud-

ing that the injuries allegedly suffered by Timberlane re-

sulted principally from acts of the Honduran government

in connection with the judicial enforcement of security

interests in plaintiff’s plant.

Despite American Banana and despite its own per

curiam decision in Buttes, the Court of Appeals reversed.

It held that:

lelven if the coup de grace to Timberlane’s enter-

prise in Honduras was applied by official authorities,

we do not agree that the doctrine necessarily shelters

these defendants or requires dismissal of the Timber-

lane action. (App. Fat 118a)

Citing this Court’s decisions in Continental Ore, Sisal

Sales, and Dunhill, and giving the shortest of shrift to

Buttes, it observed that:

lilt is apparent that the [act of state] doctrine does

not bestow 4 blank-check immunity upon all conduct

blessed with some imprimatur of a foreign govern-

ment. (App. F. at 119a)

In Continental Ore, the appellate court noted, the Can-

adian government had made a private corporation its ex-

clusive buying agent and this corporation, acting in concert

with the defendants, had excluded plaintiff from the mar-

ket. In Dunhill, interventors appointed by the government

were held liable with respect to money paid them by mis-

take. In Sisal, governmental action (including legislation)

procured by the defendants for anticompetitive purposes

did not insulate them from liability. And the court ob-

served that the same result had been reached in United

States v. The Watchmakers of Switzerland Information

Center, Inc., 1963 Trade Cas. 170,600 (S. D. N. V. 1962), or-

der modified, 1965 Trade Cas. 970,352 (S. D. N. V. 1965).

There, plaintiffs had successfully complained of agree-

ments formulated privately and not compelled by the

Swiss government, but then recognized by that government

and approved by it.

One might attempt to distinguish Timberlane from the

present case on the ground that the act of state in-

volved in Timberlane was enforcement of judicial process,

process which in the ordinary course private parties might

obtain. But that is a distinction without a difference. After

Sisal Sales, which involved legislative decrees and not

mere process, the rule cannot be that if a plaintiff loses

his property by government decree he cannot complain, but

that if he loses property by judicial order he may do so.

In any event, as demonstrated above, it is a misreading

of the present complaint to construe it as complaining only

of an act of nationalization. Plaintiffs do not here contest

the right or power of the Libyaf{government to do what

it did, and they do not now accuse respondents of improp-

erly inducing the Libyan government to act. What plain-

tiffs do complain of is the manner in which respondents,

in concert, manipulated the Libyan operating companies—

all of which were private companies. It is that manipula-

tion which is at issue, and plaintiffs are aware of no case

insulating that kind of private conduct from judicial seru-

tiny under a bogus ‘‘act of state’’ defense.

It is not of academic interest alone that the majority

below jumped quickly to the wrong conclusions regarding

what Hunt might be able to prove at trial, unduly expanded

the scope of immunity defined by this Court’s ‘‘act of

state’’ cases, and declined to apply the teachings of Cantor

and the other ‘‘state action’’ cases. For, if allowed to

stand, the decision below will have profound and unaccept-

able consequences for antitrust enforcement.

The thrust of the decision below is that if private con-

spirators can embroil in their schemes some foreign gov-

ernmental program or act, they may thereby procure ab-

solute immunity from judicial review. That is not accept-

able policy.

The present case demonstrates how intolerable its con-

sequences are. Petitioners would be able to show at trial

that the seven largest multinational oil companies repeat-

edly met secretly, principally in New York but also in

Chicago and London, over a period of several years to

coordinate their anticompetitive schemes. These included

putting American and other companies producing oil in

Libya at a competitive disadvantage, manipulating those

companies so as to attain competitive advantages for the

Seven’s own Persian Gulf production, and—finally—elim-

ination of an unwanted competitor. Meetings of this kind

are plainly offensive to the antitrust laws.“ Executives of

putative competitors are not permitted to meet and co-

ordinate their activities against other competitors. Should

immunity attach to such meetings simply because one of

the weapons chosen by the conspirators was a governmental

act? And should immunity be granted on the basis of a

governmental act when the conspiracy preceded the act by

several years, and involved a number of private actions

totally unrelated to the alleged ‘‘act of state’’?

If the decision below is allowed to stand, predators will

have a formal invitation to achieve their anti-competitive

dreams without fear of judicial scrutiny, so long as they

take the precaution of implicating a government in their

plans.

Recent events demonstrate how easy such foreign gov-

ernmental complicity is to procure. Large multinational

companies—including several of the respondents named in

* The Department of Justice did indicate at the time that it had

no intention to prosecute the signatories of the Libyan Producers

—— on the facts as it then knew them. But the Seven did not

inform the Department of the secret meetings complained of in Count

3 or of their private purposes. In any event the Department’s “no

action position never confers immunity either from private suit or

from civil suit by the Department.

this action—have publicly admitted making payments to

foreign government officials to procure favorable govern-

mental action. And, wholly apart from company-initiated

bribery, there have also been disclosures in recent months

of American multinational companies conforming their con-

duet, at the urging of foreign governments, in ways which

injure other Americans.

The Department of Justice has taken the position that

American companies which acquiesce in foreign government

demands relating to the so-called Arab boycott, for example,

may thereby violate the antitrust laws. On January 16,

1976, the Antitrust Division, on behalf of the United States,

sued Bechtel Corporation and several related corporate en-

tities. United States v. Bechtel Corp., Civ. No. C 76 99 (N. D.

Cal.), reported at Antitrust & Trade Reg. Rep. (BNA),

No. 796, E-4, Jan. 11, 1977. The complaint alleged that

in violation of Section 1 of the Sherman Act the corporate

defendants and certain co-conspirators conspired unrea-

sonably to restrain trade in the provision of parts, systems,

materials, equipment, and services for construction projects

in so-called Arab League countries. The claim was that, at

the instance of the Arab League countries, defendants had

agreed to avoid importing into those countries goods and

services furnished by persons blacklisted by the countries.

As the government explained in its Competitive Impact

Statement filed on January 10, 1977 in support of a pro-

posed consent judgment:

In sum, the Boycott is a long-standing arrangement

among certain Arab League Countries, the Central

Boycott Office, enterprises doing business in those Arab

League Countries, and others, pursuant to which inter-

national import trade and commerce in those countries

is conducted consistent with a concerted refusal to deal

with Blacklisted Persons—including United States

Blacklisted Persons. It is, as such, a horizontal agree-

ment among purchasers in Arab League Countries, the

purpose of which is to restrain the trade between those

countries and others in the products of Blacklisted

Persons. Antitrust & Trade Reg. Rep. (BNA), No.

796, at E-5.

Defendants, of course, raised the ‘‘act of state’’ Jefense.

In its competitive Impact Statement, the Antitrust Division

rejected the notion that conspiratorial conduct by American

businessmen—even at the urgent behest of foreign govern-

ments and involving foreign government complicity—was

immune from judicial challenge. The Division stated that:

„The Government would have contended that foreign

sovereign compulsion may not override enforcement of

conflicting United States law expressing a sovereign

and public interest as to conduct within the United

States * * * and that the act of state defense does not

apply to conduct outside the territory of the state whose

acts are invoked as its basis. Antitrust & Trade

Reg. Rep. (BNA), No. 796, at E-6.

Bechtel was not litigated to a conclusion. But the conten-

tions of the parties thereto reflect how adverse the thrust of

the decision below would be to enforcement of our antitrust

laws, at least as perceived by the Antitrust Division.*

Other important efforts at antitrust enforcement are

also jeopardized by the decision below. There is an emerg-

ing pattern of price-fixing and other anti-competitive

* Precisely the same view has been pyblicly pronounced by the

Division in its recent “Guide to Antitrust and International Opera-

tions,” dated January 26, 1977, the text of which was published in

CCH Trade R — 1 No. 266, Feb. 1, 1977. See, Case K and dis-

cussion at p. 50, Case L and discussion at p. 53.

practices evolving from the relationship between large

multinational companies and their host governments, par-

ticularly in the natural resources area. On January 29, 1976

a federal grand jury in Chieago returned an indietment

against eight major potash producers, charging them with

conspiring with officials of the provincial government of

Saskatchewan, Canada, to control United States potash

production and prices in conjunction with that govern-

ment’s own program of holding back potash production and

preventing price declines. At the same time, the Antitrust

Division, on behalf of the United States, filed a civil com-

plaint directed at the same conduct. See, United States v.

AMAX, Inc., Crim. No. 76 CR 783 and Civ. No. 76 C 2393

(N.D. IIl.), reported in Antitrust & Trade Reg. Rep. (BNA),

No. 771, A-6, July 6, 1976.

In Westinghouse Electric Corp. v. Rio Algom Ltd., No.

76 C 3830 (N. D. III.), a large American corporation sued

both foreign and American uranium producers, alleging

that the Canadian government had developed a program to

reduce overproduction and to shore up prices, in which pro-

gram the defendants conspired. The case is reported at

Antitrust & Trade Reg. Rep. (BNA), No. 800, A-13, Febru-

ary 8, 1977.

Should these patterns of conspiratorial action between

foreign governments and large multinational companies

be put outside the scope of the antitrust laws, price-fixing

will become a way of life in international commerce.

The decision below confers upon predatory businessmen

a hunting license to liquidate competitors with the assist-

ance of foreign governments or their officials. In Cantor,

California Motor Transport and the other ‘‘state action“

cases, and in Sisal Sales, Continental Ore and the other

act of state’’ cases, this Court has demonstrated that it

will not countenance such gaping loopholes in antitrust en-

forcement. That policy should lead this Court to review the

decision below.

Conclusion

For the foregoing reasons, petitioners urge that this

Court issue a petition of certiorari to review the decision

below.

Respectfully submitted,

Pao HmSRRO

108 N. Columbus Street

P.O. Box 1226 APPENDICES

Alexandria, Virginia 22313

(703) 836-6595

Dante, P. Levirr

919 Third Avenue

New York, New York 10022

(212) 688-1100

Attorneys for Petitioners

Of Counsel:

Munten N. Nessen

Eien R. Napier

Kennets BARLIx

Nickerson, Kramer,

Lowenstein, Nessen,

Kamin & Soll

919 Third Avenue

New York, New York 10022

(212) 688-1100

Appendix A

Opinion of the United States Court of Appeals

UNITED STATES COURT OF APPEALS

For tue Seconp Circuit

No. 9—September Term 1976

Argued October 26, 1976 Decided January 12, 1977

Docket No. 76-7052

— — <> i

Netson Buwxer Hunt, W. Heasert Hunt and Lamar Hunt,

Plaintiff s- Appellants,

against

Most. On. Cornposation, Texaco, Inc., Stanparp On. Con-

pany or Catirornius, Tue Barrisn Perroteum Compayy,

Lav., Suett Perzoteum Company, Lov., Exxon Corpora-

tion, Gur Ou. Corporation, OccipentaL Petrroteum Corpo-

ration, Grace Perroteum Conr. and Geisenserc AG,

Defendants- Appellees.

Before Mutiican and Vaw Graarerann, Circuit Judges

and Gaouiagp1, District Judge.“

Appeal from a final judgment, entered pursuant to Fed.

R. Civ. P. 54(b), of the United States District Court for the

Southern District of New York, Edward Weinfela, Judge,

dismissing one count of a four count complaint.

* Of the Southern District of New York, sitting by designation.

Appendiz A

Affirmed.

Dawrex P. Levirr, New York, New York (Nickerson,

Kramer, Lowenstein, Nessen, Kamin & Soll,

New York, New York, Kenneth Berlin; Philip

Hirschkop & Associates, Ltd., Alexandria, Vir-

ginia, Philip J. Hirschkop of Counsel) for Plain-

tiffs- Appellants.

Epwanp F. Howrey, Washington, D.C. (Howrey &

Simon, Washington, D.C., A. Duncan Whitaker,

Harry E. Jennings, Jr. Mark D. Wegener;

Mobil Oil Corporation, New York, New York,

Richard H. Zahm, Juliet Shepard of Counsel),

for Defendant Mobil Oil Corp.

