International Ass'n of Machinists and Aerospace Workers (IAM) v. Organization of Petroleum Exporting Countries (OPEC)

Decision Date24 August 1981
Docket NumberNo. 79-3673,79-3673
Citation649 F.2d 1354
Parties1981-1 Trade Cases 64,143 INTERNATIONAL ASSOCIATION OF MACHINISTS AND AEROSPACE WORKERS, (IAM), an association, Plaintiff-Appellant, v. The ORGANIZATION OF the PETROLEUM EXPORTING COUNTRIES (OPEC); the Democratic and Popular Republic of Algeria (Algeria); the Republic of Ecuador (Ecuador); the Gabonese Republic (Gabon); Republic of Indonesia (Indonesia); Imperial Government of Iran (Iran); Republic of Iraq (Iraq); State of Kuwait (Kuwait); Libyan Arab Republic (Libya); Federal Republic of Nigeria (Nigeria); State of Qatar (Qatar); Kingdom of Saudi Arabia (Saudi Arabia); State of United Arab Emirates, (United Arab Emirates); and the Republic of Venezuela (Venezuela), Defendants-Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

James H. Davis, Los Angeles, Cal., for plaintiff-appellant.

Antonin Scalia, Chicago, Ill., Khalid Abdullah Tariq Al Mansour, San Francisco, Cal., for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Richard I. Fine, amicus curiae per se.

Before CHOY and NELSON, Circuit Judges, and SPEARS, * District Judge.

CHOY, Circuit Judge:

I. Introduction

The members of the International Association of Machinists and Aerospace Workers (IAM) were disturbed by the high price of oil and petroleum-derived products in the United States. They believed the actions of the Organization of the Petroleum Exporting Countries, popularly known as OPEC, were the cause of this burden on the American public. Accordingly, IAM sued OPEC and its member nations in December of 1978, alleging that their price-setting activities violated United States anti-trust laws. IAM sought injunctive relief and damages. The district court entered a final judgment in favor of the defendants, holding that it lacked jurisdiction and that IAM had no valid anti-trust claim. 1 We affirm the judgment of the district court on the alternate ground that, under the act of state doctrine, exercise of federal court jurisdiction in this case would be improper.

II. Factual Background

IAM is a non-profit labor association. Its members work in petroleum-using industries, and like most Americans, they are consumers of gasoline and other petroleum-derived products. They object to the high and rising cost of such products.

OPEC is an organization of the petroleum-producing and exporting nations of what is sometimes referred to as the Third World. The OPEC nations have organized to obtain the greatest possible economic returns for a special resource which they hope will remove them from the ranks of the underdeveloped and the poverty-plagued. OPEC was formed in 1960 by the defendants Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. The other defendants, Algeria, Ecuador, Gabon, Indonesia, Libya, Nigeria, Qatar, and the United Arab Emirates, joined thereafter.

The OPEC nations produce and export oil either through government-owned companies or through government participation in private companies. Prior to the formation of OPEC, these diverse and sometimes antagonistic countries were plagued with fluctuating oil prices. Without coordination among them, oil was often in oversupply on the world market resulting in low prices. The OPEC nations realized that self-interest dictated that they "formulate a system to ensure the stabilisation (sic) of prices by, among other means, the regulation of production, with due regard to the interests of the producing and of the consuming nations, and to the necessity of securing a steady income to the producing countries, an efficient economic and regular supply of this source of energy to consuming nations " OPEC Resolution of the First Conference, Resolution 1.1(3), September 1960.

OPEC achieves its goals by a system of production limits and royalties which its members unanimously adopt. There is no enforcement arm of OPEC. The force behind OPEC decrees is the collective self-interest of the 13 nations.

After formation of OPEC, it is alleged, the price of crude oil increased tenfold and more. Whether or not a causal relation exists, there is no doubt that the price of oil has risen dramatically in recent years, and that this has become of international concern.

Supporters 2 of OPEC argue that its actions result in fair world prices for oil, and allow OPEC members to achieve a measure of economic and political independence. Without OPEC, they say, in the rush to the marketplace these nations would rapidly deplete their only valuable resource for ridiculously low prices.

