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Home | BakerHostetler

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On September 16, the Ninth Circuit Court of Appeals upheld a United States District Court’s dismissal of a proposed class action by gasoline consumers against several energy companies in D’Augusta v. American Petroleum Institute. The lawsuit accused the energy companies of conspiring with the U.S. government and then-President Trump to negotiate with Russia and Saudi Arabia to reduce oil production and manipulate gas prices, thereby violating the Sherman and Clayton Antitrust Acts. The plaintiffs’ specific factual contentions were that in 2020, Russia opted not to renew its agreement with the Organization of Petroleum Exporting Countries (OPEC) concerning limits on oil and gas production, leading to a price war between Russia and Saudi Arabia that allegedly caused a significant decline in global oil prices. The energy companies then purportedly reached an agreement among themselves to withdraw surplus oil from the market and cut production. When oil and gas prices continued to fall, the plaintiffs claimed the companies sought President Trump’s help to negotiate a resolution between Russia and Saudi Arabia. The supposed result of President Trump’s negotiation was an agreement that would end the price war and permit the energy companies to increase their oil and gas prices, creating an increase in oil prices from $20 to $100 per barrel. Ultimately, the Circuit Court affirmed the district court’s dismissal, stating that both the political question and act of state doctrines prevented judicial review and that the plaintiffs failed to provide sufficient evidence of an antitrust conspiracy.

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The political question doctrine restricts courts from addressing issues that are inherently political or expressly reserved for the executive branch. Accordingly, the D’Augusta court pointed out that foreign relations are managed “almost exclusively” by the political branches of government, and was unmoved by the plaintiffs’ framing of the case as one within the purview of the antitrust laws: “By recasting the conduct of foreign relations and national security interests into antitrust terms, we are still being asked to evaluate foreign relations decisions of sovereign nations, including our own.” Thus, “regardless of any meddling by defendants,” President Trump’s decision to engage in negotiations with foreign nations fell under the category of foreign relations decisions protected from judicial scrutiny.

Similarly, the act of state doctrine – distinct from the state action doctrine, which grants immunity to certain state and local authorities under the antitrust laws – prevents courts from adjudicating politically sensitive disputes that require evaluating the legality of actions taken by a foreign state. While the Ninth Circuit acknowledged a lack of extensive precedent on the act of state doctrine, it referenced its 1981 ruling in IAM v. Org. of Petroleum Exporting Countries to apply the act of state doctrine. In that case, a labor union brought an antitrust suit against OPEC for increasing the prices of petroleum products. The Ninth Circuit applied the act of state doctrine to dismiss those claims, emphasizing that oil is a critical component of international relations, and that granting relief would “in effect amount to an order from a domestic court instructing a foreign sovereign to alter its chosen means of allocating and profiting from its own valuable natural resources.” Applying this precedent, the D’Augusta court ruled that the plaintiffs’ claims could not stand under the act of state doctrine because they sought to “litigate the petroleum policy of foreign nations.”

The Ninth Circuit’s ruling in D’Augusta suggests that plaintiffs are unlikely to fit foreign relations decisions made by political branches or the actions of foreign sovereigns within the realm of antitrust law. However, the appellate court noted that not “every case or controversy which touches foreign relations lies beyond judicial cognizance.” That determination is made on a case-by-case basis, and companies whose activities intersect with the political branches should proceed with caution.

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Co-authored by Andrew Martin, Associate, Philadelphia, <a href="mailto:ajmartin@bakerlaw.com" target="_blank" rel="noreferrer noopener">ajmartin@bakerlaw.com</a>.

Ninth Circuit Says Political Question, Act of State Doctrines Bar Gasoline Consumers’ Price-Fixing Claims

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