(Kaye, Scholer, Fierman, Hays & Handler, New

York, New York, Milton J. Schubin ; Texaco Inc.,

New York, New York; Charles F. Kazlauskas,

Jr., G. Kenneth Handley, Lawrence R. Jerz, of

Counsel) for Defendant Texaco Inc.

(Lord, Day & Lord, New York, New York, Gordon

B. Spivack, John W. Casties, 3d, Harry G.

Skarsky, David H. Marks, Carolyn Ellis; Pills-

bury, Madison & Sutro, San Francisco, Cali-

fornia, Turner H. McBaine, Wallace L. Kaapcke,

Thomas E. Haven, of Counsel), for Defendant

Standard Oil Company of California.

(Shea, Gould, Climenko, Kramer & Casey, New York,

New York, Bruce A. Hecker, Joseph Ferraro,

of Counsel), for The British Petroleum Com-

pany Limited.

(Sullivan & Cromwell, New York, New York, Robert

MacCrate, Robert M. Osgood, Barbara A. M

of Counsel), for Defendant Exxon ——

Appendix A

Mutuieay, Circuit Judge:

This appeal raises the question whether the district court

properly dismissed before trial, on the basis of the act of

state doctrine, the third antitrust claim of the plaintiffs-

appellants’ complaint seeking treble damages from the

named defendants-appellees as the result of the nationaliza-

tion of the plaintiffs’ oil producing properties in the Sarir

Field by the Libyan government on June 11, 1973. We hold

that the motion to dismiss was correctly decided and affirm

the judgment of the district court.

Nelson Bunker Hunt filed a complaint on March 3, 1975

in the United States District Court for the Southern Dis-

trict of New York charging in the first three counts that the

named defendants had unlawfully combined and conspired

to the damage of the plaintiff in violation of section 1 of the

Sherman Act, 15 U.S.C. §1, and section 73 of the Wilson

Tariff Act, 15 U.S.C. §8. A fourth claim alleged damages

arising from a breach of contract. The complaint was

amended by stipulation on January 9, 1976 adding as plain-

tiffs W. Herbert Hunt and Lamar Hunt. Hereinafter the

plaintiffs ave referred to as Hunt.“ The complaint on the

basis of the antitrust claims alone seeks damages of not less

than $125 million before trebling. Prior to filing its an-

swers containing denials, affirmative defenses and counter-

claims, certain of the defendants (Mobil Oil Corporation,

Texaco, Inc., Standard Oil Company of California, The

British Petroleum Company (B.P.), Exxon Corporation,

Gulf Oil Corporation, Occidental Petroleum Corporation

and Grace Petroleum Corporation) moved to dismiss the

first, second and third claims for lack of subject matter jur-

isdiction and for failure to state claims upon which relief

could be granted, pursuant to Rule 12(b)(1) and (6) of the

Federal Rules of Civil Procedure. These defendants also

moved to dismiss the breach of contract claim on grounds

Appendix A

not relevant to this appeal. In an opinion, reported at 410

F. Supp. 10, filed on November 5, 1975, United States Dis-

trict Judge Edward Weinfeld denied the motion to dismiss

the first and second antitrust claims but granted the motion

to dismiss the third antitrust claim. The disposition of the

breach of contract claim is covered in the trial court’s opin-

ion but is not here pertinent.

Thereafter, on January 22, 1976, Judge Weinfeld granted

Hunt’s motion for a final judgment dismissing the third

claim as to all the defendants pursuant to Fed. R. Civ. P.

54(b) upon the express condition that the appeal be prose-

cuted with dispatch. A final judgment dismissing the third

claim as to all defendants was entered on February 4, 1975,

thus ‘permitting this otherwise interlocutory appeal by

Hunt.

In granting the Rule 54(b) motion, Judge Weinfeld

stated, mter alia, that if the motion were denied, and there-

after on appeal from any judgment entered with respect to

the first two claims the dismissal of the third claim was

reversed, a duplicative lengthy trial would be required cre-

ating additional but unnecessary expense to the parties.

He further found that this appeal would not delay the

prospective trial nor would it interfere with the discovery

process. We agree that on these grounds the motion was

properly decided. Therefore, we reject the defendants’

argument that this determination constituted an abuse of

discretion and consequently proceed to the merits of the

appeal.

Hunt is a non- integrated independent producer of oil

which in 1957 obtained an oil concession in Libya. The

seven major oil producers, who are included as defendants

here, sometimes called ‘‘The Seven Sisters’’, are vertically

integrated companies generally producing oil in both Libya

Appendix A

and the Persian Gulf fields.“ In November 1961, low sul-

phur oil was discovered in Libya at the Sarir Field, which

eventually reached a level of 450,000 barrels a day shared

equally by Hunt and B.P. which had a one-half undivided

interest in the concession. In September 1969, Colonel

Mu’ammar al-Qadhafi assumed power in Libya under a new

government, the Revolutionary Command Council (RCC)

which announced a policy of increasing the price of Libyan

crude oil as well as the government’s share or take“ in

the price. The RCC’s policy envisioned increased govern-

mental control over production and production facilities.

The heightened militancy of Libya resulted in agreements

which were forced upon all the oil producers in Libya in

September 1970, substantially increasing the take of the

Libyan government in their profits. These agreements oc-

casioned similar demands by the Persian Gulf countries

which were members of the Organization of Petroleum Ex-

porting Countries. That organization formulated a series

of resolutions promulgated in December 1970 calling for

more control by the producing nations over production.

Despite the recently concluded agreements of Libya with

its oil producers, the RCC demanded new increases in prices

as well as taxes early in January 1971. The Libyan govern-

ment first moved against Hunt and Occidental making cer-

tain unilateral ‘‘non-negotiable’’ demands which had to be

accepted prior to January 16, 1971 and which were at vari-

ance with existing — with those oil —

— — Serer cy Cael ws

Appendia A

In an effort to present a united front and fearful that

the Libyan policy would escalate the demands of the produc-

ing nations in the Persian Gulf area, the seven majors met

secretly in January 1971 in New York City to structure their

resistance to the demands of the oil producing countries.

In light of their concerted activity and the antitrust impli-

cations it presented, the major oil companies sought and

obtained a clearance letter from the Department of Justice

which indicated that it had no present intention of bringing

any antitrust action on condition that the independent Li-

byan oil producers be included in any joint action proposed.

The independent producers, including Hunt, were thereupon

invited to participate in the meetings with the majors.

These meetings culminated in the drafting of a so-called

„sharing arrangement’’ known as the Libyan Producers

Agreement of January 15, 1971 (the Agreement) which was

supplemented and amended on October 18 and December 16,

1971 and November 21, 1972. The Agreement in general

provided that if any party’s crude oil production in Libya

was cut back as the result of government action, all other

producers would share in the cutback on a proportionate

basis. It further provided that if there was insufficient

Libyan oil to meet contractual obligations to existing Euro-

pean or Western Hemisphere customers due to restrictions

or a government shutdown, the Persian Gulf producers

would supply the Libyan producers with Persian Gulf oil

at cost, with an option to pay cash in lieu of oil at a nominal

sum per barrel. At that time Hunt had three such custom-

ers, all of whom were signatories to the Agreement and

two of whom, Exxon and Shell, were among the seven

majors. The Agreement as well as the subsequent amend-

ments and supplements were reported to the antitrust divi-

sion of the Department of Justice. Hunt was a party to

the initial agreement and the subsequent modifications.

On December 7, 1971 the Libyan government national-

ized B.P.’s half of the Sarir Field and demanded that Hunt

market B.P.’s share of the Sarir production for Libya’s

ay Rat — oe

Appendiæ 4

account. Appellants allege that in response to the requests

and assurances of B. P. and the other majors and in reliance

upon the Agreement, Hunt refused the Libyan demand. As

a result, Libya evicted Hunt personnel from Sarir in early

1972 and cut back Hunt’s permissible oil production by

50%. Hunt and B.P. as a consequence of these events re-

ceived crude oil from the other parties to the Agreement.

In October 1972, the Libyan government demanded an im-

mediate 50% equity participation in Hunt’s interests in

Sarir. Hunt again rejected the Libyan demands. Hunt

alleges that as a result of his non-cooperation with the

Libyan demands, the Libyan government on December 11,

1972 refused to permit further export of Hunt’s oil. On

May 24, 1973 Libya terminated his right to produce and

export crude oil and on June 11, 1973 pursuant to Law 42

of 1973 it nationalized all of Hunt’s assets.

III

The sole issue on this appeal is whether the district court

erred in dismissing the third antitrust claim of Hunt which

is set forth in the margin.“ The gravamen of this claim is

THIRD CLAIM

61. Plaintiff Hunt realleges each and every allegation contained

in paragraphs | through 45.

62. Since at least 1970, the seven majors along with co-conspira-

tors name and not named, have in a combination and/or

conspiracy in unreasonable restraint of the foreign trade and com-

merce of the United States, in violation of the Sherman Act, 15

U.S.C. §1, and of Section 73 of the Wilson Tariff Act, 15 U.S.C. §8.

competition from Libyan crude

they have combined and conspired

(footnote continued on next page)

Appendiæ A

that seven majors combined and conspired in violation of

the Sherman and Wilson Tariff Acts to preserve the com-

petitive advantage of Persian Gulf crude oil over that of

Libyan crude oil and to diminish competition from Libyan

crude oil producers. The mechanism employed is alleged

to be the Agreement which precluded Hunt from reaching

any settlement with Libya inconsistent with the competitive

advantage of the defendants and through which the defend-

ants manipulated Hunt’s dealings with Libya to the extent

that Hunt was eventually nationalized, suffering substantial

loss of profits as well as other urspecified damage.

Hunt’s complaint does not name Libya as a defendant

or in any way suggest that it is a co-conspirator of the

named defendants. Nonetheless Judge Weinfeld reasoned

that the combination or conspiracy charged did not of itself

cause the damage complained of but rather that the damage

resulted from the action of Libya in cutting back Hunt’s

production, shutting off its oil and finally nationalizing its

properties. Thus he found that Hunt would be required

to establish that but for the conspiracy Libya would not

have committed any of these aggressive actions. This he

decided would require judicial inquiry into ‘‘acts and con-

duct of Libyan officials, Libyan affairs and Libyan policies

itive advantage, even where they knew that the necessary and

— — diye their conduct would be Hunt's elimination

as a Libyan crude oil producer.

64. In furtherance of this unlawful combination and conspiracy,

the 1 majors entered into — 18 — * with Hunt and

other Libyan producers, manipulat course

erer nne pw

followed a course of action that led to Hunt's nationalization and

elimination from the production of Libyan crude oil.

65. By reason of this unlawful combination and conspiracy, —

has been and will continue to be injured in his business and

He has sustained damages, the extent of which cannot

i his half interest in the

Appendia A

with respect to plaintiff’s as well as other oil producers’

properties and the underlying reasons for the Libyan gov-

ernment’s actions.“ 410 F.Supp. at 24. He coneluded that

this inquiry was foreclosed under the act of state doctrine.

The appellants have vigorously attacked the application

of the act of state doctrine to the facts pleaded in its third

claim. Whatever great expectations appellants may

have anticipated from the Supreme Court’s decision in

Alfred Dunhill of London v. Republic of Cuba, —— U.S.

—., 96 S. Ct. 1854 (1976), which was decided after the

decision below was rendered, have been blighted. Dunhill

reaffirmed the doctrine in traditional terms, announcing

that it ‘‘ ‘precludes the courts of this country from in-

quiring into the validity of the public acts a recognized

foreign sovereign power committed within its own terri-

tory.’ Banco Nacional de Cuba v. Sabbatino . . . and that

it applies to ‘acts done within their own states, in the ex-

ercise of governmental authority.’ Underhill v. Hernan-

dez....’’ Id. at 1867. The majority opinion of Mr. Jus-

tice White in Dunhill underscored ‘‘public’’ and ‘‘govern-

mental’’ since the act complained of there, the failure of

Cuba to return to petitioner Dunhill certain funds paid to

a Cuban government-controlled corporation for cigars sold

to Dunhill by this Cuban cigar business before govern-

ment seizure, was found to be an act of the sovereign

committee in the course of a purely commercial operation.“

Dunhill declined to extend the act of state doctrine to

situations where the sovereign has descended to the level

of an entrepreneur. Appellants conceded on the oral argu-

3. The dissenting opinion of Mr. Justice Marshall with whom

Justices Brennan, Stewart and Blackman joined would have held the

„„

Ct. at

10a

Appendia A

ment of this appeal that the nationalization of Hunt’s

properties was not a purely commercial act within the

Dunhill exception. Expropriations of the property of an

alien within the boundaries of the sovereign state are tra-

ditionally considered to be public acts of the sovereign

removed from judicial scrutiny by application of the act

of state rubric. Indeed such action as that taken here by

Libya is cited in Dunhill as an example of non-commercial

sovereign activity within the ambit of the doctrine. See

U.S. at ——, 96 S. Ct. at 1866.

