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Hunt v. MOBIL Oil Corp.

January 12, 1977

NELSON BUNKER HUNT, W. HERBERT HUNT AND LAMAR HUNT, PLAINTIFFS-APPELLANTS,
v.
MOBIL OIL CORPORATION, TEXACO, INC., STANDARD OIL COMPANY OF CALIFORNIA, THE BRITISH PETROLEUM COMPANY, LTD., SHELL PETROLEUM COMPANY, LTD., EXXON CORPORATION, GULF OIL CORPORATION, OCCIDENTAL PETROLEUM CORPORATION, GRACE PETROLEUM CORP. AND GELSENBERG AG, DEFENDANTS-APPELLEES



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 Weinfeld, Judge, dismissing one count of a four count complaint. Affirmed.

Mulligan and Van Graafeiland, Circuit Judges, and Gagliardi, District Judge.*fn* Van Graafeiland, Circuit Judge, dissents.

Author: Mulligan

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 damages from the named defendants-appellees as the result of the nationalization 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.

I

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 than $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 is 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.

II

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.*fn1 In November 1961, low sulphur 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 governmental 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 occasioned similar demands by the Persian Gulf countries which were members of the Organization of Petroleum Exporting 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 government first moved against Hunt and Occidental making certain unilateral "non-negotiable" demands which had to be accepted prior to January 16, 1971 and which were at variance with existing agreements with those oil producers.

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 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.*fn2 The gravamen of this claim is that the seven majors combined and conspired in violation of the Sherman and Wilson Tariff Acts to preserve the competitive 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 defendants manipulated Hunt's dealings with Libya to the extent that Hunt was eventually nationalized, suffering substantial loss of profits as well as other unspecified 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 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.

IV

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 the doctrine in traditional terms, announcing that it "'precludes the courts of this country from inquiring into the validity of the public acts a recognized foreign sovereign power committed within its own territory.' Banco Nacional de Cuba v. Sabbatino [376 U.S. 398, 11 L. Ed. 2d 804, 84 S. Ct. 923] . . . and that it applies to 'acts done within their own states, in the exercise of governmental authority.' Underhill v. Hernandez [168 U.S. 250, 42 L. Ed. 456, 18 S. Ct. 83] . . . ." Id. at 1867. The majority opinion of Mr. Justice White in Dunhill underscored "public" and "governmental" 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 government seizure, was found to be an act of the sovereign committed in the course of a purely commercial operation.*fn3 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 argument 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 traditionally 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 96 S. Ct. at 1866.

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 "We 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."*fn4 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 concerning it, characterized the expropriation as "political reprisal against the United States Government and coercion against the economic interests of certain other U.S. nationals in Libya."*fn5 We conclude that ...


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