MONSTER ANTITRUST SUIT CLAIMS BIG OIL CONSPIRED WITH RUSSIA, OPEC TO LIMIT PRODUCTION
By Joe Dworetzky
Bay City News Foundation
Two dozen individual consumers filed a massive lawsuit Monday in federal court in San Francisco alleging an antitrust conspiracy two years ago by big oil companies to curtail worldwide oil production in order to boost the price of gas. The defendants include Exxon Mobile Corporation, the world’s biggest oil company, Chevron Corporation, Phillips 66 Company, Occidental Petroleum, and a number of smaller oil companies.
View of Pt. Richmond and Chevron Refinery, Richmond CA, from Nicholl Knob in 2016
The case has its roots in March 2020, when an agreement among members of the Organization of Petroleum-Exporting Countries (OPEC) and Russia, the world’s number 3 oil producer, was set to expire. The agreement limited the amount of oil that each of the countries could produce.
Plaintiffs allege that in meetings in Vienna on March 6, Russia declined to renew the production agreement because U.S. oil producers, not a party to the agreement, were expanding production and undercutting Russian prices.
Saudi Arabia is the world’s second largest oil-producing country after the United States. Russia’s position was adverse to Saudi interests. To retaliate against Russia, Saudi Arabia publicly announced that it would boost its production and cut prices.
This led to what the complaint characterizes as “a worldwide price war” and as a result, “prices for oil and gasoline began to drop precipitously.”
At first, then-President Donald J. Trump trumpeted the falling prices, even predicting that a gallon of gas would fall to 99 cents. He described the results as “like giving a massive tax cut to the people of our country.” Trump reportedly said, “The free market is a wonderful thing.”
But if the gas prices were a boon to consumers, the world’s biggest oil companies were not thrilled. The complaint alleges that the American Petroleum Institute (API), a trade association for American oil producers, began to talk publicly about the need for U.S. oil producers to “balance the oil market” in order to stabilize domestic oil prices.
Trump, Saudi King Salman bin Abdulaziz, and Egyptian President Abdel Fattah el-Sisi holding a creepy glowing orb in a darkened room in Saudi Arabia.
API allegedly arranged a meeting on April 3, 2020 with then President Trump. In attendance were the CEOs of API, Exxon, Chevron and Phillips. David Bernhardt, the United States Secretary Department of Interior, was also present. The complaint says that after talking to API and the oil companies, President Trump’s attitude toward the falling gas prices “changed dramatically,” and at the request of the defendants he began to lobby to stop the price war.
Plaintiffs allege that Trump spoke directly with Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman Al Saud and urged them to make peace. Saudi Arabia and Russia allegedly said that in order to call off the price war, the U.S., Canada and Mexico would have to agree cut their production.
Shortly thereafter, the U.S. Secretary of Energy announced that the Strategic Petroleum Reserve (the U.S. government oil storage system) had agreed to store 21.3 million barrels of “excess oil” from U.S. producers, thus essentially taking that supply off the market. Trump allegedly tweeted that there would also be a reduction of U.S. production and the Secretary of Energy later estimated that U.S. production would fall by 2 to 3 million barrels a day.
On April 9, 2020, OPEC and Russia announced an end to the price war and an agreement to cut production. The complaint quotes the CEO of API saying that “strong U.S. diplomacy” had helped to stabilize world oil markets. The plaintiffs see it differently. They say that the defendants “used the former President of the United States as a facilitator to obtain agreement from Saudi Arabia and Russia to cut oil production, along with the American Defendants.”
Plaintiffs describe the result in dramatic terms, “The American oil companies… agreed to the demands of Saudi Arabia and Russia. The cartel now included the Americans. It was, in effect and fact, OPEC++ (OPEC plus Russia plus America).”
Plaintiffs say that the effect of the agreement was to dramatically increase the price of a barrel of oil from less than $20.00 to over $100.00 per barrel. They also say that the actions “ignite[d] the fire of inflation throughout the country.”
Plaintiffs say that the effect of the agreement was to dramatically increase the price of a barrel of oil from less than $20.00 to over $100.00 per barrel. They also say that the actions “ignite[d] the fire of inflation throughout the country.”
The complaint asserts that the defendants violated the antitrust laws by conspiring to fix oil prices and eliminate or suppress competition. In addition to damages and injunctive relief, plaintiffs ask the court to split Exxon, Chevron, and Phillips into smaller companies so that they do not have the power to control prices or engage in other anti-competitive behavior.
Private companies are generally forbidden to make agreements among themselves to fix prices or eliminate competition. When that happens, the antitrust laws allow affected consumers to sue for the damages they have incurred. In some circumstances, they are allowed to recover three times their actual damages.
No answering pleading in the case has yet been filed, but the defendants are expected to assert that they are immune from antitrust liability under the Noerr-Pennington doctrine, a judge-made rule that where the challenged joint conduct involves petitioning the government to adopt a law or directive (or complying with that law or directive once adopted), the actors can’t be held liable.
The rationale is that the First Amendment allows individuals and companies to petition the government to enact a law or create a mandatory directive, and if the government decides to adopt the law or directive, the companies can’t be liable for following it.
The Free Speech Center, a non-partisan public policy center devoted to First Amendment issues, explains, “even though a would-be monopolist who attempted to establish a price-fixing cartel would have been subject to anti-trust liability, the same actor who attempted to reach the same result by lobbying for legislation to fix prices would not have been subject to liability.”
Plaintiffs are represented by Joseph M. Alioto of the Alioto Law Firm in San Francisco.
Alioto thinks that Noerr Pennington has little applicability because the defendants weren’t trying to get a law passed or to enforce an existing law. They were looking for government help to further purely private commercial interests.
Stanford Law Professor Douglas Melamed, formerly the chair of WilmerHale’s antitrust group, has written extensively on antitrust issues. After reviewing the complaint, Melamed says that the plaintiffs’ theory, though a “long shot,” is “not crazy.”
Taking what the complaint says on its face, Melamed expects plaintiffs to argue that even if the defendants’ entreaties to the Trump administration to take action to limit production is protected by Noerr-Pennington, that won’t end the inquiry. The question then is whether the government required or mandated the defendants to cut production. If there wasn’t such a law or mandatory directive and the defendants, as a group, agreed to cut production, that could be an antitrust conspiracy.
Melamed suggested that the defendants will likely argue that there was no agreement among themselves to cut production, rather each company made its own decision. If that turns out to be the case, plaintiffs will need to prove an agreement by looking to all the circumstances surrounding the defendants’ conduct. “That’s what the case is going to come down to, I suppose,” Melamed predicted.
Alioto says that when he read about was happening in 2020, “I actually wrote to CEOs and the chairman and I warned them and told them that they cannot do that… it’s a plain violation of the law, because if you have an agreement on production that just immediately affects price, that’s what supply and demand is all about. But they went ahead and did it anyway.”
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