Any possible doubt about this issue is in any event re-

moved since upon the seizure of Hunt’s property on June

11, 1973 President al-Qadhafi announced [Wie proclaim

loudly that this United States needs to be given a big

hard blow in the Arab area on its cold, insolent face.

The time has come for the Arab peoples to confront the

United States, the time has come for the U.S. interests to

be threatened earnestly and seriously in the Arab area,

regardless of the cost.“ The note of the United States

to the Libyan government on July 8, 1973 in response both

to the seizure and the public statements of Libya concern-

ing it, characterized the expropriation as ‘‘political re-

prisal against the United States Government and coercion

against the economic interests of certain other U.S. na-

tionals in Libya.“ We conclude that the political act

4. Statement of the State Department, Hearings before the Sub-

em, co Say ichn er e

eign Relations, 93rd Cong, 2d Ses. pt 6, at 316-17 (1974). The

w 42 of 1973 that effectuated

the seizure described the act as “a warning to the United States to

end its recklessness and hostility to the Arab nations.” It further

5. . —— Seinen te Reementend

Law 1973 at 335.

lla

Appendix A

complained of here was clearly within the act of state

doctrine and that since the disputed pleadings inevitably

call for a judgment on the sovereign acts of Libya the

claim is non-justiciable.

In finding the doctrine applicable to the pleadings in

issue Jude Weinfeld placed principal reliance upon

American Banana v. United Fruit Co., 213 U.S. 347 (1909)

a decision dubbed by appellants as an artifact and museum

piece of no precedential value. In American Banana the

plaintiff sued for treble damages under the Sherman Act

alleging that his banana plantation had been seized and

his business destroyed by the confiscatory acts of the Costa

Rican government which had acted at the defendant’s in-

stigation in furtherance of his anti-competitive behavior.

The Supreme Court, in an opinion authored by Mr. Justice

Holmes, held, in reliance on Underhill v. Hernandez, 168

U.S. 250 (1897), that since the seized plantation was with-

in the de facto jurisdiction of Costa Rica, its seizure by

that state was an act of sovereign power which could not

be litigated in our courts. The opinion further held that

since the acts complained of occurred outside of the United

Staies they were beyond the jurisdictional scope of the

Sherman Act.“

There can be no question that as to this latter facet of

the opinion, the extraterritorial sweep of the Sherman Act,

American Banana is no longer a viable precedent. This

6. Appellants that Mr. Justice Holmes had a uni

narrow view of the Act. His disaffection for that legislati

needs little documentation. E.g., Letter from Justice to

Harold J. Laski, March 4, 1920, in 1 Holmes-Laski Letters 248-49

possible animus of its author. In rove ro

- of caute Gamente of Gn Gestion eve Gutiant.

12a

Appendiæ 4

aspect of the case has been explicitly rejected by later

Supreme Court cases which hold that, A conspiracy to

monopolize or restrain the domestic or foreign commerce

of the United States is not outside the reach of the Sher-

man Act just because part of the conduct complained of

occurs in foreign countries. Continental Ore Co. v.

Usion Carbon d Carbon Corp., 370 U.S. 690, 704 (1962);

United States v. Sisal Sales Corp., 274 U.S. 268, 276

(1927). Hence, we agree with appellants that the Sherman

Act is applicable to the cause pleaded in the third claim.

However, the fact that the court has jurisdiction does not

make the issue justiciable. First National City Bank v.

Banco Nacional de Cuba, 406 U.S. 759, 773-74 (1972)

(Powell, J., concurring). Were the Sherman Act not ap-

plicable here we would never reach the act of state doc-

trine which is a manifestation of judicial abstention.

Appellants argue that both Sisal and Continental Ore,

supra, overturned American Banana’s application of the

act of state doctrine, Not so. American Banana on this

point rested on Underhill v. Hernandez, supra, and the

classical definition of the act of state doctrine there was

reiterated must later in both Banco Nacional de Cuba v.

Sabbatino, 376 U.S. 398, 416 (1964) and Alfred Dunhill of

London v. Republic of Cuba, supra 96 S. Ct. at 1859 n.7,

so that it can hardly be consigned to the oblivion that ap-

pellants consider it richly deserves.

In Sisal the antitrust complaint alleged a conspiracy

among American bankers and corporations dealing in sisal,

a plant fiber used to make twine, and a Mexican corpora-

tion which purchased that product from local producers

in the Yucatan, the major source of sisal. The Mexican

company became the sole purchaser of sisal and laws were

solicited and enacted in both Mexico and the Yucatan

which allegedly gave it advantages over all other com-

petitors. One of the American companies then became

—— —— ee —

13a

Appendiæ 4

the exclusive selling agent of the Mexican corporation in

all the world markets thus permitting the defendants to

acquire complete domination over the market obtaining

the power to fix prices and eliminate competition, the

classic hallmarks of the section 2 violation. Mr. Justice

McReynolds’ opinion distinguishes American Banana on

the Sherman Act issue, pointing out that the act of seizure

committed there was performed in Costa Rica while in

Sisal the conspiracy took place in the United States and

was made effective by acts performed here. Although the

act of state doctrine was raised by one of the appellees

(represented by a certain Harold R. Medina) the Court

makes no specific mention of the doctrine. Although it

cites American Banana’s proposition that a ‘‘seizure by

a state is not a thing that can be complained of elsewhere

in the courts’’, it found that circumstances in Sisal were

‘‘radically different“ from those in American Banana

even though the conspirators were ‘‘aided by discrimina-

tory legislation.“ 274 U.S. at 276. While Mr. Justice

McReynolds characterized the plaintiff’s pleading in Sisal

as ‘‘confused, difficult to follow and as an excellent ex-

ample of bad pleading’’ the opinion itself is hardly as clear

as a mountain lake in springtime. It is clear however that

it does purport to overrule American Banana’s act of state

holding and that it considered the assistance of the sov-

ereign through the mechanism of favorable legislation

engineered by the defendants to be of considerably less

moment than the expropriation by the state of the plain-

tiff’s properties in the earlier case.“ In any even, we deem

7. Most commentators have also concluded that American

Banana’'s — — SOS a — 2 — in-

ished by Sisal, or any case ci or proposition ＋ *

lants. Eg. A. B. A., Antitrust Developments 365 (1975);

K. Brewster, Antitrust and American Business Abroad 97 (1958);

s Foreign Commerce and the Antitrust Laws 52.21.

(1 ,

14a

Appendiæ 4

it to be of no value to the appellants except on the juris-

dictional thrust of the Sherman Act which, as we have

pointed out, has been confirmed by later cases and is not

disputed here.

Continental Ore Co. v. Union Carbide d Carbon Corp.,

supra, we find to be of no assistance to the appellants on

the act of state issue. The antitrust violation there asserted

involved two American corporations and several subsid-

iaries (including a Canadian subsidiary) of one of these

corporations which had succeeded in monopolizing 99%

of the vanadium market in the United States. The Canadian

defendant, Electro Met of Canada, was an agent of the

Canadian government and, while such, excluded the plaintiff

Continental from the Canadian market, dividing its former

share between two of the defendants. The Court found:

[T]here is no indication that the [Metals] Controller

or any other official within the structure of the

Canadian Government approved or would have ap-

proved of joint efforts to monopolize the production

and sale of vanadium or directed that purchases from

Continental be stopped. ... Respondents are afforded

no defense from the fact that Electro Met of Canada,

in carrying out the bare act of purchasing vanadium

from respondents rather than Continental, was acting

in a manner permitted by Canadian law. There is noth-

ing to indicate that such law in any way compelled dis-

criminatory purchasing, and it is well settled that acts

which are in themselves legal lose that character when

they become constituent elements of an unlawful

scheme.

Id. at 706-07. Since no act of the sovereign was involved

in Continental Ore there is nothing in that case to disturb

American Banana’s holding on the act of state doctrine. It

is simply not the law that merely because the action is based

15a

Appendix A

on the antitrust laws, the act of state doctrine is to be

discarded.“

The appellants contend that the act of state doctrine

cannot be applicable here because Libya is not named as a

defendant, is not designated as a co-conspirator and in fact

„was as much a victim of the conspiracy as was Hunt.’’

Hence appellants inform us that we are not called upon

here to sit in judgment upon the acts of Libya. Thus they

argue that the third count of their complaint is not within

any of the cases which have applied the doctrine. A sim-

ilar argument was raised in Occidental Petroleum Corp.

v. Buttes Gas d Oil Co., 331 F. Supp. 92 (C.D. Cal. 1971),

aff’d per curiam, 461 F.2d 1261 (9th Cir.), cert. denied,

409 U.S. 950 (1972) relied upon by Judge Weinfeld below

as a case which involved facts substantially parallel to

those in the instant case. 410 F. Supp. at 24. Occidental

involved an alleged antitrust conspiracy to restrain and

monopolize the exploration, development and exploitation

of petroleum reserves in the territorial waters of the

Trucial States. The defendants were accused, inter alia, of

having procured and induced the Ruler of Sharjah for his

personal gain to assert dominion over certain territory

ee ae cain’ Gxt Carton Senme ® | i

because Hunt relies on not only the Sherman Act but also the Wilson

Tariff Act which “was not in existence when American Banana was

Since the antitrust p- vision of the Wilson Tariff

enacted in 1894, Act ot Aug. 27, 1894, c. 349, §73,

i this argument

of state issue

7 2

28K.

228

“i

Se F

ghz

16a

Appendiæ A

within a concession area awarded to the plaintiffs by an-

other Trucial State, Umm al Qaywayn. The plaintiffs in

that case raised the same argument raised here—that they

were complaining not of the acts of a foreign state but only

of those of the named defendants in catalyzing them. How-

ever, the court indicated that the plaintiffs had character-

ized the foreign sovereigns there involved as co-conspira-

tors, an appellation studiously avoided in the case before

us. Moreover, in that case the plaintiffs would have been

required to establish that Sharjah had issued a fraudulent

territorial waters decree. 331 F. Supp. at 110. Here it is

urged that Hunt makes no claim that Libya acted illegally

at all, simply that as a matter of fact its ‘‘lawful’’ act

was induced by the unlawful conduct of the named defend-

ants." While we agree that these points serve to dis-

tinguish Occidental from the case before us, the distinctions

proffered are of no substance and do not affect the disposi-

tion of this case.

First: The excision of the government of Libya from

the pleadings as a defendant or co-conspirator does not

eliminate its action as a necessary element in the cause

pleaded in the third claim. Hunt has pleaded that he was

damaged as the result of Libyan action in cutting back

his production and eventually nationalizing his properties,“

It is well established that a private plaintiff who seeks

damages in an antitrust action must allege and establish

that his business or property was injured as a direct result

of the Sherman Act violation. Radiant Burners, Inc. v.

9. Occidental in fact —4 4

sion here on the vitality of — E=, Thus the court. while

that the restrictive view of Mr. Justice Holmes in Ameri-

as to the territorial reach of pony Hl. has not

act of

Supp.

LIE AA

at 108-10.

10. 934, 40, 41 of the complaint.

— — — — — —

17a

Appendix A

Peoples Gas Light d Coke Co., 364 U.S. 656, 660 (1961);

Salerno v. American League of Professional Baseball Clubs,

429 F.2d 1003, 1004 (2d Cir. 1970), cert. denied, 400 U.S.

1001 (1971).

