Reference no: EM131049096

Case 31.1

FACTS Spectrum Stores, Inc., and other U.S. gasoline retailers (the plaintiffs) filed a suit against Citgo Petroleum Corporation and other oil production companies in a federal district court. The plaintiffs alleged that the defendants had conspired to fix the prices of crude oil and refined petroleum products in the United States, primarily by limiting the production of crude oil. Citgo is owned by the national oil company of Venezuela, and most of the other defendants are owned entirely or in part by Venezuela or Saudi Arabia. Both nations are members of the Organization of Petroleum Exporting Countries (OPEC), which was formed by several oil-rich nations "to ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum." Spectrum sought damages, an injunction, and other relief. The court dismissed the suit, and Spectrum appealed.

ISSUE Does the act of state doctrine prevent a federal court from considering claims that companies owned by foreign governments had illegally conspired to fix oil prices in the United States? DECISION Yes. The U.S. Court of Appeals for the Fifth Circuit affirmed the lower court's dismissal. The act of state doctrine barred consideration of Spectrum's claims.

REASON The court reasoned that under the act of state doctrine, a U.S. court will not rule on the validity of a foreign government's acts within its own territory. It is the sovereign right of each nation to decide how to exploit its own resources. Granting relief to Spectrum would effectively have ordered foreign governments to dismantle their chosen means of exploiting the resources within their own territories. Such a decision would also have had the effect of "embarrassing" the diplomacy carried out by the executive and legislative branches of the U.S. government. In other words, a ruling in this case would have interfered with the political branches' policy of affecting the global supply of oil by engaging with the OPEC nations in diplomacy rather than litigation.

FOR CRITICAL ANALYSIS-Legal Consideration If the judicial branch does not have the authority to rule on matters of foreign policy, which branch of government does? Explain.