Clayco Petroleum Corp. v. Occidental Petroleum Corp.

• Decision Date: 02 August 1983
• Docket Number: No. 80-5657,80-5657
• Citation: 712 F.2d 404
• Parties: 1983-2 Trade Cases P 65,523 CLAYCO PETROLEUM CORPORATION and Bruce Clayman, Plaintiffs-Appellants, v. OCCIDENTAL PETROLEUM CORPORATION, Occidental of Umm Al Qaywayn, Inc., and Armand Hammer, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 404

712 F.2d 404

1983-2 Trade Cases P 65,523

CLAYCO PETROLEUM CORPORATION and Bruce Clayman, Plaintiffs-Appellants, v. OCCIDENTAL PETROLEUM CORPORATION, Occidental of Umm Al Qaywayn, Inc., and Armand Hammer, Defendants-Appellees.

No. 80-5657.

United States Court of Appeals Ninth Circuit.

Argued Dec. 8, 1981.

Submitted March 23, 1982.

Decided Aug. 2, 1983.

Will B. Sandler, Booth, Lipton & Lipton, New York City, for plaintiffs-appellants.

Ralph J. Shapira, Philip F. Westbrook, O'Melveny & Myers, Los Angeles, Cal., for defendants-appellees.

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

Before KENNEDY ^* and SCHROEDER, Circuit Judges, and THOMPSON, ^** District Judge.

PER CURIAM.

This appeal arises from an antitrust suit filed by Clayco Petroleum Corporation and Bruce Clayman, the founder and principal shareholder of Clayco against Occidental Petroleum Corporation, Occidental of Umm Al Qaywayn, Inc. and Armand Hammer (Occidental) charging Occidental with making secret payments to an official of Umm Al Qaywayn in order to obtain unlawfully an off-shore oil concession. The district court dismissed the action on the basis of the act of state doctrine. ¹ We affirm.

I. FACTS AND PROCEDURAL CONTEXT

Plaintiffs commenced this action alleging violations of section 1 of the Sherman Act, 15 U.S.C. § 1, section 2(c) of the Robinson-Patman Act, 15 U.S.C. § 13(c), sections 16720 and 17045 of the California Business and Professions Code, and the common law. The crux of the complaint is that Occidental conspired to make and made secret payments in England and Switzerland totalling $417,000 to Sheikh Sultan bin Ahmed Muallah (Sultan), Umm Al Qaywayn's Petroleum Minister and son of its ruler, Sheikh Ahmed al Mualla (Ahmed). The complaint further alleges that only through these unlawful and anti-competitive actions did defendants secure the valuable off-shore oil concession. More specifically, plaintiffs allege that in September 1969, Ahmed agreed that Clayco would receive the concession, but instead, on November 18, 1969, he awarded the concession to defendant Occidental of Umm Al Qaywayn, Inc., Occidental Petroleum's subsidiary.

Plaintiffs allege that the first information they obtained regarding why they lost the concession became available in December 1978. The December 11, 1978, edition of the Oakland Tribune contained a story which said that Occidental had distributed about $30 million under "questionable legal circumstances," and that Dr. Armand Hammer, Occidental's chief executive officer, had personally disbursed $217,000 to Sultan in a London hotel room in 1969. The article also reported that a second payment of $200,000 was made to Sultan in Switzerland. The article stated, "Hammer paid the initial $217,000 as part of a $1.7 million deal with the shiekdom ... for an oil and gas concession."

In 1977, the Securities and Exchange Commission (SEC) commenced an action against Occidental alleging violations of the Securities Exchange Act of 1934 and rules promulgated thereunder, based on illegal or questionable payments made by Occidental. Securities and Exchange Commission v. Occidental Petroleum Corp., No. 77-0751, (D.D.C. filed May 3, 1977). Occidental consented to the entry of a permanent injunction and agreed to conduct an internal investigation of the alleged illegal payments and to prepare for the SEC and Occidental's stockholders a special report describing such payments. Report of the Special Committee of the Board of Directors of Occidental Petroleum Corporation, Investigated Payments and Accounting Practices of Occidental Petroleum Corporation (April 17, 1978) (the Payments Report).

The Payments Report was filed and revealed various illegal payments. A Source Memorandum annexed to the Payments Report further recites that Occidental's $200,000 payment in Switzerland was of "uncertain legality" and was inaccurately described and documented on Occidental's books.

Plaintiffs allege that these $417,000 in payments plus "entertainment" expenses constituted bribes to induce Sultan and his father to award the concession to Occidental. Plaintiffs contend that Occidental, its subsidiary, and Dr. Hammer conspired to prevent competition and to deprive plaintiffs of the concession.