Appellants do not deny, as they cannot, this proposition

of law. Instead, they argue that while Hunt must prove

a causal connection between Libya’s nationalization and

the conspiracy charged this has been sufficiently pleaded

and somehow this shields the third claim from dismissal

prior to trial.“ However, appellants admit that antitrust

liability cannot be attributed to the defendauts unless Hunt

can prove that but for their combination or conspiracy

Second: Appellants’ argument that by their not chal-

lenging the propriety of Libya’s action and by not asserting

that Libya violated either international law or American

antitrust law, the judicial branch of government is not

required to sit in judgment of the act of the foreign

11. re

ee eee:

note 2, also yo ad the defendants ired to preserve the

18a

Appendia A

sovereign is, upon analysis, superficial and not legally suf-

ficient. It is true that traditional and textbook definitions of

the act of state doctrine provide that courts in the United

States are precluded from inquiring into the validity of

the public acts of the foreign sovereign committed in its

own territory. E.g., Alfred Dunhill of London v. Republic

of Cuba, supra, 96 S. Ct. at 1863; Frazier v. Foreign Bond-

holders Protective Council, 283 App. Div. 3, 125 N.Y.S. 2d

900, 903 (Ist Dept. 1953); W. Fugate, Foreign Commerce

and the Antritrust Laws §2.21 at 81-82 (2d ed. 1973). How-

ever, while the skilled pleader here has meticulously at-

tempted to avoid the issue of validity, its claim is ad-

mittedly not viable unless the judicial branch examines

the motivation of the Libyan action and that inevitably

involves its validity. Thus the State Department note of

July 8, 1973 in response to the Libyan seizure of Hunt’s

properties after determining that the reasons for Libya’s

action were political reprisal against the United States

government and economic coercion against other U.S. na-

tionals in Libya concludes :

Under established principles of international law, meas-

ures taken against the rights and property of foreign

nationals which are arbitrary, discriminatory, or based

on — mew of political reprisal and economic

coercion are invalid and not entitled to recogniti

other states. —

A. Rovine, Digest of United States Practice in International

Law 1973 at 335.

In sum, the United States has officially characterized

the motivation of the Libyan government, the very issue

which Hunt now seeks to adjudicate here. The attempted

transmogrification of Libya from lion to lamb undertaken

here does not succeed in evading the act of state doctrine

because we cannot logically separate Libya’s motivation

19a

Appendiz A

from the validity of its seizure. The American judiciary is

being asked to make inquiry into the subtle and delicate

issue of the policy of a foreign sovereign, a Serbonian Bog,

precluded by the act of state doctrine as well as the realities

of the fact finding competence of the court in an issue of far

reaching national concern.

Mr. Justice Harlan, in analyzing the act of state doctrine

in Banco Nacional de Cuba v. Sabbatino, supra, 376 U.S. at

423, observed:

It arises out of the basic relationships between branches

of government in a system of separation of powers. It

concerns the competency of dissimilar institutions to

make and implement particular kinds of decisions in

the area of intern- sonal relations. 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.

The Dunhill majority has reiterated this view:

The major underpinning of the act of state doctrine

is the policy of foreclosing court adjudications involv-

ing the legality of acts of foreign states on their own

soil that might embarrass the Executive Branch of our

Government in the conduct of our foreign relations.

Alfred Dunhill of London v. Republic of Cuba, supra, 96

S. Ct. at 1863.

The act of state rubric then is perceived by the Sup.eme

Court as a judicial articulation of the separation of powers

doctrine and its application here is particularly appropriate

since the executive branch has already determined the valid-

20a

Appendia A

ity of the very act sub judice and has necessarily identified

its motivation. Another inquiry could only be fissiparous,

hindering or embarrassing the conduct of foreign relations

which is the very reason underlying the policy of judicial

abstention expressed in the doctrine in issue.“ Even if

the Department of State had not spoken, the inquiry re-

quired by the third claim in this private litigation is hardly

within the fact finding competency of the judicial branch.“

Appellants claim that but for the conspiracy pleaded,

Hunt’s business would have continued to thrive and its

properties would have remained unscathed and intact. This

necessarily would require a wholesale examination of

Libyan policy—how did it treat other companies, what

provoked its ‘‘displeasure,’’ how far could concessions by

Hunt appease President al-Qadhafi.. The action taken

12. The i of a unified national voi i i

nas bean squagtiond dase ee founding af Ge expublie 185

Federalist No. 42 (J. Madison). The judiciary, even when it has

had jurisdiction, has traditionally been reluctant to infringe on the

Say in the area of foreign affairs. This has resulted

in the application of the question doctrine to find such issues

non-justiciable. See Baker v. Carr, 369 U.S. 186, 211-13 (1962).

13. See Holtzman v. “pre” 484 F. 2d 1307, 1310-11 (2d

Cir. 1973), cert. denied, 416 U.S. 936 (1974), and Mitchell v. Laird,

488 F. 2d 611, 616 (D.C. Cir. 1973), which ize the difficulty

14. Our di ing brother ith us when

oak — ö parts company with us we say

establish the motivation F the Libyan expropriation ad that th

Interamerican Refining Corp. v. Texaco Maracaibo, Inc.,

(footnote continued on next page)

2la

Appendix A

here is obviously only an isolated act in a continuing and

broadened confrontation between the East and West in an

oil crisis which has implications and complications far

transcending those suggested by appellants. To dismiss

this examination as an issue of fact and not of law and

therefore beyond the ambit of the act of state doctrine is,

in our view, neither conceptually nor pragmatically sound.

VII

Appellants urge finally, and perhaps ineluctably, that if

the act of state doctrine as traditionally applied by the

courts is found here applicable, it be redefined so that it

would solely be utilized where a determination of the

307 F. Supp. 1291, 1298 (D. Del. 1970) ; Fugate, Antitrust Jurisdic-

tion and Foreign „1 49 Va. L. Rev. 925, 932 (1962);

K. Brewster, Antitrust and ican Business Abroad 94 (1958).

(There is no claim here that Libya was performing a purely commer-

cial act.) When we have discussed the “validity” of the act of con-

fiscation we are not using the term in an antitrust sense but rather in

an international law context. The plaintiffs admittedly can only suc-

ceed if they establish the motivation of Libya in making the seizure.

The United States has characterized it as an act of political reprisal.

We are now asked to determine that Libya would not have so acted

had it not been for the — of the defendants. As recently

indicated in Timberlane Lumber Co. v. Bank of America, —— F. 2d

—— (74-2142, 74-2354, 74-2812, 9th Cir. 27, 1976), “We

wish to avoid ‘passing on the validity’ of foreign acts. Sabbatino,

376 U.S. at 423. Similarly, we do not wish to c the sov-

ereignty of another nation, the wisdom of its policy, or integrity

and motivation of its action.” See The Restatement, Second, Forei

Relations Law of the United States, §41 (1965), “[A] court in

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.”

dissent also urges that Libya’s authorization, en-

couragement or participation in restrictive private conduet confers

no antitrust immunity on the 5 2 is — a *

Libyan participation in antitrust ing. complaint is rather

that Libya like Hunt was a “victim” of the conspiracy.

22a

Appendix A

legality of the foreign sovereign’s action is the issue. As

we have already discussed, the issue of legality cannot be

isolated from the issue of motivation of the foreign sover-

eign. Appellants here have recognized and, indeed, cited

the State Department position on the seizure of Hunt’s

properties. Counsel has argued that a reversal of Sabbatino

by Dunhill, which at the time of the briefing of this appeal

was pending before the Supreme Court, would enable this

Court to examine the Libyan nationalization ‘‘ uninhibited

by the act of state doctrine.’’ Appellants’ reply brief at 16.

But Dunhill has since been decided, Hunt is not within its

purely commercial exception and Sabbatino remains un-

blemished, relied on and cited by both the majority and

dissenting opinions. Alfred Dunhill of London v. Republic

of Cuba, supra, 96 S. Ct. at 1866-67; id. at 1878 (Mar-

shall, J., dissenting).

In Banco Nacional de Cuba v. Sabbatino, supra, 376 U.S.

at 428, Mr. Justice Harlan demurred from establishing any

inflexible or all-encompassing rule in act of state cases.

A fortiori it is not for this inferior court to undertake the

task. This is particularly so since our holding is compelled

by the separation of powers underpinning of the doctrine.

Furthermore, the distinction sought to be engrafted would,

in effect, result not in the doctrine’s redefinition but its

extirpation, thus stripping the judiciary of an invaluable

tool needed on occasion to ease the friction between the

departments.

Appellants emphasize that the court below noted both

in its decision on the pleadings and its certification of this

appeal that the recent disclosures of bribes and payoffs by

multi-national corporations to foreign officials warrant con-

sideration in the public interest of the continued viability

of the act of state doctrine. While we have already found

that there was no abuse in the certification here on the

grounds we have mentioned, supra, part I, we respectfully

23a

Appendix A

disagree wich the proposition that ‘‘scandalous payoffs’’

to foreign potentates or their janizaries provide any basis

at all for reconsideration of the doctrine in this case.

There is no allegation express or implied here that repre-

sentatives of Libya were seduced or enticed in any manner

by the payment of bribes or boodle to take the action com-

plained about. On the contrary, as we have stated, Libya is

depicted as the innocent dupe of a domestic conspiracy.

This appeal therefore is not the proper vehicle for consid-

eration of international commercial bribery in so far as it

affects the act of state doctrine.

For all these reasons we affirm the dismissal of the third

claim of the complaint.

24a

Appendix A

Dissenting Opinion

VAN GRAAFEILAND, Circuit Judge, dissenting:

While I am far from convinced that plaintiffs, given

the opportunity, would have been able to establish the cause

of action which was dismissed, the possible precedential

impact of the majority’s opinion prompts me to briefly

record my dissent.

The ‘‘classic’’ definition of the act of state doctrine,

reiterated by the Supreme Court in Banco Nacional de Cuba

v. Sabbatino, 376 U.S. 398, 416 (1964) and First National

City Bank v. Banco Nacional de Cuba, 406 U.S. 759, 763

(1972), is found in Underhill v. Hernandez, 168 U.S. 250,

252 (1897), where the court said:

Every sovereign State is bound to respect the indepen-

dence of every other sovereign State, and the courts

of one country will not sit in judgment on the acts of

the government of another done within its own terri-

tory. Redress of grievances by reason of such acts

must be obtained through the means open to be availed

of by sovereign powers as between themselves.

Despite the broad language of this accepted defimtion,

the doctrine does not purport to set up a jurisdictional bar

to judicial review. Ricaud v. American Metal Co., 246 U.S.

304, 309 (1918). Neither does it prohibit judicial scrutiny

of the conduct of foreign officials. Indeed, the very asser-

tion of an act of state defense requires the court to examine

into the nature of the conduct complained of and its rela-

tionship to the foreign sovereign. See Alfred Dunhill of

London, Inc. v. Republic of Cuba, 425 U.S. 682 (1976);

Banco de Espana v. Federal Reserve Bank, 114 F.2d 438

(2d Cir. 1940). Federal courts have not hesitated to receive

evidence concerning the acts of foreign officials and the

role played by American citizens in motivating such acts.

See, e.g., United States v. Lira, 515 F.2d 68 (2d Cir.), cert.

25a

Appendia A

denied, 423 U.S. 847 (1975); United States v. Cotten, 471

F.2d 744, 746 n. 4 (9th Cir.), cert. denied, 411 U.S. 936

(1973); Stonehill v. United States, 405 F.2d 738 (9th Cir.

1968), cert. denied, 395 U.S. 960 (1969). The proscription

of the doctrine is against judicial determination of the

validity of the acts of a foreign sovereign, Alfred Dunhill

of London, Inc. v. Republic of Cuba, supra, 425 U.S. at 697,

706; Banco Nacional de Cuba v. Sabbatino, supra, 376 U.S.

at 428, and judicial redress of grievances predicated upon

a finding of invalidity. Underhill v. Hernandez, supra, 168

U.S. at 252.

It is difficult to anticipate what plaintiffs’ proof would

have been in this case, because the district court dismissed

their cause of action, under Fed. R. Civ. P. 12(b) (1), for

failure to state a claim on which relief could be granted.

