MULLIGAN, 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
Nelson Bunker Hunt filed a complaint on March 3, 1975 in the United States District Court for the Southern District 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 plaintiffs W. Herbert Hunt and Lamar Hunt. Hereinafter the plaintiffs are referred to as "Hunt." The complaint on the basis of the antitrust claims alone seeks damages of not less that $125 million before trebling. Prior to filing its answers containing denials, affirmative defenses and counterclaims, 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 jurisdiction 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 not relevant to this appeal. In an opinion, reported at 410 F.Supp. 10, filed on November 5, 1975, United States District 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 in covered in the trial court's opinion 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 prosecuted 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, inter alia, that if the motion were denied, and thereafter 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 creating 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 and the Persian Gulf fields.
In an effort to present a united front and fearful that the Libyan policy would escalate the demands of the producing 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 implications 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 Libyan 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 European 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 customers, 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 amendments and supplements were reported to the antitrust division of the Department of Justice. Hunt was a party to the initial agreement and the subsequent modifications.
On December 7, 1971 the Libyan government nationalized B.P.'s half of the Sarir Field and demanded that Hunt market B.P.'s share of the Sarir production for Libya's 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 received crude oil from the other parties to the Agreement. In October 1972, the Libyan government demanded an immediate 50% equity participation in Hunt's interests in Sarir. Hunt
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.
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 conduct of Libyan officials, Libyan affairs and Libyan policies with respect to plaintiff's as well as other oil producers' properties and the underlying reasons for the Libyan government's actions." 410 F.Supp. at 24. He concluded 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, 425 U.S. 682, 96 S.Ct. 1854, 48 L.Ed.2d 301 (1976), which was decided after the decision below was rendered, have been blighted. Dunhill reaffirmed
Any possible doubt about this issue is in any event removed since upon the seizure of Hunt's property on June 11, 1973 President al-Qadhafi announced "[W]e 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."
In finding the doctrine applicable to the pleadings in issue Judge Weinfeld placed principal reliance upon American Banana v. United Fruit Co., 213 U.S. 347, 29 S.Ct. 511, 53 L.Ed. 826 (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 instigation in furtherance of his anti-competitive behavior. The Supreme Court, in an opinion authored by Mr. Justice Holmes, held, in reliance on
There can be no question that as to this latter facet of the opinion, the extra-territorial sweep of the Sherman Act, American Banana is no longer a viable precedent. This 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 Sherman Act just because part of the conduct complained of occurs in foreign countries." Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 704, 82 S.Ct. 1404, 1413, 8 L.Ed.2d 777 (1962); United States v. Sisal Sales Corp., 274 U.S. 268, 276, 47 S.Ct. 592, 71 L.Ed. 1042 (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, 92 S.Ct. 1808, 32 L.Ed.2d 466 (1972) (Powell, J., concurring). Were the Sherman Act not applicable here we would never reach the act of state doctrine 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 much later in both Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 416, 84 S.Ct. 923, 11 L.Ed.2d 804 (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 appellants 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 corporation 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 competitors. One of the American companies then became the exclusive selling agent of the Mexican corporation in all the world markets thus permitting the defendants to acquire complete dominion 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 discriminatory legislation." 274 U.S. at 276, 47 S.Ct. 592. While Mr. Justice McReynolds characterized the plaintiff's pleading in Sisal as "confused, difficult to follow and
Continental Ore Co. v. Union Carbide & 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 subsidiaries (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:
Id., 370 U.S. at 706-07, 82 S.Ct. at 1414. 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 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 similar argument was raised 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, 221 S.Ct. 272, 34 L.Ed.2d 221 (1972) relied upon by Judge Weinfeld
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.
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.
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 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, 84 S.Ct. at 938, observed:
The Dunhill majority has reiterated this view:
Alfred Dunhill of London v. Republic of Cuba, supra, 96 S.Ct. at 1863.
The act of state rubric then is perceived by the Supreme 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 validity 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.
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 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 sovereign. 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
In Banco Nacional de Cuba v. Sabbatino, supra, 376 U.S. at 428, 84 S.Ct. 923, 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 consideration 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 disagree with 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 representatives of Libya were seduced or enticed in any manner by the payment of bribes or boodle to take the action complained 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 consideration 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.
