The opinion of the court was delivered by: WEINFELD
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 Petroleum Corporation), excepting only defendants Shell Petroleum Company, Ltd. and Gelsenberg AG,
move to dismiss 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 defendants also move to dismiss the fourth claim, which alleges a breach of contract, or for partial summary judgment 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 upon 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 claim. This makes it necessary to state, what ordinarily is accepted as hornbook law, that the merits of the claims set forth in the complaint are not at issue; that the allegations of the complaint are assumed to be true for the purposes of this motion;
further, that a complaint should not be dismissed 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."
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, defendants 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 restrictions 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 preexisting Western Hemisphere and European customers.
Claim 2 : to group boycott plaintiff by collectively refusing 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 defendants' 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 elimination 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 eliminate plaintiff and other Libyan independents as competitors.
Preliminary to a detailed consideration of the defendants' challenge to these claims, a brief reference is desirable 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 producers of oil in Libya were Occidental Petroleum Corporation, Gelsenberg AG, a West German corporation, and Grace Petroleum Corporation, also named herein as defendants.
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 advantages 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 success 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 defendant Occidental, and gave them until January 16, 1971 to accept these "non-negotiable demands." Fearing 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 members 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 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 intention 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 purpose 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 undesirable precedent for negotiations with the Persian Gulf countries, where the seven majors had their principal interest, 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 support 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 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 government 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 obligations due to restrictions or shut down by the Libyan government, 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 commitments to preexisting European and Western Hemisphere customers.
Plaintiff Hunt had three such customers at that time, all of whom were signatories to the Agreement, and two of whom were among the seven majors (Exxon and Shell).
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 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, horizontal competitors of each other and of Hunt, violated the antitrust laws by the provision of the Agreement that imposed upon him a restriction against the resale of Persian Gulf oil to any other than a preexisting European or Western 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 refining 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 confining 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 market 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 decisions in United States v. Arnold, Schwinn & Co.13 and United States v. Topco Associates, Inc.14 In sum, plaintiff's position is that no matter how well intentioned and whatever the defendants' motivation in seeking to protect themselves against the ever increasing demands of the oil producing countries, the provision of the Agreement which restricted plaintiff to preexisting customers and geographical territories, in effect, a regulation of customers to whom and ...