However, plaintiffs’ contention appears to be that the

Libyan Producers’ Agreement was used by the defendants

to impose competitive disadvantages upon the independent

oil producers and to prevent them from reaching an agree-

ment with Libya which would have been adverse to the

defendants’ Persian Gulf interests. Plaintiffs argue that

they were induced thereby to reject Libyan demands in

order that defendants could negotiate more favorable terms

for their Persian Gulf wells and that, because of defendants’

illegal conduct, they were caused to take a position in their

own dealing with Libya which resulted in the nationalization

of their interests.

Although plaintiffs make no claim of wrongdoing upon

the part of the Libyan government in effecting the expro-

priation of their property, my brothers reject this conces-

sion to Libyan sensibilities. They say that, in order to

prove damages, plaintiffs will be required to establish the

motivation for the Libyan expropriation and that this in-

evitably involves its validity. It is at this point that my

brothers and I part company.

In Cantor v. Detroit Edison Co., 44 U.S.L.W. 5357, 5361

(July 6, 1976), the Supreme Court made it clear that ‘‘state

26a

Appendia A

authorization, approval, encouragement, or participation

in restrictive private conduct confers no antitrust immun-

ity’’ upon the wrongdoer. The Court’s citation of Contin-

ental Ore Co. v. Union Carbide d Carbon Corp., 370 U.S.

690 (1962) indicates that this rule applies in both foreign

and domestic states.“ At the same time, the state itself is

guilty of no wrongdoing under the Sherman Act because

of the role which it plays. Parker v. Brown, 317 U.S. 341

(1943).

In the instant case, as Judge Mulligan correctly ob-

serves, plaintiffs have the burden of establishing causal

relation between the private violations alleged and the

injuries suffered. Salerno v. American League of Profes-

sional Baseball Clubs, 429 F.2d 1003 (2d Cir. 1970), cert.

denied, 400 U.S. 1001 (1971). However, under the teaching

of Cantor and Parker, supra, plaintiffs’ success in this

effort does not entail a finding that the acts of the Libyan

government were invalid.

In Continental Ore Co. v. Union Carbide d Carbon

Corp., supra, 370 U.S. at 704, the Court rejected as errone-

ous the Court of Appeals’ holding that ‘‘such efforts as

appellants claim defendants took to persuade and influence

the Canadian government’’ were not wiihin the purview

of the Sherman Act. The Court said that appellants’ offer

of proof on this issue ‘‘presented an issue for the jury’s

resolution as to whether the loss of Continental’s Canadian

business was occasioned by respondents’ activities. Id.

at 706.

1. The Court’s reference to Continental as an example of state

“participation” indicates that it reads its decision in Continental

differently than do my brothers, who find no act of the sovereign to

have been involved in that case.

2. In Zenith Radio Corp v. Hazeltine Research, Inc., 395 U.S.

100, 114 n. 9 (1969) the Court said:

It is enough that the illegality is shown to be a material cause of

the injury; a plaintiff need not exhaust all possible alternative

sources of injury in fulfilling his burden of proving compensable

injury ander 04

27a

Appendiæ A

The defendants in Continental, as in the instant case,

relied upon American Banana Co. v. United Fruit Co., 213

U.S. 347 (1909) to shield them from liability. Referring to

American Banana, the Court said at 704:

This Court there held that an antitrust plaintiff could

not collect damages from a defendant who had allegedly

influenced a foreign government to seize plaintiff’s

properties. But in the light of later cases in this Court

respondent’s reliance upon American Banana is mis-

placed.

I find appellees’ reliance upon American Banana here

to be equally misplaced. If the validity of the conduct of a

foreign government is not placed in issue, its participation

in the wrongdoing of individual defendants should not be

permitted to screen the latter from accountability for their

illegal acts.“

Domestic corporations play a variety of roles in the

affairs of foreign nations, some of which may be forbidden

under our laws. Where, as here, the wrong complained of

is the role played rather than the possible political reaction

thereto, I think it wrong to predicate an act of state defense

upon the face of the pleadings. A complaint ‘‘should not

be dismissed for failure to state a claim unless it appears

beyond doubt that 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 (1957).

I would reverse the order dismissing the third claim of

the complaint.

3. In Occidental Petroleum Corp. v. Buttes Gas & Oil Co., 331

Cir.), cert. denied, 409 U.S. 950 (1972), relied upon by the majority,

the int alleged that the ruler of Sharjah, at the instigation of

question

tion of Sharjah’s territorial boundaries, I find this case clearly dis-

tinguishable from the one before us.

28a

Appendix B

Opimion of the United States District Court

Nelson Bunker Hunt, Plaintiff,

Monn, Ou Corporation et al., Defendants

No. 75 Civ. 1160

United States Distriet Court,

S. D. New York,

Nov. 5, 1975.

OPINION

EDWARD WEINFELD, District Judge.

Certain defendants (Mobil Oil Corporation, Texaco,

Inc., Standard Oil Company of California, The British

Petroleum Company, Ltd., Exxon Corporation, Gulf Oil

Corporation, Occidental Petroleum Corporation, Grace Pe-

troleum Corporation), excepting only defendants Shell

Petroleum Company, Ltd. and Gelsenberg AG,' move to dis-

miss the first, second and third claims of the complaint,

encompassing all of plaintiff’s antitrust charges, for lack

of subject matter jurisdiction and for failure to state claims

upon which relief can be granted, pursuant to Rule 12(b)

(1)? and (6) of the Federal Rules of Civil Procedure. The

1. The defendant Gelsenberg AG moved to dismiss the complaint

for lack of in personam jurisdiction and for lack of proper service of

process, which motion was denied.

2. The precise basis for the claim of lack of subject matter juris-

diction is not altogether clearly articulated by the defendants. —

argument of the motion, counsel for defendants stated that both

branches of the instant motion would be treated the same, to wit, as

(footnote continued on next page)

29a

Appendia B

defendants also move to dismiss the fourth claim, which

alleges a breach of contract, or for partial summary judg-

ment thereon; alternatively, they seek an order pursuant

to section 3 of the Federal Arbitration Act“ staying all

proceedings under the fourth claim pending arbitration

thereof.

At the outset a preliminary observation is in order.

The defendants’ motion to dismiss is based solely up-

on the alleged deficiencies of plaintiff's complaint, to

which is attached an agreement of the parties and related

amendments and supplements. The movants, however, in

somewhat discursive fashion, have directed part of their

argument to the merits of plaintiff’s claims. This makes

it necessary to state, what ordinarily is accepted as horn-

book law, that the merits of the claims set forth in the

complaint are not at issue; that the allegations of the com-

plaint are assumed to be true for the purposes of this mo-

tion;* further, that a complaint should not be dismissed

“failure to state a claim.” In any event, the defendants’ challenge for

lack of subject matter jurisdiction is without substance. As the

Court of A indicated —; in Brault v. Town of Milton,

Docket No. 74-2370 (2d Cir., Aug. 22, 1975), “[s]ince plaintiff [has]

drawn [his] complaint so as to seek recovery the . . laws of

the United States, this court has jurisdiction to hear the case, even

if the int ultimately fails to state a claim.” In Baker v. Carr,

369 U.S. 186, 199, 82 S.Ct. 691, 700, 7 L.Ed.2d 663 (1962), the Su-

Court held that such a suit may be dismissed for want of

i the subject matter only if the alleged claim under the

statute is “‘so attenuated and unsubstantial as to be abso-

devoid of merit or ‘frivolous... .” The plaintiff's com-

not fall within this narrow exception to rule

aah Bell v. Hood, 327 U.S. 678, 682, 66 S.Ct. 773, 776, 90

. 1946), that j lurisdiction is not defeated . . . by

the possibility that the averments might fail to state a cause of action

on which petitioners could actually recover.”

3. 9 U.S.C. §3.

4. California Motor Transp. Co. v. Trucking Unlimited, 404 U.S.

508, 515-16, 92 S.Ct. 609, 30 L.&d.2d 642 (1972); Walker Process

Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 174-75,

S.Ct. 347, 15 L.Ed.2d 247 (1965).

30a

Appendix B

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.

THE ANTITRUST CLAIMS

Plaintiff Hunt, who was engaged in oil production in

Libya under a government concession, alleges three claims

of violation of the antitrust laws by the defendants. In

broad outline, he charges that prior to and in the course

of cooperative efforts by plaintiff and defendants to deal

with increasingly aggressive oil producing countries, de-

fendants combined and conspired in violation of section

1 of the Sherman Act* and section 73 of the Wilson Tariff

Act:

Claim 1: to impose unlawful customer and market re-

strictions upon him by insisting he enter into an agreement,

thereafter enforced, which limited the resale of Persian

Gulf oil supplied to him by defendants only to his preexist-

ing Western Hemisphere and European customers.

5. C v. Gibser, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.

Ed.2d 80 (1957), d, Scheuer v. Rhodes, 416 U.S. 232, 236, 94

S.Ct. 1683, 40 L.Ed.2d 90 (1974). See also Prudential Ins. Co. of

America v. Insurance Agents’ Int'l Union (AFL-CIO), 169 F. Supp.

534, 536 (S.D.N.Y.1959).

3la

Appendia B

Claim 2: to group boycott plaintiff by collectively refus-

ing to deliver to him some ninety million barrels of oil

rightfully due him under that agreement.

Claim 3: to use the agreement between the parties, as

amended and extended, and their consequent control over

the course of Libyan negotiations, to promote certain de-

fendants’ Persian Gulf interests at the expense of plaintiff

and, ultimately, to destroy plaintiff by preventing him from

reaching any agreement with the Libyan government, which

course of action led to plaintiff’s nationalization and elimi-

nation from competition as a producer of Libyan oil. Such

concerted misuse of the parties’ agreement was allegedly

the continuance of an already existing conspiracy on the

part of the defendant seven major oil companies* to elim-

inate plaintiff and other Libyan independents as com-

petitors.

Preliminary to a detailed consideration of the defen-

dants’ challenge to these claims, a brief reference is desir-

able to the extended factual background against which the

claims are alleged. The plaintiff’s charges center about oil

production in two areas, Libya and the Persian Gulf.

Libya and the other oil producing countries are members

of the Organization of Petroleum Exporting Countries

(**OPEC’’). The seven majors are vertically integrated.’

Six of the seven produce oil in both areas, but the Persian

Gulf fields are far more significant to them since this area

contains ten times the oil in Libya. Plaintiff was a non-

integrated independent producer who operated in Libya

at exploration and production levels. Other independent

The British Petroleum Company, Ltd. and Gulf Oil Corporation.

9. Their functions include the exploration for and production of

crude oil, the refining of crude oil, the transportation of crude oil and

petroleum products, and the marketing of refined petroleum

32a

Appendix B

producers of oil in Libya were Occidental Petroleum Cor-

poration, Gelsenberg AG, a West German corporation, and

Grace Petroleum Corporation, also named herein as de-

fendants.

Plaintiff alleges that as production of oil in Libya by

him and other independents increased substantially, the

domination by the seven majors of world trade in crude

oil was threatened, and that as the non-majors expanded

their share of Libyan production, attempts were made as

early as 1965 by one or more majors to eliminate cost ad-

vantages enjoyed by the non-majors’ fast increasing Libyan

production over the majors’ Persian Gulf production.

In late 1969 Libya threateningly demanded changes in

existing agreements with oil companies operating in Libya

which increased the government’s share or ‘‘take’’ in these

companies’ profits from such oil production. Libya’s suc-

cess in enforcing such terms in its 1970 agreements with all

Libyan producers prompted the Persian Gulf countries to

make similar demands on the companies operating in their

territories. Following formulation of these Persian Gulf

demands in December 1970, Libya, early in January 1971,

despite recently concluded agreements, demanded new price

and tax increases, particularly from plaintiff Hunt and

from defendan: Occidental, and gave them until January

16, 1971 to accept these ‘‘non-negotiable demands. Fear-

ing a continuation of this pattern of escalating demands by

Libya and then by Persian Gulf countries (‘‘leapfrogging,’’

as the parties term it), executives of the seven majors met

secretly in January 1971 to concert their response to the

latest demands of Libya, OPEC and the Persian Gulf mem-

bers of OPEC.