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, 84 S.Ct. 923, 11 L.Ed.2d 804 (1964) and First National City Bank v. Banco Nacional de Cuba, 406 U.S. 759, 763, 92 S.Ct. 1808, 32 L.Ed.2d 466 (1972), is found in Underhill v. Hernandez, 168 U.S. 250, 252, 18 S.Ct. 83, 84, 42 L.Ed. 456 (1897), where the court said:
Despite the broad language of this accepted definition, the doctrine does not purport to set up a jurisdictional bar to judicial review. Ricaud v. American Metal Co., 246 U.S. 304, 309, 38 S.Ct. 312, 62 L.Ed. 733 (1918). Neither does it prohibit judicial scrutiny of the conduct of foreign officials. Indeed, the very assertion of an act of state defense requires the court to examine into the nature of the conduct complained of and its relationship to the foreign sovereign. See Alfred Dunhill of London, Inc. v. Republic of Cuba, 425 U.S. 682, 96 S.Ct. 1854, 48 L.Ed.2d 301 (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
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 agreement 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 dealings 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 expropriation of their property, my brothers reject this concession 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 inevitably involves its validity. It is at this point that my brothers and I part company.
In Cantor v. Detroit Edison Co., 428 U.S. 579, 592, 96 S.Ct. 3110, 49 L.Ed.2d 1141 (1976), the Supreme Court made it clear that "state authorization, approval, encouragement, or participation in restrictive private conduct confers no antitrust immunity" upon the wrongdoer. The Court's citation of Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 82 S.Ct. 1404, 8 L.Ed.2d 777 (1962) indicates that this rule applies in both foreign and domestic states.
In the instant case, as Judge Mulligan correctly observes, plaintiffs have the burden of establishing causal relation between the private violations alleged and the injuries suffered. Salerno v. American League of Professional Baseball Clubs, 429 F.2d 1003 (2d Cir. 1970), cert. denied, 400 U.S. 1001, 91 S.Ct. 462, 27 L.Ed.2d 452 (1971).
In Continental Ore Co. v. Union Carbide & Carbon Corp., supra, 370 U.S. at 704, 82 S.Ct. at 1412, the Court rejected as erroneous the Court of Appeals' holding that "such efforts as appellants claim defendants took to persuade and influence the Canadian Government" were not within the purview of the Sherman Act. The Court
The defendants in Continental, as in the instant case, relied upon American Banana Co. v. United Fruit Co., 213 U.S. 347, 29 S.Ct. 511, 53 L.Ed. 826 (1909) to shield them from liability. Referring to American Banana, the Court said, 370 U.S. at 704, 82 S.Ct. at 1413:
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, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957).
I would reverse the order dismissing the third claim of the complaint.
61. Plaintiff Hunt realleges each and every allegation contained in paragraphs 1 through 45.
62. Since at least 1970, the seven majors along with co-conspirators named and not named, have engaged in a combination and/or conspiracy in unreasonable restraint of the foreign trade and commerce 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.
63. As part of the unlawful conduct complained of, the seven majors have combined and conspired among themselves to preserve the competitive advantage of Persian Gulf crude oil relative to that of Libyan crude oil, and to diminish competition from Libyan crude oil producers. To these ends they have combined and conspired to prevent plaintiff Hunt and other Libyan producers from reaching any agreement with the Libyan government inconsistent with that competitive advantage, even where they knew that the necessary and foreseeable consequence of their conduct would be Hunt's elimination as a Libyan crude oil producer.
64. In furtherance of this unlawful combination and conspiracy, the seven majors entered into written agreements with Hunt and other Libyan producers, manipulated the course of Libyan negotiations so as to advance their own interests in the Persian Gulf, and 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, Hunt has been and will continue to be injured in his business and property. He has sustained damages, the full extent of which cannot presently be calculated, but which include lost profits on his half interest in the 11 billion barrels of crude oil contained in the Sarir Field.
The dissent also urges that Libya's authorization, approval, encouragement or participation in restrictive private conduct confers no antitrust immunity on the wrongdoer. But this is not a case of Libyan participation in antitrust wrongdoing. The complaint is rather that Libya like Hunt was a "victim" of the conspiracy.