Detractors accuse OPEC of price-fixing and worse in its deliberate manipulation of the world market and withholding of a resource which many world citizens have not learned to do without. 3

In December 1978, IAM brought suit against OPEC and its member nations. IAM's complaint alleged price fixing in violation of the Sherman Act, 15 U.S.C. § 1, and requested treble damages and injunctive relief under the Clayton Act, 15 U.S.C. §§ 15, 16. IAM claimed a deliberate targeting and victimization of the United States market, directly resulting in higher prices for Americans.

The defendants refused to recognize the jurisdiction of the district court, and they did not appear in the proceedings below. Their cause was argued by various amici, with additional information provided by court-appointed experts. The district court ordered a full hearing, noting that the Foreign Sovereign Immunities Act (FSIA) prohibits the entry of a default judgment against a foreign sovereignty "unless the claimant establishes his claim or right to relief by evidence satisfactory to the court." 28 U.S.C. § 1608(e).

The district court initially dismissed OPEC, the organization, since it had not been properly served. It also determined at an early stage in the proceedings that monetary damages were foreclosed by the indirect-purchaser rule of Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977). Thus the testimony at trial was directed to what remained of the complaint a suit for injunctive relief against the 13 OPEC nations individually.

The testimony was extensive. Experts in economics and international relations were examined and cross-examined. Exhibits, including masses of statistical and technical data, were received. A full day of legal argument concluded the proceedings below.

The record reflects an outstanding effort on the part of the district judge to amass the information necessary to understand the international politics and economy of oil and to marshal the legal arguments for and against IAM's requested relief.

At the close of the trial, the district judge granted judgment in favor of the defendants. The court held, first, that it lacked jurisdiction over the defendant nations under the Foreign Sovereign Immunities Act. 4 The court further held that even if jurisdiction existed in the first instance, the anti-trust action failed because foreign sovereigns are not persons within the meaning of the Sherman Act and because there was no proximate causal connection between OPEC activities and domestic price increases. The court also decided that default judgment could not properly lie against the non-appearing defendants, and that the defendants had not waived their immunity.

III. Discussion

A. Sovereign Immunity

In the international sphere each state 5 is viewed as an independent sovereign, equal in sovereignty to all other states. It is said that an equal holds no power of sovereignty over an equal. Thus the doctrine of sovereign immunity: the courts of one state generally have no jurisdiction to entertain suits against another state. This rule of international law developed by custom among nations. Also by custom, an exception developed for the commercial activities of a state. The former concept of absolute sovereign immunity gave way to a restrictive view. Under the restrictive theory of sovereign immunity, immunity did not exist for commercial activities since they were seen as non-sovereign.

In 1976, Congress enacted the FSIA and declared that the federal courts will apply an objective nature-of-the-act test 6 in determining whether activity is commercial and thus not immune: "The commercial character of an activity shall be determined by reference to the nature of the course of conduct or particular transaction or act, rather than by reference to its purpose." 28 U.S.C. § 1603(d).

A critical step in characterizing the nature of a given activity is defining exactly what that activity is. The immunity question may be determined by how broadly or narrowly that activity is defined. In this case, IAM insists on a very narrow focus on the specific activity of "price fixing." IAM argues that the FSIA does not give immunity to this activity. Under the FSIA a commercial activity is one which an individual might "customarily carr(y) on for profit." H.R.Rep.No.94-1487, 94th Cong., 2d Sess. 16, reprinted in (1976) U.S.Code Cong. & Ad.News 6604, 6615. OPEC's activity characterized by IAM as making agreements to fix prices, is one which is presumably done for profit; it is thus commercial and immunity does not apply.

The court below defined OPEC's activity in a different way: "(I)t is clear that the nature of the activity engaged in by each of these OPEC member countries is the establishment by a sovereign state of the terms and conditions for the removal of a prime natural resource to wit, crude oil from its territory." 477 F.Supp. at 567. The trial judge reasoned that, according to international law, the development and control of natural resources is a prime governmental function. Id. at 567-78. The opinion cites several resolutions of the United Nations' General Assembly, which the United States supported, and the United States Constitution, Art. 4, § 3, cl. 2, which treat the control of natural resources as governmental acts.

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