Originally, the seven majors did not include plaintiff or

any of the other Libyan independents in their conferences

or plans to present a united front in resisting the demands

of the oil producing countries, although their immediate

33a

Appendia B

concern was the prospect of escalation of Persian Gulf

countries’ demands if either Hunt or Occidental agreed to

Libya’s new terms. The seven majors sought a clearance

letter from the Department of Justice, but the Department

insisted upon the inclusion of the independent Libyan oil

producers as a condition of stating it had no present inten-

tion to bring an enforcement proceeding under the antitrust

laws by reason of the contemplated concert of action by the

seven majors. Plaintiff alleges that for this reason he and

the other independents were belatedly invited to participate

in the sessions. Plaintiff further alleges that another pur-

pose of the seven majors in admitting Hunt and the other

Libyan producers to their meetings was to obtain control

over them in order to prevent any of them from accepting

any terms laid down by Libya which might set an unde-

sirable precedent for negotiations with the Persian Gulf

countries, where the seven majors had their principal in-

terest, or from otherwise acting in conflict with the interests

of the seven majors.

Hunt alleges that at these meetings the parties resolved

to present a united front in dealing with Libya and the

other OPEC countries and despite his objections to some of

the key features of the proposed agreement, he acquiesced

based upon assurances by the parties that they would sup-

port him by supplying him with oil if his own supply were

cut off by Libya. In any event, plaintiff and the defendants

reached an agreement on January 15, 1971, referred to as

the Libyan Producers’ Agreement (the ‘‘Agreement’’),

which is at the core of this litigation.

The clear purpose of the Agreement, acknowledged by

all the parties, was to deal collectively with the demands of

Libya and the other oil producing countries. Each party

to the Agreement declared his or its intention not to make

any agreement or offer of agreement with the Libyan

government with respect to the government take“ of

34a

Appendiæ B

crude oil without the consent of the other parties, and to

endeavor before making any agreement with the Libyan

government to include a requirement that the Libyan gov-

ernment deal with the other concessionaires on comparable

terms.“

A principal feature of the Agreement was its sharing“

provision. In general, the Agreement provided that if the

party’s crude oil production in Libya was cut back as a

result of government action, all other parties would share

in such cut back as provided in the Agreement. And if there

was insufficient Libyan oil to meet the contractual obliga-

tions due to restrictions or shut down by the Libyan gov-

ernment, those parties with Persian Gulf production would

supply the Libyan producers who were cut back with

Persian Gulf oil at cost. However, this obligation was

limited to supply such Persian Gulf oil only to meet com-

mitments to preexisting European and Western Hemi-

sphere customers.“ Plaintiff Hunt had three such customers

at that time, all of whom were signatories to the Agreement,

= aan. whom were among the seven majors (Exxon

Plaintiff alleges that despite his objections to certain

aspects of the Agreement, particularly to the preexisting

customer and market restriction clause, he signed the

Agreement for a number of reasons: the pressure of the

January 16 deadline set by Libya for response to its latest

‘*Non-negotiable’’ demands; the fact that industry-wide

and OPEC-wide negotiations were preferable to individual

negotiations with Libya; a misplaced confidence in the

10. However, I of the eemen ides; “ i

shall obligate any 41 N 2 or b in wed „

if to do so would, in its opinion, be contrary to its vital interests.”

11. This isting cust isi i

Libyan oil supplied to 8 pooduenr ute tad toms aun tea” hie

35a

Appendix B

good faith and expressed intention of the other parties, and

the fear that he would be boycotted if he refused to sign.”

THE FIRST ANTITRUST CLAIM

(a) The preexisting customer provision.

Plaintiff Hunt in essence charges that defendants, hori-

zontal competitors of each other and of Hunt, violated the

antitrust laws by the provision of the Agreement that im-

posed upon him a restriction against the resale of Persian

Gulf oil to any other than a preexisting European or West-

ern Hemisphere customer, with the purpose and intended

effect of foreclosing him from competing with defendants

for new customers or in new markets. He further charges

that he was the only party to the Agreement without refin-

ing capacity of his own, which the parties knew; that he had

only three eligible or preexisting customers, all of whom

were parties to the Agreement; that the effect of confiining

him to those customers was not only to foreclose him from

seeking new customers wherever located, but also to enable

the three to deal with him free from competitive forces and

thus to extract from him wholly uncompetitive prices.

Plaintiff contends that as a result of these acts and conduct

of the defendants he sustained a loss of many millions of

dollars.

On its face plaintiff’s charge that the customer and mar-

ket restrictions contained in the Agreement constituted a

per se violation of the Sherman Act and the Wilson Tariff

Act appears to be of substance under the Supreme Court

12. Plaintiff's consent to and participation in the Agreement of

which he now complains does not prevent him from seeking the pro-

tection of the antitrust laws since the Supreme Court has held that

“the doctrine of in pari delicto . is not to be ized as a de-

fense to an antitrust action.” Perma Life Mufflers, Inc. v. Interna-

tional Parts Corp., 392 U.S. 134, 140, 88 S.Ct. 1981, 1985, 20 L.Ed.

2d 982 (1968). See also Trebuhs Realty v. News Syndicate Co., 107

F.Supp. 595, 599-601 (S.D.N.Y.1952).

36a

Appendix B

decisions in United States v. Arnold, Schwinn & Co.“ and

United States v. Topco Associates, Inc.“ In sum, plaintiff’s

position is that no matter how well intentioned and what-

ever the defendants’ motivation in seeking to protect them-

selves against the ever increasing demands of the oil pro-

ducing countries, the provision of the Agreement which re-

stricted plaintiff to preexisting customers and geographical

territories, in effect, a regulation of customers to whom and

where he could sell crude oil, constituted a per se violation

which forecloses application of the rule of reason.“

However, the defendants challenge the very foundation

of this antitrust claim by raising the threshold question of

whether the agreement to provide Persian Gulf oil to the

parties whose supply was cut off by Libya was truly an

agreement for the sale and purchase of oil, or whether it

was in effect an insurance or risk allocation mechanism

which by its very nature did not entail a restraint of trade

subject to the antitrust laws. Among other matters, they

argue that the preexisting customer clause under which oil

was supplied to plaintiff was not an agreement to buy or

sell, but rather a sharing in the loss arrangement,“ of

special benefit to plaintiff, since he was one of the most vul-

nerable of the parties to attack by Libya. Accordingly, de-

fendants contend that the preexisting customer clause at-

tached to the oil supply provision is beyond the proscrip-

tion of the Sherman Act. Whatever the force of this con-

tention, it goes to the merits of the parties’ respective posi-

tions. Thus the issue is not one to be decided on a motion

to dismiss, since its resolution requires an interpretation of

13. 388 U.S. 365, 382, 87 S.Ct. 1856, 18 L.Ed.2d 1249 (1967).

14. 405 U.S. 596, 607-11, 92 S.Ct. 1126, 31 L.Ed.2d 515 (1972).

15. Cf. United States v. Topco Associates, Inc., 405 U.S. 596,

607-11, 92 S.Ct. 1126 (1972).

37a

Appendia B

the contract and the circumstances surrounding its execu-

tion.“

A matter of significance which would have to be con-

sidered is the so-called option to the Persian Gulf suppliers

to pay cash in lieu of supplying oil. Under this provision,

upon its face, the Persian Gulf producers who were ‘‘obli-

gated to supply but [have] not supplied’’ such oil were per-

mitted to pay cash to those Libyan producers whose supply

had been cut off.“ However, as the court noted at the ar-

gument of the motion to dismiss, this option provision ‘‘is

rather clear except for one item at the end,“ which reads:

‘*(EJach of the Persian Gulf Producers Parties states its

present intention is to supply Persian Gulf crude oil in dis-

charge of its obligations under paragraphs 2(e) and 3.”’

When questioned upon argument as to the meaning of that

provision of the contract, counsel for the movants replied

that it has no meaning except an expression of intention

which they [the Persian Gulf suppliers] were free to ignore

at any time.’’ Presumably its inclusion had some pur-

pose;“ otherwise if the Persian Gulf producers had no

16. Pekar v. Local No. 181 of the International Union of United

Brewery, Flour, Cereal, Soft Drink and Distillery Workers of Amer-

ica, AFL-CIO, 311 F.2d 628, 636 (6th Cir. 1962) Machen v. Johans-

son, 174 F.Supp. 522, 527 (S.D.N.Y.1959) ; Farrand Optical Co. v.

United States, 107 F.Supp. 93, 96 (SD.N.Y.1952).

17. Paragraph 4 of the Agreement provides in pertinent part:

“In respect of each barrel of Persian Gulf crude oil a party is

obligated to supply but has not supplied under paraagraph 2(e) or 3:

(a) Such party shall have the option to elect to pay 10 cents

provided if such option is elected it shall pro rata as

to every party to whom such Persian Gulf Party

obligation.”

18. Transcript of hearing, July 15, 1975, p. 79.

19. National Equip. Rental Ltd. v. Reagin, 338 F.2d 759, 762-63

114 Cir. 1964). Sze also Hanley v. James McHugh Const. Co., 444

2d 1006, 1009 (7th Cir. 1971) ; United States v. N. A. Degerstrom,

Inc. 408 F.2d 1130, 1133 (9th Cir. 1969).

38a

Appendix B

present intention. to supply Persian Gulf crude oil in

discharge’’ of their obligations, a substantial question of

fraud may come into play.”

The plaintiff, in the light of this and other provisions

and circumstances surrounding the making of the Agree-

ment, disputes defendants’ position that the parties in-

tended the option to pay cash to be a complete alternative,

unlimited in scope or duration, to supplying oil. Apart

from these contentions, plaintiff points to the fact that the

supply clause also provides that the exercise of the option

must apply pro rata to every party to whom the Persian

Gulf parties owe oil, and if they supplied oil to one obligee,

they were without power to enforce a cash option provision

against another obligee. Moreover, the payment of cash in-

stead of supplying oil could, in the instance of the plaintiff,

whose supply of Libyan oil was completely cut off, effec-

tively eliminate him as a competitor in the crude oil market.

Thus, the defendants’ contention that the plaintiff’s first

claim is beyond the reach of the antitrust laws involves

questions of fact which cannot be resolved on a motion to

dismiss for failure to state a claim.”

The defendants, assuming arguendo that the Agreement

at issue is covered by the Sherman Act, make a further

attack upon plaintiff’s first claim (as well as his other anti-

trust claims) upon a variety of grounds.

1919) ; Adams v. Cg 199 NY. 314, 319-22, 92 N. E670 (1 (1910)

* 910

ee also Schenley Distillers Corp. i. Renken, 34 T O78, 680-82

(Zösc 1855) Terris v. Cu 11 A.D.2d

N.Y.S.2d 445 (3d t 1960) ; Sabo v. Delman, 3 N.Y.2d 138. —

164 N. V. S. 2d 714, N. E. 2d 906 (1957).

21. Wolman v. Tose, 467 F.2d 29, 35 (4th Cir. 1972) ; Wilshire

Oil Co. of Texas v. Riffe, 409 F.2d 1277, 1284 (10th Cir. 1969) ;

Zell Ins. Agency, Inc. v. Guaranty Security Ins. 0., 399 F.2d 147,

ao i 1968) Dobson v. Masonite Corp. 359 F.2d 921

923-24 (Sth Cir. 1966).

6 „

39a

Appendia B

(b) The ‘‘target area’’ argument.

Preliminarily, defendants urge that plaintiff lacks stand-

ing to raise any of his antitrust claims because he cannot, as

required by the court in Billy Baxter, Inc. v. The Coca-Cola

Company,” ‘‘allege a causative link to his injury which is

‘direct’ rather than ‘incidental’ or which indicates that his

business or property was in the ‘target area’ of the defend-

ant’s illegal act.