For the purpose of reviewing the district court's dismissal for failure to state a claim, we must assume that the facts alleged in the complaint are true. Benson v. Arizona State Board of Dental Examiners, 673 F.2d 272, 275 n. 7 (9th Cir.1982); Austad v. United States, 386 F.2d 147, 149 (9th Cir.1967). We recognize that dismissals for failure to state a claim are disfavored in antitrust actions. Hospital Building Co. v. Trustees of Rex Hospital, 425 U.S. 738, 746, 96 S.Ct. 1848, 1853, 48 L.Ed.2d 338 (1976). We assume, without deciding, that plaintiffs' allegations amount to antitrust violations. We must determine whether dismissal is nevertheless required because the act of state doctrine bars this action. See Timberlane Lumber Co. v. Bank of America, N.T. & S.A., 549 F.2d 597, 608 (9th Cir.1976).

The district court granted defendants' motion to dismiss, based on the act of state doctrine. The court stated that an exercise of sovereignty--the award of the offshore oil concession--was implicated in the case, and that adjudication would interfere with United States foreign policy. The court noted that plaintiffs' obligation to prove that they were damaged by defendants' conduct would necessitate review of the ethical validity of the sovereign's conduct. The court also refused to apply a commercial exception to the act of state doctrine.

II. ISSUES

The appellants raise numerous challenges to the district court's application of the act of state doctrine. In essence, appellants argue first that this case is outside the purview of the act of state doctrine; and second, that the foreign sovereign action involved fits within "corruption" or "commercial" exceptions to the doctrine.

III. DISCUSSION

The act of state doctrine was first enunciated in Underhill v. Hernandez, 168 U.S. 250, 252, 18 S.Ct. 83, 84, 42 L.Ed. 456 (1897): "Every sovereign state is bound to respect the independence of every other sovereign state, and the courts of one country will not sit in judgment on the acts of the government of another, done within its own territory." The doctrine is a function of our system of separation of powers and as such has " 'constitutional' underpinnings." Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 423, 84 S.Ct. 923, 938, 11 L.Ed.2d 804 (1964). It recognizes that judicial examination of the acts of foreign governments may hinder the executive and legislative branches' conduct of foreign policy. Id.; Timberlane, 549 F.2d at 605-06. Sabbatino prescribed a flexible approach to the doctrine; the critical element is the potential for interference with our foreign relations. "[T]he less important the implications of an issue are for our foreign relations, the weaker the justification for exclusivity in the political branches." 376 U.S. at 428, 84 S.Ct. at 940.

With this in mind, we address appellants' claim that the complained of actions in this case do not include a sovereign policy decision. We cannot agree. We acknowledge that without sovereign activity effectuating "public" rather than private interests, the act of state doctrine does not apply. International Association of Machinists and Aerospace Workers (IAM) v. OPEC, 649 F.2d 1354, 1360 (9th Cir.1981), cert. denied, 454 U.S. 1163, 102 S.Ct. 1036, 71 L.Ed.2d 319 (1982); Timberlane, 549 F.2d at 607-08. That test is met here. This case differs from those relied upon by appellants, in which sovereign activity merely formed the background to the dispute or in which the only governmental actions were the neutral application of the laws.

For example, in Mannington Mills, Inc. v. Congoleum Corp., 595 F.2d 1287 (3d Cir.1979), the court held that the granting of patents by a foreign sovereign did not constitute "a considered policy decision by a government to give effect to its political and public interests ...," 595 F.2d at 1294, and so was "not the type of sovereign activity that would be of substantial concern to the executive branch in its conduct of international affairs." Id. Similarly, in Timberlane, the only action by the Honduran government was to enforce existing laws in a private lawsuit, reflecting no sovereign decision to disfavor the losing party. Thus the defendants, whose alleged conspiracy encompassed initiating judicial action, could not raise an act of state defense. 549 F.2d at 608. See also Industrial Investment Development Corp. v. Mitsui & Co., 594 F.2d 48 (5th Cir.1979), cert. denied, 445 U.S. 903, 100 S.Ct. 1078, 63 L.Ed.2d 318 (1980) (background of Indonesian law requiring local partners for foreign lumber business does not entitle private party who allegedly frustrated joint venture to raise act of state defense).

In contrast, the act of state doctrine was held to bar antitrust claims in Occidental Petroleum Corp. v. Buttes Gas & Oil Co., 331 F.Supp. 92 (C.D.Cal.1971), aff'd, 461 F.2d 1261 (9th Cir.1972), cert. denied, 409 U.S. 950, 93 S.Ct. 272, 34 L.Ed.2d 221 (1972). ² Plaintiffs there alleged that the sovereign issued a fraudulent territorial decree to enable defendants, in the place of plaintiffs, to exploit oil and gas in the area covered by the decree. 331 F.Supp. at 101. Although Buttes involved a territorial decree, which is not present here, the underlying dispute in both cases concerns a sovereign decision authorizing exploitation of important national resources. Buttes is sufficiently analogous to call for act of state preclusion. Further, it is clear that judicial scrutiny of sovereign decisions allocating the benefits of oil development would embarrass the political branches of our government in the conduct of foreign policy. IAM v. OPEC, 649 F.2d at 1360-61; Hunt v. Mobil Oil Corp., 550 F.2d 68, 78 (...