Two dozen individual consumers filed a massive lawsuit last Monday in federal court in San Francisco alleging an antitrust conspiracy two years ago by major oil companies to cut global oil production in order to raise the price of gas.
The defendants include Exxon Mobile Corporation, the world’s largest oil company, Chevron Corporation, headquartered in San Ramon, Phillips 66 Company, Occidental Petroleum and a number of junior oil companies.
The case has its roots in March 2020, when an agreement between members of the Organization of the Petroleum Exporting Countries (OPEC) and Russia, the world’s third largest oil producer, was due to expire. The agreement limited the amount of oil each country could produce.
The plaintiffs allege that in meetings in Vienna on March 6, Russia refused to renew the production deal because US oil producers, not parties to the deal, were ramping up production and undercutting Russian prices.
Saudi Arabia is the second largest oil producing country in the world after the United States. Russia’s position was opposed to Saudi interests. To retaliate against Russia, Saudi Arabia publicly announced that it would increase production and reduce prices.
This led to what the complaint describes as a “global price war” and, as a result, “oil and gasoline prices began to fall precipitously.”
At first, then-President Donald J. Trump trumpeted falling prices, even predicting that a gallon of gasoline would drop 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 gas prices were a boon to consumers, the world’s biggest oil companies weren’t thrilled. The complaint alleges that the American Petroleum Institute (API), a trade association of American oil producers, began speaking publicly about the need for American oil producers to “balance the oil market” in order to stabilize domestic prices. petrol.
The API reportedly arranged a meeting on April 3, 2020 with then-President Trump. In attendance were the CEOs of API, Exxon, Chevron and Phillips. David Bernhardt, Secretary of the United States Department of the Interior, was also present.
The complaint says that after speaking to API and the oil companies, President Trump’s attitude toward falling gas prices “changed dramatically” and, at the request of the defendants, he started pushing to end the price war.
The 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 have reportedly said that to end the price war, the United States, Canada and Mexico should agree to cut production.
Shortly after, the US Secretary of Energy announced that the Strategic Petroleum Reserve (the US government’s petroleum storage system) had agreed to store 21.3 million barrels of “surplus oil” from US producers, thus essentially removing this supply from the market. Trump reportedly tweeted that there would also be a cut in US production and the Energy Secretary later estimated that US production would fall by 2-3 million barrels per day.
On April 9, 2020, OPEC and Russia announced an end to the price war and an agreement to cut production. The complaint quotes API’s CEO as saying “strong US diplomacy” has helped stabilize global oil markets.
Plaintiffs see things differently. They say the defendants “used the former president of the United States as a facilitator to get Saudi Arabia and Russia to agree to cut oil production, along with the American defendants.”
The plaintiffs describe the result in dramatic terms: “American oil companies… agreed to the demands of Saudi Arabia and Russia. The cartel now included the Americans. It was actually OPEC++ (OPEC plus Russia plus America).”
The plaintiffs say the effect of the agreement was to dramatically raise the price of a barrel of oil from less than $20.00 to more than $100.00 a barrel. They also say that the stocks “ignited[thefireofinflationthroughoutthecountry”[lefeudel’inflationdanstoutlepays»[dthefireofinflationthroughoutthecountry”
The complaint alleges that the defendants violated antitrust laws by conspiring to fix oil prices and eliminate or suppress competition. In addition to damages and injunctive relief, plaintiffs are asking the court to split Exxon, Chevron and Phillips into smaller companies so they don’t have the power to control prices or engage in other conduct. anti-competitive.
Private companies are generally prohibited from entering into agreements with each other to fix prices or eliminate competition. When this happens, antitrust laws allow affected consumers to sue for damages they have suffered. Under certain circumstances, they are allowed to recover three times their actual damages.
No reply argument in the case has yet been filed, but the defendants are expected to assert that they are shielded from antitrust liability under the Noerr-Pennington Doctrine, a common law rule that when conduct disputed joint involves asking the government to pass a law or directive (or comply with such law or directive once adopted), the actors cannot be held responsible.
The reasoning is that the First Amendment allows individuals and businesses to ask the government to enact a law or create a mandatory directive, and if the government decides to pass the law or the directive, the businesses cannot be held liable for to follow her.
The Free Speech Center, a nonpartisan public policy center devoted to First Amendment issues, explains that “even if a would-be monopolist who attempted to establish a price-fixing cartel would have been subject to antitrust liability, the same actor who attempted to achieve the same result by pushing for price-fixing legislation would not have been liable.”
Plaintiffs are represented by Joseph M. Alioto of Alioto Law Firm in San Francisco.
Alioto thinks Noerr Pennington has little applicability because the defendants were not trying to pass a law or enforce an existing law. They sought government assistance to promote purely private business interests.
Stanford law professor Douglas Melamed, former chairman of WilmerHale’s antitrust group, has written extensively on antitrust issues. After reviewing the complaint, Melamed says the plaintiffs’ theory, while a “long shot”, is “not crazy”.
Taking what the complaint says on its face, Melamed expects the plaintiffs to argue that while the defendants’ pleas for the Trump administration to take action to limit production are shielded by Noerr-Pennington, it will not put no end to the investigation. The question then is whether the government required or directed the defendants to reduce production. If there were no such mandatory law or guideline and the defendants as a group agreed to cut production, it could be an antitrust conspiracy.
Melamed suggested that the defendants are likely to argue that there was no agreement between them to cut production, but rather that each company made its own decision. If this turns out to be the case, the plaintiffs will have to prove an agreement by looking at all of the circumstances surrounding the defendants’ conduct. “That’s what it’s going to come down to, I guess,” predicted Melamed.
Alioto says that when he read about what was happening in 2020, “I actually wrote to the CEOs and the president and warned them and told them they couldn’t do this…it’s a clear violation of the law, because if you have an agreement on production that immediately affects the price, that’s what it’s all about. But they went ahead and did it anyway .