In view of the fact that plaintiff was in direct competi-

tion with the defendants,” their contention is somewhat dif-

ficult to understand. To equate plaintiff’s position to one

whose alleged injury could be regarded only as remote,

‘*incidental’’ or ‘‘consequential’’ rather than ‘‘direct’™* is

to disregard the reality of the relationship of the parties

and the allegations of the complaint. It is true, as defend-

ants argue, that the ‘‘target’’ or objective of the collective

efforts of the defendants was not the plaintiff, but rather

the oil producing countries, as manifested by defendants’

united front. However, plaintiff certainly was within the

„target area’’ of the oil supply provision of their agree-

ment, which is the crux of his first cause of action. Indeed,

according to his claim as a competitor he was in the direct

line of fire. Specifically, under his version of the facts,

plaintiff charges that the preexisting customer clause was

22. 431 F.2d 183, 187 (2d Cir. 1970), cert. denied, 401 U.S. 923,

91 S.Ct. 877, 20 L.Ed. 2d 826 (1971).

23. Cf. Calderone Enterprises Corp. v. United Artists Theatre

Circuit, Inc., 454 F.2d 1292, 1295 (2d Cir. on cert. denied, 406

U.S. 930, 92 8 Ct. 1776, 32 — 132 (1972). where

40a

Appendia B

imposed not only over his protest, but was intentionally

directed toward him for the very purpose of impairing his

existing relationship with his customers and eliminating

him from competition, causing him direct losses. Since

plaintiff was not merely ‘‘incidentally’’ or remotely“ af-

fected by this provision of the Libyan Producers Agree-

ment, as, for instance one of his customers or creditors

might have been, the defendants’ reliance upon the recently

decided Long Island Lighting Company v. Standard Oil

Company of California and Consolidated Edison Company

of New York v. Standard Oil Company of California“ is

misplaced.

Defendants’ related attack for lack of direct causal con-

nection between their alleged unlawful conduct and plain-

tiff’s claimed injury likewise must fail. Apart from the fact

that the complaint does plead, in instance after instance,

that plaintiff was damaged in that the preexisting customer

restriction foreclosed him from new customer and geo-

graphical markets, he charges that his existing customers,

aided by other defendants and as part of their conspira-

torial purpose, exploited the restrictions to force uncompet-

itive prices upon him, causing him to sustain losses in the

millions. In any event, as this court has held, the causa-

tion issue should not be resolved at this [pleading] stage of

the action..

(e) The alleged inapplicability of the antitrust laws.

Here the defendants contend that the antitrust laws were

never intended to apply to American companies in their

dealings with a foreign government acting in its sovereign

capacity. They rely upon che doctrine originally articulated

in Eastern Railroad Presidents Conference v. Noerr Motor

25. 521 F.2d 1269 (2d Cir. 1975).

26. Data Di v. Standard & Poor's Corp., 43 F.R.D. 386,

388 (S.D.N.Y.1967).

4la

Appendix B

Freight, Inc." and further elucidated in United Mine Work-

ers of America v. Pennington,” that:

„the Sherman Act does not prohibit two or more per-

sons from associating together in an attempt to per-

suade the legislature or the executive to take particular

action with respect to a law that would produce a re-

straint or a monopoly.“

The so-called Noerr-Pennington doctrine is founded upon

the individual’s constitutional right of petition under the

First Amendment and upon the corresponding concern that

the representatives in the legislature retain access to the

opinions of their constituents, unhampered by collateral

regulation.” These interests are not present in plaintiff’s

first claim, since his primary concern is not with any action

on the part of defendants to procure passage or enforce-

ment of any law, but rather with the clause of the Agree-

ment which contains the customer and market restriction

which is a strictly ‘‘ private commercial activity“ expressly

excluded from the immunity of Noerr-Pennington by the

Court in Continental Ore Company v. Union Carbide d Car-

bon Corporation.“

(d) The act of state doctrine.

Defendants also urge that plaintiff’s first claim, as well

as his two other antitrust claims, are foreclosed by the act

of state doctrine. This doctrine was originated in Under-

27. 365 U.S. 127, 136, 81 S.Ct. 523, 5 L.Ed.2d 464 (1961).

28. 381 U.S. 657, 669-70, 85 S.Ct. 1585, 14 L.Ed.2d 626 (1965).

29. Eastern R. R. Presidents Conference v. Noerr Motor Freight,

Inc, 365 U.S. 127, 136, 81 S.Ct. 523, 529 (1961).

3O. Id. 137-38, 81 S.Ct. 523. .

31. 370 U.S. 690, 707, 82 S.Ct. 1404, 8 L.Ed.2d 777 (1962).

42a

Appendia B

hil] v. Hernandez,” and precludes judicial inquiry into the

public acts of a foreign government within that sovereign’s

own territory. It is based on ‘‘[c]onsiderations of comity,

and of the highest expediency,’’ and particularly on the

notion that ‘‘[i]t would be not only offensive and unneces-

sary, but it would imperil the amicable relations between

governments, and vex the peace of nations, to permit the

sovereign acts or political transactions of states to be sub-

jected to the examination of the legal tribunals of other

states. The doctrine has been held by the Supreme

Court to bar a claim for antitrust injury flowing from a

sovereign’s acts which were induced by or procured by the

defendant in the action.* However, the concept has no

bearing on plaintiff’s first claim because resolution of the

issues raised thereunder does not in any way require an

inquiry into the judgment, the conduct or acts of the Libyan

government, or any alleged conduct by the defendants which

allegedly induced action by the Libyan government.“ Rath-

er, inquiry would be confined to the preexisting customer

restriction contained in the parties’ Agreement.“

Once ayain, defendants, by concentrating on the broad

purposes of the Libyan Producers’ Agreement to present

32. 65 F. 577, 579 (2d Cir. 1895), aff'd, 168 U.S. 250, 18 S.Ct.

83, 42 L.Ed. 456 (1897).

33. Id. 579.

34. American Banana Co. v. United Fruit Co., 213 U.S. 347,

357-58, 29 S.Ct. 511, 53 L.Ed. 826 (1909).

35. Cf. Occidental Pet. Corp. v. Buttes Gas & Oil Co., 331 F.

. 92, 110 (C.D.Cal.1971), aff'd per curiam, 461 F.2d 1261 (9th

4 * denied, 409 U.S. 950, 93 S.Ct. 272, 34 L. Ed. 2d 221

36. Insofar as plaintiff's first claim raises the issue of the manip-

ulation of Libyan tax laws by the seven majors, or any one of them,

this reference is clearly for purpose 12.—

is not relied on by plaintiff to prove his claim of restriction

43a

Appendix B

a united front in meeting the ever increasing demands of

Libya and the other oil producing countries, disregard that

plaintiff’s first claim is premised entirely under the partie-

ular provision of the Agreement which limits his resale of

oil received from Persian Gulf producer defendants to par-

ticular markets and customers. That provision does not

involve any question of Libyan conduct. At issue is the

restriction coutained therein and not the governmental acts

of a foreign sovereign. Thus, the act of state doctrine is

unavailable on defendants’ motion to dismiss the first claim.

(e) The ancillary restraint’’ doctrine.

In substance the defendants repeat and emphasize their

contention that the Agreement, unlike the ordinary agree-

ment for the purchase and sale of crude oil, was in effect a

mutual assistance pact which served as protection for a

Libyan producer whose production was cut back ; that a pre-

existing customer was a condition precedent for such a Lib-

yan producer to obtain Persian Gulf oil, which measured

the obligation of the Persian Gulf producers to supply oil

and limited their liability thereunder. Accordingly, defend-

ants urge that the preexisting customer clause is ancillary

to the Libyan Producers’ Agreement and is reasonably nec-

essary to the goals of that Agreement. This argument per-

force acknowledges that restraints are imposed, but even

so, the defendants contend they are reasonable and immune

from antitrust attack because they fall within the protection

of the ancillary restraint’’ doctrine. This concept, first

articulated in United States v. Addyston Pipe & Steel Co.,“

recognizes such a defense where the restraint is ‘‘merely

ancillary to the main purpose of a lawful contract, and nec-

essary to protect the covenantee in the enjoyment of the le-

37. 88 F. 271, 282 (6th Cir. 1898), aff'd, 175 U.S. 211, 2 S.Ct.

96, 44 L.Ed. 136 (1899).

44a

Appendix B

gitimate fruits of the contract, or to protect him from the

dangers of an unjust use of those fruits by the other party.

The plaintiff responds that defendants’ ancillary re-

straint contention is flawed in several respects. First, he

argues that the preexisting customer clause, with its cus-

tomer and territorial restraints, is unlawful per se, which

renders the doctrine inapplicable in the light of United

States v. Arnold, Schwinn d Co. Plaintiff, further argues

that the doctrine is unavailable to defendants since it pre-

supposes the existence of a lawful contract. Plaintiff claims

the Libyan Producers’ Agreement was forced upon him by

the seven majors in furtherance and continuance of a pre-

conceived anti-competitive purpose and thus is unlawful.

Next, he argues that even assuming a lawful contract,

the restraint was neither reasonable nor necessary since it

went far beyond what was required for the protection of

the Persian Gulf producers insofar as they were obligated

to supply oil. The defendants contend that it was reason-

ably necessary in order to limit the Persian Gulf producers’

risk as obligors under the oil supply provision. These dif-

a contentions present an issue of fact which must await

THE SECOND ANTITRUST CLAIM

Under his second claim, plaintiff alleges that since at

least 1970 the defendants and others engaged in a combina-

tion or conspiracy in violation of the antitrust laws; that

as part of their unlawful conduct, and acting in concert,

they conspired to and did withhold ninety million barrels

of crude oil to him under the Libyan Producers’ Agreement;

that they agreed to boycott him to deprive him of crude oil

38. 388 U.S. 365, 380-82, 87 S.Ct. 1856, 18 L.Ed2d 1249

1966). See United States v. Glaxo Group Lid. 302 F. 1, 10-

(

II (D.D.C.1969), rew'd on other .

3 N grounds, 410 U.S. 52, 93 S.Ct. 861,

. 15 USC. i. &

doa

Appendiz B

needed to fulfill his contracts with his customers. He fur-

ther alleges that as a result of such group action he not only

lost profits he would have made on the resale of the withheld

oil, but also lost his existing contracts, opportunities for

their renewal and access to new customers and markets;

and finally that he was eliminated as a source of crude oil

in the world crude oil market.

The defendants seek dismissal of this antitrust claim up-

on the same grounds, among others, which were advanced

against the first claim. Substantially the same analysis

which required rejection of those objections directs a simi-

lar result as to this claim. Thus, defendants advance the

„target area, act of state doctrine,’’ and inapplicability

of the antitrust laws, as well as other objections. Again

defendants consider the Libyan Producers’ Agreement only

in its overall function to present a united front against

OPEC countries, but ignore the specific provision of that

Agreement upon which plaintiff centers his charge of anti-

trust activity by defendants. Here plaintiff is contesting

the defendants’ use or abuse of the oil supply provision as

an instrument to further a conspiracy to eliminate him as

a competitor, which he alleges was in existence before the

Agreement was executed.

Plaintiff, as in the first claim, is directly in the ‘‘target

area of this clause so that he has standing to charge that

defendants’ ‘‘refusal to deal and the group boycott,’’

which also constituted a breach of the terms of their Agree-

ment, were with the intent and effect of harming him. Plain-

tiff’s ‘‘act of state’’ contention and the inapplicability of

the antitrust laws, based upon the Noerr-Pennington® doc-

trine is as misdirected to this claim as it was to the first

claim. Consideration of the supply provision of the Agree-

40. Eastern N. R. Presidents C v. Noerr Motor Freight,

Inc MS US 127, 197,81 SCL S285 LEA Dd 466 1901) , Deed

Mine Workers of America v. Pennington, 381 U.S. 657, 669-70, 85

S.Ct. 1585, 14 L.Ed.2d 626 (1965).

46a

Appendiz B

ment and its claimed breach in furtherance of the defend-

ants’ alleged purpose to eliminate him as a competitor does

not require inquiry into the acts of Libya or any other for-

eign state.

Defendants further contend, as they did under the first

claim, that the oil supply provision is not a contract for the

sale of oil, but merely an insurance or mutual help mecha-

nism which does not impose an unreasonable restraint and

thus is not subject to antitrust attack. But again, the valid-

ity of this contention centers about questions of fact as to

this aspect of the Agreement, resolution of which is fore-

closed on a motion to dismiss for failure to state a claim.

Defendants raise an additional objection to the second

antitrust claim. They assert that this claim is one for

breach of contract for failure to deliver a balance of ninety

million barrels of crude oil under the Libyan Producers’

Agreement, which does not give rise to an antitrust claim.

But again defendants ignore the allegations of the com-

plaint, which go much beyond a charge that each defendant

reneged on its commitment to the plaintiff. The defend-

ants’ contention that plaintiff ‘‘was denied access to oil by

action of the Libyan government, not the defendants,’ is

simplistic. It is true that the nationalization of Hunt’s con-

cession by Libya deprived him of an oil supply, but in that

event the defendants agreed to supply him with Libyan oil,

and if that were unavailable, with Persian Gulf oil to meet

commitments to his existing customers. Hunt's specific

claim is that the Persian Gulf defendants, acting in concert

with others, failed to live up to that obligation; that the

withholding of the ninety million barrels due him was en-

compassed within the alleged conspiracy to boycott him and

eliminate him as a competitor.

Whether plaintiff can support his charges and show that

a group boycott existed, and that its nature and extent was

41. Reply memorandum p. 7.

47a

Appendiz B

such as to constitute a violation of the Sherman Act, pre-

sents an issue of fact, the resolution of which must await

another day.

For all the above reasons, the defendants’ motion to dis-

miss the first and second claims must be denied.

THE THIRD ANTITRUST CLAIM

In this instance, too, plaintiff alleges that at least since

1970 the seven majors, along with others, named and un-

named, conspired or combined in violation of the Sherman

Act and Wilson Tariff Act to preserve the competitive ad-

vantage of Persian Gulf crude oil relative to that of Libyan

crude oil and to diminish competition from Libyan oil

producers ; that to effect this purpose they conspired to pre-

vent plaintiff Hunt and other Libyan producers from reach-

ing an agreement with the Libyan government inconsistent

with this competitive advantage; that in furtherance there-

of, after obtaining Hunt’s consent to the Libyan Producers’

Agreement, which contemplated united front negotiations

with Libya and other OPEC countries, the seven majors

abandoned the agreed upon collective policy and manipu-

lated the course of the Libyan negotiations so as to advance

their own interests to the detriment of Hunt; and generally

that the defendants deliberately pursued a course of action

which led to the nationalization of Hunt’s concession in

Libya and his elimination as a Libyan crude oil producer.

In the light of plaintiff’s aforesaid charges, the defend-

ants’ ‘‘act of state’’ plea rests on a solid foundation. The

manipulative course of conduct attributed to the seven ma-

jors following the signing of the Libyan Producers’ Agree-

ment centers about negotiations and dealings with, and ac-

tion thereafter taken by, the Libyan government. Hunt

charges that in consequence he was forced to enter into ar-

rangements with the Libyan government that were detri-

48a

Appendia B

mental to him and beneficial to the seven majors; his per-

sonnel were evicted by Libya from the Sarir Field upon his

refusal, induced by the seven majors, to market British

Petroleum’s production from its half of the Sarir Field“

which Libya had nationalized; his oil production was cut

back fifty per cent by Libya; his right to produce and export

oil was terminated, following his resistance, again based

upon defendants’ inducement, to Libya’s demand for in-

creased equity participation in his interests in Sarir; finally,

all his assets were nationalized by Libya. The aforesaid

claimed consequences of defendants’ manipulative course of

action all involve acts of the Libyan government which ap-

pear to be within the proseription of the act of state doc-

trine.

But Hunt seeks to avoid the impact of this doctrine upon

several grounds. First, he argues the third claim ‘‘chal-

lenges no act by the Libyan government, and does not ask

this Court to sit in judgment on the acts of a sovereign

state. As pleaded, the wrong done to Hunt was caused

prior to any act by the Libyan government, for it was

caused when the defendants entered into a conspiracy to

advance their own Persian Gulf interests at his expense

and to eliminate him from the industry.’’ Although it may

be, as plaintiff asserts, that the alleged conspiracy origin-

ated late in 1970, the acts and conduct of the defendants in

furtherance thereof were committed after the signing of

the Agreement in January 1971. True, inquiry may be

properly directed to the acts and conduct of the seven ma-

jors and their codefendants, allegedly constituting their

manipulative course of action. But the matter does not

end there. To establish his claim plaintiff would have to

show that such acts and conduct were a materia! cause of

42. Hunt had the concession on the other half.

—

(

49a

Appendia B

his alleged damage ;* that but for defendants’ conspirato-

rial manipulative activities the Libyan government would

not have cut back his production, shut off his oil supply

completely and then nationalized his properties. This

clearly would require inquiry into acts and conduct of Lib-

yan officials, Libyan affairs and Libyan policies with re-

spect to plaintiff’s as well as other oil producers’ proper-

ties and the underlying reasons for the Libyan govern-

ment’s actions.

In Occidental Petroleum Corporation v. Buttes Gas d

Oil Co.,“ the facts of which substantially parallel those of

the instant case, plaintiff charged that the defendant had

induced and procured’’ various foreign governmental au-

thorities to do certain executive acts which deprived plain-

tiff of its concession for oil production. The court found

that the act of state doctrine, as set forth in American

Banana Company v. United Fruit Company,” was the

relevant and dispositive principle.“ The court specifi-

43. Winckler & Smith Citrus Prods. Co. v. Sunkist Growers,

Inc., 346 F.2d 1012, 1014 n. 1 (9th Cir.), cert. denied, 382 U.S. 958,

86 S.Ct. 433, 15 L.Ed.2d 362 (1965). See also Credit Bureau Re-

ports, Inc. v. Retail Credit Co., 476 F.2d 989, 992 (Sth Cir. 1973) ;

Sam F. Goldstein Indus., Inc. v. Botany Indus., Inc, 301 F.Supp.

728, 733-34 (S.D.N.Y. 1969) : National y ee Brokers Corp. v. Gen v. —

eral Motors Corp,, 60 F. R. O. 476, 489-90 ay ey

the Supreme Court, in Radiant Burners, Inc. v. Peoples

& Coke Co., 364 U.S. 656, 660, 81 S.Ct. 365, 5 LEd 2d 358 (1 .

indicated that, in ivate treble ‘action under §1 of the

Sherman Act, plai must adequately al that he was “damaged”

by the who diye a — Act.

44. 331 F.Supp. 92, 107 (C. D. Cal. 1971), aff'd per curiam, 461

F.2d 1261 (9th Cir.), cert. denied, 409 U.S. , 93 S.Ct. 272, 34

L.Ed.2d 221 (1972).

45. 160 F. 184 (C.C.S.D.N.Y.), a fd, 166 F. 261 (2d Cir.

1908), aff'd, 213 U.S. 347, 29 S.Ct. 511, 53 L.Ed 826 (1909).

46. Occidental Petroleum Corp. v. Buttes Gas & Oil Co., 331

F.Supp. 92, 108 (C.D.Cal.1971), aff'd per curiam, 461 F.2d 1261

(9th Gi), cert. denied, 40 US'S 9 S.Ct. 272, 34 L.Ed.2d 221

(1972)

on the ground that the conspiracy in Sisal was ‘‘made effec-

tive by acts done’’ within the United States and thus was

not fla] conspiracy in this country to do acts in another

jurisdiction,’ ’™ as was the case in American Banana and

is the case presently before this court. In Continental

Ore, the Court rested its decision on similar grounds, but

47. Id. 110.

48. Id.

49. 274 U.S. 268, 47 S.Ct. $92, 71 L.Ed. 1042 (1927).

50. 370 U.S. 690, 82 S.Ct. 1404, 8 L Kd 777 (1962).

SI. United States v. Sisal Sales Corp, 274 U.S. 47

S.Ct. 592, 593, 71 LEA 104 (1927). *

dla

Appendia B

also emphasized that no ‘‘official within the structure of the

Canadian Government!“ was involved.

It may well be that recent public disclosure of the deal-

ings of multi-national corporations with foreign govern-

ments which have an adverse impact upon American

interests justifies a reappraisal of the act of state doctrine

to determine whether its cope should be confined. How-

ever, in the absence of new doct trends in Supreme

Court opinions, reassessment of the of the doctrine

must rest with that Court and not court.” Accord-

ingly, the defendants motion to dismiss the third claim is

granted.

THE BREACH OF CONTRACT CLAIM

Plaintiff alleges that defendants breached the Libyan

Producers’ Agreement by failing to supply him with ninety

million barrels of Libyan and/or Persian Gulf crude oil due

$2. 370 U.S. 690, 706, 82 S.Ct. 1404, 1414, 8 L.Ed.2d 777 (1962).

53. Cl. United States v. Ullmann, 221 F.2d 761-62 (2d Cir.

1955), aff'd, 380 U.S. 422, 76 S.Ct. 497, 100 L.Ed. S11 (1956). See

also Booster No. 405, Int'l Ass'n of Machinists and Aero-

Workers, AFL-CIO v. National Labor Relations Nd. 148 US.

DC. 119, % F.2d 1143, 1150 nm. 7 (1972); United States

G Ce. v. United Steelworkers of America, F.2d 38, 44 Sth

. . S.Ct. 783, 19 L.Ed.2d

1972).

breach thereof shall be settled by arbitration ....

_ American Safety Equip. Corp. v. J. F. Maguire & Co., 391

72 ani 827-28 of ck. N udn 488 F 24

4i, 47 (Sth Cir. 1974); H v. International Indus., Inc., 438

F.2d 1068, 1070 (8th Cir.), cert. denied, 404 U.S. 872, 92 S.Ct. 63,

30 . Ed 115 (1971); A. & E Plastik Pak Co. v. Monsanto Co.

396 F.2d 710, 715-16 (Sth Cir. 1968).

56. American — Corp. v. J. F. Maguire & Co, 391

F.2d 821, 828 (2d Cir. 1968).

57. Cobb v. Lewis, 488 F.2d 41, 50 (Sth Cir. 1974).

53a

Appenduc B

into antitrust issues.’’ But the meaning of particular words

or clauses in the contract is included among other issues

the court would have to consider under the first and second

antitrust claims,

The alleged breach of contract is ap essential

of plaintiff's second antitrust claim. The hard thrust of

plaintiff's charge is that the withholding of ninety million

issues. However, the court will have to decide whether a

breach of the oil supply provision occurred, and if so,

whether it was committed by defendants individually or

acting in concert and with the purpose and intent of elim-

competitor, is a central issue under the antitrust charge.

It is unrealistic to assert, as defendants do, that the

interrelated, one with the other, that it would be easy

in the light of the parties’ contentions, for the arbitrators

to avoid wandering into the thicket of complex antitrust

issues. 7

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Appendix C

Judgment of the United States Court of Appeals

UNITED STATES COURT OF APPEALS

Seconp Crecurr

United States Courthouse

Foley Square

New York 10007

A. Deren Fus

Clerk

Please refer to thie Court

Docket Number in all matters

Jan. 12, 1977

Docket No. 76-7052

Gi —

Ne.sow Bunker Hor, re.,

vs.

Montt. On, Conp., re.,

——— E . —

Dear Sirs:

The Court has today handed down a decision in the

above entitled cause affirmed the decision of the district

court.

A copy of the opinion will be mailed to you tomorrow.

Additional copies of opinions may be obtained from

this office in accordance with §0.17(7) of the rules of this

Court supplementing the Federal Rules of Apvellate Proce-

dure.

57a

Appendix C

Judgment has been entered today and a mandate will

issue in accordance with Rule 41 of the Federal Rules of

Procedure.

Your attention is directed to the provision of Rule 39(c)

F. R. A. P. requiring the itemized and verified bill of costs,

if any, to be filed within 14 days after entry of judgment,

with proof of service.

Very truly yours,

A. Daniel Fusaro

Clerk

Address all inquiries to

Ms. Brullo

(212) 7910100

sirability of a reassessment of the ‘‘act of state’’ doctrine,

but in the absence of doctrinal trends the matter was for

consideration by higher authority and not by the district

court.

Since the filing of the court’s opinion on November 5,

197

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